EXHIBIT 2
WINCO PETROLEUM CORPORATION
3118 CUMMINGS
GARDEN CITY, KANSAS 67846
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 1, 2000
TO THE SHAREHOLDERS OF WINCO PETROLEUM CORPORATION:
NOTICE HEREBY IS GIVEN that a special meeting of shareholders of Winco
Petroleum Corporation ("Winco") will be held at 10:00 a.m., local time, on
December 1, 2000, at 3118 Cummings, Garden City, Kansas 67846, for the
following purposes:
* To grant the board of directors the authority to effect a reverse
stock split of one (1) for forty (40), whereby each forty (40)
shares of currently outstanding no par value common stock ("Old
Winco Shares") of Winco would be combined into one (1) share of
new common stock ("New Winco Shares");
* To consider and vote upon a proposal to adopt the merger
agreement ("Merger Agreement"), among Winco, Winco Merger
Corporation ("WMC"), Winco Spin-off Corporation ("WSC") and
Business Products, Inc. doing business as Rush Creek Solutions,
Inc. ("RCS"), pursuant to which Winco will transfer all of the
assets, liabilities and other obligations of Winco to WSC in
consideration for shares of common stock of WSC ("WSC shares"),
which shall be distributed to the Winco shareholders, and
thereafter RCS will be merged into WMC.
* To transact such other business as properly may come before the
meeting or any adjournment thereof.
Winco's board of directors has unanimously approved the proposals and
recommends that you vote "IN FAVOR OF" these proposals. Winco is not
seeking a separate vote on the asset spin-off. Rather, your vote on the
proposal to adopt the Merger Agreement will also be your vote on the
proposed spin-off of Winco's existing business to a newly-formed subsidiary
and the subsequent distribution of WSC shares to the Winco shareholders.
Winco has described these proposals in more detail in the proxy statement,
which you should read before voting. A copy of the Merger Agreement is
attached as Annex A.
The close of business on November 1, 2000 has been fixed by Winco's
board of directors as the record date for the determination of shareholders
entitled to notice of and to vote at the Winco special meeting or any
adjournment or postponement. Only holders of record of shares of common
stock of Winco ("Winco shares") at the close of business on the record
date may vote at the Winco special meeting. A complete list of the
shareholders entitled to vote at the special meeting will be available for
examination by any holder of Winco shares at Winco's executive offices in
Garden City, Kansas. A majority of the holders of outstanding Winco shares
must be represented at the meeting to constitute a quorum. Therefore, all
shareholders are urged either to attend the meeting or to be represented by
proxy. The affirmative vote of a majority of the holders of outstanding
Winco shares is required to approve the reverse stock split and adopt the
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Merger Agreement. If a quorum is not present at the meeting, a vote for
adjournment will be taken among the shareholders present or represented by
proxy. If a majority of shareholders present or represented by proxy vote
for adjournment, it is Winco's intention to adjourn the meeting until a
later date and to vote proxies received at such adjourned meeting(s).
All Winco shareholders are cordially invited to attend the special
meeting in person. However, to ensure your representation at the special
meeting, you are urged to vote your shares by completing, signing and
returning the enclosed proxy card as promptly as possible in the enclosed
envelope. You may revoke your proxy in the manner described in the proxy
statement at any time before it is voted at the special meeting. Executed
proxy cards with no instructions indicated thereon will be voted "IN FAVOR
OF" the reverse stock split and adoption of the Merger Agreement.
BY ORDER OF THE
BOARD OF DIRECTORS.
DANIEL L. DALKE
SECRETARY
GARDEN CITY, KANSAS
NOVEMBER 1, 2000
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PROXY STATEMENT
WINCO PETROLEUM CORPORATION
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 1, 2000
YOUR VOTE IS IMPORTANT
The boards of directors of Winco Petroleum Corporation ("Winco") and
Business Products, Inc., doing business as Rush Creek Solutions, Inc.
("RCS"), have unanimously approved a merger in which RCS will merge into
Winco Merger Corporation ("WMC"), a wholly-owned subsidiary of Winco, with
WMC, as the surviving corporation, carrying on the technology services
business previously carried on by RCS. The oil and gas assets of Winco
will be transferred to Winco Spin-off Corporation ("WSC"), a newly-formed
subsidiary of Winco in consideration for shares of common stock of WSC
which shall be distributed to the Winco shareholders. The management of
Winco believes that Winco will benefit from RCS's technology and financial
strength. Mike St. John, the current president of RCS, will be named
president and CEO of Winco following the merger. Following the merger,
Winco will no longer be engaged in the oil and gas industry.
Prior to the merger, Winco shareholders will be asked to approve an
amendment to Winco's Articles of Incorporation to provide for a reverse
stock split, whereby current holders of shares of common stock of Winco
("Winco shares") will receive one (1) new share of common stock of Winco
("New Winco Shares") for every forty (40) shares of common stock of Winco
outstanding immediately prior to the reverse stock split ("Old Winco
Shares"). If the merger is not completed for any reason whatsoever, the
reverse stock split will not become effective, even if the shareholders
have approved the action.
In the merger, the shareholders of RCS will receive 12,688,719 New
Winco shares. The merger will not change the aggregate number of New Winco
Shares held by Winco shareholders before the merger, taking into account
the reverse stock split. However, the Winco shareholders' ownership
percentage of the total shares outstanding will decrease as a result of the
merger. Winco shareholders' will own 1,028,815 of the 13,717,534 New Winco
shares outstanding after the reverse stock split and the merger.
Therefore, the percentage of Winco held by pre-merger Winco shareholders
following the merger will be significantly diluted, with the result that
all pre-merger Winco shareholders will only own an aggregate of
approximately 7.5% of the then outstanding New Winco shares after the
merger. The New Winco Shares following the merger will represent an
ownership interest in a technology services business conducting the
business of RCS. As described in this Proxy Statement, the oil and gas
business formerly conducted by Winco will be transferred to WSC pursuant to
the merger. WSC shares will be distributed to pre-merger Winco
shareholders on a one-for-one basis and as set forth in this Proxy
Statement. Only current (record date) Winco shareholders will participate
in distribution of WSC shares.
Shareholders of Winco are being asked at Winco's special meeting of
shareholders:
* To grant the board of directors the authority to effect a reverse
stock split of one (1) for forty (40), whereby forty (40) Old
Winco Shares would be combined into one (1) New Winco Share;
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* To consider and vote upon a proposal to adopt the merger
agreement ("Merger Agreement"), among Winco, WMC, WSC and RCS,
pursuant to which Winco will transfer all of the assets,
liabilities and other obligations of Winco to WSC in
consideration of WSC shares, and WSC shares will be distributed
to the Winco shareholders, and thereafter RCS will be merged into
WMC; and
* To transact such other business as may properly come before the
meeting or any adjournment thereof.
The board of directors of Winco has determined that the reverse stock
split and the Merger Agreement are advisable and in the best interest of
Winco shareholders and recommends that the shareholders vote to approve the
above corporation actions. The board is not seeking a separate vote on the
spin-off of Winco's existing business to WSC, or the subsequent
distribution of WSC shares to Winco's post-split pre-merger shareholders.
Rather, a vote on the proposal to adopt the Merger Agreement will also be
a vote to approve the proposed asset spin-off and the distribution of WSC
shares.
YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the Winco
special meeting, please take the time to vote by completing and mailing the
enclosed proxy card to Winco.
The Winco special meeting will be held at 3118 Cummings, Garden City,
Kansas 67846 at 10:00 a.m., C.S.T., on December 1, 2000.
Winco shares trade sporadically and quotes for Winco shares are
occasionally reported by the National Quotation Bureau on its "pink sheets"
under the symbol "WNCO." The WSC shares will not be "restricted" shares
under Rule 144 when distributed to the Winco shareholders. However, the
spin-off transaction will not create an active trading market for such
shares in the foreseeable future, if ever. Accordingly, Winco shareholders
will not be able to sell or transfer their WSC shares except in private
transactions or in the event a public market develops. The officers and
directors and affiliates of WSC will be subject to Rule 144 which provides
that they must hold their WSC shares for at least one year subsequent to
the distribution of WSC shares, before they may sell such shares publicly
without registration under the Securities Act of 1933 and compliance with
the volume and manner of sale provisions of Rule 144.
While WSC management will file a Form 10-SB in conjunction with the
asset spin-off, management has no intention of creating any public market
for the WSC shares. Management will not attempt to list the WSC shares on
the National Quotation Bureau "pink sheets," or the bulletin board or on
any other quotation service or exchange. The WSC shares will be
distributed to the Winco shareholders upon the effective date of WSC's Form
10-SB Registration Statement registering WSC shares under the Securities
Exchange Act of 1934.
The proxy statement provides you with detailed information about the
proposed reverse stock split and the Merger Agreement and its related
transactions. In addition, you may obtain information about Winco from
documents that Winco has filed with the Securities and Exchange Commission.
We encourage you to read the proxy statement carefully.
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FOR A DESCRIPTION OF CERTAIN SIGNIFICANT CONSIDERATIONS IN CONNECTION WITH
THE MERGER AND RELATED MATTERS DESCRIBED IN THE PROXY STATEMENT, SEE "RISK
FACTORS" BEGINNING ON PAGE 20.
This Proxy Statement is dated November 1, 2000, and is first being
mailed to Winco shareholders on or about November 1, 2000.
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TABLE OF CONTENTS
Questions And Answers About The Reverse Stock Split And The Merger . . .8
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . 12
The Companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Authorization To Effect The Reverse Stock Split. . . . . . . . . . . . 13
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Winco Spin-Off Corporation . . . . . . . . . . . . . . . . . . . . . . 14
Ownership Of Winco Following The Merger. . . . . . . . . . . . . . . . 14
The Board And Management Of Winco Following The Merger . . . . . . . . 15
Vote Required. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
No Dissenters' Rights. . . . . . . . . . . . . . . . . . . . . . . . . 16
Recommendations To Shareholders. . . . . . . . . . . . . . . . . . . . 16
No Opinion Of Financial Advisor. . . . . . . . . . . . . . . . . . . . 16
Risks Associated With The Merger . . . . . . . . . . . . . . . . . . . 17
Conditions To The Merger . . . . . . . . . . . . . . . . . . . . . . . 17
Interest Of Executive Officers, Directors And Affiliates Of
Winco In The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . 17
Termination Of The Merger Agreement. . . . . . . . . . . . . . . . . . 18
No Solicitation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Accounting Treatment of Merger . . . . . . . . . . . . . . . . . . . . 18
Market Price And Dividend Information. . . . . . . . . . . . . . . . . 18
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Risks Relating To The Merger . . . . . . . . . . . . . . . . . . . . . 20
Risks Relating To RCS's Business . . . . . . . . . . . . . . . . . . . 25
Risks Relating To WSC's Business . . . . . . . . . . . . . . . . . . . 27
Market Price Information . . . . . . . . . . . . . . . . . . . . . . . 33
Comparative Per Share Data . . . . . . . . . . . . . . . . . . . . . . 34
The Special Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . 35
Proposal One - The Reverse Stock Split . . . . . . . . . . . . . . . . 38
Proposal Two - The Merger. . . . . . . . . . . . . . . . . . . . . . . 42
The Winco Spin-Off And Distribution. . . . . . . . . . . . . . . . . . 44
The Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 48
Unaudited Pro Forma Consolidated Financial Statements of
Winco and RCS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Business Of Winco and WSC. . . . . . . . . . . . . . . . . . . . . . . 57
Winco Management's Discussion And Analysis Of Financial
Condition And Results Of Operations. . . . . . . . . . . . . . . . . . 64
Security Ownership Of Certain Beneficial Owners And Management Of
Winco And WSC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Business Of RCS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
RCS Management's Discussion And Analysis Of Financial Condition
And Results Of Operations. . . . . . . . . . . . . . . . . . . . . . . 74
Security Ownership of RCS. . . . . . . . . . . . . . . . . . . . . . . 78
Management of Winco Following the Merger . . . . . . . . . . . . . . . 79
Management of WSC Following the Merger . . . . . . . . . . . . . . . . 81
Description Of Winco Capital Stock . . . . . . . . . . . . . . . . . . 83
Independent Accountants. . . . . . . . . . . . . . . . . . . . . . . . 84
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Shareholder Proposals. . . . . . . . . . . . . . . . . . . . . . . . . 84
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Where You Can Find More Information. . . . . . . . . . . . . . . . . . 84
Incorporation of Information by Reference. . . . . . . . . . . . . . . 85
Index To Financial Statements. . . . . . . . . . . . . . . . . . . . . 86
Appendix A - Merger Agreement
Appendix B - Form of Indemnity Agreement
Appendix C - Form of Agreement and Plan of Reorganization (Winco Spin-off)
Appendix D - Consent of Allen, Gibbs & Houlik, L.C.
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QUESTIONS AND ANSWERS ABOUT THE REVERSE STOCK SPLIT
AND THE MERGER
Q: WHY IS WINCO PROPOSING THIS MERGER?
A: Winco is proposing the merger with RCS because Winco believes the
transaction will allow it to become a viable part of the information
technology industry. Management of Winco believes that RCS is much
stronger financially than Winco, more competitive, and capable of
establishing a public market in its securities at some point in the future.
Also, management of Winco believes that RCS has greater earning power and
growth potential than Winco currently has on its own. The merger will
result in the business of RCS becoming the principal business of Winco and
the former oil and gas business of Winco being transferred to the newly
created WSC, with the WSC shares being distributed to the current (pre-merger)
Winco shareholders.
Q: WHY IS WINCO PROPOSING THE SPIN-OFF OF ALL OF THE ASSETS, LIABILITIES
AND OBLIGATIONS OF WINCO TO A NEWLY FORMED SUBSIDIARY, WINCO SPIN-OFF
CORPORATION?
A: Winco management believes that by forming a separate corporate entity
to hold the assets and liabilities of Winco, Winco can allow its
shareholders to retain ownership in the oil and gas assets of Winco and, at
the same time, become part of a company with greater financial strength and
a new business focus. Our goal is to establish post-merger Winco as a
viable public company. Also, by moving oil and gas operations to a
subsidiary, Winco is taking measures to limit the possibility that
liabilities from Winco's oil and gas operations may affect RCS's ongoing
operations in the future.
Q: WHY IS WINCO PROPOSING THE REVERSE STOCK SPLIT?
A: Winco is proposing a reverse stock split to decrease the number of
shares of outstanding common stock. We believe this action will enhance
the acceptability of Winco's common stock by the financial community and
investing public. A primary goal of the merger with RCS is to establish
Winco as a viable public company and, accordingly, both companies are in
favor of the reduction of the outstanding shares as a condition of the merger.
Q: WHAT WILL I RECEIVE IF THE PROPOSALS ARE APPROVED?
A. Pursuant to the reverse stock split, you will receive one New Winco
Share for every forty Old Winco Shares you owned prior to the reverse stock
split. Pursuant to the asset spin-off and distribution, you will receive
one WSC share for each Winco share that you own after the reverse stock
split. Winco and WSC will not issue fractional shares of its common stock.
Instead, any fractional shares will be rounded up to the next whole share.
Pursuant to and after the merger, Winco shareholders will own an aggregate
of approximately 7.5% of the then outstanding New Winco Shares. These New
Winco Shares will represent an ownership interest in the information
technology business of RCS. The WSC shares held by the Winco shareholders
will represent on ownership interest in the oil and gas operations formerly
conducted by Winco.
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Q: WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
A: We are working toward completing the merger as quickly as possible. We
expect the merger to occur within two business days after all conditions to
the merger, including obtaining approval of Winco shareholders, have been
satisfied. We currently expect to complete the merger before December 31, 2000.
Q: WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE REVERSE STOCK
SPLIT, THE SPIN-OFF AND THE MERGER?
A. The reverse stock split is intended to qualify as a tax-free
reorganization under Section 368(a)(1)(E) of the Internal Revenue Code
("Code"). The spin-off of Winco's existing business to WSC is intended to
qualify as a tax-free reorganization under Section 368(a)(1)(D) of the
Code; however, the spin-off may cause Winco and its shareholders to
recognize gain and/or dividend income. The merger is intended to qualify
as a tax-free reorganization under Section 368(a)(1)(A) of the Code.
Accordingly, with the exception of any gain and/or dividend income caused
by the spin-off of Winco's existing business to WSC, no gain or loss will
generally be recognized by Winco, RCS, WSC, WMC, or Winco's shareholders.
Q: WHAT DO I NEED TO DO NOW?
A: We urge you to read this Proxy Statement carefully, including its
annexes, and to consider how the reverse stock split, the spin-off and the
merger affect you as a shareholder, and to vote on the proposals.
Q: WHAT STOCKHOLDER VOTE IS REQUIRED TO APPROVE THE PROPOSALS?
A: A majority of the voting power of Winco's outstanding shares of common
stock constitutes a quorum for the special meeting. The affirmative vote
of the holders of at least a majority of the voting power of Winco's
outstanding shares of common stock is required to approve the reverse stock
split and to adopt the Merger Agreement.
Q: DOES THE WINCO BOARD OF DIRECTORS RECOMMEND APPROVAL OF THE REVERSE
STOCK SPLIT AND ADOPTION OF THE MERGER AGREEMENT?
A. Yes. After careful consideration, the Winco board of directors
unanimously recommends that its shareholders vote in favor of the reverse
stock split and the Merger Agreement. For a more complete description of
the recommendation of the Winco board of directors, see the sections
entitled "Proposal One - Reasons for the Reverse Stock Split; Board
Recommendation to Shareholders; Proposal Two - The Merger - Winco's Reasons
for the Merger; Board Recommendation to Shareholders" on pages 39 and 41, and
42 and 52.
Q: HOW DO I VOTE?
A: You should simply indicate on your proxy card how you want to vote and
sign and mail your proxy card in the enclosed return envelope as soon as
possible so that your shares may be represented at the Winco special meeting.
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Q: WHAT HAPPENS IF I DON'T RETURN THE PROXY CARD?
A: The failure to return your proxy card will have the same effect as
voting against the proposals.
Q: IF I VOTE AGAINST EITHER OF THE PROPOSALS, AM I ENTITLED TO APPRAISAL
RIGHTS?
A: No. Under Colorado law, shareholders are not entitled to appraisal
rights under the circumstances described in this Proxy Statement.
Q: IF MY WINCO SHARES ARE HELD IN A BROKERAGE ACCOUNT, WILL MY BROKER VOTE
MY SHARES FOR ME?
A: Your broker will not be able to vote your shares without instruction
from you. You should instruct your broker to vote your shares, following
the procedure provided for by your broker.
Q: MAY I CHANGE MY VOTE AFTER I HAVE MAILED IN MY SIGNED PROXY CARD?
A: You may change your vote at any time before the vote takes place at the
Winco special meeting. To do so, you may either complete and submit a
later-dated proxy card or send a written notice stating that you would like
to revoke your proxy. In addition, you may attend the special meeting and
vote in person. However, if you elect to vote in person at the special
meeting and your shares are held by a broker, bank or other nominee, you
must bring to the special meeting a letter from the broker, bank or other
nominee confirming your beneficial ownership of the shares.
Q: WHAT HAPPENS TO MY STOCK CERTIFICATES FOLLOWING THE REVERSE STOCK SPLIT?
A: As soon as practicable after the date of the reverse stock split,
shareholders will be notified to surrender their certificates of Old Winco
Shares for certificates representing the corresponding number of New Winco
Shares after the reverse stock split.
Q: WILL I NEED TO SEND IN MY STOCK CERTIFICATE IN CONNECTION WITH THE MERGER?
A: No. Winco shareholders will not exchange their stock certificates in
connection with the merger. However, shareholders will exchange their
stock certificates in connection with the reverse stock split as noted above.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you would like additional copies of this Proxy Statement or if you
have questions about the proposals contained herein, including the
procedures for voting your shares, you should contact:
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Winco Petroleum Corporation
Attn: Daniel Dalke
3118 Cummings
Garden City, Kansas 67846
Telephone (316) 275-2963
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SUMMARY
This summary, together with the preceding Questions and Answers
section, highlights selected information from this Proxy Statement and may
not contain all of the information that is important to you. To understand
the reverse stock split, the spin-off of Winco's oil and gas operations to
WSC, and the merger of WMC and RCS, you should read carefully this entire
proxy statement and the other available information referred to in "Where
You Can Find More Information" on page 84.
The Merger Agreement is included as Annex A to this Proxy Statement.
The Merger Agreement is the legal document that governs the spin-off and
the merger. Information in this Proxy Statement regarding RCS has been
supplied by RCS's management, and has not been independently verified by
Winco or Winco's management. RCS has not provided or independently
reviewed information in this Proxy Statement that does not specifically
concern RCS. Statements of opinion set forth herein concerning RCS and the
transactions set forth in the Merger Agreement are solely the statements of
Winco. Winco has included page references parenthetically to direct you to
a more complete description of the topics presented in this summary,
however you are urged to read the entire proxy statement to better
understand the reverse stock split, the merger and the spin-off.
FORWARD-LOOKING STATEMENTS
This Proxy Statement and the documents incorporated herein by
reference contain certain forward-looking statements and information
relating to Winco and RCS that are based on the beliefs of Winco
management, as well as assumptions made by, and information currently
available to management. All statements other than statements of
historical fact are, or may be deemed to be, forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. Such forward-looking
statements are principally contained in and include, without limitation,
plans and objectives of management, tax treatment of the transactions,
accounting treatment of the transactions, possible or assumed future
results from operations of Winco, RCS and WSC, and the viability of RCS's
business plan. In addition, in those and other portions of the proxy
statement, the words "anticipate," "believes," "estimates," "expects,"
"plans," "intends," and similar expressions, as they relate to Winco or its
management, are intended to specifically identify forward-looking
statements. Such statements reflect the current views of Winco with
respect to future events and are subject to certain risks, uncertainties,
and assumptions, including the risk factors described in this Proxy
Statement. In addition to factors described elsewhere in this Proxy
Statement and the documents incorporated by reference, Winco specifically
cautions that factors listed under the caption "Risk Factors" could cause
actual results to differ materially from those expressed in any forward-
looking statement. Should one or more of these risks or uncertainties
materialize, or should any underlying assumptions prove incorrect, actual
results may vary materially from those described herein as anticipated,
believed, estimated or expected. You should not place undue reliance on
forward-looking statements. Each forward-looking statement speaks only as
of the date of the particular statement. Winco does not intend to update
these forward-looking statements.
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THE COMPANIES
WINCO PETROLEUM CORPORATION
3118 Cummings
Garden City, Kansas 67846
(316) 275-2963
Winco, a Colorado corporation organized on June 21, 1979, was formed
primarily for the purpose of exploration, development, and production of
oil and gas. Winco investigates potential opportunities to develop, drill
and/or participate in the development of new oil and gas properties and/or
acquire producing oil and gas properties in the Mid-Continent region of the
United States. Its current activities include identifying and drilling
between one (1) to five (5) oil and gas properties a year on its own behalf
or with other industry partners.
RUSH CREEK SOLUTIONS, INC.
8136 South Grant Way
Littleton, Colorado 80122
(303) 798-6136
RCS is headquartered in Littleton, Colorado. The company is a
regional integrated information technology service provider in network
design, communications, and systems integration. RCS provides engineering,
installation and technical support services to its customers; provides
business telephony solutions; provides multi-site information technology
installations; and provides technical customer service on an ongoing basis.
RCS also maintains an office in Seattle, Washington.
AUTHORIZATION TO EFFECT THE REVERSE STOCK SPLIT
Prior to the effective date of the merger, Winco shareholders are
asked to approve a reverse stock split of one (1) for forty (40). Existing
Winco shareholders on the effective date of the reverse stock split will
receive one (1) New Winco Share in exchange for every forty (40) Old Winco
Shares that they previously owned. The relative rights, preferences and
qualifications of the New Winco Shares will be identical to the Old Winco
Shares. Any fractional New Winco Share resulting from the reverse stock
split will become one (1) additional New Winco Share.
Approval of the proposal to effect the reverse stock split is
conditioned upon the Winco shareholders' adoption of the Merger Agreement.
In the event the Merger Agreement is not adopted, the reverse stock split
will not occur, even if the reverse stock split was previously approved by
Winco shareholders.
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THE MERGER
Winco and RCS will enter into a Merger Agreement whereby RCS will
merge with WMC, with WMC as the surviving corporation. WMC will continue
to be a subsidiary of Winco. RCS shareholders will receive Winco's
"restricted" common stock in exchange for their RCS shares of common stock.
The reverse stock split described above is a condition of the merger. The
Merger Agreement is attached to this Proxy Statement as Annex A. We
encourage you to read the Merger Agreement as it is the legal document that
governs the merger and the spin-off described below.
WINCO SPIN-OFF CORPORATION
Pursuant to the Merger Agreement and as a condition to the completion
of the merger, Winco will transfer of all its assets, liabilities and other
corporate obligations of Winco to a newly created, wholly-owned subsidiary,
WSC. Following the transfer of assets and liabilities of Winco and as part
of the consummation of the merger, Winco will distribute all of the WSC
shares to all existing Winco shareholders as of the record date of the
special meeting. We are not seeking a separate vote on the asset spin-off,
or on the distribution of WSC shares to Winco's pre-merger shareholders.
Rather, your vote on the proposal to approve and adopt the Merger Agreement
will also be your vote on the proposed asset spin-off.
The WSC shares will not be "restricted" shares under Rule 144 when
distributed to the Winco shareholders. However, there will not be an
active trading market for such shares established in the foreseeable
future, if ever. Accordingly, Winco shareholders will not be able to sell
or transfer their WSC shares except in private transactions or in the event
a public market develops. The officers and directors and affiliates of WSC
will continue to be subject to Rule 144 which provides that affiliates must
hold their WSC shares for at least one year before they may sell publicly
without registration under the Securities Act of 1933 and comply with the
volume and manner of sale provisions of Rule 144.
Although WSC management will file a Form 10-SB registration statement
pursuant to the Securities Exchange Act of 1934 in conjunction with the
asset spin-off, management has no intention of creating any public market
for the WSC shares. Management will not attempt to list the WSC shares on
the National Quotation Bureau "pink sheets," or the bulletin board or on
any other quotation service or exchange. The WSC shares will be
distributed to the Winco shareholders upon the effective date of WSC's Form
10-SB, registering WSC shares under the Securities Exchange Act of 1934.
OWNERSHIP OF WINCO FOLLOWING THE MERGER
The pre-merger RCS shareholders will receive 12,688,719 Winco shares
as a result of the merger, comprising an aggregate of approximately ninety-
two and one-half percent (92.5%) of then outstanding Winco shares. Current
Winco shareholders will retain ownership of an aggregate of 1,028,815 Winco
shares, comprising an aggregate of approximately seven and one-half percent
(7.5%) of then outstanding Winco shares. Therefore, as a result of the
merger, current Winco shareholders' ownership interest in Winco, which will
become the entity that
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controls the business of RCS, will be substantially diluted. However, as
a result of the spin-off, current Winco shareholders will maintain their
current ownership interest in Winco's oil and gas operations, as
represented by the WSC shares to be distributed to the pre-merger Winco
shareholders in connection with the spin-off.
RCS is a closely-held corporation, and substantially all of the RCS
common stock is owned by Mike St. John, the chief executive officer and
president of RCS, Anton St. John, the father of Mike St. John and founder
of RCS, and the Anton St. John Trust, a trust for the benefit of the St.
John family. The trustee of this trust is Elizabeth St. John, Anton St.
John's wife. Consequently, Mike St. John, Anton St. John, and the Anton
St. John Trust will own the majority of the Winco shares following the merger.
THE BOARD AND MANAGEMENT OF WINCO FOLLOWING THE MERGER
Following the completion of the merger, Winco's board of directors
will consist of:
* Mike St. John
* Scott Swenson
Following completion of the merger, Winco's principal officers will be:
* Mike St. John - President and Chief Executive Officer
* David A. Zeleniak - Chief Operating Officer
* Calvin D. Jacobson - Vice President, Infrastructure Consulting
and Support
* Kevin Dooley - Vice President, Strategic Markets
* Kent Anderson - Vice President, National Field Operations and Staffing
All of the above individuals are currently employees or affiliates of RCS.
The current officers and directors of Winco will resign on the
effective date of the merger. All such persons shall become the officers
and directors of WSC and be responsible for running the oil and gas
operations of WSC, after the asset spin-off and distribution of WSC shares
to pre-merger Winco shareholders.
VOTE REQUIRED
The proposals to (i) approve the reverse stock split of Winco and (ii)
adopt the Merger Agreement must be approved by the holders of a majority of
the outstanding Winco shares as of the record date. If the merger is not
completed for any reason whatsoever, the reverse stock split will not
become effective, even if the Winco shareholders have previously approved
the action.
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NO DISSENTERS' RIGHTS
In certain corporate transactions, shareholders who disagree with the
proposed corporate action are granted the statutory right to dissent from
the action and to have the fair value of their shares of the company's
stock determined and be paid such value in lieu of maintaining their share
ownership. Under Colorado law, none of the transactions referenced herein,
including the reverse stock split, the asset spin-off and distribution of
WSC shares to the pre-merger Winco shareholders and the merger of RCS and
WMC, will afford any Winco shareholder or WSC shareholder the right to
dissent and obtain payment of the fair value of the shareholder's shares in
either Winco or WSC, as more fully discussed below.
In accordance with Section 7-113-102(2.5) of the Colorado Revised
Statutes, the right to dissent and obtain payment of the fair value of the
shareholder's shares in the context of a reverse stock split exists only in
the event of a reverse stock split that reduces the number of shares owned
by any particular shareholder to a fraction of a share or to scrip if the
fraction of a share or scrip so created is to be acquired for cash or the
scrip is to be voided. The reverse stock split submitted to the
shareholders for approval will not result in the creation of fractional
shares or scrip, because all such fractions will become additional full New
Winco Shares and, therefore, there are no dissenters' rights under Colorado
law. Further, in accordance with Section 7-113-102(1.3) of the Colorado
Revised Statutes, the transactions proposed by the Merger Agreement do not
afford the pre-merger Winco shareholders the right to dissent and obtain
payment of the fair value of their shares because the Winco shares are held
of record by more than two thousand shareholders at the record date fixed
to determine the shareholders entitled to receive notice of the
shareholders' meeting at which the Merger Agreement will be submitted to a vote.
RECOMMENDATIONS TO SHAREHOLDERS
After careful consideration, the Winco board believes that the
proposals are fair to you and are in your best interest and unanimously
recommends that you vote in favor of both proposals.
NO OPINION OF FINANCIAL ADVISOR
Based on management's belief that the proposals are fair to all
shareholders and in their best interests, Winco has not obtained a fairness
opinion from any financial adviser or consultant. Management determined
that neither a formal fairness opinion, nor a valuation of Winco or RCS was
necessary. Consequently, there has been no independent valuation of either
Winco or RCS in connection with this transaction. Following the spin-off
and merger, existing Winco shareholders will own shares in two separate
corporations; one engaged in oil and gas operations and the other engaged
in the technology services industry. Winco's current oil and gas operations
will be retained by the pre-merger Winco shareholders, in its entirety,
pursuant to the asset spin-off and upon distribution of the WSC shares. In
addition to retaining the oil and gas operations, the pre-merger Winco
shareholders will also receive an interest in the current business of RCS.
Accordingly, management and the Winco board of directors determined that
neither a fairness opinion, nor a valuation, was required under the
circumstances.
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RISKS ASSOCIATED WITH THE MERGER
You should be aware of and carefully consider the risks relating to
the merger described under "Risk Factors." In addition, you should
consider the risks as they relate to the businesses of Winco's oil and gas
operations and RCS. The "Risk Factor" section includes or refers to
certain forward-looking statements. Please refer to the explanation of the
qualifications and limitations on such forward-looking statements discussed
under the heading "Forward-Looking Statements" in this proxy.
CONDITIONS TO THE MERGER
Winco will complete the merger only if the conditions to the merger
are satisfied or in some cases waived, including the following:
* approval of the reverse stock split by the Winco shareholders;
* adoption of the Merger Agreement by the Winco shareholders;
* completion of the spin-off of Winco's business to WSC, and the
distribution of all the WSC shares to existing Winco shareholders;
* the absence of any law or court order that prohibits the merger;
* receipt of all necessary third party consents;
* the absence of any material adverse change affecting RCS or Winco; and
* compliance with all of the requirements of the Merger Agreement.
Either RCS or Winco may choose to complete the merger even though a
condition has not been satisfied, if the law allows them to do so.
INTEREST OF EXECUTIVE OFFICERS, DIRECTORS
AND AFFILIATES OF WINCO IN THE MERGER
In considering the recommendation of the Winco board of directors, you
should be aware of the interests that Winco executive officers, directors
and affiliates have in the merger. These interests include owning a large
percentage of the outstanding shares of Winco and WSC, notwithstanding the
40:1 reverse stock split, and the ability to control the board of directors
and corporate policies of WSC.
In considering the fairness of the merger to Winco shareholders, the
Winco board of directors took into account these interests. These
interests are different from and in addition to your and their interests as
shareholders.
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TERMINATION OF THE MERGER AGREEMENT
RCS and Winco can agree to terminate the Merger Agreement at any time,
even if such agreement had been previously approved by Winco shareholders.
In addition, either RCS or Winco can terminate the Merger Agreement under
various circumstances, including if the merger has not been completed by
December 31, 2000. If the merger does not occur, the reverse stock split
will not become effective, even if such reverse stock split had been
previously approved by Winco shareholders.
NO SOLICITATION
Winco and RCS have each agreed not to initiate or engage, without the
other company's consent, in any discussions with any third party regarding
a business combination while the merger is pending.
ACCOUNTING TREATMENT OF MERGER
The Merger, if consummated as proposed, will for accounting and
financial reporting purposes, be treated as a reverse acquisition as the
former shareholders of RCS will control Winco after the merger. Under this
accounting treatment, RCS is deemed for accounting purposes to be the
acquirer and Winco the acquired entity. Under these accounting principles,
the post merger Company financial statements will represent RCS on a
historical basis consolidated with the results of operations of Winco from
the effective date of the merger. As Winco, after the spin-off of Winco's
business to WSC, effectively is a non-operating public shell, the reverse
merger will be treated as a recapitalization of RCS, with no goodwill recorded.
MARKET PRICE AND DIVIDEND INFORMATION
Winco shares trade sporadically on the National Quotation Bureau's
"pink sheets" under the symbol "WNCO." Since Winco filed its Form 8-K on
August 18, 2000 there has been no known trading market. RCS common stock
is not traded in the over-the-counter market, as RCS is a closely-held
corporation. There have been no quotes posted on Winco shares for the past
several years. After the merger, it is a goal of the new management team
to establish a viable trading market for the Winco shares and enhance the
acceptability of Winco shares by the financial community. No assurance
exists that these efforts will be successful.
Winco has not paid any dividends on the Winco shares and does not
anticipate paying cash dividends on the Winco shares in the foreseeable
future. It is anticipated that any earnings after the merger would be
retained to help finance the future operations and growth of Winco
following the merger.
WSC intends to register the WSC shares under the Securities Exchange
Act of 1934. However, WSC management does not intend to undertake any
effort to list WSC shares with the National Quotation Bureau "pink sheets"
on the bulletin board or any other quotation service or
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exchange. Accordingly, WSC shareholders should not expect that an active
trading market will exist for WSC shares.
WSC management does not anticipate paying any cash dividends on WSC
shares in the foreseeable future, and anticipates that any earnings will be
retained to finance the future operations and acquisition of additional
mineral leases.
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RISK FACTORS
In deciding whether to approve the reverse stock split and to adopt
the Merger Agreement, you should consider the following risks related to
the merger, your investment in the company, the technology oriented
business of RCS to be continued by a subsidiary of Winco, and Winco's
current oil and gas operations to be continued by WSC. The effect of the
proposed transaction will subject your investment to the risks of two
distinct industry segments with varying risks and potential loss.
Accordingly, you should consider carefully these risks along with the other
information in this Proxy Statement and the documents to which Winco has
referred. See "Where You Can Find More Information" on page 84.
RISKS RELATING TO THE MERGER
DILUTION OF WINCO SHAREHOLDERS AND UNCERTAIN VALUE OF REMAINING OWNERSHIP
INTEREST AND LOSS OF CONTROL.
Upon completion of the merger, Winco shareholders ownership in Winco
will be reduced to 7.5% of the total then outstanding Winco shares. As a
result, the pre-merger Winco shareholders' percentage ownership will be
diluted by 92.5% with no corresponding increase in Winco's net tangible
book value. Since the pre-merger Winco shareholders will own only 7.5% of
the total then outstanding Winco shares, such shareholders will have little
or no ability to control the new management of Winco or the new directors
of Winco. Although the new directors will owe fiduciary duties to all
shareholders, there can be no assurance that the interests of the holders
of a majority of post-merger Winco shares (i.e., former shareholders of
RCS) will be the same as the interests of the pre-merger Winco shareholders.
WHEN YOU VOTE ON THE MERGER, YOU WILL NOT KNOW THE MARKET VALUE OF THE
WINCO SHARES TO BE ISSUED IN THE MERGER OR THE VALUE OF RCS.
Upon completion of the merger, the shareholders of RCS will receive
12,688,719 Winco shares. As the amount of securities to be issued to the
shareholders of RCS is fixed, there will be no change or adjustment even if
an active trading market develops for the Winco shares before or after the
merger. There is no right to terminate or adjust the number of shares to
be issued to RCS pursuant to the Merger Agreement based on a change in
Winco's stock price. Accordingly, shareholders will not know the specific
market value of Winco shares to be issued upon completion of the merger
when they vote on the merger. Furthermore, shareholders will not know the
market value of RCS when they vote on the merger, since RCS shares have no
market at present.
WINCO MANAGEMENT DID NOT OBTAIN A FAIRNESS OPINION OR INDEPENDENT EVALUATION.
Winco's management has not obtained an appraisal valuation of Winco's
corporate charter or of RCS' business, nor has management obtained a
fairness opinion with respect to the fairness of the transaction to the
Winco shareholders. Accordingly, the Winco shareholders have no
independent evaluation of the fairness of the number of shares to be issued
to RCS or of the actual value, if any, of Winco, less its oil and gas
operations to be spun-off in WSC. In addition, management did not solicit
other merger proposals and did not consider any other merger candidates
prior to signing a letter of intent with RCS and arbitrarily establishing
an exchange
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ratio for RCS shares for Winco shares. However, management believes the
transaction to be fair, as the current Winco shareholders will retain their
proportionate ownership in Winco's current oil and gas operations, as a
consequence of their post-merger ownership of an aggregate of one hundred
percent (100%) of WSC shares and their ability to own an interest, although
minor, in a company engaged in the technology services industry, with a
potential for growth, additional financings and potential profitability.
RISKS RELATING TO THE RCS BUSINESS PLAN.
RCS's business plan may prove unsuccessful and the pre-merger Winco
shareholders' aggregate 7.5% ownership interest in Winco after the merger
may have no value.
RCS's limited operating history in providing value added systems
integration and a loss of $685,440 for the year ended April 30, 2000
hinders our ability to evaluate RCS's business and prospects. RCS's gross
revenues from operations for the year ended April 30, 2000 of $37,333,410
may not be indicative of RCS's future operating results. Effectively a
young company in the new and rapidly changing market for integrated systems
providers, RCS faces numerous risks and uncertainties. Some of these risks
relate to difficulties RCS may experience in its efforts to:
* maintain and increase its customer base;
* implement an evolving business model;
* compete favorably in a highly competitive market;
* expand its service offerings;
* attract, motivate and retain qualified employees;
* access sufficient capital to support its growth;
* build an infrastructure to effectively handle its growth; and
* upgrade and enhance its technologies.
Subsequent to the merger, the new management of Winco may not be successful
in addressing the risks inherent in RCS's business. As a business with a
limited operating history, if it fails to establish a profitable or viable
business, compete effectively in its market, attract capital, attract
qualified employees, build an adequate infrastructure or enhance its
technologies, it may not obtain or maintain profitability.
ALTHOUGH WINCO AND RCS EXPECT THAT THE MERGER WILL RESULT IN BENEFITS,
THOSE BENEFITS MAY NOT BE REALIZED.
Winco and RCS entered into the Merger Agreement with the expectation
that the merger will result in certain benefits for the shareholders of
both companies, including allowing the Winco shareholders to benefit in the
ownership of a new company engaged in information
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technology services. Management of Winco believes that RCS will attempt to
build a company capable of achieving earnings and improving cash flow to
fund future growth. There is no assurance that these efforts will be
successful. Management of Winco believes that after the merger, Winco will
have a greater capability to achieve additional financing and operational
efficiencies. However, shareholders may not realize these benefits and the
post-merger Winco may not achieve any of the goals set forth in RCS's
business plan.
FAILURE TO COMPLETE THE MERGER COULD NEGATIVELY IMPACT WINCO'S FUTURE
BUSINESS OPERATIONS.
If the merger is not completed for any reason, Winco may be subject to
a number of material risks, including the following:
* continued lack of a trading market and illiquidity of Winco's shares;
* possible decline in its oil and gas revenue from continued
depletion of oil and gas reserves; and
* payment of substantial costs related to the merger, such as legal
and accounting fees, which must be paid and expensed even if the
merger is not completed.
In addition, if the merger is terminated and Winco's board determines to
seek another merger or business combination, there can be no assurance that
it will be able to find a partner willing to agree to more attractive terms
than those which have been negotiated in the Merger Agreement.
AS A RESULT OF THE MERGER, A SIGNIFICANT NUMBER OF WINCO SHARES WILL BE
OWNED BY MEMBERS OF THE ST. JOHN FAMILY. IF SUCH PERSONS WERE TO SELL A
SIGNIFICANT NUMBER OF WINCO SHARES, THE SALE COULD CAUSE THE FUTURE MARKET
PRICE, IF ANY, OF WINCO SHARES TO DROP SIGNIFICANTLY.
As a result of the merger, approximately 12,688,719 Winco shares will
be owned by Mike St. John, chief executive officer and president of RCS,
Anton St. John, the father of Mike St. John and the founder of RCS, and a
trust in which members of the St. John family are beneficiaries. The
number of Winco shares to be received by each person is set forth in the
table below. The Winco shares being issued to the RCS shareholders in the
merger will not be registered under the Securities Act of 1933, as amended,
and no registration rights have been granted to the RCS shareholders.
However, because of their shareholdings, these persons will likely be in a
position to cause Winco to register Winco shares for public sale, if they
desire. If any member of the St. John family were to sell any significant
number of Winco shares or if the market perceives that any member of the
St. John family intends to sell Winco shares, the market price of Winco
shares could drop significantly, even if Winco's business is doing well.
The St. Johns' ownership of Winco will be as follows:
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PERCENTAGE OF OWNERSHIP
SHARES OF OF OUTSTANDING STOCK
NAME COMMON STOCK AFTER MERGER
---- ------------ ------------
Mike St. John 6,623,511 52.20%
Anton St. John 5,482,796 43.21%
Anton St. John Trust 159,455 1.26%
CeBourn Ltd.(1) 422,957 3.33%
(1) These shares were received by CeBourn Ltd. in consideration for
providing RCS with structuring and financial advice in this
transaction. The fair value of these common shares at the date
of issuance will be expensed by RCS.
Upon completion of the merger, the members of the St. John family will
beneficially own 92.5% of all outstanding Winco shares. As they, in their
capacity as shareholders, may not owe a fiduciary duty to other Winco
shareholders, they may individually decide not to accept transactions that
may otherwise be beneficial to other Winco shareholders. Unless other
issuances of Winco securities dilute the St. John family's interests as
shareholders, the St. John family will effectively have voting power to
prevent takeover transactions. This power to prevent takeover transactions
could discourage or make more difficult a merger, tender offer, proxy
contest or acquisition of a significant portion of Winco shares even if
such an event potentially would be favorable to the interests of the other
Winco shareholders.
TAX CONSIDERATIONS
As a general rule, federal and state tax laws and regulations have a
significant impact upon the structuring of spin-offs of existing businesses
and business combinations. Winco has evaluated the possible tax
consequences of the Merger Agreement and will endeavor to structure the
transaction so as to achieve the most favorable tax treatment to Winco, RCS
and their respective shareholders. There can be no assurance, however,
that the Internal Revenue Service (the "IRS") or appropriate state tax
authorities will ultimately assent to Winco's tax treatment of a
consummated business combination. Winco has not obtained a favorable legal
opinion regarding tax treatment of the proposed combination of Winco and
RCS or the proposed asset spin-off and distribution of WSC shares. To the
extent the IRS or state tax authorities re-characterize the tax treatment
of a business combination, there may be adverse tax consequences to Winco,
RCS and their respective shareholders.
REGULATION OF TRADING IN LOW-PRICED SECURITIES MAY DISCOURAGE INVESTOR INTEREST.
Trading in Winco shares, if and when a market develops, is subject to
the "penny stock" rules of the Securities and Exchange Commission. The
penny stock rules require a broker-dealer, prior to a transaction in a
penny stock not otherwise exempt from the rules, to deliver a standardized
risk disclosure document prescribed by the SEC, which provides information
about penny stocks and the nature and level of risks in the penny stock
market. The broker-dealer also must provide the customer with current bid
and offer quotations for the penny stock, the compensation of the broker-
dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the
customer's account. The bid and offer quotations and the broker-dealer and
salesperson compensation information must be given to the customer orally
or in writing before or with the customer's confirmation. In
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addition, the penny stock rules require prior to a transaction in a penny
stock not otherwise exempt from such rules, the broker-dealer must make a
special written determination that the penny stock is a suitable investment
for the purchaser and receive the purchaser's written agreement to the
transaction. These disclosure requirements may have the effect of reducing
the level of trading activity in the secondary market for a stock that
becomes subject to the penny stock rules. Moreover, securities which are
subject to penny stock rules are ineligible for inclusion in many
institutional or trust portfolios. Winco believes the penny stock rules
may discourage investor interest in, and limit the marketability of, the
Winco shares.
NASDAQ HAS CERTAIN MARKET ELIGIBILITY AND MAINTENANCE REQUIREMENTS TO
MAINTAIN WINCO'S ELIGIBILITY FOR INCLUSION ON THE NASDAQ SMALLCAP
MARKET(SM), WHICH WINCO MAY NOT BE ABLE TO ACHIEVE, WITH THE CONSEQUENCE
THAT THE WINCO SHARES MAY BE TRADED ONLY OVER-THE-COUNTER OR ON THE
BULLETIN BOARD, AND BROKERS MAY BE REQUIRED TO COMPLY WITH "PENNY STOCK"
TRADING RESTRICTIONS.
Under the current rules relating to the listing of securities on the
Nasdaq SmallCap Market(SM), Winco must have:
* at least $4,000,000 in net tangible assets, or $750,000 in net
income in two of the last three years, or a market capitalization
of at least $50,000,000;
* public float of at least 1,000,000 shares;
* market value of public float of at least $5,000,000; and
* a minimum bid price of $4.00 per share, among other requirements.
For a continued listing, a company must maintain:
* at least $2,000,000 in net tangible assets, or $500,000 in net
income in two of the last three years, or a market capitalization
of at least $35,000,000;
* public float of at least 500,000 shares;
* market value of public float of at least $1,000,000; and
* a minimum bid price of $1.00 per share among other requirements.
Current management of Winco expects that the post-merger management of
Winco will attempt to establish a market for post-merger Winco shares and
achieve a listing on the Nasdaq SmallCap Market(SM). There can be no
assurance that Winco will ever achieve this goal. If Winco is unable to
qualify for listing on the NASDAQ Small Cap Market, any trading in Winco
shares would be restricted to the over-the-counter market on an electronic
bulletin board established for securities that do not meet the Nasdaq
SmallCap Market(SM) listing requirements or in what are commonly referred
to as the "pink sheets." As a result, an investor may find it more
difficult to dispose of or to obtain accurate quotations as to the price of
Winco shares.
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RISKS RELATING TO RCS'S BUSINESS
Investors should carefully consider the risks associated with the
business of RCS as it will become the risks of the Winco shareholders
following the merger. Many of the risks associated with RCS are completely
different from the risks associated with Winco's oil and gas operations.
Accordingly, Winco shareholders are urged to consider the following RCS
risk factors.
INDUSTRY COMPETITION AND CHALLENGES FOR RCS.
The information technology services industry in which RCS operates is
extremely competitive and characterized by rapid and continuous changes in
customer requirements and improvements in technologies. RCS's competition
varies significantly by the type of service provided. RCS believes that no
one competitor dominates in the market RCS serves, but many of RCS's
competitors are larger and have greater financial, technical, sales and
marketing resources than RCS. In addition, RCS at times must compete with
a customer's own internal information technology staff. Furthermore, RCS
can be expected to encounter additional competition as it strives to enter
new markets. To maintain and develop new customer relationships, RCS must
offer its services at competitive rates and must stay abreast of evolving
challenges and developments in the information technology and systems
integration services marketplace. There can be no assurance that RCS will
not lose customers or be able to maintain its profitability and regional
prominence.
RCS's future success will also depend in part on its ability to hire
and retain properly trained technical personnel who can address the
changing and increasingly sophisticated needs of its customers. In
particular, competition for qualified project managers and professionals
with certain specialized skills, such as working knowledge of certain
critical technologies, is intense.
POTENTIAL LOSS OF MAJOR CUSTOMERS OF RCS.
At present, RCS obtains a significant portion of its revenues from
AT&T (approximately 12.5% of revenues for the three months ended July 31,
2000, 29.9% of revenues for the year ended April 30, 2000, and 22.9% of
revenues for the year ended April 30, 1999) and other large customer
accounts. There can be no assurance that RCS can maintain this customer
base nor continue to utilize the exposure and reputation that RCS has
established in the industry marketplace to date by virtue of RCS's service
to these customers. Loss of one or more of these larger customers could
have a material negative impact on RCS's business, financial condition and
results of operation. Although RCS management believes that RCS has
undertaken measures to position it for such potential attrition by
capturing new customers, there is no certainty that this will occur.
DEPENDENCE UPON KEY PERSONNEL
RCS's success depends on the continued service of its key management
and technical personnel. The loss of services from one or more of these
personnel could have a material adverse effect on RCS's business,
operations and financial results. RCS's success also depends on its
ability to attract, motivate and retain highly-skilled managerial and
technical personnel. Competition for such personnel in RCS's business is
intense. The success that RCS may achieve
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will only enhance the reputation of and alternatives available to its key
personnel. Currently, high-technology personnel are in very high demand
and receive frequent offers of alternative employment, with salaries, stock
options and other benefits, which RCS may not be able to match. RCS may
not be able to retain its key employees or attract, motivate and retain
additional key employees in the future. Its failure to retain these key
employees, or failure to attract new personnel as its needs arise would
entail significant additional employment costs and may result in management
strategy shifts which may diminish its ability to reach profitability or
remain profitable.
DEPENDENCE UPON MIKE ST. JOHN
Mike St. John's leadership is essential to the success of RCS. If for
any reason, his services were to become unavailable to RCS, the company
would have difficulty replacing him. Winco's management believes that Mike
St. John's departure from RCS could have a material negative impact on
RCS's business, operations and profitability. A condition to the
completion of the merger is an employment agreement between Winco and Mike
St. John. RCS owns and is the beneficiary of a key man life insurance
policy on Mike St. John.
RCS MAY NEED ADDITIONAL CAPITAL IN THE FUTURE
RCS may need to raise additional funds in the future to fund its
operations, to finance the investments in equipment and corporate
infrastructure that it will need for continued expansion and to respond to
competitive pressures or perceived opportunities, such as investment,
acquisition and expansion activities. Additional financing may not be
available on terms favorable to RCS, or at all. If adequate funds are not
available when required or adequate funds are not available on acceptable
terms, RCS may be unable to take advantage of opportunities, or perhaps
remain viable. In addition, such additional finance transactions, if
successful, may result in substantial additional dilution of current Winco
shareholders and/or issuance of securities with rights, preferences, and
other characteristics superior to those of the common stock. Although any
future issuance of preferred stock would require shareholder approval to
further amend the Articles of Incorporation, such a vote would be
controlled by the St. John family after the merger.
APPROPRIATE ACQUISITIONS MAY NOT BE AVAILABLE
Although not presently pursuing an aggressive acquisition strategy,
RCS may have the need to identify, attract and acquire attractive
acquisition candidates in the future. No assurance can be given whether
RCS will be successful in identifying, attracting or acquiring desirable
acquisition candidates, whether such candidates will be successfully
integrated into RCS, or if the acquisition candidates, once acquired, will
be profitable. The failure to complete acquisitions or to operate the
acquired companies profitably could be expected to have a material adverse
effect on RCS's business, financial condition and results of operations.
Moreover, such a future acquisition may result in issuance of Winco
securities which dilute the interests of current shareholders and/or
issuance of securities, with rights, preferences, and other characteristics
superior to those of the common stock.
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RCS'S SUCCESS DEPENDS ON KEEPING PACE WITH TECHNOLOGICAL ADVANCEMENT
RCS's continued success depends, in part, on its ability to keep pace
with rapid technological change and evolving industry standards and
practices. In particular, RCS's business is likely to be characterized by
rapid and continuous technological advances and changes in hardware,
software, RCS's customers' requirements and the market's requirements. The
failure to respond quickly and cost-effectively to such technological
developments would materially adversely affect RCS's business, results of
operations and financial condition.
RCS'S RECENT OPERATING LOSSES
RCS's losses of $685,440 for the year ended April 30, 2000 and
$399,400 for the three months ended July 31, 2000 are related to increased
personnel costs and investments in developing and marketing new technology
solutions. RCS may be unable to realize sufficient increases in revenue or
reductions in personnel costs necessary to return the company to a
profitable position. In addition, the efforts to market recently developed
technology solutions may not be successful.
RELATED PARTY TRANSACTIONS
RCS leases 23,000 square feet of commercial space on a three-year
lease, at $27,875 per month, from 8136 S. Grant Way, LLC, which is 80%
owned by Mike St. John, who is RCS's president and will become Winco's
president, after the merger. As of July 31, 2000, RCS had advances
receivable, including interest, from Mike St. John of $305,716 and from
8136 S. Grant Way, LLC of $5,629. Both advances receivable accrue interest
at 8% per annum. RCS also had a demand note receivable from E3SI, Inc.,
a company in which Mike St. John has a 46% interest, with a balance
including interest at July 31, 2000 of $90,616, accruing interest at 8% per
annum. Under a consulting arrangement between RCS and E3SI, RCS's revenues
from E3SI totaled $238,650 in the year ended April 30, 2000 and $25,948 in
the quarter ended July 31, 2000, of which $16,275 remained due to RCS on
July 31, 2000. RCS wrote off receivables from E3SI in the amounts of
$50,000 in fiscal 1999 and $292,000 in fiscal 1998. There can be no
assurance any such related party relationships, which are expected to
continue, are as favorable to RCS or will be as favorable to Winco as might
have been negotiated with unrelated third parties.
RISKS RELATING TO WSC'S BUSINESS
As part of the merger, Winco's oil and gas operations will become the
business of WSC by virtue of the transfer of its oil and gas assets and
liabilities to WSC. Accordingly, the following risks associated with the
oil and gas industry will become the risks associated with WSC's business,
affecting the value of WSC shares to be distributed to pre-merger Winco
shareholders in connection with the asset spin-off.
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UNCERTAINTY OF RESERVE INFORMATION AND FUTURE NET REVENUE ESTIMATES.
There will continue to be numerous uncertainties inherent in
estimating quantities of proved oil and natural gas reserves and their
values, including many factors beyond WSC's control. Estimates of proved
undeveloped reserves, which comprise a significant portion of Winco's
reserves, are by their nature uncertain. The reserve information set forth
herein represents only estimates. Although WSC believes such estimates to
be reasonable, reserve estimates are imprecise by nature and may materially
change as additional information becomes available.
Estimates of oil and natural gas reserves, by necessity, are
projections based on geologic and engineering data, and there are
uncertainties inherent in the interpretation of such data as well as the
projection of future rates of production and the timing of development
expenditures. Reserve engineering is a subjective process of estimating
underground accumulations of oil and natural gas that are difficult to
measure. The accuracy of any reserve estimate is a function of the quality
of available data, engineering and geological interpretation and judgment.
Estimates of economically recoverable oil and natural gas reserves and
future net cash flows necessarily depend upon a number of variable factors
and assumptions, such as historical production from the areas compared with
production from other producing areas, the assumed effects of regulations
by governmental agencies and assumptions governing future oil and natural
gas prices, future operating costs, severance and excise taxes, development
costs and work over and remedial costs, all of which may in fact vary
considerably from actual results. For these reasons, estimates of the
economically recoverable quantities of oil and natural gas attributable to
any particular group of properties, classifications of such reserves based
on risk of recovery, and estimates of the future net cash flows expected
therefrom may vary substantially. Any significant variance in the
assumptions could materially affect the estimated quantity and value of the
reserves. Actual production, revenues and expenditures with respect to
Winco's reserves will likely vary from estimates, and such variances may be
material.
DEPENDENCE UPON THE PRICE OF OIL AND NATURAL GAS.
WSC will be dependent upon the prices of, and demand for, oil and
natural gas. Historically, the prices for oil and natural gas have been
volatile and are likely to be volatile in the future. The prices WSC
receives for oil and natural gas production, and the anticipated level of
such production are subject to wide fluctuations and depend on numerous
factors beyond its control, including:
* seasonality,
* the condition of the United States economy,
* imports of crude oil and natural gas,
* political conditions in other oil-producing and natural gas-
producing countries,
* the actions of the Organization of Petroleum Exporting Countries, and
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* government regulation, legislation and policies.
Any continued and extended decline in the price of crude oil or natural gas
will adversely affect its revenues, profitability and cash flow from
operations, present value of proved reserves, borrowing capacity, and the
ability to obtain additional capital.
SPECULATIVE NATURE OF OIL AND GAS EXPLORATION.
The business of exploring for and, to a lesser extent, of developing
oil and gas properties is an inherently speculative activity which involves
a high degree of business and financial risk. Property acquisition
decisions generally are based on various assumptions and subjective
judgments that are speculative. Although available geological and
geophysical information can provide information with respect to the
potential of an oil or gas property, it is impossible to predict accurately
the ultimate production potential, if any, of a particular property or
well. Moreover, the successful completion of an oil or gas well does not
ensure a profit on Winco's investment therein. A variety of factors, both
geological and market-related, can cause a well to become uneconomic or
marginally economic.
ACQUISITION OF PRODUCING PROPERTIES.
The successful acquisition of producing properties requires an
assessment of numerous factors beyond WSC's control, including:
* recoverable reserves,
* exploration potential,
* future oil and natural gas prices and operating costs, and
* potential environmental and other liabilities.
In connection with such an assessment, WSC will perform a review of the
subject properties it believes to be generally consistent with industry
practices. The resulting assessment is inexact and its accuracy is
uncertain, and such a review may not reveal all existing or potential
problems, nor will it necessarily permit WSC to become sufficiently
familiar with the properties to fully assess their merits and deficiencies.
Inspections may not be performed on every well, and structural and
environmental problems are not necessarily observable even when an
inspection is made.
Additionally, significant acquisitions could change the nature of
WSC's operations and depending upon the character of the acquired
properties, may be substantially different in operating and geologic
characteristics or geographic location than WSC's existing wells and
properties. While WSC's current operations are focused primarily in
Kansas, WSC may pursue acquisitions of properties located in other
geographic areas.
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OPERATING HAZARDS AND RESULTING LIABILITIES.
The oil and natural gas business involves certain operating hazards
such as well blowouts, craterings, explosions, uncontrollable flows of oil,
natural gas or well fluids, fires, formations with abnormal pressures,
pipeline ruptures or spills, pollution, release of toxic gas and other
environmental hazards and risks, any of which could result in substantial
losses to WSC. Federal and state regulation of natural gas and oil
production and transportation, tax and energy policies, changes in supply
and demand and general economic conditions all could adversely affect WSC's
ability to produce and market its oil and natural gas. In addition, WSC
may be liable for environmental damage caused by previous owners of
property purchased or leased by WSC or its Winco predecessor. As a result,
substantial liabilities to third parties or governmental entities may be
incurred, the payment of which could reduce or eliminate the funds
available for exploration, development or acquisitions and result in losses
to WSC. In accordance with customary industry practices, WSC will maintain
insurance against some, but not all, of such risks and losses. WSC will
carry business interruption insurance in varying amounts based upon the
estimated time to cause the covered facilities to become operational. WSC
may elect to self-insure if management believes that the cost of insurance,
although available, is excessive relative to the risks presented. The
occurrence of an event that is not covered, or not fully covered, by
insurance could have a material adverse effect on WSC's financial condition
and results of operations. In addition, pollution and environmental risks
generally are not fully insurable.
In connection with the Merger Agreement, WSC and American Warrior,
Inc., an affiliate and a major shareholder of WSC have agreed to indemnify
RCS, Winco and WMC for any and all liability arising from (i) any acts or
conduct of Winco prior to the filing of the Articles of Merger with the
Colorado Secretary of State's office, (ii) environmental actions from
Winco's oil and gas operations, (iii) claims arising from any acts of the
indemnifying parties in connection with the merger and (iv) claims arising
from spin-off of the Winco assets to WSC.
NO DIVIDENDS.
Winco has never declared or paid any cash dividends to the holders of
common stock and the WSC successor to Winco has no present intention to pay
cash dividends to holders of WSC shares in the foreseeable future.
WSC MAY REQUIRE ADDITIONAL FUNDING IN CONNECTION WITH ITS EXPLORATION
ACTIVITIES.
WSC's objective will be to increase reserves, production, cash flow,
earnings and net asset value per share. To accomplish this objective, WSC
intends to acquire and/or drill and complete, on its own behalf and with
other industry partners, several oil and gas prospects per year. WSC will
identify and acquire or develop these prospects each year with a view to
taking advantage of industry advances in seismic, drilling and other
technologies as well as management's oil and gas experience in Kansas and
Oklahoma. Of the projected new prospects, one (1) or two (2) may be
intended as higher potential, higher risk prospects. As indicated above,
WSC intends to approach its prospects in a way that will allow it to
control its costs and risks. It is possible that significant expenditures
required of WSC in connection with the future exploration activities will
require additional funding from outside sources in the form of debt or
equity. There can be no assurance such funding is or will be available to
WSC for this purpose.
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Moreover, should such financing be available, the financing may involve
dilution of interested WSC shareholders or issuance of securities with
rights, preferences or other characteristics superior to those of WSC shares.
WSC MAY NOT BE ABLE TO COMPETE.
WSC will compete with numerous other companies and individuals,
including many that have significantly greater resources, in virtually all
facets of its business. Such competitors may be able to pay more for
desirable leases and to evaluate, bid for and purchase a greater number of
properties than the financial or personnel resources of WSC permit. The
ability of WSC to increase reserves in the future will be dependent on its
ability to select and acquire suitable producing properties and prospects
for future exploration, development and production. The availability of a
market for oil and natural gas production depends upon numerous factors
beyond the control of producers, including but not limited to, the
availability of other domestic or imported production, the locations and
capacity of pipelines, and the effect of federal and state regulation on
such production. Domestic oil and natural gas must compete with imported
oil and natural gas, coal, atomic energy, hydroelectric power and other
forms of energy. WSC will not hold a significant competitive position in
the oil and gas industry.
LEASE ASSIGNMENT MATTERS.
In the asset spin-off to WSC, there may be a requirement to obtain
third party consents to amendment and substitution of WSC as the party to
perform the duties of Winco under certain of the mineral leases. Any such
assignment of mineral leases may entail administrative difficulties which
may occasion some negotiation with the landowner(s) and may affect the
value of a mineral lease.
LACK OF DIVERSIFICATION IN MINERAL LEASE PORTFOLIO.
Currently, the Winco mineral lease portfolio, which will be the assets
of WSC, contains a relatively limited number of sites and geologic
formations. While WSC management believes such leases to be of promising
quality, greater diversification would in general be considered to tend to
reduce the risk to WSC which would result from determination that
particular sites have less promise than anticipated. Acquisition of
additional leases is a function of availability of capital, whether derived
from possible future operating profits or from new capital investment.
Availability of capital to diversify WSC's lease portfolio cannot be
predicted, and if certain existing leases were determined to be of poor
quality, such lack of diversification would adversely affect WSC's
operating results.
GOVERNMENT REGULATION.
WSC's business will be affected by numerous governmental laws and
regulations, including energy, environmental, conservation, tax and other
laws and regulations relating to the energy industry. Changes in any of
these laws and regulations could have a material adverse effect on WSC's
business. In view of the many uncertainties with respect to current and
future laws and regulations, including their applicability to WSC, WSC
cannot predict the overall effect of such laws and regulations on its
future operations.
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DEPENDENCE ON KEY PERSONNEL.
WSC's future success depends on the continued service of its key
management personnel, including Cecil O'Brate and Daniel Dalke. Currently,
neither of these individuals has entered into written employment agreements
with WSC. At this time, WSC does not carry life insurance policies on any
of its key management personnel. The loss of services from either or both
of these persons would have a material adverse effect on WSC's business,
operations and financial results. WSC's failure to retain these key
individuals or failure to attract new technically proficient managers as
its needs arise would entail significant additional employment costs, and
management personnel changes may result in management strategy shifts which
may diminish WSC's ability to achieve profitability.
RELATED PARTY TRANSACTIONS
WSC, like its Winco predecessor, will continue to engage American
Warrior, Inc. and Mid-Continent Resources, Inc. to perform certain mineral
lease development and operating services for WSC. The value of such
transactions was an aggregate of $22,200 in 1999 and $14,800 in 1998. Both
American Warrior and Mid-Continent are wholly-owned by Cecil O'Brate,
Winco's president, who will become WSC's president. There can be no
assurance that such operating service agreements were on terms as favorable
as might have been negotiated with a third party.
NO MARKET FOR THE SECURITIES.
Although WSC shares are intended to be registered under the Securities
Exchange Act of 1934, WSC's management will undertake no efforts to obtain
quotation of the WSC shares with the National Quotation Bureau, on the
"pink sheets," or any other quotation service or exchange. Accordingly,
WSC shareholders should expect to hold their investment for an indefinite
period of time, with no opportunity for liquidity or sale.
MANAGEMENT'S CONTROL OF WSC.
Currently, Winco's existing officers, directors and 5% or greater
stockholders (and their affiliates), in the aggregate, beneficially own
approximately 46.32% of outstanding Winco shares. Upon consummation of the
reverse stock split and the transactions set forth in the Merger Agreement,
this group will continue to own approximately 46.32% of outstanding WSC
shares. As a result, such persons, acting together, will have the ability
to control the vote on all matters requiring approval of its stockholders,
including the election of directors and approval of significant corporate
transactions. This concentration of ownership among a small number of its
stockholders may have the effect of delaying, deferring or preventing a
change in control.
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MARKET PRICE INFORMATION
WINCO MARKET PRICE DATA
The following table sets forth the high and low sales price for the
Winco common stock for the periods indicated.
High Low
---- ---
Calendar Year 1999
Fourth Quarter. . . . . . . . . $* $*
Third Quarter . . . . . . . . . $* $*
Second Quarter. . . . . . . . . $* $*
First Quarter . . . . . . . . . $* $*
Calendar Year 1998
Fourth Quarter. . . . . . . . . $* $*
Third Quarter . . . . . . . . . $* $*
Second Quarter. . . . . . . . . $* $*
First Quarter . . . . . . . . . $* $*
* No Quote
Winco has never declared a dividend or paid any cash dividends to
holders of its common stock and does not anticipate payment of dividends in
the foreseeable future. Any future determination as to the declaration and
payment of dividends will be at the discretion of the board of directors
and will depend on the then existing conditions, including our financial
condition, results of operations, capital requirements, business factors
and such other factors as the board deems relevant.
RCS MARKET PRICE DATA
There is no trading market in the common stock of RCS.
At the date of the merger agreement, RCS had three (3) shareholders.
RCS has never declared a dividend or paid any cash dividends to
holders of its common stock and does not anticipate payment of dividends in
the foreseeable future. Any future determination as to the declaration and
payment of dividends will be at the discretion of the board of directors
and will depend on the then existing conditions, including our financial
condition, results of operations, capital requirements, business factors
and such other factors as the board deems relevant.
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COMPARATIVE PER SHARE DATA
The following table sets forth unaudited data concerning the net loss,
dividends and book value per share for Winco and RCS on a historical basis
and on a pro forma basis after giving effect to the merger:
WINCO COMMON STOCK: YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 JUNE 30, 2000
------------------ -------------
Net profit per share:
Historical. . . . . . . . . . . . . . . . $0 $0
Pro forma consolidated. . . . . . . . . . $0 $0
Book value per share at end of period:
Historical. . . . . . . . . . . . . . . . $.01 $.01
Pro forma consolidated. . . . . . . . . . $.01 $.01
RCS COMMON STOCK: YEAR ENDED THREE MONTHS ENDED
APRIL 30, 2000 JULY 31, 2000
-------------- -------------
Net profit (loss) per share:
Historical. . . . . . . . . . . . . . . . $(456.96) $(266.30)
Pro forma consolidated. . . . . . . . . . $(.05) $(.03)
Book value per share at end of period:
Historical. . . . . . . . . . . . . . . . $419.44 $153.16
Pro forma consolidated. . . . . . . . . . $.05 $.02
The outstanding shares used in computing the net profit or net loss
per share data have been derived from each company's historical weighted
average common shares outstanding for the historical data and have been
adjusted to give effect to the ratio of the shares issuable to each
company's stockholders as of the merger for the pro forma consolidated
data. Book value data for Winco Common Stock was derived from Winco's
historical book value at September 30, 1999 and June 30, 2000. Book value
data for RCS Common Stock was derived from RCS's historical book value at
April 30, 2000 and July 31, 2000. Each company's book value data was
applied to the ratio of the shares issuable to each company's stockholders
at the merger date for the historical data and adjusted to reflect the
effect of the merger for the pro forma consolidated data.
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THE SPECIAL MEETING
DATE, TIME AND PLACE
A special meeting of Winco shareholders will be held at 10:00 a.m.,
C.S.T., on December 1, 2000, at 3118 Cummings, Garden City, Kansas 67846.
Winco is sending this Proxy Statement to you in connection with the
solicitation of proxies by the Winco board for use at the Winco special
meeting and any adjournments of the Winco special meeting.
PURPOSE
The purpose of the Winco special meeting is to consider and vote on
the proposals to: (i) grant the board of directors the authority to effect
a reverse stock split of one (1) for forty (40) whereby each forty (40) Old
Winco Shares would be combined into one (1) New Winco Share; and (ii) adopt
the Merger Agreement pursuant to which (a) Winco will transfer all of its
assets, liabilities and other obligations to WSC, a wholly-owned
subsidiary, in consideration for WSC shares, (b) Winco will distribute the
WSC shares to the Winco shareholders, and (c) RCS will merge into WMC,
another wholly-owned subsidiary of Winco. Winco shareholders may also be
asked to transact other business that properly comes before the Winco
special meeting or any adjournments of the Winco special meeting.
WE ARE NOT SEEKING A SEPARATE VOTE ON THE ASSET SPIN-OFF AND RESULTING
DISTRIBUTION OF WSC SHARES. RATHER, YOUR VOTE ON THE PROPOSAL TO APPROVE
AND ADOPT THE MERGER AGREEMENT WILL ALSO BE YOUR VOTE ON THE PROPOSED ASSET
SPIN-OFF AND DISTRIBUTION OF WSC SHARES.
WINCO BOARD RECOMMENDATION
THE WINCO BOARD HAS CONCLUDED THAT THE PROPOSALS ARE ADVISABLE AND IN
THE BEST INTERESTS OF WINCO AND ITS SHAREHOLDERS AND HAS UNANIMOUSLY
APPROVED AND ADOPTED THE PROPOSALS. ACCORDINGLY, THE WINCO BOARD
UNANIMOUSLY RECOMMENDS THAT ALL WINCO SHAREHOLDERS VOTE "IN FAVOR OF" EACH
OF THE PROPOSALS.
RECORD DATE, OUTSTANDING SHARES AND VOTING RIGHTS
The Winco board has fixed the close of business on November 1, 2000 as
the record date for the Winco special meeting. Only holders of record of
Winco shares on the record date are entitled to notice of and to vote at
the Winco special meeting. As of the record date, there were 41,152,606
outstanding Winco shares held by approximately 2,440 holders of record. At
the Winco special meeting, each Winco share will be entitled to one vote on
all matters. Votes may be cast at the Winco special meeting in person or
by proxy.
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VOTE REQUIRED; QUORUM
The representation, in person or by proxy, of the holders of a
majority of the Winco shares entitled to vote at the Winco special meeting
is necessary to constitute a quorum at the Winco special meeting. Shares
represented by proxy marked "abstain" on any matter will be considered
present for purposes of determining a quorum and for purposes of
calculating the vote, but will not be considered to have voted in favor of
the proposal. Therefore, any proxy marked "abstain" will have the effect
of a vote against the matter.
If a broker or a nominee holding shares of record for a customer
indicates that it does not have discretionary authority to vote as to a
particular matter, those shares, which are referred to as broker non-votes,
will be considered present at the special meeting for purposes of
determining a quorum and for purposes of calculating the vote. Brokers or
nominees holding shares of record for customers will not be entitled to
vote on the proposals unless they receive voting instructions from their
customers. Accordingly, broker non-votes will not be voted in favor of
approval of the proposals, meaning that shares constituting broker non-votes
will have the same effect as shares voted against approval of the proposals.
Winco believes that each of its directors and executive officers
intends to vote his shares in favor of approval of the proposals. As of
the record date, Winco's directors and executive officers beneficially
owned approximately 19,061,653 of the outstanding Winco shares,
representing approximately 46.32% of the total outstanding Winco shares on
the record date.
VOTING OF PROXIES
All Winco shares that entitle the holders thereof to vote and that are
represented at the Winco special meeting by properly executed proxies
received prior to or at the special meeting, and not revoked, will be voted
in accordance with the instructions set forth in the proxy, or as stated
below. If the holder of such Winco share signs the proxy but does not give
voting instructions, the shares represented by that proxy will be voted as
recommended by the Winco board. Accordingly, such proxies will be voted
"IN FAVOR OF" the proposals.
The Winco board does not know of any matters other than those
described in the notice of the Winco special meeting which are to come
before the meeting. If any other matters are properly presented at the
Winco special meeting for consideration, including, among other things,
consideration of a motion to adjourn or postpone the meeting to another
time and/or place for the purposes of soliciting additional proxies or
allowing additional time for the satisfaction of conditions to the merger,
the persons named in the proxy will have discretion to vote on such matters
in accordance with their best judgment.
HOW YOU MAY REVOKE OR CHANGE YOUR VOTE
You may revoke your proxy at any time before it is voted at the
special meeting by:
* sending written notice of revocation to the secretary of Winco;
* submitting another properly executed proxy; or
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* attending the special meeting and voting in person.
You should send any written notice of revocation or subsequent proxy
to Winco Petroleum Corporation, 3118 Cummings, Garden City, Kansas 67846,
Attention: Secretary, or hand deliver it to the secretary of Winco at or
before the taking of the vote at the Winco special meeting. If you have
instructed a broker to vote your shares, you must follow directions
received from the broker in order to change your vote or to vote at the
Winco special meeting.
COSTS OF SOLICITATION
Winco will pay for the costs of preparing this proxy. Printing and
mailing costs associated with this Proxy Statement will be divided equally
between Winco and RCS. Proxies may be solicited personally or by telephone
or by other means of communication by directors, officers and employees of
Winco. These directors, officers and employees will not be additionally
compensated, but may be reimbursed for reasonable out-of-pocket expenses in
connection with the solicitation. Winco will reimburse banks, brokers and
other custodians, nominees and fiduciaries for their costs of sending the
proxy materials to beneficial owners of the shares.
OTHER MATTERS
At the date of this Proxy Statement, the Winco board of directors does
not know of any business to be presented at the special meeting other than
as set forth in the notice accompanying this Proxy Statement. If any other
matters should properly come before the special meeting, it is intended
that the shares represented by proxies will be voted with respect to such
matters in accordance with the judgment of the persons voting such proxies.
The matters to be considered at the special meeting are of great
importance to Winco shareholders. Accordingly, you are urged to read and
carefully consider the information presented in this Proxy Statement and to
complete, date, sign and promptly return the enclosed proxy card in the
enclosed postage-paid envelope.
You should not send back any stock certificates with your proxy cards.
A transmittal form with instructions for the surrender of stock
certificates in connection with the reverse stock split will be mailed to
you promptly after approval of the proposals and completion of the merger.
More information regarding the procedures for exchanging stock certificates
representing Old Winco Shares for stock certificates representing New Winco
Shares is set forth herein.
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PROPOSAL ONE
THE REVERSE STOCK SPLIT
GENERAL
The board of directors has approved a reverse stock split whereupon
each stock certificate representing Old Winco Shares outstanding
immediately prior to the reverse stock split will be deemed automatically,
without any action on the part of the shareholders, to represent New Winco
Shares equal to one-fortieth the number of Old Winco Shares formerly
represented by such certificate; provided, however, that no fractional
shares will be issued as a result of the reverse stock split. In lieu of
fractional shares, each shareholder whose Old Winco Shares are not evenly
divisible by forty will receive the next whole share. After the reverse
stock split becomes effective, shareholders will be asked to surrender
stock certificates representing Old Winco Shares in accordance with the
procedures set forth in a letter of transmittal to be sent by Winco. Upon
such surrender, a stock certificate representing the New Winco Shares will
be issued and forwarded to the shareholders. However, each stock
certificate representing Old Winco Shares will continue to be valid and
will represent New Winco Shares equal to one-fortieth the number of Old
Winco Shares formerly represented by such certificate, until surrendered in
exchange for a certificate representing New Winco Shares. The common stock
issued pursuant to the reverse stock split will be fully paid and
nonassessable.
PRINCIPAL EFFECTS OF THE REVERSE STOCK SPLIT
Promptly following shareholder approval, the reverse stock split will
become effective. Without any further action on the part of Winco or the
shareholders, after the reverse stock split, a stock certificate
representing Old Winco Shares will be deemed to represent New Winco Shares
equal to one-fortieth the number of Old Winco Shares formerly represented
by such certificate.
Pursuant to the Colorado Business Corporation Act, Winco shareholders
are not entitled to dissenters' rights of appraisal with respect to the
reverse stock split.
There were approximately 2,440 shareholders of record of Winco as of
November 1, 2000 and the reverse stock split is not expected to cause the
number of shareholders of record to fall below that number as each
shareholder will receive at least one New Winco Share. Winco has no plans
for the cancellation or purchase of its shares from individuals holding a
nominal number of such shares after the reverse stock split's effective date.
Winco shares are currently registered under Section 12(g) of the
Exchange Act and, as a result, Winco is subject to the periodic reporting
and other requirements of the Exchange Act. The reverse stock split will
not effect the registration of Winco shares under the Exchange Act. After
the effective date, trades of the New Winco Shares will be reported on the
National Quotation Bureau's "pink sheets" under the symbol "WNCO."
The principal effects of Proposal One will be:
* Based upon the 41,152,606 Winco shares outstanding as of November
1, 2000, the reverse stock split will decrease the number of
outstanding Winco shares by approximately 97.5%, and thereafter
approximately 1,028,815 Winco shares will
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be outstanding. The reverse stock split will not affect any
stockholder's proportionate equity interest in Winco, subject to
the provisions for the elimination of fractional shares as
described herein.
* After the reverse stock split, the Winco shares issued and
outstanding will represent approximately 2% of Winco's authorized
shares of common stock. After the reverse stock split,
approximately 49 million shares of common stock will be available
for future issuance by the board of directors without further
action by the shareholders.
* On November 1, 2000, there is expected to be no trading market
for the Winco shares. By decreasing the number of Winco shares
outstanding without altering the aggregate economic interest in
Winco represented by such shares, the board of directors believes
that the investment community will view a lower number of
outstanding Winco shares as more appropriate for a potentially
publicly-traded security.
REASONS FOR THE REVERSE STOCK SPLIT
The board of directors believes the reverse stock split is desirable
for several reasons. The reverse stock split, together with RCS's business
model, should enhance the acceptability of Winco shares by the financial
community and investing public. The reduction in the number of Winco
shares outstanding caused by the reverse stock split presumably may
increase the per share market price for the Winco shares quoted by market
makers if a trading market develops. Theoretically, the number of shares
outstanding should not, by itself, affect the marketability of the stock,
the type of investor who acquires it, or Winco's reputation in the
financial community. However, in practice this is not necessarily the
case, as many investors look upon companies with a large number of shares
outstanding and a low stock-trading price as unduly speculative in nature
and, as a matter of policy, avoid investment in such stocks. In addition,
many leading brokerage firms are reluctant to recommend lower-priced
securities to their clients and a variety of brokerage house policies and
practices currently tend to discourage individual brokers within firms from
dealing in lower-priced stocks. Some of those policies and practices
pertain to the payment of brokers' commissions and to time-consuming
procedures that function to make the handling of lower-priced stocks
unattractive to brokers from an economic standpoint. In addition, the
structure of trading commissions also tends to have an adverse impact upon
holders of lower-priced stocks because the brokerage commission on a sale
of a lower-priced stock generally represents a higher percentage of the
sales price than the commission on a relatively higher-priced issue.
Although there can be no assurance that a market for Winco shares will
develop after the reverse stock split and the merger, the reverse stock
split is intended to result in a market and a price level for the Winco
shares that will reduce the effect of the above described policies and
practices, broaden investor interest and provide a market that will more
closely reflect Winco's underlying values.
EXCHANGE OF STOCK CERTIFICATES
As soon as practicable after the effective date of the reverse stock
split, Winco will send a letter of transmittal to each holder of record of
Old Winco Shares outstanding on the effective
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date. The letter of transmittal will contain instructions for the
surrender of stock certificate(s) representing such Old Winco Shares. Upon
proper completion and execution of the letter of transmittal and return
thereof, together with the stock certificate(s) representing Old Winco
Shares, a shareholder will be entitled to receive a stock certificate
representing the number of New Winco Shares into which his Old Winco Shares
have been reclassified and changed as a result of the reverse stock split.
Shareholders should not submit any certificates until requested to do so.
No stock certificate representing New Winco Shares will be issued to a
shareholder until he has surrendered his outstanding stock certificate(s)
representing Old Winco Shares, together with the properly completed and
executed letter of transmittal. Until so surrendered, each current stock
certificate representing Old Winco Shares will be deemed for all corporate
purposes after the effective date to evidence ownership of New Winco Shares
in the appropriately reduced number.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material U.S. federal income tax
consequences of the proposed reverse stock split. This summary does not
purport to be complete and does not address the tax consequences to holders
that are subject to special tax rules, such as banks, insurance companies,
regulated investment companies, personal holding companies, foreign
entities, nonresident alien individuals, broker-dealers and tax-exempt
entities. This summary is based on the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury regulations and proposed regulations, court
decisions and current administrative rulings and pronouncements of the
Internal Revenue Service ("IRS"), all of which are subject to change,
possibly with retroactive effect. The summary does not encompass the
effects of the tax laws (whether income, property, transfer or other forms
of tax laws) of any jurisdiction (e.g., states, municipalities or foreign
countries) other than U.S. federal income tax laws. This summary also
assumes that the New Winco Shares will be held as a "capital asset" as
defined in the Code. Holders of Old Winco Shares are advised to consult
their own tax advisers regarding the federal income tax consequences of the
proposed reverse stock split in light of their personal circumstances and
the consequences under state, local and foreign tax laws.
The reverse stock split is intended to qualify as a nontaxable
reorganization under Section 368(a)(1)(E) of the Code. The opinions of
Winco's management set forth in this Proxy Statement are and will be
subject to qualifications and limitations, including those described below.
Management believes that:
1. No gain or loss will be recognized by Winco in connection with
the reverse stock split.
2. No gain or loss will be recognized by a Winco shareholder that
exchanges all of his Old Winco Shares solely for New Winco Shares.
3. A Winco shareholder's aggregate basis of New Winco Shares to be
received in the reverse stock split will be the same as such
shareholder's aggregate basis of the Old Winco Shares surrendered
in exchange for New Winco Shares.
4. A Winco shareholder's holding period of New Winco Shares to be
received in the reverse stock split will include such
shareholder's holding period of the Old Winco Shares surrendered
in this exchange.
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THE FOREGOING SUMMARY IS INCLUDED FOR GENERAL INFORMATION ONLY.
ACCORDINGLY, EACH HOLDER OF COMMON STOCK OF THE COMPANY IS URGED TO CONSULT
WITH HIS OR HER OWN TAX ADVISER WITH RESPECT TO THE TAX CONSEQUENCES OF THE
PROPOSED REVERSE STOCK SPLIT, INCLUDING THE APPLICATION AND EFFECT OF THE
LAWS OF ANY STATE, MUNICIPAL, FOREIGN OR OTHER TAXING JURISDICTION.
BOARD RECOMMENDATION TO SHAREHOLDERS
The board of directors has unanimously approved resolutions approving
the reverse stock split. For the reasons set forth above, the board of
directors unanimously recommends to shareholders that they approve the
reverse stock split.
VOTE REQUIRED
The affirmative vote, in person or by proxy, of the holders of a
majority of the outstanding Winco shares is required to approve the reverse
stock split. Winco shares currently held by Winco's officers and directors
comprise approximately 46.32% of currently outstanding Winco shares.
Winco's officers and directors intend to vote all of their Winco shares in
favor of Proposal One.
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PROPOSAL TWO
THE MERGER
BACKGROUND OF THE MERGER
For the past several years, Winco's board of directors has been
evaluating its future in the oil and gas industry given Winco's small size
relative to Winco's competitors and the current unavailability of outside
funding for future exploration and drilling. In addition, efforts to
re-establish an active public trading market for Winco shares have been
unsuccessful. Management also believes the investing public and market
makers are currently more receptive to establish viable trading markets for
high technology companies than small independent oil and gas companies.
Accordingly, management began seeking companies or business opportunities
that had greater financial resources and businesses that would interest the
financial communities and enhance Winco's long term future as a public company.
Winco and RCS entered into discussions regarding a possible merger in
June of 2000 and began financial and technical due diligence with respect
to each company's business.
On June 6, 2000, members of Winco's board of directors met with Mr.
William Dews of CeBourn Ltd. of Denver, Colorado. Mr. Dews was assisting
RCS in finding a suitable merger candidate with which to discuss the terms
of a proposed merger and a timetable to accomplish such merger. At that
meeting, Mr. Dews gave a presentation and answered questions relating to
the business of RCS and also supplied certain financial information about RCS.
On June 30, 2000, Mr. Cecil O'Brate, Winco's president and a member of
Winco's board of directors, traveled to Denver, Colorado to view the RCS
operations and conclude formal due diligence on behalf of the board of
directors. After extensive negotiations between the parties, a verbal
agreement to the terms and conditions of the merger was reached and the
parties executed a letter of intent. Later that day, the board of
directors formally approved summary terms of the merger and related
transactions, subject to satisfactory due diligence and negotiation of a
definitive merger agreement.
The Merger Agreement and related agreements were executed by the
parties on August 18, 2000. Subsequently, Winco reported the transaction
on Form 8-K filed with the Securities and Exchange Commission on
September 1, 2000.
WINCO'S REASONS FOR THE MERGER
The Winco board believes that the Merger Agreement and the terms of
the merger are fair to, and in the best interest of, Winco and the Winco
shareholders. Therefore, the Winco board of directors recommends that the
Winco shareholders approve the adoption of the Merger Agreement.
In reaching its recommendation, the Winco board of directors consulted
with Winco's management and advisors and considered the following material
factors:
* the lack of any trading and/or market interest in a small oil and
gas company;
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* the financial condition, results of operations and business of
RCS before and after giving effect to the merger;
* the near-term and long-term prospects of Winco as an independent
company; and
* the opportunity for Winco shareholders to participate in a
company, such as RCS, with the potential for greater growth
opportunities, financial strength and earning power that Winco
may have after the merger.
In the judgment of the Winco board of directors, the potential
benefits of the merger outweigh the risks. The foregoing discussion of the
information and factors that were given weight by the Winco board of
directors is not intended to be exhaustive, but it is believed to include
all material factors considered by the Winco board of directors. The Winco
board of directors considered it unnecessary to obtain an independent
fairness opinion, in view of the fact that Winco's current pre-merger
shareholders will own a virtually identical proportional interest in WSC
after the transaction, and WSC will have all the assets and business that
Winco had prior to the merger.
In view of the variety of factors considered in connection with its
evaluation of the proposed merger and the terms of the Merger Agreement,
the Winco board of directors did not believe it was practicable to quantify
or assign relative weights to the factors considered in reaching its
conclusion. In addition, individual directors may have given different
weights to different factors.
In considering the recommendation of the Winco board of directors with
respect to the merger, Winco shareholders should be aware that certain
officers and directors of Winco may have interests in the merger that are
different from the interests of Winco shareholders generally, due to the
larger ownership of Winco shares held by these individuals. The Winco
board of directors was aware of these interests and considered them in
approving the merger and Merger Agreement. Please refer to "The Merger -
Interests of Winco Executive Officers and Directors; Employment Agreements"
for more information about these interests.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of certain U.S. federal income
tax consequences of the proposed merger of WMC and RCS. The discussion is
based upon the Code, and the related regulations, rulings and decisions
currently in effect. The discussion does not encompass the effects of the
tax laws (whether income, property, transfer or other forms of tax laws) of
any jurisdiction (e.g., states, municipalities or foreign countries) other
than U.S. federal income tax laws. Winco shareholders are advised to
consult their own tax advisers regarding the federal income tax
consequences of the proposed merger in light of their personal
circumstances and the consequences under state, local and foreign tax laws.
The merger of WMC and RCS is intended to qualify as a nontaxable
reorganization under Section 368(a)(1)(A) of the Code. The opinions of
Winco's management set forth in this Proxy Statement are and will be
subject to qualifications and limitations, including those described below.
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1. The pre-merger Winco shareholders should recognize no gain or
loss in the merger, as such shareholders will hold the same Winco shares
after the merger as such shareholders held prior to such merger. The
adjusted bases and holding periods of the Winco shares held by the pre-
merger Winco shareholders should also be unaffected by the merger.
2. Neither Winco, WMC, RCS nor the RCS shareholders should recognize
any gain or loss on the merger as the transaction will qualify as a
nontaxable reorganization under Section 368(a)(1)(A) of the Code.
BECAUSE THE FEDERAL INCOME TAX CONSEQUENCES DISCUSSED ABOVE DEPEND UPON
EACH SHAREHOLDER'S PARTICULAR TAX STATUS, AND DEPEND FURTHER UPON FEDERAL
INCOME TAX LAWS, REGULATIONS, RULINGS AND DECISIONS WHICH ARE SUBJECT TO
CHANGE (WHICH CHANGES MAY BE RETROACTIVE IN EFFECT), EACH SHAREHOLDER
SHOULD CONSULT HIS OR HER OWN TAX ADVISOR FOR A COMPLETE DESCRIPTION OF THE
TAX CONSEQUENCES TO THE SHAREHOLDER.
ANTICIPATED ACCOUNTING TREATMENT
The Merger, if consummated as proposed, will for accounting and
financial reporting purposes be treated as a reverse acquisition as the
former shareholders of RCS will control Winco after the merger. Under this
accounting treatment, RCS is deemed for accounting purposes to be the
acquirer and Winco the acquired entity. Under these accounting principles,
the post merger Company financial statements will represent RCS on a
historical basis consolidated with the results of operations of Winco from
the effective date of the merger. After the spin-off of Winco's business
to WSC, Winco will effectively be a non-operating public shell. The reverse
merger will be treated as a recapitalization of RCS, with no goodwill recorded.
INTERESTS OF WINCO EXECUTIVE OFFICERS AND DIRECTORS; EMPLOYMENT AGREEMENTS
The executive officers and directors of Winco may be deemed to have
interests that are different from, and in addition to, the interests of
Winco shareholders. Such persons own a large percentage of the outstanding
shares of Winco and WSC, in light of the 40:1 reverse stock split and will
have the ability to control the board of directors and corporate policies
of WSC. Furthermore, following the merger, current executive officers and
directors of Winco will become the executive officers and directors of WSC.
THE WINCO SPIN-OFF AND DISTRIBUTION
The Merger Agreement provides that prior to the effective date of the
merger, and as a condition precedent to the merger, Winco will transfer all
of the assets, liabilities and other obligations of Winco to WSC, a newly
formed, wholly owned subsidiary of Winco in consideration for WSC shares.
In addition and prior to the effective date of the merger, Winco will
distribute all of the WSC shares to then-existing Winco shareholders. WSC
was formed for the purpose of effecting the reorganization of Winco and the
subsequent distribution of WSC shares to the Winco shareholders. On or
prior to the date the WSC shares are distributed, Winco will have
transferred to WSC substantially all of the assets of Winco and filed a
Form 10-SB with the Securities and Exchange Commission registering the
common stock of WSC under the
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Securities Exchange Act of 1934. The distribution of WSC shares to the
Winco shareholders will then occur on the effective date of the WSC Form
10-SB registration statement.
Following the merger, the current oil and gas operations of Winco will
be carried on by WSC, and the current technology solutions business of RCS
will be carried on by RCS as a wholly-owned subsidiary of Winco. Pre-merger
Winco shareholders will own both Winco shares and WSC shares.
VOTING ON THE ASSET SPIN-OFF AND DISTRIBUTION
Winco shareholders are not being asked to vote on the asset spin-off
and associated distribution of WSC shares to Winco shareholders as a
separate proposal. Rather, a vote on the proposal to approve and adopt the
Merger Agreement will also be a vote on the proposed asset spin-off and
distribution of WSC shares to the pre-merger Winco shareholders.
PRIMARY REASONS FOR THE ASSET SPIN-OFF AND DISTRIBUTION
The board of directors believes that it is in the best interests of
Winco and its shareholders to undertake the spin-off and the subsequent
distribution, for the reasons described herein. The spin-off and
distribution will:
* allow each company to allocate its managerial and financial
resources to address its particular business needs and capitalize
on its respective business opportunities;
* establish WSC as an independent company that can adopt strategies
and pursue objectives appropriate to the oil and gas industry;
* separate the RCS assets from any liabilities associated with
Winco's oil and gas operations; and
* allow the pre-merger Winco shareholders to continue to own an
independent oil and gas company managed by the current Winco
management and also retain Winco shares, which shares will
represent a minority ownership interest in RCS after the merger.
MANNER OF EFFECTING THE DISTRIBUTION
On the effective date of the spin-off, all then outstanding WSC shares
will be distributed by Winco to its shareholders on a pro rata basis such
that each Winco shareholder will receive one WSC share for each Winco share
held by such shareholder.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of certain U.S. federal income
tax consequences of the proposed spin-off of substantially all of the
assets of Winco and the subsequent distribution to each individual
shareholder (who is a U.S. citizen or resident alien) or a corporate
shareholder (which is an ordinary domestic U.S. corporation) of Winco of
the WSC shares. The discussion is based upon the Code, and the related
regulations, rulings and decisions currently in
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effect. The discussion does not encompass the effects of the tax laws
(whether income, property, transfer or other forms of tax laws) of any
jurisdiction (e.g., states, municipalities or foreign countries) other than
U.S. federal income tax laws. The discussion also assumes that the Winco
shares and WSC shares are and will be held by each such shareholder as a
capital asset. Winco shareholders are advised to consult their own tax
advisers regarding the federal income tax consequences of the proposed
spin-off and distribution in light of their personal circumstances and the
consequences under state, local and foreign tax laws.
The spin-off of WSC from Winco is intended to qualify as a nontaxable
reorganization under Section 368(a)(1)(D) of the Code, with the related
distribution by Winco to the Winco shareholders of the WSC shares intended
to be a nontaxable distribution under Section 354 of the Code. The
opinions of Winco's management set forth in this Proxy Statement are and
will be subject to qualifications and limitations, including those
described below.
For purposes of the following discussion, the Winco shares held prior
to the spin-off are referred to as "pre-spin-off Winco shares," and the
Winco shares held after the spin-off are referred to as "post-spin-off
Winco shares."
1. Winco should recognize no gain or loss on the transfer of
substantially all of its assets to WSC. In connection with the
spin-off of WSC, Code Section 354 requires that all assets of
Winco be distributed to the shareholders pursuant to the plan of
reorganization. The IRS has generally required in connection
with this provision that the distributing corporation (Winco) be
dissolved. However, the IRS has administratively permitted the
sale of a corporate charter by a company following a spin-off
distribution, as long as the proceeds from the sale were treated
as being constructively distributed to the shareholders and
constructively re-contributed to a new corporation. While the
IRS rulings in this area involve a spin-off followed by the sale
of a corporate charter, and this transaction involves a spin-off
followed by a merger into WMC, counsel for Winco believes it is
reasonable to rely on the IRS administrative position in
connection with the spin-off distribution of WSC shares. As a
result of the forgoing ruling positions, any assets retained by
Winco (i.e., any assets of Winco not transferred to WSC in the
spin-off including the "Retained Asset" discussed below) will be
deemed constructively distributed to the Winco shareholders, on
a pro rata basis, and subsequently constructively re-contributed
by the respective Winco shareholders to Winco. At that time, and
solely for tax purposes, Winco will be treated as a new
corporation. In accordance with published IRS administrative
positions, the constructive distribution and constructive re-
contribution of any assets retained by Winco will most likely
satisfy the distribution provisions of Section 354 of the Code
and any tax rulings or other authorities issued thereunder.
Accordingly, Winco should also recognize no gain or loss on the
distribution of the WSC shares to Winco shareholders.
2. Winco's management intends that Winco will retain only its
corporate shell, which includes Winco's SEC reporting status
("Retained Asset"), and all other assets of Winco will be
transferred to WSC. The Retained Asset will be considered to be
constructively distributed to Winco shareholders, on a pro rata
basis, and will be considered to be constructively re-contributed
to Winco by the Winco shareholders. Winco will most likely
recognize gain on the constructive
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distribution of the Retained Asset, which gain will most likely
be offset against net operating losses of Winco from previous
taxable years. Winco will recognize no gain or loss on the
constructive re-contribution of the Retained Asset by the Winco
shareholders.
3. Except as provided in paragraph 4 below, a Winco shareholder
should recognize no gain or loss, and should not otherwise be
required to include any amount in income, as a result of the
constructive receipt and constructive re-contribution of the
Retained Asset or of the actual receipt of the WSC shares.
4. A Winco shareholder's constructive receipt of the Retained Asset
may cause such shareholder to recognize dividend income and/or
gain. Upon Winco's constructive distribution of the Retained
Asset, all Winco shareholders will be required to recognize, on
a pro rata basis, dividend income to the extent Winco has any
accumulated or current earnings and profits at the time of such
constructive distribution. Winco does not currently possess any
accumulated earning and profits. The determination of whether
Winco has current earnings and profits will be made for Winco's
fiscal year in which the deemed distribution is made. It is
therefore possible that even though Winco has accumulated net
operating losses, Winco shareholders may be taxed, at ordinary
income rates, on a dividend equal to their pro rata share of the
value of the retained asset, to the extent of their pro-rata
share of Winco's current earnings and profits. To the extent
gain is realized by any individual Winco shareholder on the
constructive distribution of the Retained Asset, that shareholder
will be required to recognize the gain that was realized only to
the extent the gain realized exceeds the dividend income required
to be recognized by such shareholder. For this purpose, the
"gain is realized" to the extent the fair market value of the
ratable portion of the Retained Asset allocated to a pre-spin-off
Winco share exceeds the adjusted basis of such pre-spin-off Winco
share. The "fair market value of the ratable portion of the
Retained Asset" allocated to a pre-spin-off Winco share is equal
to the fair market value of the entire Retained Asset, divided by
the aggregate number of pre-spin-off Winco shares held by all
Winco shareholders prior to the spin-off. The fair market value
of the Retained Asset has not yet been determined. Winco
management will, in consultation with financial advisors,
determine the fair market value of the Retained Assets, and such
fair market value will be taken into account in determining
information returns issued to Winco shareholders in connection
with the constructive distribution of the Retained Assets.
5. A Winco shareholder's adjusted basis in each WSC share should be
(i) equal to such shareholder's adjusted basis in the pre-spin-off
Winco share exchanged for such WSC share, (ii) decreased by
the fair market value of the ratable portion of the Retained
Asset allocated to such pre-spin-off Winco share, and (iii)
increased by any dividend income or gain to be recognized by such
shareholder with respect to that pre-spin-off Winco share on the
spin-off (see paragraph 4 above).
6. A Winco shareholder's adjusted basis in the "ratable portion of
the Retained Asset" allocated to a particular pre-spin-off Winco
share will be equal to the fair market value of such ratable
portion of the Retained Asset.
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7. A Winco shareholder's adjusted basis in each post-spin-off Winco
share will be equal to the basis of the "ratable portion of the
Retained Asset" that is constructively re-contributed to Winco.
8. The holding period of a WSC share should include the holding
period of the pre-spin-off Winco share exchanged for such WSC share.
9. WSC will recognize no gain or loss on the spin-off. Pursuant to
Section 381(a) of the Code, WSC will succeed to those tax
attributes (as described in Section 381(c) of the Code) formerly
possessed by Winco, including any net operating loss generated by
Winco prior to the merger (except to the extent such net
operating losses are offset against any gain or income to Winco
resulting from the constructive distribution of the Retained
Asset, or the actual the distribution of WSC shares, to the Winco
shareholders). To the extent Winco recognizes any gain or income
on the constructive distribution of the Retained Asset or the
actual distribution of the WSC shares, WSC has agreed to
indemnify and hold Winco harmless from any resulting tax
liability. However, tax liability from such distributions would
arise only after Winco's net operating losses are applied against
such income.
BECAUSE THE FEDERAL INCOME TAX CONSEQUENCES DISCUSSED ABOVE DEPEND UPON
EACH SHAREHOLDER'S PARTICULAR TAX STATUS, AND DEPEND FURTHER UPON FEDERAL
INCOME TAX LAWS, REGULATIONS, RULINGS AND DECISIONS WHICH ARE SUBJECT TO
CHANGE (WHICH CHANGES MAY BE RETROACTIVE IN EFFECT), EACH SHAREHOLDER
SHOULD CONSULT HIS OR HER OWN TAX ADVISOR FOR A COMPLETE DESCRIPTION OF THE
TAX CONSEQUENCES TO THE SHAREHOLDER.
ANTICIPATED ACCOUNTING TREATMENT
The spin-off of WSC from Winco is expected to be accounted for using
the purchase method of accounting in accordance with generally accepted
accounting principles. Accordingly, assets received and liabilities
assumed in connection with the spin-off will be reflected at their
estimated fair values. It is anticipated that estimated fair value will
equal the historical cost basis and no goodwill will be recognized.
THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the
Merger Agreement. A copy of the Merger Agreement is attached as Annex A
and forms a part of this Proxy Statement. The summary is qualified in its
entirety by reference to the Merger Agreement. We urge all Winco
shareholders to read the Merger Agreement in its entirety for a more
complete description of the terms and conditions of the merger.
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THE MERGER
The Merger Agreement provides that immediately prior to the merger,
Winco will create two wholly-owned subsidiaries, Winco Merger Corporation
("WMC") and Winco Spin-off Corporation ("WSC"). In order to accomplish the
merger, RCS will merge into WMC, and WMC will be the surviving entity. The
pre-merger RCS shareholders will receive Winco shares in exchange for the
cancellation of their RCS common stock. Prior to and pursuant to the
merger, all the assets, obligations and liabilities of Winco will be
transferred to and assumed by WSC in consideration for the transfer of WSC
shares to Winco, and all WSC shares will be distributed by Winco to Winco's
pre-merger shareholders. Prior to the merger, Winco shall undertake a
reverse stock split whereby each forty (40) Old Winco Shares will be
combined into one (1) New Winco Share. Following the merger, the separate
corporate existence of RCS will cease and WMC will continue as the
surviving corporation. The merger will become effective after all the
conditions in the Merger Agreement are met, including receipt of approval
of holders of a majority of the Winco shares, and after WMC, as the
surviving corporation, files articles of merger with the Secretary of State
of Colorado.
CONVERSION OF SECURITIES
At the effective time of the merger, the RCS shareholders will receive
as purchase price consideration an aggregate of 12,688,719 Winco shares.
Each issued and outstanding Winco share immediately prior to the merger
will not be affected by the merger and will represent one Winco share after
the merger.
The Merger Agreement contains customary representations and warranties
of Winco and RCS relating to various aspects of the various business and
financial statements of the parties and other matters. Winco shareholders
should be aware that the Merger Agreement contains relatively robust
representations by each party regarding environmental matters, which
constitute a major litigation risk area for oil and gas businesses such as
Winco. The Merger Agreement also contains relatively robust
representations by each party regarding intellectual property ownership and
licenses, which represent a major litigation risk area for an information
technology consulting businesses such as RCS.
CONDUCT OF BUSINESS PRIOR TO THE MERGER
Each of Winco, WMC, WSC and RCS has agreed that prior to the merger
each will operate its business consistent with past practices and use
reasonable efforts to preserve intact its business organization and
relationships with suppliers and customers and to keep available the
services of key employees.
In addition, the Merger Agreement places specific restrictions on the
ability of Winco, WMC, WSC and RCS to:
* amend their articles of incorporation or bylaws;
* issue any securities other than those contemplated in the Merger
Agreement and related transactions;
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* declare or pay any dividend;
* enter into material contracts, or make substantial expenditures;
* permit additional encumbrances on assets;
* dispose of material properties;
* make a material acquisition or enter into a new line of business; and
* enter into any transaction outside the ordinary course of its
business or prohibited under the Merger Agreement, except that
RCS is permitted to effect debt or equity financing in an amount
up to $3 million, which amount will not affect the relative
proportion of then outstanding Winco shares to be held by pre-merger
Winco shareholders after the merger.
LIMITATION ON DISCUSSIONS OR NEGOTIATIONS OF OTHER ACQUISITION PROPOSALS
Each of Winco, WSC and WMC has agreed that it will not solicit,
initiate, participate in any discussions pertaining to, or furnish any
information to any person other than shareholders of RCS, concerning any
acquisition or purchase of all or a material amount of the assets of, or a
majority equity interest in, Winco or a merger, consolidation or business
combination of Winco. RCS has agreed to the same restrictions with respect
to itself.
CONDITIONS TO THE OBLIGATION OF EACH PARTY
The obligations of each party to complete the merger are subject to
the following conditions:
* The shareholders of Winco shall have approved the reverse stock split.
* The shareholders of Winco shall have approved the Merger
Agreement and its associated asset spin-off and distribution.
* All consents and approvals in connection with the Merger
Agreement shall have been obtained.
* No action or proceeding shall have been instituted or threatened
to restrain or prohibit the completion of the merger.
CONDITIONS TO THE OBLIGATIONS OF WINCO
The obligation of Winco to complete the merger is also subject to the
following additional conditions:
* The representations and warranties of RCS and its shareholders in
the Merger Agreement shall be true and correct in all material
respects as of the date of the Merger Agreement and as of the
closing date.
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* All proceedings undertaken by RCS pursuant to the Merger
Agreement, and all documents, instruments and certificates
delivered by RCS pursuant to the Merger Agreement, shall be
reasonably satisfactory in form and substance to Winco and its
counsel.
* No material adverse effect with respect to RCS and its business
shall have occurred.
* RCS is required to effect an employment agreement whereby Michael
G. St. John shall provide services to Winco after the merger.
CONDITIONS TO THE OBLIGATIONS OF RCS
The obligation of RCS to complete the merger is also subject to the
following additional conditions:
* The representations and warranties of Winco in the Merger
Agreement shall be true and correct in all material respects as
of the date of the Merger Agreement and as of the closing date.
* All proceedings undertaken by Winco pursuant to the Merger
Agreement, and all documents, instruments and certificates
delivered by Winco pursuant to the Merger Agreement, shall be
reasonably satisfactory in form and substance to RCS and its counsel.
* No material adverse effect with respect to Winco shall have occurred.
TERMINATION, AMENDMENT AND WAIVER
The Merger Agreement may be terminated at any time prior to completion
of the merger, whether before or after approval by the Winco shareholders,
by the mutual consent of the parties to the Merger Agreement or by any
party if the merger has not occurred by December 31, 2000, unless the
failure to consummate the transaction results from the failure of the party
seeking termination to take action required to be taken by such party. In
addition, the Merger Agreement may be terminated if a party is in material
breach of the Merger Agreement, and such breach has not been cured before
the closing date, including any adjournment thereof.
The Merger Agreement may be amended at any time prior to completion of
the merger, including after approval of the merger by the Winco
shareholders. Winco shareholders would not be requested to approve any
such amendment to the Merger Agreement. At any time prior to the
completion of the merger, the parties may:
* extend the time for performance of any of the obligations or
other acts of the other party required by the Merger Agreement;
51
<PAGE>
* waive any inaccuracies in the representations and warranties
contained in the Merger Agreement or in any document delivered in
connection with the Merger Agreement; or
* waive compliance with any of the agreements or conditions
contained in the Merger Agreement.
INDEMNIFICATION
The Merger Agreement contemplates that each of the parties shall
indemnify and hold the other party harmless for damages resulting from a
breach of representations and warranties. No indemnification can be
claimed until adverse consequences exceed $50,000, but there is no limit on
the indemnification in excess of such amount. The indemnification
obligation of Winco and WSC under the Merger Agreement prior to the merger,
will become the indemnification obligations of WSC alone after the merger.
Further details regarding indemnification procedures are expected to be
established by the parties prior to closing, but will not result in a
subsequent proxy solicitation.
BOARD RECOMMENDATION TO SHAREHOLDERS
The board of directors has unanimously adopted resolutions approving
the Merger Agreement and its related transactions. For the reasons set
forth above, the board of directors unanimously recommends to shareholders
that they approve and adopt the Merger Agreement.
VOTE REQUIRED
The affirmative vote, in person or by proxy, of the holders of a
majority of the outstanding Winco shares is required to approve the Merger
Agreement. As discussed elsewhere in this Proxy Statement, a vote for the
approval of the Merger Agreement is also a vote in favor of the merger and
asset spin-off to WSC and the associated distribution of all WSC shares to
the Winco shareholders. Winco's officers and directors intend to vote
their Winco shares in favor of Proposal Two. Winco shares currently held
by Winco's officers and directors comprise approximately 46.32% of
currently outstanding Winco shares, all of which are expected to be voted
in favor of Proposal Two.
52
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF WINCO AND RCS
On August 18, 2000, Winco entered into a Merger Agreement with Rush
Creek Solutions, Inc. ("RCS") pursuant to which Winco will spin-off all of
its assets and liabilities to Winco Spin-Off Corporation ("WSC") in
consideration for WSC shares, distribute the WSC shares to its existing
shareholders and then issue 12,688,719 Winco shares to RCS as purchase
price consideration in exchange for all of the issued and outstanding
shares of common stock of RCS (the "Proposed Merger").
As the former shareholders of RCS will control Winco after the
transaction, the proposed merger will be accounted for as a reverse
acquisition under which, for accounting purposes, RCS is deemed to be the
acquiror and Winco is deemed to be the acquired entity. Under these
accounting principles the post merger company financial statements will
represent RCS on a historical basis consolidated with the results of
operations of Winco from the effective date of the merger. As Winco, after
the spin-off of Winco's business to WSC is effectively a non-operating
public shell, the reverse merger will be treated as a recapitalization of
RCS, with no goodwill recorded.
The unaudited pro forma condensed financial statements of Winco are
based upon the historical financial statements of Winco and RCS, after
giving effect to the proposed spin-off of Winco's assets and liabilities,
the proposed 40 for 1 reverse stock split and the proposed merger with RCS.
These unaudited pro forma condensed financial statements are not
necessarily indicative of the financial position and results of operations
that would have been attained had the transactions actually taken place at
the date indicated and do not purport to be indicative of the effects that
may be expected to occur in the future.
The accompanying unaudited pro forma condensed financial statements
illustrate the effect of the proposed spin-off, merger and the acquisition
on Winco's financial position and results of operations. The unaudited pro
forma condensed balance sheet as of July 31, 2000 is based on the
historical balance sheets of Winco and RCS and assumes the proposed merger
took place on that date. The unaudited pro forma condensed statements of
operations for the three months ended July 31, 2000 and the year ended
April 30, 2000 are based on the historical statements of operations of
Winco and RCS for the same periods and assume the proposed merger and the
acquisitions occurred as of May 1, 1999. As there are effectively no
operations of Winco on a pro forma basis, the pro forma financial
statements reflect RCS historical financial statements for the periods
mentioned above.
53
<PAGE>
WINCO PETROLEUM CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED) JULY 31, 2000
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA CONSOLIDATED
RCS WINCO ADJUSTMENTS WINCO
7/31/00 6/30/00 (SEE NOTES) 7/31/00
------- ------- ----------- -------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 133,823 $ 327,132 $ (327,132) $ 133,823
Securities 2,968 - - 2,968
Trade Accounts Receivable 4,546,936 38,024 (38,024) 4,546,936
Commissions Receivable 127,989 - - 127,989
Prepaid Expenses 188,853 - - 188,853
Related Party Receivables 383,014 24,664 (24,664) 383,014
Refundable Income Taxes 127,368 - - 127,368
Deferred Tax Assets 156,253 - - 156,253
---------- ---------- ---------- ----------
TOTAL CURRENT ASSETS 5,667,204 389,820 (389,820) 5,667,204
---------- ---------- ---------- ----------
OTHER ASSETS:
Investment in Oil & Gas
Properties At Cost - 201,422 (201,422) -
Property, Plant & Equipment 1,124,596 - - 1,124,596
Deposits and Other Assets 125,636 1,000 (1,000) 125,636
---------- ---------- ---------- ----------
TOTAL OTHER ASSETS 1,250,232 202,422 (202,422) 1,250,232
---------- ---------- ---------- ----------
TOTAL ASSETS $6,917,436 $ 592,242 $ (592,242) $6,917,436
========== ========== ========== ==========
LIABILITIES
CURRENT LIABILITIES:
Accounts Payable and Accrued
Expenses $3,173,705 $ 21,697 $ (21,697) $3,173,705
Compensation 802,970 - - 802,970
Payroll Taxes and Employee
Benefits Payable 119,576 - - 119,576
Accounts Payable - Related - 150 (150) -
Deferred Revenue 1,121,472 - - 1,121,472
Income Taxes Payable 120,840 - - 120,840
Notes Payable 1,050,000 - - 1,050,000
---------- ---------- ---------- ----------
TOTAL CURRENT LIABILITIES 6,388,563 21,847 (21,847) 6,388,563
---------- ---------- ---------- ----------
Deferred Income Taxes -
Long-Term 299,139 - - 299,139
TOTAL LIABILITIES 6,687,702 21,847 (21,847) 6,687,702
---------- ---------- ---------- ----------
54
<PAGE>
WINCO PETROLEUM CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (continued)
(UNAUDITED) JULY 31, 2000
SHAREHOLDERS EQUITY
Common Stock, no par value;
RCS - 50,000 shares authorized,
1,500 shares outstanding (historical)
Winco - 500,000 000 shares
authorized,; 41,152,606
shares issued and
outstanding (historical);
1,028,815 (post reverse stock
split); 13,717,535 (post merger) 1,500 307,000 (307,000) 1,500
Additional Paid-In Capital - 1,292,920 (1,292,920) -
Retained Earnings 228,218 (997,088) 997,088 228,218
Treasury Stock - (32,437) 32,437 -
Unrealized Gain on Available
Securities for Sale 16 - - 16
---------- ---------- ---------- ----------
TOTAL SHAREHOLDERS' EQUITY 229,734 570,395 (570,395) 229,734
---------- ---------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $6,917,436 $ 592,242 $ (592,242) $6,917,436
========== ========== ========== ==========
</TABLE>
NOTE: The above pro forma adjustments give effect to the proposed
spin-off of pre-merger assets, liabilities and business of Winco to
WSC. In addition, the pro forma adjustments reflect the
recapitalization of the surviving entity. Winco has been
adjusted to include the assets, liabilities and operations of RCS
as if the merger had taken effect on July 31, 2000.
Additionally, it reflects the additional 12,688,719 Winco common
shares issued to RCS shareholders in conjunction with the merger.
55
<PAGE>
WINCO PETROLEUM CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JULY 31, 2000 (UNAUDITED)
AND THE YEAR ENDED APRIL 30, 2000
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE YEAR ENDED
ENDED JULY 31, 2000 APRIL 30, 2000
------------------- --------------
<S> <C> <C>
REVENUES
System Sales $ 1,802,244 $10,955,756
Commissions 1,056,610 6,876,815
Support Update, Configuration
and Training 5,202,252 19,491,463
Other income - 9,376
----------- -----------
Total Revenues 8,061,106 37,333,410
COST OF SALES 6,169,562 30,137,238
----------- -----------
GROSS PROFIT 1,891,544 7,196,172
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,473,739 7,971,786
----------- -----------
Operating Loss (582,195) (775,614)
OTHER INCOME (EXPENSE):
Interest and Investment Income 10,907 134,074
Interest Expense (30,861) (73,800)
----------- -----------
Total Other Income (Expense) (19,954) 60,274
----------- -----------
LOSS BEFORE INCOME TAX
EXPENSE (BENEFIT) (602,149) (715,340)
INCOME TAX EXPENSE
(BENEFIT) (202,700) (29,900)
----------- -----------
NET LOSS $ (399,449) $ (685,440)
=========== ===========
</TABLE>
NOTE: The Pro Forma Condensed Statements of Operations presented herein
is the result of the operations of RCS for the three months ended
July 31, 2000 and the year ended April 30, 2000. Winco Petroleum
Corporation post spin-off has, in effect, no operations for the
three months ended July 31, 2000 or the year ended April 30, 2000
for the purposes of the Pro Forma Condensed Statements of
Operations presented herein.
56
<PAGE>
BUSINESS OF WINCO AND WSC
GENERAL
Winco is a Colorado corporation organized on June 21, 1979. Winco was
formed primarily for the purpose of exploration, development, and
production of oil and gas. WSC was formed in accordance with the Merger
Agreement to acquire the oil and gas assets and liabilities of Winco and to
continue the oil and gas operations of Winco. Oil and gas operations will
continue, with the prior Winco management under the name WSC. WSC will
continue to investigate potential opportunities to develop, drill and/or
participate in the development of new oil and gas properties and/or acquire
producing oil and gas properties in the Mid-Continent region of the United
States. WSC will attempt to become active as a small, independent energy
company. It is anticipated WSC will identify and drill one to five oil and
gas properties a year, on its own behalf or with other industry partners,
including its affiliate, American Warrior, Inc., which is owned and
controlled by Cecil O'Brate, WSC's president and chief executive officer.
BUSINESS STRATEGY
WSC's objective will be to increase reserves, production, cash flow,
earnings and net asset value per share. To accomplish this objective, WSC
intends to acquire and/or drill and complete, on its own behalf and with
other industry partners, several oil and gas prospects per year. WSC
intends to identify and acquire or develop several of these prospects each
year with a view to taking advantage of industry advances in seismic,
drilling and other technologies as well as management's oil and gas
experience in Kansas and Oklahoma. Of the projected new prospects, one or
two may be intended as higher potential, higher risk prospects. As
indicated above, WSC intends to approach its prospects in a way that will
allow it to control its costs and risks. It is possible that significant
expenditures required of WSC in connection with the future exploration
activities will require additional funding from outside sources in the form
of debt or equity. There can be no assurance such funding will be
available to WSC for this purpose.
OPERATIONS
As of June 30, 2000, Winco or affiliate entities acted as operator for
almost all of Winco's producing wells. Upon completion of the merger, WSC
will assume these responsibilities as operator for the wells. By operating
its producing properties, WSC believes it has greater control over its
expenses and the timing of exploration and development of such properties.
Winco, directly or through its affiliate, American Warrior, Inc., presently
operates all of its wells, which represent 100% of Winco's proved reserves.
The operating agreements between Winco and its American Warrior, Inc.
affiliate provide for terms considered by Winco to be at least as favorable
as third party terms. However, such agreements were not negotiated at
arm's length and may be less advantageous to Winco than a third party
relationship.
OIL AND GAS RESERVES
The table below sets forth the quantities of proved reserves which
will be owned by WSC upon completion of the merger, as estimated by
independent petroleum engineers, McCartney Engineering, all of which are
located in the continental U.S., and the present value of estimated future
net revenues from these reserves on a non-escalated basis, discounted at 10
percent per year for the period indicated. Reserve estimates are
inherently imprecise and are subject to
57
<PAGE>
revisions based on production history, results of additional exploration
and development, prices of oil and gas and other factors.
Years Ended
September 30,
1999 1998
-----------------------
Estimated Proved Gas Reserves (Mcf) 0 0
Estimated Proved Oil Reserves (Bbls) 109,107 68,293
Present Value of Future Net Revenues
(before future net income tax expense) 452,519 172,807
Reference should be made to Supplemental Oil and Gas Information on
pages F-9 and F-10 of this Proxy Statement for additional information
pertaining to the proved oil and gas reserves. During fiscal 1999, there
were no reports filed that included estimates of total proved net oil or
gas reserves with any federal agency other than the Securities and Exchange
Commission.
PRODUCTION
The following table sets forth net oil and gas production for the
periods indicated.
Years Ended
September 30,
1999 1998
-----------------------
Natural Gas (Mcf) 0 243
Crude Oil & Condensate (Bbls) 15,427 13,628
AVERAGE SALES PRICES AND PRODUCTION COSTS
The following table sets forth the average gross sales price and the
average production cost per unit of oil produced, including production
taxes, for the periods indicated. For purposes of calculating production
cost per equivalent barrel, Mcf's of gas have been converted at a ratio of
six Mcf's of gas for each barrel of oil:
Years Ended
September 30,
1999 1998
-----------------------
Average Sales Price
Gas (per Mcf) $ 2.16 $ 1.75
Oil (per Bbl) $ 13.08 $ 14.16
Average Production Cost
Per Equivalent Barrel $ 7.21 $ 10.47
58
<PAGE>
PRODUCING WELLS AND DEVELOPMENT ACREAGE
The following table sets forth, as of September 30, 1999 and 1998, the
approximate number of gross and net producing oil and gas wells and their
related developed acres that will now be owned by WSC. Productive wells
are producing wells and wells capable of production, including shut-in
wells. Developed acreage consists of acres spaced or assignable to
productive wells.
PRODUCING WELLS
------------------------------- DEVELOPED ACRES
OIL GAS ---------------
------------- --------------- GROSS NET
GROSS NET GROSS NET
1999 18 12.73 0 0 1,535 941
1998 5 3.39 0 0 895 489
UNDEVELOPED ACREAGE
At September 30, 1999, neither Winco nor WSC held any undeveloped acreage.
DRILLING ACTIVITIES
Winco had no drilling activities for the years ended September 30,
1999 and 1998. Winco's drilling activities, when conducted in the past,
were on a contract basis with independent drilling contractors.
PRINCIPAL PROPERTIES
The following table summarizes the principal properties that will be
owned by WSC:
<TABLE>
<CAPTION>
Start Remaining(1)
Lease Wells County/State Field Zone Depth Date Life Reserves
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Everett 1 Ness, KS Aldrich Mississippi 4,500 2/56 15+ 39,108
Gage A 1 Barton, KS Trapp Lansing, KC 3,080 15+ 12,190
Hofmeister 1 Barton, KS Beaver Lansing, KC 3,090 6/97 13 14,105
Madsen 1 Converse, WY Mikes Draw Teapot 7,136 2/84 15+ 17,111
Michel A 2 Russell, KS Trapp Lansing, KC 3,077 3/56 15+ 7,386
All Others 12 Various 19,207
-------
Total 109,107
=======
</TABLE>
________________
(1) Remaining life and reserves are as determined by independent petroleum
engineers.
CUSTOMERS AND MARKETS
WSC will have two major customers, ENRON Oil Trading and
Transportation and Aurora Natural Gas Company, each of which purchased over
10% of Winco's total oil and gas production for the years ended September
30, 1999 and 1998. Currently, the prices at which Winco sells its oil and
gas are set unilaterally by the individual buyers based upon prevailing
market prices paid to oil and gas producers in that area.
59
<PAGE>
WSC will become the owner of a 100% working interest in and the
operators of four oil leases located in Russell County, Kansas and in
Barton County, Kansas. Winco acquired these leases in 1999. These leases
have a total of fourteen (14) producing oil wells and two salt water
disposal wells. WSC will consider other oil and gas properties that are
available or may become available for purchase.
It is not anticipated that WSC's business will be seasonal in nature,
except to the extent that weather conditions at certain times of the year
may affect access to oil and gas properties and the ability to drill oil
and gas wells. The impact of inflation on WSC's activities will be
minimal. While gas prices have historically fluctuated between winter and
summer seasons, changes in the market during the last few years have made
such fluctuations unpredictable. For instance, because there are gas
storage facilities around the country which are filled during the summer,
prices may be higher during some spring or summer months than during some
winter months if temperatures are relatively warmer than usual.
COMPETITION
WSC will compete with numerous other companies and individuals,
including many that have significantly greater resources, in virtually all
facets of its business. Such competitors may be able to pay more for
desirable leases and to evaluate, bid for and purchase a greater number of
properties than the financial or personnel resources of WSC permit. The
ability of WSC to increase reserves in the future will be dependent on its
ability to select and acquire suitable producing properties and prospects
for future exploration, development and production. The availability of a
market for oil and natural gas production depends upon numerous factors
beyond the control of producers, including but not limited to, the
availability of other domestic or imported production, the locations and
capacity of pipelines, and the effect of federal and state regulation on
such production. Domestic oil and natural gas must compete with imported
oil and natural gas, coal, atomic energy, hydroelectric power and other
forms of energy. WSC will not hold a significant competitive position in
the oil and gas industry.
GOVERNMENT REGULATION OF THE OIL AND GAS INDUSTRY
WSC's business will be affected by numerous governmental laws and
regulations, including energy, environmental, conservation, tax and other
laws and regulations relating to the energy industry. Changes in any of
these laws and regulations could have a material adverse effect on WSC's
business. In view of the many uncertainties with respect to current and
future laws and regulations, including their applicability to WSC, WSC
cannot predict the overall effect of such laws and regulations on its
future operations.
FEDERAL REGULATION OF THE OIL AND GAS INDUSTRY. The Federal Energy
Regulatory Commission ("FERC") regulates interstate transportation of
natural gas under the Natural Gas Act and regulates the maximum selling
prices of certain categories of gas sold in "first sales" in interstate and
intrastate commerce under the Natural Gas Policy Act. Effective January 1,
1993, the Natural Gas Wellhead Decontrol Act deregulated natural gas prices
for all "first sales" of natural gas. It is not anticipated that WSC will
have any natural gas production and WSC cannot predict what new regulations
may be adopted by the FERC and other regulatory authorities, or what effect
subsequent regulations may have on future gas marketing, if any, in which
WSC may participate after any possible future acquisitions. There is
currently no substantial federal
60
<PAGE>
regulation of oil prices. Should oil prices become regulated, or oil
pipeline competition become regulated, such regulation may affect WSC,
either adversely or favorably, to a degree not currently predictable.
WSC will also be subject to laws and regulations concerning
occupational safety and health. It is not anticipated that WSC will be
required in the near future to expend amounts that are material in the
aggregate to WSC's overall operations by reason of occupational safety and
health laws and regulations. However, inasmuch as such laws and
regulations are frequently changed, Winco is unable to predict the ultimate
cost of compliance.
STATE REGULATION. WSC's operations will be subject to regulation at
the state level. Such regulation includes requiring permits for the
drilling of wells, maintaining bonding requirements in order to drill or
operate wells and regulating the location of wells, the method of drilling
and casing wells, the surface use and restoration or properties upon which
wells are drilled, the plugging and abandoning of wells and the disposal of
fluids used in connection with operations. WSC's operations will be
subject to various conservation laws and regulations. These include the
size of drilling and spacing units or proration units and the density of
wells that may be drilled and the unitization or pooling of oil properties.
In addition, state conservation laws establish maximum rates of production
from oil and gas wells, generally prohibit the venting or flaring of gas
and impose certain requirements regarding the ratability of production.
State regulation of gathering facilities generally includes various safety,
environmental, and in some circumstances, nondiscriminatory take
requirements, but does not generally entail rate regulation. These
regulatory burdens may affect profitability, and Winco is unable to predict
the future cost or impact of complying with such regulations.
ENVIRONMENTAL MATTERS. Extensive federal, state and local laws
affecting oil operations, including those to be carried on by WSC, regulate
the discharge of materials into the environment or otherwise protect the
environment. Numerous governmental agencies issue rules and regulations to
implement and enforce such laws that are often difficult and costly to
comply with and which carry substantial penalties for failure to comply.
Some laws, rules and regulations relating to the protection of the
environment may, in certain circumstances, impose "strict liability" for
environmental contamination, rendering a person liable for environmental
damages, cleanup costs and, in the case of oil spills in certain states,
consequential damages without regard to negligence or fault on the part of
such person. Other laws, rules and regulations may restrict the rate of
oil and natural gas production below the rate that would otherwise exist or
even prohibit exploration or production activities in environmentally
sensitive areas. In addition, state laws often require some form of
remedial action to prevent pollution from former operations, such as
closure of inactive pits and plugging of abandoned wells. Legislation has
been and continues to be proposed in Congress from time to time that would
reclassify certain exempt oil and gas exploration and production wastes as
"hazardous wastes." This reclassification would make such wastes subject
to more stringent handling, disposal and clean-up requirements. If such
legislation were to be enacted, it could have a significant impact on the
operating costs of WSC, as well as the oil and gas industry in general.
Initiatives to further regulate the disposal of oil and gas wastes are also
pending in certain states and may include initiatives at county, municipal
and local government levels. These various initiatives could have a
similar impact on WSC. The regulatory burden on the oil and natural gas
industry increases its cost of doing business and consequently affects its
profitability.
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<PAGE>
Compliance with these environmental requirements, including financial
assurance requirements and the costs associated with the cleanup of any
spill, could have a material adverse effect upon the capital expenditures,
earnings or competitive position of WSC and its subsidiaries. Winco
believes that it is in substantial compliance with current applicable
environmental laws and regulations and that continued compliance with
existing requirements will not have a material adverse impact on WSC.
Nevertheless, changes in environmental law have the potential to adversely
affect WSC's operations. For example, the U.S. Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), also known as the
"superfund" law, imposes liability, without regard to fault or the legality
of the original conduct, on certain classes of persons with respect to the
release of a "hazardous substance" into the environment. These persons
include the owner or operator of the disposal site or sites where the
release occurred and companies that disposed or arranged for the disposal
of the hazardous substance found at the site. Persons who are or were
responsible for releases of hazardous substances under CERCLA may be
subject to joint and several liability for the costs of cleaning up the
hazardous substances that have been released into the environment and for
damages to natural resources, and it is not uncommon for neighboring
landowners and other third parties to file claims for personal injury or
property damages allegedly caused by the hazardous substance released into
the environment. Under CERCLA, certain oil and gas materials and products
are, by definition, excluded from the term "hazardous substances." At
least two federal courts have recently held that certain wastes associated
with the production of crude oil may be classified as hazardous substances
under CERCLA. Similarly, under the federal Resource, Conservation and
Recovery Act ("RCRA") certain oil and gas materials and wastes are exempt
from the definition of "hazardous wastes." This exemption continues to be
subject to judicial interpretation and increasingly stringent state
regulation. During the normal course of its operations, WSC generates, or
has generated in the past, exempt and non-exempt wastes, including
hazardous wastes that are subject to the RCRA and comparable state
statutes. The U.S. Environmental Protection Agency ("EPA") and various
state agencies continue to promulgate regulations that limit the disposal
and permitting options for certain hazardous and non-hazardous wastes.
Although WSC will maintain insurance against some, but not all, of the
risks described above, including insuring the costs of clean-up operations,
public liability and physical damage, there is no assurance that such
insurance will be adequate to cover all such costs, that such insurance
will continue to be available in the future or that such insurance will be
available at premium levels that justify its purchase. The occurrence of
a significant event not fully insured or indemnified against could have a
material adverse effect on WSC's financial condition and operations. WSC
will indemnify Winco for all claims and losses, including defense costs, of
any such environmental liabilities relating to the oil and gas business
formerly operated by Winco that arose from events or circumstances prior or
subsequent to the asset spin-off and associated distribution of WSC shares
to pre-merger Winco shareholders.
TITLE TO PROPERTIES
As is customary in the oil and gas industry, only a preliminary title
examination is conducted at the time leases of properties believed to be
suitable for drilling operations are acquired by WSC. Prior to the
commencement of drilling operations, a thorough title examination of the
drill site tract is conducted by independent attorneys. Once production
from a given well is established, WSC will prepare a division order title
report indicating the proper parties and percentages for payment of
production proceeds, including royalties. WSC believes that titles to its
leasehold properties will be good and defensible in accordance with standards
62
<PAGE>
generally acceptable in the oil and gas industry, but there can be no
assurance regarding the results of future title examinations, nor the
defensibility of previously prepared division orders.
RELATED PARTY TRANSACTIONS
The oil properties that will be owned by WSC will be operated by
entities considered related parties due to common ownership and management
by directors and officers of WSC. Operations by such parties are on the
same basis as outside third party operators. As a result of such
operations, some proceeds from revenues are usually in process of
distribution resulting in amounts considered receivable. Similarly,
charges for costs of operation of WSC's properties will usually be in
process of billing and payment resulting in amounts considered payable.
EMPLOYEES
Upon completion of the merger, WSC will not have any full-time
employees. It is anticipated WSC will utilize contract services on a part-
time basis provided by employees of American Warrior, Inc., which is owned
by Cecil O'Brate, WSC's president.
LEGAL PROCEEDINGS
Winco is not involved in any material pending legal proceedings to
which it is a party or to which any of its property is subject.
OFFICES
Winco maintains its principal executive offices at 3118 Cummings,
Garden City, Kansas 97846, and its telephone number is (316) 275-2963. The
office space is owned by American Warrior, Inc. and no rent was charged to
or paid by Winco during the fiscal years of 1999 and 1998. It is not
currently anticipated that WSC will be required to pay any rent in the
foreseeable future.
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WINCO MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF WINCO'S FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH WINCO'S FINANCIAL STATEMENTS
AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROXY STATEMENT. THE MATTERS
DISCUSSED IN THIS PROXY STATEMENT CONTAIN FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED HEREIN.
NINE MONTHS ENDED JUNE 30, 2000 VS. JUNE 30, 1999
-------------------------------------------------
RESULTS OF OPERATIONS
Winco had net income for the nine months ended June 30, 2000 totaling
$36,068 compared to net loss of $3,098 at June 30, 1999. The improvement
in operations resulted primarily from higher oil prices and more
production. The recovery in oil prices world-wide has been dramatic.
After an eighteen-month period of some of the lowest oil prices in recent
history, those same prices have doubled in the last several months from the
low levels of 1998 and 1999. As did many prudent operators, Winco had
restricted volumes produced and sold during that period of low prices.
With the improvement in prices, Winco has increased such production to
maximize revenues, particularly from those oil and gas properties that
Winco acquired in the last couple of years. There was a corresponding
increase in operating expenses not only from increased production
activities, but also from some additional treatment and repairs necessary
to restore production to some of the wells after a period of inactivity.
REVENUES
During the nine months ended June 30, 2000, oil and gas sales
increased $195,250 from the comparable period in 1999. The increase in
sales, as discussed above, resulted from higher oil prices, which recovered
from historic lows in the prior year. Also in response to such higher
prices, Winco took efforts to improve production levels on each of the
properties, thereby increasing the volume of oil sold at such prices.
COSTS AND EXPENSES
Also as discussed above, expenses of operation of the oil and gas
properties increased by $124,000 over the same period last year, due to
more production activity and costs of parts, chemicals and services
incurred in bringing such wells back to their optimum production levels.
General and administrative expenses also increased over last year by
$25,810, primarily due to higher activity levels and the timing of payment
of legal and audit fees associated with annual filings. No exploration
costs or any note costs were incurred in the nine months ended June 30, 2000.
OTHER INCOME (LOSS)
Interest income declined $6,266 from the same period last year. Cash
balances were moved from an interest-bearing account to be more readily
available for anticipated acquisition of oil and gas properties.
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LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended June 30, 2000, Winco's working capital
increased $55,485. This increase was a result of improved operations as
discussed earlier. Working capital at June 30, 2000 was $367,973.
YEAR ENDED SEPTEMBER 30, 1999 VS. SEPTEMBER 30, 1998
----------------------------------------------------
RESULTS OF OPERATIONS
Winco had net income for the year ended September 30, 1999 totaling
$11,399, compared to net income of $8,453 at September 30, 1998.
Operations reflected a small gain after depreciation and depletion, in
spite of lower than average oil prices. The wells acquired in 1998 and
1999 operate more efficiently than those previously established in Wyoming,
which Winco sold as of January 1, 1998. Lower operating costs and an
improvement in oil prices in the last quarter contributed to a small
improvement in net income.
REVENUES
Oil and gas sales for the year ended September 30, 1999 totaled
$142,448 compared to revenues of $109,109 for the year ended September 30,
1998. Oil production increased from 13,628 barrels to 15,427 barrels, for
the year ended September 30, 1999, a net increase of 1,799 barrels or
13.20%. These changes in revenue and fluctuation in production resulted
primarily from the purchase of additional oil properties and the sale of
the five Wyoming properties that produced oil and gas. During a period of
significantly lower than normal oil prices, Winco elected to sell only oil
production in excess of storage capacity on the leases and to shut-in some
of the properties until prices recovered. As of September 30, 1999, all of
the Winco's leases were producing oil, though some individual wells may
have remained shut-in on leases where at least one other well was
producing. All leases were producing sufficient levels of the specified
minerals to maintain the leases, from a contractual standpoint.
COSTS AND EXPENSES
Oil and gas production costs for the year ended September 30, 1999
totaled $90,630, an 8.64% (or $8,576) decrease from the costs of $99,206
for the year ended September 30, 1998. The decreased costs were primarily
a result of restricted operations during the year.
General and administrative expenses totaled $23,423 at September 30,
1999, compared to $33,338 at September 30, 1998, a total decrease of
29.74%. This decrease was due to reductions of costs as a result of
limiting activity while oil prices were depressed.
Depreciation, depletion and amortization costs for the year ended
September 30, 1999 totaled $26,089, a decrease of $37,626 (or 59.05%) from
the costs of $63,715 for the year ended September 30, 1998. This decrease
resulted from higher costs amortized in 1998 due to the units of production
calculation for cost depletion and an additional charge due to the
"capitalization ceiling" determined by Winco's reserve study.
Exploration costs and dry hole costs were not incurred during fiscal
years September 30, 1999 and 1998.
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OTHER INCOME (LOSS)
Other income (loss) for the year ended September 30, 1999, was $9,093,
a decrease of $86,510 from the year ended September 30, 1998 amount of
$95,603. This decrease was primarily due to the gain on sale of leases
included in 1998.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended September 30, 1999, Winco's working capital
decreased from $345,492 at September 30, 1998 to $312,488 at September 30,
1999. The decrease of $33,004 was primarily the result of working capital
used to acquire additional oil properties.
Winco anticipates revenues from operations of its wells to be
sufficient for its working capital needs. Substantially all of the cash
balances held by Winco are available for the acquisition of additional oil
and gas producing properties. Winco anticipates that there will continue
to be opportunities to acquire producing properties as many operators were
affected by an extended period of low oil prices. Even though oil prices
have substantially improved from their lowest levels, many such operators
find that they do not have sufficient resources to invest to bring all of
their properties back to the levels of production of which they are
capable. To take full advantage of such opportunities, Winco would be
required to raise substantial additional capital beyond the profits to be
reasonably anticipated from operations, even if oil price levels were to be
substantial or increase. There can be no assurance such funding will be
available, at all, or on acceptable terms, as there has been little market
interest in capitalizing oil and gas acquisitions in recent years.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF WINCO AND WSC
The following table sets forth the ownership of Winco shares prior to
the proposed merger transactions and WSC shares upon completion of the
reverse split and the merger by (i) each Director of WSC, (ii) all
Executive Officers and Directors of Winco and WSC as a group, and (iii) all
persons known by Winco and WSC to own more than 5% of outstanding Winco
shares and outstanding WSC shares.
<TABLE>
<CAPTION>
Beneficial Ownership
-----------------------------------
Name Winco Shares Percentage WSC Shares(1) Percentage
---- ------------ ---------- ------------- ----------
<S> <C> <C> <C> <C>
Cecil O'Brate 459,834 (2) 44.70% 459,834 (2) 44.70%
P.O. Box 399
Garden City, KS 67846
Daniel Lee Dalke 8,250 0.80% 8,250 0.80%
P.O. Box 399
Garden City, KS 67846
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Mid-Continent Resources, Inc. 20,934 2.03% 20,934 2.03%
P.O. Box 399
Garden City, KS 67846
G. Allen Nelson 1,458 0.14% 1,458 0.14%
1645 Court Place, Suite 302
Denver, CO 80202
Betty Lee Winkler 176,233 17.13% 176,233 17.13%
775 Ivanhoe Street
Denver, CO 80220
American Warrior, Inc 423,749 41.19% 423,749 41.19%
P.O. Box 399
Garden City, KS 67846
Debra J. Purcell 7,000 0.68% 7,000 0.68%
P.O. Box 399
Garden City, KS 67846
All Directors and Officers 476,542 (3) 46.32% 476,542 (3) 46.32%
as a Group (4 persons) (2)
</TABLE>
______________________________
(1) Assumes the Winco shareholders have approved the reverse split whereby
each forty (40) Old Winco Shares will become one (1) New Winco Share.
(2) Cecil O'Brate owns 15,163 shares (prior to the reverse stock split)
directly, and as the President, a director and the majority
shareholder of American Warrior, Inc. and Mid-Continent Resources,
Inc., he may be deemed to be the beneficial owner of the shares owned
by them.
(3) Includes 423,749 shares (prior to the reverse stock split) owned by
American Warrior, Inc., and 20,934 shares owned by Mid-Continent
Resources, Inc., as to which Cecil O'Brate, a Director and Officer of
Winco, may be deemed to have beneficial ownership by virtue of being
a Director and Officer of American Warrior, Inc.
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BUSINESS OF RCS
OVERVIEW
Headquartered in Littleton, Colorado, RCS is a Colorado corporation
established in 1975. RCS is a regional integrated information technology
service provider in network design, communications, and systems
integration. In 1999, RCS expanded its service area by opening an office
in Seattle, Washington.
The customer base of RCS includes AT&T, Level 3 Communications, Robert
Half, Rhythms, Charter Communications and Qwest Communications.
Management of RCS believes that retaining quality personnel,
particularly in the information technology arena, will be important to its
future financial success. RCS's current business strategy is to continue
to add profitable, technical services to its current set of services and to
attract new contracts with major accounts.
EVOLUTION OF RCS
RCS was founded in 1975 by Anton St. John after his retirement from a
25-year career as the Western Regional Manager for Remington Rand.
Originally known as Business Products, Inc., RCS adopted its current name
on July 10, 2000. RCS initially sold typewriters, calculators and
supplies, and employed six people. RCS subsequently added word processors
and computers to its product line. RCS continued to evolve from these
origins. It focused on developments in computers, peripherals, imaging and
other services believed necessary to support network systems. RCS also
provided training and back-end service as part of its product and service
package.
In 1984, Mike St. John joined RCS as a sales representative marketing
office products. Anton St. John retired as RCS's president in 1989 and was
succeeded by his son, Mike St. John, who is still the current President of
RCS. Mike St. John also actively manages customer relationships and the
development of new business opportunities for RCS.
In April 1998, RCS moved from its original Denver facility to a new
location in Littleton, Colorado. The facility at the new location contains
23,000 square feet of office space, remodeled and reconfigured specifically
to accommodate the needs of RCS. RCS has also leased additional space
within nearby buildings.
RCS's focus historically has been on the Colorado market. During the
last three years, RCS has experienced an increase of business in other
states, partly as a result of an extension of services to its Colorado
customer-base. In 1999, RCS expanded its engineering, project management
and broadband service coverage through a new office in Seattle, Washington.
This expansion occurred, in part, in response to a demand for technical
services in other locations by a major customer of RCS. RCS anticipates
that its new presence in broader areas may spawn additional customer
relationships. RCS currently employs approximately 275 people on a full-
time basis. Of this number, approximately 225 employees are located in
RCS's offices in Littleton, Colorado and Seattle, Washington. The
remaining approximately fifty employees are currently providing services
on-site in twelve other cities.
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In recent years, RCS has been engaged in Y2K evaluation and
remediation projects, expansion and facilitation of educational systems
through design and implementation of video and data systems, and diagnosis
and inoculation of the network systems necessary for reliable operations
and communications within the health and hospitals sector. In 1999, RCS
donated to members of the European Broadcast Association the computer
systems on-site support to provide real-time data on scores and rankings in
the Alpine Ski World Championships held in Vail, Colorado.
RCS operates in a highly competitive environment in which it has
numerous competitors for its products and services. Some of its
competitors are larger and better financed than RCS, and may enjoy certain
competitive advantages. While RCS believes that its role as a network and
data communication service company gives it certain competitive advantages,
no assurance exists that RCS will be able to maintain its market share or
current level of profitability.
PRODUCTS AND SERVICES
SUMMARY
In 2000, RCS undertook an evaluation of its business model, and as a
result, ceased to operate as a value-added reseller of technology products.
Currently, RCS is a regional integrated information technology service
provider in network design, communications and systems integration. RCS
specializes in high-speed data, voice and video networks and designs, and
installs and supports network operating systems and platforms. In
addition, RCS operates a placement organization that provides permanent
staffing to customers in support of its other products and services.
RCS provides these services through the following departments: the
Customer Relationship Management, Web Development, Project Management,
Engineering, Broadband Services, Staffing Services and Life Cycle Services.
CUSTOMER RELATIONSHIP MANAGEMENT. RCS recently commenced providing
customer relationship management services through its Customer@Net
operations. The services provided through the Customer@Net operations
include sales force automation, data mapping between disparate data
sources, standardized reporting, management/tracking of lead generation,
standardized quoting and pricing, management of ordering and fulfillment
processes, tracking of inventories and vendor resources and integration of
customer and third party processes.
The Customer@Net solution begins with the discovery/needs analysis,
which transitions into a data analysis and design function. From that
point the service includes configuration and development services,
production pilot and testing, resulting in rollout and transition management.
WEB DEVELOPMENT. An additional service that RCS recently commenced
providing is Web Development. The Web Development function involves
assessing clients web needs and developing conceptional and implementation
strategies based upon those requirements. The Web Development offering of
RCS includes e-commerce applications that provide business-to-business and
business-to-consumer functionality. RCS provides service in a variety of
areas in web development including information architecture, data base
design/integration, security and
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firewall applications, data management systems, customized applications and
client services, as well as hosting, maintenance, graphic design and
navigational theme and content development.
PROJECT MANAGEMENT SERVICES. RCS provides a variety of project
management services, such as business process and workflow engineering and
platform and application level design and development.
ENGINEERING. RCS provides engineering services in the area of data
communications, information systems security (including disaster recovery),
ATM networking (voice, video and data over high speed lines), storage area
networks, internet/intranet connect activity, network analysis, baseline
and monitoring, as well as cross-platform expertise.
BROADBAND SERVICES. RCS provides services relating to broadband,
including high speed data installations, telephone installations, RF
cabling, computer aided design and drafting (CADD), tap face replacement,
transponder installs, NIU installations, site survey, project management
and network cabling, as well as broad width upgrades and field engineering.
STAFFING SERVICES. RCS also provides a variety of staffing services
and technical expertise on a permanent or temporary basis.
LIFE CYCLE SERVICES. RCS provides a variety of life cycle services
including technology integration and ownership services for the user
community. Services include forecasting and planning as well as
configuration and imaging. The services are designed to assist in the
tracking and management and utilization of information, with the objective
of maintaining an on-time and cost efficient technological system.
Management of RCS is under the direction of Mike St. John as
President. RCS has eight functional divisions, including life cycle
services, engineering services, staffing and national field operations,
finance and administration, marketing and communications, project
management, strategic business and sales.
RCS DIRECTORS
Mike St. John, Director and President
Scott Swenson, Director
Mike St. John, age 41, has served as president since 1989. He also
served as RCS's corporate director. Mike originally joined RCS in 1984 as
a sales representative after completing his Master's of Business
Administration degree, in 1983, with an emphasis in marketing and finance,
at the University of Colorado and after previously completing his
Bachelor's degree at the University of Denver School of Business, in 1981.
Scott Swenson, age 45, will be a director of Winco subsequent to the
merger. Previously, Mr. Swenson co-founded and served as general counsel
and secretary for Enhanced Video, Voice & Data Systems, Inc. ("E3SI"), a
telecommunications consulting group that was formed in February, 1977. In
addition, Mr. Swenson is chairman of gForce Ventures, located in Littleton,
Colorado. For the nine years prior to his positions, Mr. Swenson was a
partner with the Denver-based law firm of Rothgerber Johnson & Lyons, LLP,
where he began his law practice after
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graduation from the University of Denver College of Law in 1981. During
his legal career, Mr. Swenson focused primarily on a national financial
institutions merger and acquisition practice, and also provided corporate
and securities work for early stage companies in both regulated and
unregulated industries.
LEASES AND SIGNIFICANT CONTRACTS
PROPERTY LEASES
RCS has leases at five property locations. Three of these lease sites
are located in the Denver metropolitan area where RCS is headquartered.
The principal facility, which includes 23,000 square feet of space, is
located at 8136 S. Grant Way in Littleton, Colorado, and is owned by a
corporation which is 80% owned by Mike St. John, RCS's president. RCS
recently acquired leases on additional space in two nearby office and
warehouse buildings. These buildings consist of (1) 3,000 square feet of
office space at 8024 S. Grant Way, acquired by leases in early 1999, and
(2) 5,375 square feet of office/warehouse space at 8121 S. Grant Way, with
the option to renew this lease for an additional three years after
expiration of its initial term in March 2003.
As of March 2000, RCS entered into a contract with Cook Inlet Region,
Inc. for office space and related office services. This RCS facility is
located at 19115 68th Avenue S., Suite H-102, in Kent, Washington.
As of June 1, 2000, RCS entered into a contract with Bethany Village
Offices, LLC for office space. This RCS facility is located at 15280 NW
Central Drive, Suite 202-6 in Portland, Oregon.
CONTRACTS AND COMMITMENTS
NORWEST BANK LINE OF CREDIT. RCS maintains a $1,500,000 line of
credit with Norwest Bank, secured by RCS's accounts receivable. The terms
of the credit line require RCS to retire the balance to zero for a minimum
60-day period each year. As of July 31, 2000, the principal outstanding on
the RCS line of credit was $1,050,000.
SERVICE CONTRACTS. RCS utilizes a standard form of service contract
for customer purchases of RCS services. Many of these contracts involve
customers expected to make purchases having aggregate payments in excess of
$50,000. RCS believes that the majority of these customer relationships
are good.
EQUIPMENT LEASING
RCS entered into a Master Lease Agreement with GE Capital Fleet
Services on April 28, 2000 to cover various vehicles up to a total cost of
$1,000,000. At July 31, 2000, the lease included 25 vehicles with a total
cost of approximately 454,400. The terms on each vehicle range from 24
months to 36 months.
In February of 2000, RCS entered into an equipment lease with Ford
Motor Credit Company to cover four vehicles with a total cost of
approximately $81,000 as of July 31, 2000. The term of the lease is 36
months, with a monthly payment of $1,538.
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On July 27, 2000, RCS entered into an equipment lease with Copelco
Capital covering 50 laptop computers with a total cost of $73,646. The
term of the lease is 30 months, with a monthly payment of $2,455.
MAJOR CUSTOMERS
RCS has historically received a significant amount of its annual
revenues from major customers, such as AT&T. AT&T accounted for 22.9% and
29.9% of RCS's revenues in fiscal 1999 and 2000, respectively. For the
three months ended July 31, 1999, AT&T accounted for 65% of RCS's revenues.
For the three-month period ending July 31, 2000, AT&T represented 12.5% of
the total revenue of RCS, Level 3 Communications, 19.1% of total revenue,
and Rhythms NetCommunications, Inc., 14.5% of total revenue.
SALES AND REVENUE DISTRIBUTION
Three major revenue streams contribute to RCS's operations, with each
revenue stream effective across multiple lines of business. These consist
of technical services, systems (hardware/software) sales, and professional
placement. RCS estimates the revenue proportions attributable to these
categories for fiscal year 2000 at 52% due to services, 47% to systems, and
the remaining 1% accounted for by placement commissions. For the three
months ending July 31, 2000, this breakdown is 64%, 35%, and 1%,
respectively.
Services are routinely sold by RCS in blocks of hours that a customer
may use over a defined period, typically eighteen months. In special
circumstances such as those involving large customers or government
agencies, alternative sales options may be used.
RCS's Professional Placement services are charged out as a fee
calculated as a percentage of the annual salary payable upon signing the
agreement for placement.
RELATED PARTY TRANSACTIONS
REAL ESTATE LEASES
Prior to May 1, 2000, RCS leased its primary 23,000 square-foot
facility in Colorado on a month-to-month oral lease from 8136 S. Grant Way,
LLC, a business entity which is 80% owned by Mike St. John, RCS's
president, from April 1, 1998 to April 30, 2000. RCS and 8136 S. Grant
Way, LLC have recently executed a written lease agreement effective as of
May 1, 2000. The initial term of this lease runs through April 30, 2002,
with an option to extend for an additional two-year term. Base monthly
rent is $27,875 under the written lease, with additional monthly charges
for maintenance and repairs, insurance, taxes and utilities under the lease
estimated at an additional $5.10 per square foot on an annualized basis.
ADVANCES AND RECEIVABLES
As of July 31, 2000, RCS had advances receivable, including interest,
from Mike St. John of $305,716 and from 8136 S. Grant Way, LLC of $5,629,
a company in which Mike St. John has an 80% interest. Both advances
receivable accrue interest at 8% per annum. RCS also had a demand note
receivable from E3SI, Inc., a company in which Mike St. John has a 46% interest,
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with a balance including interest at July 31, 2000 of $90,616, accruing
interest at 8% per annum. Under a consulting arrangement between RCS and
E3SI, RCS's revenues from E3SI totaled $238,650 in the year ended April 30,
2000 and $25,948 in the quarter ended July 31, 2000, of which $16,275
remained due to RCS on July 31, 2000. RCS wrote off receivables from E3SI
in the amounts of $50,000 in fiscal 1999 and $292,000 in fiscal 1998. E3SI
engages primarily in government and sports arena cable and fiber optic
franchise consulting.
EQUIPMENT ACQUISITIONS AND LEASES
In February 2000, RCS purchased the Unix computer system and a phone
system used in its operations, but previously owned by Mike St. John, for
$50,000. RCS had formerly leased this equipment from Mr. St. John under
two month-to-month leases for approximately $4,500 per month.
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RCS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF RCS'S FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH RCS'S FINANCIAL STATEMENTS
AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROXY STATEMENT. THE MATTERS
DISCUSSED IN THIS PROXY STATEMENT CONTAIN FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED EARLIER IN "RISKS RELATING TO THE RCS BUSINESS PLAN" AND "RISKS
RELATING TO RCS'S BUSINESS" AS WELL AS THOSE DISCUSSED IN THIS SECTION AND
ELSEWHERE IN THIS PROXY STATEMENT.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JULY 31, 2000 AS COMPARED
TO THE THREE MONTHS ENDED JULY 31, 1999
For the three months ended July 31, 2000 ("fiscal 2000") RCS reported
a net loss of approximately $399,000 as compared to net income for the
three months ended July 31, 1999 ("fiscal 1999") of approximately $197,000.
Total revenue decreased from approximately $10,032,000 to $8,061,000
from fiscal 1999 to fiscal 2000 respectively. Revenue from systems sales
and related commissions decreased from $3,247,000 to $2,859,000 from fiscal
1999 to fiscal 2000 respectively. This decrease is a result of RCS's
decision to continue shifting its strategic focus from hardware sales to
life cycle services, engineering, project management and broadband
services, as well as a decrease in the commission rates paid to RCS on
sales of hardware. Life cycle services, engineering, project management
and broadband service revenues decreased from $6,780,000 to $5,202,000 from
fiscal 1999 to fiscal 2000 respectively. The decrease is due to a loss of
Y2K-related revenues of approximately $2,000,000 from fiscal 1999 to fiscal
2000, while broadband revenues increased approximately $500,000 from fiscal
1999 to fiscal 2000.
Cost of sales decreased from $8,454,000 to $6,170,000 from fiscal 1999
to fiscal 2000. Gross margins increased from 16% to 23% for the respective
periods. The increase in gross profit margin is primarily related to a
decrease in the use of contractor services required for various Y2K
projects, from approximately $1,795,000 in fiscal 1999 to $446,000 in
fiscal 2000. During the three months ended July 31, 2000 RCS provided
services using its own employees primarily and realized a decrease in
direct labor costs from 49% of revenues in fiscal 1999 to 44% of revenues
in fiscal 2000.
Selling, general and administrative expenses increased from
approximately $1,189,000 to $2,474,000 from fiscal 1999 to fiscal 2000
respectively. The major component of the increase was an increase in
management, administration and sales salaries of $860,000. RCS experienced
significant management and sales personnel requirements related to efforts
to increase broadband service activities and to develop and market new
service offerings. In addition, telephone expense increased $93,500,
charitable contributions increased $53,000 and office expense increased
$52,000 from fiscal 1999 to fiscal 2000 respectively. The increase in
telephone expense is a result of continued expansion into new territories.
Office expense increased due to additional personnel and three new office
locations.
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For the three months ended July 31, 2000 RCS has recognized an income
tax benefit of $203,000 resulting from reporting a net operating loss for
the fiscal quarter. For the three months ended July 31, 1999 RCS incurred
income tax expense of $197,000.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended July 31, 2000 net cash used in operating
activities was $166,000 compared to net cash provided by operations of
$1,981,000 for the three months ended July 31, 1999. The change was
primarily due to the collection of receivables related to Y2K projects
during the three months ended July 31, 1999 of approximately $2,235,000.
Significant uses of cash in the three months ended July 31, 2000 were
increases in accounts receivable balances, as well as payments on payroll
tax liabilities. Although the balance of accounts receivable has increased
during the three months ended July 31, 2000, RCS does not believe that the
collectibility of accounts receivable has been impaired.
Net cash used in investing activities for the three months ended July
31, 2000 was $387,000, primarily for the purchase of fixed assets related
to business expansion, compared to net cash used in investing activities of
$10,000 for the three months ended July 31, 1999.
Net cash provided by financing activities for the three months ended
July 31, 2000 was $245,000 compared to cash used in financing activities
for the three months ended July 31, 1999 of $498,000. In the three months
ended July 31, 2000 RCS borrowed an additional $300,000 on its bank line of
credit to finance continued expansion into new service areas. In the three
months ended July 31, 1999 RCS repaid $350,000 on its line of credit.
RESULTS OF OPERATIONS FOR THE YEAR ENDED APRIL 30, 2000 AS COMPARED TO THE
YEAR ENDED APRIL 30, 1999
For the year ended April 30, 2000 ("fiscal 2000") RCS reported a net
loss of approximately $687,000 compared to net income for the year ended
April 30, 1999 ("fiscal 1999") of approximately $815,000.
Total revenue increased from approximately $23,964,000 to $37,333,000
from fiscal 1999 to fiscal 2000 respectively. Revenue from system sales
increased from $13,534,000 in fiscal 1999 to $17,833,000 in fiscal 2000.
This increase is primarily related to new customers to whom RCS sold
product directly in the initial stages of the relationship but later moved
to an agency model relationship. Configuration, engineering, project
management and broadband service revenues increased from $10,387,000 to
$19,491,000 from fiscal 1999 to fiscal 2000 respectively. Of the increase,
Y2K related revenues were approximately $6,000,000 and broadband service
revenue, which was a new service offering, was approximately $1,500,000.
The remainder of the increase is due to the expanded emphasis on service
revenues.
Cost of sales increased from $17,626,000 to $30,137,000 from fiscal
1999 to fiscal 2000 respectively. Gross margins decreased from 26% to 19%
for the respective periods. The decline in gross profit is primarily
related to market price pressures on sales of hardware, as well as an
increase in the use of contractor services during fiscal 2000 which was
necessitated by the rapid growth of Y2K services provided by RCS to its
customers. As a result, RCS incurred a higher labor cost due to the use of
contractors rather than employees. Outside services expense increased from
approximately $1,500,000 in fiscal 1999 to $3,500,000 in fiscal 2000. RCS is
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<PAGE>
providing its current range of services primarily using employees, rather
than outside contractors. In addition, RCS significantly added to its
technical teams in the broadband and project management areas in
preparation for planned future expansion in those areas. There was an
increase of 61 employees in broadband and 13 employees in project
management areas from April 30, 1999 to April 30, 2000.
Selling, general and administrative expenses increased from
approximately $4,974,000 to $7,972,000 from fiscal 1999 to fiscal 2000
respectively, remaining a consistent 21% of revenue in each period. The
major components of the increase were increases in officer bonuses of
$708,000, management salaries of $789,000, legal and accounting expenses of
$331,000 primarily related to a proposed merger which was abandoned in
April of 2000, rent of $222,000 related to increased personnel and
expansion into other states, and training of $170,000 related to planned
expansion of new service offerings.
For the year ended April 30, 2000, RCS recognized an income tax
benefit of $30,000 compared to income taxes of $542,000 for the prior
comparable period. The decrease in tax is directly related to a decrease
in income before tax of $2,073,000 for the year ended April 30, 2000. The
income tax benefit for fiscal 2000 results from the tax benefit related to
deferred tax deductions of $151,000 in excess of current tax expense of
$121,000. In April 2000, RCS filed Form 3115 with the IRS to apply for a
change in accounting method to accrue receivables and payables which had
previously been reported on a cash basis for tax purposes. The effect of
this filing is to recognize approximately $1,933,000 in total taxable
income ratably over a four year period, beginning with the year ended April 30,
2000.
LIQUIDITY AND CAPITAL RESOURCES
For fiscal 2000 net cash provided by operating activities was
$1,038,000 compared to net cash used in operations of $1,032,000 for fiscal
1999. The change was primarily due to a fiscal 2000 decrease in accounts
receivable related to the collection of receivables generated by Y2K
activities in fiscal 1999.
Net cash used in investing activities was $729,000 for fiscal 2000
compared to $349,000 for fiscal 1999. The primary investing activities in
both periods was the purchase of fixed assets of $665,000 and $200,000 in
fiscal year 2000 and fiscal year 1999 respectively and the purchase of
investment securities of $64,000 in fiscal year 2000 and $118,000 in fiscal
year 1999 respectively.
Net cash provided by financing activities for fiscal year 2000 was
$500 compared to $556,000 for fiscal 1999. During fiscal 2000 RCS made
payments of $750,000 on the bank line of credit, as well as borrowed
$750,000 in April 2000 to fund officer bonuses. In the year ended April
30, 1999 RCS borrowed $749,000 on the bank line of credit, made advances to
officers and related parties of $325,000 and received $131,000 in payments
from officers.
RCS has primarily used its $1,500,000 line of credit with Wells Fargo
Bank to fund officer bonuses and has met requirements to retire the balance
for 60 days each year. Previous capital expenditures have been funded by
cash from operations. At April 30, 2000 RCS had borrowed $750,000, leaving
$750,000 of credit line availability for working capital purposes.
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<PAGE>
FUTURE CAPITAL RESOURCES
RCS's capital requirements are dependent on several factors, including
market acceptance of its services, the amount of resources devoted to
investments in personnel and development in certain technology areas, the
resources devoted to marketing and selling RCS's services and other
factors. RCS will continue to evaluate possible investments in businesses,
products, technologies, and plans to expand its sales and marketing
programs. At July 31, 2000 RCS had cash and cash equivalents totaling
$134,000, a working deficit of $721,000, and availability on its bank line
of credit of $450,000. RCS believes that additional debt or equity
financing will be needed in order to meet working capital and capital
investment requirements to support its expansion plans.
If cash generated from operations is insufficient to satisfy liquidity
requirements, RCS may seek to sell additional equity or debt securities or
to obtain a credit facility. The sale of additional equity or convertible
debt securities could result in additional dilution to RCS stockholders.
The incurrence of indebtedness would result in an increase in RCS's fixed
obligations and could result in operating covenants that would restrict
operations. There can be no assurance that financing will be available in
amounts or on terms acceptable to RCS, if at all. If financing is not
available when required or is not available on acceptable terms, RCS may be
unable to develop or enhance its services. In addition, RCS may be unable
to take advantage of business opportunities or respond to competitive
pressures. Any of these events could have a material and adverse effect on
RCS's business, results of operations and financial condition.
EFFECTS OF INFLATION
Due to relatively low levels of inflation in fiscal 1999 and 2000,
inflation has not had a significant effect on the results of operations of RCS.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities" which requires companies to record derivatives on the
balance sheet as assets or liabilities, measured at fair market value.
Gains or losses, resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivatives and whether
it qualifies for hedge accounting. The key criterion for hedge accounting
is that the hedging relationship must be highly effective in achieving
offsetting changes in fair value or cash flows. SFAS No. 133, as extended
by SFAS No. 137, is effective for fiscal periods beginning after June 15,
2000. Management believes the adoption of this statement will have no
material impact RCS's financial statements.
In March 2000, the FASB issued Emerging Issues Task Force Issue No.
00-2, "Accounting for Web Site Development Costs ("EITF 00-2"), which is
effective for all such costs incurred for fiscal quarters to develop a web
site based on the nature of each cost. Currently, since RCS maintains a
web site which was developed previously, the adoption of EITF 00-2 is
expected to have minimal impact on RCS's financial condition or results of
operations as most costs incurred are of a maintenance nature which are to
be expensed. To the extent RCS performs upgrades and enhancements in the
future, certain costs will need to be capitalized and RCS will adopt the
Issue's disclosure requirements in the quarterly and annual financial
statements for the year ended April 30, 2001.
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<PAGE>
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting
for Certain Transactions Involving Stock Compensation" ("FIN 44"), which
was effective July 1, 2000, except that certain conclusions in this
Interpretation which cover specific events that occur after either December
15, 1998 or January 12, 2000 are recognized on a prospective basis from
July 1, 2000. This Interpretation clarifies the application of APB Opinion
25 for certain issues related to stock issued to employees. Currently, RCS
has no stock based compensation plans, and therefore the adoption of FIN 44
will have no material impact on RCS's financial condition, results of
operations, or cash flows.
SECURITY OWNERSHIP OF RCS
The following table sets forth the ownership of RCS shares prior to
the proposed merger:
SHARES OF PERCENTAGE OF OWNERSHIP
NAME COMMON STOCK OF OUTSTANDING STOCK
---- ------------ --------------------
Mike St. John 810 54.0%
Anton St. John 671 44.7%
Anton St. John Trust 19 1.3%
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<PAGE>
MANAGEMENT OF WINCO FOLLOWING THE MERGER
The following sets forth certain information with respect to the
officers and directors of RCS who will become the officers and directors of
Winco following the merger:
Name Age Position
---- --- --------
Michael St. John 41 President, Chief Executive Officer and
Director
David A. Zeleniak 42 Chief Operating Officer
Calvin D. Jacobsen 46 Vice President, Infrastructure
Consulting and Support
Kevin Dooley 40 Vice President, Strategic Markets
Kent Anderson 45 Vice President, National Field Operations
Scott Swenson 45 Director
Biographical information concerning each director and executive
officer, including business experience for the past five years is as follows:
MICHAEL ST. JOHN, age 41, President and Chief Executive Officer and
Director. He has served as president since 1989. He also served as RCS's
corporate director. Mike originally joined RCS in 1984 as a sales
representative after completing his Master's of Business Administration
degree, in 1983, with an emphasis in marketing and finance, at the
University of Colorado and after previously completing his Bachelor's
degree at the University of Denver School of Business, in 1981.
DAVID A. ZELENIAK, age 42, will be the Chief Operating Officer of
Winco after the merger. Mr. Zeleniak joined Rush Creek Solutions in
September of 2000. Prior to joining Rush Creek Solutions, Mr. Zeleniak was
Vice President, Chief Administrative Officer and Treasurer for
Comprehensive Software Systems, Inc. since 1997. He received undergraduate
degrees in Accounting, Finance and Economics from Penn State University in
1979, and a Masters in Business Administration from the University of
Cincinnati in 1980.
CALVIN D. JACOBSEN, age 46, has been selected to act as Vice President
for Infrastructure Consulting and Support of Winco subsequent to the
merger. Mr. Jacobsen joined BPI, a predecessor to RCS, in 1991 as a
network engineer. Subsequently, he held positions as project manager and
manager of engineering services for the Company. In 1998 he became vice
president of Engineering Services for the Company. Prior to joining the
Company, he spent 10 years with Edgewater Office Products in various
technically-oriented positions.
KEVIN DOOLEY, age 40, has been selected to act as Vice President of
Strategic Markets and Communication for Winco after the merger. Mr. Dooley
joined RCS as vice president of sales in December of 1998. He assumed the
position of vice president of strategic markets and communication for RCS
in May of 2000. He will have responsibility for, among other things, new
market offerings by Winco. Prior to joining RCS, Mr. Dooley was employed
by Compaq Computer Corporation for 11 years in various sales, marketing and
operations management positions. Prior to joining Compaq, Mr. Dooley was
employed by EDS for 3 years in Dallas where he provided consulting and
design services for various client server systems. Mr. Dooley received a
B.B.A. degree in Finance from Stephen F. Austin State University in 1982.
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<PAGE>
KENT ANDERSON, age 45, will be the Vice President of National Field
Operations and Staffing subsequent to the merger. Mr. Anderson joined RCS
in 1998 as the Director of Staffing. He assumed the position of Vice
President of Staffing in 1999. Prior to joining RCS, he spent 8 years with
Careers L, Ltd., an executive search firm, as Manager of the Sales
Division.
SCOTT SWENSON, age 45, will be a director of Winco subsequent to the
merger. Previously, Mr. Swenson co-founded and served as general counsel
and secretary for Enhanced Video, Voice & Data Systems, Inc. ("E3SI"), a
telecommunications consulting group that was formed in February, 1977. In
addition, Mr. Swenson is chairman of gForce Ventures, located in Littleton,
Colorado. For the nine years prior to his positions, Mr. Swenson was a
partner with the Denver-based law firm of Rothgerber Johnson & Lyons, LLP,
where he began his law practice after graduation from the University of
Denver College of Law in 1981. During his legal career, Mr. Swenson
focused primarily on a national financial institutions merger and
acquisition practice, and also provided corporate and securities work for
early stage companies in both regulated and unregulated industries.
TERMS OF OFFICE
The directors of Winco will be elected to hold office until the next
annual meeting of shareholders and until their respective successors have
been elected and qualified. Officers of Winco are elected by the board of
directors and hold office until their successors are elected and qualified.
MEETINGS OF DIRECTORS AND SHAREHOLDERS
The board of directors of Winco intends to hold four (4) regular
scheduled meetings annually and that number of special meetings as may be
required to conduct the business of Winco.
FAMILY RELATIONSHIPS
There are no family relationships between or among any Winco officers
and directors.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
No officer, director, significant employee, promoter or control person
of Winco has been involved in any event of the type described in Item 401
(f) of Regulation S-K during the past five years.
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MANAGEMENT OF WSC FOLLOWING THE MERGER
The following sets forth certain information with respect to the
officers and directors of WSC.
Name Age Position
---- --- --------
Cecil O'Brate 71 President, Chief Executive Officer
and a Director
Daniel Lee Dalke 49 Secretary, Treasurer, Chief
Financial Officer and a Director
G. Allen Nelson 76 Director
Biographical information concerning each director and executive
officer, including business experience for the past five years is as follows:
CECIL O'BRATE, age 71, currently serves as the President and Chief
Executive Officer of Winco, and as a Director of Winco. He has been Chief
Executive Officer and President of American Warrior, Inc., a Kansas
corporation involved in oil and gas development, since 1984. He has also
been Chief Executive Officer and President of Mid-Continent Resources,
Inc., a Kansas corporation also involved in oil and gas development, since
1984. Mr. O'Brate has also been Chief Executive Officer and President of
Palmer Mfg. & Tank, Inc., a Kansas corporation manufacturing storage
vessels for various industries, since 1966. Mr. O'Brate also holds
investments in other closely-held corporations involved in farming and
implement dealerships. Mr. O'Brate will devote his services to WSC on a
part-time basis.
DANIEL LEE DALKE, age 49, currently serves as the Secretary, Treasurer
and Chief Financial Officer of Winco, and as a Director of Winco. He has
been Assistant Secretary-Treasurer and Controller of American Warrior,
Inc., Mid-Continent Resources, Inc. and Palmer Mfg. & Tank, Inc. since
1984. Mr. Dalke received a degree in accounting from Wichita State
University, in 1974, and is a Certified Public Accountant. Mr. Dalke will
devote his services to WSC on a part-time basis.
G. ALLEN NELSON, age 76, currently serves as a Director of Winco. He
was the Secretary of Winco from 1989 to 1996. Mr. Nelson holds a degree in
geology from the University of Texas, received in 1948. He has been a
member of the American Association of Petroleum Geologists since 1948, and
an active member since 1954. Mr. Nelson is also an active member of the
Rocky Mountain Association of Geologists, the Wyoming Geological
Association, and the East Anshutz Ranch Field Unit Arbitration Panel. Mr.
Nelson is an independent consulting geologist.
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<PAGE>
TERMS OF OFFICE
The directors of WSC will be elected to hold office until the next
annual meeting of shareholders and until their respective successors have
been elected and qualified. Officers of WSC are elected by the board of
directors and hold office until their successors are elected and qualified.
MEETINGS OF DIRECTORS AND SHAREHOLDERS
The board of directors of WSC intends to hold four (4) regular
scheduled meetings and that number of special meetings as may be required
to conduct the business of WSC.
WSC will have no audit or compensation committee.
FAMILY RELATIONSHIPS
There are no family relationships between or among any WSC officers
and directors.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
No officer, director, significant employee, promoter or control person
of WSC has been involved in any event of the type described in Item 401(d)
of Regulation S-B during the past five years.
WSC EXECUTIVE COMPENSATION
No officer of WSC will receive a salary or other type of executive
compensation. Officers are reimbursed for costs incurred in performing
their duties. Mr. O'Brate's affiliated companies, American Warrior, Inc.
and Mid-Continent Resources, Inc., perform certain services for WSC, for
which such corporations are paid under various operating agreements.
WSC DIRECTOR COMPENSATION
No director of WSC receives fees for his services as a director, but
all WSC directors will be reimbursed for reasonable out-of-pocket expenses
incurred in relation to their duties as directors in attending regular and
special meetings.
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STOCK OPTIONS
WSC has no currently outstanding options issued to any person,
including its officers and directors. WSC may issue options in the future.
At the conclusion of the public offering, WSC may adopt an employee stock
option plan. If any such plan were to receive favorable tax treatment as
an incentive stock option plan, affirmative vote of the shareholders to
adopt the plan would be required.
INDEMNIFICATION
WSC's Articles of Incorporation and Bylaws provide for indemnification
of its officers and directors to the full extent permitted under applicable
law. The staff of the SEC has advised the investing public that it does
not consider any such indemnification to be appropriate for liabilities
under the federal securities laws.
DESCRIPTION OF WINCO CAPITAL STOCK
The Winco Articles of Incorporation provide that the authorized
capital stock of Winco is 50,000,000 shares of common stock. In 1996, the
shareholders of Winco voted to increase the authorized capital to
500,000,000 shares of common stock, however, subsequent to this action, the
Board elected not to increase the number of authorized shares from
50,000,000 as they abandoned their then contemplated acquisition program.
The authorized capital of WSC is 10,000,000 shares of common stock. As a
result of Winco shareholder adoption of Proposal One, a 40:1 reverse stock
split would be effected, and approximately 1,028,815 shares would be
currently outstanding and an additional approximately 12,688,719 shares
would be issued to RCS shareholders in connection with the proposed merger.
If the merger does not occur, the reverse stock split will not be
effective, even if previously approved by Winco shareholders.
WINCO COMMON STOCK
Holders of shares of common stock of Winco ("Winco shares") are
entitled to one vote per share on all matters to be voted upon by
shareholders generally, and are not entitled to cumulate votes in the
election of directors. Approval of proposals submitted to shareholders at
a meeting requires the favorable vote of a majority of the Winco shares
voting. Shareholders are entitled to receive such dividends as may be
declared from time to time by the board of directors out of funds legally
available therefor. Winco has no plans to pay dividends on Winco shares in
the near future, and is currently restricted in its ability to pay
dividends. In the event of liquidation, dissolution, or winding up of
Winco, holders of Winco shares are entitled to share ratably in all assets
remaining after payment of liabilities. The holders of Winco shares have
no pre-emptive, conversion or subscription rights. The Winco shares
currently outstanding are validly issued, fully paid, and non-assessable.
WSC COMMON STOCK
Holders of shares of common stock of WSC ("WSC shares") are entitled
to one vote per share on all matters to be voted upon by shareholders
generally, and are not entitled to cumulate votes in the election of
directors. Approval of proposals submitted to shareholders at a meeting
requires the favorable vote of a majority of the WSC shares voting.
Shareholders are entitled to
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<PAGE>
receive such dividends as may be declared from time to time by the board of
directors out of funds legally available therefor. WSC has no plans to pay
dividends on WSC shares in the near future, and is currently restricted in
its ability to pay dividends. In the event of liquidation, dissolution, or
winding up of WSC, holders of WSC shares are entitled to share ratably in
all assets remaining after payment of liabilities. The holders of WSC
shares have no pre-emptive, conversion or subscription rights. The WSC
shares currently outstanding are validly issued, fully paid, and non-assessable.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of Winco as of September 30,
1999 and 1998 included in the Proxy Statement have been so included in
reliance on the report of Allen, Gibbs & Houlik, L.C., independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements of RCS as of April 30, 2000, 1999 and 1998,
and for each of the three years in the period ended April 30, 2000 included
in this Proxy Statement have been so included in reliance on the report of
BDO Seidman, LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
Winco's board of directors has not yet made the selection of Winco's
independent auditors for the year ending September 30, 2000.
SHAREHOLDER PROPOSALS
Shareholder proposals for inclusion in proxy materials for Winco's
2001 annual meeting of shareholders should be submitted by the shareholder
to the secretary of Winco in writing and received at the executive offices
of Winco by June 30, 2001.
LEGAL MATTERS
Berenbaum, Weinshienk & Eason, P.C., Denver, Colorado, counsel to
Winco, will pass upon the validity of the Winco securities to be issued in
connection with the merger. Certain legal matters in connection with the
merger will be passed upon for RCS by Rothgerber, Johnson & Lyons LLP.
WHERE YOU CAN FIND MORE INFORMATION
Winco files annual, quarterly and special reports, proxy statements
and other information with the SEC. You may read and copy any document
that Winco files at the SEC's public reference rooms in Washington, D.C.,
New York, New York and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms.
Winco's SEC filings are also available to the public from commercial
document retrieval services and at the web site maintained by the SEC at
http://www.sec.gov.
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INCORPORATION OF INFORMATION BY REFERENCE
The following documents, which are on file with the Commission
(Exchange Act File No. 0-09295) are incorporated in this Proxy Statement by
reference and made a part hereof:
(i) Annual Report on Form 10-KSB and for the year ended September 30,
1999; and
(ii) Quarterly Reports on form 10-QSB for the quarters ended December 31,
1999, March 31, 2000 and June 30, 2000.
All documents filed by Winco with the Commission pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy
Statement and prior to the Effective Date shall be deemed to be
incorporated by reference in this Proxy Statement and shall be a part
hereof from the date of filing of such documents. Any statement contained
in a document incorporated by reference in this Proxy Statement and filed
with the Commission prior to the date of this Proxy Statement shall be
deemed to be modified or superseded for purposes of this Proxy Statement to
the extent that a statement contained herein, or in any other subsequently
filed document which is deemed to be incorporated by reference herein,
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement.
Winco will provide without charge to each person to whom this Proxy
Statement is delivered, upon written or oral request of such person, a copy
of any or all of the foregoing documents incorporated herein by reference
(other than exhibits to such documents, unless such exhibits are
specifically incorporated by reference into such documents). Written or
telephone requests should be directed to Winco at 3118 Cummings, Garden
City, Kansas 67846, Attention: Daniel L. Dalke, or at (316) 275-2963.
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INDEX TO FINANCIAL STATEMENTS
WINCO PETROLEUM CORPORATION
Independent Auditor's Report . . . . . . . . . . . . . . . . . . . . .F-1
Balance Sheets as of September 30, 1999 and 1998 . . . . . . . .F-2 - F-3
Statements of Operations for the Years ended September 30, 1999
and 1998. . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-4
Statements of Stockholders' Equity for the Years Ended
September 30, 1999 and 1998 . . . . . . . . . . . . . . . . . . .F-5
Statements of Cash Flows for the Years Ended September 30, 1999
and 1998. . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-6
Notes to Financial Statements. . . . . . . . . . . . . . . . . F-7 - F-16
Balance Sheets as of June 30, 2000 and September 30, 1999
(Unaudited). . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-17
Statements of operations for the Nine Months Ended June 30, 2000
and September 30, 1999 (Unaudited). . . . . . . . . . . . . . . F-18
Statements of Operations for the Three Months Ended June 30, 2000
and September 30, 1999 (Unaudited). . . . . . . . . . . . . . . F-19
Statements of Cash Flows for the Nine Months Ended June 30, 2000
and September 30, 1999 (Unaudited). . . . . . . . . . . . . . . F-20
Notes to Consolidated Financial Statements (Unaudited) . . . .F-21 - F-22
RUSH CREEK SOLUTIONS, INC.
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . F-23
Balance Sheets, July 31, 2000 (unaudited), April 30, 2000, 1999
and 1998. . . . . . . . . . . . . . . . . . . . . . . . .F-24 - F-25
Statements of Operations and Comprehensive Income (Loss) for
the three months ended July 31, 2000 and 1999 (unaudited)
and the years ended April 30, 2000, 1999 and 1998 . . . . . . . F-26
Statements of Stockholders' Equity for the three months ended
July 31, 2000 (unaudited) and the years ended April 30, 2000,
1999 and 1998 . . . . . . . . . . . . . . . . . . . . . . . . . F-27
Statements of Cash Flows for the three months ended July 31, 2000
and 1999 (unaudited) and the years ended April 30, 2000,
1999 and 1998 . . . . . . . . . . . . . . . . . . . . . .F-28 - F-29
Summary of Accounting Policies . . . . . . . . . . . . . . . .F-30 - F-34
Notes to Financial Statements. . . . . . . . . . . . . . . . .F-35 - F-45
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WINCO PETROLEUM CORPORATION
FINANCIAL STATEMENTS
September 30, 1999 and 1998
INDEPENDENT AUDITORS' REPORT
Board of Directors
Winco Petroleum Corporation
We have audited the accompanying balance sheets of Winco Petroleum
Corporation as of September 30, 1999 and 1998, and the related statements
of operations, stockholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Winco Petroleum
Corporation as of September 30, 1999 and 1998, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Allen, Gibbs & Houlik, L.C.
December 18, 1999
F-1
<PAGE>
WINCO PETROLEUM CORPORATION
BALANCE SHEETS
September 30, 1999 and 1998
ASSETS
------
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 273,172 $ 328,202
Accounts receivable 28,127 19,164
Accounts receivable - related party 48,970 19,134
----------- -----------
Total current assets 350,269 366,500
----------- -----------
PROPERTY AND EQUIPMENT
Investment in oil and gas properties,
at cost (full cost method) 336,096 262,180
Furniture, fixtures and vehicles, at cost 22,698 22,698
----------- -----------
358,794 284,878
Less accumulated depreciation, depletion,
and amortization (137,805) (111,717)
----------- -----------
220,989 173,161
----------- -----------
OTHER ASSETS 1,000 1,000
----------- -----------
$ 572,258 $ 540,661
=========== ===========
</TABLE>
F-2
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable:
Trade $ 2,334 $ 5,180
Related party 35,447 15,828
----------- -----------
Total current liabilities 37,781 21,008
----------- -----------
COMMITMENT
STOCKHOLDERS' EQUITY
Common stock, no par value; 500,000,000 shares
authorized; 41,152,606 shares issued and
outstanding; (1,285,485 and 1,246,485 shares
held in Treasury) 307,000 307,000
Additional paid-in capital 1,292,920 1,288,520
Deficit (1,033,156) (1,044,555)
----------- -----------
566,764 550,965
Less treasury stock at cost (32,287) (31,312)
----------- -----------
Total stockholders' equity 534,477 519,653
----------- -----------
$ 572,258 $ 540,661
=========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-3
<PAGE>
WINCO PETROLEUM CORPORATION
STATEMENTS OF OPERATIONS
Years Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Oil and gas sales $ 142,448 $ 109,109
----------- -----------
Costs and expenses:
Lease operating, including production taxes 90,630 99,206
Depreciation, depletion, and amortization 26,089 63,715
General and administrative 23,423 33,338
----------- -----------
140,142 196,259
----------- -----------
OPERATING INCOME (LOSS) 2,306 (87,150)
----------- -----------
Other income (expense):
Interest income 7,093 10,654
Gain on sale of assets -- 106,245
Other 2,000 (21,296)
----------- -----------
9,093 95,603
----------- -----------
INCOME BEFORE TAXES 11,399 8,453
Income tax expense (benefit) -- --
----------- -----------
NET INCOME $ 11,399 $ 8,453
=========== ===========
NET INCOME PER COMMON SHARE $ -- $ --
=========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-4
<PAGE>
WINCO PETROLEUM CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
COMMON STOCK
ISSUED Additional
----------------------
Number of Paid-In Treasury
Shares Amount Capital Deficit Stock Total
---------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance,
September 30, 1997 41,152,606 $307,000 $1,281,520 $(1,053,008) $ -- $535,512
Services contributed -- -- 7,000 -- -- 7,000
Treasury stock purchased
(average
$.025 per share) -- -- -- -- (31,312) (31,312)
Net income -- -- -- 8,453 -- 8,453
---------- ---------- ---------- ----------- ---------- ----------
Balance,
September 30, 1998 41,152,606 307,000 1,288,520 (1,044,555) (31,312) 519,653
Services contributed -- -- 4,400 -- -- 4,400
Treasury stock purchased
(average
$.025 per share) -- -- -- -- (975) (975)
Net income -- -- -- 11,399 -- 11,399
---------- ---------- ---------- ----------- ---------- ----------
Balance,
September 30, 1999 41,152,606 $307,000 $1,292,920 $(1,033,156) $(32,287) $534,477
========== ========== ========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-5
<PAGE>
WINCO PETROLEUM CORPORATION
STATEMENTS OF CASH FLOWS
Years Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 11,399 $ 8,453
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Services contributed 4,400 7,000
Depreciation, depletion and amortization 26,088 63,715
Gain on sale of assets -- (106,245)
Change in current assets and current liabilities:
Accounts receivable (38,799) 31,629
Accounts payable 16,773 (17,657)
Accrued expenses -- (5,965)
----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 19,861 (19,070)
----------- -----------
Cash flows from investing activities:
Purchase of investment in oil and
gas properties and office equipment (73,916) --
Net proceeds from sale of investment
in oil and gas properties -- 211,979
----------- -----------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (73,916) 211,979
----------- -----------
Cash flows from financing activities:
Purchase of treasury stock (975) (31,312)
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (975) (31,312)
----------- -----------
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (55,030) 161,597
Cash and cash equivalents, beginning of year 328,202 166,605
----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 273,172 $ 328,202
=========== ===========
Supplemental schedule of non-cash operating
and investing activities:
Additional paid-in capital for services
rendered by a related party $ 4,400 $ 7,000
=========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-6
<PAGE>
WINCO PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - Winco Petroleum Corporation (the Company),
incorporated on June 21, 1979, is engaged in the business of acquiring
and developing interests in domestic oil and gas properties, primarily
in Kansas and southeastern Wyoming.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
investments with a maturity of three months or less when purchased to
be cash equivalents.
The Company places its cash with high credit quality institutions. At
times, deposits may be in excess of federally insured limits. The
Company has not experienced losses in any such accounts and believes
it is not exposed to any significant credit risk on cash and cash
equivalents.
OIL AND GAS PROPERTIES - The Company follows the "full-cost" method of
accounting for developed oil and gas properties. Under this method,
all costs associated with property acquisition, exploration, and
development activities are capitalized in one cost center, including
internal costs that can be identified with those activities. No gains
or losses are recognized on the sale or abandonment of oil and gas
properties, unless it involves the disposition of significant reserves
in which case the gain or loss is recognized in income.
The Company's producing oil and gas properties acquired in 1999 and
1998 are accounted for at cost, in a discreet pool applicable to such
properties. The Company has not incurred any development costs in
1999 and 1998.
Depreciation, depletion, and amortization of the full-cost pool and
acquired production are computed using a unit-of-production method
based on proved reserves as determined annually by the Company and
independent engineers. An additional depletion, depreciation, and
amortization provision is made if the total capitalized costs of oil
and gas properties in the cost center exceed the "capitalization
ceiling," which is the sum of: (1) the present value of future net
revenues from estimated production of proved oil and gas reserves
applicable to such cost center, plus (2) the carrying value of the
cost center's unproved properties.
At September 30,1998, the total capitalized cost of oil and gas
properties exceeded the capitalization ceiling. Additional depletion,
depreciation, and amortization was recorded in the amount of $37,141
to reduce the net capitalized cost to an amount equal to the
capitalization ceiling. At September 30, 1999, the total capitalized
cost of oil and gas properties did not exceed the capitalization
ceiling and, thus, no additional depletion, depreciation, and
amortization provision was recorded for fiscal 1999.
(Continued)
F-7
<PAGE>
WINCO PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Based on independent engineers' estimates, the provision for
depreciation, depletion, and amortization on a per equivalent barrel
basis was approximately $.24 and $.93 for 1999 and 1998, respectively.
FURNITURE, FIXTURES, AND VEHICLES - Furniture, fixtures, and vehicles
are depreciated using accelerated methods over estimated useful lives
ranging from three to seven years.
INCOME TAXES - The Company provides deferred income taxes for
intangible drilling and developmental costs and other costs incurred
that enter into the determination of taxable income and accounting
income in different periods when applicable. The excess of statutory
depletion over cost depletion for income tax purposes will be
recognized as a permanent difference in the period in which the excess
occurs.
The Company recognizes deferred tax assets and liabilities for future
tax consequences of events that have previously been recognized in the
Company's financial statements or tax returns. The measurement of
deferred tax assets and liabilities is based on provisions of enacted
tax laws. The effects of future changes in tax laws or rates have not
been anticipated.
EARNINGS PER COMMON SHARE - Earnings per common share is computed
utilizing the weighted average number (41,152,606 in 1999 and 1998) of
common shares outstanding.
ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect: (1) the reported amounts of
assets and liabilities, (2) disclosures such as contingencies, and (3)
the reported amounts of revenues and expenses included in such
financial statements. Actual results could differ from those estimates.
(Continued)
F-8
<PAGE>
WINCO PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
2. OIL AND GAS ACTIVITIES
OIL AND GAS OPERATIONS
Information relating to the Company's oil and gas operations,
including costs incurred in such, is summarized below:
<TABLE>
<CAPTION>
Years Ended September 30,
---------------------------
1999 1998
----------- -----------
<S> <C> <C>
Capitalized costs:
Property acquisition costs $ 73,916 $ --
----------- -----------
Production costs:
Lease operating costs 85,041 89,508
Production and transportation taxes 3,150 3,627
Ad valorem taxes 2,439 6,071
----------- -----------
90,630 99,206
----------- -----------
$ 164,546 $ 99,206
=========== ===========
</TABLE>
CAPITALIZED COSTS
Capitalized costs associated with oil and gas producing activities and
related accumulated depreciation, depletion, and amortization are as
follows:
<TABLE>
<CAPTION>
Years Ended September 30,
---------------------------
1999 1998
----------- -----------
<S> <C> <C>
Proved properties $ 336,096 $ 262,180
Unproved properties -- --
----------- -----------
336,096 262,180
----------- -----------
Accumulated depreciation, depletion, and
amortization 115,469 52,239
Additional accumulated depreciation, depletion,
and amortization "capitalization ceiling" -- 37,141
----------- -----------
115,469 89,380
----------- -----------
Net capitalized costs $ 220,627 $ 172,800
=========== ===========
</TABLE>
(Continued)
F-9
<PAGE>
WINCO PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
2. OIL AND GAS ACTIVITIES (CONTINUED)
MAJOR CUSTOMERS
The Company's oil and gas sales consisted of sales to affiliated
purchasers primarily as follows:
<TABLE>
<CAPTION>
Years Ended
September 30,
----------------------
1999 1998
--------- ---------
<S> <C> <C>
Purchaser
A $ 96,486 $ 62,414
B 13,931 17,764
C 31,702 28,140
--------- ---------
$ 142,119 $ 108,318
========= =========
% to total oil and gas sales 99.77% 99.28%
========= =========
</TABLE>
PROPERTIES ACQUIRED
On April 14, 1999, the Company acquired 100% of the working interest
and operations of four oil leases in Kansas for $73,916. These leases
have 14 producing oil wells that are expected to contribute to the
Company's cash flow and net income in the subsequent fiscal year.
PROPERTIES DISPOSED OF
Effective January 1, 1998, the Company sold its remaining oil and gas
production in Wyoming, except the Madsen 12-9 lease, for approximately
$210,000. The Madsen 12-9 is operated on behalf of the Company by an
unrelated oil and gas operator located in Wyoming, who owns a partial
interest in that lease. This sale will enable the Company to reinvest
those resources in the mid-continent area, probably Kansas, where the
Company's operations will be more concentrated. The seven leases
sold, including two non-producers, contributed about 32% of the
Company's oil and gas sales in fiscal 1997. The reinvestment of the
proceeds of this sale is intended to be in oil and gas leases, whether
operated by the Company or by others, which management believes will
have more development potential. As the properties sold represented
almost all of the Company's Wyoming production and the remainder of
the full-cost pool, the Company recognized the sale by removing all
associated costs, accumulated depreciation, depletion and
amortization, and other capitalized amounts. Due to previous sales
and credits not recognized under the full-cost method, the removal of
such capitalized items resulted in a net credit of $106,245 reflected
as an additional gain in other income.
(Continued)
F-10
<PAGE>
WINCO PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
3. RELATED PARTIES
As of September 30, 1999 and 1998, the Company had no employees.
Administrative and operations management services are provided to the
Company by American Warrior, Inc. (AWI), an oil and gas operating
company affiliated with the Company. AWI owns 41.52% of the Company.
Further, the majority stockholder and CEO of AWI is the CEO and
President of the Company, and the Assistant Secretary-Treasurer of AWI
is the Company's Secretary and Treasurer. The following services were
provided to the Company for the amounts indicated and were recorded as
additional paid-in capital:
1999 1998
---------------- ----------------
Service Hours Amount Hours Amount
-------------- ----- --------- ----- ---------
Administration 20 $ 2,000 25 $ 2,500
Accounting 40 2,400 75 4,500
--------- ---------
$ 4,400 $ 7,000
========= =========
In addition to the above contributed services, in 1998, AWI was paid
$3,350 in cash for similar services. Further, at September 30, 1999
and 1998, the Company had amounts receivable from this affiliate for
oil sales not yet distributed in the amounts of $48,970 and $19,134,
respectively, and amounts payable to this affiliate for the purchase
of a working interest in an oil and gas property and for operating
expenses in the amounts of $35,447 and $15,828, respectively. The
Company owns undivided working interests in oil and gas properties; it
has not historically been the operator of such properties, instead
relying on other operators. As of September 30, 1999, most of the
Company's oil and gas production is operated by AWI or affiliates of
AWI (the Operating Affiliates). Accordingly, the Company executes
customary transactions with its Operating Affiliates, as appropriate,
relative to certain oil and gas sales, most operating expenses, and
some general and administrative expenses.
(Continued)
F-11
<PAGE>
WINCO PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. INCOME TAXES
A reconciliation between the actual income tax expense and income
taxes computed by applying the statutory federal income tax rate to
earnings before income taxes is as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Computed income tax expense at 34% $ 3,876 $ 2,875
Utilization of net operating loss
carryforwards (3,876) (2,875)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
The net deferred tax assets (liabilities) include the following components:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets
Depletion, depreciation, and amortization $ 75,000 $ 84,900
Net operating loss carryforward 258,400 241,600
----------- -----------
Net deferred tax asset 333,400 326,500
Valuation allowance (333,400) (326,500)
----------- -----------
Net deferred tax asset (liability) $ -- $ --
=========== ===========
</TABLE>
During the years ended September 30, 1999 and 1998, the Company
recorded a valuation allowance of $333,400 and $326,500, respectively,
on the deferred tax assets to reduce the total to an amount management
believes will ultimately be realized. Realization of deferred tax
assets is dependent upon sufficient future taxable income during the
period that deductible temporary differences and carryforwards are
expected to be available to reduce taxable income.
(Continued)
F-12
<PAGE>
WINCO PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. INCOME TAXES (CONTINUED)
The Company has net operating loss carryforwards for regular income
tax purposes at September 30, 1999 as follows:
Year net operating loss carryforward expires
--------------------------------------------
2000 $ 52,579
2001 89,721
2002 63,660
2003 115,138
2004 105,735
2006 17,770
2007 34,960
2008 57,939
2009 67,927
2010 66,169
2011 54,259
2012 34,196
----------
$ 760,053
==========
5. OFF-BALANCE-SHEET RISK
The Company's future production revenues, development costs, and
production expenses are dependent on economic and operating
conditions, such as pricing and production taxes, which can be
volatile, and are not within the Company's control. For example, at
November 30, 1999, the price of crude oil generally received by the
Company was approximately $21.99 per Bbl. versus $21.50 at September 30,
1999. As of September 30, 1998, one of the Company's producing
properties was shut-in as the currently low oil prices would not cover
the cost of operations.
6. UNAUDITED OIL AND GAS RESERVE INFORMATION
The reserve estimates presented as of September 30, 1999 and 1998 were
prepared by independent petroleum consultants. Management cautions
that there are many uncertainties inherent in estimating proved
reserve quantities and in projecting future production rates and the
timing of development expenditures. In addition, reserve estimates of
new discoveries that have little production history are more imprecise
than those of properties with more production history. Accordingly,
these estimates are expected to change as future information becomes
available.
(Continued)
F-13
<PAGE>
WINCO PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
6. UNAUDITED OIL AND GAS RESERVE INFORMATION (CONTINUED)
Proved oil and gas reserves are the estimated quantities of crude oil,
condensate, natural gas, and natural gas liquids which geological and
engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing
economic and operating conditions.
Proved developed oil and gas reserves are those reserves expected to
be recovered through existing wells with existing equipment and
operating methods.
Net quantities of proved reserves and proved developed reserves of
crude oil (including condensate) and natural gas (all of which are
located within the United States) are as follows:
RESERVE QUANTITY INFORMATION
For the years ended September 30, 1999 and 1998
Proved Reserves Oil (Bbls)
---------------------------------------------------- ---------
Estimated quantity, September 30, 1997 99,800
Revisions of previous estimates (17,900)
Production (13,600)
--------
Estimated quantity, September 30, 1998 68,300
Estimate of reserves in new wells purchased in 1999 35,400
Revisions of previous estimates 20,800
Production (15,400)
--------
Estimated quantity, September 30, 1999 109,100
========
Proved Reserves
-----------------------------------
Developed Undeveloped Total
--------- ----------- ---------
Oil (Bbls)
September 30, 1998 68,300 -- 68,300
September 30, 1999 109,100 -- 109,100
(Continued)
F-14
<PAGE>
WINCO PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
6. UNAUDITED OIL AND GAS RESERVE INFORMATION (CONTINUED)
The following table sets forth a standardized measure of the
discounted future net cash flows attributable to the Company's proved
oil and gas reserves. Future cash inflows were computed by applying
year-end prices of oil and gas to the estimated future production of
proved oil and gas reserves. The future production and development
costs represent the estimated future expenditures (based on current
costs) to be incurred in developing and producing the proved reserves,
assuming continuation of existing economic conditions. Future income
tax expenses were computed by applying statutory income tax rates to
the difference between pre-tax net cash flows relating to the
Company's proved oil and gas reserves and the tax basis of proved oil
and gas properties and available net operating loss carryforwards,
reduced by investment tax credits. Discounting the annual net cash
inflows at 10% illustrates the impact of the time value of money on
these future cash inflows.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
AND CHANGES THEREIN RELATING TO PROVED OIL AND GAS RESERVES
AT SEPTEMBER 30,
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Future cash inflows $ 1,963,900 $ 819,500
Future production and development costs (1,222,700) (566,800)
----------- -----------
Future net cash flows 741,200 252,700
10% annual discount for estimated timing of
cash flows (288,700) (79,900)
----------- -----------
Standardized measure of discounted future net
cash flows $ 452,500 $ 172,800
=========== ===========
</TABLE>
(Continued)
F-15
<PAGE>
WINCO PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
6. UNAUDITED OIL AND GAS RESERVE INFORMATION (CONTINUED)
Following are the principal sources of change in the standardized
measure of discounted future net cash flows during the years ended
September 30:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Standardized measure of discounted future net
cash flows, beginning $ 172,800 $ 433,200
----------- -----------
Sales and transfers of oil and gas produced,
net of production costs (51,800) (54,600)
Net changes in prices and production costs 124,200 (57,500)
Sales of minerals in place -- (113,800)
Acquisition of reserves 121,000 --
Change in prices and production costs on
acquired properties -- --
Revisions of previous quantity estimates 86,300 (34,500)
----------- -----------
279,700 (260,400)
----------- -----------
Standardized measure of discounted future
net cash flows, ending $ 452,500 $ 172,800
=========== ===========
</TABLE>
ESTIMATED FUTURE NET REVENUES FROM
PROVED RESERVES OF OIL AND GAS
(Based on current prices and current cost)
<TABLE>
<CAPTION>
Proved Total
Developed Proved
Fiscal Year Ending September 30, Reserves Reserves
-------------------------------- ----------- -----------
<S> <C> <C>
2000 $ 97,600 $ 97,600
2001 85,800 85,800
2002 75,500 75,500
Remainder 482,300 482,300
----------- -----------
$ 741,200 $ 741,200
=========== ===========
</TABLE>
PRESENT VALUE OF FUTURE NET CASH FLOWS
OF PROVED RESERVES DISCOUNTED AT 10% PER YEAR
<TABLE>
<CAPTION>
September 30,
---------------------------
1999 1998
----------- -----------
<S> <C> <C>
Proved developed $ 452,500 $ 172,800
Proved undeveloped -- --
----------- -----------
Total proved $ 452,500 $ 172,800
=========== ===========
</TABLE
F-16
<PAGE>
WINCO PETROLEUM CORPORATION
CONDENSED BALANCE SHEET
</TABLE>
<TABLE>
<CAPTION>
June 30, 2000 September 30, 1999
(Unaudited) (Audited)
------------- ------------------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and short-term investment $ 327,132 $ 273,172
Notes and accounts receivable - trade 38,024 28,127
Notes and accounts receivable - related party 24,664 48,970
----------- -----------
TOTAL CURRENT ASSETS 389,820 350,269
INVESTMENTS IN OIL AND GAS PROPERTIES
At Cost, Net (Using the full cost method of
of accounting) 201,422 220,989
FURNITURE, FIXTURES AND VEHICLES, At Cost,
Net of Allowances for Depreciation - -
OTHER ASSETS 1,000 1,000
----------- -----------
TOTAL ASSETS $ 592,242 $ 572,258
=========== ===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
----------------------------------------
CURRENT LIABILITIES:
Accounts payable to stockholders,
Directors, and related parties $ 150 $ 35,447
Accounts payable and accrued
liabilities 21,697 2,334
----------- -----------
TOTAL CURRENT LIABILITIES 21,847 37,781
----------- -----------
STOCKHOLDERS' INVESTMENT
Common stock, no par value;
500,000,000 shares authorized;
41,152,606 shares issued and outstanding 307,000 307,000
Additional paid in capital 1,292,920 1,292,920
Accumulated deficit ( 997,088) (1,033,156)
Treasury stock ( 32,437) ( 32,287)
----------- -----------
TOTAL STOCKHOLDERS' INVESTMENT 570,395 534,477
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' INVESTMENT $ 592,242 $ 572,258
=========== ===========
</TABLE>
F-17
<PAGE>
WINCO PETROLEUM CORPORATION
CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
2000 1999
----------- -----------
<S> <C> <C>
REVENUES:
Oil and gas sales $ 93,410 $ 41,838
Interest income - 2,003
Gain on sale of assets - -
----------- -----------
93,410 43,841
----------- -----------
EXPENSES:
Lease operating expenses 74,717 28,118
General and administrative 6,400 24
Depreciation, depletion and
Amortization 6,522 9,154
----------- -----------
87,639 37,296
----------- -----------
Income (Loss) before income tax 5,771 6,545
Income tax expense (benefit) - -
----------- -----------
NET INCOME (LOSS) $ 5,771 $ 6,545
=========== ===========
NET INCOME (LOSS) PER COMMON
SHARE - PRIMARY AND FULLY DILUTED $ - $ -
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 41,152,606 41,152,606
=========== ===========
</TABLE>
F-18
<PAGE>
WINCO PETROLEUM CORPORATION
CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
2000 1999
----------- -----------
<S> <C> <C>
REVENUES:
Oil and gas sales $ 258,253 $ 51,423
Interest income - 6,266
Gain on sale of assets - -
----------- -----------
258,253 57,689
----------- -----------
EXPENSES:
Lease operating expenses 170,666 36,475
General and administrative 31,953 6,143
Depreciation, depletion and
Amortization 19,566 18,169
----------- -----------
220,185 60,787
----------- -----------
Income (Loss) before income tax 36,068 ( 3,098)
Income tax expense (benefit) - -
----------- -----------
NET INCOME (LOSS) $ 36,068 $( 3,098)
=========== ===========
NET INCOME (LOSS) PER COMMON
SHARE - PRIMARY AND FULLY DILUTED $ - $ -
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 41,152,606 41,152,606
=========== ===========
</TABLE>
F-19
<PAGE>
WINCO PETROLEUM CORPORATION
STATEMENT OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 36,068 $( 3,098)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation, depletion and
amortization 19,566 18,169
Gain on sale of assets
Changes in current assets and
current liabilities:
Accounts Receivable 14,409 -
Accounts Payable ( 15,933) -
----------- -----------
Net cash provided (used) in
operating activities 54,110 15,071
Cash flows from (used in) investing activities:
Investment in oil and gas properties - ( 73,967)
Purchase of common stock for Treasury ( 150) ( 975)
Proceeds from sale of oil & gas property - -
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 53,960 ( 59,871)
Cash and Cash Equivalents at beginning of period 273,172 328,202
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 327,132 $ 268,331
=========== ===========
</TABLE>
F-20
<PAGE>
WINCO PETROLEUM CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
CONDENSED FINANCIAL STATEMENTS
------------------------------
1. The accompanying, unaudited financial statements have been prepared in
accordance with Rule 10-01 of Regulation S-X and do not include all
principles for completed financial statements.
In the opinion of Winco Petroleum Corporation the accompanying, unaudited,
condensed financial statements contain all adjustments (consisting of
normal adjustments) necessary to present fairly the financial position as
of June 30, 2000 and the results of operations for the three and nine
months then ended and changes in financial position for the nine months
then ended. Operating results for the three months and nine months ended
June 30, 2000 are not necessarily indicative of the results that may be
expected for the fiscal year ending September 30, 2000. These statements
should be read in conjunction with the financial statements and notes
thereto included in Form 10-K for the fiscal year ended September 30, 1999.
INVESTMENTS IN OIL AND GAS PROPERTIES
-------------------------------------
2. Depreciation and depletion of the full cost pool is computed using a
unit-of-production method based on proved reserves as determined by the
Company and independent engineers. A provision of $6,522 was made for the
three months ended June 30, 2000. Reserve for depreciation and depletion
was $135,035 and $115,469 on June 30, 2000 and September 30, 1999,
respectively.
EARNINGS PER SHARE
------------------
3. Earnings per common share were computed by dividing net income by the
weighted average number of shares of common stock outstanding during the
three month and nine month periods ended June 30, 2000 and 1999. The
weighted average number shares outstanding for the periods ending June 30,
2000 and 1999 was 41,152,606.
RELATED PARTY TRANSACTIONS
--------------------------
4. Oil and gas properties owned by the Company are operated by entities
considered related parties due to common ownership and management by
directors and officers of the Company. Operation by such parties are
on the same basis as outside third party operators. As a result of
such operations, some proceeds from revenues are usually in process of
distribution resulting in amounts considered receivable. Similarly,
charges for costs of operation of the Company's properties are usually
in process of billing and payment resulting in amounts considered payable.
SUBSEQUENT EVENT
----------------
5. Subsequent to the quarter ended June 30, 2000 but prior to the release
of the Company's financial statements, the Company has signed a preliminary
letter of intent to enter into a merger agreement with another unrelated
corporation. Pursuant to the terms of such letter, the agreement
anticipates the spin-off of all the existing cash and oil and gas related
assets and liabilities to a subsidiary corporation, which will continue to
be owned by the Company's existing shareholders in the same proportions as
of record at the time of such spin-off. Subsequent to the spin-off, the
Company will merge with the other party, a corporation involved in the
computer industry, and the existing shareholders of the Company will be
diluted to approximately 7.5% ownership of the merged company.
F-21
<PAGE>
WINCO PETROLEUM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
During the three months ended June 30, 2000, the Company's working capital
increased $12,144. Working capital increased as a result of the Company's
normal operations. The Company's working capital at June 30, 2000 was $367,973.
The Company intends to utilize funds to purchase producing properties. The
Company also may participate in oil and gas development programs through
sharing arrangements with industry participants. The Company will consider
those arrangements which are financially feasible under current conditions.
RESULTS OF OPERATIONS FOR THE PERIODS ENDED JUNE 30, 2000
---------------------------------------------------------
During the three months and nine months ended June 30, 2000, oil and gas
sales increased approximately $51,572 and $206,830, respectively, from the
comparable periods in 1999. The increase in sales resulted from the
additional production from properties purchased in the prior year and
improved oil prices. There was a corresponding increase in lease operating
expenses of $46,599 and $134,191, respectively, between the same periods.
Interest income decreased from the comparable period in 1999 due to
movement of cash balances to a non-interest-bearing account for purposes of
anticipated purchases.
Due to net operating loss carry forward and tax credits available for
financial and tax reporting purposes, the Company does not expect any
significant income tax effects in the current year.
General and administrative expense increased from the comparable periods in
1999, by $6,376 and $25,810, respectively, for audit and legal costs
associated with the Company's reporting requirements.
F-22
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Business Products, Inc. (d/b/a Rush Creek Solutions, Inc.)
Denver, Colorado
We have audited the accompanying balance sheets of Business Products, Inc.,
(d/b/a Rush Creek Solutions, Inc.) (the "Company") as of April 30, 2000,
1999 and 1998, and the related statements of operations and comprehensive
income (loss), stockholders' equity, and cash flows for the years ended
April 30, 2000, 1999 and 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Business Products, Inc.
(d/b/a Rush Creek Solutions, Inc.) at April 30, 2000, 1999 and 1998, and
the results of its operations and its cash flows for the years then ended
in conformity with generally accepted accounting principles.
June 23, 2000
F-23
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================
July 31, April 30,
2000 2000 1999 1998
-----------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
CURRENT:
Cash and cash equivalents $ 133,823 $ 441,318 $ 131,430 $ 956,365
Investment in equity securities (Note 1) 2,968 2,968 121,005 -
Accounts receivable, less allowance of
$150,000, $150,000 and $150,000 and
$56,000 as of July 31, 2000, April 30,
2000, 1999 and 1998 for doubtful
accounts (Notes 2, 4,and 8) 4,546,936 4,338,879 4,486,929 892,115
Commissions receivable 127,989 593,827 867,741 1,083,910
Inventories - 90,575 53,000 15,000
Related party receivables (Note 4) 383,014 328,994 219,447 75,600
Prepaid expenses and other current assets 188,853 199,743 244,991 5,397
Refundable income taxes 127,368 - - -
Deferred tax asset (Note 3) 156,253 132,191 - -
-----------------------------------------------------------------------------------------------------------
Total current assets 5,667,204 6,128,495 6,124,543 3,028,387
-----------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT:
Office and computer equipment 1,176,504 860,946 214,998 78,176
Leasehold improvements 279,769 271,558 252,922 189,860
-----------------------------------------------------------------------------------------------------------
1,456,273 1,132,504 467,920 268,036
Less accumulated depreciation and
amortization 331,677 258,666 97,956 20,555
-----------------------------------------------------------------------------------------------------------
Net property and equipment 1,124,596 873,838 369,964 247,481
DEPOSITS (Note 5) 125,636 62,500 62,500 31,250
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
$ 6,917,436 $ 7,064,833 $ 6,557,007 $ 3,307,118
===========================================================================================================
</TABLE>
F-24
<PAGE>
<TABLE>
<CAPTION>
BUSINESS PRODUCTS, INC.
(D/B/A RUSH CREEK SOLUTIONS, INC.)
BALANCE SHEETS
===========================================================================================================
July 31, April 30,
2000 2000 1999 1998
-----------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' (unaudited)
EQUITY
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 3,173,705 $ 2,598,637 $ 2,107,863 $ 969,558
Accrued payroll, commissions and
compensated absences 802,970 897,828 663,927 538,918
Payroll taxes and employee benefit
plans payable (Note 6) 119,576 382,683 207,262 297,912
Deferred revenue 1,121,472 1,335,133 925,142 783,677
Note payable (Note 2) 1,050,000 750,000 749,484 -
Income taxes payable (Note 3) 120,840 120,940 219,534 174,722
Deferred income taxes (Note 3) - - 367,061 43,167
-----------------------------------------------------------------------------------------------------------
Total current liabilities 6,388,563 6,085,221 5,240,273 2,807,954
-----------------------------------------------------------------------------------------------------------
DEFERRED INCOME TAXES - LONG-TERM
(Note 3) 299,139 350,445 - -
-----------------------------------------------------------------------------------------------------------
Total liabilities 6,687,702 6,435,666 5,240,273 2,807,954
-----------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
(Notes 4, 5, 6, and 7)
STOCKHOLDERS' EQUITY:
Common stock, no par value, 50,000
shares authorized; 1,500 shares
issued and outstanding 1,500 1,500 1,500 1,500
Accumulated other comprehensive income 16 - 2,127 -
Retained earnings 228,218 627,667 1,313,107 497,664
-----------------------------------------------------------------------------------------------------------
Total stockholders' equity 229,734 629,167 1,316,734 499,164
-----------------------------------------------------------------------------------------------------------
$ 6,917,436 $ 7,064,833 $ 6,557,007 $ 3,307,118
===========================================================================================================
See accompanying summary of accounting policies and notes to financial statements.
</TABLE>
F-25
<PAGE>
<TABLE>
<CAPTION>
BUSINESS PRODUCTS, INC.
(D/B/A RUSH CREEK SOLUTIONS, INC.)
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
==========================================================================================================================
Three months ended Years ended
July 31, April 30,
2000 1999 2000 1999 1998
--------------------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES (Note 4):
Support, update, configuration and
training $ 5,202,252 $ 6,780,235 $19,491,463 $10,387,020 $ 3,294,175
Commissions 1,056,610 1,673,672 6,876,815 7,796,234 7,859,894
System sales 1,802,244 1,573,310 10,955,756 5,737,601 9,761,911
Other income - 4,423 9,376 42,930 209,262
--------------------------------------------------------------------------------------------------------------------------
Total revenues 8,061,106 10,031,640 37,333,410 23,963,785 21,125,242
COST OF SALES 6,169,562 8,454,223 30,137,238 17,625,581 16,684,015
--------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 1,891,544 1,577,417 7,196,172 6,338,204 4,441,227
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 2,473,739 1,188,528 7,971,786 4,973,980 3,369,368
--------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) (582,195) 388,889 (775,614) 1,364,224 1,071,859
OTHER INCOME (EXPENSE):
Interest and investment income 10,907 15,413 134,074 44,039 24,888
Interest expense (30,861) (10,040) (73,800) (819) -
Write-off of related party advances
(Note 4) - - - (50,000) (292,400)
--------------------------------------------------------------------------------------------------------------------------
Total other income (expense) (19,954) 5,373 60,274 (6,780) (267,512)
--------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAX
EXPENSE (BENEFIT) (602,149) 394,262 (715,340) 1,357,444 804,347
INCOME TAX EXPENSE (BENEFIT) (Note 3) (202,700) 197,100 (29,900) 542,000 384,000
--------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) (399,449) 197,162 (685,440) 815,444 420,347
Other comprehensive income (loss), net
of income tax
Unrealized holding gains (losses)
(Note 1) 16 - (2,127) 2,127 -
--------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS) $ (399,433) $ 197,162 $ (687,567) $ 817,571 $ 420,347
==========================================================================================================================
See accompanying summary of accounting policies and notes to financial statements
</TABLE>
F-26
<PAGE>
<TABLE>
<CAPTION>
BUSINESS PRODUCTS, INC.
(D/B/A RUSH CREEK SOLUTIONS, INC.)
STATEMENTS OF STOCKHOLDERS' EQUITY
==========================================================================================================================
Three months ended July 31, 2000 Accumulated Other
(unaudited) and the Common Stock Retained Comprehensive
Years ended April 30, 2000, 1999 and 1998 Shares Amount Earnings Income Total
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, May 1, 1997 1,500 $ 1,500 $ 77,316 $ - $ 78,816
Comprehensive income:
Net income for the year - - 420,347 - 420,347
Unrealized holding gains - - - - -
--------------------------------------------------------------------------------------------------------------------------
BALANCE, April 30, 1998 1,500 1,500 497,663 - 499,163
Comprehensive income:
Net income for the year - - 815,444 - 815,444
Unrealized holding gains - - - 2,127 2,127
--------------------------------------------------------------------------------------------------------------------------
BALANCE, April 30, 1999 1,500 1,500 1,313,107 2,127 1,316,734
Comprehensive income (loss):
Net loss for the year - - (685,440) - (685,440)
Unrealized holding losses - - - (2,127) (2,127)
--------------------------------------------------------------------------------------------------------------------------
BALANCE, April 30, 2000 1,500 1,500 627,667 - 629,167
Comprehensive income (loss):
Net loss for the three months - - (399,449) - (399,449)
(unaudited)
Unrealized holding gains
(unaudited) - - - 16 16
--------------------------------------------------------------------------------------------------------------------------
BALANCE, July 31, 2000 (unaudited) 1,500 $ 1,500 $ 228,218 $ 16 $ 229,734
==========================================================================================================================
See accompanying summary of accounting policies and notes to financial statements
</TABLE>
F-27
<PAGE>
<TABLE>
<CAPTION>
BUSINESS PRODUCTS, INC.
(D/B/A RUSH CREEK SOLUTIONS, INC.)
STATEMENTS OF CASH FLOWS
==========================================================================================================================
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Three months ended Years ended
July 31, April 30,
2000 1999 2000 1999 1998
--------------------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (399,449) $ 197,162 $ (685,440) $ 815,444 $ 420,347
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization 73,011 22,077 160,710 77,401 83,762
Allowance for doubtful accounts - - - 94,000 (20,000)
Write-off of related party advances - - - 50,000 292,400
Unrealized gain on investment holdings 16 - (2,127) - -
Realized gain on investment holdings - - (61,115) - -
Compensation expense for officer advances
not collected - - 135,000 - -
Deferred income taxes (75,368) (2,459) (150,966) 322,617 209,365
Changes in operating assets and liabilities:
Accounts receivable (208,057) 2,210,735 148,814 (3,688,814) 489,427
Commissions receivable 465,838 396,021 273,914 216,169 (394,805)
Related party receivables 980 - - - -
Inventories 90,575 34,000 (37,575) (38,000) 2,000
Refundable income taxes (127,368) - - - -
Prepaid expenses and other current assets 10,890 39,068 45,248 (239,594) (5,397)
Accounts payable and accrued expenses 575,068 (771,390) 490,774 1,138,304 (680,732)
Accrued payroll, commissions,
compensated absences, payroll taxes and
employee benefit plans payable (357,965) (88,544) 409,322 34,359 231,454
Deferred revenue (213,661) (255,448) 409,991 141,465 387,788
Income taxes payable (100) 199,560 (98,594) 44,812 15,913
--------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES (165,590) 1,980,782 1,037,956 (1,031,837) $ 1,031,522
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-28
<PAGE>
<TABLE>
<CAPTION>
BUSINESS PRODUCTS, INC.
(D/B/A RUSH CREEK SOLUTIONS, INC.)
STATEMENTS OF CASH FLOWS
==========================================================================================================================
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Three months ended Years ended
July 31, April 30,
2000 1999 2000 1999 1998
--------------------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
INVESTING ACTIVITIES:
Purchase of property and equipment $ (323,769) $ (9,588) $ (664,584) $ (199,884) $ (268,036)
Purchases of investment securities - (192) (64,000) (117,601) -
Additions to deposits (63,136) - - (31,250) (31,250)
--------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (386,905) (9,780) (728,584) (348,735) (299,286)
--------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from note payable 300,000 - 750,000 749,484 -
Payments on note payable - (350,000) (749,484) - -
Advances to related parties - (148,256) - (324,847) (368,000)
Payments received from related parties (55,000) - - 131,000 47,500
--------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 245,000 (498,256) 516 555,637 (320,500)
--------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents (307,495) 1,472,746 309,888 (824,935) 411,736
CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD 441,318 131,430 131,430 956,365 544,629
--------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 133,823 $ 1,604,176 $ 441,318 $ 131,430 $ 956,365
==========================================================================================================================
See accompanying summary of accounting policies and notes to financial statements.
</TABLE>
F-29
<PAGE>
BUSINESS PRODUCTS, INC.
(D/B/A RUSH CREEK SOLUTIONS, INC.)
SUMMARY OF ACCOUNTING POLICIES
=========================================================================
BUSINESS Business Products, Inc. (d/b/a Rush Creek Solutions,
Inc.) (the "Company") is engaged in the business of
providing value-added systems integration as an
information technology solution provider. The Company
designs and installs computer networks and
communications systems, procures and supports computer
hardware and software, performs engineering and other
technical services, and provides staffing solutions.
The Company was incorporated in Colorado in 1975.
The Company primarily does business in Colorado, Utah,
and Washington, but may sell products or perform
services anywhere in the United States depending on the
needs of customers.
On July 9, 2000, the Company announced a change in the
Company name to Business Products, Inc., d/b/a Rush
Creek Solutions, Inc.
CONCENTRATIONS The Company's financial instruments that are exposed to
OF CREDIT RISK concentrations of credit risk consist primarily of cash
equivalent balances in excess of the insurance provided
by governmental insurance authorities and accounts
receivable. The Company's cash equivalents are placed
with major financial institutions and are primarily
invested in money market investments. The Company held
securities available for sale in a variety of corporate
equity securities until all securities were transferred
to a corporate officer as described in Note 1.
A majority of the Company's business activities are
with customers in the technology, telecommunications,
government and not-for-profit industries. Net
receivables consist primarily of amounts due from a
large number of entities in these sectors. The Company
does not require collateral to support such receivables.
F-30
<PAGE>
BUSINESS PRODUCTS, INC.
(D/B/A RUSH CREEK SOLUTIONS, INC.)
SUMMARY OF ACCOUNTING POLICIES
=========================================================================
USE OF ESTIMATES The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that
affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at
the date of the financial statements and revenues and
expenses during the reporting period. Actual results
could differ from those estimates and assumptions.
INVESTMENT IN Marketable securities classified as available for sale
EQUITY SECURITIES are those securities that the Company does not have a
positive intent to hold to maturity or does not intend
to trade actively. These securities are reported at
fair value with unrealized gains and losses reported as
a net amount (net of applicable income taxes), as a
component of stockholders' equity in other
comprehensive income.
INVENTORIES Inventories of computer hardware and accessories are
stated at lower of cost or market on a first in, first
out basis.
PROPERTY AND Property and equipment are stated at cost. Depreciation
EQUIPMENT is computed using accelerated methods over the
estimated useful lives (generally five to seven years)
of the assets. Leasehold improvements are amortized
over the shorter of the useful lives of the assets or
the lives of the respective leases.
Depreciation and amortization expense was $160,710,
$77,401 and $83,762 for the years ended April 30, 2000,
1999 and 1998. Depreciation and amortization expense
was $73,011 and $22,077 for the three months ended
July 31, 2000 and 1999.
REVENUE Revenues for systems sales are recognized at the time
RECOGNITION the system is configured and installed. Revenue from
block time support service agreements is deferred at
the time the agreement is executed and recognized as
the related services are provided over the contractual
period. The Company recognizes revenues from customer
training and consulting services when such services are
provided.
F-31
<PAGE>
BUSINESS PRODUCTS, INC.
(D/B/A RUSH CREEK SOLUTIONS, INC.)
SUMMARY OF ACCOUNTING POLICIES
=========================================================================
Agency commissions related to hardware or software
sales facilitated by the Company's sales
representatives that are direct between the distributor
and the customer are recognized when the distributor
has completed the sale to the customer.
INCOME TAXES The Company accounts for income taxes under Financial
Accounting Standards Board ("FASB") Statement No. 109,
Accounting for Income Taxes ("SFAS No. 109"). Deferred
income taxes result from temporary differences.
Temporary differences are differences between the tax
basis of assets and liabilities and their reported
amounts in the financial statements that will result in
taxable or deductible amounts in future years.
CASH EQUIVALENTS The Company considers cash and all highly liquid
investments purchased with an original maturity of
three months or less to be cash equivalents.
COMPREHENSIVE The Company follows SFAS No. 130, Reporting
INCOME Comprehensive Income. SFAS No. 130 requires the
reporting of comprehensive income in addition to net
income from operations. Comprehensive income is a more
inclusive financial reporting methodology that includes
disclosure of certain financial information that
historically has not been recognized in the calculation
of net income.
The change in net unrealized securities gains (losses)
recognized in other comprehensive income includes
unrealized gains (losses) that arose during the period
from changes in market value of securities that were
held during the period (holding gains (losses)).
F-32
<PAGE>
BUSINESS PRODUCTS, INC.
(D/B/A RUSH CREEK SOLUTIONS, INC.)
SUMMARY OF ACCOUNTING POLICIES
=========================================================================
UNAUDITED PERIODS
The financial information with respect to the three
months ended July 31, 2000 and 1999 is unaudited. In
the opinion of management, the accompanying unaudited
financial statements contain all adjustments necessary
to present fairly the Company's financial position as
of July 31, 2000 and 1999 and the results of its
operations and cash flows for the three months then
ended. Management believes all such adjustments are of
a normal recurring nature. The results of operations
for interim periods are not necessarily indicative of
results to be expected for a full year.
NEW ACCOUNTING In June 1998, the FASB issued Statement of Financial
PRONOUNCEMENTS Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" which
requires companies to record derivatives on the balance
sheet as assets or liabilities, measured at fair market
value. Gains or losses, resulting from changes in the
values of those derivatives would be accounted for
depending on the use of the derivatives and whether it
qualifies for hedge accounting. The key criterion for
hedge accounting is that the hedging relationship must
be highly effective in achieving offsetting changes in
fair value or cash flows. SFAS No. 133, as extended by
SFAS No. 137, is effective for fiscal periods beginning
after June 15, 2000. Management believes the adoption
of this statement will have no material impact on the
Company's financial statements.
F-33
<PAGE>
BUSINESS PRODUCTS, INC.
(D/B/A RUSH CREEK SOLUTIONS, INC.)
SUMMARY OF ACCOUNTING POLICIES
=========================================================================
In March 2000, the FASB issued Emerging Issues Task
Force Issue No. 00-2, "Accounting for Web Site
Development Costs" ("EITF 00-2"), which is effective
for all such costs incurred for fiscal quarters
beginning after June 30, 2000. This Issue establishes
accounting and reporting standards for costs incurred
to develop a web site based on the nature of each cost.
Currently, since the Company maintains a web site which
was developed previously, the adoption of EITF 00-2 is
expected to have minimal impact on the Company's
financial condition or results of operations as most
costs incurred are of a maintenance nature which are to
be expensed. To the extent the Company performs
upgrades and enhancements in the future, certain costs
will need to be capitalized and the Company will adopt
the Issue's disclosure requirements in the quarterly
and annual financial statements for the year ending
April 30, 2001.
In March 2000, the FASB issued FASB Interpretation No.
44, "Accounting for Certain Transactions Involving
Stock Compensation" ("FIN 44"), which was effective
July 1, 2000, except that certain conclusions in this
Interpretation which cover specific events that occur
after either December 15, 1998 or January 12, 2000 are
recognized on a prospective basis from July 1, 2000.
This Interpretation clarifies the application of APB
Opinion 25 for certain issues related to stock issued
to employees. The Company believes its existing stock
based compensation policies and procedures are in
compliance with FIN 44 and therefore, the adoption of
FIN 44 had no material impact on the Company's
financial condition, results of operations or cash flows.
F-34
<PAGE>
BUSINESS PRODUCTS, INC.
(D/B/A RUSH CREEK SOLUTIONS, INC.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2000, 1999 AND 1998
(UNAUDITED AS TO THREE MONTHS ENDED JULY 31, 2000 AND 1999)
=========================================================================
1. INVESTMENT IN The Company's market value of available for sale equity
EQUITY securities consisted of the following:
SECURITIES
<TABLE>
<CAPTION>
Estimated Gross Gross
Fair Unrealized Unrealized
Value gains losses Cost
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
JULY 31, 2000
(UNAUDITED) $ 2,968 $ - $ - $ 2,968
APRIL 30, 2000 $ 2,968 $ - $ - $ 2,968
April 30, 1999 $121,005 $ 9,885 $ (6,481) $117,601
</TABLE>
On April 27, 2000 the Company legally transferred
substantially all of its investments to the Company's
President. The transaction was recorded at the fair
value of the investments as an advance to this officer
(Note 4). The estimated fair value of the investments
upon transfer to the President was approximately
$245,000. As a result of the transfer, the Company
recognized approximately $61,115 in gross realized
gains for the year ended April 30, 2000.
2. NOTE PAYABLE The Company's short-term obligation consists of a bank
promissory note payable for borrowings. The amount
payable under the note agreement was $1,050,000,
$750,000 and $749,484 at July 31, 2000, April 30, 2000
and 1999, respectively. The maximum availability under
the note is $1,500,000. The original note matured and
has been renewed until October 30, 2000. Interest is
payable monthly at the prime rate charged by Norwest
Bank Colorado, N.A, and 9.00% at April 30, 2000. The
note is secured by accounts receivable and general
intangibles of the Company and is guaranteed by the
Company's President.
F-35
<PAGE>
BUSINESS PRODUCTS, INC.
(D/B/A RUSH CREEK SOLUTIONS, INC.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2000, 1999 AND 1998
(UNAUDITED AS TO THREE MONTHS ENDED JULY 31, 2000 AND 1999)
=========================================================================
Effective May 1, 2000, the Company renewed the note
agreement through October 30, 2000. The maximum
availability under the note was increased to
$1,500,000. All other terms remained unchanged.
The agreement contains loan covenants that require the
Company to provide monthly accounts receivable aging,
annual and quarterly Company financial statements, and
annual personal financial statements and tax returns of
the guarantor. The loan requires the Company to
annually "rest" the loan for 60 days with a zero
balance. The Company was in compliance with these
covenants.
3. INCOME TAX
EXPENSE
(BENEFIT) Income tax expense (benefit) consisted of the following:
<TABLE>
<CAPTION>
Three months ended
July 31, Year Ended April 30,
2000 1999 2000 1999 1998
--------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
CURRENT:
Federal $ (107,300) $ 165,100 $ 99,700 $ 191,500 $ 152,000
State (20,100) 34,400 21,200 28,000 22,500
------------------------------------------------------------------------------------------------------
(127,400) 199,500 120,900 219,500 174,500
------------------------------------------------------------------------------------------------------
DEFERRED (BENEFIT):
Federal (64,900) (2,100) (129,900) 277,500 180,500
State (10,400) (300) (20,900) 45,000 29,000
------------------------------------------------------------------------------------------------------
(75,300) (2,400) (150,800) 322,500 209,500
------------------------------------------------------------------------------------------------------
Income tax expense
(benefit) $ (202,700) $ 197,100 $ (29,900) $ 542,000 $ 384,000
======================================================================================================
</TABLE>
F-36
<PAGE>
BUSINESS PRODUCTS, INC.
(D/B/A RUSH CREEK SOLUTIONS, INC.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2000, 1999 AND 1998
(UNAUDITED AS TO THREE MONTHS ENDED JULY 31, 2000 AND 1999)
=========================================================================
The components of deferred income tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
July 31, April 30,
2000 2000 1999 1998
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DEFERRED TAX ASSETS (UNAUDITED)
(LIABILITIES):
CURRENT:
Contributions carryovers $ 199,700 $ 162,700 $ 104,500 $ 55,000
Accounts receivable reserve 56,300 56,300 56,500 21,000
Accrued compensated absences 22,600 22,600 60,000 38,500
Accrued settlement - - - -
Deferred revenue 58,900 71,800 34,700 29,400
Cumulative effect of tax
change in accounting
method (181,200) (181,200) (621,200) (186,900)
Unrealized holding gains on
available for sale
securities - - (1,500) -
-------------------------------------------------------------------------------
Net current deferred tax
asset (liability) $ 156,300 $ 132,200 $(367,000) $ (43,000)
-------------------------------------------------------------------------------
LONG-TERM:
Deferred compensation plan $ 18,000 $ 12,000 $ - $ -
Cumulative effect of tax
change in accounting
method (317,200) (362,500) - -
-------------------------------------------------------------------------------
Net long-term deferred tax
liability $(299,200) $(350,500) $ - $ -
-------------------------------------------------------------------------------
</TABLE>
F-37
<PAGE>
BUSINESS PRODUCTS, INC.
(D/B/A RUSH CREEK SOLUTIONS, INC.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2000, 1999 AND 1998
(UNAUDITED AS TO THREE MONTHS ENDED JULY 31, 2000 AND 1999)
=========================================================================
A reconciliation of income tax expense at the federal
statutory rate to the effective tax rate is as follows:
<TABLE>
<CAPTION>
Three Months
Ended July 31, Year Ended April 30,
2000 1999 2000 1999 1998
------------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Income tax expense
(benefit) computed at
the federal statutory rate $(204,700) $ 134,000 $(243,200) $ 461,500 $ 273,500
State income tax expense
(benefit), net of federal
tax benefit (18,400) 22,700 14,000 28,000 22,400
Non-deductible expenses 21,900 40,400 124,300 22,500 68,600
Rate differential (1,500) - - 30,000 19,500
Adjustment relating to
accounting method change - - 75,000 - -
------------------------------------------------------------------------------------------------------
Income tax expense
(benefit) $(202,700) $ 197,100 $ (29,900) $ 542,000 $ 384,000
======================================================================================================
</TABLE>
In April 2000, the Company filed a Form 3115 with the
IRS to apply for a change in accounting method to
accrue receivables and payables related to specific
types of income and expense, which had previously been
reported on a cash basis. The new method of accounting
conforms this tax treatment to financial statement
generally accepted accounting principles and will be
used for both financial statement purposes and tax
returns. The total future taxable amount for income
tax purposes resulting from the change of $1,933,038
will be recognized as income ratably over a four-year
period. As a result, in fiscal 2000, one fourth of the
total effect has been recognized as current taxable
income, one fourth has been recorded as a current
deferred tax liability and the remaining amount has
been recorded as a long-term deferred tax liability.
F-38
<PAGE>
BUSINESS PRODUCTS, INC.
(D/B/A RUSH CREEK SOLUTIONS, INC.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2000, 1999 AND 1998
(UNAUDITED AS TO THREE MONTHS ENDED JULY 31, 2000 AND 1999)
=========================================================================
4. RELATED LEASES
PARTY
TRANSACTIONS The Company leases its facilities from 8136 S. Grant
Way, LLC, which is 80% owned by the President of the
Company on a month-to-month basis. Rent is $27,875
monthly. The Company moved into the facilities at 8136
S. Grant Way in April 1998. Rent payable to 8136 South
Grant Way was $83,625 at July 31, 2000, $0 at April 30,
2000, $334,500 at April 30, 1999, $0 at April 30, 1998.
Prior to April 1998 the Company leased its facilities
at 114 Federal Boulevard from the spouse of the
majority stockholder under a lease agreement which was
scheduled to expire December 31, 1999. This agreement
called for rental payments of $7,000 monthly, plus a
payment of $1,500 monthly to three stockholders of the
Company to lease the land adjacent to the building.
Rent expense under the leases was $334,500, $218,029,
and $100,625 for the years ended April 30, 2000 and
1999 and 1998. Rent expense for each of the three
months ended July 31, 2000 and 1999 was $83,625.
Additionally, prior to February 2000, the Company
leased a Unix computer system ($2,500 monthly) and a
phone system ($2,000 monthly) from the President of the
Company under two month-to-month leases. In February
2000, the Company purchased the systems from the
President for $50,000.
Rent expense under the leases was $43,156 and $54,000
for each of the years ended April 30, 2000, 1999, and
1998. Rent expense for the three months ended
July 31, 1999 was $13,500. There was no rent expense
for the three months ended July 31, 2000 due to the
Company purchase of the equipment in February 2000.
F-39
<PAGE>
BUSINESS PRODUCTS, INC.
(D/B/A RUSH CREEK SOLUTIONS, INC.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2000, 1999 AND 1998
(UNAUDITED AS TO THREE MONTHS ENDED JULY 31, 2000 AND 1999)
=========================================================================
ADVANCES AND RECEIVABLES
In connection with the transfer of substantially all of
the investments in equity securities to its President
in April 2000, the Company recorded an advance
receivable for the fair value of the investments as of
the date of the transfer. As of April 30, 1999, the
Company had advances receivable from two officers and
a demand note receivable from E3SI, Inc., a company in
which the Company's President has a 46% ownership
interest. Interest is accrued on advances to officers
at 8% per annum. The officer advances were recognized
as bonuses and expensed in fiscal 2000. The Company
also has receivables from two entities with common
ownership, 8136 S. Grant Way, LLC (80% owned by the
Company's President) and E3SI (19% owned by the
Company's President), for legal expenses paid on behalf
of these entities. The amounts receivable are as follows:
<TABLE>
<CAPTION>
July 31, April 30,
2000 2000 1999 1998
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Advances to officers $300,311 $245,311 $135,000 $ 50,000
Related party receivables:
E3SI, Inc. 77,869 78,849 79,613 25,600
8136 S. Grant Way, LLC 4,834 4,834 4,834 -
---------------------------------------------------------------------------
Total related party
receivables $383,014 $328,994 $219,447 $ 75,600
===========================================================================
</TABLE>
In connection with the receivable from E3SI, the
Company wrote-off amounts receivable from E3SI, Inc. of
$50,000 in the year ended April 30, 1999. The
remaining amount advanced to E3SI as of April 30, 1999
was formalized in a note agreement as of December 27,
1999 under which interest is required at 8% payable
annually on the anniversary date of the note.
F-40
<PAGE>
BUSINESS PRODUCTS, INC.
(D/B/A RUSH CREEK SOLUTIONS, INC.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2000, 1999 AND 1998
(UNAUDITED AS TO THREE MONTHS ENDED JULY 31, 2000 AND 1999)
=========================================================================
Prior to entering the formal note agreement the Company
charged E3SI interest at 8% per annum. Interest
receivable as of the balance sheet dates is included in
prepaid expenses and other current assets and consisted
of the following:
<TABLE>
<CAPTION>
July 31, April 30,
2000 2000 1999 1998
---------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
INTEREST RECEIVABLE:
Advances to officers $ 5,405 $ 11,316 $ 5,000 $ 778
E3SI, Inc. 12,912 12,033 5,400 119
8136 S Grant Way 795 - - -
---------------------------------------------------------------------------
$ 19,112 $ 23,349 $ 10,400 $ 897
===========================================================================
</TABLE>
E3SI and the Company have an ongoing business
relationship whereby occasionally either party may
perform work for the other party. Under this
arrangement the following transactions have taken place
during the periods presented:
<TABLE>
<CAPTION>
Three Months
Ended Year Ended
July 31, April 30,
2000 2000 1999 1998
---------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
Accounts receivable
E3SI, Inc. (trade) $ 16,275 $ 85,250 $ 23,730 $ -
Revenues from E3SI, Inc. $ 25,948 $238,650 $ 24,000 $ 560
</TABLE>
Revenue from E3SI, Inc. for the three months ended
July 31, 1999 was $278.
F-41
<PAGE>
BUSINESS PRODUCTS, INC.
(D/B/A RUSH CREEK SOLUTIONS, INC.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2000, 1999 AND 1998
(UNAUDITED AS TO THREE MONTHS ENDED JULY 31, 2000 AND 1999)
=========================================================================
ACCOUNTS PAYABLE
As of April 30, 2000, the Company reported accounts
payable balances of $23,864 to E3SI. E3SI provides
business consulting and advisory services to the Company.
5. LEASE The Company leases certain business/entertainment
COMMITMENTS facilities under a cancelable operating lease
agreement. The lease became effective August 1999 and
is scheduled to end August 31, 2004 unless terminated
sooner. At the end of the first year the Company may
elect to terminate the agreement, effective the end of
the third year (August 31, 2002). The Company has made
a security deposit of $62,500 under the agreement.
During the current fiscal year the Company leased
certain office facilities under non-cancelable
operating lease agreements, which expire at various
dates through 2001. There was no rent expense under the
agreements for the years ended April 30, 1999, and 1998
or the three months ended July 31, 1999. Rent expense
for the year ended April 30, 2000 was $149,758 and
$31,250 for the three months ended July 31, 2000.
Future minimum lease payments under the non-cancelable
portion of the operating leases are as follows:
YEAR ENDING JULY 31,
-----------------------------------------------------
2001 $ 385,514
2002 369,459
2003 178,936
-------------
$ 933,909
=============
F-42
<PAGE>
BUSINESS PRODUCTS, INC.
(D/B/A RUSH CREEK SOLUTIONS, INC.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2000, 1999 AND 1998
(UNAUDITED AS TO THREE MONTHS ENDED JULY 31, 2000 AND 1999)
=========================================================================
6. EMPLOYEE The Company has a deferred savings plan (the "Plan")
BENEFIT which allows participants to make contributions by
PLANS salary reduction pursuant to Section 401(k) of the
Internal Revenue Code. Participants may contribute up
to 15% of their compensation; not to exceed the maximum
allowed by law. The Company makes a matching
contribution to the Plan of 100% of the first 6% of
employee contributions. The Company may make
discretionary contributions to the Plan as determined
by the Company's Board of Directors. Participants are
100% vested in their voluntary contributions and vest
20% per year beginning after two years of service.
During the years ended April 30, 2000, 1999 and 1998
the Company's contributions to the Plan totaled
$241,580, $254,410 and $184,455. For the three months
ended July 31, 2000 and 1999, the Company's
contributions to the Plan totaled $61,747 and $53,640.
Beginning January 2000 the Company established a
non-qualified deferred compensation plan to cover certain
management employees. The Plan is funded by life
insurance policies on the lives of the participants.
The Company pays the premiums and is the beneficiary of
record.
Vested benefits under the Plan are scheduled to be
equal to the initial face value of the policies and
generally will be payable evenly over a ten-year period
beginning at the time of retirement, termination or
death. For the five individuals participating in the
Plan as of April 30, 2000, policy face values range
from $300,000 to $500,000. Employees vest in their
benefits after five years of service from January 1,
2000. No benefits are due to any employee who is
terminated or leaves the Company prior to December 31, 2004.
7. LITIGATION The Company may be engaged in various litigation
matters from time to time in the ordinary course of
business. In the opinion of management, the outcome of
any such litigation will not materially affect the
financial position, results of operations, or cash
flows of the Company. The Company currently does not
have any significant litigation pending.
F-43
<PAGE>
BUSINESS PRODUCTS, INC.
(D/B/A RUSH CREEK SOLUTIONS, INC.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2000, 1999 AND 1998
(UNAUDITED AS TO THREE MONTHS ENDED JULY 31, 2000 AND 1999)
=========================================================================
8. MAJOR The Company has historically received greater than 10%
CUSTOMERS of its annual revenues from several customers. A
summary of significant customers by period is as follows:
<TABLE>
<CAPTION>
Three Months
Ended
July 31, Year Ended April 30,
2000 1999 2000 1999 1998
-------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
ACCOUNTS RECEIVABLE:
Customer A 9.9% 63.2% 8.8% 62.2% 6.3%
Customer B 14.5% - 16.6% - -
Customer D 15.9% - 2.8% - -
REVENUES:
Customer A 12.5% 65.0% 29.9% 22.9% 16.4%
Customer B 14.5% - 6.7% - -
Customer C 19.1% - 3.1% - -
-------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
9. SUPPLEMENTAL Three Months
DISCLOSURE OF Ended
CASH FLOW July 31, Year Ended April 30,
INFORMATION 2000 1999 2000 1999 1998
-------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash paid during the
period for:
Interest $ 26,883 $ 10,040 $ 72,700 $ 819 $ -
-------------------------------------------------------------------------------------------------
Income taxes $ - $ - $191,389 $174,722 $158,809
-------------------------------------------------------------------------------------------------
Transfer of investment
holdings to officer $ - $ - $245,311 $ - $ -
-------------------------------------------------------------------------------------------------
</TABLE>
F-44
<PAGE>
BUSINESS PRODUCTS, INC.
(D/B/A RUSH CREEK SOLUTIONS, INC.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2000, 1999 AND 1998
(UNAUDITED AS TO THREE MONTHS ENDED JULY 31, 2000 AND 1999)
=========================================================================
10. COMMWORLD On March 10, 2000, the Company and its shareholders
MERGER entered into a definitive agreement for a business
TERMINATION combination with Communications World International,
Inc. ("CommWorld"). CommWorld's primary business focus
is a variety of telecommunications products and
services, including business telephone systems, through
franchises under the CommWorld name and Company-owned
outlets, including a national account subsidiary.
In May 2000, prior to the CommWorld shareholder
meeting, the Company decided to terminate the merger
negotiations. Therefore the merger agreement was never
executed and the Company has no plans to pursue further
business with CommWorld.
11. WINCO MERGER On August 18, 2000, the Company and its shareholders
entered into a merger agreement with Winco Petroleum
Corporation ("Winco"), subject to shareholder approval
by both parties. In order to accomplish the merger,
Winco has created Winco Merger Corporation ("WMC") as
a wholly-owned subsidiary of Winco. In order to
complete the merger, the Company will merge into WMC
and WMC shall be the surviving entity. The Company
shareholders will receive approximately 92.5% of the
outstanding Winco common stock. The proposed merger
will be accounted for as a reverse acquisition. Under
this accounting treatment, the Company is deemed, for
accounting purposes, to be the acquirer and Winco the
acquired entity.
F-45
<PAGE>
APPENDIX A
MERGER AGREEMENT
<PAGE>
MERGER
AGREEMENT
Among
WINCO PETROLEUM CORPORATION,
a Colorado corporation,
WINCO MERGER CORPORATION,
a Colorado corporation,
WINCO SPIN-OFF CORPORATION,
a Colorado corporation, and
BUSINESS PRODUCTS, INC.,
a Colorado corporation.
<PAGE>
TABLE OF CONTENTS
Page
1. THE MERGER AND RELATED TRANSACTIONS.. . . . . . . . . . . . . . . .2
1.1 The Winco/WSC Asset Spinoff . . . . . . . . . . . . . . . . .2
1.2 The Winco Reverse Split . . . . . . . . . . . . . . . . . . .2
1.3 The BPI/WMC Merger. . . . . . . . . . . . . . . . . . . . . .2
1.4 Effective Time of the Merger. . . . . . . . . . . . . . . . .2
1.5 Articles of Incorporation, Bylaws, Board of Directors
and Officers of the Surviving Corporation . . . . . . . . . .2
1.6 Certain Information With Respect to the Capital Stock of
WMC and BPI . . . . . . . . . . . . . . . . . . . . . . . . .3
1.7 Effect of Merger. . . . . . . . . . . . . . . . . . . . . . .3
1.8 Conversion of BPI Stock . . . . . . . . . . . . . . . . . . .3
1.9 Effect of Merger on WMC Capital Stock . . . . . . . . . . . .3
1.10 Delivery of Certificates. . . . . . . . . . . . . . . . . . .3
2. CLOSING.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
3. REPRESENTATIONS AND WARRANTIES OF BPI CONCERNING BPI. . . . . . . .4
3.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . .4
3.2 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . .4
3.3 Capital Structure . . . . . . . . . . . . . . . . . . . . . .4
3.4 Predecessor Status; Etc . . . . . . . . . . . . . . . . . . .5
3.5 Spin-Off By BPI . . . . . . . . . . . . . . . . . . . . . . .5
3.6 Financial Statements. . . . . . . . . . . . . . . . . . . . .5
3.7 Liabilities and Obligations . . . . . . . . . . . . . . . . .6
3.8 Permits and Intangibles . . . . . . . . . . . . . . . . . . .6
3.9 Environmental Matters . . . . . . . . . . . . . . . . . . . .7
3.10 Personal Property . . . . . . . . . . . . . . . . . . . . . .8
3.11 Material Contracts and Commitments. . . . . . . . . . . . . .8
3.12 Real Property . . . . . . . . . . . . . . . . . . . . . . . 10
3.13 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.14 Compensation; Employment Agreements; Organized Labor
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.15 Employee Benefit Plans. . . . . . . . . . . . . . . . . . . 12
3.16 Compliance With ERISA . . . . . . . . . . . . . . . . . . . 13
3.17 Conformity With Law; Litigation . . . . . . . . . . . . . . 14
3.18 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.19 No Violations . . . . . . . . . . . . . . . . . . . . . . . 15
3.20 Government Contracts. . . . . . . . . . . . . . . . . . . . 15
3.21 Absence of Changes. . . . . . . . . . . . . . . . . . . . . 15
3.22 Deposit Accounts; Powers of Attorney. . . . . . . . . . . . 17
3.23 Relations With Governments. . . . . . . . . . . . . . . . . 17
3.24 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . 17
3.25 Prohibited Activities . . . . . . . . . . . . . . . . . . . 17
3.26 No Conflicts. . . . . . . . . . . . . . . . . . . . . . . . 17
3.27 Certain Business Relationships with BPI . . . . . . . . . . 17
-i-
<PAGE>
3.28 Authorization . . . . . . . . . . . . . . . . . . . . . . . 17
4. REPRESENTATIONS AND WARRANTIES OF WINCO, WMC AND WSC. . . . . . . 18
4.1 Due Organization. . . . . . . . . . . . . . . . . . . . . . 18
4.2 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . 18
4.3 Capital Structure . . . . . . . . . . . . . . . . . . . . . 18
4.4 Predecessor Status; Etc . . . . . . . . . . . . . . . . . . 19
4.5 Spin-Off By Winco . . . . . . . . . . . . . . . . . . . . . 19
4.6 Financial Statements. . . . . . . . . . . . . . . . . . . . 19
4.7 Liabilities and Obligations . . . . . . . . . . . . . . . . 20
4.8 Permits and Intangibles . . . . . . . . . . . . . . . . . . 20
4.9 Environmental Matters . . . . . . . . . . . . . . . . . . . 21
4.10 Personal Property . . . . . . . . . . . . . . . . . . . . . 22
4.11 Material Contracts and Commitments. . . . . . . . . . . . . 22
4.12 Real Property . . . . . . . . . . . . . . . . . . . . . . . 25
4.13 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.14 Compensation; Employment Agreements; Organized Labor
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.15 Employee Benefit Plans. . . . . . . . . . . . . . . . . . . 27
4.16 Compliance With ERISA . . . . . . . . . . . . . . . . . . . 27
4.17 Conformity With Law; Litigation . . . . . . . . . . . . . . 28
4.18 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.19 No Violations . . . . . . . . . . . . . . . . . . . . . . . 29
4.20 Government Contracts. . . . . . . . . . . . . . . . . . . . 29
4.21 Absence of Changes. . . . . . . . . . . . . . . . . . . . . 30
4.22 Deposit Accounts; Powers of Attorney. . . . . . . . . . . . 31
4.23 Relations With Governments. . . . . . . . . . . . . . . . . 31
4.24 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . 31
4.25 Prohibited Activities . . . . . . . . . . . . . . . . . . . 31
4.26 No Conflicts. . . . . . . . . . . . . . . . . . . . . . . . 31
4.27 Certain Business Relationships. . . . . . . . . . . . . . . 32
4.28 Authorization . . . . . . . . . . . . . . . . . . . . . . . 32
5. CERTIFICATE OF THE BPI SHAREHOLDERS CONCERNING
THE TRANSACTION.. . . . . . . . . . . . . . . . . . . . . . . . . 32
5.1 Authorization . . . . . . . . . . . . . . . . . . . . . . . 32
5.2 Title to the Shares . . . . . . . . . . . . . . . . . . . . 32
5.3 Purchase Entirely for His Own Account . . . . . . . . . . . 32
5.4 Disclosure of Information . . . . . . . . . . . . . . . . . 33
5.5 Restrictions on Transfer. . . . . . . . . . . . . . . . . . 33
6. COVENANTS OF BPI PRIOR TO CLOSING.. . . . . . . . . . . . . . . . 34
6.1 Access and Cooperation; Due Diligence . . . . . . . . . . . 34
6.2 Conduct of Business Pending Closing . . . . . . . . . . . . 34
6.3 Prohibited Activities . . . . . . . . . . . . . . . . . . . 35
6.4 No Shop . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.5 Notification of Certain Matters . . . . . . . . . . . . . . 36
6.6 Final Financial Statements. . . . . . . . . . . . . . . . . 36
-ii-
<PAGE>
7. COVENANTS OF WINCO, WMC AND WSC PRIOR TO CLOSING. . . . . . . . . 37
7.1 Access and Cooperation; Due Diligence . . . . . . . . . . . 37
7.2 Conduct of Business Pending Closing . . . . . . . . . . . . 37
7.3 Prohibited Activities . . . . . . . . . . . . . . . . . . . 38
7.4 No Shop . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.5 Notification of Certain Matters . . . . . . . . . . . . . . 39
7.6 Final Financial Statements. . . . . . . . . . . . . . . . . 39
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF WINCO, WSC AND WMC.. . . . 39
8.1 Representations and Warranties; Performance of Obligations. 40
8.2 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . 40
8.3 No Litigation . . . . . . . . . . . . . . . . . . . . . . . 40
8.4 Consents and Approvals. . . . . . . . . . . . . . . . . . . 40
8.5 Good Standing Certificates. . . . . . . . . . . . . . . . . 40
8.6 No Material Adverse Change. . . . . . . . . . . . . . . . . 40
8.7 Officer's Certificate . . . . . . . . . . . . . . . . . . . 40
8.8 Incumbency Certificate and Other Documents. . . . . . . . . 41
8.9 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . 41
8.10 Release of Obligations and Stock Options. . . . . . . . . . 41
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF BPI
AND THE SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . . 41
9.1 Representations and Warranties; Performance of Obligations. 41
9.2 Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . 41
9.3 No Litigation . . . . . . . . . . . . . . . . . . . . . . . 41
9.4 Consents and Approvals. . . . . . . . . . . . . . . . . . . 41
9.5 Good Standing Certificates. . . . . . . . . . . . . . . . . 42
9.6 No Material Adverse Change. . . . . . . . . . . . . . . . . 42
9.7 Officer's Certificate . . . . . . . . . . . . . . . . . . . 42
9.8 Incumbency Certificate and Other Documents. . . . . . . . . 42
9.9 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . 42
9.10 Release of Obligations. . . . . . . . . . . . . . . . . . . 42
10. ADDITIONAL AGREEMENTS.. . . . . . . . . . . . . . . . . . . . . . 42
10.1 Reasonable Best Efforts . . . . . . . . . . . . . . . . . . 42
10.2 Completion of the Disclosure Letters. . . . . . . . . . . . 43
10.3 Public Announcements. . . . . . . . . . . . . . . . . . . . 43
10.4 Further Assurances. . . . . . . . . . . . . . . . . . . . . 43
10.5 The Spin-Off. . . . . . . . . . . . . . . . . . . . . . . . 43
10.6 Winco Merger Corporation. . . . . . . . . . . . . . . . . . 43
10.7 Reverse Split . . . . . . . . . . . . . . . . . . . . . . . 44
10.8 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
11. TERMINATION OF AGREEMENT. . . . . . . . . . . . . . . . . . . . . 44
11.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . 44
11.2 Liabilities in Event of Termination . . . . . . . . . . . . 45
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12. INDEMNIFICATION.. . . . . . . . . . . . . . . . . . . . . . . . . 45
12.1 Indemnification by BPI. . . . . . . . . . . . . . . . . . . 45
12.2 Indemnification by Winco and WSC. . . . . . . . . . . . . . 45
12.3 Indemnification Notice. . . . . . . . . . . . . . . . . . . 45
12.4 Matters Involving Third Parties . . . . . . . . . . . . . . 46
13. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . 46
13.1 Survival of Representations, Warranties and Agreements. . . 46
13.2 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . 47
13.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . 47
13.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . 47
13.5 Brokers and Agents. . . . . . . . . . . . . . . . . . . . . 47
13.6 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 47
13.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 47
13.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 48
13.9 Enforcement . . . . . . . . . . . . . . . . . . . . . . . . 48
13.10 Exercise of Rights and Remedies . . . . . . . . . . . . . . 49
13.11 Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
13.12 Reformation and Severability. . . . . . . . . . . . . . . . 49
13.13 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . 49
13.14 Captions; Construction. . . . . . . . . . . . . . . . . . . 49
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MERGER AGREEMENT
THIS AGREEMENT (the "Agreement") is dated for reference purposes
August 18, 2000, among Winco Petroleum Corporation, a Colorado corporation
("Winco"), Winco Merger Corporation, a Colorado corporation ("WMC"), Winco
Spin-off Corporation, a Colorado corporation ("WSC"), and Business
Products, Inc., a Colorado corporation ("BPI").
RECITALS
A. Winco is desirous of entering into a merger transaction with BPI,
as a result of which the shareholders of BPI (the "BPI Shareholders") will
own approximately ninety-two and one-half percent (92.5%) of Winco; the
current shareholders of Winco (the "Winco Shareholders") will retain an
ownership of approximately seven and one-half percent (7.5%) in Winco. The
transactions to be undertaken by Winco and BPI to accomplish this result
are herein collectively referred to as the "Merger".
B. In order to accomplish the Merger, Winco has created WMC and WSC
as wholly-owned subsidiaries of Winco.
C. In order to accomplish the Merger, BPI will merge into WMC, and
WMC shall be the surviving entity. Pursuant to this Agreement, the BPI
shareholders shall receive common stock in Winco in exchange for the
cancellation of their BPI common stock.
D. Prior to the Merger, all of the assets, obligations and
liabilities of Winco shall be transferred to and assumed by WSC, and all of
the shares of common stock in WSC shall be distributed by Winco to the
Winco Shareholders. In addition, prior to the Merger, Winco shall
undertake a reverse stock split, all as described herein.
E. WSC and certain of its affiliates shall enter into an Indemnity
Agreement with Winco.
F. The respective boards of directors of Winco, WMC, WSC and BPI
deem it advisable and in the best interest of each corporation and their
respective shareholders that the foregoing transaction to be accomplished
in accordance with the terms of this agreement, and such boards of
directors have authorized and approved the execution and delivery of this
agreement on behalf of such respective corporations.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the premises and of the respective
covenants and provisions herein contained, and intending to be legally
bound hereby, the parties agree as follows:
<PAGE>
1. THE MERGER AND RELATED TRANSACTIONS.
1.1 THE WINCO/WSC ASSET SPINOFF. Immediately prior to the Merger,
and upon the terms and subject to the conditions set forth in this
Agreement, all of the assets, liabilities and obligations of Winco shall be
transferred to and assumed by WSC in accordance with Section 10.5 hereof
(the "Spin Off").
1.2 THE WINCO REVERSE SPLIT. Under the terms and subject to the
conditions set forth in this Agreement, Winco shall undertake a reverse
stock split in accordance with Section 10.7 hereof (the "Reverse Stock
Split").
1.3 THE BPI/WMC MERGER. Upon the terms and subject to the conditions
set forth in this Agreement, BPI shall be merged with and into WMC.
Following the Merger, the separate corporate existence of BPI shall cease
and WMC shall continue as the surviving party in the Merger (WMC is
sometimes referred to as the "Surviving Corporation").
1.4 EFFECTIVE TIME OF THE MERGER. While the necessary documentation
to complete the forgoing transactions shall occur simultaneously at Closing
(as defined in Article 2), the transactions shall be deemed to have
occurred in the order set forth in Section 1.1, 1.2 and 1.3, and all
filings with the Colorado Secretary of State and other governmental filings
shall be recorded in such order. Notwithstanding the forgoing, none of the
foregoing events shall occur unless each of the other foregoing events
shall have occurred. At the Closing, (1) Winco shall complete the Spin
Off; (2) Winco shall take such actions as are necessary to complete the
Reverse Stock Split and (3) WMC and BPI shall file Articles of Merger in
such form as is required by and which shall be executed in accordance with
Section 7-111-105 of the Colorado Business Corporation Act. The Merger
shall become effective at such time as the Articles of Merger are duly
filed with the Colorado Secretary of State or at such time as WMC and BPI
shall agree and as shall be specified in the Articles of Merger (the
"Effective Time of the Merger").
1.5 ARTICLES OF INCORPORATION, BYLAWS, BOARD OF DIRECTORS AND
OFFICERS OF THE SURVIVING CORPORATION.
(a) The ARTICLES of Incorporation of WMC as approved by BPI and
as in effect immediately prior to the Effective Time of the Merger
shall be the Articles of Incorporation of the Surviving Corporation
until thereafter changed or amended as provided therein or by
applicable law, except that the name of the Surviving Corporation
shall be changed to a name selected by the shareholders of BPI.
(b) At the Effective Time of the Merger, the Bylaws of WMC as
approved by BPI and as in effect immediately prior to the Effective
Time of the Merger shall be the Bylaws of the Surviving Corporation
until thereafter changed or amended as provided therein or by
applicable law.
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(c) The Directors and officers of Winco and of the Surviving
Corporation shall be the persons to be listed in Schedule 1.3(iii) of
the Winco Disclosure Letter , and each person shall hold his or her
respective office or offices from and after the Effective Time of the
Merger until his or her successor shall have been elected and shall
have qualified or as otherwise provided in the Bylaws of Winco and of
the Surviving Corporation.
1.6 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF WMC AND
BPI. The respective designations and numbers of outstanding shares of each
class of outstanding capital stock of Winco, WMC and BPI as of the date of
this Agreement are as follows:
(i) The authorized and outstanding capital stock of WMC
consists of 100 shares of common stock, of which 100 shares are
issued and outstanding (the "WMC Stock").
(ii) The authorized capital stock of BPI consists of 50,000
shares of common stock, no par value, of which 1,500 shares are
issued and outstanding (the "BPI Stock").
(iii) The authorized capital stock of Winco, prior to the
Reverse Stock Spilt consists of 500,000,000 shares of common
stock, no par value, of which 41,152,606 shares are issued and
outstanding (the "Winco Stock").
1.7 EFFECT OF MERGER. At the Effective Time of the Merger, the
effect of the Merger shall be as provided in Section 7-111-106 of the
Colorado Business Corporation Act.
1.8 CONVERSION OF BPI STOCK. At the Effective Time of the Merger and
without any action on the part of the holders of the BPI Stock, the BPI
Stock shall be converted into the securities of Winco as set forth in
Schedule 1.8.
1.9 EFFECT OF MERGER ON WMC CAPITAL STOCK. At the Effective Time of
the Merger without any action on the part of the holders of WMC Stock, each
share of WMC Stock issued and outstanding immediately prior to the
Effective Time of the Merger shall remain outstanding as one share of WMC Stock.
1.10 DELIVERY OF CERTIFICATES. At the Effective Time of the Merger
the BPI Stock shall be canceled and the BPI Shareholders shall receive
instruments evidencing the ownership of the securities of Winco as set
forth on Schedule 1.10. Each BPI Shareholder shall deliver to Winco at the
Closing the Certificates representing the shares of BPI Stock owned by the
BPI Shareholder (the "BPI Certificates"), duly endorsed in blank by the BPI
Shareholder, or accompanied by blank stock powers. Each BPI Shareholder
agrees promptly to cure any deficiencies with respect to the endorsement of
his BPI Certificates or other documents of conveyance with respect to the
BPI Stock or with respect to the stock powers accompanying any BPI Stock.
Until surrender as contemplated by this Section 1.10, each BPI Certificate
shall be deemed at any time after the Effective Time of the Merger to
represent only the Winco Stock
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received by the shareholders of BPI, as set forth in Schedule 1.8, and
each holder of a BPI Certificate shall cease to have any rights with
respect to the BPI Stock.
2. CLOSING.
Subject to the terms and conditions of this Agreement, the closing of
the transactions contemplated by this Agreement (the "Closing") will take
place on the second business day after the satisfaction or waiver (subject
to applicable law) of the conditions set forth in Sections 8 and 9, unless
another time or date is agreed to in writing by the parties hereto (the
actual time and date of the Closing being referred to herein as the
"Closing Date"). The Closing shall be held at the offices of Rothgerber
Johnson & Lyons LLP, 1200 17th Street, Suite 3000, Denver, Colorado 80202,
unless another place is agreed to in writing by the parties hereto.
3. REPRESENTATIONS AND WARRANTIES OF BPI CONCERNING BPI.
Except as provided in the BPI Disclosure Letter (as defined below) to
be delivered pursuant to Section 10.2, BPI represents and warrants to Winco
that all of the following representations and warranties in this Section 3
are true at the date of this Agreement and shall be true at the time of
Closing. As used in this Agreement, the "BPI Disclosure Letter" shall mean
the disclosure letter delivered by BPI pursuant to this Section 3.
3.1 DUE ORGANIZATION. BPI is a corporation duly organized, validly
existing and in good standing under the laws of the state of its
incorporation, and has the requisite power and authority to carry on its
business as it is now being conducted. BPI is duly qualified to do
business and is in good standing in each jurisdiction in which the nature
of its business or the ownership or leasing of its properties makes such
qualification necessary, except (i) as will be set forth on Schedule 3.1 to
the BPI Disclosure Letter or (ii) where the failure to be so authorized or
qualified would not have a material adverse effect on the business,
operations, properties, assets or condition (financial or otherwise), of
BPI taken as a whole (as used herein with respect to BPI, or with respect
to any other person, a "Material Adverse Effect"). Schedule 3.1 to the BPI
Disclosure Letter shall set forth the jurisdiction in which BPI is
incorporated and contains a list of all jurisdictions in which BPI is
authorized or qualified to do business. True, complete and correct copies
of the Articles of Incorporation and Bylaws, each as amended, of BPI (the
"BPI Charter Documents") shall be made available to Winco. The stock
records of BPI as heretofore made available to Winco, are correct and
complete in all material respects. There are no minutes or other records
or proceedings of BPI which have not been made available to Winco, and all
of such minutes or other records of proceedings are correct and complete in
all respects.
3.2 SUBSIDIARIES. BPI has no subsidiaries.
3.3 CAPITAL STRUCTURE. The authorized capital stock of BPI consists
of 50,000 shares of common stock, no par value, of which 1,500 shares are
issued and outstanding on July 1, 2000. All of the outstanding shares of
common stock have been duly authorized and are validly issued, fully paid
and non-assessable. BPI has no common stock or other shares of capital
stock reserved for or otherwise subject to issuance. The names of all of
the holders of the BPI Stock
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and the number of shares owned by each holder will be set forth in Schedule
3.3 to the BPI Disclosure Letter. Except as will be listed in Schedule 3.3
to the BPI Disclosure Letter or as set forth above, there are no pre-emptive
or other outstanding rights, options, warrants, conversion rights,
stock appreciation rights, redemption rights, repurchase rights,
agreements, arrangements or commitments to issue or sell any shares of
capital stock or other securities of BPI or any securities or obligations
convertible or exchangeable into or exercisable for, or giving any person
a right to subscribe for or acquire, any securities of BPI, and no
securities or obligations evidencing such rights are authorized, issued or
outstanding. BPI does not have outstanding any bonds, debentures, notes or
other debt obligations the holders of which have the right to vote (or
convertible into or exercisable for securities having the right to vote).
There are no outstanding or authorized stock appreciation, phantom stock,
profit participation, or similar rights with respect to BPI. There are no
voting trusts, proxies or other agreements or understandings with respect
to the voting of the capital stock of BPI.
3.4 PREDECESSOR STATUS; ETC. There shall be included in Schedule 3.4
to the BPI Disclosure Letter is an accurate list of all names of all
predecessor companies of BPI, including the names of any entities acquired
by BPI (by stock purchase, merger or otherwise) or owned by BPI or from
whom BPI previously acquired material assets, in any case, from the
earliest date upon which any person acquired his or her stock in BPI.
Except as will be disclosed on Schedule 3.4 to the BPI Disclosure Letter,
BPI has not been, within such period of time, a subsidiary or division of
another corporation or a part of an acquisition which was later rescinded.
3.5 SPIN-OFF BY BPI. Except as will be set forth on Schedule 3.5 to
the BPI Disclosure Letter, there has not been any sale, spin-off or split-up
of material assets of either BPI or any other person or entity that
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, BPI ("Affiliates") since
its inception.
3.6 FINANCIAL STATEMENTS. Schedule 3.6 to the BPI Disclosure Letter
will include copies of the following financial statements (the "BPI
Financial Statements") of BPI: BPI's audited Balance Sheets as of April 30,
2000, 1999 and 1998 and audited Statements of Income and Comprehensive
Income, Stockholders' Equity and Cash Flows for each of the fiscal years
ended April 30, 2000, 1999 and 1998 (April 30, 2000 being hereinafter
referred to as the "Balance Sheet Date") and unaudited interim financial
statements through June 30, 2000 and the last day of the calendar month
immediately preceding Closing. The BPI Financial Statements have been
prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods indicated
(except as noted thereon or as will be noted on Schedule 3.6 to the BPI
Disclosure Letter). Except as will be set forth on Schedule 3.6 to the BPI
Disclosure Letter, such Balance Sheets present fairly in all material
respects the financial position of BPI as of the dates indicated thereon,
and such Statements of Income and Comprehensive Income, Stockholders'
Equity and Cash Flows present fairly in all material respects the results
of operations for the periods indicated thereon, except that the unaudited
interim financial statements were or are subject to normal and recurring
year-end adjustments which were not or are not expected to be material in
amount.
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3.7 LIABILITIES AND OBLIGATIONS. Schedule 3.7 to the BPI Disclosure
Letter will include accurate lists as of the Balance Sheet Date of (i) all
material liabilities of BPI which are not reflected on the Balance Sheet of
BPI at the Balance Sheet Date or otherwise reflected in the BPI Financial
Statements at the Balance Sheet Date which by their nature would be
required in accordance with GAAP to be reflected in the Balance Sheet, and
(ii) all loan agreements, indemnity or guaranty agreements, bonds,
mortgages, liens, pledges or other security agreements. Except as will be
set forth on Schedule 3.7 to the BPI Disclosure Letter, since the Balance
Sheet Date BPI has not incurred any material liabilities of any kind,
character and description, whether accrued, absolute, secured or unsecured,
contingent or otherwise, other than liabilities incurred in the ordinary
course of business. Schedule 3.7 to the BPI Disclosure Letter will also
include , in the case of those contingent liabilities related to pending or
threatened litigation, or other liabilities which are not fixed or
otherwise accrued or reserved, a good faith and reasonable estimate of the
maximum amount which BPI reasonably expects will be payable. For each such
contingent liability or liability for which the amount is not fixed or is
contested, BPI has provided to Winco the following information:
(a) A summary description of the liability together with the
following:
(i) copies of all relevant documentation relating thereto;
(ii) amounts claimed and any other action or relief sought;
and
(iii) name of claimant and all other parties to the claim,
suit or proceeding;
(b) The name of each court or agency before which such claim,
suit or proceeding is pending; and
(c) The date such claim, suit or proceeding was instituted; and
(d) A good faith and reasonable estimate of the maximum amount,
if any, which is likely to become payable with respect to each such
liability. If no estimate is provided, the estimate shall for purposes
of this Agreement be deemed to be zero.
3.8 PERMITS AND INTANGIBLES.
(a) BPI holds all licenses, franchises, permits and other
governmental authorizations the absence of any of which could have a
Material Adverse Effect on BPI's business and Schedule 3.8 to the BPI
Disclosure Letter will include an accurate list and summary
description of all such licenses, franchises, permits and other
governmental authorizations, including permits (it being understood
and agreed that a list of all environmental permits and other
environmental approvals will be set forth on Schedule 3.9 to the BPI
Disclosure Letter), titles (including motor vehicle titles and current
registrations), fuel permits, licenses, franchises and certificates,
as well as (a) registered or unregistered trademarks, trade names,
patents, patent applications and inventions and
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discoveries that may be patentable, (b) copyrights owned or held by
BPI or any of its employees (including interests in software or other
technology systems, programs and intellectual property). The licenses,
franchises, permits and other governmental authorizations will be
listed on Schedules 3.8 and 3.9 to the BPI Disclosure Letter and are
valid, and BPI has not received any notice that any governmental
authority intends to cancel, terminate or not renew any such license,
franchise, permit or other governmental authorization. BPI has
conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in the
licenses, franchises, permits and other governmental authorizations as
will be listed on Schedules 3.8 and 3.9 of the BPI Disclosure letter
and is not in violation of any of the foregoing except where such non-
compliance or violation would not have a Material Adverse Effect on
BPI. Except as will be specifically provided in Schedule 3.8 to the
BPI Disclosure Letter, the transactions contemplated by this Agreement
will not result in a default under or a breach or violation of, or
adversely affect the rights and benefits afforded to BPI by, any such
licenses, franchises, permits or government authorizations.
(b) The patents, the marks and copyrights, as well as the know
how, trade secrets, confidential information, customer lists,
software, technical information, data, process technology, plans and
drawings owned, used or licensed by BPI (collectively, the "Trade
Secrets") are all those necessary to enable BPI to conduct and to
continue to conduct its business as it is currently conducted.
Schedule 3.8 of the BPI Disclosure Letter will also contain a
description of all material Trade Secrets owned or used by BPI.
Except as will be set forth on Schedule 3.8 to the BPI Disclosure
Letter (a) all of the patents, marks, copyrights and Trade Secrets
(collectively, the "Intellectual Property") are owned, or used under
valid licenses by BPI, and are free and clear of all liens and other
adverse claims; (b) BPI has not infringed on or misappropriated, is
not now infringing on or misappropriating, and has not received any
notice that it is infringing on, misappropriating, or otherwise
conflicting with the intellectual property rights of any third
parties; (c) there is no claim pending or threatened against BPI with
respect to the alleged infringement or misappropriation by BPI or a
conflict with, any intellectual property rights of others; (d) the
operation of any aspect of the business in the manner in which it has
heretofore been operated or is presently operated does not give rise
to any such infringement or misappropriation; and (e) there is no
infringement or misappropriation of the Intellectual Property by a
third party or claim, pending or threatened, against any third party
with respect to the alleged infringement or misappropriation of the
Intellectual Property by such third party.
3.9 ENVIRONMENTAL MATTERS. Except as will be set forth on Schedule
3.9 to the BPI Disclosure Letter, and except where any failure to comply or
action would not have a Material Adverse Effect, (i) BPI has complied with
and is in compliance with all Federal, state, local and foreign statutes
(civil and criminal), laws, ordinances, regulations, rules, notices,
permits, judgments, orders and decrees applicable to any of them or any of
their respective properties, assets, operations and businesses relating to
environmental protection (collectively "Environmental Laws") including,
without limitation, Environmental Laws relating to air, water, land and the
generation, storage, use, handling, transportation, treatment or disposal of
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Hazardous Wastes and Hazardous Substances including petroleum and petroleum
products (as such terms are defined in any applicable Environmental Laws);
(ii) BPI has obtained and adhered to all necessary permits and other
approvals necessary to treat, transport, store, dispose of and otherwise
handle Hazardous Wastes and Hazardous Substances, an accurate list of all
of which permits and approvals will beset forth on Schedule 3.9 to the BPI
Disclosure Letter, and have reported to the appropriate authorities, to the
extent required by all Environmental Laws, all past and present sites owned
and operated by BPI where Hazardous Wastes or Hazardous Substances have
been treated, stored, disposed of or otherwise handled; (iii) there have
been no releases or threats of releases (as defined in Environmental Laws)
at, from, in or on any property owned or operated by BPI except as
permitted by Environmental Laws; (iv) there is no on-site or off-site
location to which BPI has transported or disposed of Hazardous Wastes and
Hazardous Substances or arranged for the transportation of Hazardous Wastes
and Hazardous Substances, which site is the subject of any Federal, state,
local or foreign enforcement action or any other investigation which is
reasonably likely to lead to any claim against BPI for any clean-up cost,
remedial work, damage to natural resources, property damage or personal
injury, including, but not limited to, any claim under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended;
and (v) BPI has no contingent liability in connection with any release of
any Hazardous Waste or Hazardous Substance into the environment.
3.10 PERSONAL PROPERTY. Schedule 3.10 to the BPI Disclosure Letter
will include an accurate list of (i) all personal property owned by BPI
with an individual value in excess of $50,000 acquired since April 30,
2000 and (ii) all leases and agreements in respect of personal property,
including, in the case of each of (i) and (ii), (1) true, complete and
correct copies of all such leases and (2) an indication as to which assets
are currently owned, or were formerly owned, by shareholders, relatives of
shareholders, or Affiliates of BPI. Except as will be set forth on
Schedule 3.10 to the BPI Disclosure Letter, (x) all material personal
property used by BPI in its business is either owned by BPI or leased by
BPI pursuant to a lease which will be included on Schedule 3.10 to the BPI
Disclosure Letter, (y) all of the personal property which will be listed on
Schedule 3.10 to the BPI Disclosure Letter is in good working order and
condition, ordinary wear and tear excepted and (z) all leases and
agreements which will be included on Schedule 3.10 to the BPI Disclosure
Letter are in full force and effect and constitute valid and binding
agreements of the parties (and their successors) thereto in accordance with
their respective terms.
3.11 MATERIAL CONTRACTS AND COMMITMENTS. Schedule 3.11 to the BPI
Disclosure Letter will include an accurate list as of or on the date
hereof, of all material written or oral leases, agreements or other
contracts or legally binding contractual rights or contractual obligations
or contractual commitments relating to or in any way affecting the
operation or ownership of the business of BPI (the "Material Contracts"),
including but not limited, those of a type described below:
(a) Any consulting agreement, employment agreement, change-in-
control agreement, and collective bargaining arrangements with any
labor union and any such agreements currently in negotiation or
proposed;
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(b) Any contract for capital expenditures or the acquisition or
construction of fixed assets in excess of $50,000;
(c) Any contract for the purchase, maintenance or acquisition,
or the sale or furnishing, of materials, supplies, merchandise,
products, machinery, equipment, parts or other property or services
(except if such contract is made in the ordinary course of business
and requires aggregate future payments of less than $50,000);
(d) Any contract other than trade payables in the ordinary
course of business relating to the borrowing of money, or the guaranty
of another person's borrowing of money, including, without limitation,
any notes, mortgages, indentures and other obligations, guarantees of
performance, agreements and instruments for or relating to any lending
or borrowing, including assumed indebtedness;
(e) Any contract granting any person a lien on all or any part
of the assets of BPI;
(f) Any contract for the cleanup, abatement or other actions in
connection with hazardous materials as defined under any Environmental
Laws, the remediation of any existing environmental liabilities or
relating to the performance of any environmental audit or study;
(g) Any contract granting to any person an option or a first
refusal, first-offer or similar preferential right to purchase or
acquire any material assets of BPI;
(h) Any contract with any agent, distributor or representative
which is not terminable by BPI upon ninety calendar days' or less
notice without penalty;
(i) Any contract under which BPI is (1) a lessee or sublessee of
any machinery, equipment, vehicle or other tangible personal
property, or (2) a lessor of any tangible personal property owned by
BPI, in either case having an original value in excess of $50,000;
(j) Any contract under which BPI has granted or received a
license or sublicense or under which it is obligated to pay or has the
right to receive a royalty, license fee or similar payment;
(k) Any contract concerning any Affiliates;
(l) Any contract providing for the indemnification or holding
harmless of any officer, director, employee or other person, other
than as provided in the by-laws of BPI;
(m) Any contract for purchase or sale by BPI or the granting of
any options with respect to, or providing for any labor, services or
materials (including brokerage or
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management services) involving any real property on which BPI conducts
any aspect of its business involving aggregate future payments of more
than $50,000;
(n) Any contract limiting, restricting or prohibiting BPI from
conducting business anywhere in the United States or elsewhere in the
world;
(o) Any joint venture or partnership agreement;
(p) Any lease, sublease or associated agreements relating to the
property leased by BPI;
(q) Any material contract requiring prior notice, consent or
other approval upon a change of control in the equity
ownership of BPI, which contracts shall be separately
identified on Schedule 3.11 to the BPI Disclosure Letter;
(r) Any contract with a customer of BPI involving work to be
performed or product to be delivered, in each case subsequent to April 30,
2000, in excess of $50,000;
(s) Any other contract, whether or not made in the ordinary
course of business, which involves future payments in excess of $50,000.
BPI has provided Winco a true and complete copy of each written Material
Contract and a true and complete summary of each oral Material Contract, in
each case including all amendments or other modifications thereto. Except
as will be set forth on Schedule 3.11 to the BPI Disclosure Letter, each
Material Contract is a valid and binding obligation of, and enforceable in
accordance with its terms against, BPI, and the other parties thereto, and
is in full force and effect, subject only to bankruptcy, reorganization,
receivership and other laws affecting creditors' rights generally. Except
as will be set forth on Schedule 3.11 of the BPI Disclosure Letter, BPI has
performed all obligations required to be performed by it as of the date
hereof and will have performed all obligations required to be performed by
it as of the Closing Date under each Material Contract and neither BPI, nor
any other party to any Material Contract is in breach or default
thereunder, and there exists no condition which would, with or without the
lapse of time or the giving of notice, or both, constitute a breach or
default thereunder. BPI has not been notified that any party to any
Material Contract intends to cancel, terminate, not renew, or exercise an
option under any Material Contract, whether in connection with the
transactions contemplated hereby or otherwise.
3.12 REAL PROPERTY. Schedule 3.12 to the BPI Disclosure Letter will
set forth a correct and complete list, and a brief description of all real
property leased by BPI (the "Leased Real Property"), and all facilities
thereon. Except as lessee of Leased Real Property, BPI is not a lessee
under or otherwise a party to any lease, sublease, license, concession or
other agreement, whether written or oral, pursuant to which another person
or entity has granted to BPI the right to use or occupy all or any portion
of any real property. BPI does not have an ownership interest in any real
property.
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BPI has, assuming good title in the landlord (which is represented to
be so with respect to any Leased Property owned by Michael G. St. John), a
valid leasehold interest in the Leased Property free and clear of all
liens, assessments or restrictions (including, without limitation, inchoate
liens arising out of the provision of labor, services or materials to any
such Real Property) other than (a) mortgages shown on the BPI Financial
Statements as securing specified liabilities or obligations, with respect
to which no default (or event that, with notice or lapse of time or both,
would constitute a default) exists, (b) liens for current taxes not yet
due, and (c) minor imperfections of title, such as utility and access
easements that do not impair the intended use of the Real Property, none of
which is substantial in amount, materially detracts from the value or
impairs the use of the property subject thereto, or impairs the operations
of BPI, and zoning laws and other land use restrictions or restrictive
covenants that do not materially impair the present use of the property
subject thereto. The Real Property constitutes all the real properties
reflected on the BPI Financial Statements or used or occupied by BPI in
connection with its business or otherwise.
With respect to the Leased Real Property, except as will be reflected
on Schedule 3.12 to the BPI Disclosure Letter:
(a) BPI is in exclusive possession thereof and no easements,
licenses or rights are necessary to conduct business thereon in
addition to those which exist as of the date hereof;
(b) No portion thereof is subject to any pending condemnation
proceeding or proceeding by any public or quasi-public authority
materially adverse to the Leased Real Property and there is no
threatened condemnation or proceeding with respect thereto;
(c) (i) the buildings, plants, improvements, structures and
fixtures at the Leased Real Property, including, without limitation,
heating, ventilation and air conditioning systems, roofs, foundations
and floors, are in good operating condition and repair; and (ii) the
Leased Real Property is not in violation of any health, safety,
building, or environmental ordinances, laws, codes or regulations; nor
has any notice of any claimed violation of any such ordinances, laws,
codes or regulations been served on BPI;
(d) The Leased Real Property is supplied with utilities and
other third-party services, such as water, sewer, electricity, gas,
roads, rail service and garbage collection, necessary for the current
operation of the business and such Leased Real Property is maintained
in all material respects in accordance with all laws applicable to BPI
or the Leased Real Property;
(e) BPI is not a party to any written or oral agreement or
undertaking with owners or users of properties adjacent to the Leased
Real Property relating to the use, operation or maintenance of such
facility or any adjacent real property;
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(f) BPI is not a party to any lease, sublease, license,
concession or other agreement, whether written or oral, pursuant to
which BPI has granted to any party or parties the right to use or
occupy all or any portion of the Leased Real Property;
(g) To the extent that BPI has responsibility under the lease(s)
for the Leased Real Property for compliance with the provisions of the
ADA, all alterations, rehabilitations, structures, or improvements in
the Leased Property comply with the ADA;
(h) (i) There are no material defects in any improvements on or
to the Leased Real Property; (ii) the Leased Real Property is free
from regulated quantities of asbestos; and (iii) the Leased Real
Property is free from flooding and leaks.
3.13 INSURANCE. Schedule 3.13 to the BPI Disclosure Letter will
include (i) an accurate list of all insurance policies carried by BPI since
May 1, 1997, and (ii) an accurate list of all insurance loss claims or
workers compensation claims received since May 1, 1997 and complete copies
of the foregoing items have been delivered to Winco. Such insurance
policies evidence all of the insurance that BPI has been required to carry
pursuant to all of its contracts and other agreements and pursuant to all
applicable laws. All insurance policies for the current policy periods are
in full force and effect and shall remain in full force and effect through
the Closing Date. Since May 1, 1997, no insurance carried by BPI has been
canceled by the insurer and BPI has not been denied coverage.
3.14 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS.
Schedule 3.14 to the BPI Disclosure Letter will include an accurate list of
(i) all officers, directors and key employees of BPI, (ii) all employment
agreements with such officers, directors and key employees and the rate of
compensation (and the portions thereof attributable to salary, bonus and
other compensation, respectively) of each of such persons as of the Balance
Sheet Date and the date hereof. BPI has provided to Winco true, complete
and correct copies of any employment agreements for persons to be listed on
Schedule 3.14 to the BPI Disclosure Letter. Since the Balance Sheet Date,
there have been no increases in the compensation payable or any special
bonuses to any officer, director, key employee or other employee, except
ordinary salary increases implemented on a basis consistent with past
practices. Except as will be set forth on Schedule 3.14 to the BPI
Disclosure Letter, (i) BPI is not bound by or subject to (and none of its
assets or properties is bound by or subject to) any arrangement with any
labor union, (ii) no employees of BPI are represented by any labor union or
covered by any collective bargaining agreement, (iii) no campaign to
establish such representation is in progress and (iv) there is no pending
or threatened labor dispute involving BPI and any group of its employees
nor has BPI experienced any labor interruptions over the past three years.
BPI believes its relationship with its employees to be good.
3.15 EMPLOYEE BENEFIT PLANS. Schedule 3.15 to the BPI Disclosure
Letter shall set forth all employee benefit plans of BPI, including all
employment agreements and other agreements or arrangements containing
"golden parachute" or other similar provisions, and deferred compensation
agreements. BPI has delivered to Winco true, complete and correct copies
of such
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plans, agreements and any trusts related thereto, and classifications of
employees covered thereby as of the Balance Sheet Date. Except for the
employee benefit plans, if any, to be described on Schedule 3.15 to the BPI
Disclosure Letter, BPI does not sponsor, maintain or contribute to any plan
program, fund or arrangement that constitutes an "employee pension benefit
plan," nor has BPI any obligation to contribute to or accrue or pay any
benefits under any deferred compensation or retirement funding arrangement
on behalf of any employee or employees (such as, for example, and without
limitation, any individual retirement account or annuity, any "excess
benefit plan" (within the meaning of Section 3(36) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or any non-
qualified deferred compensation arrangement). For the purposes of this
Agreement, the term "employee pension benefit plan" shall have the same
meaning as is given that term in Section 3(2) of ERISA. BPI has not
sponsored, maintained or contributed to any employee pension benefit plan
other than the plans to be set forth on Schedule 3.15 to the BPI Disclosure
Letter, nor is BPI required to contribute to any retirement plan pursuant
to the provisions of any collective bargaining agreement establishing the
terms and conditions or employment of any employees of BPI. All accrued
contribution obligations of BPI with respect to any plan to be listed on
Schedule 3.15 to the BPI Disclosure Letter have either been fulfilled in
their entirety or are fully reflected on the balance sheet of the BPI as of
the Balance Sheet Date.
3.16 COMPLIANCE WITH ERISA. All plans that are intended to qualify
(the "Qualified Plans") under Section 401(a) of the Code will be listed on
Schedule 3.15 to the BPI Disclosure Letter are, and have been so qualified
and have been determined by the Internal Revenue Service to be so
qualified, and copies of such determination letters will be included as
part of Schedule 3.15 to the BPI Disclosure Letter. Except as will be
disclosed on Schedule 3.16 to the BPI Disclosure Letter, all reports and
other documents required to be filed with any governmental agency or
distributed to plan participants or beneficiaries (including, but not
limited to, actuarial reports, audits or tax returns) have been timely
filed or distributed, and copies thereof will be included as part of
Schedule 3.15 to the BPI Disclosure Letter. Neither BPI nor any of the BPI
stockholders has engaged in any transaction prohibited under the provisions
of Section 4975 of the Code or Section 406 of ERISA. No plan to be listed
in Schedule 3.15 to the BPI Disclosure Letter has incurred an accumulated
funding deficiency, as defined in Section 412(a) of the Code and Section
302(1) of ERISA; and BPI has not incurred any liability for excise tax or
penalty due to the Internal Revenue Service nor any liability to the
Pension Benefit Guaranty Corporation.
(a) There have been no terminations, partial terminations or
discontinuance of contributions to any such Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and
approval by the Internal Revenue Service;
(b) No plan to be listed in Schedule 3.15 to the BPI Disclosure
Letter, subject to the provisions of Title IV of ERISA, has been
terminated;
(c) There have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed
in Schedule 3.15 to the BPI Disclosure Letter;
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(d) BPI has not incurred liability under Section 4062 of ERISA; and
(e) No circumstances exist pursuant to which BPI could have any
direct or indirect liability whatsoever (including, but not limited
to, any liability to any multiemployer plan or the PBGC under Title IV
of ERISA or to the Internal Revenue Service for any excise tax or
penalty, or being subject to any statutory lien to secure payment of
any such liability) with respect to any plan now or heretofore
maintained or contributed to by any entity other than BPI that is, or
at any time was, a member of a "controlled group" (as defined in
Section 412(n)(6)(B) of the Code) that includes BPI.
3.17 CONFORMITY WITH LAW; LITIGATION.
(a) Except to the extent will be set forth on Schedule 3.17 to
the BPI Disclosure Letter, BPI is not in violation of any law or
regulation or any order of any court or Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over it which would have a
Material Adverse Effect.
(b) Except as will be set forth on Schedule 3.17 to the BPI
Disclosure Letter (which shall disclose the parties to, nature of and
relief sought for each matter to be disclosed), other than collection
actions by BPI, in the ordinary course of business on its own behalf,
none of which is greater than $25,000 and which in the aggregate do
not exceed $50,000:
(i) There is no suit, action, proceeding, investigation,
claim or order pending or threatened against BPI, or with respect
to any Employee Plan, or any fiduciary of any such plan, or
pending or threatened against any of the officers, directors or
employees of BPI with respect to the business or currently
proposed business activities of BPI, or to which BPI is otherwise
a party, or which may have or is likely to have a Material
Adverse Effect, before any court, or before any governmental
authority, department, commission, bureau, agency or other
governmental department or arbitrator (collectively, "Claims"),
nor is there any basis for any such Claims.
(ii) BPI is not subject to any unsatisfied or continuing
judgment, order or decree of any court or governmental authority,
and BPI is not otherwise exposed, from a legal standpoint, to any
liability or disadvantage which could have a Material Adverse
Effect. Schedule 3.17 to the BPI Disclosure Letter will set
forth all closed litigation matters to which BPI was a party
during the preceding five years, the dates such litigation was
commenced and concluded, and the nature of the resolution thereof
(including amounts paid in settlement or judgment).
3.18 TAXES. BPI has timely filed all requisite federal, state and
other tax returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as
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will be set forth on Schedule 3.18 to the BPI Disclosure Letter, there are
no examinations in progress or claims against any of them for federal,
state and other Taxes (including penalties and interest) for any period or
periods prior to and including the Balance Sheet Date and no notice of any
claim for taxes, whether pending or threatened, has been received. All
Taxes, including interest and penalties (whether or not shown on any tax
return) owed by BPI, any member of an affiliated or consolidated group
which includes or included BPI, or with respect to any payment made or
deemed made by BPI herein have been paid. The amounts shown as accruals for
Taxes on the BPI Financial Statements are sufficient for the payment of all
Taxes of the kinds indicated (including penalties and interest) for all
fiscal periods ended on or before that date. Copies of (i) any tax
examinations, (ii) extensions of statutory limitations and (iii) the
federal and local income tax returns and franchise tax returns of BPI for
the last three fiscal years, will be attached as Schedule 3.18 to the BPI
Disclosure Letter.
3.19 NO VIOLATIONS. BPI is not in violation of any of its Charter
Documents. BPI is not in default under any lease, instrument, agreement,
license, or permit set forth on the Schedules to the BPI Disclosure Letter,
or any other material agreement to which it is a party or by which its
properties are bound (the "Material Documents"); and, except as will be set
forth in Schedule 3.19 to the BPI Disclosure Letter, (a) the rights and
benefits of BPI under the Material Documents will not be adversely affected
by the transactions contemplated hereby and (b) the execution of this
Agreement and the performance of the obligations hereunder and the
consummation of the transactions contemplated hereby will not result in any
violation of, or breach of, or constitute a default under, any of the terms
or provisions of the Material Documents or the Charter Documents. Except as
will be set forth on Schedule 3.19 to the BPI Disclosure Letter, none of
the Material Documents requires notice to, or the consent or approval of,
any governmental agency or other third party with respect to any of the
transactions contemplated hereby in order to remain in full force and
effect and consummation of the transactions contemplated hereby will not
give rise to any right to termination, cancellation or acceleration or loss
of any right or benefit. Except as will be set forth on Schedule 3.19 to
the BPI Disclosure Letter, none of the Material Documents prohibits the use
or publication by BPI of the name of any other party to such Material
Document, and none of the Material Documents prohibits or restricts BPI
from freely providing services to any other customer or potential customer
of BPI.
3.20 GOVERNMENT CONTRACTS. Except as will be set forth on Schedule
3.20 to the BPI Disclosure Letter, BPI is not now a party to any
governmental contract subject to price redetermination or renegotiation.
3.21 ABSENCE OF CHANGES. Since April 30, 2000, except as will be set
forth on Schedule 3.21 to the BPI Disclosure Letter, there has not been:
(a) Any material adverse change in the financial condition,
assets, liabilities (contingent or otherwise), income or business of BPI;
(b) Any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business
of BPI;
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(c) Any change in the authorized capital of BPI or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or
commitments;
(d) Any declaration or payment of any dividend or distribution
in respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of BPI;
(e) Any increase in the compensation, bonus, sales commissions
or fee arrangement payable or to become payable by BPI to any of their
respective officers, directors, stockholders, employees, consultants
or agents, except for ordinary and customary bonuses and salary
increases for employees in accordance with past practice;
(f) Any work interruptions, labor grievances or claims filed, or
any event or condition of any character, materially adversely
affecting the business of BPI;
(g) Any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of BPI to any person,
including, without limitation, any of the stockholders and their
affiliates;
(h) Any cancellation, or agreement to cancel, any indebtedness
or other obligation owing to BPI, including without limitation any
indebtedness or obligation of any stockholder or any affiliate thereof;
(i) Any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets,
property or rights of BPI or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(j) Any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets
outside of the ordinary course of business of BPI;
(k) Any waiver of any material rights or claims of BPI;
(l) Any amendment or termination of any Material Documents or
other right to which BPI is a party;
(m) Any transaction by BPI outside the ordinary course of its
business;
(n) Any cancellation or termination of a Material Contract with
a customer or client prior to the scheduled termination date; or
(o) Any other distribution of property or assets by BPI other
than in the ordinary course of business.
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3.22 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. Schedule 3.22 to the BPI
Disclosure Letter will include an accurate list as of the date of the
Agreement of: (i) the name of each financial institution in which BPI has
accounts or safe deposit boxes; (ii) the names in which the accounts or
boxes are held; (iii) the type of account and account number; and (iv) the
name of each person authorized to draw thereon or have access thereto.
Schedule 3.22 to the BPI Disclosure Letter also sets forth the name of each
person, corporation, firm or other entity holding a general or special
power of attorney from BPI and a description of the terms of such power.
3.23 RELATIONS WITH GOVERNMENTS. Except for political contributions
made in a lawful manner which, in the aggregate, do not exceed $10,000 per
year since 1996, BPI has not made, offered or agreed to offer anything of
value to any governmental official, political party or candidate for
government office nor has it otherwise taken any action which would cause
BPI to be in violation of the Foreign Corrupt Practices Act of 1977, as
amended or any law of similar effect.
3.24 DISCLOSURE. This Agreement, including the Schedules and BPI
Disclosure Letter to be provided and the Schedules to be attached thereto,
together with the other information furnished to Winco and WMC by BPI and
the BPI Shareholders in connection herewith, do not contain an untrue
statement of a material fact or omit to state a material fact necessary to
make the statements herein and therein, in light of the circumstances under
which they were made, not misleading.
3.25 PROHIBITED ACTIVITIES. Except as will be set forth on Schedule
3.25 to the BPI Disclosure Letter, BPI has not, between April 30, 2000 and
the date hereof, taken any of the actions (Prohibited Activities) set forth
in Section 6.3.
3.26 NO CONFLICTS. The execution, delivery and performance of this
Agreement by BPI and the consummation by BPI of the transactions
contemplated hereby will not conflict with or result in a breach or
violation of any term or provision of, or (with or without notice or
passage of time, or both) constitute a default under, any indenture,
mortgage, deed of trust, trust (constructive and other), loan agreement or
other agreement or instrument to which BPI is a party or violate the
provisions of any statute, or any order, rule or regulation of any
governmental body or agency or instrumentality thereof, or any order, writ,
injunction or decree of any court or any arbitrator, having jurisdiction
over BPI or the property of BPI.
3.27 CERTAIN BUSINESS RELATIONSHIPS WITH BPI. Except as listed in
Schedule 3.27, neither of the BPI Shareholders nor any relative of any BPI
Shareholder or Affiliate of BPI has been involved in any business
arrangement or relationship with BPI since May 1, 1997, and neither of the
BPI Shareholders, nor any relative of any BPI Shareholder or Affiliate of
BPI owns any asset, tangible or intangible, which is used in BPI's
operations.
3.28 AUTHORIZATION. The representatives of BPI executing this
Agreement have the authority to enter into and bind BPI to the terms of
this Agreement and BPI has the full legal right, power and authority to
enter into this Agreement and the Merger.
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4. REPRESENTATIONS AND WARRANTIES OF WINCO, WMC AND WSC.
Except as will be provided in the Winco Disclosure Letter (as defined
below) to be delivered pursuant to in Section 10.2, Winco, WMC and WSC
jointly and severally represent and warrant to BPI and the BPI Shareholders
that all of the following representations and warranties in this Section 4
are true at the date of this Agreement and shall be true at the time of
Closing. As used in this Agreement, the "Winco Disclosure Letter" shall
mean the disclosure letter delivered by Winco, WMC and WSC to BPI and the
BPI Shareholders regarding Winco and WMC pursuant to this Section 4. As
used in this Section 4, unless the context otherwise requires, Winco refers
to Winco and all of its wholly-owned subsidiaries.
4.1 DUE ORGANIZATION. Each of Winco, WMC and WSC is a corporation
duly organized, validly existing and in good standing under the laws of the
state of its incorporation, and has the requisite power and authority to
carry on its business as it is now being conducted. Each of Winco, WMC and
WSC is duly qualified to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification necessary, except (i) as
will be set forth on Schedule 4.1 to Winco Disclosure Letter or (ii) where
the failure to be so authorized or qualified would not have a material
adverse effect on the business, operations, properties, assets or condition
(financial or otherwise), of Winco taken as a whole (as used herein with
respect to Winco, or with respect to any other person, a "Material Adverse
Effect"). Schedule 4.1 to the Winco Disclosure Letter will set forth the
jurisdiction in which Winco, WMC and WSC are incorporated and contains a
list of all jurisdictions in which Winco, WMC and WSC are authorized or
qualified to do business. True, complete and correct copies of the
Articles of Incorporation and Bylaws, each as amended, of Winco (the "Winco
Charter Documents") have been made available to BPI. True, complete and
correct copies of the Articles of Incorporation and Bylaws, each as
amended, of WMC and WSC (the "WMC or WSC Charter Documents") have been made
available to BPI. The stock records of Winco, WMC and WSC, as heretofore
made available to BPI, are correct and complete in all material respects.
There are no minutes or other records or proceedings of Winco, WMC and WSC
which have not been made available to BPI, and all of such minutes or other
records of proceedings are correct and complete in all respects.
4.2 SUBSIDIARIES. The names and jurisdiction of incorporation of the
subsidiaries of Winco are set forth in Schedule 4.2. WMC and WSC have no
subsidiaries.
4.3 CAPITAL STRUCTURE. The authorized capital stock of Winco and WMC
is as set forth in Section 1.6. All of the issued and outstanding shares
of the capital stock of Winco and WMC have been duly authorized and are
validly issued, fully paid and non-assessable. All of the outstanding
shares of common stock have been duly authorized and are validly issued,
fully paid and non-assessable. Winco does not have any preferred stock.
Except as listed in Schedule 4.3, each of Winco and WMC has no common stock
or other shares of capital stock reserved for or otherwise subject to
issuance. Except as listed in Schedule 4.3 or as set forth above, there
are no pre-emptive or other outstanding rights, options, warrants,
conversion rights, stock appreciation
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rights, redemption rights, repurchase rights, agreements, arrangements or
commitments to issue or sell any shares of capital stock or other
securities of WMC or Winco or any securities or obligations convertible or
exchangeable into or exercisable for, or giving any person a right to
subscribe for or acquire, any securities of WMC or Winco, and no securities
or obligations evidencing such rights are authorized, issued or
outstanding. Each of WMC and Winco does not have outstanding any bonds,
debentures, notes or other debt obligations the holders of which have the
right to vote (or convertible into or exercisable for securities having the
right to vote). There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to each
of WMC and Winco. There are no voting trusts, proxies or other agreements
or understandings with respect to the voting of the capital stock of each
of WMC and Winco.
4.4 PREDECESSOR STATUS; ETC. Set forth in Schedule 4.4 to Winco
Disclosure Letter will contain an accurate list of all names of all
predecessor companies of Winco since May 1, 1994, including the names of
any entities acquired by Winco (by stock purchase, merger or otherwise) or
owned by Winco or from whom Winco previously acquired material assets, in
any case, from the earliest date upon which any person acquired his or her
stock in Winco. Except as will be disclosed on Schedule 4.4 to Winco
Disclosure Letter, Winco has not been, within such period of time, a
subsidiary or division of another corporation or a part of an acquisition
which was later rescinded.
4.5 SPIN-OFF BY WINCO. Except as contemplated by Section 10 hereof
and as will be set forth on Schedule 4.5 to Winco Disclosure Letter, there
has not been any sale, spin-off or split-up of material assets of either
Winco or any other person or entity that directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under
common control with, Winco ("Affiliates") since its inception.
4.6 FINANCIAL STATEMENTS. Schedule 4.6 to Winco Disclosure Letter
will include copies of the following financial statements (the "Winco
Financial Statements") of Winco: Winco's audited Balance Sheets as of
September 30, 1999 and 1998 and audited Statements of Income and
Comprehensive Income, Stockholders' Equity and Cash Flows for each of the
fiscal years ended September 30, 1999 and 1998 and, unaudited Balance Sheet
as of June 30, 2000 and unaudited Statements of Income and Comprehensive
Income, Stockholders' Equity and Cash Flows for the nine month period June
30, 2000 (June 30, 2000 being hereinafter referred to as the "Balance Sheet
Date"). The Winco Financial Statements have been prepared in accordance
with generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods indicated (except as will be noted
thereon or on Schedule 4.6 to Winco Disclosure Letter). Except as will be
set forth on Schedule 4.6 to Winco Disclosure Letter, such Balance Sheets
present fairly in all material respects the financial position of Winco as
of the dates indicated thereon, and such Statements of Income and
Comprehensive Income, Stockholders' Equity and Cash Flows present fairly in
all material respects the results of operations for the periods indicated
thereon, except that the unaudited interim financial statements were or are
subject to normal and recurring year-end adjustments which were not or are
not expected to be material in amount.
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4.7 LIABILITIES AND OBLIGATIONS. Schedule 4.7 to Winco Disclosure
Letter will include accurate lists as of the Balance Sheet Date of (i) all
material liabilities of Winco which are not reflected on the Balance Sheet
of Winco at the Balance Sheet Date or otherwise reflected in Winco
Financial Statements at the Balance Sheet Date which by their nature would
be required in accordance with GAAP to be reflected in the Balance Sheet,
and (ii) all loan agreements, indemnity or guaranty agreements, bonds,
mortgages, liens, pledges or other security agreements. Except as will be
set forth on Schedule 4.7 to Winco Disclosure Letter, since the Balance
Sheet Date Winco has not incurred any material liabilities of any kind,
character and description, whether accrued, absolute, secured or unsecured,
contingent or otherwise, other than liabilities incurred in the ordinary
course of business. Schedule 4.7 to Winco Disclosure Letter will also
include, in the case of those contingent liabilities related to pending or
threatened litigation, or other liabilities which are not fixed or
otherwise accrued or reserved, a good faith and reasonable estimate of the
maximum amount which Winco reasonably expects will be payable. For each
such contingent liability or liability for which the amount is not fixed or
is contested, Winco has provided to BPI and the BPI Shareholders the
following information:
(a) A summary description of the liability together with the
following:
(i) copies of all relevant documentation relating thereto;
(ii) amounts claimed and any other action or relief sought;
and
(iii) name of claimant and all other parties to the claim,
suit or proceeding;
(b) The name of each court or agency before which such claim,
suit or proceeding is pending; and
(c) The date such claim, suit or proceeding was instituted; and
(d) A good faith and reasonable estimate of the maximum amount,
if any, which is likely to become payable with respect to each such
liability. If no estimate is provided, the estimate shall for purposes
of this Agreement be deemed to be zero.
Adequate provision shall be made for all debts, obligations, or other
liabilities of Winco and the spin-off of Winco's assets and liabilities to
WSC shall not constitute a fraudulent conveyance or otherwise violate any
contract or provision of law.
4.8 PERMITS AND INTANGIBLES.
(a) Winco holds all licenses, franchises, permits and other
governmental authorizations the absence of any of which could have a
Material Adverse Effect on Winco's business and Schedule 4.8 to Winco
Disclosure Letter will include an accurate list and summary
description of all such licenses, franchises, permits and other
governmental authorizations, including permits (it being understood
and agreed that a list
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of all environmental permits and other environmental approvals will be
set forth on Schedule 4.9 to Winco Disclosure Letter), titles
(including motor vehicle titles and current registrations), fuel
permits, licenses, franchises and certificates, as well as
(a) registered or unregistered trademarks, trade names, patents,
patent applications and inventions and discoveries that may be
patentable, (b) copyrights owned or held by Winco or any of its
employees (including interests in software or other technology
systems, programs and intellectual property). The licenses,
franchises, permits and other governmental authorizations will be
listed on Schedules 4.8 and 4.9 to Winco Disclosure Letter and are
valid, and Winco has not received any notice that any governmental
authority intends to cancel, terminate or not renew any such license,
franchise, permit or other governmental authorization. Winco has
conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in the
licenses, franchises, permits and other governmental authorizations
which will be listed on Schedules 4.8 and 4.9 of Winco Disclosure
letter and is not in violation of any of the foregoing except where
such non-compliance or violation would not have a Material Adverse
Effect on Winco. Except as will be specifically provided in Schedule
4.8 to Winco Disclosure Letter, the transactions contemplated by this
Agreement will not result in a default under or a breach or violation
of, or adversely affect the rights and benefits afforded to Winco by,
any such licenses, franchises, permits or government authorizations.
(b) The patents, the marks and copyrights, as well as the know
how, trade secrets, confidential information, customer lists,
software, technical information, data, process technology, plans and
drawings owned, used or licensed by Winco (collectively, the "Trade
Secrets") are all those necessary to enable Winco to conduct and to
continue to conduct its business as it is currently conducted.
Schedule 4.8 of Winco Disclosure Letter will also contain a
description of all material Trade Secrets owned or used by Winco.
Except as will be set forth on Schedule 4.8 to Winco Disclosure Letter
(a) all of the patents, marks, copyrights and Trade Secrets
(collectively, the "Intellectual Property") are owned, or used under
valid licenses by Winco, and are free and clear of all liens and other
adverse claims; (b) Winco has not infringed on or misappropriated, is
not now infringing on or misappropriating, and has not received any
notice that it is infringing on, misappropriating, or otherwise
conflicting with the intellectual property rights of any third
parties; (c) there is no claim pending or threatened against Winco
with respect to the alleged infringement or misappropriation by Winco
or a conflict with, any intellectual property rights of others; (d)
the operation of any aspect of the business in the manner in which it
has heretofore been operated or is presently operated does not give
rise to any such infringement or misappropriation; and (e) there is no
infringement or misappropriation of the Intellectual Property by a
third party or claim, pending or threatened, against any third party
with respect to the alleged infringement or misappropriation of the
Intellectual Property by such third party.
4.9 ENVIRONMENTAL MATTERS. Except as will be set forth on Schedule
4.9 to Winco Disclosure Letter, and except where any failure to comply or
action would not have a Material Adverse Effect, (i) Winco has complied
with and is in compliance with all Federal, state, local
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and foreign statutes (civil and criminal), laws, ordinances, regulations,
rules, notices, permits, judgments, orders and decrees applicable to any of
them or any of their respective properties, assets, operations and
businesses relating to environmental protection (collectively
"Environmental Laws") including, without limitation, Environmental Laws
relating to air, water, land and the generation, storage, use, handling,
transportation, treatment or disposal of Hazardous Wastes and Hazardous
Substances including petroleum and petroleum products (as such terms are
defined in any applicable Environmental Laws); (ii) Winco has obtained and
adhered to all necessary permits and other approvals necessary to treat,
transport, store, dispose of and otherwise handle Hazardous Wastes and
Hazardous Substances, an accurate list of all of which permits and
approvals will be set forth on Schedule 4.9 to Winco Disclosure Letter, and
have reported to the appropriate authorities, to the extent required by all
Environmental Laws, all past and present sites owned and operated by Winco
where Hazardous Wastes or Hazardous Substances have been treated, stored,
disposed of or otherwise handled; (iii) there have been no releases or
threats of releases (as defined in Environmental Laws) at, from, in or on
any property owned or operated by Winco except as permitted by
Environmental Laws; (iv) there is no on-site or off-site location to which
Winco has transported or disposed of Hazardous Wastes and Hazardous
Substances or arranged for the transportation of Hazardous Wastes and
Hazardous Substances, which site is the subject of any Federal, state,
local or foreign enforcement action or any other investigation which is
reasonably likely to lead to any claim against Winco for any clean-up cost,
remedial work, damage to natural resources, property damage or personal
injury, including, but not limited to, any claim under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended;
and (v) Winco has no contingent liability in connection with any release of
any Hazardous Waste or Hazardous Substance into the environment. These
representations shall also be deemed to have been made subsequent to
Closing by WSC and shall survive Closing.
4.10 PERSONAL PROPERTY. Schedule 4.10 to Winco Disclosure Letter will
include an accurate list of (i) all personal property owned by Winco with
an individual value in excess of $50,000 acquired since the Balance Sheet
Date and (ii) all leases and agreements in respect of personal property,
including, in the case of each of (i) and (ii), (1) true, complete and
correct copies of all such leases and (2) an indication as to which assets
are currently owned, or were formerly owned, by stockholders, relatives of
stockholders, or Affiliates of Winco. Except as will be set forth on
Schedule 4.10 to Winco Disclosure Letter, (x) all material personal
property used by Winco in its business is either owned by Winco or leased
by Winco pursuant to a lease will be included on Schedule 4.10 to Winco
Disclosure Letter, (y) all of the personal property to be listed on
Schedule 4.10 to Winco Disclosure Letter is in good working order and
condition, ordinary wear and tear excepted and (z) all leases and
agreements to be included on Schedule 4.10 to Winco Disclosure Letter are
in full force and effect and constitute valid and binding agreements of the
parties (and their successors) thereto in accordance with their respective
terms.
4.11 MATERIAL CONTRACTS AND COMMITMENTS. Schedule 4.11 to Winco
Disclosure Letter will include an accurate list as of or on the date
hereof, of all material written or oral leases, agreements or other
contracts or legally binding contractual rights or contractual obligations
or contractual commitments relating to or in any way affecting the
operation or ownership of the
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business of Winco (the "Material Contracts"), including but not limited,
those of a type described below:
(a) Any consulting agreement, employment agreement, change-in-
control agreement, and collective bargaining arrangements with any
labor union and any such agreements currently in negotiation or proposed;
(b) Any contract for capital expenditures or the acquisition or
construction of fixed assets in excess of $50,000;
(c) Any contract for the purchase, maintenance or acquisition,
or the sale or furnishing, of materials, supplies, merchandise,
products, machinery, equipment, parts or other property or services
(except if such contract is made in the ordinary course of business
and requires aggregate future payments of less than $50,000);
(d) Any contract other than trade payables in the ordinary
course of business relating to the borrowing of money, or the guaranty
of another person's borrowing of money, including, without limitation,
any notes, mortgages, indentures and other obligations, guarantees of
performance, agreements and instruments for or relating to any lending
or borrowing, including assumed indebtedness;
(e) Any contract granting any person a lien on all or any part
of the assets of Winco;
(f) Any contract for the cleanup, abatement or other actions in
connection with hazardous materials as defined under any Environmental
Laws, the remediation of any existing environmental liabilities or
relating to the performance of any environmental audit or study;
(g) Any contract granting to any person an option or a first
refusal, first-offer or similar preferential right to purchase or
acquire any material assets of Winco;
(h) Any contract with any agent, distributor or representative
which is not terminable by Winco upon ninety calendar days' or less
notice without penalty;
(i) Any contract under which Winco is (1) a lessee or sublessee
of any machinery, equipment, vehicle or other tangible personal
property, or (2) a lessor of any tangible personal property owned by
Winco, in either case having an original value in excess of $50,000;
(j) Any contract under which Winco has granted or received a
license or sublicense or under which it is obligated to pay or has the
right to receive a royalty, license fee or similar payment;
(k) Any contract concerning any Affiliates;
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(l) Any contract providing for the indemnification or holding
harmless of any officer, director, employee or other person, other
than as provided in the by-laws of Winco;
(m) Any contract for purchase or sale by Winco or the granting
of any options with respect to, or providing for any labor, services
or materials (including brokerage or management services) involving
any real property on which Winco conducts any aspect of its business
involving aggregate future payments of more than $50,000;
(n) Any contract limiting, restricting or prohibiting Winco from
conducting business anywhere in the United States or elsewhere in the
world;
(o) Any joint venture or partnership agreement;
(p) Any lease, sublease or associated agreements relating to the
property leased by Winco;
(q) Any material contract requiring prior notice, consent or
other approval upon a change of control in the equity ownership of
Winco, which contracts shall be separately identified on Schedule 3.11
to Winco Disclosure Letter;
(r) Any contract with a customer of Winco involving work to be
performed or product to be delivered, in each case subsequent to the
Balance Sheet Date, in excess of $50,000;
(s) Any other contract, whether or not made in the ordinary
course of business, which involves future payments in excess of $50,000.
Winco has provided BPI and the BPI Shareholders a true and complete copy of
each written Material Contract and a true and complete summary of each oral
Material Contract, in each case including all amendments or other
modifications thereto. Except as will be set forth on Schedule 4.11 to
Winco Disclosure Letter, each Material Contract is a valid and binding
obligation of, and enforceable in accordance with its terms against, Winco,
and the other parties thereto, and is in full force and effect, subject
only to bankruptcy, reorganization, receivership and other laws affecting
creditors' rights generally. Except as will be set forth on Schedule 4.11
of Winco Disclosure Letter, Winco has performed all obligations required to
be performed by it as of the date hereof and will have performed all
obligations required to be performed by it as of the Closing Date under
each Material Contract and neither Winco, nor any other party to any
Material Contract is in breach or default thereunder, and there exists no
condition which would, with or without the lapse of time or the giving of
notice, or both, constitute a breach or default thereunder. Winco has not
been notified that any party to any Material Contract intends to cancel,
terminate, not renew, or exercise an option under any Material Contract,
whether in connection with the transactions contemplated hereby or otherwise.
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4.12 REAL PROPERTY. Schedule 4.12 to Winco Disclosure Letter shall
set forth a correct and complete list, and a brief description of, all real
property leased by Winco (the "Leased Real Property"), and all facilities
thereon. Except as lessee of Leased Real Property, Winco is not a lessee
under or otherwise a party to any lease, sublease, license, concession or
other agreement, whether written or oral, pursuant to which another person
or entity has granted to Winco the right to use or occupy all or any
portion of any real property. Winco does not have an ownership interest in
any real property.
Winco has, assuming good title in the landlord, a valid leasehold
interest in the Leased Property, in each case free and clear of all liens,
assessments or restrictions (including, without limitation, inchoate liens
arising out of the provision of labor, services or materials to any such
Real Property) other than (a) mortgages shown on Winco Financial Statements
as securing specified liabilities or obligations, with respect to which no
default (or event that, with notice or lapse of time or both, would
constitute a default) exists, (b) liens for current taxes not yet due, and
(c) minor imperfections of title, such as utility and access easements that
do not impair the intended use of the Real Property, none of which is
substantial in amount, materially detracts from the value or impairs the
use of the property subject thereto, or impairs the operations of Winco,
and zoning laws and other land use restrictions or restrictive covenants
that do not materially impair the present use of the property subject
thereto. The Real Property constitutes all the real properties reflected
on Winco Financial Statements or used or occupied by Winco in connection
with its business or otherwise.
With respect to the Leased Real Property, except as will be reflected
on Schedule 4.12 to Winco Disclosure Letter:
(a) Winco is in exclusive possession thereof and no easements,
licenses or rights are necessary to conduct business thereon in
addition to those which exist as of the date hereof;
(b) No portion thereof is subject to any pending condemnation
proceeding or proceeding by any public or quasi-public authority
materially adverse to the Leased Real Property and there is no
threatened condemnation or proceeding with respect thereto;
(c) (i) the buildings, plants, improvements, structures and
fixtures at the Leased Real Property, including, without limitation,
heating, ventilation and air conditioning systems, roofs, foundations
and floors, are in good operating condition and repair; (ii) the
Leased Real Property is not in violation of any health, safety,
building, or environmental ordinances, laws, codes or regulations; nor
has any notice of any claimed violation of any such ordinances, laws,
codes or regulations been served on Winco;
(d) The Leased Real Property is supplied with utilities and
other third-party services, such as water, sewer, electricity, gas,
roads, rail service and garbage collection, necessary for the current
operation of the business and such Leased Real Property is maintained
in all material respects in accordance with all laws applicable to
Winco or the Leased Real Property;
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(e) Winco is not a party to any written or oral agreement or
undertaking with owners or users of properties adjacent to the Leased
Real Property relating to the use, operation or maintenance of such
facility or any adjacent real property;
(f) Winco is not a party to any lease, sublease, license,
concession or other agreement, whether written or oral, pursuant to
which Winco has granted to any party or parties the right to use or
occupy all or any portion of the Leased Real Property;
(g) To the extent that Winco has responsibility under the
lease(s) for the Leased Real Property for compliance with the
provisions of the ADA, all alterations, rehabilitations, structures,
or improvements in the Leased Property comply with the ADA;
(h) (i) There are no material defects in any improvements on or
to the Leased Real Property; (ii) the Leased Real Property is free
from regulated quantities of asbestos; and (iii) the Leased Real
Property is free from flooding and leaks.
4.13 INSURANCE. Schedule 4.13 to Winco Disclosure Letter shall
include (i) an accurate list of all insurance policies carried by Winco
since July 1, 1995, and (ii) an accurate list of all insurance loss claims
or workers compensation claims received since July 1, 1995 and complete
copies of the foregoing items have been delivered to the BPI Shareholders.
Such insurance policies evidence all of the insurance that Winco has been
required to carry pursuant to all of its contracts and other agreements and
pursuant to all applicable laws. All insurance policies for the current
policy periods are in full force and effect and shall remain in full force
and effect through the Closing Date. Since July 1, 1995, no insurance
carried by Winco has been canceled by the insurer and Winco has not been
denied coverage.
4.14 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS.
Schedule 4.14 to Winco Disclosure Letter shall include an accurate list of
(i) all officers, directors and key employees of Winco, (ii) all employment
agreements with such officers, directors and key employees and the rate of
compensation (and the portions thereof attributable to salary, bonus and
other compensation, respectively) of each of such persons as of the Balance
Sheet Date and the date hereof. Winco has provided to BPI true, complete
and correct copies of any employment agreements for persons to be listed on
Schedule 4.14 to Winco Disclosure Letter. Since the Balance Sheet Date,
there have been no increases in the compensation payable or any special
bonuses to any officer, director, key employee or other employee, except
ordinary salary increases implemented on a basis consistent with past
practices. Except as will be set forth on Schedule 4.14 to Winco
Disclosure Letter, (i) Winco is not bound by or subject to (and none of its
assets or properties is bound by or subject to) any arrangement with any
labor union, (ii) no employees of Winco are represented by any labor union
or covered by any collective bargaining agreement, (iii) no campaign to
establish such representation is in progress and (iv) there is no pending
or threatened labor dispute involving Winco and any group of its employees
nor has Winco experienced any labor interruptions over the past three
years. Winco believes its relationship with its employees to be good.
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4.15 EMPLOYEE BENEFIT PLANS. Schedule 4.15 to Winco Disclosure Letter
will set forth all employee benefit plans of Winco, including all
employment agreements and other agreements or arrangements containing
"golden parachute" or other similar provisions, and deferred compensation
agreements. Winco has delivered to BPI true, complete and correct copies
of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, to be described on Schedule
4.15 to Winco Disclosure Letter, Winco does not sponsor, maintain or
contribute to any plan program, fund or arrangement that constitutes an
"employee pension benefit plan," nor has Winco any obligation to contribute
to or accrue or pay any benefits under any deferred compensation or
retirement funding arrangement on behalf of any employee or employees (such
as, for example, and without limitation, any individual retirement account
or annuity, any "excess benefit plan" (within the meaning of Section 3(36)
of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or any non-qualified deferred compensation arrangement). For the
purposes of this Agreement, the term "employee pension benefit plan" shall
have the same meaning as is given that term in Section 3(2) of ERISA.
Winco has not sponsored, maintained or contributed to any employee pension
benefit plan other than the plans to be set forth on Schedule 4.15 to Winco
Disclosure Letter, nor is Winco required to contribute to any retirement
plan pursuant to the provisions of any collective bargaining agreement
establishing the terms and conditions or employment of any employees of
Winco. All accrued contribution obligations of Winco with respect to any
plan to be listed on Schedule 4.15 to Winco Disclosure Letter have either
been fulfilled in their entirety or are fully reflected on the balance
sheet of Winco as of the Balance Sheet Date.
4.16 COMPLIANCE WITH ERISA. All plans to be listed on Schedule 4.15
to Winco Disclosure Letter that are intended to qualify (the "Qualified
Plans") under Section 401(a) of the Code are, and have been so qualified
and have been determined by the Internal Revenue Service to be so
qualified, and copies of such determination letters shall be included as
part of Schedule 4.15 to Winco Disclosure Letter. Except as will be
disclosed on Schedule 4.16 to Winco Disclosure Letter, all reports and
other documents required to be filed with any governmental agency or
distributed to plan participants or beneficiaries (including, but not
limited to, actuarial reports, audits or tax returns) have been timely
filed or distributed, and copies thereof will be included as part of
Schedule 4.15 to Winco Disclosure Letter. Neither Winco, WMC, WSC or any
Winco stockholder has engaged in any transaction prohibited under the
provisions of Section 4975 of the Code or Section 406 of ERISA. No plan to
be listed in Schedule 4.15 to Winco Disclosure Letter has incurred an
accumulated funding deficiency, as defined in Section 412(a) of the Code
and Section 302(1) of ERISA; and Winco has not incurred any liability for
excise tax or penalty due to the Internal Revenue Service nor any liability
to the Pension Benefit Guaranty Corporation.
(a) There have been no terminations, partial terminations or
discontinuance of contributions to any such Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and
approval by the Internal Revenue Service;
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(b) No plan to be listed in Schedule 4.15 to Winco Disclosure
Letter, subject to the provisions of Title IV of ERISA, has been
terminated;
(c) There have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan to be
listed in Schedule 4.15 to Winco Disclosure Letter;
(d) Winco has not incurred liability under Section 4062 of
ERISA; and
(e) No circumstances exist pursuant to which Winco could have
any direct or indirect liability whatsoever (including, but not
limited to, any liability to any multiemployer plan or the PBGC under
Title IV of ERISA or to the Internal Revenue Service for any excise
tax or penalty, or being subject to any statutory lien to secure
payment of any such liability) with respect to any plan now or
heretofore maintained or contributed to by any entity other than Winco
that is, or at any time was, a member of a "controlled group" (as
defined in Section 412(n)(6)(B) of the Code) that includes Winco.
4.17 CONFORMITY WITH LAW; LITIGATION.
(a) Except to the extent to be set forth on Schedule 4.17 to
Winco Disclosure Letter, Winco is not in violation of any law or
regulation or any order of any court or Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over it which would have a
Material Adverse Effect.
(b) Except as to be set forth on Schedule 4.17 to Winco
Disclosure Letter (which shall disclose the parties to, nature of and
relief sought for each matter to be disclosed), other than collection
actions by Winco, in the ordinary course of business on its own
behalf, none of which is greater than $25,000 and which in the
aggregate do not exceed $50,000:
(i) There is no suit, action, proceeding, investigation,
claim or order pending or threatened against Winco, or with
respect to any Employee Plan, or any fiduciary of any such plan
(or pending or threatened against any of the officers, directors
or employees of Winco with respect to the business or currently
proposed business activities of Winco, or to which Winco is
otherwise a party, or which may have or is likely to have a
Material Adverse Effect, before any court, or before any
governmental authority, department, commission, bureau, agency or
other governmental department or arbitrator (collectively,
"Claims"), nor is there any basis for any such Claims.
(ii) Except as to be set forth in Schedule 4.17(b) to the
Winco Disclosure Letter, Winco is not subject to any unsatisfied
or continuing judgment, order or decree of any court or
governmental authority, and Winco is not otherwise exposed, from
a legal standpoint, to any liability or disadvantage which
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could have a Material Adverse Effect. Schedule 4.17 to Winco
Disclosure Letter shall set forth all closed litigation matters
to which Winco was a party during the preceding five years, the
dates such litigation was commenced and concluded, and the nature
of the resolution thereof (including amounts paid in settlement
or judgment).
4.18 TAXES. Winco has timely filed all requisite federal, state and
other tax returns or extension requests for all fiscal periods ended on the
Balance Sheet Date; and except as will be set forth on Schedule 4.18 to
Winco Disclosure Letter, there are no examinations in progress or claims
against any of them for federal, state and other Taxes (including penalties
and interest) for any period or periods prior to and including the Balance
Sheet Date and no notice of any claim for taxes, whether pending or
threatened, has been received. All Taxes, including interest and penalties
(whether or not shown on any tax return) owed by Winco, any member of an
affiliated or consolidated group which includes or included Winco, or with
respect to any payment made or deemed made by Winco herein have been paid.
The amounts shown as accruals for Taxes on Winco Financial Statements are
sufficient for the payment of all Taxes of the kinds indicated (including
penalties and interest) for all fiscal periods ended on or before that
date. Copies of (i) any tax examinations, (ii) extensions of statutory
limitations and (iii) the federal and local income tax returns and
franchise tax returns of Winco for the last three fiscal years have been
made available to BPI and the BPI Shareholders.
4.19 NO VIOLATIONS. Winco is not in violation of any of its Charter
Documents. Winco is not in default under any lease, instrument, agreement,
license, or permit to be set forth on the Schedules to Winco Disclosure
Letter, or any other material agreement to which it is a party or by which
its properties are bound (the "Material Documents"); and, except as to be
set forth in Schedule 4.19 to Winco Disclosure Letter, (a) the rights and
benefits of Winco under the Material Documents will not be adversely
affected by the transactions contemplated hereby and (b) the execution of
this Agreement and the performance of the obligations hereunder and the
consummation of the transactions contemplated hereby will not result in any
violation of, or breach of, or constitute a default under, any of the terms
or provisions of the Material Documents or the Charter Documents. Except as
to be set forth on Schedule 4.19 to Winco Disclosure Letter, none of the
Material Documents requires notice to, or the consent or approval of, any
governmental agency or other third party with respect to any of the
transactions contemplated hereby in order to remain in full force and
effect and consummation of the transactions contemplated hereby will not
give rise to any right to termination, cancellation or acceleration or loss
of any right or benefit. Except as to be set forth on Schedule 4.19 to
Winco Disclosure Letter, none of the Material Documents prohibits the use
or publication by Winco of the name of any other party to such Material
Document, and none of the Material Documents prohibits or restricts Winco
from freely providing services to any other customer or potential customer
of Winco.
4.20 GOVERNMENT CONTRACTS. Except as to be set forth on Schedule 4.20
to Winco Disclosure Letter, Winco is not now a party to any governmental
contract subject to price redetermination or renegotiation.
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4.21 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as to
be set forth on Schedule 4.21 to Winco Disclosure Letter, there has not been:
(a) Any material adverse change in the financial condition,
assets, liabilities (contingent or otherwise), income or business of
Winco;
(b) Any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business
of Winco;
(c) Any change in the authorized capital of Winco or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or
commitments;
(d) Any declaration or payment of any dividend or distribution
in respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of Winco;
(e) Any increase in the compensation, bonus, sales commissions
or fee arrangement payable or to become payable by Winco to any of
their respective officers, directors, stockholders, employees,
consultants or agents, except for ordinary and customary bonuses and
salary increases for employees in accordance with past practice;
(f) Any work interruptions, labor grievances or claims filed, or
any event or condition of any character, materially adversely
affecting the business of Winco;
(g) Any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of Winco to any person,
including, without limitation, any of the stockholders and their
affiliates;
(h) Any cancellation, or agreement to cancel, any indebtedness
or other obligation owing to Winco, including without limitation any
indebtedness or obligation of any stockholder or any affiliate
thereof;
(i) Any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets,
property or rights of Winco or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(j) Any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets
outside of the ordinary course of business of Winco;
(k) Any waiver of any material rights or claims of Winco;
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(l) Any amendment or termination of any Material Documents or
other right to which Winco is a party;
(m) Any transaction by Winco outside the ordinary course of its
business;
(n) Any cancellation or termination of a Material Contract with
a customer or client prior to the scheduled termination date; or
(o) Any other distribution of property or assets by Winco other
than in the ordinary course of business.
4.22 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. Schedule 4.22 to Winco
Disclosure Letter shall include an accurate list as of the date of the
Agreement of: (i) the name of each financial institution in which Winco
has accounts or safe deposit boxes; (ii) the names in which the accounts or
boxes are held; (iii) the type of account and account number; and (iv) the
name of each person authorized to draw thereon or have access thereto.
Schedule 4.22 to Winco Disclosure Letter shall also set forth the name of
each person, corporation, firm or other entity holding a general or special
power of attorney from Winco and a description of the terms of such power.
4.23 RELATIONS WITH GOVERNMENTS. Except for political contributions
made in a lawful manner which, in the aggregate, do not exceed $10,000 per
year since 1996, Winco has not made, offered or agreed to offer anything of
value to any governmental official, political party or candidate for
government office nor has it otherwise taken any action which would cause
Winco to be in violation of the Foreign Corrupt Practices Act of 1977, as
amended or any law of similar effect.
4.24 DISCLOSURE. This Agreement, including the Schedules and Winco
Disclosure Letter to be provided and the Schedules to be attached thereto,
together with the other information furnished to BPI and the BPI
Shareholders by Winco, WSC and WMC in connection herewith, do not contain
an untrue statement of a material fact or omit to state a material fact
necessary to make the statements herein and therein, in light of the
circumstances under which they were made, not misleading.
4.25 PROHIBITED ACTIVITIES. Except as to be set forth on Schedule
4.25 to Winco Disclosure Letter, neither Winco, WSC or WMC have, between
the Balance Sheet Date and the date hereof, taken any of the actions
(Prohibited Activities) set forth in Section 6.3.
4.26 NO CONFLICTS. The execution, delivery and performance of this
Agreement by Winco, WSC and WMC and the consummation by Winco, WSC and WMC
of the transactions contemplated hereby will not conflict with or result in
a breach or violation of any term or provision of, or (with or without
notice or passage of time, or both) constitute a default under, any
indenture, mortgage, deed of trust, trust (constructive and other), loan
agreement or other agreement or instrument to which Winco is a party or
violate the provisions of any statute, or any order, rule or regulation of
any governmental body or agency or instrumentality thereof, or any
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order, writ, injunction or decree of any court or any arbitrator, having
jurisdiction over Winco, WSC, WMC or any of their property.
4.27 CERTAIN BUSINESS RELATIONSHIPS. Except as listed in Schedule
4.27, no current officer or director of Winco, WSC or WMC has been involved
in any business arrangement or relationship with Winco, WSC or WMC since
July 1, 1995, and none of the officers or directors, nor any relative of
any officer or director or affiliate of an officer or director of such
companies, owns any asset, tangible or intangible, which is used in their
operations.
4.28 AUTHORIZATION. The representatives of Winco, WSC and WMC
executing this Agreement have the authority to enter into and bind Winco,
WSC and WMC to the terms of this Agreement and Winco, WSC and WMC have the
full legal right, power and authority to enter into this Agreement and the
Merger, subject to the approval of the shareholders of Winco as provided in
Sections 8.4 and 9.4.
5. CERTIFICATE OF THE BPI SHAREHOLDERS CONCERNING THE TRANSACTION.
Prior to Closing, BPI shall obtain, in writing, a Certificate from
each BPI Shareholder to the effect that all of the following
representations and warranties in this Section 5 are true at the date of
this Agreement and shall be true at the time of Closing. Such Certificate
shall be delivered to Winco and WMC at Closing.
5.1 AUTHORIZATION. All action on the part of each BPI Shareholder
necessary for the authorization, execution and delivery of this Agreement
by BPI and the performance of all obligations of BPI hereunder has been
taken, and this Agreement constitutes a valid and legally binding
obligation of BPI, enforceable in accordance with its terms, except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of creditors'
rights generally, and (ii) as limited by laws relating to the availability
of specific performance, injunctive relief or other equitable remedies.
5.2 TITLE TO THE SHARES. Each BPI Shareholder owns, and is
transferring to Winco at the Closing, good, valid and marketable title to
the number of Shares set forth opposite the name of the BPI Shareholder in
Section 1.1 free and clear of all liens, claims, options and encumbrances
whatsoever. There are no outstanding options, warrants or rights to
purchase or acquire any of the Shares of the Shareholder or any of the
capital stock of BPI.
5.3 PURCHASE ENTIRELY FOR HIS OWN ACCOUNT. The Winco securities will
be acquired for investment for the BPI Shareholder's own account, not as a
nominee or agent, and not with the view to the resale or distribution of
any part thereof, and the BPI Shareholder has no present intention of
selling, granting any participation in, or otherwise distributing Winco
securities. The BPI Shareholder has no contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participation to
such person with respect to any of the securities of Winco.
Notwithstanding the foregoing, it is understood that the BPI Shareholders
may transfer a part of the Winco securities to be received by them in the
Merger to CeBourn, Ltd., provided that
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CeBourn, Ltd. executes and delivers a representation of investment intent
letter to Winco which includes the representations and warranties in this
Section 5.
5.4 DISCLOSURE OF INFORMATION. Each BPI Shareholder has received and
had the opportunity to review the reports filed by Winco with the
Securities and Exchange Commission and has had the opportunity to ask
questions of, and receive answers from, representatives of Winco to obtain
additional information regarding Winco.
5.5 RESTRICTIONS ON TRANSFER.
(a) The securities of Winco that the BPI Shareholders will
acquire have not been registered under the Securities Act of 1933, as
amended (the "Securities Act") and, accordingly, such securities will
not be fully transferable except as permitted under various exemptions
contained in the Securities Act or upon satisfaction of the
registration and prospectus delivery requirements of the Securities
Act. The BPI Shareholders must bear the economic risk of his
investment in such securities for an indefinite period of time as such
securities have not been registered under the Securities Act and
therefore cannot be sold unless they are subsequently registered or an
exemption from registration is available. The BPI Shareholders are
Accredited Investors as defined under Rule 501(a) of the Securities
Act and are acquiring the securities for investment purposes only, for
their own account, and not as nominee or agent for any other person,
and not with the view to, or for resale in connection with, any
distribution thereof within the meaning of the Securities Act.
It is understood that the securities of Winco to be delivered to
the BPI Shareholders may be transferred pursuant to an effective
registration statement under the Securities Act and nothing herein
shall preclude the filing of a registration statement subsequent to
the Closing Date for a registration regarding these securities.
(b) The certificates evidencing the securities of Winco he will
acquire pursuant to this Agreement, and each instrument or certificate
issued in transfer thereof, will bear substantially the following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES
ONLY AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF,
AND SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED
UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT COVERING SUCH SECURITIES OR AN EXEMPTION
FROM SUCH REGISTRATION IS AVAILABLE. IF THE SECURITIES
ARE TO BE SOLD OR TRANSFERRED PURSUANT TO AN EXEMPTION
THE CORPORATION MAY REQUIRE AN
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OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
ISSUER STATING THAT SUCH SALE OR TRANSFER IS EXEMPT
FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SUCH ACT AND WILL NOT VIOLATE SUCH ACT
OR ANY OTHER APPLICABLE SECURITIES LAWS.
(c) Each BPI Shareholder understands a notation on the records
of Winco and its transfer agent will be made in order to implement the
restrictions on transfer set forth in this Section 5.6.
6. COVENANTS OF BPI PRIOR TO CLOSING.
6.1 ACCESS AND COOPERATION; DUE DILIGENCE. Between the date of this
Agreement and the Closing Date, BPI will afford to the officers and
authorized representatives of Winco and WMC access to all of the sites,
properties, books and records of BPI and will furnish Winco and WMC such
additional financial and operating data and other information as to the
business and properties of BPI as Winco and WMC may from time to time
reasonably request. BPI will cooperate with Winco and WMC, their
representatives, auditors and counsel in the preparation of any documents
or other material which may be required in connection with any documents or
materials required by this Agreement or necessary to complete the
transactions contemplated hereunder
6.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Closing, BPI will, except as will be set forth on
Schedule 6.2 to the BPI Disclosure Letter:
(a) Carry on its business in substantially the same manner as it
has heretofore and not introduce any material new method of
management, operation or accounting;
(b) Maintain its properties and facilities in as good working
order and condition as at present, ordinary wear and tear excepted;
(c) Perform in all material respects all of its obligations
under agreements relating to or affecting its respective assets,
properties or rights;
(d) Use all reasonable efforts to keep in full force and effect
present insurance policies or other comparable insurance coverage;
(e) Use its reasonable efforts to maintain and preserve its
business organization intact, retain its present key employees and
maintain its relationships with suppliers, customers and others having
business relations with it;
(f) Maintain compliance with all material permits, laws, rules
and regulations, consent orders, and all other orders of applicable
courts, regulatory agencies and similar governmental authorities;
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(g) Maintain present debt and lease instruments and not enter
into new or amended debt or lease instruments, without the knowledge
and consent of Winco (which consent shall not be unreasonably
withheld), provided that debt and/or lease instruments may be replaced
without the consent of Winco if such replacement instruments are on
terms at least as favorable to BPI as the instruments being replaced; and
(h) Maintain or reduce present salaries and commission levels
for all officers, directors, employees and agents except for ordinary
and customary bonus and salary increases for employees in accordance
with past practices.
(i) BPI may arrange and close debt financing or raise equity
funding in an aggregate amount of not more than $3,000,000.00.
6.3 PROHIBITED ACTIVITIES. Between the date hereof and the Closing
Date, BPI will not, without the prior written consent of Winco, engage in
any of the following (the "Prohibited Activities"):
(a) Make any change in its Charter Documents;
(b) Issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other
than in connection with the exercise of options or warrants to be
listed in Schedule 3.3 to the BPI Disclosure Letter;
(c) Declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or
purchase, redeem or otherwise acquire or retire for value any shares
of its stock;
(d) Except as listed in Schedule 6.3, enter into any contract or
commitment or incur or agree to incur any liability or make any
capital expenditures, except if it is in the normal course of business
(consistent with past practice) and involves an amount not in excess
of $50,000;
(e) Create, assume or permit to exist any mortgage, pledge or
other lien or encumbrance upon any assets or properties whether now
owned or hereafter acquired, except (1) with respect to purchase money
liens incurred in connection with the acquisition of equipment with an
aggregate cost not in excess of $100,000.00 necessary or desirable for
the conduct of the businesses of BPI, (2) (A) liens for taxes either
not yet due or being contested in good faith and by appropriate
proceedings (and for which contested taxes adequate reserves have been
established and are being maintained) or (B) materialmen's, mechanics'
or other like liens arising in the ordinary course of business (the
liens set forth in clause (2) being referred to herein as "Statutory
Liens"), or (3) liens to be set forth on Schedule 3.7 and/or 3.11 to
the BPI Disclosure Letter;
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(f) Sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business;
(g) Negotiate for the acquisition of any business or the start-up of
any new business;
(h) Merge or consolidate or agree to merge or consolidate with
or into any other corporation;
(i) Waive any material rights or claims of BPI, provided that
BPI may negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past practice;
(j) Commit a breach or amend or terminate any Material Documents
or right of BPI; or
(k) Enter into any other transaction outside the ordinary course
of its business or prohibited hereunder.
6.4 NO SHOP. Neither BPI, nor any agent, officer, director, trustee
or any representative of any of the foregoing will, during the period
commencing on the date of this Agreement and ending with the earlier to
occur of the Closing Date or the termination of this Agreement in
accordance with its terms, directly or indirectly: (i) solicit or initiate
the submission of proposals or offers from any person for; (ii) participate
in any discussions pertaining to; or (iii) furnish any information to any
person other than Winco or their authorized agents relating to, any
acquisition or purchase of all or a material amount of the assets of, or
any equity interest in, BPI or a merger, consolidation or business
combination of BPI.
6.5 NOTIFICATION OF CERTAIN MATTERS. BPI shall give prompt notice to
Winco and WMC of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would be likely to cause any
representation or warranty of BPI contained herein or to be set forth in
the BPI Disclosure Letter to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any material failure of BPI to
comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by such person hereunder. The delivery of any notice
pursuant to this Section 6.5 shall not be deemed to (i) modify the
representations or warranties of the party delivering such notice, (ii)
modify the conditions set forth in Sections 7 and 8, or (iii) limit or
otherwise affect the remedies available hereunder to the party receiving
such notice.
6.6 FINAL FINANCIAL STATEMENTS. BPI shall provide to Winco prior to
the Closing Date, the unaudited balance sheets of BPI as of the end of all
months following the Balance Sheet Date, and the unaudited statement of
income and comprehensive income and cash flows for all months ended after
the Balance Sheet Date, disclosing no material adverse change in the
financial condition or the results of its operations from the financial
statements as of the Balance Sheet Date. Such financial statements shall
have been prepared in accordance with GAAP applied on a
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consistent basis throughout the periods indicated (except as noted
therein). Except as noted in such financial statements, all of such
financial statements will present fairly the results of operations for the
periods indicated therein.
7. COVENANTS OF WINCO, WMC AND WSC PRIOR TO CLOSING.
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. Between the date of this
Agreement and the Closing Date, each of Winco, WMC and WSC will afford to
the authorized representatives of BPI access to all of its sites,
properties, books and records and will furnish BPI such additional
financial and operating data and other information as to their business and
properties as BPI may from time to time reasonably request. Winco, WMC and
WSC will cooperate with BPI, its representatives, auditors and counsel in
the preparation of any documents or other material which may be required in
connection with any documents or materials required by this Agreement or
necessary to complete the transactions contemplated hereunder.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Closing, Winco, WMC and WSC will, except as will be set
forth on Schedule 7.2 to the Winco Disclosure Letter and except in
connection with the Spin Off:
(a) Carry on its business in substantially the same manner as it
has heretofore and not introduce any material new method of
management, operation or accounting;
(b) Maintain its respective properties and facilities in as good
working order and condition as at present, ordinary wear and tear
excepted;
(c) Perform in all material respects all of its obligations
under agreements relating to or affecting its respective assets,
properties or rights;
(d) Use all reasonable efforts to keep in full force and effect
present insurance policies or other comparable insurance coverage;
(e) Use its reasonable efforts to maintain and preserve its
business organization intact, retain its present key employees and
maintain its relationships with suppliers, customers and others having
business relations with it;
(f) Maintain compliance with all material permits, laws, rules
and regulations, consent orders, and all other orders of applicable
courts, regulatory agencies and similar governmental authorities;
(g) Maintain present debt and lease instruments and not enter
into new or amended debt or lease instruments, without the knowledge
and consent of the BPI Shareholders (which consent shall not be
unreasonably withheld), provided that debt and/or lease instruments
may be replaced without the consent of the BPI Shareholders if such
replacement instruments are on terms at least as favorable to Winco as
the instruments being replaced; and
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(h) Maintain or reduce present salaries and commission levels
for all officers, directors, employees and agents except for ordinary
and customary bonus and salary increases for employees in accordance
with past practices.
7.3 PROHIBITED ACTIVITIES. Other than in connection with the Spin
Off, between the date hereof and the Closing Date, each of Winco, WMC and
WSC will not, without the prior written consent of BPI, engage in any of
the following (the "Prohibited Activities"):
(a) Make any change in its Charter Documents;
(b) Issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other
than in connection with the exercise of options or warrants to be
listed in Schedule 4.3 to the Winco Disclosure Letter;
(c) Declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or
purchase, redeem or otherwise acquire or retire for value any shares
of its stock;
(d) Except as listed in Schedule 7.3, enter into any contract or
commitment or incur or agree to incur any liability or make any
capital expenditures, except if it is in the normal course of business
(consistent with past practice) and involves an amount not in excess
of $50,000;
(e) Create, assume or permit to exist any mortgage, pledge or
other lien or encumbrance upon any assets or properties whether now
owned or hereafter acquired, except (1) with respect to purchase money
liens incurred in connection with the acquisition of equipment with an
aggregate cost not in excess of $50,000 necessary or desirable for the
conduct of the businesses of Winco, (2) (A) liens for taxes either not
yet due or being contested in good faith and by appropriate
proceedings (and for which contested taxes adequate reserves have been
established and are being maintained) or (B) materialmen's, mechanics'
or other like liens arising in the ordinary course of business (the
liens set forth in clause (2) being referred to herein as "Statutory
Liens"), or (3) liens to be set forth on Schedule 4.7 and/or 4.11 to
the Winco Disclosure Letter;
(f) Sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business;
(g) Negotiate for the acquisition of any business or the start-up of
any new business;
(h) Merge or consolidate or agree to merge or consolidate with
or into any other corporation;
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(i) Waive any material rights or claims of Winco, provided that
Winco may negotiate and adjust bills in the course of good faith
disputes with customers in a manner consistent with past practice;
(j) Commit a breach or amend or terminate any Material Documents
or right of Winco; or
(k) Enter into any other transaction outside the ordinary course
of its business or prohibited hereunder.
7.4 NO SHOP. Neither Winco, WSC or WMC, nor any agent, officer,
director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with
the earlier to occur of the Closing Date or the termination of this
Agreement in accordance with its terms, directly or indirectly: (i)
solicit or initiate the submission of proposals or offers from any person
for; (ii) participate in any discussions pertaining to; or (iii) furnish
any information to any person other than BPI or its authorized agents
relating to, any acquisition or purchase of all or a material amount of the
assets of, or a majority equity interest in, Winco or a merger,
consolidation or business combination of Winco.
7.5 NOTIFICATION OF CERTAIN MATTERS. Winco, WMC and WSC shall give
prompt notice to BPI and the BPI Shareholders of (i) the occurrence or non-
occurrence of any event the occurrence or non-occurrence of which would be
likely to cause any representation or warranty of Winco contained herein or
in the Winco Disclosure Letter to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any material failure of Winco
to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by such person hereunder. The delivery of any
notice pursuant to this Section 7.5 shall not be deemed to (i) modify the
representations or warranties of the party delivering such notice, (ii)
modify the conditions set forth in Sections 8 and 9, or (iii) limit or
otherwise affect the remedies available hereunder to the party receiving
such notice.
7.6 FINAL FINANCIAL STATEMENTS. Winco shall provide to BPI, prior to
the Closing Date, the unaudited consolidated balance sheets of Winco as of
the end of all months following the Balance Sheet Date, and the unaudited
consolidated statements of income and cash flows for all months ended after
the Balance Sheet Date, disclosing no material adverse change in the
financial condition or the results of its operations from the financial
statements as of the Balance Sheet Date. Such financial statements shall
have been prepared in accordance with GAAP applied on a consistent basis
throughout the periods indicated (except as noted therein). Except as
noted in such financial statements, all of such financial statements will
present fairly the results of operations for the periods indicated therein.
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8. CONDITIONS PRECEDENT TO OBLIGATIONS OF WINCO, WSC AND WMC.
The obligations of Winco, WSC and WMC with respect to actions to be
taken on the Closing Date are subject to the satisfaction or waiver on or
prior to the Closing Date of all of the following conditions.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of BPI contained in this Agreement shall be
true and correct in all material respects as of the Closing Date as though
such representations and warranties had been made as of that time; all the
terms, covenants and conditions of this Agreement to be complied with and
performed by BPI on or before the Closing Date shall have been duly
complied with and performed in all material respects; and certificates to
the foregoing effect dated the Closing Date, and signed by BPI and the BPI
Shareholders, as the case may be, shall have been delivered to Winco.
8.2 SATISFACTION. All actions, proceedings, instruments and
documents required to carry out this Agreement or incidental hereto and all
other related legal matters shall be reasonably satisfactory to Winco and
its counsel.
8.3 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened
to restrain or prohibit the transactions contemplated hereunder and no
governmental agency or body shall have taken any other action or made any
request of BPI or the BPI Shareholders as a result of which Winco deems it
inadvisable to proceed with the transactions hereunder.
8.4 CONSENTS AND APPROVALS. The shareholders of Winco shall have
approved this Agreement. All necessary consents and approvals as listed in
Schedule 3.19 shall have been obtained. All necessary consent of and
filings with any governmental authority or agency relating to the
consummation of the transaction contemplated herein shall have been
obtained and made and no action or proceeding shall have been instituted or
threatened to restrain or prohibit the transactions hereunder and no
governmental agency or body shall have taken any other action or made any
request of BPI or the BPI Shareholders as a result of which Winco deems it
inadvisable to proceed with the transactions hereunder.
8.5 GOOD STANDING CERTIFICATES. BPI shall have delivered to Winco a
certificate, dated as of a date no later than ten days prior to the Closing
Date, duly issued by the Secretary of State of BPI's state of incorporation
that BPI is in good standing and that all state franchise and/or income tax
returns and taxes for each for all periods prior to the Closing have been
filed and paid.
8.6 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to BPI which would constitute a Material Adverse Effect.
8.7 OFFICER'S CERTIFICATE. Winco shall have received a certificate
or certificates, dated the Closing Date and signed by the President of BPI,
certifying the truth and correctness of attached copies of its Articles of
Incorporation (including amendments thereto) and Bylaws (including
amendments thereto).
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8.8 INCUMBENCY CERTIFICATE AND OTHER DOCUMENTS. Winco shall have
received an incumbency certificate or certificates, dated the Closing Date
and signed by the Secretary of BPI certifying the names, titles and
signatures of the officers authorized to execute the documents referred to
in this Section 8 and such additional supporting documentation and other
information with respect to the transactions contemplated hereunder as
Winco or their counsel may reasonably request.
8.9 OPINION OF COUNSEL. Winco shall have received an opinion from
counsel for BPI, dated the Closing Date, in form and substance reasonably
satisfactory to counsel for Winco.
8.10 RELEASE OF OBLIGATIONS AND STOCK OPTIONS. Winco shall have
obtained a release of each of the officers and directors of BPI related to
all matters involving BPI.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF BPI AND THE SHAREHOLDERS.
The obligations of BPI and the BPI Shareholders with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
the representations and warranties of Winco and WMC contained in this
Agreement shall be true and correct in all material respects as of the
Closing Date with the same effect as though such representations and
warranties had been made on and as of that time; all the terms, covenants
and conditions of this Agreement to be complied with and performed by Winco
and WMC on or before the Closing Date shall have been duly complied with
and performed in all material respects; and certificates to the foregoing
effect dated the Closing Date, and signed by Winco and WMC shall have been
delivered to BPI.
9.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other
related legal matters shall be reasonably satisfactory to the BPI
Shareholders and their counsel.
9.3 NO LITIGATION. No action or proceeding before a court or any
other governmental agency or body shall have been instituted or threatened
to restrain or prohibit the transactions hereunder and no governmental
agency or body shall have taken any other action or made any request of
Winco as a result of which BPI and the BPI Shareholders deem it inadvisable
to proceed with the transactions hereunder.
9.4 CONSENTS AND APPROVALS. The shareholders of Winco shall have
approved this Agreement. All necessary consents and approvals as listed in
Schedule 4.19 shall have been obtained. All necessary consent of and
filings with any governmental authority or agency relating to the
consummation of the transaction contemplated herein shall have been
obtained and made and no action or proceeding shall have been instituted or
threatened to restrain or
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prohibit the transactions hereunder and no governmental agency or body
shall have taken any other action or made any request of Winco as a result
of which the BPI Shareholders deem it inadvisable to proceed with the
transactions hereunder.
9.5 GOOD STANDING CERTIFICATES. Winco and WMC shall have delivered
to BPI and the BPI Shareholders certificates, dated as of the date no later
than 10 days prior to the Closing Date, duly issued by the Secretary of
State of Colorado that each of Winco and WMC is in good standing.
9.6 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to Winco or WMC which would constitute a Material
Adverse Effect.
9.7 OFFICER'S CERTIFICATE. BPI and the BPI Shareholders shall have
received a certificate or certificates, dated the Closing Date and signed
by the President of Winco, certifying the truth and correctness of attached
copies of Winco's Articles of Incorporation (including amendments thereto),
and Bylaws (including amendments thereto). BPI and the BPI Shareholders
shall have received a certificate or certificates, dated the Closing Date
and signed by the President of WMC, certifying the truth and correctness of
attached copies of WMC's Articles of Incorporation (including amendments
thereto), and Bylaws (including amendments thereto).
9.8 INCUMBENCY CERTIFICATE AND OTHER DOCUMENTS. BPI and the BPI
Shareholders shall have received an incumbency certificate or certificates,
dated the Closing Date, and signed by the Secretary of Winco, certifying
the names, titles and signatures of the officers authorized to execute the
documents referred to in this Section 9 and such additional supporting
documentation and other information with respect to the transactions
contemplated hereunder as BPI and the BPI Shareholders or their counsel may
reasonably request.
9.9 OPINION OF COUNSEL. BPI shall have received an opinion from
counsel for Winco, WSC and WMC, dated the Closing Date, in form and
substance reasonably satisfactory to counsel for BPI.
9.10 RELEASE OF OBLIGATIONS. BPI and the BPI Shareholders shall have
obtained a release of each of the officers and directors of Winco related
to all matters involving Winco except for obligations pursuant to stock
option agreements.
9.11 INDEMNITY AGREEMENT. BPI and the BPI Shareholders shall have
received an Indemnity Agreement in a form acceptable to them concerning
certain environmental, tax and other matters executed by WSC and its
affiliate, American Warrior, Inc.
10. ADDITIONAL AGREEMENTS.
10.1 REASONABLE BEST EFFORTS. Subject to the terms and conditions of
this Agreement, each party will use its reasonable best efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and
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regulations to consummate the transactions contemplated by this Agreement
as soon as practicable after the date hereof. Winco, shall promptly
prepare and file with the Securities and Exchange Commission a proxy
statement (the "Proxy Statement") and Winco will take, in accordance with
applicable law and its Articles of Incorporation and Bylaws, all action
necessary to convene a meeting of its shareholders to consider and vote
upon the adoption of this Agreement. BPI shall cooperate with Winco in the
preparation of the Proxy Statement, including providing such information
about BPI and its plans with respect to Winco after the Merger as may be
reasonably requested by Winco.
10.2 COMPLETION OF THE DISCLOSURE LETTERS. BPI shall use its
reasonable best efforts to complete and deliver to Winco and WMC the BPI
Disclosure Letter by August 28, 2000. Winco, WSC and WMC shall use their
reasonable best efforts to complete and deliver to BPI and the BPI
Shareholders the Winco Disclosure letter by August 28, 2000.
10.3 PUBLIC ANNOUNCEMENTS. The initial press release of Winco with
respect to this Agreement shall be reviewed and approved by BPI.
Thereafter, Winco shall consult with BPI prior to issuing any press
releases or otherwise making public announcements with respect to this
Agreement and the transactions contemplated by this Agreement, except as
may be required by law.
10.4 FURTHER ASSURANCES. Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees to use all reasonable efforts
to take, or cause to be taken, all action, and to do, or cause to be done,
all things necessary, common, proper or advisable under applicable legal
requirements, to consummate and make effective the transactions
contemplated by this Agreement. If at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, Winco, WSC, WMC, BPI and the BPI Shareholders, as the case may
be, shall take or cause to be taken all such necessary or convenient action
and execute, and deliver and file, or cause to be executed, delivered and
filed, all necessary or convenient documentation.
10.5 THE SPIN-OFF. Winco shall act promptly to effect the spin-off of
all of its existing assets and liabilities to a subsidiary to be formed,
Winco Spin-off Corporation ("WSC"), so that the spin-off is completed prior
to Closing. WSC shall be distributed to the pre-merger Winco shareholders
prior to Closing. As soon as WSC has been established, Winco shall cause
WSC to execute this Agreement. Prior to completion of the Spin Off, WSC
shall have completed and filed with the Securities and Exchange Commission
("SEC") a registration statement on Form 10 pursuant to Section 12 of the
of the Securities Exchange Act of 1934, as amended, and the SEC shall have
approved such Form 10.
10.6 WINCO MERGER CORPORATION. Upon execution of this Merger
Agreement, Winco shall act promptly to form a Colorado corporation, Winco
Merger Corporation ("WMC"), in accordance with Sections 1.4 and 4.3 hereof.
As soon as it has been established, Winco shall cause WMC to execute this
Merger Agreement.
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10.7 REVERSE SPLIT. Prior to the Closing, Winco shall obtain all
required approval of the Winco shareholders and complete such other actions
as are necessary to complete at or prior to Closing a reverse split of its
stock on approximately an 80:1 basis. (The exact ratio may be altered by
agreement of the parties prior to the filing of the Proxy Statement.)
10.8 TAXES. WSC shall be solely responsible for the payment of all
tax liability arising from the Spin Off. In order to evidence such
obligations of WSC, Winco shall, prior to the Spin Off, cause WSC to assume
such liability and indemnify Winco therefrom.
11. TERMINATION OF AGREEMENT.
11.1 TERMINATION. This Agreement may be terminated at any time prior
to the Closing Date solely:
(a) By mutual consent of all of the parties hereto;
(b) By BPI, on the one hand, or by Winco, WSC and WMC on the
other hand, if the transactions contemplated by this Agreement to take
place at the Closing shall not have been consummated by December 31,
2000, unless the failure of such transactions to be consummated is due
to the failure of the party seeking to terminate this Agreement to
perform any of its obligations under this Agreement to the extent
required to be performed by it prior to or on the Closing Date;
(c) By BPI, on the one hand, or by Winco, WSC and WMC, on the
other hand, if a material breach of the representations or a material
breach or default shall be made by the other party in the observance
or in the due and timely performance of any of the covenants or
agreements contained herein, and the curing of such default shall not
have been made on or before the Closing Date or by the BPI
Shareholders, if the conditions set forth in Section 9 hereof have not
been satisfied or waived as of the Closing Date, or by Winco, if the
conditions set forth in Section 8 hereof have not been satisfied or
waived as of the Closing Date;
(d) By BPI if the Winco Disclosure Letter shall not have been
completed and delivered to BPI on or before August 28, 2000, or if the
Winco Disclosure Letter contains information which causes BPI to
determine it would be inadvisable to proceed with the transactions
hereunder;
(e) By Winco and WMC if the BPI Disclosure Letter shall not have
been completed and delivered to Winco and WMC on or before August 28,
2000, or if the BPI Disclosure Letter contains information which
causes Winco and WMC to determine it would be inadvisable to proceed
with the transactions hereunder;
(f) By BPI on or before August 28, 2000, if it determines that
the merger would result in an adverse tax obligation and the parties
to this Agreement have not been able to agree to a restructuring of
the transaction.
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11.2 LIABILITIES IN EVENT OF TERMINATION. Termination of this
Agreement will in no way limit any obligation or liability of any party
based on or arising from a breach or default by such party with respect to
any of its representations, warranties, covenants or agreements contained
in this Agreement or in the Schedules delivered by such party, including,
but not limited to, legal and audit costs and out of pocket expenses.
12. INDEMNIFICATION.
12.1 INDEMNIFICATION BY BPI. BPI agrees to indemnify and hold
harmless Winco and its officers, directors, agents and representatives
against any and all losses, claims, damages, liabilities, costs and
expenses (including but not limited to, attorneys' fees and other expenses
of investigation and defense of any claims or actions), directly or
indirectly resulting from, relating to or arising out of: (i) any breach
of any covenant, agreement, warranty or representation contained in this
Agreement, (ii) any misstatement of a material fact contained in this
Agreement or in any of the documents executed in connection with the
transactions contemplated by this Agreement, or (iii) the omission to
state any fact necessary to make the statements contained in this Agreement
or in any of the documents executed in connection with the transactions
contemplated by this Agreement not misleading, but only if the omission
relates to information concerning BPI's operations. Provided, however,
that no claim for indemnification shall be made against BPI until Winco and
its officers, directors, agents and representatives have suffered adverse
consequences pursuant to this Section 12.1 in excess of $50,000.
12.2 INDEMNIFICATION BY WINCO AND WSC. Prior to the completion of the
Merger, Winco and WSC jointly and severally agree, and after the completion
of the Spin Off and Merger, WSC agrees to indemnify and hold harmless BPI
and the BPI Shareholders against any and all losses, claims, damages,
liabilities, costs and expenses (including but not limited to, attorneys'
fees and other expenses of investigation and defense of any claims or
actions) directly or indirectly resulting from, relating to or arising out
of: (i) any breach of any covenant, agreement, warranty or representation
of Winco contained in this Agreement, (ii) any misstatement of a material
fact contained in this Agreement or in any of the documents executed in
connection with the transactions contemplated by this Agreement, including
the Proxy Statement, but only if the misstatement relates to information
concerning Winco or its operations, or (iii) the omission to state any fact
necessary to make the statements contained in this Agreement or in any of
the documents executed in connection with the transactions contemplated by
this Agreement not misleading, but only if the omission relates to
information concerning Winco or its operations, provided, however, that no
claim for indemnification (other than for tax liabilities resulting from
the Spin Off) shall be made against Winco (prior to the Merger) or WSC
(prior to or after the Merger) until BPI or the BPI Shareholders have
suffered adverse consequences pursuant this Section 12.2 in excess of $50,000.
12.3 INDEMNIFICATION NOTICE. Should any party (the "Indemnified
Party") suffer any loss, damage or expense for which another party (the
"Indemnifying Party") is obligated to indemnify and hold such Indemnified
Party harmless pursuant to this Section 12 of this Agreement, the following
shall apply: If an Indemnified Party intends to exercise its right to
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indemnification provided in this Section 12, such Indemnified Party shall
notify each Indemnifying Party in writing of such Indemnified Party's
intention to do so and the facts or circumstances giving rise to the claim
(the "Indemnification Claim"). An Indemnification Claim, at the option of
the Indemnified Party, may be asserted as soon as any situation, event or
occurrence has been noticed by the Indemnified Party regardless of whether
actual harm has been suffered or out-of-pocket expenses incurred. During
the period of 15 days after notice by the Indemnified Party, each
Indemnifying Party shall be entitled to cure the defect or situation giving
rise to the Indemnification Claim to the satisfaction of the Indemnified
Party. If the Indemnifying Parties are unwilling or unable to cure the
defect giving rise to the Indemnification Claim during the 15-day period,
the Indemnified Party shall thereafter be entitled to indemnification as
provided in this Section 12.
12.4 MATTERS INVOLVING THIRD PARTIES. If any third party shall notify
any Indemnified Party with respect to any matter (a "Third Party Claim")
which may give rise to a claim for indemnification against any Indemnifying
Party under this Section 12, then the Indemnified Party shall promptly
notify each Indemnifying Party thereof in writing. Provided, however, that
no delay on the part of the Indemnified Party in notifying any Indemnifying
Party shall relieve the Indemnifying Party from any obligation hereunder
unless (and then solely to the extent) the Indemnifying Party thereby is
prejudiced. Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (i) the
Indemnifying Party notifies the Indemnified Party in writing within 15 days
after the Indemnified Party has given notice of the Third Party Claim that
the Indemnifying Party will indemnify the Indemnified Party from any
adverse consequences the Indemnified Party may suffer resulting from or
caused by the Third Party Claim, (ii) the Indemnifying Party provides the
Indemnified Party with evidence reasonably acceptable to the Indemnified
Party that the Indemnifying Party will have the financial resources to
defend against the Third Party Claim and fulfill its indemnification
obligations hereunder, and (iii) the Indemnifying Party conducts the
defense of the Third Party Claim actively and diligently. The Indemnifying
Party shall not consent to the entry of any judgment or enter into any
settlement with respect to the Third Party Claim without the prior written
consent of the Indemnified Party, which consent shall not be withheld
unreasonably.
13. GENERAL PROVISIONS.
13.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The
representations and warranties of the parties hereto contained in this
Agreement or in any writing delivered pursuant hereto or at the Closing
shall survive the execution and delivery of this Agreement and the Closing
and the consummation of the transactions contemplated hereby (and any
examination or investigation by or on behalf of any party hereto) until the
date eighteen months after the Closing Date (except for claims in respect
thereof pending at such time, which shall survive until finally resolved or
settled); provided, also, the representations, warranties, covenants and
agreements in Sections 3.18 and 10.5 shall survive until the expiration of
the statutory period of limitations for assessment of tax deficiencies,
including any extensions thereof, for each taxable year of BPI which begins
before the Closing Date and the representations, warranties, covenants and
agreements in Section 5 shall survive indefinitely. No action may be
commenced with
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respect to any representation, warranty, covenant or agreement in this
Agreement, or in any writing delivered pursuant hereto, unless written
notice, setting forth in reasonable detail the claimed breach thereof,
shall be delivered pursuant to Section 13.7 to the party or parties against
whom liability for the claimed breach is charged on or before the
termination of the survival period specified in Section 13.1 for such
representation, warranty, covenant or agreement.
13.2 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto, in whole or in part (whether by operation of law or otherwise),
without the prior written consent of the other parties, and any attempt to
make any such assignment without such consent shall be null and void.
Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of and be enforceable by the parties and their
respective successors and assigns.
13.3 ENTIRE AGREEMENT. This Agreement and any attachments hereto, the
BPI Disclosure letter and the Schedules thereto (including the schedules,
exhibits and annexes attached hereto and thereto), the Winco Disclosure
Letter and the Schedules thereto (including the schedules, exhibits and
annexes attached hereto and thereto) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the parties
and supersede any prior agreement and understanding relating to the subject
matter of this Agreement. This Agreement, upon execution, constitutes a
valid and binding agreement of the parties hereto enforceable in accordance
with its terms and may be modified or amended only by a written instrument
executed by all parties.
13.4 COUNTERPARTS. This Agreement may be executed simultaneously in
counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
13.5 BROKERS AND AGENTS. Each party represents and warrants that it
employed no broker or agent in connection with this transaction, except as
provided in Schedule 13.5.
13.6 EXPENSES. Except as otherwise specifically provided herein, each
party to this Agreement shall bear its own direct and indirect expenses
incurred in connection with the negotiation and preparation of this
Agreement and the consummation and performance of the transactions
contemplated hereby, including, without limitation, all legal fees and fees
of any brokers, finders or similar agents; provided, however, that the fees
and expenses of Stifel, Nicolaus & Company, Incorporated in rendering an
opinion as to the fairness of the transactions contemplated hereby shall be
borne equally by Winco and the BPI Shareholders.
13.7 NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed duly given (i) on the date of delivery if
delivered personally, or by telecopy or facsimile upon confirmation of
receipt, (ii) on the first business day following the date of dispatch if
delivered by a recognized next-day courier service, or (iii) on the 5th
business day following the date of mailing if delivered by registered or
certified mail, return receipt requested,
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postage prepaid. All notices hereunder shall be delivered as set forth
below, or pursuant to such other instructions as may be designated in
writing by the party to receive such notice:
(a) If to Winco or WMC:
Winco Petroleum Corporation
3118 Cummings Street
Garden City, KS 67846
Facsimile:
Attention: Cecil O'Brate
with a copy to:
Berenbaum, Weinshienk & Eason, P.C.
370 17th Street, Suite 2600
Denver, CO 80202
Facsimile: (303) 629-7610
Attention: John Wills, Esq.
(b) If to BPI or the BPI Shareholders:
Rothgerber Johnson & Lyons LLP
1200 17th Street, Suite 3000
Denver, Colorado 80202
Facsimile: (303) 623-9222
Attention: Marc J. Musyl, Esq.
with a copy to:
CeBourn, Ltd.
One Norwest Center
1700 Lincoln Street, Suite 3700
Denver, CO 80203-4537
Facsimile: (303) 832-8232
Attention: William Dews
13.8 GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of Colorado.
13.9 Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms. It is accordingly
agreed that the parties shall be entitled to specific performance of the
terms hereof, this being in addition to any other remedy to which they are
entitled at law or in equity.
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13.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or
remedy accruing to any party as a result of any breach or default by any
other party under this Agreement shall impair any such right, power or
remedy, nor shall it be construed as a waiver of or acquiescence in any
such breach or default, or of any similar breach or default occurring
later; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default occurring before or after that waiver.
13.11 TIME. Time is of the essence with respect to this Agreement.
13.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties, and
if such modification is not possible, such provision shall be severed from
this Agreement, and in either case the validity, legality and
enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
13.13 REMEDIES CUMULATIVE. No right, remedy or election given by any
term of this Agreement shall be deemed exclusive, but each shall be
cumulative with all other rights, remedies and elections available at law
or in equity.
13.14 CAPTIONS; CONSTRUCTION. The headings of this Agreement are
inserted for convenience only, and shall not constitute a part of this
Agreement or be used to construe or interpret any provision hereof. This
Agreement has been fully reviewed and negotiated by the parties and no
uncertainty or ambiguity in any term or provision of this Agreement shall
be construed strictly against any party under any rule of construction or
otherwise.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
WINCO PETROLEUM CORPORATION BUSINESS PRODUCTS, INC.
By: /s/ By:/s/
------------------------------ --------------------------------
Name: Name:
---------------------------- ------------------------------
Title: Title:
--------------------------- -----------------------------
Date: Date:
---------------------------- ------------------------------
WINCO MERGER CORPORATION WINCO SPIN-OFF CORPORATION
By: /s/ By:/s/
------------------------------ --------------------------------
Name: Name:
---------------------------- ------------------------------
Title: Title:
--------------------------- -----------------------------
Date: Date:
---------------------------- ------------------------------
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APPENDIX B
FORM OF INDEMNITY AGREEMENT
<PAGE>
INDEMNIFICATION AGREEMENT
-------------------------
THIS INDEMNIFICATION AGREEMENT is entered into on __________, 2000
(this "Agreement") among Winco Spin-off Corporation, a Colorado corporation
("WSC"), American Warrior, Inc., a Kansas corporation ("American Warrior"),
Winco Petroleum Corporation, a Colorado corporation ("Winco") and Michael
C. St. John and Anton St. John (the "BPI Shareholders"), as shareholders of
Business Products, Inc., a Colorado corporation ("BPI").
RECITALS
WHEREAS, Winco is desirous of entering into a merger transaction with
BPI, as a result of which the BPI Shareholders will own approximately
ninety-two and one-half percent (92.5%) of Winco; and the current
shareholders of Winco (the "Winco Shareholders") will retain an ownership
of approximately seven and one-half percent (7.5%) in Winco, which
transactions are herein collectively referred to as the "Merger"; and in
order to accomplish the Merger, Winco has created WSC as a wholly-owned
subsidiary, and has also created Winco Merger Corporation, a Colorado
corporation ("WMC"), as a wholly-owned subsidiary of Winco; and
WHEREAS, in order to accomplish the Merger, Winco, WMC, WSC and BPI
have entered into that certain Merger Agreement, dated for reference
purposes as of August 18, 2000 (the "Merger Agreement"); and
WHEREAS, under the Merger Agreement, BPI will merge into WMC, and WMC
shall be the surviving entity; and
WHEREAS, pursuant to the Merger Agreement, the BPI Shareholders shall
receive common stock in Winco in exchange for the cancellation of their BPI
common stock; and
WHEREAS, prior to the Merger, all of the assets, obligations and
liabilities of Winco shall be transferred to and assumed by WSC, and all of
the shares of common stock of WSC shall be distributed by Winco to the
Winco Shareholders, all pursuant to an Agreement and Plan of Reorganization
(the "Spin-Off Agreement"); and
WHEREAS, the Merger Agreement contemplates that, upon accomplishment
of the Merger, Winco shall be an entity without any assets, liabilities or
obligations at such time as the BPI Shareholders become the controlling
shareholders of Winco; and
WHEREAS, one of the conditions of the Merger Agreement and the Merger
is that WSC and American Warrior (collectively, the "Companies") enter into
an Indemnity Agreement concerning certain federal income tax and other
liabilities; and
WHEREAS, this Agreement is the Indemnity Agreement contemplated by the
Merger Agreement.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the covenants
and agreements set forth herein and in the Merger Agreement, and intending
to be legally bound, the parties hereto agree as follows:
1. INDEMNITY. The Companies jointly and severally agree to
indemnify, defend, save and hold harmless Winco, WMC and the BPI
Shareholders (collectively, the "Indemnified Parties") from and against all
of the following (collectively, the "Claims"):
(a) (general indemnification) all claims, expenses (including
reasonable attorney's fees), damages, liabilities and impositions suffered
by Winco or the BPI Shareholders, arising from any act, agreement, conduct,
circumstance or condition relating to Winco, which predates the filing of
the Articles of Merger with the Colorado Secretary of State (the "Merger
Closing Date"), irrespective of whether such claims, expenses, damages,
liabilities and/or impositions arise out of contract, tort, violation of
any law, order, regulation or otherwise;
(b) (environmental indemnification) without limiting the
forgoing, the Companies further agree to indemnify, defend, protect and
hold the Indemnified Parties, their subsidiaries, successors and assigns,
free and harmless from and against any and all claims, liabilities,
penalties, forfeitures, losses or expenses (including attorneys' fees)
arising from or caused in whole or in part, directly or indirectly, by the
presence in, on, under or about real properties (or any leasehold interests
in real property) assigned by Winco to WSC or any improvements thereon
pursuant to the Spin-Off Agreement of any hazardous materials or the use,
analysis, storage, transportation, disposal, release, threatened release,
discharge or generation of hazardous materials to, in, on, under, about or
from any such property or improvements therein.
(i) The Companies' obligations hereunder shall include
without limitation, and whether foreseeable or unforeseeable, all
damages, claims or liabilities arising from the death of or injury to
any person or damage to any property whatsoever, all costs of any
required or necessary repair, cleanup or detoxification or
decontamination of any of said property or any improvements, and the
preparation and implementation of any closure, remedial action or
other required plans in connection therewith.
(ii) For the purposes of this paragraph (b), "hazardous
materials" shall include but not be limited to substances defined as
"hazardous substances", "hazardous materials", or "toxic substances"
in any of the Environmental Acts. Environmental Acts shall include
the environmental laws of any state in which Indemnified Parties
conducted business or owned real property prior to Closing; the
Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended, 42 U.S.C. Section 9601, ET SEQ.; The Hazardous
Materials Transportation Act, 49 U.S.C. Section 1801, ET SEQ.; and The
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, ET
SEQ. as any said above mentioned laws may be amended from time to
time, and in the regulations adopted and the publications promulgated
pursuant to said laws.
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(c) (claims arising from Spin-Off and Merger) all claims,
expenses (including reasonable attorney's fees), damages, liabilities and
impositions suffered by Winco, WMC or the BPI Shareholders, arising from
any act, agreement, conduct, circumstance or condition relating to the
Spin-Off Agreement, the reserve stock split as described in the Notice of
Special Meeting of Shareholders to be held on October 30, 2000, any acts or
actions taken by all or any of the Companies in connection with the Merger,
or the failure of all or any of the Companies to perform any acts or
actions required under the terms of the Merger Agreement..
(d) (tax indemnification) the net amount of Federal income tax
liabilities (together with any penalties, interest, fines and additions to
tax, but not taxes, if any, resulting from the receipt of indemnity
payments by the Indemnified Parties pursuant to this Agreement) incurred by
the Indemnified Parties, as a result of a determination by the IRS that
either (i) the contribution of assets to WSC by Winco, the assumption of
liabilities of Winco by WSC and/or the distribution of WSC common stock to
Winco Shareholders or (ii) the Merger; provided, however, that the
Companies shall have no liability under this Agreement (a) to the extent
that such liabilities arise from the failure of all or any of the
Indemnified Parties to perform in accordance with the terms and conditions
of the Merger Agreement or (b) to the extent such liabilities arise from
actions of the indemnified parties other than those specified in the Merger
Agreement, or (c) the imposition of tax liability is a result of actions
taken by any Indemnified Party following the Merger Closing Date, without
the consent of the Companies (including without limitation a
reincorporation of Winco or WMC under any state law).
The Indemnified Parties shall promptly notify the Companies of any
assertion of a Claim for which the Companies may be responsible under this
Agreement. The Companies shall have the opportunity to participate jointly
with the Indemnified Parties, and at the expense of the Companies, in
contesting any such Claim and the related asserted liability. The
settlement of any Claim which would result in a payment by the Companies
under this Agreement without the Companies' written consent shall
constitute a waiver of the right to indemnity; provided, however, that the
Companies shall not unreasonably withhold its consent to any settlement.
2. MISCELLANEOUS.
(a) COVENANTS CONCERNING DISTRIBUTIONS. American Warrior agrees
that, prior to the third anniversary of the Merger Closing Date, it shall
not declare or make any Distribution if, immediately after such
Distribution, its net book value shall be less than one million
($1,000,000) dollars. For purposes of this paragraph (a) "Distribution"
shall mean (i) any dividend or other distribution to shareholders, (ii) any
distribution in partial or complete redemption of any shareholder's stock
or (iii) the purchase by American Warrior of stock in WSC or (iv) the
repayment of any loan made to either of the Companies by any Affiliate. For
purposes of this paragraph (a) "Affiliate" shall mean (i) either of the
Companies or (ii) any person who owns, in conjunction with his spouse,
parents and children or any other entity which owns at least five percent
of either of the Companies.
(b) FURTHER AGREEMENTS. Until this Agreement terminates, the
Companies agree to: (i) provide to each of the Indemnified Parties copies
of any filings made by either of the
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Companies with the Securities and Exchange Commission or any state
securities regulatory agency; (ii) provide notice to the Indemnified
Parties of any pending or threatened claim against the Companies (including
without limitation any Claim covered by this Agreement) which, if adversely
determined, would cause the Companies to fail to maintain the net worth
requirement of section 2(a) above, and (iii) provide annually to the
Indemnified Parties copies of financial statements for each of the
Companies.
(c) TERMINATION. The indemnification obligations under this
Agreement shall terminate three years from the date hereof or on the
earlier expiration of the applicable statute of limitations with respect to
such claims, provided that the indemnification for environmental matters
set forth herein shall expire six years from the date hereof and the
indemnification for tax matters set forth herein shall expire on the
expiration of the applicable statute of limitations with respect to such
tax matters (the "Claims Expiration Date"). Notwithstanding the foregoing,
in the event any of the Indemnified Parties provides written notice to the
Companies of the assertion of a Claim for which the Companies may be
responsible under this Agreement prior to the Claims Expiration Date, the
Companies' indemnification obligation hereunder shall continue with respect
to such identified Claim beyond the claims Expiration Date, until such
Claim has been resolved or otherwise become unenforceable.
(d) NO SETOFF. No payment required to be made pursuant to this
Agreement shall be subject to any right of setoff, counterclaim, defense,
abatement, suspension, deferment or reduction on an unrelated claim.
(e) AMENDMENTS. Neither this Agreement nor any term hereof may
be changed, waived, discharged or terminated orally or in writing, except
that any term of this Agreement may be amended by writing signed by each of
the parties hereto, and the observance of any such term may be waived
(either generally or in a particular instance and either retroactively or
prospectively) by a writing signed by the party against whom such waiver is
to be asserted.
(f) NOTICES. All notices and other communications provided for
or permitted hereunder shall be made in accordance with the notice
provisions of the Merger Agreement.
(g) SUCCESSORS AND ASSIGNS. This Agreement (or any right or
obligation hereunder) may not be assigned by any party without the prior
written consent of the other parties, except that each of the Indemnified
Parties may assign its rights and obligations in this Agreement, whether by
a writing or operation of law, to a successor to all or substantially all
of its business without such consent, in which event this Agreement shall
inure to the benefit of and be binding upon the successor.
(h) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Colorado applicable
to agreements made and to be performed within the state.
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(i) WAIVER; REMEDIES. No delay on the part of any party hereto
in exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any waiver on the part of any party hereto of any
right, power or privilege hereunder operate as a waiver of any other right,
power or privilege hereunder, nor shall any single or partial exercise of
any right, power or privilege hereunder, preclude any other or further
exercise thereof or the exercise of any other right, power or privilege
hereunder. The waiver or consent (whether express or implied) by any party
of the breach of any term or conditions of this Agreement shall not
prejudice any remedy of any other party in respect of any continuing or
other breach of the terms and conditions hereof, and shall not be construed
as a bar to any right or remedy which any party would otherwise have on any
future occasion under this Agreement.
(j) ATTORNEYS' FEES. In any action or proceeding brought to
enforce any provision of this Agreement, or where any provision hereof is
validly asserted as a defense, the successful party shall be entitled to
recover reasonable attorneys' fees and costs in addition to any other
available remedy.
(k) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any
circumstances, is held invalid, illegal or unenforceable in any respect for
any reasons, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions hereof
shall not be in any way impaired or affected, it being intended that all
other rights and privileges shall be enforceable to the fullest extent
permitted by law.
(l) NO LIEN. Nothing in this Agreement is intended to impose a
lien or encumbrance on any assets of the Companies. Subject to Section 2(a)
of this Agreement, notwithstanding anything else in this Agreement to the
contrary, nothing in this Agreement shall prevent the Companies from
conducting its operations in the ordinary course.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
WINCO SPIN-OFF CORPORATION
By: ____________________________________
Name: ____________________________________
Title: ____________________________________
-5-
<PAGE>
AMERICAN WARRIOR, INC.
By: ____________________________________
Name: ____________________________________
Title: ____________________________________
BUSINESS PRODUCTS, INC.
By: ____________________________________
Name: ____________________________________
Title: ____________________________________
WINCO PETROLEUM CORPORATION
By: ____________________________________
Name: ____________________________________
Title: ____________________________________
MICHAEL ST. JOHN
___________________________________________
ANTON C. ST. JOHN
___________________________________________
-6-
<PAGE>
APPENDIX C
FORM OF AGREEMENT
AND
PLAN OF REORGANIZATION
(WINCO SPIN-OFF)
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
------------------------------------
This Agreement and Plan of Reorganization is dated _______________,
2000, between Winco Petroleum Corporation, a Colorado corporation
("Parent"), and Winco Spin-Off Corporation, a Colorado corporation
("Subsidiary").
WHEREAS, Parent is an independent energy company engaged primarily in
the acquisition, exploration, exploitation and production of crude oil and
natural gas, a current listing of its oil and gas production properties,
the contracts and a description of the assets related to such business is
attached hereto as EXHIBIT A; and
WHEREAS, Parent desires to separate its producing oil and gas
operations from the remaining assets of the Parent by transferring that
portion of its business and assets to the Subsidiary in accordance with the
terms of this Agreement;
WHEREAS, Parent holds 100 shares of Common Stock in Subsidiary, and is
the sole shareholder of Subsidiary;
WHEREAS, following the transfer of assets to Subsidiary, it is
anticipated that Parent will distribute its stock in Subsidiary to Parent's
shareholders, and immediately following such distribution, Parent will,
pursuant to a Merger Agreement dated ______________ (the "Merger
Agreement"), acquire control of Business Products, Inc. ("BPI");
WHEREAS, the Parent, in order to induce the shareholders of BPI to
enter into the Merger Agreement has agreed to cause Subsidiary to assume
all liabilities and obligations of Parent and any and all tax liabilities
arising from the transfer of assets to Subsidiary and the subsequent
distribution of the stock in Subsidiary pursuant to this Agreement and Plan
of Reorganization. Subsidiary, in consideration of the transfer of the
assets described herein has agreed to assume such liabilities and indemnify
Parent therefrom;
WHEREAS, American Warrior, a Wisconsin corporation, ("American
Warrior") is an affiliate of Subsidiary, and Subsidiary has agreed to
cause American Warrior to indemnify Parent from losses of damages suffered
by Parent as further described herein;
NOW THEREFORE, in consideration of the mutual covenants contained
herein, the parties agree as follows:
1. TRANSFER OF ASSETS. On the date of this Agreement and Plan of
Reorganization, the Parent will convey, assign and transfer to the
Subsidiary any and all assets of Parent including all operating and other
assets from Parent's oil and gas operations, accounts receivables, trade
names, rights, claims and interests (the "Assets"). Without limitation,
said assets shall include those assets described in EXHIBIT A.
Notwithstanding the foregoing, Parent shall not transfer to Subsidiary
those assets described on EXHIBIT B (the "Excluded Assets").
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<PAGE>
2. CONSIDERATION. In consideration of the transfer of the Assets
the Subsidiary hereby agrees (i) to assume, pay and perform any and all
debts, liabilities, leases, licenses, contracts and obligations of Parent
which have been incurred on or before the closing of the Merger Agreement
(the "Merger Closing"), including, without limitation those described on
EXHIBIT C attached hereto (the "Assumed Liabilities and Obligations"; (ii)
to assume and agree to pay any and all tax liabilities as described in
Section 8, and to issue 514,408 shares of common stock of Subsidiary to
Parent.
3. DISTRIBUTION OF SUBSIDIARY STOCK. Upon completion of the
transfer of Assets and assumption of the Assumed Liabilities and
Obligations as described in Paragraphs 1 and 2 above, Parent will
distribute all of its stock in the Subsidiary to the then holders of
Parent's Common Stock with the shareholders of the Parent to receive one
share of Common Stock of the Subsidiary for each share of Common Stock of
the Parent it holds (the "Spin-Off"); provided, that the shares of Common
Stock of the Subsidiary shall be subject to federal and state securities
law restrictions. Accordingly, all shares will be "restricted" shares and
may only be sold pursuant to Rule 144 of the Securities Act of 1933 or
other available exemption from registration or pursuant to an effective
registration statement. The Subsidiary consents to such distribution and
transfer of stock to Parent's shareholders and upon surrender of the
certificate representing such stock together with stock assignments
assigning such stock to the shareholders of Parent, the Subsidiary will
issue "restricted" shares to the shareholders of Parent for the number of
shares transferred to such respective shareholders.
4. INDEMNIFICATION. At the Spin-Off Closing, Subsidiary shall
execute and deliver, and shall cause American Warrior to execute and
deliver, that Indemnification Agreement attached hereto as EXHIBIT D (the
"Indemnification Agreement").
5. CLOSING. The Spin-Off Closing will be at 10:00 A.M. on
_________________, 2000 at the offices of Berenbaum Weinshienk, & Eason,
P.C. or such other time and place mutually agreed to by the parties hereto.
At the Closing, the following deliveries shall take place:
(a) the Parent will deliver to the Subsidiary a Bill of Sale
and Assignment and, if necessary, a quit claim deed or
deeds assigning the Assets to the Subsidiary;
(b) the Parent will execute and deliver to the Subsidiary
specific assignments of certain Assets for which a
separate assignment is required or desirable;
(c) the Parent will deliver to the Subsidiary the amount of
the cash being transferred to the Subsidiary as a part of
the Assets;
(d) the Parent will deliver to the Subsidiary physical
possession of the tangible Assets;
(e) the Subsidiary will deliver to the Parent a stock
certificate for 514,308 shares of Common Stock of the
Subsidiary;
2
<PAGE>
(f) the Subsidiary will execute and deliver to the Parent an
Assumption Agreement whereby the Subsidiary assumes and
agrees to pay and perform all Assumed Liabilities and
Obligations;
(g) the Subsidiary and American Warrior shall deliver to
Parent the Indemnification Agreement.
(h) the Parent will distribute the stock in the Subsidiary to
the Parent's shareholders, in a share for share basis.
6. REPRESENTATIONS AND WARRANTIES OF PARENT. The Parent hereby
represents and warrants to the Subsidiary as set forth below:
(a) CORPORATE STATUS. The Parent is duly incorporated under
the laws of the State of Colorado and is in good standing
under the laws of such State. Parent has taken all
requisite corporation action to authorize the
transactions provided for herein.
(b) ENFORCEABILITY. This Agreement and all other agreements
entered into pursuant hereto shall be fully enforceable
against Parent subject to the availability of equitable
remedies.
(c) ENCUMBRANCES. Upon the consummation of such transactions,
title to the Assets shall be transferred to the
Subsidiary, subject to any and all liens, claims and
defects of title.
(d) ACCOUNTS RECEIVABLE. All accounts receivable of Parent
are being assigned to Subsidiary without recourse.
Parent makes no representation as to the collectability
of any account receivable.
(e) INVENTORY. All inventory of Parent shown on EXHIBIT A
shall be assigned to Subsidiary, "As Is". Parent makes
no representation as to the condition or value of such
inventory.
(f) EQUIPMENT. All equipment of Parent shown on EXHIBIT A
shall be conveyed to Subsidiary, "As Is". Parent makes
no representation as to the condition or value of such
equipment.
(g) REAL PROPERTY. To the extent that the Assets include
real property and improvements thereon or leasehold
interests, Parent shall convey such real property and
improvements by quit claim deed or assignment without
warranties. Parent shall convey such property "As Is"
and makes no representation or warranty as to the
condition or value of such real property, improvements,
or interests.
3
<PAGE>
(h) TITLE TO ASSETS. Parent shall assign and convey title to
the Assets "As Is, and Parent makes no representation or
warranty as to the status of Parent's title to the Assets
or the amount of or existence of any liens encumbering
such Assets.
7. REPRESENTATIONS AND WARRANTIES OF SUBSIDIARY. The Subsidiary
represents and warrants to the Parent as follows:
(a) ENTITY STATUS. The Subsidiary is a corporation duly
formed and existing in good standing under the laws of
the State of Colorado.
(b) ENFORCEABILITY. All transactions provided for herein and
all obligations of the Subsidiary have been duly
authorized by all requisite legal action, and all
agreements entered into, including the execution and
consummation of this Agreement, will be valid and
enforceable against the Subsidiary in accordance with
their terms subject to the availability of equitable
remedies.
(c) ASSUMED LIABILITIES AND OBLIGATIONS. The Subsidiary will
assume, pay and perform all the Assumed Liabilities and
Obligations as and when due, including completing all
contracts and work in progress which exist at the Spin-Off
Closing.
(d) CAPITALIZATION OF SUBSIDIARY. The Subsidiary will be
capitalized with the authorized capitalization of
10,000,000 shares of Common Stock, of which 514,408
shares will be outstanding after consummation of the
Spin-Off Closing.
(e) SUBSIDIARY'S BALANCE SHEET. The Subsidiary's assets and
liabilities immediately after Closing shall be as set
forth in EXHIBIT E.
(f) American Warrior's Balance Sheet. American Warrior's
assets and liabilities as of
__________________________________ shall be as set forth
in that balance sheet attached hereto as Exhibit F.
Between __________________ and the Closing date, there
shall have been no material adverse change in the
financial condition of American Warrior.
8. TAXES. The Subsidiary shall be responsible for any taxes
attributable to the transactions described herein (including, without
limitation, taxes attributable to the contribution of assets to Subsidiary
by Parent, the assumption of liabilities of Parent by Subsidiary and the
distribution of Subsidiary's Common Stock to Parent) To the extent
permitted under Section 381(a) of the Internal Revenue Code of 1986, as
amended, Subsidiary shall succeed to and take into account certain tax
attributes of Parent including, without limitation, Parent s net operating
loss carryovers from prior taxable years.
4
<PAGE>
9. POST-CLOSING COVENANTS. Following Closing:
(a) Parent and Subsidiary shall cooperate with respect to the
corporate records relating to the oil and gas production
business, including billing records, tax records, accounting
records and other materials which may be necessary for future
tax audits, other audits or other legal compliance matters. Each
party will preserve and maintain such records as may be
customary in the industry or consistent with government record
retention policies. Each party will allow the other access to
such records and will cooperate in providing information and
otherwise assist in responding to any legitimate business needs
of the other; and
(b) Subsidiary shall:
(i) Cause final state and federal income tax returns to be
prepared and filed for the Parent reflecting the income
and loss of Parent for Parent's short taxable year
commencing prior to the Spin-Off Closing and ending on
the date of the Merger Closing;
(ii) Cause a person who was an officer of Parent prior to the
Merger to sign such final income tax returns and other
returns on behalf of Parent.
(iii) Determine the amount of any distributions for federal
income tax purposes made to the shareholders of Parent
during such short taxable year (including any
distribution deemed to be made by Parent to its
shareholders of the value of its Corporate charter).
(iv) Prepare and distribute to the shareholders of Parent
forms 1099 and other required information returns
reflecting the distributions and deemed distributions
made to such shareholders for such short taxable year.
(v) Prepare and cause form 966 to be filed with the Internal
Revenue Service in connection with any deemed dissolution
of Parent resulting from the Merger.
10. Miscellaneous.
(a) COMPLETE AGREEMENT. This Agreement sets forth the entire
Agreement of the parties hereto with respect to the subject
matter hereof and all prior agreements and understandings are
specifically superseded.
(b) SURVIVAL OF AGREEMENT. This Agreement and all terms, warranties
and provisions hereof will survive the Closing.
(c) SUCCESSORS AND ASSIGNS. This Agreement will be binding upon the
parties hereto and their respective successors and assigns.
5
<PAGE>
(d) ARBITRATION. Any dispute arising in connection with this
Agreement shall be resolved by arbitration in accordance with
the Commercial Arbitration Rules of the American Arbitration
Association as then in effect. Such arbitration shall be held
in the City and County of Denver. The arbitrators shall be
instructed to award, in addition to damages or other remedies,
attorneys fees and costs of arbitration in favor of the
prevailing party.
(e) SPECIFIC ENFORCEMENT: LEGAL FEES. The parties acknowledge that
a breach of the provisions of this Agreement is likely to result
in irreparable and unreasonable harm to the other party, and
that injunctive relief, as well as damages, would be
appropriate. In the event action is brought to enforce or
construe any provisions of this Agreement, the prevailing party
shall be entitled to collect reasonable attorneys fees and
costs from the other party hereto.
(f) APPLICABLE LAW. This Agreement shall be construed in accordance
with the internal law of the State of Colorado without giving
effect to principles of conflicts of law. Any judicial action
relating to this Agreement shall be brought only in the state
or federal courts located in the State of Colorado and the
parties hereby, consent to the exclusive jurisdiction and venue
of such courts.
IN WITNESS WHEREOF, this Agreement and Plan of Recognition has been
executed as of the date set forth above.
6
<PAGE>
WINCO PETROLEUM CORPORATION,
a Colorado corporation
By:_________________________________
Cecil O'Brate, President
WINCO SPIN-OFF CORPORATION,
a Colorado corporation
By:_________________________________
Daniel L. Dalke, President
7
<PAGE>
EXHIBIT A
---------
ASSETS
------
Cash: $____________
Accounts
Receivable: The accounts receivable associated with the oil and gas
production business conducted by Winco Petroleum
Corporation in the amount of $____________.
Prepaid
Insurance: $____________
Capitalized
Legal Costs: $____________
Inventory: Having a book value of $_______________ as listed on
Schedule I attached hereto.
Equipment: All of the equipment used in the oil and gas production
business conducted by Winco Petroleum Corporations
having a book value of $__________ and described
specifically in the Schedule of Equipment attached
hereto as Schedule 2.
Name: All ownership and the rights to the names "Winco
Petroleum Corporation" or any combination thereof,
including all good will associated therewith. Winco
Petroleum Corporation shall take appropriate corporate
action to change its corporate name prior to the
expiration of _____________ days from the date of this
Agreement to a name which does not contain "Winco
Petroleum Corporation" or any variant thereof.
Other:
8
<PAGE>
EXHIBIT B
---------
EXCLUDED ASSETS
---------------
9
<PAGE>
EXHIBIT C
---------
ASSUMED LIABILITIES AND OBLIGATIONS
-----------------------------------
Accounts
Payable: $____________, as listed in Schedule 1 attached hereto.
Accrued
Expenses,
Salaries
and Taxes: $____________
Contracts:
10
<PAGE>
EXHIBIT D
---------
INDEMNIFICATION AGREEMENT
-------------------------
11
<PAGE>
EXHIBIT E
---------
SUBSIDIARY'S ASSETS AND LIABILITIES
-----------------------------------
12
<PAGE>
EXHIBIT F
---------
AMERICAN WARRIOR, INC. BALANCE SHEET AS OF
------------------------------------------
13
<PAGE>
APPENDIX D
CONSENT OF
ALLEN, GIBBS & HOULIK, L.C.
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
To the Board of Directors
WINCO PETROLEUM CORPORATION
We hereby consent to the use in this Proxy Statement of our report, dated
December 18, 1999, relating to the consolidated financial statements of
Winco Petroleum Corporation. We also consent to the reference to our
Firm under the captions "Independent Accountants," included in the Proxy
Statement, as experts in accounting and auditing.
ALLEN, GIBBS & HOULIK, L.C.
October 16, 2000
Wichita, Kansas
<PAGE>
PROXY PROXY
----- -----
WINCO PETROLEUM CORPORATION
SOLICITED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF THE SHAREHOLDERS TO BE HELD
DECEMBER 1, 2000
The undersigned hereby constitutes and appoints Cecil O'Brate and Daniel Dalke,
the true and lawful attorneys and proxies of the undersigned, with full power
of substitution and appointment, for and in the name, place and stead of the
undersigned, to act for and vote all of the undersigned's shares of the no par
value common stock of Winco Petroleum Corporation, a Colorado corporation at
the Special Meeting of Shareholders to be held at 3118 Cummings, Garden City,
Kansas 67846 at 10:00 a.m. Central Standard Time, on December 1, 2000, and any
and all adjournments thereof, for the following purposes:
A vote FOR the following proposals is recommended by the Board of Diretors:
Proposal 1: To grant the board of directors the authority to effect a
reverse stock split of one (1) for forty (40), whereby each
forty (40) shares currently outstanding no par value common
stock ("Old Winco Shares") of Winco would be combined into
one (1) share of new common stock ("New Winco Shares");
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Proposal 2: To consider and vote upon a proposal to adopt the merger
agreement ("Merger Agreement"), among Winco, Winco Merger
Corporation ("WMC"), Winco Spin-off Corporation ("WSC") and
Business Products, Inc. doing business as Rush Creek
Solutions, Inc. ("RCS"), pursuant to which Winco will transfer
all of the assets, liabilities and other obligations of Winco
to WSC in consideration for shares of common stock of WSC
("WSC Shares"), which shall be distributed to the Winco
shareholders, and theeafter RCS will be merged into WMC.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Proposal 3: To transact such other business as properly may come before the
meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR THE ABOVE.
The undesigned hereby revokes any proxies as to said shares heretofore given by
the undersigned, and ratifies and confirms all that said attorneys and proxies
may lawfully do by virtue hereof.
<PAGE>
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AT THE MEETING IN ACCORDANCE WITH
THE SHAREHOLDER'S SPECIFICATION ABOVE. THIS PROXY CONFERS DISCRETIONARY
AUTHORITY IN RESPECT TO MATTERS NOT KNOWN OR DETERMINED AT THE TIME OF THE
MAILING OF THE NOTICE OF THE SPECIAL MEETING OF SHAREHOLDERS TO THE UNDERSIGNED.
The undersigned hereby acknowledges receipt of
the Notice of Special Meeting of Shareholders
and Proxy Statement.
Dated:______________________, 2000
_____________________________________________
_____________________________________________
_____________________________________________
Signature(s) of Shareholder(s)
Signature(s) should agree with the name(s)
hereon. Executors, administrators, trustees,
guardians and attorneys should indicate when
signing. Attorneys should submit powers of
attorney.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF WINCO PETROLEUM
CORPORATION. PLEASE SIGN AND RETURN THIS PROXY USING THE ENCLOSED ENVELOPE
TO WINCO PETROLEUM CORPORATION, 3118 CUMMINGS, GARDEN CITY, KANSAS 67846. THE
GIVING OF A PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ATTEND
THE MEETING.
