U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the Quarter Ended June 30, 1998 Commission File No. 0-9416
FRANKLIN CONSOLIDATED MINING CO., INC.
(Exact name of registrant as specified in its charter)
Delaware #13-2879202
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
76 Beaver Street, Suite 500, New York, New York 10005
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area code (212) 344-2828
The Number of Shares Outstanding of Common Stock
$.01 Par Value, at June 30, 1998 3,955,173
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports,) and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No ___
Franklin Consolidated Mining Co., Inc.
Form 10-QSB
For Quarter Ended June 30, 1998
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ -- $ 1,078
------------ ------------
TOTAL CURRENT ASSETS -- 1,078
Note receivable, Com Inc. 353,403 --
Mining, milling and other property and equipment,
net of accumulated depreciation and depletion of
$2,022,667 and $1,959,160 4,746,428 5,424,935
Land - held for resale 345,000 345,000
Mining reclamation bonds 132,641 130,681
------------ ------------
$ 5,577,472 $ 5,901,694
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 496,558 $ 367,933
Payroll and other taxes payable 30,720 31,181
Convertible debentures 145,000 145,000
Notes payable - related party and others 250,000 167,000
Note payable - related party 1,054,622 955,756
------------ ------------
TOTAL CURRENT LIABILITIES 1,976,900 1,666,870
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share;
100,000,000 shares authorized; 3,955,173 shares
issued and outstanding 39,552 39,552
Additional paid-in capital 17,299,816 17,299,816
Deficit accumulated during the development stage (13,738,796) (13,104,544)
------------ ------------
3,600,572 4,234,824
------------ ------------
$ 5,577,472 $ 5,901,694
============ ============
</TABLE>
See notes to condensed financial statements.
Franklin Consolidated Mining Co., Inc.
Form 10-QSB
For Quarter Ended June 30, 1998
(1)
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
SIX AND THREE MONTHS ENDED JUNE 30, 1998 AND 1997
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
TO JUNE 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Six Months Three Months
Ended June 30, Ended June 30, Cumulative
---------------------------- ---------------------------- from
1998 1997 1998 1997 Inception
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Sales $ -- $ -- $ -- $ -- $ 876,082
Interest income 5,363 1,952 4,383 1,000 550,138
Other income -- -- -- -- 75,000
------------ ------------ ------------ ------------ ------------
5,363 1,952 4,383 1,000 1,501,220
------------ ------------ ------------ ------------ ------------
EXPENSES:
Mine expenses and environmental
remediation costs 38,491 -- 26,145 -- 3,562,229
Loss/write-down of mining and milling and
other property and equipment 265,000 -- 265,000 -- 1,465,000
Depreciation and depletion 63,507 60,000 33,012 30,000 2,218,016
General and administrative expenses 215,220 245,028 113,726 159,010 5,614,005
Interest expense 57,397 58,285 30,302 20,332 686,570
Amortization of debt issuance expense -- -- -- -- 683,047
Equity in net loss and settlement of claims
of Joint Venture -- 6,541 -- 3,653 591,971
Other -- -- -- -- 419,179
------------ ------------ ------------ ------------ ------------
639,615 369,854 468,185 212,995 15,240,017
------------ ------------ ------------ ------------ ------------
NET LOSS $ (634,252) $ (367,902) $ (463,802) $ (211,995) $(13,738,797)
============ ============ ============ ============ ============
BASIC LOSS PER COMMON SHARE $ (.16) $ (.10) $ (.12) $ (.05)
============ ============ ============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING 3,955,173 3,623,321 3,955,173 3,951,013
============ ============ ============ ============
</TABLE>
See notes to condensed financial statements.
Franklin Consolidated Mining Co., Inc.
Form 10-QSB
For Quarter Ended June 30, 1998
(2)
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
TO JUNE 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
from
1998 1997 Inception
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (634,252) $ (367,902) $(13,738,796)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and depletion 63,507 60,000 2,218,016
Loss/write-down of mining, milling and other
property and equipment 265,000 -- 1,465,000
Amortization of debt issuance expense -- -- 683,047
Value of common stock issued for:
Services and interest -- -- 1,338,714
Settlement of litigation -- -- 100,000
Settlement of claims by joint venture partner -- -- 468,000
Compensation resulting from stock options granted -- -- 311,900
Value of stock options granted for services -- -- 112,500
Equity in net loss of joint venture -- 6,541 123,971
Other -- -- (7,123)
Changes in operating assets and liabilities:
Prepaid expenses -- 53,990 --
Interest accrued on mining reclamation bonds and notes (5,363) (1,952) (11,044)
Accounts payable and accrued expenses 128,165 (137,350) 759,535
------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (182,943) (386,673) (6,176,280)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases and additions to mining, milling and other
property and equipment -- -- (5,120,354)
Purchases of mining reclamation bonds, net -- -- (125,000)
Deferred mine development costs and other expenses -- -- (255,319)
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES -- -- (5,500,673)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuances of common stock -- 50,500 8,758,257
Issuance of underwriter's stock warrants -- -- 100
Commissions on sales of common stock -- -- (381,860)
Purchases of treasury stock -- -- (12,500)
Payments of deferred underwriting costs -- -- (63,814)
Proceeds from exercise of stock options -- -- 306,300
Issuance of convertible debentures and notes -- -- 1,505,000
Proceeds of advances from joint venture partner -- 75,660 526,288
Advances to joint venture partner -- 266,438 (181,017)
Payments of debt issuance expenses -- -- (164,233)
Proceeds of other notes and loans payable 181,865 -- 1,497,139
Repayments of other notes and loans payable -- -- (120,000)
Proceeds of loans from affiliate -- -- 55,954
Repayments of loans from affiliate -- -- (48,661)
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 181,865 392,598 11,676,953
------------ ------------ ------------
</TABLE>
(Continued)
See notes to condensed financial statements.
Franklin Consolidated Mining Co., Inc.
Form 10-QSB
For Quarter Ended June 30, 1998
(3)
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
TO JUNE 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
from
1998 1997 Inception
------------ ------------ ------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH $ (1,078) $ 5,925 $ --
CASH - beginning of period 1,078 127 --
------------ ------------ ------------
CASH - end of period $ -- $ 6,052 $ --
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA:
Interest paid $ 3,889 $ -- $ 303,758
============ ============ ============
</TABLE>
See notes to condensed financial statements.
Franklin Consolidated Mining Co., Inc.
Form 10-QSB
For Quarter Ended June 30, 1998
(4)
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 1 - UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited condensed
financial statements reflect all adjustments, consisting of normal
recurring accruals, necessary to present fairly the financial position
of Franklin Consolidated Mining Co., Inc. (the "Company") as of June
30, 1998, its results of operations for the six and three months ended
June 30, 1998 and 1997 and cash flows for the six months ended June
30, 1998 and 1997. Information included in the condensed balance sheet
as of December 31, 1997 has been derived from the audited balance
sheet in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997 (the "10-KSB") filed with the Securities and
Exchange Commission. Certain terms used herein are defined in the
10-KSB. Accordingly, these unaudited condensed financial statements
should be read in conjunction with the financial statements, notes to
financial statements and the other information in the 10-KSB.
The results of operations for the six and three months ended June 30,
1998 are not necessarily indicative of the results of operations for
the full year ending December 31, 1998.
Prior years financial statements have been reclassified to conform
with the current year presentation.
NOTE 2 - BASIS OF PRESENTATION
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. However, the Company has had
recurring losses and cash flow deficiencies since inception. As at
June 30, 1998, the Company has an accumulated deficit of $13,738,796,
current liabilities of $922,278, and a working capital deficiency of
$922,278. Also, the Company was in default on the payment of the
principal balance and accrued interest on certain notes and
debentures. Certain accounts payable also were past due, and the
Company has possible permit and other violations. In addition to the
payment of its current liabilities, management estimates that the
Company will incur general, administrative, and other costs and
expenditures, exclusive of any costs and expenditures related to any
mining and milling operations, at the rate of approximately $20,000
per month plus interest during 1998. Such matters raise substantial
doubt about the Company's ability to continue as a going concern. The
financial statements do not include any adjustments that may result
from the outcome of the above uncertainty.
U.S. Mining Co. and its affiliates have pledged to provide financing
to the Company on an as needed basis until on or about July 1, 1999.
The funds received from USM and its affiliates will cover the general,
administrative and other costs approximated at $20,000 per month plus
interest. Additional funds will be needed to ready the Franklin Mining
properties for commencement of operations and to support the
extraction and milling processes once underway as well as to upgrade
the processing facilities to allow for an increase in ore processing
capacity.
There can be no assurance that the Company will have adequate funds
available to repay the funds advanced by USM and its affiliates. In
the event that the Company defaults on its obligations, USM may
foreclose on the assets secured by the POS note. Such foreclosure
actions by USM would have a material adverse effect on the future
operations of the Company and the Company's ability to explore the
Franklin Mines.
Substantially all of the $4,746,428 of mineral properties and
equipment included in the accompanying balance sheet as of June 30,
1998, is related to exploration properties. The ultimate realization
of the Company's investment in exploration properties and equipment is
dependent upon the success of future property sales, the existence of
economically recoverable reserves, the ability of the Company to
obtain financing or make other arrangements for development, and upon
future profitable production.
Franklin Consolidated Mining Co., Inc.
Form 10-QSB
For Quarter Ended June 30, 1998
(5)
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 3 - NOTES PAYABLE RELATED PARTY AND OTHERS
Notes payable related party and others consist of the following at
June 30, 1998:
12% unsecured demand note due to the Company's President $103,000
Secured promissory note (a) 60,000
Unsecured promissory notes (b) 87,000
--------
$250,000
========
(a) The outstanding principal balance of the note became payable on
July 18, 1996 and the Company is in default. The note is
guaranteed by certain officers of Gems and is collateralized
through a subordinated security interest in the Company's mining
reclamation bond. Interest on the note is payable based on the
rate of interest applicable to the mining reclamation bond.
(b) This principal amount represents four unsecured promissory notes
comprised of one $36,000 note and three $17,000 notes payable.
These obligations were assumed by the Company on November 25,
1997, as part of the acquisition from USM of the remaining
interest in the Joint Venture. These notes were in default when
assumed by the Company, and remain in default as of June 30,
1998. Interest is being accrued at rates between 8% and 17% per
annum.
Accrued interest on the above notes at June 30, 1998 aggregated
approximately $34,000, including $6,443 payable to the Company's
President.
NOTE 4 - CONVERTIBLE DEBENTURES
The Company's convertible debt at June 30, 1998 consist of:
12.25% convertible debenture originally due 12/31/94 $145,000
As of June 30, 1998, the Company was in default with respect to the
payment of the $145,000 principal balance of the debenture and accrued
interest of approximately $58,000. As a result of its default, the
Company may be subject to legal proceedings by the Transfer
Agent/Trustee under the Indenture Agreement or from debenture holders
seeking immediate repayment of principal plus interest and other
costs. Management cannot assure that there will be funds available for
the required payments or what the effects will be of any actions
brought by or on behalf of the debenture holders.
NOTE 5 - NOTE PAYABLE - RELATED PARTY
The Company had outstanding a 8% promissory note balance of
$1,054,622, at June 30, 1998, which represents monies advanced to the
Company by POS Financial, Inc. ("POS"), and U.S. Mining, Inc. ("USM")
and obligations assumed in connection with the contributions of Joint
Venture interests in 1997. The note was payable on May 4, 1998, and is
secured by all the Company's mining claims and mining properties, as
well as its interests in the Hayden/Kennec Leases. The note is subject
to successive 30 day extensions throughout 1998 upon the mutual
agreement of the maker and lender for no additional consideration. On
March 5, 1998, POS assigned this note to USM. Both POS and USM are
considered related parties because they can exert significant
influence over the Company. Accrued interest at June 30, 1998 was
approximately $47,000.
Franklin Consolidated Mining Co., Inc.
Form 10-QSB
For Quarter Ended June 30, 1998
(6)
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 6 - STOCKHOLDERS' EQUITY
On May 26, 1998, the Company effected a twenty-five for one reverse
stock split. The accompanying financial statements give retroactive
effect to the reverse stock split.
NOTE 7 - SALE OF GOLD HILL MILL PROPERTIES
On June 5, 1998, the Company sold its Gold Hill Mill Properties for
property and equipment having a fair market value of $725,000 and a
14% note receivable of $350,000. The note is payable on demand. The
Company recognized a loss of $265,000 as a result of this transaction.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Lease Agreements
The original Hayden/Kennec Leases provided for payment by the Company
of certain liabilities relating to the leased property and a minimum
royalty payment of $2,000 per month or 5% of the Company's net smelter
royalties realized from production, whichever is greater to Mrs.
Hayden and Mrs. Kennec. The original Hayden/Kennec Leases expired in
November 1996, at which time the Company had the option to purchase
the leasehold rights for a purchase price of $1,250,000 less any
royalties previously paid as of the expiration date. As of November
1996, the Company had paid approximately $480,000 in royalties.
On November 19, 1996, the Company entered into an amendment to the
Hayden/Kennec Leases with Dorothy Kennec (the "Kennec Amendment").
Pursuant to the terms of the Kennec Amendment, Kennec agreed to extend
the term as it relates to her portion of the leasehold rights through
November 12, 1997. In consideration for such extension, the Company
agreed to increase the royalty payment due to Kennec under the
original Hayden/Kennec Leases from $1,000 to $2,000 per month and to
issue to Kennec 104,000 shares of the common stock of the Company
valued at $.125 per share, having an aggregate value of $13,000. All
of the payments made under the Kennec Amendment plus the value of the
shares issued thereunder are to be further applied against the buy-out
price of the property under the original Hayden/Kennec Leases. The
104,000 shares of common stock were issued on April 9, 1997.
To further secure the Company and the Joint Venture, Gems entered into
an agreement on December 21, 1995 to purchase Hayden's interest
thereto (the "Hayden Interests") for a purchase price of $75,000. Gems
made an initial payment of $5,000 to Hayden and the remainder of the
purchase price was to be paid on or prior to the expiration date of
the Hayden/Kennec Leases. Gems advised the Company that under Colorado
law, if an owner of 50% of mineral rights desired to exploit those
rights, then the remaining 50% owner could not object to the
exploitation of the rights, provided the non-participating owner
received 50% of the net profits generated from such exploitation.
Therefore, Gems informed the Company that it believed that with the
acquisition of the Hayden interest, together with the portion of the
Hayden/Kennec Leases owned by Kennec, the Company and the Joint
Venture would have adequate access to the minerals during the
remainder of the term of the Hayden/Kennec Leases on a continuing
basis.
On November 12, 1997, Gems had failed to comply with the terms of the
Hayden/Kennec-Gems Purchase Agreement. On November 13, 1997, Hayden
entered into an agreement to sell the Hayden interests to USM for a
purchase price of $75,000 (the "Hayden-USM Purchase Agreement"). The
purchase price is evidenced by a note, due on February 2, 1998.
Payment on the note has been extended until USM receives a report of
clear title. Upon the execution of the Hayden-USM Purchase Agreement,
USM agreed to extend the Hayden/Kennec Leases upon the same terms and
conditions currently in effect through March 13, 1998 (the "Extended
Expiration Date"). The Company is currently in negotiations to extend
these interests, however, there can be no assurance that an extension
will be granted or that the Company will not be subject to litigation
with respect to the Hayden Kennec Leases..
Franklin Consolidated Mining Co., Inc.
Form 10-QSB
For Quarter Ended June 30, 1998
(7)
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 8 - COMMITMENTS AND CONTINGENCIES (Continued)
While the Company has extended the term of the Hayden/Kennec Leases,
as amended through March 13, 1998, in the event that it shall expire
or otherwise terminate, any improvements made on the property become
the property of the lessor without any further compensation to the
Company and the lessor would have to reclaim the property in
accordance with the State of Colorado Division of Minerals and Geology
(the "DMG") requirements in effect at the time of such expiration or
termination. Thus, the likelihood that the Company would recover
fixtures and other equipment on the property may be minimal.
Environmental Matters
On January 31, 1997, the Company received approval from the DMG of its
March 6, 1996 amended application to its permit by obtaining the
$252,000 bond required by the DMG from an independent bonding company
in exchange for (i) the deposit by the Company of $125,000 in a trust
account maintained for the benefit of the bonding company, (ii)
guarantees from the Joint Venture partner and certain of its
principals and (iii) the posting of a performance bond from an
independent bonding company by one of the Joint Venture's contractors
with respect to the completion of the technical and remediation work
required by the regulatory authorities. As a result, management
believes that substantially all of the necessary environmental and
regulatory approvals have been obtained from DMG.
The amended permit required among other things the submission of a
final design for tailings disposal facilities, the installation of a
Surface Water Control Plan previously approved by the DMG, the filing
of an Environmental Protection Plan, and the completion of certain
closure plans.
As of June 30, 1998, the Company has no formal violations against it
with respect to the Franklin Mines and Franklin Mill. However, there
can be no assurance that the Company will be able to adequately comply
with the conditions set forth in its permit approval or that future
violations will not arise and that such violations will not lead to
interruptions in operations at the Franklin Mines or Franklin Mill.
Litigation
The Company is involved in various litigation as explained below:
(a) The Company and others are defendants in the action related to a
dispute over fees for engineering consulting services supplied in
the amount of approximately $268,000. The Court has remanded the
case to arbitration. The defendants plan to vigorously defend
their position asserting that the work was never completed. An
accrued liability of $35,000 which the Company estimates to be
its portion of the total claim has been recorded in the
accompanying financial statements.
(b) In September 1997, certain of the Company's 12.25% Convertible
Debenture holders instituted an action against the Company for
payment of approximately $42,500 principal amount of its 12.25%
Convertible Debentures plus accrued and unpaid interest totaling
approximately $13,000 and other costs and expenses related
thereto. The Company has answered the aforesaid complaint.
(c) In May, 1998, a broker/dealer engaged to provide investment
banking services to the Company instituted an action against the
Company for, among other things, breach of contract, fraudulent
inducement and unjust enrichment plaintiff broker/dealer is
claiming damages of not less than $600,000 plus punitive damages,
interest, costs and disbursements. The Company has answered the
complaint and has asserted counterclaims against plaintiff
claiming damages of approximately $6,000,000.
An unfavorable resolution of these matters could result in
material liabilities or charges that have not been reflected in
the accompanying financial statements.
Franklin Consolidated Mining Co., Inc.
Form 10-QSB
For Quarter Ended June 30, 1998
(8)
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 8 - COMMITMENTS AND CONTINGENCIES (Continued)
NASDAQ Notification
In 1996, the Securities and Exchange Commission approved certain
amendments to the listing requirements for continued listing on the
NASDAQ Small-Cap Market. On February 27, 1998, subsequent to the
balance sheet date, the Company received a notification letter from
NASDAQ informing the Company that as of that date, the Company's
common stock is not in compliance with the new minimum bid price
requirement of $1.00 which became effective on February 23, 1998. The
review of the Company's common stock price was based upon the price
data covering the previous 30 consecutive trade dates. The Company has
been given 90 calendar days, expiring May 28, 1998, in order to regain
compliance. The Company would be able to regain compliance if its
common stock trades at or above the minimum requirement of $1.00 for
at least 10 consecutive trade days. In the event that the Company's
common stock does not regain compliance within the 90 day period,
NASDAQ has advised the Company that it will issue a delisting letter
which will identify the review procedures available to the Company.
On June 16, 1998, NASDAQ found the Company to be in compliance with
the bid price requirements and all requirements necessary for
continued listing on The NASDAQ Small Cap Market.
Given past trends, it is possible that Company's common stock may not
sustain a minimum bid price of $1.00 in the future. In this event, the
Company's Common Stock may be delisted and no longer trade on the
NASDAQ Small Cap Market. However, management believes that should this
occur, the Company's common stock will qualify for trading on the
Over-The-Counter/Bulletin Board ("OTC") market and the Company will
make every effort to include its common stock on the OTC in the event
of a delisting by NASDAQ.
The Company is unable to determine the effect, if any, a delisting by
NASDAQ would have on the Company's ability to obtain additional equity
or debt financing.
Franklin Consolidated Mining Co., Inc.
Form 10-QSB
For Quarter Ended June 30, 1998
(9)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Liquidity and Capital Resources
The Company had no active mining or milling operations during the first quarter
of 1998, however, remediation work was substantially completed at the Franklin
Mine and Mill in preparation for the anticipated commencement of mining
operations sometime during the third quarter of this year.
Management estimates that the Company will incur general, administrative and
other costs and expenditures, exclusive of any costs and expenditures related to
any mining and milling operations and interest, at the rate of approximately
$20,000 per month for the remainder of 1998.
U.S. Mining Co. and its affiliates have pledged to provide financing to the
Company on an as needed basis until on or about July 1, 1999. The funds received
from USM and its affiliates were used to cover general, administrative and other
costs of the Company. Additional funds will be needed to ready the Franklin Mine
and Milling properties for the commencement of operations and to support the
extraction and milling processes once underway as well as to upgrade the
processing facilities to allow for an increase in ore processing capacity.
There can be no assurance that the Company will have adequate funds available to
repay the funds advanced by USM and its affiliates. In the event that the
Company defaults on its obligations, USM may foreclose on the assets secured by
the POS Note. Such foreclosure actions by USM would have a material adverse
effect on the future operations of the Company and the Company's ability to
explore the Franklin Mines.
In June 1998, the Company sold the Gold Hill Mill for property and equipment
having a fair market value of $725,000 and a 14% note receivable of $350,000.
While the Company incurred a $265,000 loss on the sale, management believes that
the Gold Hill Mill had little prospect of becoming a viable asset due to the
adverse regulatory climate in Boulder, Colorado. Other factors considered in the
decision to dispose of the property included, on going costs of insuring the
property, tax burdens, regulatory compliance costs and a lien on the property
for $350,000 resulting from an obligation of the prior owners which was in
default. All of these factors posed significant burdens on the Company's
resources. Thus, management believes that it was in the best interest of the
Company to dispose of the Gold Hill property and concentrate its efforts on the
Franklin properties.
Results of Operations:
June 30, 1998 and 1997
The Company had no active mining or milling operations during the six months
ended June 30, 1998 and 1997.
The Company had a net loss of $634,252 and $463,802 for the six and three months
ended June 30, 1998, respectively as compared to a net loss of $367,902 and
$212,995 during the same periods in 1997. The loss in 1997 was higher due to a
$265,000 loss on sale of the Gold Hill Mill Properties in 1998.
General and administrative expenses were $215,220 and $113,726 for the six and
three months ended June 30, 1998 compared with $245,028 and $159,010 during the
same periods in 1997. This decrease was due to cost controls implemented in
connection with corporate overhead and SEC reporting and compliance.
Interest income was $5,363 and $4,383 for the six and three months ended June
30, 1998 compared with $1,952 and $1,000 during the same periods in 1997.
Interest expense was $57,397 and $30,302 during the six and three month periods
ended June 30, 1998 as compared to $58,285 and $20,332 during the same periods
in 1997. These changes were due to interest incurred on notes in connection with
the Gold Hill Mill and Newmineco acquisitions payable to related parties in 1997
but not during 1998 offset by an increase in notes payable to related parties
during 1998.
Franklin Consolidated Mining Co., Inc.
Form 10-QSB
For Quarter Ended June 30, 1998
(10)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Continued)
June 30, 1997 and 1996
The Company had a net loss of $211,995 for the three months ended June 30, 1997
as compared to a net loss of $86,571 during the same period in 1996. This
increase was primarily attributable to an increase in general and administrative
expenses approximately $115,000.
General and administrative expenses were $159,010 for the quarter ended June 30,
1997 compared with $43,555 during the same period in 1996. Interest expense was
$20,332 during the 1997 second quarter as compared to $11,317 in the same 1996
quarter. The increase on general and administrative expenses was due to an
increase in professional fees and investment banking fees.
The Company had a net loss of $367,902 for the six months ended June 30, 1997 as
compared to a net loss of $370,992 during the same period in 1996. This net
decrease was primarily attributable to an increase in interest expense of
approximately $28,000 and a decrease in general and administrative expenses
approximating $32,000.
General and administrative expenses were $245,028 for the six months ended June
30, 1997 compared with $277,540 during the same period in 1996. Interest expense
was $58,285 during the six months ended June 30, 1997 as compared to $30,758
during the same period in 1996. Interest expense increased due to interest
incurred on notes in connection with the Gold Hill Mill Newmineco acquisitions.
Franklin Consolidated Mining Co., Inc.
Form 10-QSB
For Quarter Ended June 30, 1998
(11)
<PAGE>
PART II
Item 1. Legal Proceedings
Convertible Debentures
On June 1, 1994, the Company advised the Transfer Agent/Trustee that
the Company was not in compliance with certain of the terms of the
indenture (the "Indenture") relating to the Company's 12-1/4%
Convertible Debentures (the "Debentures") in that it had not
maintained current filings with the Securities and Exchange Commission
(the "Commission") as required. Accordingly, the Transfer
Agent/Trustee was instructed not to convert any of the Debentures into
Common Stock of the Company until such time as the Company notified
the Transfer Agent. The Company failed to make required sinking fund
payments in 1994 and was unable to pay the principal balance of the
Debentures due on December 31, 1994 resulting in a default under the
terms of the Indenture.
Although the Company was in default, it agreed to continue to make
quarterly interest payments to the Debenture Holders during fiscal
year 1995 until such time as the principal amount of the Debentures
could be paid in full. It was anticipated that the Company would have
the funds available to make such payments by December 31, 1995. The
Company made the first quarterly interest payment due on the
Debentures in 1995 but has failed to make any additional payments with
respect to such interest as of the date hereof.
In December 1995, the Company sent notices to the debenture holders
requesting their consent to extend the maturity date of the Debentures
to December 31, 1996. It was also contemplated that the conversion
rights of such holders would also be extended at its current rate of
$.50 per share. The Company also agreed that it would bring current
all interest payments due and owing to such holders through December
31, 1995, prepay interest which will become due and owing at the end
of the first quarter of 1996 and set up a fund with the Transfer
Agent/Trustee to secure the timely payment of the principal amount of
the Debentures on December 31, 1996. The Company set February 15, 1996
as the date upon which all Debenture Holders had to submit their
consent forms to the Company indicating whether they agreed to extend
the maturity date as to their bonds or reject such proposal. Any
holder which failed to return a consent form within the prescribed
time was to be treated as having consented to the extension. As of the
February 15, 1996, the Company received a negative response from one
holder owning $1,000 principal amount of Debentures.
While the Company intended to comply with the terms of its agreements
with the holders of the Debentures, a series of unforeseen
circumstances relating to the Company's permits and reclamation bond
caused a cash flow shortage. As a result the Company has been unable
to make the payments described above. Management is hopeful that the
Company's limited cash flow will improve in the near future and at
such time intends to comply with the terms of its December 1995
agreements. As of June 30, 1998, the accrued and unpaid interest on
the Debentures is approximately $53,000.
On January 17, 1997, the Company received a letter from counsel to
James E. Hopis, Revocable Trust, a holder of $5000 of Debentures of
the Company demanding payment of such bond immediately or legal action
will be taken against the Company to collect on such Debenture. In
September, 1997, certain of the Company's 12-1/4% Convertible
Debenture holders, including the Hopis Trust (the "Plaintiff Debenture
holders") instituted an action in the Supreme Court of the State of
New York against the Company for payment on approximately $42,500
principal amount of Debentures plus accrued and unpaid interest
totaling approximately $13,000 and other costs and expenses related
thereto. The Company has answered the aforesaid complaint.
Thereafter, the Plaintiff Debenture holders moved for summary judgment
against the Company. The Company chose not to oppose the motion and a
default judgment was entered against the Company in the amount of
$42,500 plus interest, costs and disbursements (the "Judgment").
Moreover, the issue of attorney's fees were severed from the case and
all to be set down for an inquest.
Franklin Consolidated Mining Co., Inc.
Form 10-QSB
For Quarter Ended June 30, 1998
(12)
<PAGE>
Item 1. Legal Proceedings (Continued)
In February, 1998, USM entered into an agreement with the Plaintiff
Debenture holders agreeing to pay the Judgement plus certain
additional costs in the event that the Company fails to pay the
Judgment and USM consummates the Transaction with the Company. In the
event that USM does not consummate the Transaction by July 12, 1998,
USM agreed to pay the Plaintiff Debenture holders $5,100 for their
agreement not to enter the Judgment against the Company or pursue the
inquest. Plaintiff Debenture holders have agreed not to enter the
Judgment against the Company until July 12, 1998 or until USM notifies
them that it will not pursue the Transaction. The termination date of
the USM Agreement has been further extended to year end 1998.
As of the date hereof, the Company is not aware of any termination or
modification of the Agreement and believes it is in full force and
effect. However, there can be no assurance that USM will not terminate
this Agreement or that the Agreement will expire; the result of which
will be the entering of the Judgement against the Company and a
possible inquest as to the Company's liability regarding attorney's
fees.
The continued default and failure to comply with the 1994 and December
1995 agreements may result in Company being subject to additional
legal proceedings by the Transfer Agent/Trustee under the Indenture or
from other holders seeking immediate payment of the $102,500 plus
related interest and penalties. While the Company hopes to cure the
default or, in the alternative, reach an acceptable settlement
arrangement with the holders, there can be no assurance that the funds
will be available in the future to meet all of the Company's
obligations. Management remains hopeful that payment or, in the
alternative, commencement of settlement negotiations, will delay the
commencement of any legal action until the Company can make the
appropriate arrangements to repay the Debenture holders.
Golder Litigation
On or about February 5, 1996, Bradley, Campbell, Carney & Madsen,
P.C., Colorado counsel to the Company, Gems, Zeus and Newmineco
("BCCM") entered into a contract with Golder Associates, Inc.
("Golder"), pursuant to which Golder agreed to perform certain
services at the Mogul Mine pertaining to environmental issues,
including, but not limited to, (a) reviewing surface and groundwater
quality and compliance standards, (b) reviewing 110 permitting
requirements, applications and responses, (c) reviewing certain
environmental plans relating to the Mogul Mine and (d) assessing water
discharge requirements and dispensing advice with respect to water
discharge and surface spring outflow management and mitigation of poor
drainage quality (the "Mogul Tunnel Contract"). At the time of the
Mogul Tunnel Contract, BCCM allegedly entered into said contract as an
agent of Durango, the lessee of the Mogul Mine at that time.
On or about February 5, 1996, BCCM entered into a second contract with
Golder, pursuant to which Golder agreed to perform certain services at
the Franklin Mines and Franklin Mill pertaining to environmental
issues, including, but not limited to, (a) phase 1 site assessment,
(b) preliminary regulatory and permit review, (c) engineering site
inspections, (d) designs for surface water management at the ore
handling facility, (e) technical memorandum on alternatives for the
extension of #5 tailings pond, (f) assistance in negotiation with the
DMG and (g) recommendations for bulk ore sampling and mineralogical
testing at the Franklin Mines (the "Franklin Mine Contract"). At the
time of the Franklin Mines Contract, BCCM allegedly entered into said
contract as an agent of the Zeus Joint Venture.
On or about August 23, 1996, Gems executed a note to Golder in the
aggregate principal amount of $268,683.75 and a note to BCCM in the
aggregate principal amount of $109,785.35 to secure legal and
engineering fees outstanding as of such date. Each note was due and
payable on or before December 23, 1996 and bears interest at a rate of
6% per annum. In the event that the payments of principal and interest
under the notes were not paid when due, all principal and interest
will accrue additional interest at a rate of 10% per annum. The notes
were secured by a pledge of approximately 3,600,000 shares of Common
Stock of the Company owned by Gems, pursuant to a Security Agreement,
dated August 23, 1996. Any default under the notes constituted an
event of default under the Security Agreement. Gems failed to make the
required payments as of December 23, 1996.
Franklin Consolidated Mining Co., Inc.
Form 10-QSB
For Quarter Ended June 30, 1998
(13)
<PAGE>
Item 1. Legal Proceedings (Continued)
On or about January 28, 1997, Golder commenced an action against BCCM,
Zeus, the Company, Gems, Island, and Durango in the United States
District Court of the District of Colorado to recover sums due and
owing from the Defendants for breach of contract, breach of implied
warranty, misrepresentation, negligent misrepresentation, default
under the Golder note and quantum merit arising out of each of the
Mogul Tunnel Contract and the Franklin Mine Contract. The Company is a
named defendant to this litigation by virtue of its general
partnership interest in Zeus, it being joint and severally liable with
Gems and Nuco as general partners in the Joint Venture.
The aggregate amount of the Golder claims are approximately
$281,670.99 plus prejudgment and post judgment interest, costs and
expenses (including attorney's fees) and any additional relief granted
by the court, $124,159.87, exclusive of interest and other costs and
expenses, of which is attributable to the Mogul Tunnel Contract and
$157,511.12, exclusive of interest and other costs and expenses, of
which is attributable to the Franklin Mines Contract.
On or about March 12, 1997, BCCM filed a motion to dismiss counts III,
IV, and V of the Complaint relating to the breach of warranty,
misrepresentation and negligent misrepresentation arguing that these
claims were pled in the alternative and only become viable in the
event other defendants in the case deny BCCM authority to enter into
the subject contracts. Also on March 12, 1996, Zeus, the Company,
Island and Gems moved to dismiss or stay proceedings pending
arbitration arguing that arbitration clauses in the subject contract
require the captioned action to be submitted to arbitration. However,
Durango filed a separate answer to the Complaint denying that BCCM had
any authority to enter into any contract on behalf of Durango and
denying that Durango ratified any exercise of such authority.
Therefore, on or about March 27, 1997, Golder moved to file an amended
complaint to clarify its position that the claims against Durango are
also asserted against the Franklin Defendants. The Company has not
received a copy of such complaint to date. Notwithstanding, the
parties, on April 4, 1997, executed a stipulation agreeing to
arbitration on all issues concerning the subject contracts but
excluding issues relating to the note and security agreement.
The Company is currently engaged in settlement negotiations with the
parties in hopes of resolving this dispute and has an agreement in
principal with all of the parties. However, there can be no assurance
that final settlement agreements will be executed or that the Company
will be successful should this matter proceed to arbitration. The
Company estimates that its portion of the liability in this matter is
approximately $35,000 in the event that the settlement should be
consummated.
Environmental Matters
As of the date hereof, the Company has no violations against it with
respect to the Franklin Mines and Franklin Mill. While there are no
outstanding violations against the Company at this time, there can be
no assurance that the Company will be able to adequately comply with
the conditions set forth in its permit approval or that future
violations will not arise and that such violations will not lead to
interruptions in operations at the Franklin Mines or Franklin Mill. .
Durango Litigation
On or about February 1, 1996, Newmineco, Island, Gems and Zeus entered
into a series of Transactions with Durango, Thames Hartley, the
president of Durango ("Hartley") and J. Wayne Tatman ("Tatman"), an
agent of Durango and Hartley and president of Consolidated Milling,
Inc. ("Consolidated Milling") to develop certain mining properties,
including the Mogul Mines. On or about March 1996, Island acquired the
Rugg/Mogul Lease through a Novation Agreement. The Rugg/Mogul Lease
was then renegotiated and assigned to Newmineco. Thereafter, Island
and Gems notified the Company that Tatman, Hartley and Durango and
certain other parties to the Newmineco venture breached their
agreements and as a result, Island terminated certain venture
agreements involving these persons. Island thereafter assigned its
interest in Newmineco to Gems.
Franklin Consolidated Mining Co., Inc.
Form 10-QSB
For Quarter Ended June 30, 1998
(14)
<PAGE>
Item 1. Legal Proceedings (Continued)
In June, 1996, Durango and/or Hartley served a series of Notices of
Intent to Lien properties owned or leased by each of Gems, Island and
the Company, including the Gold Hill Mill. Thereafter, on or about
October 15, 1996, James A. Wood and David C. Sutton, each the owner of
claims located on the properties comprising the Mogul Mines (the
"Delaware Claims" and the "Bonanza Claims", respectively) and Durango,
as the proported lessee of such claims, commenced an action in
District Court, Boulder County, Colorado, against the Ruggs, Island,
Newmineco, the Company and any other unknown parties of interest to
quiet title to each of the Delaware Claim and Bonanza Claims
(hereinafter the "Disputed Claims"). The complaint further alleges
that the defendants have removed ore mined from the Disputed Claims
and that, as a result of trespass and conversion of certain equipment
of Plaintiff Durango, plaintiffs have been further damaged in the
amount of approximately $800,000. In addition to the actions for quiet
title and for the adjudication of the ownership of the disputed
Claims, Plaintiffs requisite damages for conversion of Plaintiff
Durango's equipment, seeks a full accounting of the ore removed from
the premises and request all other damages, costs and expenses,
including attorney's fees incurred with respect to this dispute.
The Company, as well as its co-defendants, retained local Colorado
counsel and intend to rigorously defend this action while there are
motions pending regarding the sufficiency of the defendant's
pleadings, no decision has been made regarding such motions and no
trial has yet been scheduled. In addition, on or about October 30,
1996, each of Com, Inc., the previous owner of the Gold Hill Mill,
Gems, Island, the Company, Hayden and Kennec commenced an action
against each of Durango, Hartley, Consolidated Milling and Tatman in
District Court, Boulder Country, Colorado relating to the Company's
properties in Boulder County claiming, among other things, that (i)
all liens be removed from the public record, (ii) damages were
incurred for the filing of excessive liens, together with costs and
expenses, including reasonable attorney's fees incurred in connection
therewith, (iii) breach of contract with respect to the Newmineco
venture agreement, (iv) damages incurred for loss of business
opportunities and interference with plaintiff's contractual
relationships and (v) defendants slandered plaintiffs title to
property causing them damages. A similar complaint was also filed in
Clear Creek County with respect to liens filed against the Company's
properties in Clear Creek County. No counterclaims have been asserted
against any of the Plaintiffs. As a result of recent motions filed on
behalf of the Company in the Boulder County action, an order was
entered by the Court in 1997, to discharge all liens filed against the
Company's properties. The Company has been advised that the Court is
expected to enter this order shortly and such order will thereafter be
recorded to remove the subject liens. The Clear Creek County Court has
executed an order removing the liens against the Company's Clear Creek
County properties and the Company has been advised by local counsel
that such order is being filed with the Clear Creek County to remove
the liens from the record. Issues concerning damages suffered and
defendants liability with respect thereto in each of the actions are
to litigated. No trial dates have been set at this time.
NASDAQ Delisting
In 1996, the Commission approved certain amendments to the
requirements for continued listing on the NASDAQ Small-Cap Market. On
February 27, 1998, the Company received a notification letter from
NASDAQ informing the Company that the Company's Common Stock was not
in compliance with the new minimum bid price requirement of $1.00
which became effective on February 23, 1998. On June 5, 1998, after
effectuating a reverse split of the Company's common stock, NASDAQ
found the Company to be in compliance with the bid price requirement
and all other requirements necessary for continued listing on NASDAQ.
Franklin Consolidated Mining Co., Inc.
Form 10-QSB
For Quarter Ended June 30, 1998
(15)
<PAGE>
Item 1. Legal Proceedings (Continued)
Management believes that it is possible, given past trends, that the
Company's Common Stock may not sustain trading at minimum bid price of
$1.00 or more in the future. In that event, Company's Common Stock
will be delisted and will no longer be traded on the NASDAQ Small Cap
Market. However, Management is hopeful that in the event of delisting,
the Company's Common Stock will qualify for trading on the
Over-The-Counter/Bulletin Board ("OTC") market and the Company will
make every effort to include its Common Stock on the OTC in the likely
event of a delisting by NASDAQ.
In the event that the Company's Common Stock is traded on the OTC, it
may become subject to the "penny stock" trading rules. The penny stock
trading rules impose additional duties and responsibilities upon
broker-dealers recommends the purchase of a penny stock (by a
purchaser that is not an accredited investor as defined by Rule 501(a)
promulgated by the Commission under the Securities Act) or the sale of
a penny stock. Among such duties and responsibilities, with respect to
a purchaser who has not previously had an established account with the
broker-dealer, the broker-dealer is required to (i) obtain information
concerning the purchaser's financial situation, investment experience,
and investment objectives, (ii) make a reasonable determination that
transactions in the penny stock are suitable for the purchaser and the
purchaser (or his independent adviser in such transactions) has
sufficient knowledge and experience in financial matters and may be
reasonably capable of evaluating the risks of such transactions,
followed by receipt of a manually signed written statement which sets
forth the basis for such determination and which informs the purchaser
that its unlawful to effectuate a transaction in the penny stock
without first obtaining a written agreement to the transaction.
Furthermore, until the purchaser becomes an established customer
(i.e., having had an account with the dealer for at least one year or,
the dealer had effected three sales or more of penny stocks on three
or more different days involving three or more different issuers), the
broker-dealer must obtain from the purchaser a written agreement to
purchase the penny stock which sets forth the identity and number of
shares of units of the security to be purchased prior to confirmation
of the purchase. A dealer is obligated to provide certain information
disclosures to the purchaser of penny stock, including (i) a generic
risk disclosure document which is required to be delivered to the
purchaser before the initial transaction in a penny stock, (ii) a
transaction-related disclosure prior to effecting a transaction in the
penny stock (i.e., confirmation of the transaction) containing bid and
asked information related to the penny stock and the dealer's and
salesperson's compensation (i.e., commissions, commission equivalents,
markups and markdowns) connection with the transaction, and (iii) the
purchaser-customer must be furnished account statements, generally on
a monthly basis, which include prescribed information relating to
market and price information concerning the penny stocks held in the
customer's account. The penny stock trading rules do not apply to
those transactions in which the broker-dealer or salesperson does not
make any purchase or sale recommendation to the purchaser or seller of
the penny stock.
Required compliance with the penny stock trading rules affect or will
affect the ability to resell the Common Stock by a holder principally
because of the additional duties and responsibilities imposed upon the
broker-dealers and salespersons recommending and effecting sale and
purchase transactions in such securities. In addition, many
broker-dealers will not effect transactions in penny stocks, except on
an unsolicited basis, in order to avoid compliance with the penny
stock trading rules. The penny stock trading rules consequently may
materially limit or restrict the liquidity typically associated with
other publicly traded equity securities. In this connection, the
holder of Common Stock may be unable to obtain on resale the quoted
bid price because a dealer or group of dealers may control the market
in such securities and may set prices that are not based on
competitive forces. Furthermore, at times there may be a lack of bid
quotes which may mean that the market among dealers is not active, in
which case a holder of Common Stock may be unable to sell such
securities. Because market quotations in the over-the-counter market
are often subjected to negotiation among dealers and often differ from
the price at which transactions in securities are effected, the bid
and asked quotations of the Common Stock may not be reliable.
Redstone Litigation
On or about May 14, 1998, Redstone Securities Inc. ("Redstone")
commenced an action against the Company in the Supreme Court of the
State of New York, County of Nassau, Index No. 98-013668, claiming ,
among other things, breach of contract, fraudulent inducement and
unjust enrichment in connection with an Investment Banking Agreement,
dated August 28, 1996, between Redstone and the Company. The complaint
requests relief in the amounts of not less than $600,000 plus punitive
damages, costs, interest and other expenses. On or about July 31,
1998, the Company answered the complaint and filed a cross complaint
against Redstone alleging, among other things, abuse of process,
fraud, breach of fiduciary duty, breach of contract and interference
with prospective financial advantage. The Company believes that it
sustained damages of approximately $6,000,000 plus costs and expenses.
The Company intends to vigorously defend this suit and aggressively
pursue its claims against Redstone.
Franklin Consolidated Mining Co., Inc.
Form 10-QSB
For Quarter Ended June 30, 1998
(16)
<PAGE>
Item 2. Changes in Securities
On May 5, 1998, the Company withdrew Registration Statement on From SB-2, File
No.333-29101, which was originally filed June 10, 1997. The Company took this
action as all selling shareholders became eligible to sell their shares pursuant
to Rule 144. In addition, the Company effected a twenty-five for one reverse
stock split of its Common Stock on June 1998.
Item 3. Defaults Upon Senior Securities
As of June 30, 1998, the Company continues to be in default with respect to the
payment of $145,000 principal amount of its 12-1/4 Convertible Debentures (the
"Debentures"), which have accrued and unpaid interest thereon as of June 30,
1998 in the amount of approximately $58,000.
While it remains the intention of the Company to pay its outstanding obligations
with respect to the Debentures, the Company has been unable to meet its
obligations to such holders as a result of unforeseen liquidity and cash flow
shortages. As a result of its continued default, the Company may be subject to
legal proceedings by or on behalf of debenture holders seeking payment of
principal and all interest as well as any penalties and other legal remedies the
holders may claim they are entitled to receive under the law. There can be no
assurance that the Company will have adequate funds available to make the
payments required under the December 1995 Agreements or that the commencement of
legal proceedings will not have a material adverse effect on the Company.
Item 4. Submission of Matters to a Vote of Security Holder
On May 21, 1998, the Company held a special meeting of stockholders to consider
a proposal to amend the Company's Certificate of Incorporation to reverse split
the Company's outstanding shares of Common Stock in a one-for-twenty-five basis.
The measure was approved by a vote of the majority of shareholders represented
at the meeting in person or by proxy.
Item 5. Other Information
On or about August 3, 1998, the Company entered into agreements with each of USM
(the "USM Agreement") and William Martucci (the "POS Agreement"). Pursuant to
the USM Agreement, USM agreed to forgive the indebtedness of the Company
evidenced by the POS Note; release the security interests in the collateral of
the Company securing the POS Note and assign its rights to the Hayden-USM
Purchase Agreement in exchange for 11,197,413 shares of 42.5% of the issued and
outstanding shares of the Company.
Under the terms of the POS Agreement, Martucci agreed to sell to the Company
100% of the outstanding shares of POS in exchange for 11,197,413 shares or 42.5%
of the issued and outstanding shares of the Company. The primary business of POS
is the ownership and operation of free standing ATM Kiosks located in a broad
base of retail outlets. The Company intends to seek stockholder's approval of
these transactions at its Annual Meeting of Stockholders to be held this fall.
In the event that the stockholders shall approve the transactions contemplated
by each of the USM Agreement and POS Agreement, Martucci and/or entities owned
and/or controlled by Martucci will beneficially own 85% of the issued and
outstanding shares of the Company.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Stock Purchase Agreement dated August 3, 1998, by and between US
and the Company Stock Purchase Agreement dated August 3, 1998 by
and among POS, William Martucci and Company
B. Reports on Form 8-K
(a) Report on Form 8-K dated April 8, 1998 under file 0-9416.
Franklin Consolidated Mining Co., Inc.
Form 10-QSB
For Quarter Ended June 30, 1998
(17)
<PAGE>
SIGNATURE
In accordance with the requirements of the Securities and Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FRANKLIN CONSOLIDATED MINING CO, INC.
/s/ Robert Walligunda
Date: August 11, 1998 -----------------------------------------
Robert Walligunda, Secretary/Treasurer
Franklin Consolidated Mining Co., Inc.
Form 10-QSB
For Quarter Ended June 30, 1998
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is dated this 3rd day of
August, 1998 and is by and between Franklin Consolidated Mining Co., Inc., a
Delaware Corporation ("Franklin") and U.S. Mining Co., Inc. a New Jersey
corporation ("USM")
RECITALS
WHEREAS, USM is the holder of a certain Promissory Note, dated March 5,
1998 (the "Note"), executed by Franklin in the principal amount of Nine Hundred
Fifty Five Thousand Seven Hundred and Fifty Six Dollars and Twenty Two Cents
($955,756.22) which is secured by certain assets of Franklin (the "Secured
Assets"); and
WHEREAS, USM is the holder of 1/2 interest in certain mining properties
located in Idaho Springs, Colorado (the "Mining Property"); and
WHEREAS, the parties hereto desire to satisfy the principal amount of the
Note, together with all interest accrued thereon (the "Indebtedness") and sell
to Franklin the mining property in exchange for the issuance of Common Stock,
par value $.01 per share (the "Common Stock") of Franklin to USM upon the terms
and subject to the conditions set forth herein.
NOW THEREFORE, in consideration of the mutual agreements and covenants
hereinafter set forth, and for other good and valuable consideration, the
parties hereto agree as follows:
ARTICLE 1
1.1 Terms of the Exchange; Forgiveness of Indebtedness:
(a) In exchange for the forgiveness of the indebtedness evidenced by the
Note, Franklin hereby agrees to issue to USM $1,000,000 shares of Common Stock.
On the Closing Date, Franklin shall cause its transfer agent to issue and
deliver to USM, a certificate or certificates representing 11,000,000 shares of
Franklin Common Stock.
(b) Upon issuance of the Common Stock, USM shall mark the Note
paid-in-full, release any and all security interest in the Secured Assets, and
transfer to Franklin all of its right, title and interest in the mining
property.
1
<PAGE>
1.2 Taking of Necessary Action: Further Action: Each of Franklin and USM
shall take all reasonable and lawful action as may be necessary or appropriate
in order to effectuate the transactions contemplated by this Agreement. In case
at any time after the Closing Date any further action shall be necessary or
desirable to carry out the intentions of this Agreement, the officers and
directors of each of the parties hereto shall take all such lawful and necessary
action.
ARTICLE 2
Closing
2.1 Closing: The closing of the transactions contemplated by this Agreement
will be held at the offices of 3 Dundar Road, Springfield, N.J. 07081, at 10:00
a.m., local time on or about the fifth business day after the date upon which
all conditions contained in Articles 5 and 6 hereof have been satisfied or
waived or such other time and place as the parties may agree upon (the "Closing
Date").
2.2 Delivery of Certificates: Cancellation of Note. On the Closing Date (a)
Franklin shall issue to USM the Franklin Securities and (b) USM shall deliver to
Franklin the Note marked paid-in-full and any and all releases or other
documentation necessary to remove any security interest USM has or may have in
the Secured Assets.
ARTICLE 3
Representations and Warrantees of USM
USM hereby represents and warrants to Franklin as follows:
3.1 Organization and Good Standing. USM is a corporation duly incorporated
validly existing and in good standing under the laws of the State of New Jersey.
USM has the requisite corporate power and authority to own and operate its
properties and assets and to carry on its business as currently conducted. USM
is not qualified to do business as a foreign corporation in any other
jurisdiction and such qualification is not now required, except to the extent
that the failure to so qualify would not have a material adverse effect on USM's
business as currently conducted.
3.2 Corporate Power and Authorization. USM has the corporate power and
authority to execute and deliver this Agreement and to perform its obligations
under the terms of this Agreement. All corporate action on the part of USM
necessary for the authorization, execution, delivery and performance by USM of
this agreement has been taken or will be taken prior to the Closing Date. This
Agreement, when executed and delivered by USM shall constitute
2
<PAGE>
the valid and binding obligations of USM enforceable in accordance with its
terms, except as the enforceability thereof may be limited by bankruptcy
insolvency or other laws relating to or affecting creditor's rights generally or
by general equitable principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
3.3 Investment. USM is acquiring the Franklin Securities for investment for
its own account, not as a nominee or agent and not with a view to, or for resale
in connection with any distribution of any part thereof, and he has no present
intention of selling, granting any participation in or otherwise distributing
the same. USM understands that the Franklin Common Stock has not been registered
under the Securities Act of 1933, as amended (the "Act") or applicable state and
other Common Stock laws and is being issued to USM by reason of a specific
exemption from the registration provisions of the Act and applicable state and
other securities laws, the availability of which depends upon, among other
things, the bona fide nature of the investment intent and the accuracy of USM's
representations expressed herein.
3.4 Restricted Securities. USM has no need of liquidity in this investment
and acknowledges and understands that it must bear the economic risk of this
investment for an indefinite period of time because the Franklin Securities must
be held indefinitely unless subsequently registered under the Act and applicable
state and other securities laws or unless an exemption from such registration is
available. USM understands that any transfer agent of Franklin will be issued a
stop-transfer instructions with respect to such shares unless such transfer is
subsequently registered under the Act and applicable state and other securities
laws or unless an exemption from such registration is available, and that each
certificate representing the Franklin Securities will bear a restrictive legend
to such effect.
ARTICLE 4
Representations and Warranties of Franklin
Franklin hereby represents and warrants to USM as follows:
4.1 Organization and Good Standing; Articles of Incorporation and By-Laws:
Franklin is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware. Franklin has the requisite
corporate power and authority to own and operate its properties and assets and
to carry on its business as currently conducted. Franklin is qualified to do
business in those jurisdictions listed on Schedule 4.1 hereto. Franklin is not
qualified to do business as a foreign corporation in any other jurisdiction and
such qualification is not now required, except to the extent that the failure to
so qualify would not have a material adverse effect on Franklin's business as
currently conducted.
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4.2 Corporate Power and Authorization. Franklin has the corporate power and
authority to execute and deliver this Agreement, to issue the Common Stock
hereunder and to perform its obligations under the terms of this Agreement. All
corporate action on the part of Franklin, its directors and stockholders
necessary for the authorization, execution, delivery and performance by Franklin
of this Agreement and the authorization, sale, issuance and delivery of Franklin
stock has been taken or will be taken prior to the Closing Date. This Agreement,
when executed and delivered by Franklin, shall constitute valid and binding
obligations of Franklin, enforceable in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency or other laws
relating to or affecting creditors' rights generally or by general equitable
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law). Upon the Closing Date, the Common Stock will be
duly authorized and, when issued in compliance with the provisions of this
Agreement, will be validly issued, fully paid, nonassessable, and free and clear
of any liens, pledges, claims, security interests or other encumbrances created
hereby; provided, however, that the Common Stock is subject to restrictions on
transfer under state or federal securities laws as set forth herein.
4.3 Capitalization. The authorized capital stock of Franklin consists of
100,000,000 shares of Common Stock, $0.01 par value, of which 3,955,173 shares
are issued and outstanding. All of the outstanding shares of Common Stock have
been duly authorized and validly issued and are fully paid and nonassessable.
Except as set forth on Schedule 4.3, there are no options, warrants or other
rights outstanding to purchase or acquire, or any securities convertible into,
nor has Franklin agreed to issue or reissue, other than pursuant to this
Agreement, any of Franklin's authorized and unissued capital stock. Except as
described on Schedule 4.3, there are no agreements or understandings that affect
or relate to the voting or giving of written consent with respect to any of
Franklin's outstanding securities. There are no preemptive rights with respect
to the issuance or sale of Franklin's capital stock.
4.4 Financial Statements. Franklin has provided the Stockholder with (i)
audited financial statements of Franklin as of and for the years ended December
31, 1996 and 1997 (the "Audited Financial Statements"), and (ii) unaudited
financial statements of Franklin as of and for the one month ended March 31,
1998 (the "Interim Financial Statements" and together with the Audited Financial
Statements, the "Financial Statements"). The Financial Statements are complete
and correct in all material respects and have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the period indicated. The Financial Statements fairly present the
financial condition and operating results of Franklin as of the dates and for
the periods indicated, subject, with respect to the Interim Financial
Statements, to normal year-end audit adjustments.
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4.5 Absence of Certain Developments. Except as described on Schedule 4.5
since December 31, 1997, there has been no change in the assets, liabilities,
condition (financial or otherwise), operating results, business or prospects of
Franklin from that reflected in the Audited Financial Statements, except changes
in the ordinary course of business that have not been, individually or in the
aggregate, materially adverse to the assets, properties, condition (financial or
otherwise), operating results, business or prospects of Franklin or changes
reflected in the Interim Financial Statements. Without limiting the foregoing,
except as described on Schedule 4.5, Franklin has not, since December 31, 1997,
(i) directly or indirectly declared or paid any dividend or ordered or made any
other distribution on account of any shares of any class of the capital stock of
Franklin, (ii) directly or indirectly redeemed, purchased or otherwise acquired
any such shares or agreed to do so or set aside any sum or property for any such
purpose, (iii) made any capital expenditures exceeding $100,000, (iv) incurred
any indebtedness exceeding $100,000, (v) sold or encumbered any material assets,
property, rights licenses or permits used in Franklin's business, (v) suffered
any extraordinary loss, damage or casualty loss, (vi) received notification of
termination or significant decrease from any material customer or supplier, or
(vii) committed to any of the foregoing.
4.6 Absence of Undisclosed Liabilities. Except as disclosed on Schedule 4.6
Franklin does not have any liability or obligation, absolute or contingent, that
is not reflected in the Financial Statements, other than obligations and
liabilities which taken individually or in the aggregate would not have a
material adverse effect on Franklin's assets, liabilities, condition (financial
or otherwise), operating results, business or prospect.
4.7 Taxes. Except as disclosed on Schedule 4.7 Franklin has filed all tax
returns and reports required by law to be filed, and has paid all taxes,
assessments and other government al charges that are due and payable, except for
those matters reasonably being contested by Franklin and those matters which,
individually and in the aggregate, would not have a material adverse effect on
Franklin's assets, liabilities, condition (financial or otherwise), operating
results, business or prospects. The charges, accruals and reserves on the books
of Franklin in respect of taxes are considered adequate by Franklin, and
Franklin knows of no assessment for additional taxes or any basis therefor.
4.8 Title to Properties: Liens and Encumbrances. Except as set forth on
Schedule 5.8 Franklin has good title to all of its properties and assets, both
real and personal, tangible and intangible, reflected on the balance sheet
included in the Audited Financial Statements or acquired after the date thereof
(except inventory or other personal property disposed of in the ordinary course
of business subsequent to the date thereof), and such properties and assets are
not subject to any mortgage, pledge, lien, security interest encumbrance or
charge other than (o) liens for current taxes not yet due and
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payable, (ii) liens and encumbrances that do not materially detract from the
value of the property subject thereto or materially impair the operations of
Franklin or (iii) liens securing obligations reflected in the Financial
Statements. With respect to properties or assets it leases, except as set forth
on Schedule 4.8, Franklin is in compliance with such leases (except for such
defaults or breaches that would not, individually or in the aggregate, have a
material adverse affect on assets, liabilities, condition (financial or
otherwise), operating results, business or prospects) and holds valid leasehold
interests free of any liens, claims or encumbrances except for those described
in subsections (i) through (iii) hereof.
4.9 Compliance with Other instruments. Franklin is not in violation or
default of any provision of its Certificate of Incorporation or By-Laws, or,
except as described on Schedule 4.9 in default of any material mortgage,
indebtedness, indenture, contract, agreement, instrument, judgment or decree to
which Franklin is a party or by which it is bound. The execution, delivery and
performance by Franklin of this Agreement, and the consummation of transactions
contemplated hereby and thereby, will not, except as described on Schedule 4.9
result in any violation of or conflict with the Franklin's Certificate of
Incorporation or By-Laws, and, will not result in any violation of or conflict
with, or constitute a default under, any material mortgage, indebtedness,
indenture, contract, agreement, instrument, judgment or decree to which Franklin
is a party or by which it is bound or in the creation of any material mortgage,
pledge, lien, encumbrance or charge upon any of the properties or assets of
Franklin.
4.10 Litigation, etc. Except as described on Schedule 4.10, there are no
actions, suits, proceedings (arbitration, regulatory or otherwise) or
investigations pending or, to Franklin's best knowledge, threatened, against
Franklin or against any if its officers or directors in their capacity as such
or which otherwise involves Franklin's business or operations. Franklin has not
commenced or had commenced against it any case under applicable bankruptcy laws.
Franklin is not engaged in any legal action to recover moneys due it or for
damages sustained by it in connection with Franklin's business.
4.11 Employees. Franklin does not have any employees employed at will or
pursuant to an employment agreement with Franklin.
4.12 Registration Rights. Except as described on Schedule 4.12, Franklin is
not under any contractual obligation to register under the Act, any of its
currently outstanding securities or any of its securities which may hereafter be
issued.
4.13 Governmental Consent. Except as set forth on Schedule 4.13, no
consent, approval or authorization of or registration, qualification,
designation, declaration or filing with any governmental authority on the part
of Franklin is required in connection with the valid execution, delivery and
performance of this Agreement, the offer, sale or issuance of the Franklin
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securities, or the consummation of any other transactions contemplated hereby or
thereby, except for filings that may be required to comply with applicable
federal and state securities laws.
4.14 Compliance with Law. Except as set forth on Schedule 4.14 Franklin is
conducting its business and operations in compliance in all material respects
with all governmental rules and regulations applicable thereto, including
without limitation those relating to occupational safety, environmental, health
and employment practices, and is not in violation or default in any material
respects under any statute, law, ordinance, rule, regulation, judgment, order,
decree, concession, grant, franchise, license or other governmental
authorization or approval applicable to it or any of its properties.
4.15 Permits. Franklin has all permits, licenses, orders and approvals of
any federal, state, local or foreign governmental or regulatory body that are
material to or necessary in the conduct of its business as now conducted
(collectively, the "Permits"); all such Permits are in full force and effect; no
violations have been recorded in respect of any such Permits; and not proceeding
is pending or, to the knowledge of Franklin, threatened to revoke or limit any
such Permits. Schedule 4.15 contains a complete and accurate list of all
Permits.
4.16 Offering. Subject to accuracy of the USM's representations in Article
3, hereof, the offer, sale and issuance of the Common Stock as contemplated by
this Agreement will constitute transactions exempt from the registration
requirements of Section 5 of the Securities Act.
4.17 Brokers or Finders. Franklin has not retained any broker or finder in
connection with the transactions contemplated by this Agreement, and there are
no brokerage commissions, finder's fees or similar items of compensation payable
in connection therewith based on any arrangement or agreement made by or on
behalf of Franklin.
4.18 Intellectual Property. Franklin does not have any patents, patent
applications, trademarks and trademark applications or other registrations of
intellectual property rights registered in its name or licensed to Franklin.
4.19 Property, Equipment, etc. To the best of Franklin's knowledge, the
property and equipment owned or leased by Franklin, taken as a whole, are in
good operating condition (except for ordinary wear and tear which do not
adversely affect Franklin's businesses and are generally suitable for the uses
for which they are currently used.
4.20 Insurance. Except as set forth on Schedule 4.20, the physical
properties and assets used in connection with Franklin's businesses are covered
by insurance with reputable companies against casualty and other losses
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customarily obtained to cover comparable properties and assets by similar
businesses in the region in which such properties and assets of Franklin are
located, in amounts and coverage which are reasonable in light of existing
conditions. Franklin has not failed to give any notice or present any claim
under any insurance policy in a due and timely fashion except for such failures
that would not have a material adverse effect on Franklin's assets, liabilities,
condition (financial or otherwise), operating results, business or prospects.
4.21 No Misrepresentations or Omissions. To Franklin's best knowledge, all
information provided in connection herewith and all representations and
warranties hereunder, including the disclosures in the Financial Statements,
this Agreement or the Schedules hereto, are complete and correct in all material
respects and do not contain any misleading statement or omit any material
information.
4.22 ERISA. Franklin does not maintain any "Plan" subject to the Employment
Retirement Income Security Act of 1974, as amended ("ERISA").
4.23 Securities Filings. Franklin has made all filings with the Securities
and Exchange Commission (the "SEC") that it has been required to make under the
Act and the rules and regulations promulgated thereunder and under the Exchange
Act of 1934, as amended (the "Exchange Act"), and the rules and regulations
promulgated thereunder. Franklin has provided USM with complete and correct
copies of all of Franklin's filings made with the SEC (including all exhibits to
such filings) since January 1, 1993 (all such documents which have been filed
with the SEC, as amended, the "SEC Documents"), including, without limitation
all Annual Reports on Form 10-KSB, all Quarterly Reports on Form 10-QSB, all
Current Reports on Form 8-K, all registration statements and all proxy
statements and annual reports to shareholders. Except as set forth on Schedule
4.23 and to the best knowledge of Franklin, the SEC Documents comply in all
material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and to the best knowledge of Franklin, none of the SEC
Documents contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
4.24 Contracts. Schedule 4.24 sets forth a list of all written contracts,
agreements, mortgages, notes, instruments, leases, licenses (other than licenses
set forth in Schedule 4.16) hereof), franchises, arrangements or understandings
with respect to Franklin (the "Franklin Contracts"). Except as set forth on
Schedule 4.14, all of Franklin Contracts are valid and in full force and effect
and there are no existing defaults, or events which with the passage of time or
the giving of notice, or both, would constitute defaults by Franklin, or to the
knowledge of Franklin, by any other party to any Franklin Contract.
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ARTICLE 5
Conditions to Closing of Franklin
The obligations of Franklin to issue the Common Stock on the Closing Date are
subject to the fulfillment as of the Closing Date of the following conditions:
5.1 Representations and Warranties Correct. The representations and
warranties made by USM in Article 3 hereof be true and correct at and as of the
Closing Date, with the same effect as though such representations and warranties
had been made at and as of the Closing Date.
5.2 Covenants. All covenants, agreements and conditions contained in this
Agreement to be performed by USM at or prior to the Closing Date shall have been
performed or complied with, including the obtaining of all consents necessary
for the consummation of the transaction by USM.
5.3 Compliance Certificate of each of USM and the Stockholder. USM shall
have delivered to Franklin a certificate executed by the President of USM dated
the Closing Date, and certifying to the fulfillment of the conditions specified
in Sections 5.1 and 5.2 of this Agreement as they relate to USM.
5.4 Note Paid-in-Full. USM shall have delivered to Franklin the original
note marked Paid in Full and all documents, instruments, filings and other forms
duly executed in proper form for filing in order to remove all liens and
encumbrances on the Secured Assets.
5.5 Transfer of Mining Property. USM shall have transferred the Mining
Property to Franklin
5.6 Compliance Certificate. Franklin shall have received a certificate of
the Secretary of USM certifying as to (a) the Certificate of Incorporation of
USM, (b) By-Laws of USM, (c) the good standing of USM in New Jersey, (d)
resolutions of the Board of Directors authorizing the execution of this
Agreement and the other transactions contemplated herein and (e) incumbency of
USM's signatory.
ARTICLE 6
Conditions to Closing of USM
USM's obligation to convert the Note at the Closing Date is subject to the
fulfillment as of the Closing Date of the following conditions:
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6.1 Representations and Warranties Correct. The representations and
warranties made by Franklin in Article 4 hereof shall be true and correct at and
as of the Closing Date, with the same effect as though such representations and
warranties had been made at and as of the Closing Date.
6.2 Convenants. All covenants, agreements and conditions contained in this
Agreement to be performed by Franklin at or prior to the Closing shall have been
complied with.
6.3 Compliance Certificate. Franklin shall have delivered to USM a
certificate executed by the President of Franklin dated the Closing Date, and
certifying to the fulfillment of the conditions specified in Sections 6.1 and
6.2 of this Agreement.
6.4 Stock Certificate/Warrant Certificates. Franklin shall have issued or
cause to be issued to USM a certificate or certificates representing the Common
Stock.
6.5 Compliance Certificate. USM shall have received a certificate of the
Secretary of certifying as to (a) the Certificate of Incorporation of Franklin,
(b) By-Laws of Franklin, (c) the good standing of Franklin in Delaware and the
jurisdictions listed on Schedule 4.1 hereto, (d) resolutions of the Franklin's
Board of Directors authorizing the execution of this Agreement and the other
transactions contemplated hereby, (e) resolutions of Franklin's stockholders
approving the execution and delivery of this Agreement and the consummation of
the transactions contemplated herein and (f) incumbency of Franklin signatory.
6.6 Purchase of POS Financial, Inc. Franklin shall have consummated the
purchases of all of the outstanding shares of common stock of POS Financial,
Inc. ("POS").
ARTICLE 7
Stockholder Approvals, Board of Directors' Recommendations; Filings:
7.1 Stockholder Approvals; Board of Directors' Recommendations. A meeting
of the stockholders of Franklin shall be held in accordance with the General
Corporation Law of the State of Delaware ("GCL"), as promptly as possible, after
at least 20 days' prior written notice there of to the stockholders of Franklin,
to consider and vote upon, among other things, the adoption and approval of this
Agreement, the acquisition of POS, changing of the corporate name of Franklin,
the election of the Board of Directors of Franklin and such other transactions
as contemplated hereby (collectively, the "Proxy Proposals"). Subject to its
fiduciary duty to stockholders, the Board of Directors
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of Franklin shall recommend to its stockholders that the Agreement and the other
Proxy Proposals be adopted and approved.
7.2 Filings. As soon as practicable after the adoption and approval of this
Agreement and the other Proxy Proposals, Franklin shall undertake to prepare and
submit to USM, for review and approval, any and all documentation and/or filings
required by the GCL or the Act or the exchange Act to be submitted and/or filed.
Upon the approval of such documentation and/or filings by USM, Franklin shall
undertake to file same, as applicable, with the office of the Secretary of State
of the State of Delaware and the SEC.
7.3 Proxy Statement. As soon as practicable, Franklin shall prepare and
file, or cause to be prepared and filed with the SEC, a proxy statement (such
proxy statement, together with all financial statements, exhibits, and
supplements thereto, being herein called the "Proxy Statement" and such proxy
statement, together with all financial statements and exhibits thereto, in the
form to be filed with the SEC being herein called the "Preliminary Proxy
Statement" to be used in connection with the meeting of the stockholders of
Franklin, or for inclusion in Franklin's filings under any applicable state
takeover laws.
ARTICLE 8
Indemnification
8.1 Indemnification by USM. USM agrees to indemnify, defend and hold
Franklin harmless, and its officers, directors, stockholders, agents, employees,
attorneys, affiliates, successors and assigns, from and against, and pay or
reimburse each of them for, any and all claims, losses, damages, judgments,
amounts paid in settlement, costs and legal, accounting or other expenses
(collectively, "Losses") that any of them may sustain or incur as a result of
any misrepresentation, any inaccuracy in, or any breach of, any warranty or
representation or any non-performance of any convenant or other obligation on
the part of USM contained in this Agreement, or any document delivered
hereunder; provided that USM shall not be required to indemnify Franklin for
Losses unless such Losses exceed $50,000 in the aggregate, in which event USM
shall be obligated to indemnify Franklin for the amount of such Losses in excess
of $50,000.
8.2 Indemnification by Franklin. Franklin agrees to indemnify, defend and
hold harmless USM, and officers, directors, stockholders, agents, employees,
attorneys, affiliates, successors and assigns and each of them, from and
against, and pay or reimburse each of them for, any and all Losses that any of
them may sustain or incur as a result of any misrepresentation, breach of
warranties or representations or non-performance of any covenants or other
obligations on the part of Franklin contained in this Agreement or any document
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delivered hereunder; provided that Franklin shall not be required to indemnify
USM and/or the Stockholder for losses unless such Losses exceed $50,000 in the
aggregate, in which event Franklin shall indemnify such indemnified party for
the amount of such Losses in excess of $50,000.
8.3 Indemnification Procedures.
(a) Promptly after receipt by a party entitled to indemnification hereunder
(an "Indemnified Party") of notice of any claim or of the commencement of any
action, investigations, suit or proceeding ("Proceeding") with respect to which
such party may make a claim for Indemnification hereunder, the Indemnified Party
will notify the party against whom indemnification is sought (the "Indemnifying
Party") in writing of such claim or Proceeding, and the Indemnifying Party may
in his or its discretion assume the defense of such claim or Proceeding, in
which case he or it shall employ counsel reasonably satisfactory to the
Indemnified Party and shall pay the fees and expenses of such counsel.
Notwithstanding the preceding sentence, an Indemnified Party will be entitled to
employ counsel separate from counsel for the Indemnifying Party and to
participate in the defense of such claim or Proceeding at the Indemnified
Party's expense. No settlement or compromise of any claim or Proceeding shall
give rise to liability of the Indemnifying Party unless such party shall have
been notified of any proposed settlement or compromise and shall have consented
thereto; provided that the Indemnifying Party shall obtain the written consent
of the Indemnified Party, which consent shall not be unreasonably withheld,
prior to ceasing to defend, settling or otherwise disposing of any such claim or
proceeding, if as a result of the failure of the Indemnified Party to do so
would cause it or him to become subject to injunctive or other equitable relief,
or the business of the Indemnified Party (or that of its subsidiary) would be
materially adversely affected in any manner.
(b) Other Losses. In the event that any Indemnified Party
suffers a Loss or otherwise becomes entitled to indemnification hereunder from
an Indemnifying Party in a situation that does not involve a Proceeding being
instituted by a third party, the Indemnified Party shall send notice as it would
pursuant to Section 8.3(a) in order to provide reasonable notice to the
Indemnifying Party as to the nature and extent of the Loss.
(c) Effect. Any notice of a claim or Proceeding or a claim for indemnity
provided for herein shall be in writing and shall specify, to the extent known
by the Indemnified Party, the nature and extent of the claim or Proceeding and
the amount being asserted as damages or Losses, as the case may be.
Notwithstanding the foregoing, the failure to so provide notice on a timely and
adequate basis (except to the extent that such notice is given after the
survival period contained in Section 8.2) shall not relieve the Indemnifying
Party of its obligations to indemnify hereunder except to the extent that such
Indemnifying Party can establish prejudice to it by the lack of timely or
adequate notice.
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ARTICLE 9
Termination
9.1 Termination. This Agreement may be terminated and the transactions
contemplated hereby abandoned at any time prior to the Closing, whether prior to
or after approval by the stockholders of Franklin by consent of all of the
parties hereto, or by either Franklin, on the one hand, or USM on the other, if;
(i) the other party shall, when made, have breached in any material respect any
of its representations or warranties contained in this Agreement; (ii) any such
representation or warranty shall not be correct or accurate in all material
respects at and as of the Closing Date with the same effect as if made at such
time (with such exceptions as are permitted hereunder); (iii) the other party
shall have failed top comply in all material respects with any of its convents
or agreements contained in this Agreement to be complied with or performed by it
at or prior to the Closing Date; (iv) if a permanent injunction is entered,
enforced or deemed applicable to this Agreement which prohibits the consummation
of the transactions contemplated hereby and all appeals of such injunction shall
have been taken and shall have been unsuccessful; (v) if any governmental
entity, the consent of which is a condition to the obligation of such party to
consummate the transactions contemplated hereby, shall have determined not to
grant its consent and all appeals of such determination shall have been taken
and shall have been unsuccessful, or (vi) the Closing Date shall not have
occurred within 180 days of the date hereof.
9.2 Effect of Termination. In the event of termination of this Agreement
pursuant to Section 9.1 hereof, all rights of all parties hereto shall cease and
terminate, except for such rights as any party may otherwise have for breach of
contract, including, without limitation, rights for breach of any
representations, warranties or covenants contained herein.
ARTICLE 10
Miscellaneous
11.1 Governing Law. This agreement shall be governed by an construed under
the laws of the State of New York without regard to the conflicts of law
principles thereof.
11.2 Survival. The representations and warranties made herein shall survive
the Closing Date of the transactions contemplated hereby for a period of three
(3) years from the Closing Date.
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11.3 Successors and Assigns. Except as otherwise provided herein, this
Agreement shall insure to the benefit of, and be binding upon, the successors,
assigns, heirs, executors and administrators of the parties hereto. Franklin may
not assign its rights under this Agreement without the express written consent
of USM.
11.4 Entire Agreement: Amendment. This Agreement, its attachments, and the
other documents and agreements delivered pursuant hereto at the Closing Date
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof. Except as expressly provided
herein, neither this Agreement no any term hereof my be amended, waived,
discharged or terminated other than by a written agreement of USM, and Franklin.
11.5 Notices. All notices and other communications required or permitted
hereunder shall be in writing and shall be mailed by registered or certified
mail, postage prepaid, or otherwise delivered by hand or by messenger, including
Federal Express or similar courier services, addressed (a) if to Franklin, 76
Beaver Street, Room 500, New York, New York 10005 or at such other address as
Franklin shall have furnished to the other parties hereto in writing or (b) if
to USM to P.O. Box 343, Millburn, New Jersey 07041, or such other address as USM
shall have furnished to the other parties hereto in writing. Each such notice or
other communication shall for all purposes of this Agreement be treated as
effective or having been given when delivered if delivered personally, or, if
sent by mail or courier, at the earlier of its receipt or 48 hours after the
same has been deposited in a regularly maintained receptacle for the deposit of
the United States mail, addressed and mailed as aforesaid.
11.6 Delays or Omissions. Except as expressly provided herein, no delay or
omission to exercise any right, power or remedy accruing to any party to this
Agreement, shall impair any such right, power or remedy of such party nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character of any breach or default under this
Agreement, or any waiver of any provisions or conditions of this Agreement, must
be in writing and shall be effective only to the extent specifically set forth
in such writing. All remedies, either under this Agreement or by law or
otherwise afforded to any party to this Agreement, shall be cumulative and not
alternative.
11. 7 Expenses. USM agrees to pay the expenses and legal fees incurred on
its behalf and on behalf of the other parties to this Agreement with respect to
this Agreement and the transactions contemplated hereby.
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11.8 Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be an original, and all of which together shall constitute
one instrument.
11.9 Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision. Furthermore, in lieu of such illegal, unenforceable or
void provision, there shall be added automatically as part of this Agreement a
provision as similar in terms to such illegal, unenforceable or void provision
as may be possible and be legal, enforceable and valid.
11.10 Effect of Headings. The section headings used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.
11.11 Announcements. Each party shall give to the other parties hereto
reasonable prior notice and shall consult with the other parties hereto on the
timing, contents and manner of making all announcements or press releases,
written or otherwise, relating to the transactions contemplated hereby, whether
to employees, stockholders or the public, by or on behalf of any of the parties
hereto, except to the extent required by law.
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IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
effective as of the date first set forth above.
FRANKLIN CONSOLIDATED MINING CO., INC.
By: /s/ J. Terry Anderson
----------------------------------
J. Terry Anderson, President
U.S. MINING, INC.
By: /s/ William Martucci
---------------------------------
William Martucci, President
16
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is dated this 3rd day of
August, 1998 and is by and between Franklin Consolidated Mining Co., Inc., a
Delaware Corporation ("Franklin"), William C. Martucci ("WMC") and POS
Financial, Inc. a New Jersey corporation.
RECITALS
WHEREAS, WCM is the owner of 100% of the outstanding shares of Common
Stock, par value $.01 per share of POS (the "POS Common Stock") and
WHEREAS, Franklin desires to acquire the POS Common Stock in exchange for
11,197,413 shares of Common Stock, par value $.01 per share of Franklin (the
"Franklin Common Stock") upon the terms and subject to the conditions
hereinafter set forth.
NOW THEREFORE, in consideration of the mutual agreements and covenants
hereinafter set forth, and for other good and valuable consideration, the
parties hereto agree as follows:
ARTICLE 1
1.1 Terms of the Exchange:
(a) WCM shall sell, assign, assign, transfer and convey at the closing date
the POS Common Stock to Franklin.
(b) In consideration for the POS Common Stock, Franklin shall cause its
transfer agent to issue to WCM or its assignees on the Closing Date a
certificate or certificates representing the Franklin Common Stock, each duly
executed on behalf of Franklin in the name of WCM or his assignees.
1.2 Taking of Necessary Action: Further Action: Each of Franklin and WCM
shall take all reasonable and lawful action as may be necessary or appropriate
in order to effectuate the transactions contemplated by this Agreement. In case
at any time after the Closing Date any further action shall be necessary or
desirable to carry out the intentions of this Agreement, the officers and
directors of each of the parties hereto shall take all such lawful and necessary
action.
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ARTICLE 2
Closing
2.1 Closing: The closing of the transactions contemplated by this Agreement
will be held at the offices of 3 Dundar Road, Springfield, N.J. 07081, at 10:00
a.m., local time on or about the fifth business day after the date upon which
all conditions contained in Articles 6 and 7 hereof have been satisfied or
waived or such other time and place as the parties may agree upon (the "Closing
Date").
2.2 Delivery of Certificates. On the Closing Date (a) Franklin shall issue
to WCM the Franklin Common Stock and (b) WCM shall deliver to Franklin the POS
Common Stock duly endorsed for transfer to Franklin.
ARTICLE 3
Representations and Warrantees of WCM
WCM hereby represents and warrants to Franklin as follows:
3.1 Power and Authorization. WCM has the power and authority to execute and
deliver this Agreement and to perform his obligations under the terms of this
Agreement. All action on the part of WCM necessary for the execution, delivery
and performance by WCM of this Agreement has been taken or will be taken prior
to the Closing Date. This Agreement, when executed and delivered by WCM shall
constitute the valid and binding obligations of WCM enforceable in accordance
with its terms, except as the enforceability thereof may be limited by
bankruptcy insolvency or other laws relating to or affecting creditor's rights
generally or by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
3.2 Investment. WCM is acquiring the Franklin Common Stock for investment
for his own account, not as a nominee or agent and not with a view to, or for
resale in connection with any distribution of any part thereof, and he has no
present intention of selling, granting any participation in or otherwise
distributing the same. WCM understands that the Franklin Common Stock has not
been registered under the Securities Act of 1933, as amended (the "Act") or
applicable state and other Common Stock laws and is being issued to WCM by
reason of a specific exemption from the registration provisions of the Act and
applicable state and other Common Stock laws, the availability of which depends
upon, among other things, the bona fide nature of the investment intent and the
accuracy of WCM's representations expressed herein.
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3.3 Restricted Common Stock. WCM has no need of liquidity in this
investment and acknowledges and understands that he must bear the economic risk
of this investment for an indefinite period of time because the Franklin Common
Stock must be held indefinitely unless subsequently registered under the Act and
applicable state and other Common Stock laws or unless an exemption from such
registration is available. WCM understands that any transfer agent of Franklin
will be issued a stop-transfer instructions with respect to such shares unless
such transfer is subsequently registered under the Act and applicable state and
other Common Stock laws or unless an exemption from such registration is
available, and that each certificate representing the Franklin Common Stock will
bear a restrictive legend to such effect.
ARTICLE 4
Representations and Warranties of Franklin
Franklin hereby represents and warrants to WCM and POS as follows:
4.1 Organization and Good Standing; Articles of Incorporation and By-Laws:
Franklin is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware. Franklin has the requisite
corporate power and authority to own and operate its properties and assets and
to carry on its business as currently conducted. Franklin is qualified to do
business in those jurisdictions listed on Schedule 4.1 hereto. Franklin is not
qualified to do business as a foreign corporation in any other jurisdiction and
such qualification is not now required, except to the extent that the failure to
so qualify would not have a material adverse effect on Franklin's business as
currently conducted.
4.2 Corporate Power and Authorization. Franklin has the corporate power and
authority to execute and deliver this Agreement, to issue the Common Stock
hereunder and to perform its obligations under the terms of this Agreement. All
corporate action on the part of Franklin, its directors and stockholders
necessary for the authorization, execution, delivery and performance by Franklin
of this Agreement and the authorization, sale, issuance and delivery of Franklin
stock has been taken or will be taken prior to the Closing Date. This Agreement,
when executed and delivered by Franklin, shall constitute valid and binding
obligations of Franklin, enforceable in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency or other laws
relating to or affecting creditors' rights generally or by general equitable
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law). Upon the Closing Date, the Common Stock will be
duly authorized and, when issued in compliance with the provisions of this
Agreement, will be validly issued, fully paid, nonassessable, and free and clear
of any liens, pledges, claims, security interests or other
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encumbrances created hereby; provided, however, that the Common Stock is subject
to restrictions on transfer under state or federal Common Stock laws as set
forth herein.
4.3 Capitalization. The authorized capital stock of Franklin consists of
100,000,000 shares of Common Stock, $0.01 par value, of which 3,955,173 shares
are issued and outstanding. All of the outstanding shares of Common Stock have
been duly authorized and validly issued and are fully paid and nonassessable.
Except as set forth on Schedule 4.3, there are no options, warrants or other
rights outstanding to purchase or acquire, or any Common Stock convertible into,
nor has Franklin agreed to issue or reissue, other than pursuant to this
Agreement, any of Franklin's authorized and unissued capital stock. Except as
described on Schedule 4.3, there are no agreements or understandings that affect
or relate to the voting or giving of written consent with respect to any of
Franklin's outstanding Common Stock. There are no preemptive rights with respect
to the issuance or sale of Franklin's capital stock.
4.4 Financial Statements. Franklin has provided the Stockholder with (i)
audited financial statements of Franklin as of and for the years ended December
31, 1996 and 1997 (the "Audited Financial Statements"), and (ii) unaudited
financial statements of Franklin as of and for the one month ended March 31,
1998 (the "Interim Financial Statements" and together with the Audited Financial
Statements, the "Financial Statements"). The Financial Statements are complete
and correct in all material respects and have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the period indicated. The Financial Statements fairly present the
financial condition and operating results of Franklin as of the dates and for
the periods indicated, subject, with respect to the Interim Financial
Statements, to normal year-end audit adjustments.
4.5 Absence of Certain Developments. Except as described on Schedule 4.5
since December 31, 1997, there has been no change in the assets, liabilities,
condition (financial or otherwise), operating results, business or prospects of
Franklin from that reflected in the Audited Financial Statements, except changes
in the ordinary course of business that have not been, individually or in the
aggregate, materially adverse to the assets, properties, condition (financial or
otherwise), operating results, business or prospects of Franklin or changes
reflected in the Interim Financial Statements. Without limiting the foregoing,
except as described on Schedule 4.5, Franklin has not, since December 31, 1997,
(i) directly or indirectly declared or paid any dividend or ordered or made any
other distribution on account of any shares of any class of the capital stock of
Franklin, (ii) directly or indirectly redeemed, purchased or otherwise acquired
any such shares or agreed to do so or set aside any sum or property for any such
purpose, (iii) made any capital expenditures exceeding $100,000, (iv) incurred
any indebtedness exceeding $100,000, (v) sold or encumbered any material assets,
property, rights licenses or permits used in
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Franklin's business, (v) suffered any extraordinary loss, damage or casualty
loss, (vi) received notification of termination or significant decrease from any
material customer or supplier, or (vii) committed to any of the foregoing.
4.6 Absence of Undisclosed Liabilities. Except as disclosed on Schedule 4.6
Franklin does not have any liability or obligation, absolute or contingent, that
is not reflected in the Financial Statements, other than obligations and
liabilities which taken individually or in the aggregate would not have a
material adverse effect on Franklin's assets, liabilities, condition (financial
or otherwise), operating results, business or prospect.
4.7 Taxes. Except as disclosed on Schedule 4.7 Franklin has filed all tax
returns and reports required by law to be filed, and has paid all taxes,
assessments and other government al charges that are due and payable, except for
those matters reasonably being contested by Franklin and those matters which,
individually and in the aggregate, would not have a material adverse effect on
Franklin's assets, liabilities, condition (financial or otherwise), operating
results, business or prospects. The charges, accruals and reserves on the books
of Franklin in respect of taxes are considered adequate by Franklin, and
Franklin knows of no assessment for additional taxes or any basis therefor.
4.8 Title to Properties: Except as set forth on Schedule 4.8 Franklin has
good title to all of its properties and assets, both real and personal, tangible
and intangible, reflected on the balance sheet included in the Audited Financial
Statements or acquired after the date thereof (except inventory or other
personal property disposed of in the ordinary course of business subsequent to
the date thereof), and such properties and assets are not subject to any
mortgage, pledge, lien, security interest encumbrance or charge other than (o)
liens for current taxes not yet due and payable, (ii) liens and encumbrances
that do not materially detract from the value of the property subject thereto or
materially impair the operations of Franklin or (iii) liens securing obligations
reflected in the Financial Statements. With respect to properties or assets it
leases, except as set forth on Schedule 4.8, Franklin is in compliance with such
leases (except for such defaults or breaches that would not, individually or in
the aggregate, have a material adverse affect on assets, liabilities, condition
(financial or otherwise), operating results, business or prospects) and holds
valid leasehold interests free of any liens, claims or encumbrances except for
those described in subsections (i) through (iii) hereof.
4.9 Compliance with Other instruments. Franklin is not in violation or
default of any provision of its Certificate of Incorporation or By-Laws, or,
except as described on Schedule 4.9 in default of any material mortgage,
indebtedness, indenture, contract, agreement, instrument, judgment or decree to
which Franklin is a party or by which it is bound. The execution, delivery and
performance by Franklin of this Agreement, and the consummation of transactions
contemplated hereby and thereby, will not, except as described on
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Schedule 4.9 result in any violation of or conflict with the Franklin's
Certificate of Incorporation or By-Laws, and, will not result in any violation
of or conflict with, or constitute a default under, any material mortgage,
indebtedness, indenture, contract, agreement, instrument, judgment or decree to
which Franklin is a party or by which it is bound or in the creation of any
material mortgage, pledge, lien, encumbrance or charge upon any of the
properties or assets of Franklin.
4.10 Litigation, etc. Except as described on Schedule 4.10, there are no
actions, suits, proceedings (arbitration, regulatory or otherwise) or
investigations pending or, to Franklin's best knowledge, threatened, against
Franklin or against any if its officers or directors in their capacity as such
or which otherwise involves Franklin's business or operations. Franklin has not
commenced or had commenced against it any case under applicable bankruptcy laws.
Franklin is not engaged in any legal action to recover moneys due it or for
damages sustained by it in connection with Franklin's business.
4.11 Employees. Franklin does not have any employees employed at will or
pursuant to an employment agreement with Franklin.
4.12 Registration Rights. Except as described on Schedule 4.12, Franklin is
not under any contractual obligation to register under the Act, any of its
currently outstanding Common Stock or any of its Common Stock which may
hereafter be issued.
4.13 Governmental Consent. Except as set forth on Schedule 4.13, no
consent, approval or authorization of or registration, qualification,
designation, declaration or filing with any governmental authority on the part
of Franklin is required in connection with the valid execution, delivery and
performance of this Agreement, the offer, sale or issuance of the Franklin
Common Stock, or the consummation of any other transactions contemplated hereby
or thereby, except for filings that may be required to comply with applicable
federal and state Common Stock laws.
4.14 Compliance with Law. Except as set forth on Schedule 4.14 Franklin is
conducting its business and operations in compliance in all material respects
with all governmental rules and regulations applicable thereto, including
without limitation those relating to occupational safety, environmental, health
and employment practices, and is not in violation or default in any material
respects under any statute, law, ordinance, rule, regulation, judgment, order,
decree, concession, grant, franchise, license or other governmental
authorization or approval applicable to it or any of its properties.
4.15 Permits. Franklin has all permits, licenses, orders and approvals of
any federal, state, local or foreign governmental or regulatory body that are
material to or necessary in the conduct of its business as now conducted
(collectively, the "Permits"); all such Permits are in full force and effect; no
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violations have been recorded in respect of any such Permits; and not proceeding
is pending or, to the knowledge of Franklin, threatened to revoke or limit any
such Permits. Schedule 4.15 contains a complete and accurate list of all
Permits.
4.16 Offering. Subject to accuracy of the WCM's representations in Article
3, hereof, the offer, sale and issuance of the Common Stock as contemplated by
this Agreement will constitute transactions exempt from the registration
requirements of Section 5 of the Securities Act.
4.17 Brokers or Finders. Franklin has not retained any broker or finder in
connection with the transactions contemplated by this Agreement, and there are
no brokerage commissions, finder's fees or similar items of compensation payable
in connection therewith based on any arrangement or agreement made by or on
behalf of Franklin.
4.18 Intellectual Property. Franklin does not have any patents, patent
applications, trademarks and trademark applications or other registrations of
intellectual property rights registered in its name or licensed to Franklin.
4.19 Property, Equipment, etc. To the best of Franklin's knowledge, the
property and equipment owned or leased by Franklin, taken as a whole, are in
good operating condition (except for ordinary wear and tear which do not
adversely affect Franklin's businesses and are generally suitable for the uses
for which they are currently used.
4.20 Insurance. Except as set forth on Schedule 4.20, the physical
properties and assets used in connection with Franklin's businesses are covered
by insurance with reputable companies against casualty and other losses
customarily obtained to cover comparable properties and assets by similar
businesses in the region in which such properties and assets of Franklin are
located, in amounts and coverage which are reasonable in light of existing
conditions. Franklin has not failed to give any notice or present any claim
under any insurance policy in a due and timely fashion except for such failures
that would not have a material adverse effect on Franklin's assets, liabilities,
condition (financial or otherwise), operating results, business or prospects.
4.21 No Misrepresentations or Omissions. To Franklin's best knowledge, all
information provided in connection herewith and all representations and
warranties hereunder, including the disclosures in the Financial Statements,
this Agreement or the Schedules hereto, are complete and correct in all material
respects and do not contain any misleading statement or omit any material
information.
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4.22 ERISA. Franklin does not maintain any "Plan" subject to the Employment
Retirement Income Security Act of 1974, as amended ("ERISA").
4.23 Common Stock Filings. Franklin has made all filings with the
Securities and Exchange Commission (the "SEC") that it has been required to make
under the Act and the rules and regulations promulgated thereunder and under the
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder. Franklin has provided WCM with complete and
correct copies of all of Franklin's filings made with the SEC (including all
exhibits to such filings) since January 1, 1993 (all such documents which have
been filed with the SEC, as amended, the "SEC Documents"), including, without
limitation all Annual Reports on Form 10-KSB, all Quarterly Reports on Form
10-QSB, all Current Reports on Form 8-K, all registration statements and all
proxy statements and annual reports to shareholders. Except as set forth on
Schedule 4.23 and to the best knowledge of Franklin, the SEC Documents comply in
all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and to the best knowledge of Franklin, none of
the SEC Documents contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
4.24 Contracts. Schedule 4.24 sets forth a list of all written contracts,
agreements, mortgages, notes, instruments, leases, licenses (other than licenses
set forth in Schedule 4.16) hereof), franchises, arrangements or understandings
with respect to Franklin (the "Franklin Contracts"). Except as set forth on
Schedule 4.14, all of Franklin Contracts are valid and in full force and effect
and there are no existing defaults, or events which with the passage of time or
the giving of notice, or both, would constitute defaults by Franklin, or to the
knowledge of Franklin, by any other party to any Franklin Contract.
ARTICLE 5
Representations and Warranties of POS
POS hereby represents and warrants to Franklin as follows:
5.1 Organization and Good Standing; Articles of Incorporation and By-Laws:
POS is a corporation duly incorporated, validly existing and in good standing
under the laws of the State of New Jersey. POS has the requisite corporate power
and authority to own and operate its properties and assets and to carry on its
business as currently conducted. POS is qualified to do business in those
jurisdictions listed on Schedule 5.1 hereto. POS is not qualified to do business
as a foreign corporation in any other jurisdiction and such qualification is not
now required, except to the extent that the failure to so qualify would not have
a material adverse effect on POS's business as currently conducted.
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5.2 Corporate Power and Authorization. POS has the corporate power and
authority to execute and deliver this Agreement, and to perform its obligations
under the terms of this Agreement. All corporate action on the part of POS, its
directors and stockholders necessary for the authorization, execution, delivery
and performance by POS of this Agreement has been taken or will be taken prior
to the Closing Date. This Agreement, when executed and delivered by POS, shall
constitute valid and binding obligations of POS, enforceable in accordance with
its terms, except as the enforceability thereof may be limited by bankruptcy,
insolvency or other laws relating to or affecting creditors' rights generally or
by general equitable principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
5.3 Capitalization. The authorized capital stock of POS consists of 2,500
shares of Common Stock, $0.01 par value, of which 2,500 shares are issued and
outstanding. All of the outstanding shares of common stock have been duly
authorized and validly issued and are fully paid and nonassessable. There are no
options, warrants or other rights outstanding to purchase or acquire, or any
Common Stock convertible into, nor has POS agreed to issue or reissue, other
than pursuant to this Agreement, any of POS's authorized and unissued capital
stock. There are no agreements or understandings that affect or relate to the
voting or giving of written consent with respect to any of POS's outstanding
Common Stock. There are no preemptive rights with respect to the issuance or
sale of POS's capital stock.
5.4 Financial Statements. POS has provided Franklin with (i) audited
financial statements of POS as of and for the years ended December 31, 1997 (the
"POS Audited Financial Statements"), and (ii) unaudited financial statements of
POS as of and for the one quarter ended March 31, 1998 (the "POS Interim
Statements" and together with the POS Audited Financial Statements, the "POS
Financial Statements"). The POS Financial Statements are complete and correct in
all material respects and have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
period indicated. The POS Financial Statements fairly present the financial
condition and operating results of POS as of the dates and for the periods
indicated, subject, with respect to the POS Interim Financial Statements, to
normal year-end audit.
5.5 Absence of Certain Developments. Since December 31, 1997, there has
been no change in the assets, liabilities, condition (financial or otherwise),
operating results, business or prospects of POS from that reflected in the POS
Audited Financial Statements, except changes in the ordinary course of business
that have not been, individually or in the aggregate, materially adverse to the
assets, properties, condition (financial or otherwise), operating results,
business or prospects of POS or changes reflected in the POS Interim Financial
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Statements. Without limiting the foregoing, except as described on Schedule 5.5,
POS has not, since December 31, 1997, (i) directly or indirectly declared or
paid any dividend or ordered or made any other distribution on account of any
shares of any class of the capital stock of POS, (ii) directly or indirectly
redeemed, purchased or otherwise acquired any such shares or agreed to do so or
set aside any sum or property for any such purpose, (iii) made any capital
expenditures exceeding $100,000, (iv) incurred any indebtedness exceeding
$100,000, (v) sold or encumbered any material assets, property, rights licenses
or permits used in POS's business, (v) suffered any extraordinary loss, damage
or casualty loss, (vi) received notification of termination or significant
decrease from any material customer or supplier, or (vii) committed to any of
the foregoing.
5.6 Absence of Undisclosed Liabilities. Except as disclosed on Schedule 5.6
POS does not have any liability or obligation, absolute or contingent, that is
not reflected in the POS Financial Statements, other than obligations and
liabilities which taken individually or in the aggregate would not have a
material adverse effect on POS's assets, liabilities, condition (financial or
otherwise), operating results, business or prospect.
5.7 Taxes. Except as disclosed on Schedule 5.7, POS has filed all tax
returns and reports required by law to be filed, and has paid all taxes,
assessments and other government al charges that are due and payable, except for
those matters reasonably being contested by POS and those matters which,
individually and in the aggregate, would not have a material adverse effect on
POS's assets, liabilities, condition (financial or otherwise), operating
results, business or prospects. The charges, accruals and reserves on the books
of POS in respect of taxes are considered adequate by POS, and POS knows of no
assessment for additional taxes or any basis therefor.
5.8 Title to Properties: POS has good title to all of its properties and
assets, both real and personal, tangible and intangible, reflected on the
balance sheet included in the Audited Financial Statements or acquired after the
date thereof (except inventory or other personal property disposed of in the
ordinary course of business subsequent to the date thereof), and such properties
and assets are not subject to any mortgage, pledge, lien, security interest
encumbrance or charge other than (o) liens for current taxes not yet due and
payable, (ii) liens and encumbrances that do not materially detract from the
value of the property subject thereto or materially impair the operations of POS
or (iii) liens securing obligations reflected in the POS Financial Statements.
With respect to properties or assets it leases, POS is in compliance with such
leases (except for such defaults or breaches that would not, individually or in
the aggregate, have a material adverse affect on assets, liabilities, condition
(financial or otherwise), operating results, business or prospects) and holds
valid leasehold interests free of any liens, claims or encumbrances except for
those described in subsections (i) through (iii) hereof.
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5.9 Compliance with Other instruments. POS is not in violation or default
of any provision of its Certificate of Incorporation or By-Laws, or, in default
of any material mortgage, indebtedness, indenture, contract, agreement,
instrument, judgment or decree to which POS is a party or by which it is bound.
The execution, delivery and performance by POS of this Agreement, and the
consummation of the transactions contemplated hereby and thereby, will not,
result in any violation of or conflict with the POS's Certificate of
Incorporation or By-Laws, and, will not result in any violation of or conflict
with, or constitute a default under, any material mortgage, indebtedness,
indenture, contract, agreement, instrument, judgment or decree to which POS is a
party or by which it is bound or in the creation of any material mortgage,
pledge, lien, encumbrance or charge upon any of the properties or assets of POS.
5.10 Litigation, etc. There are no actions, suits, proceedings
(arbitration, regulatory or otherwise) or investigations pending or, to POS's
best knowledge, threatened, against POS or against any if its officers or
directors in their capacity as such or which otherwise involve POS's business or
operations. POS has not commenced or had commenced against it any case under
applicable bankruptcy laws. POS is not engaged in any legal action to recover
moneys due it or for damages sustained by it in connection with POS's business.
5.11 Employees. POS does not have any employees employed at will or
pursuant to an employment agreement with POS.
5.12 Registration Rights. POS is not under any contractual obligation to
register under the Act, any of its currently outstanding Common Stock or any of
its Common Stock which may hereafter be issued.
5.13 Governmental Consent. No consent, approval or authorization of or
registration, qualification, designation, declaration or filing with any
governmental authority on the part of POS is required in connection with the
valid execution, delivery and performance of this Agreement, or the consummation
of any other transactions contemplated hereby or thereby.
5.14 Compliance with Law. POS is conducting its business and operations in
compliance in all material respects with all governmental rules and regulations
applicable thereto, including without limitation those relating to occupational
safety, environmental, health and employment practices, and is not in violation
or default in any material respects under any statute, law, ordinance, rule,
regulation, judgment, order, decree, concession, grant, franchise, license or
other governmental authorization or approval applicable to it or any of its
properties.
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5.15 Permits. POS does not have any permits, licenses, orders and approvals
of any federal, state, local or foreign governmental or regulatory body that are
material to or necessary in the conduct of its business as now conducted.
5.16 Brokers or Finders. POS has not retained any broker or finder in
connection with the transactions contemplated by this Agreement, and there are
no brokerage commissions, finder's fees or similar items of compensation payable
in connection therewith based on any arrangement or agreement made by or on
behalf of POS.
5.17 Intellectual Property. POS does not have any patents, patent
applications, trademarks and trademark applications or other registrations of
intellectual property rights registered in its name or licensed to POS.
5.18 Property, Equipment, etc. To the best of POS's knowledge, the property
and equipment owned or leased by POS, taken as a whole, are in good operating
condition (except for ordinary wear and tear which do not adversely affect POS's
businesses and are generally suitable for the uses for which they are currently
used.
5.19 Insurance. The physical properties and assets used in connection with
POS's businesses are covered by insurance with reputable companies against
casualty and other losses customarily obtained to cover comparable properties
and assets by similar businesses in the region in which such properties and
assets of POS are located, in amounts and coverage which are reasonable in light
of existing conditions. POS has not failed to give any notice or present any
claim under any insurance policy in a due and timely fashion except for such
failures that would not have a material adverse effect on POS's assets,
liabilities, condition (financial or otherwise), operating results, business or
prospects.
5.20 No Misrepresentations or Omissions. To POS's best knowledge, all
information provided in connection herewith and all representations and
warranties hereunder, including the disclosures in the Financial Statements,
this Agreement or the Schedules hereto, are complete and correct in all material
respects and do not contain any misleading statement or omit any material
information.
5.21 ERISA. POS does not maintain any "Plan" subject to ERISA.
5.22 Contracts. Schedule 5.22 sets forth a list of all written contracts,
agreements, mortgages, notes, instruments, leases, licenses (other than licenses
set forth in Schedule 5.16 hereof), franchises, arrangements or understandings
with respect to POS (the "POS Contracts"). Except as set forth on Schedule 5.14,
all of POS Contracts are valid and in full force and effect and
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there are no existing defaults, or events which with the passage of time or the
giving of notice, or both, would constitute defaults by POS, or to the knowledge
of POS, by any other party to any POS Contract.
ARTICLE 6
The obligations of Franklin to issue the Common Stock on the Closing Date are
subject to the fulfillment as of the Closing Date of the following conditions:
6.1 Representations and Warranties Correct. The representations and
warranties made by WCM and POS in Article 3 and 5 hereof be true and correct at
and as of the Closing Date, with the same effect as though such representations
and warranties had been made at and as of the Closing Date.
6.2 Covenants. All covenants, agreements and conditions contained in this
Agreement to be performed by WCM and POS at or prior to the Closing Date shall
have been performed or complied with, including the obtaining of all consents
necessary for the consummation of the transaction by WCM and POS.
6.3 Compliance Certificate of each of POS and WCM. POS shall have delivered
to Franklin a certificate executed by the President of POS dated the Closing
Date and WCM shall have delivered a certificate executed by WCM certifying to
the fulfillment of the conditions specified in Sections 6.1 and 6.2 of this
Agreement as they relate to WCM.
6.4 POS Common Stock WCM shall have delivered to Franklin Certificates
representing POS Common Stock, duly endorsed for transfer to Franklin.
6.5 Compliance Certificate. Franklin shall have received a certificate of
the Secretary of POS certifying as to (a) the Certificate of Incorporation of
POS, (b) By-Laws of POS, (c) the good standing of POS in New Jersey, (d)
resolutions of the Board of Directors authorizing the execution of this
Agreement and the other transactions contemplated herein and (e) incumbency of
POS's signatory.
ARTICLE 7
Conditions to Closing of WCM and POS
WCM's obligation to sell the POS Common Stock at the Closing Date is subject to
the fulfillment as of the Closing Date of the following conditions:
13
<PAGE>
7.1 Representations and Warranties Correct. The representations and
warranties made by Franklin in Article 4 hereof shall be true and correct at and
as of the Closing Date, with the same effect as though such representations and
warranties had been made at and as of the Closing Date.
7.2 Convenants. All covenants, agreements and conditions contained in this
Agreement to be performed by Franklin at or prior to the Closing shall have been
complied with.
7.3 Compliance Certificate. Franklin shall have delivered to WCM a
certificate executed by the President of Franklin dated the Closing Date, and
certifying to the fulfillment of the conditions specified in Sections 7.1 and
7.2 of this Agreement.
7.4 Stock Certificates. Franklin shall have issued or cause to be issued to
WCM a certificate or certificates representing the Franklin Common Stock.
7.5 Compliance Certificate. POS and WCM shall have received a certificate
of the Secretary of certifying as to (a) the Certificate of Incorporation of
Franklin, (b) By-Laws of Franklin, (c) the good standing of Franklin in Delaware
and the jurisdictions listed on Schedule 4.1 hereto, (d) resolutions of the
Franklin's Board of Directors authorizing the execution of this Agreement and
the other transactions contemplated hereby, (e) resolutions of Franklin's
stockholders approving the execution and delivery of this Agreement and the
consummation of the transactions contemplated herein and (f) incumbency of
Franklin signatory.
7.6 Purchase of USM Stock Purchase. Franklin shall have consummated the
transactions contemplated by the Stock Purchase Agreement between Franklin and
USM (the "USM Stock Purchase").
ARTICLE 8
Stockholder Approvals, Board of Directors' Recommendations; Filings:
8.1 Stockholder Approvals; Board of Directors' Recommendations. A meeting
of the stockholders of Franklin shall be held in accordance with the General
Corporation Law of the State of Delaware ("GCL"), as promptly as possible, after
at least 20 days' prior written notice there of to the stockholders of Franklin,
to consider and vote upon, among other things, the adoption and approval of this
Agreement, the USM Stock Purchase, changing of the corporate name of Franklin,
the election of the Board of Directors of Franklin and such other transactions
as contemplated hereby (collectively, the "Proxy Proposals"). Subject to its
fiduciary duty to stockholders, the Board of Directors
14
<PAGE>
of Franklin shall recommend to its stockholders that the Agreement and the other
Proxy Proposals be adopted and approved.
8.2 Filings. As soon as practicable after the adoption and approval of this
Agreement and the other Proxy Proposals, Franklin shall undertake to prepare and
submit to WCM, for review and approval, any and all documentation and/or filings
required by the GCL or the Act or the exchange Act to be submitted and/or filed.
Upon the approval of such documentation and/or filings by WCM, Franklin shall
undertake to file same, as applicable, with the office of the Secretary of State
of the State of Delaware and the SEC.
8.3 Proxy Statement. As soon as practicable, Franklin shall prepare and
file, or cause to be prepared and filed with the SEC, a proxy statement (such
proxy statement, together with all financial statements, exhibits, and
supplements thereto, being herein called the "Proxy Statement" and such proxy
statement, together with all financial statements and exhibits thereto, in the
form to be filed with the SEC being herein called the "Preliminary Proxy
Statement" to be used in connection with the meeting of the stockholders of
Franklin, or for inclusion in Franklin's filings under any applicable state
takeover laws.
ARTICLE 9
Indemnification
9.1 Indemnification by WCM and POS. WCM agrees to indemnify, defend and
hold Franklin harmless, and its officers, directors, stockholders, agents,
employees, attorneys, affiliates, successors and assigns, from and against, and
pay or reimburse each of them for, any and all claims, losses, damages,
judgments, amounts paid in settlement, costs and legal, accounting or other
expenses (collectively, "Losses") that any of them may sustain or incur as a
result of any misrepresentation, any inaccuracy in, or any breach of, any
warranty or representation or any non-performance of any convenant or other
obligation on the part of WCM and POS contained in this Agreement, or any
document delivered hereunder; provided that WCM and POS shall not be required to
indemnify Franklin for Losses unless such Losses exceed $50,000 in the
aggregate, in which event WCM and POS shall be obligated to indemnify Franklin
for the amount of such Losses in excess of $50,000.
9.2 Indemnification by Franklin. Franklin agrees to indemnify, defend and
hold harmless WCM and officers, directors, stockholders, agents, employees,
attorneys, affiliates, successors and assigns and each of them, from and
against, and pay or reimburse each of them for, any and all Losses that any of
them may sustain or incur as a result of any misrepresentation, breach of
warranties or representations or non-performance of any covenants or other
obligations on the part of Franklin contained in this Agreement or any document
15
<PAGE>
delivered hereunder; provided that Franklin shall not be required to indemnify
WCM and POS for losses unless such Losses exceed $50,000 in the aggregate, in
which event POS shall indemnify such indemnified party for the amount of such
Losses in excess of $50,000.
9.3 Indemnification Procedures.
(a) Promptly after receipt by a party entitled to indemnification hereunder
(an "Indemnified Party") of notice of any claim or of the commencement of any
action, investigations, suit or proceeding ("Proceeding") with respect to which
such party may make a claim for Indemnification hereunder, the Indemnified Party
will notify the party against whom indemnification is sought (the "Indemnifying
Party") in writing of such claim or Proceeding, and the Indemnifying Party may
in his or its discretion assume the defense of such claim or Proceeding, in
which case he or it shall employ counsel reasonably satisfactory to the
Indemnified Party and shall pay the fees and expenses of such counsel.
Notwithstanding the preceding sentence, an Indemnified Party will be entitled to
employ counsel separate from counsel for the Indemnifying Party and to
participate in the defense of such claim or Proceeding at the Indemnified
Party's expense. No settlement or compromise of any claim or Proceeding shall
give rise to liability of the Indemnifying Party unless such party shall have
been notified of any proposed settlement or compromise and shall have consented
thereto; provided that the Indemnifying Party shall obtain the written consent
of the Indemnified Party, which consent shall not be unreasonably withheld,
prior to ceasing to defend, settling or otherwise disposing of any such claim or
proceeding, if as a result of the failure of the Indemnified Party to do so
would cause it or him to become subject to injunctive or other equitable relief,
or the business of the Indemnified Party (or that of its subsidiary) would be
materially adversely affected in any manner.
(b) Other Losses. In the event that any Indemnified Party suffers a Loss or
otherwise becomes entitled to indemnification hereunder from an Indemnifying
Party in a situation that does not involve a Proceeding being instituted by a
third party, the Indemnified Party shall send notice as it would pursuant to
Section 9.3(a) in order to provide reasonable notice to the Indemnifying Party
as to the nature and extent of the Loss.
(c) Effect. Any notice of a claim or Proceeding or a claim for indemnity
provided for herein shall be in writing and shall specify, to the extent known
by the Indemnified Party, the nature and extent of the claim or Proceeding and
the amount being asserted as damages or Losses, as the case may be.
Notwithstanding the foregoing, the failure to so provide notice on a timely and
adequate basis (except to the extent that such notice is given after the
survival period contained in Section 9.2) shall not relieve the Indemnifying
Party of its obligations to indemnify hereunder except to the extent that such
Indemnifying Party can establish prejudice to it by the lack of timely or
adequate notice.
16
<PAGE>
ARTICLE 10
Termination
10.1 Termination. This Agreement may be terminated and the transactions
contemplated hereby abandoned at any time prior to the Closing, whether prior to
or after approval by the stockholders of Franklin by consent of all of the
parties hereto, or by either Franklin, on the one hand, or WCM on the other, if;
(i) the other party shall, when made, have breached in any material respect any
of its representations or warranties contained in this Agreement; (ii) any such
representation or warranty shall not be correct or accurate in all material
respects at and as of the Closing Date with the same effect as if made at such
time (with such exceptions as are permitted hereunder); (iii) the other party
shall have failed top comply in all material respects with any of its convents
or agreements contained in this Agreement to be complied with or performed by it
at or prior to the Closing Date; (iv) if a permanent injunction is entered,
enforced or deemed applicable to this Agreement which prohibits the consummation
of the transactions contemplated hereby and all appeals of such injunction shall
have been taken and shall have been unsuccessful; (v) if any governmental
entity, the consent of which is a condition to the obligation of such party to
consummate the transactions contemplated hereby, shall have determined not to
grant its consent and all appeals of such determination shall have been taken
and shall have been unsuccessful, or (vi) the Closing Date shall not have
occurred within 180 days of the date hereof.
10. 2 Effect of Termination. In the event of termination of this Agreement
pursuant to Section 10.1 hereof, all rights of all parties hereto shall cease
and terminate, except for such rights as any party may otherwise have for breach
of contract, including, without limitation, rights for breach of any
representations, warranties or covenants contained herein.
ARTICLE 11
Miscellaneous
11.1 Governing Law. This agreement shall be governed by an construed under
the laws of the State of New York without regard to the conflicts of law
principles thereof.
11.2 Survival. The representations and warranties made herein shall survive
the Closing Date of the transactions contemplated hereby for a period of three
(3) years from the Closing Date.
11.3 Successors and Assigns. Except as otherwise provided herein, this
Agreement shall insure to the benefit of, and be binding upon, the
17
<PAGE>
successors, assigns, heirs, executors and administrators of the parties hereto.
Franklin may not assign its rights under this Agreement without the express
written consent of POS and WCM.
11.4 Entire Agreement: Amendment. This Agreement, its attachments, and the
other documents and agreements delivered pursuant hereto at the Closing Date
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof. Except as expressly provided
herein, neither this Agreement no any term hereof my be amended, waived,
discharged or terminated other than by a written agreement of POS and WCM, and
Franklin.
11.5 Notices. All notices and other communications required or permitted
hereunder shall be in writing and shall be mailed by registered or certified
mail, postage prepaid, or otherwise delivered by hand or by messenger, including
Federal Express or similar courier services, addressed (a) if to Franklin, 76
Beaver Street, Room 500, New York, New York 10005 or at such other address as
Franklin shall have furnished to the other parties hereto in writing or (b) if
to WCM or POS to P.O. Box 343, Millburn, New Jersey 07041, or such other address
as WCM or POS shall have furnished to the other parties hereto in writing. Each
such notice or other communication shall for all purposes of this Agreement be
treated as effective or having been given when delivered if delivered
personally, or, if sent by mail or courier, at the earlier of its receipt or 48
hours after the same has been deposited in a regularly maintained receptacle for
the deposit of the United States mail, addressed and mailed as aforesaid.
11.6 Delays or Omissions. Except as expressly provided herein, no delay or
omission to exercise any right, power or remedy accruing to any party to this
Agreement, shall impair any such right, power or remedy of such party nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character of any breach or default under this
Agreement, or any waiver of any provisions or conditions of this Agreement, must
be in writing and shall be effective only to the extent specifically set forth
in such writing. All remedies, either under this Agreement or by law or
otherwise afforded to any party to this Agreement, shall be cumulative and not
alternative.
11. 7 Expenses. WCM agrees to pay the expenses and legal fees incurred on
its behalf and on behalf of the other parties to this Agreement with respect to
this Agreement and the transactions contemplated hereby.
18
<PAGE>
11.8 Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be an original, and all of which together shall constitute
one instrument.
11.9 Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision. Furthermore, in lieu of such illegal, unenforceable or
void provision, there shall be added automatically as part of this Agreement a
provision as similar in terms to such illegal, unenforceable or void provision
as may be possible and be legal, enforceable and valid.
11.10 Effect of Headings. The section headings used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.
11.11 Announcements. Each party shall give to the other parties hereto
reasonable prior notice and shall consult with the other parties hereto on the
timing, contents and manner of making all announcements or press releases,
written or otherwise, relating to the transactions contemplated hereby, whether
to employees, stockholders or the public, by or on behalf of any of the parties
hereto, except to the extent required by law.
19
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
effective as of the date first set forth above.
FRANKLIN CONSOLIDATED MINING CO., INC.
By: /s/ J. Terry Anderson
------------------------------------
J. Terry Anderson, President
POS FINAICAL, INC.
By: /s/ William C. Martucci
------------------------------------
William C. Martucci, President
By: /s/ William C. Martucci
------------------------------------
William C. Martucci, Individually
20
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
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0
0
<COMMON> 039,552
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<TOTAL-LIABILITY-AND-EQUITY> 5,577,472
<SALES> 0
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<CGS> 0
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