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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
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Commission File No. ___________
UTAH RESOURCES INTERNATIONAL, INC.
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(Exact Name of Small Business Issuer as Specified in its Charter)
UTAH 87-0273519
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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297 W. Hilton Drive, Suite #4
St. George, Utah 84770
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(Address of Principal Executive Offices)
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(801) 628-8080
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(Issuer's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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.
(1) Yes ________ No ________
(2) Yes ________ No ________
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date: 2,522,808 shares as of October
8, 1996.
Transitional Small Business Disclosure Format (check one):
Yes ________ No _____X___
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
UTAH RESOURCES
INTERNATIONAL, INC.
UTAH RESOURCES INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
ASSETS 1996
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Cash and cash equivalents $ 648,216
Accounts receivable 408,069
Notes receivable 175,458
Income tax receivable 214,478
Property and equipment, net of
accumulated depreciation and
amortization of $38,709 35,450
Real estate held for resale 741,535
Royalty interest in petroleum and mineral
production, net of amortization of $41,034 9,176
Other assets 10,599
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$2,242,981
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LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 130,137
Accrued expenses 266,396
Earnest money deposits 36,000
Notes payable 597,359
Net liabilities of discontinued operations 48
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Total liabilities 1,029,940
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Minority interest 151,781
Stockholders' equity:
Common stock; par value $.10 per share,
5,000,000 shares authorized,
1,851,198 shares issued and outstanding 185,120
Additional paid-in capital 348,757
Retained earnings 527,383
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Total stockholders' equity 1,061,260
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$2,242,981
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UTAH RESOURCES INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
1996 1995
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Sales $ 35,121 110,657
Cost of sales 10,071 61,163
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Gross profit 25,050 49,494
General and administrative expenses 90,822 138,431
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Loss from operations (65,772) (88,937)
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Other income (expense):
Royalty income 27,796 16,347
Interest and dividend income - 2,460
Interest expense (29,570) (13,000)
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Total other income (expense) (1,774) 5,807
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Loss before minority interest and
income taxes (67,546) (83,130)
Minority interest in net loss of subsidiaries 332 -
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Loss before provision for income taxes
and discontinued operations (67,214) (83,130)
Income tax benefit - deferred 22,850 32,000
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Loss from continuing operations (44,364) (51,130)
Discontinued operations:
Income (loss) from discontinued operations net
of income taxes of $68,000 and $-0- 132,140 (13,254)
Loss from disposal of discontinued operations
net of income taxes benefit of $47,300 (91,838) -
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Total discontinued operations 40,302 (13,254)
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Net loss $ (4,062) (64,384)
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Loss per share $ (.00) (.05)
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Weighted average shares 1,851,198 1,284,027
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UTAH RESOURCES INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,062) (64,384)
Less income from discontinued operations (132,140) -
Add loss from disposition of discontinued operation 91,838 -
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,300 2,000
Minority interest in net loss
of subsidiaries (332) -
(Increase) decrease in:
Accounts receivable (35,447) (105,227)
Real estate held for resale 113,286 (57,588)
Income tax receivable (2,150) -
Other assets - (8,799)
(Decrease) increase in:
Accounts payable (146,309) -
Accrued expenses (46,078) 61,475
Deferred income tax - (300,000)
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Net cash used in continuing operations (159,094) (472,523)
Net cash provided by discontinued operations 41,007 -
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Net cash used in
operating activities (118,087) (472,523)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (791) (10,270)
Increase in notes receivable - (105,359)
Payments on notes receivable 3,531 -
Decrease in other assets - 9,975
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Cash provided by (used in) investing activities -
continuing operations 2,740 (105,654)
Cash from investing activities -
discontinued operation - -
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Net cash provided by (used in)
Investing activities 2,740 (105,654)
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UTAH RESOURCES INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED
1996 1996
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable (2,268) (22,277)
Dividends paid - (128,423)
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Cash used in financing activities -
continuing operations (2,268) (150,700)
Cash for financing activities -
discontinued operations - -
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Net cash (used in)
financing activities (2,268) (150,700)
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Decrease in cash (117,615) (728,877)
Cash and cash equivalents, beginning of period 765,831 2,138,795
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Cash and cash equivalents, end of period $ 648,216 1,409,918
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UTAH RESOURCES INTERNATIONAL
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(1) The unaudited financial statements include the accounts of Utah Resources
International, Inc., and subsidiaries and include all adjustments
(consisting of normal recurring items) which are, in the opinion of
management, necessary to present fairly the financial position as of March
31, 1996 and the results of operations and cash flows for the three months
ended March 31, 1996 and 1995. The results of operations for the three
months ended March 31, 1996 are not necessarily indicative of the results
to be expected for the entire year.
(2) Loss per common share is based on the weighted average number of shares
outstanding during the period.
Item 2. Management's Discussion and Analysis or Plan of Operation.
RESULTS OF OPERATIONS
The Company had land sales of $35,121 in the first quarter of 1996 as
compared with land sales of $110,657 in the first quarter of 1995. Management
attributes the reduced sales in 1996 to a slowdown in the sale of high-end
market lots as well as there being only a limited amount of developed lots
available. Interest income was higher in 1995 due to the fact that the Company
held more money in interest bearing accounts. Income on royalties from
production under oil and gas and mineral leases amounted to $27,296 in the first
quarter of 1996 as compared to $16,347 in the first quarter of 1995. The
increase in royalties income reflects the increase in oil and gas prices during
this period due to production fluctuations
Cost of land sold decreased from $61,163 in the first quarter of 1995 to
$10,071 in the first quarter of 1996, reflecting a decline in sales during the
first quarter of 1996 as compared to the first quarter of 1995. General and
administrative expenses decreased from $138,431 in the first quarter of 1995 to
$90,822 in the first quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash requirements of the Company are met by funds provided from operations
consisting of (a) the sale of improved lots and undeveloped property;
(b) royalty income; (c) interest income earned on money held in interest bearing
accounts; and (d) interest income earned on the IMCC Note as described under
Item 5. Other Information/Stock Purchase Agreement - July 3, 1996. The ratio of
assets to liabilities as of March 31, 1996 was approximately 2.17 to 1. The
Company's assets as of March 31, 1996 were valued at $2,242,981, as against
liabilities of $1,029,940.
The Company presently anticipates that cash from land sales and royalties
will be the primary sources for future additional liquidity for the Company.
From January, 1995, through July, 1996, litigation expenses imposed a
significant drain on the Company's liquidity. For a more detailed description
of the Company's litigation, see "PART II Item 1 Legal Proceedings."
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The Company also expects to be required to expend funds for the cleanup of
gasoline which has apparently leaked from tanks owned by the Service Station
Partnership, which have been replaced. Engineering estimates of total cleanup
costs are not determinable due to uncertainties with respect to state compliance
requirements and the, as yet, unknown extent of the contamination. In 1995,
approximately $55,000 was expended toward this clean-up operation.
It is anticipated that the Company's need for cash in excess of its present
resources will be met through revenues and real estate secured borrowings. No
firm financing commitment has been obtained for the purpose of completing the
1,000 to 1 reverse stock split by the Stock Purchase Agreement between
Inter-Mountain Capital Corporation and the Company. The Company does not have
backup lines of credit.
The Company has no plans for major capital expenditures beyond the cost of
improving portions of its real property.
The Company's business is influenced by interest rates, inflation and
market demands. Its royalty income from oil and gas interests affected by
fluctuations in the price of oil and the related decisions to drill new wells
and the rates at which well are pumped. The Company has no control over the oil
and gas field operations.
As of July 3, 1996, the Company holds a promissory note from Inter-Mountain
Capital Corporation, a Delaware corporation ("IMCC"), which is wholly owned by
John Fife (the President and CEO of the Company), in the original principal
amount of $3,633,159.42 (the "Note"). The Note bears interest at a rate equal
to the short-term applicable federal rate published by the Internal Revenue
Service in effect at the time of closing the Stock Purchase Agreement, and is
adjusted on each anniversary of the Note to the applicable short-term federal
rate in effect on such anniversary date. Interest on the Note is expected to be
paid currently in arrears on each anniversary of the Note. At the closing, IMCC
paid the Company $197,872.52, which amount represented the present value first
year of interest due under the Note. The principal and any unpaid interest
accrued under the Note is due and payable August 1, 2001. The Note is secured
by the 1,275,912 shares purchased by IMCC as evidenced by a stock pledge
agreement, dated as of July 3, 1996 between IMCC and the Company (the "Stock
Pledge Agreement"). Pursuant to a separate written guaranty agreement, John
Fife personally guaranteed payment of 25% of all amounts due under the Note.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
Over the past nine years, the Company has been involved in various disputes
and controversies involving its ownership, operation and management. A
shareholders derivative action captioned as ERNEST MUTH, ET AL. V. JOHN H.
MORGAN, JR., ET AL., was filed as Civil Number C-87-1632 in the Third Judicial
District Court of Salt Lake County, Utah (the "First State Action"), alleging
among other things that the officers and directors of the Company committed
various breaches of their fiduciary duties to the Company. A settlement
agreement was entered into in the First State Action on April 6, 1993 (the "1993
Settlement Agreement"), wherein, among other things, parties to the lawsuit
agreed to the manner in which directors of the Company would be selected until
such time as the 1993 Settlement Agreement was terminated. On or about July 21,
1995, attorneys for the Company on behalf of the Company filed an action against
John H. Morgan, Jr. and Daisy R. Morgan to enforce the 1993 Settlement Agreement
in the First State Action which resulted in certain findings of fact and
conclusions of law and an order enforcing the 1993 Settlement Agreement, entered
by Judge Michael R. Murphy on October 4, 1995 (the "Murphy Order"). The Murphy
Order
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was appealed by John H. Morgan, Jr. and Daisy R. Morgan and cross-appealed by
the Company. An Order to Show Cause was subsequently filed in the First State
Action on behalf of the Company by attorneys for the Company against John H.
Morgan, Jr. and Daisy R. Morgan (the "Order to Show Cause").
On or about February 16, 1995, pursuant to the Share Exchange Agreement,
the Company acquired all of the outstanding shares of Midwest from RD Wolff and
JJ Wolff in exchange for 590,000 restricted shares of authorized but unissued
shares of the Company. Pursuant to the Share Exchange Agreement, RD Wolff
became the President of the Company. For a more detailed description of the
Share Exchange Agreement see "ITEM 1 DESCRIPTION OF BUSINESS/(a) Business
Development Share Exchange Agreement" and Form 8-K filed July 20, 1995. A
shareholders derivative action captioned as ANNE MORGAN ET AL. V. R. DEE
ERICKSON, ET AL., was filed on July 18, 1995, as Case Number 2:95CV-0661C in the
United States District Court for the District of Utah, Central Division (the
"First Federal Action"), alleging that the defendants had violated proxy
solicitation rules, violated disclosure rules under the Exchange Act of 1934,
breached their fiduciary duties to the Company's shareholders, breached
professional duties, committed fraud, wasted and looted the Company's assets,
converted Company property and engaged in self-dealing, mismanaged the
corporation and breached the duty of loyalty. The complaint sought, among other
things, rescission of the Share Exchange Agreement. In April 1996, the Company,
Midwest, RD Wolff and JJ Wolff entered into a Split-Off Agreement whereby, among
other things, the Share Exchange Agreement was rescinded (the "Recision
Agreement") and the shares of Midwest acquired by the Company were returned to
RD Wolff and JJ Wolff.
On April 5, 1996, the Company entered into a letter of intent ("Letter of
Intent") with Inter-Mountain Capital Corporation, a Delaware corporation wholly
owned by John Fife ("IMCC"), to sell a controlling interest in the Company to
IMCC, at a purchase price equal to $3.35 per share. On May 17, 1996, a
shareholders derivative suit captioned as MARK TECHNOLOGIES CORP. ET AL. V. UTAH
RESOURCES INTERNATIONAL, INC., ET AL., was filed as Civil No. 96-090-3332CV in
the Third Judicial Court of Salt Lake County, Utah (the "Second State Action").
Mark G. Jones, a director of the Company, is the controlling shareholder of Mark
Technologies, Corporation. The Second State Action included, among other
things, a request for the issuance of a temporary restraining order and
injunction against the transactions contemplated in the Letter of Intent. On
June 26, 1996, the Company entered into two settlement agreements. The first
settlement agreement was by and among the Company, John H. Morgan, Jr., Daisy R.
Morgan, IMCC, John Fife, Robinson & Sheen, L.L.C., R. Dee Erickson, Lyle D. Hurd
and E. Jay Sheen ("Morgan Settlement Agreement"), whereby certain disputes among
the parties were resolved and settled and the parties agreed to use their best
efforts to terminate the 1993 Settlement Agreement. The second settlement
agreement was among the Company, R. Dee Erickson, E. Jay Sheen, Lyle D. Hurd,
Mark G. Jones, Mark Technologies Corporation, Anne Morgan, Victoria Morgan,
IMCC, John Fife and Robinson & Sheen, L.L.C. (the "1996 Settlement Agreement"),
whereby the parties agreed, among other things, agreed to dismiss the First
Federal Action, the Order to Show Cause, the Second State Action and to use
their best efforts to terminate the 1993 Settlement Agreement. On July 19,
1996, the notice of hearing of proposed settlement of the Second State Action,
the First State Action and the Federal Action and the notice of hearing on
petition to terminate the 1993 Settlement Agreement was mailed to all of the
Company's shareholders of record as of June 24, 1996. Among other things, the
notice provided that the 1996 Settlement Agreement and the Morgan Settlement
Agreement (together the "Settlement Agreements") were to be considered approved
by the court on August 12, 1996, and that all objections to the Settlement
Agreements had to be presented at that time. On August 9, 1996, shareholders
Jenny T. Morgan, Gerard E. Morgan, John C. Morgan and Karen J. Morgan
("Objectors") filed an objection to the hearing and requested that the court
continue the settlement approval hearing until after the Company shareholders'
vote on the Settlement Agreements and the IMCC Stock Purchase Agreement. In
their objections and request for continuance of hearing, the Objectors, among
other things, claimed that they had insufficient information with which to
evaluate the Stock Purchase Agreement between IMCC and the Company; that they
had insufficient
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information regarding John Fife, the sole shareholder of IMCC, and that they
needed additional time and information to evaluate the fairness of the Stock
Purchase Agreement, and to solicit bids to sell the Company. Further, the
Objectors alleged that the Company had refused to provide documentation relating
to the Stock Purchase Agreement to them. After considering the Objectors' and
the parties' initial arguments, the court granted both the parties and the
Objectors an additional seven days, through August 19, 1996, to submit written
memoranda in support of their positions. Both the Objectors and the parties
submitted written memoranda supporting their positions in regard to the
Settlement Agreements and the Stock Purchase Agreement. After considering the
written memoranda and arguments presented by both sides, on August 23, 1996 the
court denied the Objector's petition, and entered an order approving the
Settlement Agreements. As required by the Transaction Agreements, as defined
below, the 1996 Settlement Agreement and the Morgan Settlement Agreement were
approved by the Third Judicial District Court of Salt Lake County, West Valley
Department Utah, on or about August 28, 1996. The Order to Show Cause was
dismissed with prejudice and the 1993 Settlement Agreement was terminated on
August 29, 1996.
On July 3, 1996, following execution of the Letter of Intent, the Morgan
Settlement Agreement and the 1996 Settlement Agreement, the Company and IMCC
entered into a Stock Purchase Agreement (the "Stock Purchase Agreement") (the
Letter of Intent, the Morgan Settlement Agreement, the 1996 Settlement Agreement
and the Stock Purchase Agreement are hereinafter collectively referred to as the
"Transaction Agreements") whereby the Company issued and sold 1,275,912 shares
(the "Purchased Shares") of common, $.10 par value per share stock (the "Common
Stock") to IMCC, which is wholly owned by John Fife, so that IMCC owned a 50.5%
interest in the Company. IMCC acquired the Purchased Shares at a price equal to
$3.35 per share for an aggregate purchase price of $4,274,305.20 (the "Purchase
Price"), of which $641,145.78 was paid in cash by IMCC to the Company at the
closing. The remaining $3,633,159.42 was evidenced by IMCC's promissory note
(the "Note"). The Note bears interest at a rate equal to the short-term
applicable federal rate published by the Internal Revenue Service in effect at
the time of closing, and is adjusted on each anniversary of the Note to the
applicable short-term federal rate in effect on such anniversary date. Interest
on the Note is paid currently in arrears on each anniversary of the Note. At
the closing, IMCC paid $197,872.52 to the Company which amount represented the
present value first year of interest due under the Note. The principal and any
unpaid interest accrued under the Note is due and payable August 1, 2001. The
Note is secured by the Purchased Shares as evidenced by a stock pledge
agreement, dated as of July 3, 1996, by and between IMCC and the Company (the
"Stock Pledge Agreement"). Pursuant to a separate written guaranty agreement,
John Fife personally guaranteed payment of 25% of all amounts due under the
Note. For a more detailed description of the Stock Purchase Agreement, see
Form 8-K filed by the Company on July 18, 1996, and to review a copy of the
Stock Purchase Agreement, see Schedule 13D-A filed by IMCC on September 9, 1996.
As required by the Stock Purchase Agreement, E. Jay Sheen and R. Dee
Erickson submitted their resignations as directors of the Company, effective
July 13, 1996. As further required by the Stock Purchase Agreement, John Fife
was appointed a director of the Company. David Fife, the brother of John Fife,
was also appointed as a director of the Company. John Fife and David Fife were
appointed as directors of the Company by the Muth Group pursuant to the 1993
Settlement Agreement effective July 13, 1996. As required by the Stock Purchase
Agreement, John Fife was elected President and Chief Executive Officer of the
Company in July, 1996, pursuant to a 3-2 vote of the Board. John Fife also
serves as Chairman of the Board of the Company pursuant to a 3-2 vote of the
Board.
The Letter of Intent and the Transaction Agreements, including the Stock
Purchase Agreement, contemplated that subject to applicable state and federal
securities and state corporate law, the Company would cause a 1,000 to 1 share
reverse split of the Company's Common Stock to the shareholders of record at
$3.35 per share (the "Reverse Split"), with fractional shareholders given the
option to either purchase additional fractional shares to round up to one whole
share
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following the reverse split or sell their fractional shares for cash to the
Company. IMCC was granted a ten year option to purchase 150,000 or more
additional shares of stock at a price equal to $3.35 per share and on the same
terms and conditions as those provided under the Stock Purchase Agreement, so
that after the Reverse Split IMCC may maintain its 50.5% majority interest in
the Company. Subsequent to the Reverse Split and subject to applicable state
and federal securities and state corporate law, any Company shares redeemed by
the Company pursuant to the Reverse Split (the "Returned Shares") may be
acquired by the remaining shareholders, other than IMCC or its affiliates, in
increments of 1,000 shares (the "Returned Share Option") at a purchase price
equal to the pre-Reverse-Split $3.35 per share (the "Returned Share Purchase
Price"). Only those shares for which the Company has received a fully and
properly executed letter of transmittal, accompanied by the required documents,
will qualify as Returned Shares for the purposes of this Returned Share Option.
Such Common Stock shall be purchased in blocks of 1,000 shares of Common Stock
such that each purchase of a 1,000 share block of Common Stock shall be
converted into 1 share of common, $100.00 par value per share stock of the
Company (the "New Stock"). In the event the Returned Share Option is
over-subscribed, then each of the exercising shareholders may purchase the
Returned Shares on a pro-rata basis. Twenty-five percent (25%) of the Returned
Share Purchase Price will be payable in cash upon exercise, with the remaining
balance of $2.51 per share being evidenced by the Return Share Note. The terms
and conditions of the Reverse Split are described in greater detail in "PART II
OTHER INFORMATION/Item 5. Other Information."
In December, 1995, Mark Technologies Corporation received 201,210 shares of
the Company's Common Stock from Morgan Gas & Oil Co., as partial payment of a
promissory note. The promissory note was in consideration of the sale to Morgan
Gas & Oil Co. from Mark Technologies Corporation of a limited partnership
interest in Alta Mesa Wind Partners, a California limited partnership in the
wind generated power business. The Company is a shareholder of Morgan Gas & Oil
Co. The Company brought a shareholders derivative action against Morgan Gas &
Oil Co. and its directors and against Mark Jones, Mark Technologies Corporation,
Alta Mesa Wind Partners, John H. Morgan, Jr., Daisy R. Morgan, Sylvia Wunderly,
John Wunderly, and Melbourne Romney, III, alleging among other things, that in
connection with the sale of Alta Mesa Wind Partners limited partnership interest
to Morgan Gas & Oil Co., Mark Jones, Mark Technologies Corporation and Alta Mesa
Wind Partners concealed and misrepresented material information to be provided
to Morgan Gas & Oil Co. directors and that the Morgan Gas & Oil Co. directors
committed a breach of fiduciary duty and a wasting of corporate assets. The
suit was dismissed without prejudice.
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
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Item 5. Other Information.
John H. Morgan, Jr. and Daisy R. Morgan resigned as directors of the
Company in January of 1996. John H. Morgan, Jr. appointed Jenny Tate Morgan as
his replacement director for the Company and Daisy R. Morgan appointed Mark G.
Jones as her replacement director for the Company pursuant to the terms of the
1993 Settlement Agreement.
STOCK PURCHASE AGREEMENT - JULY 3, 1996
On April 5, 1996, Inter-Mountain Capital Corporation, a Delaware
corporation wholly owned by John Fife ("IMCC"), entered into a Letter of Intent
with the Company (the "Letter of Intent"), whereby IMCC agreed, if certain
conditions were met, to purchase a 51% interest in the Company at a purchase
price of $3.35 per share. One of the conditions for consummating the
transaction contemplated by the Letter of Intent was the spinoff of Midwest
Railroad Construction and Maintenance Corporation ("Midwest"). Pursuant to the
Letter of Intent, IMCC agreed to pay 10% of the purchase price at closing with
the remaining 90% owing to be evidenced by a promissory note. The Letter of
Intent also provided that the Company grant IMCC a ten year option to purchase
an additional 150,000 or more shares of the Company's stock, so that IMCC, at
all times would have the right to own a 51% interest in the Company. The Letter
of Intent also provided that subsequent to the closing and subject to financing
and other conditions, the Company would cause either a: (i) 12,500 to 1 share
reverse split of the Company's stock, at $3.35 per share, with fractional
shareholders given the option to round-up and maintain their shareholder status;
or (ii) tender offer for its shares at $3.35 per share subject to certain
payment options. If the transactions contemplated by the Letter of Intent were
consummated it was the intent of IMCC to delist the common stock of the Company
from any national securities exchange. In order to obtain a copy of the Letter
of Intent and for a more detailed description of the terms of the Letter of
Intent, see Schedule 13D-A filed by IMCC on September 9, 1996 and Schedule 13D
filed by IMCC on April 16, 1996. The Company entered into the Letter of Intent
over the objections of Mark Jones and Jenny Morgan, being two directors of the
Company.
On May 17, 1996, a shareholders derivative suit captioned as MARK
TECHNOLOGIES CORP., ET AL. V. UTAH RESOURCES INTERNATIONAL, INC. ET AL., was
filed as Civil No. 96-090-3332CV in the Third Judicial Court of Salt Lake
County, Utah (the "Second State Action"). Mark G. Jones, a director of the
Company, is the controlling shareholder of Mark Technologies Corporation. The
Second State Action, included, among other things, a request for the issuance of
a temporary restraining order and injunction against the transactions
contemplated in the Letter of Intent. Furthermore, plaintiff wished to have the
sale of the 51% interest to IMCC voted on by the shareholders of the Company.
On or about June 26, 1996, the Company entered into two settlement
agreements. The first settlement agreement was by and among the Company, John
H. Morgan, Daisy R. Morgan, IMCC, John Fife, Robinson & Sheen, L.L.C., R. Dee
Erickson, Lyle D. Hurd, and E. Jay Sheen (the "Morgan Settlement Agreement"),
whereby certain disputes among the parties were resolved and settled and the
parties agreed to use their best efforts to terminate the 1993 Settlement
Agreement. A copy of the Morgan Settlement Agreement is attached as
Exhibit 10.37 to the Company's Form 10-KSB for Fiscal Year End 1995. The "1993
Settlement Agreement" was the result of the settlement of a shareholders'
derivative action captioned as ERNEST MUTH, ET AL. V. JOHN H. MORGAN, JR. ET
AL., which was filed as Civil Number C-87-1632 in the Third Judicial District
Court of Salt Lake County, Utah (the "First State Action"), where plaintiffs
therein alleged, among other things, that the officers and directors of the
Company committed various breaches of their fiduciary duties to the Company. A
settlement agreement in the First State Action was entered on April 6, 1993 (the
"1993 Settlement Agreement"). On or about July 21, 1995, attorneys for the
Company on behalf of the Company filed an action against John H. Morgan and
Daisy R. Morgan, directors of the Company, to enforce the 1993 Settlement
Agreement in the First State Action which resulted in certain findings of fact
and conclusions of law and an order enforcing the 1993 Settlement Agreement
entered by Judge
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Michael R. Murphy on October 4, 1995 (the "Murphy Order"). The Murphy Order was
appealed by John H. Morgan, Jr. and Daisy R. Morgan and cross-appealed by the
Company. An Order to Show Cause was subsequently filed in the First State
Action on behalf of the Company by attorneys for the Company against John H.
Morgan, Jr., Daisy R. Morgan, and Mark G. Jones and others (the "Order to Show
Cause"). The second settlement agreement was by and among the Company, R. Dee
Erickson, E. Jay Sheen, Lyle D. Hurd, Mark G. Jones, Mark Technologies
Corporation, Anne Morgan, Victoria Morgan, IMCC, John Fife and Robinson & Sheen,
L.L.C. (the "1996 Settlement Agreement), whereby the parties, among other
things, agreed to dismiss the Second State Action and to use their best efforts
to terminate the 1993 Settlement Agreement and to settle certain other
litigation. A copy of the 1996 Settlement Agreement is attached as
Exhibit 10.38 to the Company's Form 10-KSB for Fiscal Year End 1995. For a more
detailed description of the Company's legal proceedings, see "PART II OTHER
INFORMATION/Item 1. Legal Proceedings," and copies of the Morgan Settlement
Agreement and the 1996 Settlement Agreement which are attached as Exhibits 10.37
and 10.38 to the Company's Form 10-KSB for Fiscal Year End 1995, respectively.
In addition, the 1996 Settlement Agreement amended certain provisions of the
Letter of Intent including, the elimination of the option that IMCC would cause
the Company to initiate a tender offer for its shares and the reduction in the
reverse split from 12,500 shares to 1 to 1,000 shares to 1 and an increase in
the IMCC payment at closing from 10% of the purchase price to 15% of the
purchase price. On or about August 9, 1996, a Motion to Intervene was filed by
shareholders Jenny T. Morgan, Gerard E. Morgan, John C. Morgan and Karen J.
Morgan (together the "Objectors"). On August 22, 1996, the court denied the
Objector's petition. The 1996 Settlement Agreement and the Morgan Settlement
were approved by the Third Judicial District Court of Salt Lake County, West
Valley Department of Utah, on or about August 23, 1996. The First Federal
Action and the Second State Action were dismissed with prejudice on August 28,
1996. The Order to Show Cause was dismissed with prejudice and the 1993
Settlement Agreement was terminated on August 29, 1996.
On July 3, 1996, pursuant to the Letter of Intent and the 1996 Settlement
Agreement, the Company and IMCC entered into a Stock Purchase Agreement (the
"Stock Purchase Agreement"), whereby the Company issued and sold 1,275,912
shares (the "Purchased Shares") of its common, $.10 par value per share stock
(the "Common Stock") to IMCC, so that IMCC owned a 50.5% interest in the
Company. IMCC acquired the Purchased Shares at a price equal to $3.35 per share
for an aggregate purchase price of $4,274,305.20 (the "Purchase Price"), of
which $641,145.78 was paid in cash by IMCC to the Company at the closing. The
remaining portion of the purchase price of $3,633,159.42 was evidenced by IMCC's
promissory note (the "Note"). The Note bears interest at a rate equal to the
short-term applicable federal rate published by the Internal Revenue Service in
effect at the time of closing, and is adjusted on each anniversary of the Note
to the applicable short-term federal rate in effect on such anniversary date.
Interest on the Note is to be paid currently in arrears on each anniversary of
the Note. At the closing, IMCC paid $197,872.52 to the Company, which amount
represented the present value first year of interest due under the Note. The
principal and any unpaid interest accrued under the Note is due and payable
August 1, 2001. The Note is secured by the Purchased Shares as evidenced by a
stock pledge agreement, dated as of July 3, 1996, by and between IMCC and the
Company (the "Stock Pledge Agreement"). Pursuant to a separate written guaranty
agreement, John Fife personally guaranteed payment of 25% of all amounts due
under the Note from to time. For a more detailed description of the Stock
Purchase Agreement, see Form 8-K filed by the Company on July 18, 1996, and to
review a copy of the Stock Purchase Agreement, see Schedule 13D-A filed by IMCC
on September 9, 1996.
As required by the Stock Purchase Agreement, E. Jay Sheen and R. Dee
Erickson, submitted their resignations as directors of the Company, effective
July 13, 1996. As further required by the Stock Purchase Agreement, John Fife
was appointed a director of the Company. David Fife, the brother of John Fife,
was also appointed as a director of the Company. John Fife and David Fife were
appointed directors of the Company by the Muth Group pursuant to the 1993
Settlement Agreement, effective July 13, 1996. As required by the Stock
Purchase Agreement, John Fife was elected President and Chief Executive Officer
of the Company in July, 1996 pursuant to a 3-2 vote of
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the Board. John Fife also serves as Chairman of the Board of the Company
pursuant to a 3-2 vote of the Board.
The Stock Purchase Agreement contemplated that subject to applicable state
and federal securities and state corporate law, the Company would cause a 1,000
to 1 share reverse split of the Company's stock to the shareholders of record at
$3.35 per share, with fractional shareholders given the option to either
purchase additional fractional shares to round up to one whole share following
the reverse split or sell their fractional shares for cash to the Company. IMCC
was granted a ten year option to purchase 150,000 or more additional shares of
stock at a purchase price equal to $3.35 per share and on the same terms and
conditions as those provided under the Stock Purchase Agreement, so that after
the reverse split IMCC may maintain its 50.5% majority interest in the Company.
Subsequent to the reverse split and subject to applicable state and federal
securities and state corporate law, any Company shares redeemed by the Company
pursuant to the reverse split (the "Returned Shares") may be acquired by the
remaining shareholders, other than IMCC or its affiliates, in increments of
1,000 shares (the "Returned Share Option"), at a purchase price equal to the
pre-reverse-split price of $3.35 per share (the "Returned Share Purchase
Price"). Only those shares for which the Company has received a fully and
properly executed letter of transmittal, accompanied by the required documents,
will qualify as Returned Shares for the purposes of this Returned Share Option.
Such Common Stock shall be purchased in blocks of 1,000 shares of Common Stock
such that each purchase of a 1,000 share block of Common Stock shall be
converted into one (1) share of common $10.00 par value per share stock of the
Company (the "New Stock"). In the event the Returned Share Option is
over-subscribed, then each of the exercising shareholders may purchase the
Returned Shares on a pro-rata basis (as determined by the number of shares held
by each of the exercising shareholders as of the record date less those shares
held by IMCC), but in no event in less than 1,000 share blocks. In the event of
such over-subscription, each qualified shareholder could elect to purchase that
percentage of Returned Shares equal to X/(Y-Z) where "X" equals the number of
New Stock shares owned by the qualified shareholder wishing to purchase the
Returned Shares, "Y" equals the total number of issued shares of New Stock, and
"Z" equals the number of issued shares of New Stock owned by IMCC. Twenty-five
percent (25%) of the Returned Share Purchase Price shall be payable in cash upon
exercise, with the remaining balance of $2.51 per share being evidenced by a
note (the "Returned Share Note"), payable in three (3) years. Subject to
applicable Internal Revenue Service rules, the Returned Share Note shall bear
simple interest at the short term applicable federal rate as stated in June,
1996, which interest shall be payable annually in arrears. Payment of the
Returned Share Note will be secured by a pledge of the Returned Shares
purchased, as converted into share(s) of New Stock, pursuant to a stock pledge
agreement to be provided by the Company. Exercising shareholders purchasing
Returned Shares shall be required to apply any dividends, distributions or other
payments made to the shareholder of the Company on the Returned Shares/New Stock
to payment of the unpaid balance of the Returned Share Note. Returned Shares,
as converted into New Stock, purchased by an exercising shareholder shall be
fully votable in accordance with the terms of the Company's organizational
documents and other agreements binding the Company for so long as the exercising
shareholder is not in default under the pledge agreement or the Returned Share
Note.
As a result of the reverse split, the Company is expected to become a
non-reporting company. A company with assets of over $5 million becomes a
"reporting company" when its shareholders number 500 or more. To thereafter be
allowed to become a "non-reporting company" and cease reporting to the
Securities and Exchange Commission, the number of shareholders must decline to
less than 300. Of the approximately 558 shareholders, approximately 479
shareholders of record own fewer than 1,000 shares, leaving approximately 79
shareholders post reverse-split if none of these shareholders exercise their
option to round up.
In addition to the contractual requirement that a reverse stock split
occur, as provided for in the Stock Purchase Agreement, the Company's senior
management and its Board of Directors have assessed the advantages and
disadvantages of the Company's status as a "reporting company"
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under the Exchange Act. First, such reporting is very costly. Furthermore, a
majority of the Board of Directors does not believe that being a "reporting
company" has given the Company any significant advantage the Company would not
otherwise have had as a "non-SEC reporting company." The Company's registration
with the SEC has not improved flexibility for current or future financing of
corporate expansion through the building of a broader equity base, nor has it
made the valuation of shares of the Common Stock significantly easier (since no
active market exists for the sale of stock which is reflective of the Company's
operations and earnings potential). Finally, such registration has not resulted
in the development of an active public market for the Common Stock and thus has
not provided substantially increased liquidity for shareholders who desire to
sell their Common Stock. For a more detailed description of the history of the
Stock Purchase Agreement see "PART II OTHER INFORMATION/Item 1. Legal
Proceedings," Schedule 13D-A filed September 9, 1996, Form 8-K filed July 19,
1996, and Schedule 13D filed April 16, 1996.
SHARE EXCHANGE AGREEMENT
On June 13, 1995, the Company consummated the exchange of 590,000 shares of
its common stock, representing approximately 33% of the total issued and
outstanding shares of the Company's common stock following the transaction, in
return for receipt of all of the issued and outstanding stock of Midwest
Railroad Construction and Maintenance Corporation ("Midwest") pursuant to a Plan
of Share Exchange and Share Exchange Agreement, dated February 16, 1995 by and
among the Company, Midwest, Robert D. Wolff ("RD Wolff") and Judith J. Wolff
("JJ Wolff") (the "Share Exchange Agreement"). The Share Exchange Agreement was
approved by a 3-2 vote of the Board. Directors John H. Morgan, Jr., and
Daisy R. Morgan voted against the Share Exchange Agreement. All of the common
stock of Midwest was owned by RD Wolff and JJ Wolff. The Share Exchange
Agreement was accomplished as a tax free reorganization pursuant to Section
368(a)(1)(B) of the Internal Revenue Code of 1986, as amended (the "Code").
Midwest, headquartered in Salt Lake City, Utah, is in the railroad construction
and maintenance business, operating out of five regional offices located in
Utah, Wyoming, Colorado, Nebraska and New Mexico. Midwest also provides
railroad engineering, surveying, bridge and structural maintenance, grade
crossing and in-plant switching services. Pursuant to the terms of the Share
Exchange Agreement, the Company agreed to: (i) indemnify Midwest and the Wolffs
from any liability to the Company's shareholders, its officers or directors,
whether brought directly by the person or in a derivative capacity arising from
Midwest's or the Wolffs' negotiation, execution, or consummation of the Share
Exchange Agreement; (ii) execute a three year employment agreement between RD
Wolff and the Company, whereby RD Wolff would act as the President of Midwest;
(iii) apply for a listing of its stock on the NASDAQ; and (iv) lend Midwest, in
the form of a line of credit, a sum not to exceed $250,000, with the first draw
available after February 15, 1995, evidenced by a promissory note in standard
form, bearing an interest rate of 1% over the posted prime lending rate at First
Security Bank of Utah, N.A., as of February 15, 1995, and adjusted each three
months thereafter. Prior to closing of the Share Exchange Agreement, Midwest
borrowed a total of $100,000 against the line of credit. Pursuant to the terms
and conditions of the Share Exchange Agreement, the line of credit from the
Company became subordinate to Midwest's existing credit line of $350,000. The
line of credit was secured by the assets and equipment of Midwest. The Company
entered into an employment agreement with RD Wolff, dated as of June 13, 1995
(the "Wolff Employment Agreement"), and an operating agreement between Midwest
and RD Wolff, dated as of June 13, 1995 (the "Operating Agreement"). Pursuant
to the Wolff Employment Agreement, RD Wolff was to serve as CEO of the Company
and Midwest, and RD Wolff was to receive $125,000 per year in compensation
during the term of the Wolff Employment Agreement. Furthermore, during the
first five quarters of the Wolff Employment Agreement, beginning July 1, 1995,
RD Wolff was to receive $25,000 in additional compensation per quarter. In
addition to his base salary, RD Wolff was to receive an annual bonus computed on
the after tax net earnings of Midwest, as follows: (a) 5% of the first $200,000
in net earnings of Midwest, (b) 7% of the net $200,000, and (c) 10% of all
amounts over the first $400,000 in net earnings of Midwest. RD Wolff was also
entitled to participate in the Company's health and benefit plans. Pursuant to
the terms of the Operating Agreement and for
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services performed in connection with the consummation of the Share Exchange
Agreement, the Company paid to each of R. Dee Erickson and E. Jay Sheen, both of
whom were directors of the Company at the time of the execution of the Share
Exchange Agreement, as compensation, 38,000 shares each of the Company's Common
Stock and $104,000 in cash. For a more detailed description of the Share
Exchange Agreement, the Wolff Employment Agreement and the Operating Agreement
and for copies of the above listed agreements see Form 8-K filed on behalf of
the Company on July 20, 1995.
On July 18, 1995, Anne Morgan and Victoria Morgan, at the time shareholders
of the Company and the adult daughters of John H. Morgan, Jr. ("JH Morgan") and
Daisy R. Morgan ("DR Morgan"), both former directors and shareholders of the
Company, filed a shareholders derivative action against R. Dee Erickson
("Erickson"), E. Jay Sheen ("Sheen"), Lyle D. Hurd ("Hurd") (Messrs. Erickson,
Sheen and Hurd were three of the five directors of the Company at the time the
suit was filed, with JH Morgan and DR Morgan being the remaining two directors),
the Company, Midwest, RD Wolff and JJ Wolff, in the United States District Court
for the Central District of Utah, Case Number 2:95CV 661J, captioned as ANNE
MORGAN ET AL. V. R. DEE ERICKSON, ET AL. (the "First Federal Action"). The
complainants alleged, among other things that the defendants had violated proxy
solicitation rules, violated disclosure rules under the Exchange Act of 1934,
breached their fiduciary duties to the Company's shareholders, breached
professional duties, committed fraud, wasted and looted the Company's assets,
converted Company property, engaged in self-dealing, mismanaged the Company and
breached their duty of loyalty. The complaint sought, among other things, the
rescission of the Share Exchange Agreement.
The terms of the Letter of Intent between IMCC and the Company required
that the Company rescind the Share Exchange Agreement. For the foregoing
reason, Midwest and the Company entered into a Splitoff Agreement, dated as of
April 25, 1996 (the "Splitoff Agreement"), whereby the Share Exchange Agreement
was rescinded. A copy of the Splitoff Agreement is attached hereto as
Exhibit 10.36. Pursuant to the terms of the Splitoff Agreement, the Company
transferred all of the outstanding shares of Midwest stock held by the Company
to the Wolffs in exchange for the 590,000 shares of the Company's stock then
held by the Wolffs which transfer was accomplished tax free in accordance with
Section 355 of the Code. Furthermore, the Share Exchange Agreement, the Wolff
Employment Agreement and the Operating Agreement were cancelled. RD Wolff
ceased to be the President of the Company. Midwest received a net intercompany
transfer of approximately $316,974.17 through March 31, 1996, which Midwest
retained. Furthermore, the parties to the Splitoff Agreement agreed that in the
event intercompany transfers for the period from July 1, 1995 through March 31,
1996 were: (i) less than $316,974.17, then the Company would pay Midwest the
difference; or (ii) more than $316,974.17, then Midwest would pay the Company
the difference.
Pursuant to the Splitoff Agreement, the Company agreed to indemnify Midwest
and the Wolffs and their respective agents, employees, attorneys, officers,
directors and assigns from any and all claims, causes of action, liabilities,
damages, costs, expenses and attorneys' fees arising from or relating in any way
to the Company or the Share Exchange Agreement. This indemnification provision
would not apply to acts of fraud, gross negligence or willful misconduct by RD
Wolff. The Wolffs and Midwest agreed to indemnify the Company and its
respective agents, employees, attorneys, officers, directors, successors and
assigns from any and all claims, causes of action, liabilities and damages
arising from or relating in any way to the Splitoff Agreement, which
indemnification obligation is limited to $312,000. Within 30 days from the date
of execution of the Splitoff Agreement, the Company's accountants are to have
calculated the federal, state and local income taxes attributable to Midwest's
business operations (excluding any impact of salary payable or paid to RD Wolff
or any intercompany charges to the Company for rent, overhead and administrative
expenses) for the period commencing June 1, 1995 and terminating on December 31,
1995. Such taxes are to be determined on the basis as if the Company and
Midwest were not filing a consolidated tax return for the same period or part
thereof (whether or not a consolidated return is
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filed). The amount of such taxes is to be considered an intercompany receivable
between the Company and Midwest. Midwest agreed to pay such tax amount to the
Company in 12 installments. Simultaneous with the execution of the Splitoff
Agreement, Midwest paid the Company the sum of $10,000 as an initial tax
payment. The balance due the Company is to be paid in 11 additional equal
monthly installments, each such installment due on the first day of each month
until all 11 installments have been paid in full. The first of the 11 monthly
installments is due and payable on the first day of the month following the
determination of the taxes owed by Midwest to the Company. The taxes to be paid
have not yet been determined.
Item 6. Exhibits and Reports on Form 8-K.
None.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Utah Resources International, Inc.
Date: January 21, 1997 /s/ John Fife
---------------- --------------------------------
John Fife, President and CEO
Date: January 21, 1997 /s/ Ladd Worth Eldredge
---------------- --------------------------------
Ladd Worth Eldredge, Chief
Financial Officer
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