<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1994
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/x/ Preliminary proxy statement
/ / Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
NATEC RESOURCES, INC.
(Name of Registrant as Specified in its Charter)
NATEC RESOURCES, INC.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/x/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
<TABLE>
<S> <C>
1) Title of each class of securities to which transaction applies:........... N/A
2) Aggregate number of securities to which transaction applies:.............. N/A
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:.............................. N/A
4) Proposed maximum aggregate value of transaction:.......................... $10 Million
</TABLE>
Set forth the amount on which the filing fee is calculated and state how it was
determined.
/x/ Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form of Schedule and the date of its filing.
<TABLE>
<S> <C>
1) Amount previously paid:.................................................. $125.00
2) Form, Schedule or Registration Statement No.:............................ Schedule 14A
3) Filing party:............................................................ Registrant
4) Date filed:.............................................................. April 20, 1995
</TABLE>
<PAGE> 2
NATEC RESOURCES, INC.
1177 West Loop South, Suite 800
Houston, Texas 77027
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held July 21, 1995
To the Stockholders of
NaTec Resources, Inc.:
Notice is hereby given that an Annual Meeting of Stockholders of NaTec
Resources, Inc. (the "Annual Meeting") will be held at 1177 West Loop South,
Lobby Level, Houston, Texas on Friday, July 21, 1995, at 9:00 a.m. local time,
for the following purposes:
1. To elect two directors to serve on the Board of Directors.
2. To consider and vote upon a proposal to approve the sale of
substantially all of the Company's business and assets to North
American Chemical Company, all as more fully described in the
accompanying Proxy Statement.
3. To consider and vote upon a proposal to approve the complete
and voluntary liquidation and dissolution of the Company conditioned
upon the approval by stockholders and consummation of the proposed
sale of assets to NACC, such liquidation and dissolution being
revocable by the Board of Directors in the event it deems such
revocation to be in the best interest of the Company and its
stockholders.
4. To transact any other business which properly may be brought
before the meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on July 3, 1995
as the record date for the determination of stockholders entitled to receive
notice of, and to vote at, the Annual Meeting and any adjournments thereof, and
only Stockholders of record at said time and on said date are entitled to notice
of, and to vote at, the Annual Meeting.
Stockholders are cordially invited to attend the Annual Meeting in
person. Those who will not attend and who wish their shares voted are requested
to sign, date and mail promptly the enclosed proxy, for which a stamped return
envelope is provided.
By Order of the Board of Directors
/s/ TIMOTHY R. DUNNE
--------------------
Timothy R. Dunne, Secretary
Houston, Texas
July 7, 1995
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE ANNUAL MEETING, YOU ARE URGED TO
PROMPTLY COMPLETE, SIGN AND MAIL THE ENCLOSED PROXY IN THE ACCOMPANYING
ENVELOPE. IF YOU ATTEND THE ANNUAL MEETING, YOU MAY EITHER VOTE IN PERSON OR BY
YOUR PROXY.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION................................................................ 1
Solicitation and Revocability of Proxies.......................... 1
Voting Securities and Record Date................................. 3
SUMMARY..................................................................... 5
VOTING RIGHTS AND PROXY INFORMATION......................................... 13
ELECTION OF DIRECTORS....................................................... 14
General........................................................... 14
Nominees for Directors............................................ 15
THE ACQUISITION PROPOSAL.................................................... 15
Background of the Acquisition Proposal............................ 15
Use of Proceeds................................................... 18
Stockholder Approval.............................................. 21
Description of Acquisition Agreement and Ancillary Agreements..... 21
Recommendation of the Company's Board of Directors................ 30
Certain Federal Income Tax Consequences........................... 31
Possibility that the Asset Sale will not be Consummated........... 32
Accounting Treatment.............................................. 32
Fees and Expenses................................................. 32
Dissenters' Rights of Appraisal................................... 32
LIQUIDATION AND DISSOLUTION PROPOSAL....................................... 33
General........................................................... 33
Use of Proceeds................................................... 34
Stockholder Approval.............................................. 35
Recommendation of the Company's Board of Directors................ 35
Certain Federal Income Tax Consequences........................... 35
Accounting Treatment.............................................. 36
Dissenters' Rights of Appraisal................................... 36
Revocation of Dissolution......................................... 36
SELECTED FINANCIAL DATA..................................................... 37
NATEC RESOURCES, INC.
UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS..................................................... 38
NATEC RESOURCES, INC. PRO FORMA STATEMENT OF NET ASSETS IN LIQUIDATION
As of March 31, 1995...................................................... 39
NATEC RESOURCES, INC. PRO FORMA STATEMENT OF OPERATIONS
For the Fiscal Year Ended December 31, 1994............................... 40
NATEC RESOURCES, INC. PRO FORMA STATEMENT OF OPERATIONS ADJUSTMENTS......... 41
CERTAIN INFORMATION CONCERNING THE COMPANY.................................. 41
Incorporation of Certain Documents by Reference................... 41
</TABLE>
2
<PAGE> 4
<TABLE>
<S> <C>
Interests of Certain Persons...................................... 41
CERTAIN INFORMATION CONCERNING NACC......................................... 42
NACC Business Description......................................... 42
Relationship with the Company..................................... 42
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............. 43
BOARD OF DIRECTORS.......................................................... 44
Meetings and Committees of the Board of Directors................. 44
Director Compensation............................................. 45
EXECUTIVE OFFICERS.......................................................... 45
EXECUTIVE COMPENSATION AND OTHER INFORMATION................................ 45
Compensation Tables............................................... 45
Compensation Committee Report..................................... 47
Performance Graph................................................. 48
Compensation Committee Interlocks and Insider Participation....... 49
Employment Agreement and Certain Transactions..................... 49
MARKET PRICES OF COMMON STOCK............................................... 50
LEGAL PROCEEDINGS........................................................... 50
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................. 51
INDEPENDENT ACCOUNTANTS..................................................... 51
STOCKHOLDER PROPOSALS....................................................... 52
OTHER MATTERS............................................................... 52
PROVISION OF CERTAIN ADDITIONAL INFORMATION................................. 52
</TABLE>
EXHIBITS
Exhibit A (EX-13.A) - NaTec Resources, Inc. Annual Report on Form
10-K for Fiscal Year 1994
Exhibit B (EX-13.B) - NaTec Resources, Inc. Quarterly Report on Form
10-Q for the Quarter Ended March 31, 1995
Exhibit C (EX-10.A) - Acquisition Agreement
Exhibit D (EX-10.B) - Form of Purchase Price Note
Exhibit E (EX-10.C) - CRSS Voting Letter Agreement
Exhibit F (EX-10.D) - CRSS Letter of Guaranty
Exhibit G (EX-99.A) - Fairness Opinion
Exhibit H (EX-99.B) - Part 13 to the Utah Revised Business
Corporation Act
3
<PAGE> 5
NATEC RESOURCES, INC.
1177 WEST LOOP SOUTH, SUITE 800
HOUSTON, TEXAS 77027
---------------
PROXY STATEMENT
---------------
INTRODUCTION
SOLICITATION AND REVOCABILITY OF PROXIES
This Proxy Statement and the accompanying proxy card are furnished by
NaTec Resources, Inc., a Utah corporation (the "Company"), in connection with
the solicitation of proxies by the Company's Board of Directors (the "Board of
Directors") for use at the Annual Meeting of Stockholders or any adjournments
thereof (the "Annual Meeting"), to be held at the time and place set forth in
the accompanying Notice of Annual Meeting. This Proxy Statement, the
accompanying Notice of Annual Meeting of Stockholders and the enclosed form of
proxy are first being mailed to stockholders on July 7, 1995.
A proxy received by the Board of Directors may be revoked by the
stockholder giving the proxy at any time before it is exercised. A stockholder
may revoke a proxy by notification in writing to the Company at 1177 West Loop
South, Suite 800, Houston, Texas 77027-9096, Attention: Timothy R. Dunne,
Secretary. A proxy may also be revoked by execution of a proxy bearing a later
date or by attendance at the Annual Meeting and voting by ballot. A proxy in
the form accompanying this Proxy Statement, when properly executed and
returned, will be voted in accordance with the instructions contained therein
unless previously revoked. A proxy received by management of the Company
("Management") which does not withhold authority to vote and on which no
specification has been indicated will be voted in favor of the proposals set
forth in this Proxy Statement and for the nominees for the Board of Directors
named in Proposal No. 1 of this Proxy Statement. If any other matters are
properly presented at the Annual Meeting for action, including a question of
adjourning the meeting from time to time, the persons named in the proxies and
acting thereunder will have discretion to vote on such matters in accordance
with their best judgment, except that proxies voting "AGAINST" any proposal set
forth herein may not be voted in the discretion of the person(s) voting such
proxies "FOR" any proposed adjournment of the Annual Meeting for the purpose of
soliciting votes "FOR" such proposal. The presence at the Annual Meeting in
person or by proxy of the holders of (1) a majority of such combined share
votes of the Company's outstanding shares of common stock, no par value (the
"Common Stock"), and the Company's outstanding shares of Series A Preferred
Stock, no par value, $100 stated value (the "Series A Preferred Stock"), voting
together as a single class, and (2) two-thirds of the outstanding shares of
Series A Preferred Stock entitled to vote, is necessary to constitute a quorum.
Abstentions and broker non-votes are counted for purposes of determining the
presence or absence of a quorum for the transaction of business. Abstentions
are counted in tabulations of the votes cast on proposals presented to
stockholders, whereas broker non-votes are not counted for purposes of
determining whether a proposal has been approved.
As of the Record Date, CRSS Inc., a Delaware corporation ("CRSS"),
owned approximately 50.2% of the total outstanding shares of Common Stock and
100% of the total outstanding shares of Series A Preferred Stock. CRSS, by
virtue of its ownership of such shares of Common Stock and Series A Preferred
Stock of the Company, has the power to vote approximately 51.5% of the
aggregate combined share votes of Common Stock and Series A Preferred Stock
entitled to vote at the Annual Meeting as a single class. Because CRSS has
agreed with NACC, subject to certain conditions, to vote CRSS' shares of Common
Stock and Series A Preferred Stock in favor of the Acquisition Proposal (as
hereinafter defined), and has indicated its intent to vote such shares in favor
of the Liquidation and Dissolution Proposal (as hereinafter defined), approval
of the Acquisition Proposal and the Liquidation and Dissolution Proposal is
assured, provided CRSS so votes.
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<PAGE> 6
Stockholders are advised that any stockholder that votes to approve
the Acquisition Proposal (as hereinafter defined) will forfeit its appraisal
rights under Utah law. See "THE ACQUISITION PROPOSAL--Stockholder Approval",
"--Dissenters' Rights of Appraisal", and Exhibit H with respect to certain
appraisal rights of stockholders and certain notice requirements by
stockholders.
At the Annual Meeting, stockholders will be asked to consider and vote
to approve the sale of substantially all of the Company's business and assets
(the "Asset Sale"), comprised of the Company's indirect 50% membership interest
in White River Nahcolite Minerals, Limited Liability Company, a Colorado limited
liability company ("White River"), through the Company's ownership of the shares
of capital stock of NaTec Minerals, Inc., a Delaware corporation ("NMI"), and
Oldexaer, Inc., a Delaware corporation ("OXA"), and all of the assets,
properties and rights of any kind owned by the Company and used, planned to be
used or relating to the operation of the business conducted by White River (the
"Transferred Business")(such interest, assets, properties and rights,
collectively, the "Assets"), to North American Chemical Company, a Delaware
corporation ("NACC"), pursuant to an Acquisition Agreement dated as of April 5,
1995, by and between the Company and NACC (the "Acquisition Agreement") (such
proposal being referred to herein as the "Acquisition Proposal"). The Assets do
not include certain designated excluded assets unrelated to the Transferred
Business, including the Company's accounts receivable, patents and technology
relating to its dry sodium injection system, Colorado River water rights, and
certain furniture and equipment (the "Excluded Assets"). The Excluded Assets are
immaterial in amount. Pursuant to the Acquisition Agreement, subject to
stockholder approval, NACC will purchase from the Company, for a purchase price
(the "Purchase Price") of $10 million payable in cash and a non-interest bearing
note of NACC (the "Purchase Price Note"), all of the Transferred Business and
Assets. The purchase price is estimated to have a discounted value of
approximately $9.1 million by reason of the discount to present value of the
Purchase Price Note. A fairness opinion has been rendered to the Board of
Directors solely to the effect that, as of March 24, 1995, the Asset Sale is
fair from a financial point of view to the Company (the "Fairness Opinion"). The
Fairness Opinion does not address either the relative fairness of the Asset Sale
to the holders of Common Stock or of the ultimate use of the proceeds generated
by the Asset Sale, as such opinions were not requested. THE BOARD OF DIRECTORS
ADVISES THAT (1) THE PROCEEDS OF THE ASSET SALE WILL NOT BE SUFFICIENT TO MAKE
ANY DISTRIBUTIONS TO THE HOLDERS OF COMMON STOCK AFTER THE SATISFACTION OF THE
COMPANY'S OUTSTANDING PRIOR DEBTS TO CREDITORS (CRSS BEING THE PRINCIPAL
CREDITOR) AND THE PAYMENT OF THE REDEMPTION PRICE (OR LIQUIDATION PREFERENCE IN
THE EVENT OF LIQUIDATION) TO CRSS AS THE SOLE HOLDER OF SERIES A PREFERRED
STOCK, (2) IT IS LIKELY THAT, EVEN IF THE PROCEEDS OF THE ASSET SALE WERE USED
OTHER THAN TO SATISFY ITS OUTSTANDING PRIOR DEBTS AND REDEEM (OR LIQUIDATE)
OUTSTANDING SERIES A PREFERRED STOCK AS DESCRIBED HEREIN, THE COMPANY WOULD NOT
GENERATE SIGNIFICANT ADDITIONAL REVENUES AFTER THE CONSUMMATION OF THE ASSET
SALE, AND (3) EVEN IF THE COMPANY DID GENERATE ADDITIONAL REVENUES, THE AMOUNT
GENERATED LIKELY WOULD NOT BE SUFFICIENT TO PROVIDE ANY RETURN TO THE HOLDERS OF
COMMON STOCK OR TO ENABLE THE COMPANY TO CONTINUE ANY OPERATIONS AS A GOING
CONCERN.
At the Annual Meeting, the stockholders also will be asked to consider
and vote to approve, conditioned on the approval by the stockholders of the
Acquisition Agreement and the consummation of the Asset Sale, the complete and
voluntary liquidation (the "Liquidation") and dissolution (the "Dissolution") of
the Company's business and assets within 30 days after the consummation of the
Asset Sale (such proposal being referred to herein as the "Liquidation and
Dissolution Proposal"). The Liquidation and Dissolution shall be revocable by
the Board of Directors in the event it deems such revocation to be in the best
interest of the Company and its stockholders. THE BOARD OF DIRECTORS ADVISES
THAT PROCEEDS OF THE ASSET SALE AND THE LIQUIDATION LIKELY WILL RESULT IN THE
FULL SATISFACTION OF THE COMPANY'S OUTSTANDING PRIOR DEBTS TO CREDITORS (CRSS
BEING THE PRINCIPAL CREDITOR), BUT WILL NOT RESULT IN SUFFICIENT PROCEEDS OR
ASSETS TO PAY THE ENTIRE LIQUIDATION PREFERENCE TO CRSS
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<PAGE> 7
AS THE SOLE HOLDER OF SERIES A PREFERRED STOCK OR TO MAKE ANY DISTRIBUTION TO
THE HOLDERS OF COMMON STOCK AFTER THE SATISFACTION OF SUCH PRIOR DEBTS.
Because CRSS has agreed with NACC, subject to certain conditions, to
vote CRSS' 13,499,449 shares of Common Stock (representing approximately 50.2%
of the outstanding shares of Common Stock) and 44,380 shares of the Company's
outstanding shares of Series A Preferred Stock (representing 100% of the
outstanding shares of Series A Preferred Stock) in favor of the Acquisition
Proposal and has indicated its intent, but has no obligation, to vote CRSS'
shares of Common Stock and shares of Series A Preferred Stock in favor of the
Liquidation and Dissolution Proposal, approval of the Acquisition Proposal and
the Liquidation and Dissolution Proposal is assured, provided CRSS so votes. See
"INTRODUCTION--Voting Securities and Record Date", "THE ACQUISITION
PROPOSAL--Stockholder Approval", "--Background of the Acquisition Proposal",
"--Description of Acquisition Agreement and Ancillary Agreements--Fairness
Opinion", and "THE LIQUIDATION AND DISSOLUTION PROPOSAL--Stockholder Approval".
See also "THE ACQUISITION PROPOSAL--Use of Proceeds" and "THE LIQUIDATION AND
DISSOLUTION PROPOSAL--Use of Proceeds" for tables indicating the intended use of
proceeds in more detail.
If the Acquisition Proposal and the Liquidation and Dissolution
Proposal are approved by the Company's stockholders at the Annual Meeting and
the transactions contemplated thereby are consummated, the Board of Directors
intends to use all of the proceeds from the Asset Sale (including the Purchase
Price Note) and the Liquidation, and the Excluded Assets (to the extent they
will be distributed in kind), to (1) pay costs and expenses incurred by the
Company in connection with the Asset Sale, the Liquidation and Dissolution, (2)
retire all prior debt outstanding of the Company to its creditors, which debt as
of April 30, 1995 aggregated $7,291,417, and included $6,960,222 outstanding to
CRSS, and (3) partially pay the total liquidation preference (the "Liquidation
Preference") to which the Company's outstanding shares of Series A Preferred
Stock, which are held solely by CRSS, are entitled in the event of the
Liquidation, which total Liquidation Preference as of April 30, 1995 was
$5,038,000. See "THE ACQUISITION PROPOSAL--Use of Proceeds" and "THE LIQUIDATION
AND DISSOLUTION PROPOSAL--Use of Proceeds" for tables indicating the intended
use of proceeds in more detail.
If the Acquisition Proposal is approved by the Company's stockholders
at the Annual Meeting and the transactions contemplated thereby are consummated,
but the Liquidation and Dissolution Proposal is not approved by the Company's
stockholders, the Board of Directors intends to use all of the proceeds from the
Asset Sale (including the Purchase Price Note) to (1) pay costs and expenses
incurred by the Company in connection with the Asset Sale, (2) retire all prior
debt outstanding by the Company to its creditors, which debt as of April 30,
1995 aggregated $7,291,417, and included $6,960,222 outstanding to CRSS, and (3)
partially redeem, at the option of the Company, the Company's outstanding shares
of Series A Preferred Stock. See "THE ACQUISITION PROPOSAL--Recommendation of
the Board of Directors" for the Company's reasons for opting to redeem its
outstanding shares of Series A Preferred Stock to the extent of available funds.
See also "THE ACQUISITION PROPOSAL--Use of Proceeds" for tables indicating the
intended use of proceeds in more detail.
If the Acquisition Proposal and the Liquidation and Dissolution
Proposal are not approved by stockholders at the Annual Meeting, Management
believes that the Company nonetheless will have to
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<PAGE> 8
liquidate, either through a bankruptcy, state receivership or analogous
proceeding. In the opinion of Management, the proceeds of the Asset Sale will
exceed any proceeds derived from the liquidation of the Company through any of
the proceedings described above. See "THE ACQUISITION PROPOSAL--Recommendation
of the Company's Board of Directors".
At the date of this Proxy Statement, Management does not know of any
business to be presented at the Annual Meeting other than those matters that are
set forth in the Notice accompanying this Proxy Statement.
VOTING SECURITIES AND RECORD DATE
Only holders of record of Common Stock and Series A Preferred Stock at
the close of business on July 3, 1995 (the "Record Date"), the record date for
stockholders entitled to notice of the Annual Meeting, will be entitled to vote
at the Annual Meeting. See "VOTING RIGHTS AND PROXY INFORMATION". On such date,
the Company had outstanding and entitled to vote 26,880,136 shares of Common
Stock and 44,380 shares of Series A Preferred Stock. Effective April 14, 1995,
CRSS converted all of its shares of Series B and Series C Cumulative Convertible
Exchangeable Preferred Stock (the "Series B and C Preferred Stock" and, together
with the Series A Preferred Stock, the "Series A, B and C Preferred Stock") into
Common Stock, and thus there are no shares of Series B and C Preferred Stock
outstanding as of the Record Date. CRSS also converted approximately 55,620
shares of its Series A Preferred Stock into Common Stock effective April 14,
1995. Holders of Common Stock as of the Record Date will be entitled to one vote
per share. Holders of Series A Preferred Stock as of the Record Date are
entitled to the number of votes per share equal to the number of shares of
Common Stock into which each such share is convertible--approximately 16.18
votes per share--when voting together with the holders of Common Stock as a
single class and one vote per share when voting separately as a class. Holders
of Series A Preferred Stock generally are entitled to vote together with the
holders of Common Stock as a single class.
The election of a person or a director to serve on the Company's Board
of Directors requires the affirmative vote of the holders of at least a
plurality of combined share votes of Common Stock and Series A Preferred Stock
entitled to vote, voting together as a single class, which are present in person
or by proxy at the Annual Meeting at which a quorum is present. The approval of
the Acquisition Proposal and the Liquidation and Dissolution Proposal each
requires the affirmative votes of the holders of at least (1) a majority of the
combined share votes of Common Stock and Series A Preferred Stock entitled to
vote, voting together as a single class, which are present either in person or
by proxy at the Annual Meeting at which a quorum is present and (2) two-thirds
of the outstanding shares of Series A Preferred Stock entitled to vote, voting
separately as a class, which are present either in person or by proxy at the
Annual Meeting at which a quorum is present. The presence at the Annual Meeting
in person or by proxy of the holders of (1) a majority of such combined share
votes of Common Stock and Series A Preferred Stock entitled to vote, voting
together as a single class, and (2) two-thirds of the outstanding shares of
Series A Preferred Stock entitled to vote, voting separately as a class, is
necessary to constitute a quorum.
As of the Record Date, CRSS owned approximately 50.2% of the total
outstanding shares of Common Stock and 100% of the total outstanding shares of
Series A Preferred Stock. CRSS, by virtue of its ownership of such shares of
Common Stock and Series A Preferred Stock of the Company, has the power to vote
approximately 51.5% of the aggregate combined share votes of Common Stock and
Series A Preferred Stock entitled to vote at the Annual Meeting as a single
class. Because CRSS has agreed with NACC, subject to certain conditions, to vote
CRSS' shares of Common Stock and Series A Preferred Stock in favor of the
Acquisition Proposal, and has indicated its intent to vote such shares in favor
of the Liquidation and Dissolution Proposal, approval of the Acquisition
Proposal and the Liquidation and Dissolution Proposal is assured, provided CRSS
so votes.
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SUMMARY
Certain significant matters discussed in the Proxy Statement are
summarized below. This Summary is not intended to be complete and is qualified
in all respects by reference to the more detailed information appearing in this
Proxy Statement. Stockholders are urged to review carefully the entire Proxy
Statement.
NaTec Resources, Inc................ The Company historically has been engaged
in the business of developing, designing
and marketing integrated systems and
products to control pollutants commonly
associated with acid rain. The Company
recently ceased all of its operations
other than supplying its existing
customers with sodium bicarbonate from
White River and has no current intention
to initiate other operations. The
Company's principal offices are at 1177
West Loop South, Suite 800, Houston, Texas
77027-9096, and its telephone number is
(713) 552-2552.
Date, Time and Place of the
Annual Meeting...................... The Annual Meeting is to be held on
Friday, July 21, 1995, at the Company's
offices at 1177 West Loop South, Lobby
Level, Houston, Texas, at 9:00 a.m., local
time.
Revocability of Proxies............. A stockholder executing and returning a
proxy has the power to revoke it at any
time before it is exercised. A stockholder
who wishes to revoke a proxy can do so by
executing a later-dated proxy relating to
the same shares and delivering it to the
Secretary of the Company prior to the vote
at the Annual Meeting, by giving written
notice of revocation to the Secretary of
the Company prior to the vote at the
Annual Meeting or by appearing in person
at the Annual Meeting and voting in person
the shares to which the proxy relates. Any
written notice revoking a proxy should be
sent to the Company, 1177 West Loop South,
Suite 800, Houston, Texas 77027-9096,
Attention: Timothy R. Dunne, Secretary.
Purposes of the Annual
Meeting............................. The purposes of the Annual Meeting are:
(1) to consider and vote to elect two
directors to serve on the Board of
Directors; (2) to consider and vote with
respect to the approval of the Asset Sale;
(3) to consider and vote with respect to
the approval of the Liquidation and
Dissolution, conditioned on the approval
by the stockholders of the Acquisition
Agreement and the consummation of the
Asset Sale, the Liquidation and
Dissolution being revocable by the Board
of Directors in the event it deems such
revocation to be in the best interest of
the Company and its stockholders; and (4)
to transact any other business that may
properly
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<PAGE> 10
come before the Annual Meeting or any
adjournment thereof.
Record Date......................... Only holders of record of Common Stock and
Series A Preferred Stock at the close of
business on July 3, 1995 will be entitled
to vote at the Annual Meeting.
Vote Required....................... Under the Utah Revised Business
Corporation Act and the Company's Articles
of Incorporation, as amended, the election
of a director requires the affirmative
vote of at least a plurality of combined
share votes of Common Stock and Series A
Preferred Stock entitled to vote, voting
together as a single class, represented at
the Annual Meeting either in person or by
proxy at which a quorum is present. The
Acquisition Proposal and the Liquidation
and Dissolution Proposal each requires the
approval of the holders of at least (1) a
majority of the combined share votes of
Common Stock and Series A Preferred Stock
entitled to vote, voting together as a
single class, represented either in person
or by proxy at the Annual Meeting at which
a quorum is present and (2) two-thirds of
the outstanding shares of Series A
Preferred Stock entitled to vote, voting
separately as a class, represented either
in person or by proxy at the Annual
Meeting at which a quorum is present. CRSS
has agreed with NACC, subject to certain
conditions, to vote its Common Stock and
Series A Preferred Stock in favor of the
Acquisition Proposal. CRSS also has
indicated that it supports and intends to
vote in favor of the Liquidation and
Dissolution Proposal; however, CRSS has no
obligation to do so. As of the Record
Date, CRSS owned approximately 50.2% of
the total outstanding shares of Common
Stock and 100% of the total outstanding
shares of Series A Preferred Stock. CRSS,
by virtue of its ownership of such shares
of Common Stock and Series A Preferred
Stock of the Company, has the power to
vote approximately 51.5% of the aggregate
combined share votes of Common Stock and
Series A Preferred Stock entitled to vote
at the Annual Meeting as a single class.
See "VOTING RIGHTS AND PROXY INFORMATION".
Election of Directors............... The Board of Directors currently consists
of three directors and is divided into
three classes, each with a staggered
three-year term of office. The
stockholders will consider and vote to
elect two persons at the Annual Meeting,
one nominee to
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<PAGE> 11
serve on the Board of Directors until
the annual meeting of stockholders in
1997 and one nominee to serve on the
Board of Directors until the annual
meeting of stockholders in 1998, and each
to serve until their respective
successors are elected and qualified. See
"ELECTION OF DIRECTORS".
Acquisition Proposal................
Acquisition Agreement.. The Acquisition Agreement provides for the
sale of substantially all of the business and
assets of the Company to NACC, including the
Company's indirect 50% ownership interest in
White River, the owner of a sodium
bicarbonate mining and processing facility
located in Colorado in which the Company and
NACC have been equal joint venture partners
since 1992. See "THE ACQUISITION
PROPOSAL--Description of Acquisition
Agreement and Ancillary Agreements".
Under the terms of the Acquisition Agreement,
NACC and the Company mutually have agreed to
release each other and each of their
respective affiliates, effective as of the
Closing Date and conditioned upon the
Closing, from all liability to the other as
of the Closing Date, including, without
limitation, with respect to the NACC Lawsuit.
See "THE ACQUISITION PROPOSAL--Description of
Acquisition Agreement and Ancillary
Agreements."
Purchase Price......... The Purchase Price payable by NACC to the
Company is $10 million, payable $6 million in
cash at the Closing with the balance to be
paid with the Purchase Price Note. The
Purchase Price is estimated to have a
discounted value of approximately $9.1
million, which reflects the discount to
present value of the Purchase Price Note. See
"THE ACQUISITION AGREEMENT
PROPOSAL--Description of Acquisition
Agreement and Ancillary Agreements--Purchase
Price".
Use of Proceeds........ If the Acquisition Proposal and the
Liquidation and Dissolution Proposal are
approved by the Company's stockholders at the
Annual Meeting and the transactions
contemplated thereby are consummated, the
Board of Directors intends to use all of the
proceeds from the Asset Sale (including the
Purchase Price Note) and the Liquidation, and
the Excluded Assets (to the extent they will
be distributed in kind), to (1) pay costs and
expenses incurred by the Company in
connection with the Asset Sale and the
Liquidation and Dissolution, (2) retire all
prior debt outstanding by the Company to its
creditors, including CRSS, and (3) partially
pay the Liquidation Preference to which the
Company's outstanding shares of Series A
Preferred Stock, which are held solely by
CRSS, are entitled. See "THE ACQUISITION
PROPOSAL--Use of Proceeds", "--Description of
7
<PAGE> 12
Acquisition Agreement and Ancillary Agreements--Purchase Price", and "THE
LIQUIDATION AND DISSOLUTION PROPOSAL--Use of Proceeds".
If the Acquisition Agreement is approved by
the Company's stockholders at the Annual
Meeting and the transactions contemplated
thereby are consummated, but the Liquidation
and Dissolution Proposal is not approved by
the Company's stockholders, the Board of
Directors intends to use all of the proceeds
from the Asset Sale (including the Purchase
Price Note) to (1) pay costs and expenses
incurred by the Company in connection with
the Asset Sale, (2) retire all prior debt
outstanding by the Company to its creditors,
including CRSS, and (3) partially redeem the
Company's outstanding shares of Series A
Preferred Stock. See "THE ACQUISITION
PROPOSAL--Use of Proceeds" and "--Description
of Acquisition Agreement and Ancillary
Agreements--Purchase Price".
THE BOARD OF DIRECTORS ADVISES THAT (1) THE
PROCEEDS OF THE ASSET SALE WILL NOT BE
SUFFICIENT TO MAKE ANY DISTRIBUTIONS TO THE
HOLDERS OF COMMON STOCK AFTER THE
SATISFACTION OF THE COMPANY'S OUTSTANDING
PRIOR DEBTS TO CREDITORS (CRSS BEING THE
PRINCIPAL CREDITOR) AND THE PAYMENT OF THE
REDEMPTION PRICE (OR LIQUIDATION PREFERENCE
IN THE EVENT OF LIQUIDATION) TO CRSS AS THE
SOLE HOLDER OF SERIES A PREFERRED STOCK, (2)
IT IS LIKELY THAT, EVEN IF THE PROCEEDS OF
THE ASSET SALE WERE USED OTHER THAN TO
SATISFY ITS OUTSTANDING PRIOR DEBTS AND
REDEEM (OR LIQUIDATE) SERIES A PREFERRED
STOCK AS DESCRIBED HEREIN, THE COMPANY WOULD
NOT GENERATE SIGNIFICANT ADDITIONAL REVENUES
AFTER THE CONSUMMATION OF THE ASSET SALE, AND
(3) EVEN IF THE COMPANY DID GENERATE
ADDITIONAL REVENUES, THE AMOUNT GENERATED
LIKELY WOULD NOT BE SUFFICIENT TO PROVIDE ANY
RETURN TO THE HOLDERS OF COMMON STOCK OR TO
ENABLE THE COMPANY TO CONTINUE ANY OPERATIONS
AS A GOING CONCERN.
Dissenters' Rights of
Appraisal.............. Under the Utah Revised Business Corporation
Act, holders of Common Stock and of Series A
Preferred Stock will be entitled to rights of
appraisal in connection with the Asset Sale.
Stockholders are advised that any stockholder
that votes to approve the Acquisition
Proposal will forfeit its appraisal rights
under Utah law. See "THE ACQUISITION
PROPOSAL--Stockholder Approval",
"--Dissenters' Rights of Appraisal", and
Exhibit H with respect to certain appraisal
rights of stockholders and certain notice
requirements by stockholders.
Liquidation and
Dissolution Proposal................ Conditioned upon stockholder approval of
the Acquisition Proposal and consummation
of the Asset Sale, the Board of Directors
seeks stockholder approval to voluntarily
liquidate and dissolve the Company within
30 days
8
<PAGE> 13
after the consummation of the Asset Sale,
the Liquidation and Dissolution being
revocable by the Board of Directors in the
event it deems such revocation to be in
the best interest of the Company and its
stockholders. The principal creditor of
the Company is CRSS and all of the
Company's debt to CRSS would be satisfied
in the Liquidation. As of the Record Date,
CRSS owned approximately 50.2% of the
total outstanding shares of Common Stock
and 100% of the total outstanding shares
of Series A Preferred Stock. CRSS, by
virtue of its ownership of such shares of
Common Stock and Series A Preferred Stock,
has the power to vote approximately 51.5%
of the aggregate combined share votes of
Common Stock and Series A Preferred Stock
entitled to vote at the Annual Meeting as
a single class. CRSS, as sole holder of
Series A Preferred Stock, is entitled to
the Liquidation Preference over holders of
Common Stock upon such liquidation.
THE BOARD OF DIRECTORS ADVISES THAT THE
PROCEEDS OF THE ASSET SALE AND THE
LIQUIDATION LIKELY WILL RESULT IN THE FULL
SATISFACTION OF THE COMPANY'S OUTSTANDING
PRIOR DEBTS TO CREDITORS (CRSS BEING THE
PRINCIPAL CREDITOR), BUT WILL NOT PRODUCE
SUFFICIENT PROCEEDS OR ASSETS TO PAY THE
ENTIRE LIQUIDATION PREFERENCE TO CRSS AS
THE SOLE HOLDER OF SERIES A PREFERRED
STOCK OR TO MAKE ANY DISTRIBUTION TO THE
HOLDERS OF COMMON STOCK AFTER THE
SATISFACTION OF SUCH PRIOR DEBTS. SEE "THE
LIQUIDATION AND DISSOLUTION PROPOSAL".
Recommendations of the
Company's Board of Directors........
Election of Directors.. The Board of Directors recommends that the
stockholders elect the nominees named under
"Proposal No. 1--Election of Directors".
Acquisition Proposal... An independent and disinterested Board of
Directors comprised of Messrs. William L.
Armstrong, John T. McCormack, James M. Piette
and Jack F. Rowe (the "Initial Board of
Directors"), after diligent efforts to
identify and negotiate with other prospective
purchasers the sale of all or part of the
Company and, based upon certain
determinations made by the Initial Board of
Directors, recommended that the stockholders
approve the Asset Sale. The Initial Board of
Director's determinations and recommendation
with respect to the Asset Sale was based upon
the following:
9
<PAGE> 14
(1) The Company's inability to pay its
current operating expenses and debts,
primarily as a result of NACC's failure to
pay its note to the Company issued in
connection with the 1992 Sale (as hereinafter
defined).
(2) The inability of the Company to obtain
additional funds, either from CRSS, the
Company's historical source of additional
capital, from conventional lending sources,
from purchasers other than NACC or from other
sources.
(3) The fact that the Acquisition Agreement
represents the best offer received by the
Company after diligent efforts to identify
and negotiate with prospective buyers.
(4) If the Asset Sale is approved by
stockholders and consummated, the proceeds of
the Asset Sale likely will be sufficient to
satisfy in full the outstanding prior debts
of the Company to its creditors.
(5) The likelihood that if the Asset Sale is
not approved and consummated, the Company
nonetheless will have to liquidate its assets
to satisfy prior debts owed to its creditors,
either through a bankruptcy, state
receivership or analogous proceeding. The
proceeds from any sale of the Company in such
liquidation likely will be substantially less
than the purchase price provided for in the
Acquisition Agreement, and any such proceeds
likely will not be sufficient to satisfy in
full the prior debts to creditors and the
Liquidation Preference to CRSS as the sole
holder of Series A Preferred Stock, and thus
will not be sufficient after satisfaction of
such priority claims to make any
distributions to the holders of Common Stock.
As of January 31, 1995, the last month-end
prior to the date the Initial Board of
Directors approved the Acquisition Agreement,
the Company's current liabilities and
long-term obligations, plus the Liquidation
Preference of Series A Preferred Stock,
together aggregated approximately $9,785,000
(including accrued interest thereon). See
"THE ACQUISITION PROPOSAL--Recommendation of
the Company's Board of Directors".
The Initial Board of Directors, in connection
with its approval and recommendation,
required, as a condition precedent to the
consummation of the Asset Sale, the delivery
and nonwithdrawal of the Fairness Opinion,
which opinion was rendered March 24, 1995.
See "THE ACQUISITION PROPOSAL--Recommendation
of the Company's Board of Directors".
WHILE THE INITIAL BOARD OF DIRECTORS APPROVED
THE ACQUISITION AGREEMENT AND THE ASSET SALE,
AND RECOMMENDED THE ASSET SALE TO THE
STOCKHOLDERS OF THE COMPANY BASED ON CERTAIN
DETERMINATIONS MADE BY THE INITIAL BOARD OF
DIRECTORS, ITS APPROVAL AND RECOMMENDATION
DOES NOT CONTEMPLATE THE LIQUIDATION
10
<PAGE> 15
AND DISSOLUTION OF THE COMPANY. THE
LIQUIDATION AND DISSOLUTION OF THE COMPANY
WAS APPROVED BY THE BOARD OF DIRECTORS AFTER
THE RESIGNATIONS OF MESSRS. ARMSTRONG, PIETTE
AND ROWE FROM, AND THE APPOINTMENT OF MESSRS.
WILKINSON AND DUNNE TO, THE BOARD OF
DIRECTORS. SEE "THE ACQUISITION
PROPOSAL--Background of the Acquisition
Proposal" and "--Recommendation of the Board
of Directors".
Liquidation and
Dissolution Proposal... Although the Board of Directors believes the
Liquidation and Dissolution Proposal to be
the best course of action available to the
Company upon the consummation of the Asset
Sale, the Board of Directors has chosen not
to recommend approval by the stockholders of
the Liquidation and Dissolution Proposal
principally due to the potential conflict of
interest created by (1) CRSS' position as a
majority stockholder of Common Stock, the
sole holder of Series A Preferred Stock
entitled to the Liquidation Preference and a
major creditor of the Company, to which
proceeds of the Liquidation will be
distributed and (2) the presence on the three
member Board of Directors of Mr. Wilkinson,
Chairman of the Board and President of CRSS,
and Mr. Dunne, Vice President, General
Counsel and Secretary of CRSS. See "THE
LIQUIDATION AND DISSOLUTION
PROPOSAL--Recommendation of the Company's
Board of Directors".
Interests of Certain Persons........ No director or executive officer of the
Company has any material direct or
indirect financial interest in NACC, the
Acquisition Proposal or the Liquidation
and Dissolution Proposal other than as a
director, executive officer or stockholder
of the Company, except (1) Mr. Bruce W.
Wilkinson, who is the Chairman of the
Board, Chief Executive Officer and
Chairman of the Nominating Committee of
CRSS and who at the time of approval by
the Board of Directors of the Liquidation
and Dissolution was a 2.84% stockholder in
CRSS, and (2) Mr. Timothy R. Dunne, who is
the Vice President, General Counsel and
Secretary of CRSS and who at the time of
approval by the
11
<PAGE> 16
Board of Directors of the Liquidation and
Dissolution was an .18% stockholder in
CRSS. However, since June 16, 1995,
Messrs. Wilkinson and Dunne each has
terminated his ownership interest in CRSS.
See "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT" and
"CERTAIN INFORMATION CONCERNING THE
COMPANY--Interests of Certain Persons".
For information about CRSS' interests, see
"INTRODUCTION", "THE ACQUISITION
PROPOSAL--Use of Proceeds", "--Stockholder
Approval", "THE LIQUIDATION AND
DISSOLUTION PROPOSAL--Use of Proceeds",
"--Stockholder Approval."
Voting of Company's Shares
Owned by CRSS....................... CRSS holds approximately 50.2% of the
total outstanding shares of Common Stock
and 100% of the total outstanding shares
of Series A Preferred Stock entitled to
vote at the Annual Meeting. CRSS, by
virtue of its ownership of such Common
Stock and Series A Preferred Stock, has
the power to vote approximately 51.5% of
the aggregate combined share votes of
Common Stock and Series A Preferred Stock
entitled to vote at the Annual Meeting as
a single class. CRSS has indicated that it
supports the Asset Sale and has agreed
with NACC, subject to certain conditions,
to vote all of its shares of Common Stock
and Series A Preferred Stock in favor of
the Acquisition Proposal. CRSS also has
indicated that it supports and intends to
vote in favor of the Liquidation and
Dissolution Proposal; however, CRSS is not
obligated to do so. If CRSS so votes,
approval of the Acquisition Proposal and
the Liquidation and Dissolution Proposal
are assured. See "VOTING RIGHTS AND PROXY
INFORMATION".
Closing Date of the Asset Sale,
Liquidation and Dissolution......... If the Acquisition Proposal is approved by
the requisite vote of the stockholders of
the Company and the other conditions set
forth in the Acquisition Agreement are
satisfied or waived (where permissible),
the Board of Directors expects that the
Asset Sale will be consummated promptly
after the Annual Meeting. If,
additionally, the Liquidation and
Dissolution Proposal is approved by the
requisite vote of the stockholders of the
Company, the Board of Directors expects
that the Liquidation and Dissolution will
be consummated within 30 days after the
consummation of the Asset Sale.
12
<PAGE> 17
Certain Federal Income Tax
Consequences........................
Acquisition Proposal... Consummation of the Asset Sale will not be
a taxable event under federal income tax law
for the stockholders of the Company. For a
discussion of the material federal income tax
consequences of the Asset Sale to the Company
and its stockholders, see "THE ACQUISITION
PROPOSAL--Certain Federal Income Tax
Consequences".
Liquidation and
Dissolution Proposal... The Liquidation and Dissolution in exchange
for the stock held by the stockholders of the
Company will be treated for federal income
tax purposes as a sale or exchange of their
stock. The gain or loss realized will be
measured by the difference between the
stockholder's tax basis in the stock and the
value of any property distributed to him in
liquidation of the Company. Any such gain or
loss will be a capital gain or loss if the
stock was held as a capital asset. For a
discussion of the material federal income tax
consequences of the Liquidation and
Dissolution to the Company and its
stockholders, see "THE LIQUIDATION AND
DISSOLUTION PROPOSAL--Certain Federal Income
Tax Consequences".
Conditions of the Acquisition
Proposal; Termination...............
Acquisition Proposal... Consummation of the Asset Sale is conditioned
upon the fulfillment or waiver (where
permissible) of certain conditions set forth
in the Acquisition Agreement. Even if
approved by the stockholders of the Company,
the Acquisition Agreement may be terminated
(1) by mutual written consent of NACC and the
Company, (2) by either NACC or the Company if
the Asset Sale has not been consummated on or
before August 31, 1995, provided that the
terminating party's misrepresentation, breach
of warranty or failure to perform has not
resulted in the failure to timely consummate
such transactions, or (3) by NACC or the
Company, if the other materially breaches any
of its representations, warranties or
obligations and such breach is not cured or
waived and the applicable party shall not
have been provided reasonable assurance that
such breach will be cured on or before the
Closing. See "THE ACQUISITION
PROPOSAL--Description of Acquisition
Agreement and Ancillary Agreements".
13
<PAGE> 18
Liquidation and
Dissolution Proposal... Consummation of the Liquidation and
Dissolution is conditioned on stockholder
approval of the Acquisition Proposal and
consummation of the Asset Sale. See
"LIQUIDATION AND DISSOLUTION PROPOSAL".
Accounting Treatment................
Acquisition Proposal... Consummation of the Asset Sale will be
reflected in the Company's financial
statements as a sale of the assets of NMI and
OXA, which sale includes the Company's
indirect 50% ownership interest in White
River. As a result of the transactions
contemplated by the Acquisition Agreement and
as a result of the Company consequently
adopting the liquidation basis of accounting
in accordance with generally accepted
accounting principles, the Company has
recorded a loss on sale of assets of
approximately $1,385,147 as of December 31,
1994. See "ACQUISITION PROPOSAL--Accounting
Treatment".
Liquidation and
Dissolution Proposal... As of December 31, 1994, the Company has
adopted the liquidation basis of accounting
in accordance with generally accepted
accounting principles. The assets have been
valued at estimated net realizable value and
liabilities are reflected at their estimated
settlement amounts, including estimated costs
to be incurred during the period of
liquidation. See "LIQUIDATION AND DISSOLUTION
PROPOSAL--Accounting Treatment".
14
<PAGE> 19
VOTING RIGHTS AND PROXY INFORMATION
Proxies in the accompanying form are solicited on behalf of and at the
direction of the Board of Directors, which has fixed the close of business on
July 3, 1995 as the Record Date for the determination of holders of outstanding
shares of Common Stock and Series A Preferred Stock entitled to notice of and to
vote at the Annual Meeting and any adjournment(s) thereof. On the Record Date,
there were 26,880,136 shares of Common Stock and 44,380 shares of Series A
Preferred Stock issued and outstanding. On such date, the shares of Common Stock
were held of record by 5,644 holders and all of the shares of Series A Preferred
Stock were held of record by CRSS. Each holder of Common Stock is entitled to
one vote, exercisable in person or by proxy, for each share of Common Stock held
of record on the Record Date. Holders of Series A Preferred Stock as of the
Record Date are entitled to the number of votes per share equal to the number of
shares of Common Stock into which each share of Series A Preferred Stock is
convertible--approximately 16.18 votes per share--when voting together with the
holders of Common Stock as a single class. Holders of shares of Series A
Preferred Stock are entitled to one vote per share when voting separately as a
class. Under the Utah Revised Business Corporation Act and the Company's
Articles of Incorporation, the election of a person as a director to serve on
the Company's Board of Directors requires the affirmative vote of the holders of
at least a plurality of combined share votes of Common Stock and Series A
Preferred Stock entitled to vote, voting together as a single class, represented
at the Annual Meeting either in person or by proxy at which a quorum is present,
and the approval of the Acquisition Proposal and Liquidation and Dissolution
Proposal each requires the affirmative votes of the holders of at least (1) a
majority of the combined share votes of Common Stock and Series A Preferred
Stock entitled to vote, voting together as a single class, which are present in
person or by proxy at the Annual Meeting at which a quorum is present and (2)
two-thirds of the outstanding shares of Series A Preferred Stock entitled to
vote, voting separately as a class. The presence at the Annual Meeting in person
or by proxy of the holders of (1) a majority of such combined share votes of
Common Stock and Series A Preferred Stock, voting together as a single class,
and (2) two-thirds of the outstanding shares of Series A Preferred Stock
entitled to vote, is necessary to constitute a quorum.
As of the Record Date, CRSS owned 13,499,449 shares of Common Stock
(representing approximately 50.2% of the total outstanding shares of Common
Stock) and 44,380 shares of Series A Preferred Stock (representing 100% of the
total outstanding shares of Series A Preferred Stock). Effective April 14, 1995,
CRSS converted all of its shares of Series B and C Preferred Stock into Common
Stock, and thus there were no shares of Series B and C Preferred Stock
outstanding as of the Record Date. CRSS also converted approximately 55,620
shares of its Series A Preferred Stock into Common Stock effective April 14,
1995. CRSS, by virtue of its ownership of such Common Stock and Series A
Preferred Stock of the Company, has the power to vote approximately 51.5% of the
aggregate combined share votes of Common Stock and Series A Preferred Stock
entitled to vote at the Annual Meeting as a single class.
CRSS has agreed with NACC, subject to certain conditions, to vote its
Common Stock and Series A Preferred Stock in favor of the Acquisition Proposal.
CRSS also has indicated that it supports and intends to vote in favor of the
Liquidation and Dissolution Proposal; however, CRSS is not obligated to do so.
All Common Stock and Series A Preferred Stock represented by properly
executed proxies will be voted at the Annual Meeting in accordance with the
direction indicated on the proxies unless such proxies have previously been
revoked. If authority to vote a proxy has not been withheld and no direction is
indicated, the shares will be voted "FOR" the election as a director of each of
the persons named as a nominee below under "Election of Directors", "FOR"
approval of the Acquisition Proposal, and "FOR" approval of the Liquidation and
Dissolution Proposal. The Board of Directors recommends that stockholders vote
"FOR" the election as a director of each of the persons named as a nominee below
under "Election of Directors" and "FOR" the Acquisition Proposal. See "THE
ACQUISITION PROPOSAL--Recommendation of the Company's Board of Directors".
Although the Board of Directors believes the Liquidation and Dissolution
Proposal to be the best course of action available to the Company upon the
consummation of the Asset Sale, the Board of Directors has chosen not to
recommend approval by the stockholders of the Liquidation and Dissolution
Proposal, principally due to the potential conflict of interest created by (1)
CRSS' position as a majority stockholder of Common Stock, the sole holder of
Series A Preferred Stock entitled to the Liquidation Preference and a major
creditor of the Company to which proceeds of the
15
<PAGE> 20
Liquidation will be distributed and (2) the presence on the three member Board
of Directors of Mr. Wilkinson, Chairman of the Board and President of CRSS, and
Mr. Dunne, Vice President, General Counsel and Secretary of CRSS. See "THE
LIQUIDATION AND DISSOLUTION PROPOSAL--Recommendation of the Company's Board of
Directors". If any other matters are properly presented at the Annual Meeting
for action, including a question of adjourning the meeting from time to time,
the persons named in the proxies and acting thereunder will have discretion to
vote on such matters in accordance with their best judgment, except that proxies
voting "AGAINST" any proposal set forth herein may not be voted in the
discretion of the person(s) voting such proxies "FOR" any proposed adjournment
of the Annual Meeting for the purpose of soliciting votes "FOR" such proposal.
A stockholder executing and returning a proxy has the power to revoke
it at any time before it is exercised. A stockholder who wishes to revoke a
proxy can do so by executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of the Company prior to the vote at the Annual
Meeting, by giving written notice of revocation to the Secretary prior to the
vote at the Annual Meeting or by appearing in person at the Annual Meeting and
voting in person the shares to which the proxy relates. Any written notice
revoking a proxy should be sent to the Company, 1177 West Loop South, Suite 800,
Houston, Texas 77027- 9096, Attention: Timothy R. Dunne, Secretary.
In addition to the use of the mail, proxies may be solicited by
personal interview and telephone, telegraph or telecopy by the directors,
officers and regular employees of the Company. Such persons will receive no
additional compensation for such services. Arrangements also will be made with
certain brokerage firms and certain other custodians, nominees and fiduciaries
for the forwarding of solicitation materials to the beneficial owners of Common
Stock and Series A Preferred Stock held of record by such persons, and such
brokers, custodians, nominees and fiduciaries will be reimbursed by the Company
for reasonable out-of-pocket expenses incurred by them in connection therewith.
See "THE ACQUISITION PROPOSAL--Fees and Expenses". The Company may engage an
outside proxy soliciting firm to assist in the solicitation of proxies. The
Company will pay reasonable fees and out-of-pocket costs and expenses if it
elects to engage such a firm.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
GENERAL
Two directors are to be elected at the Annual Meeting. THE COMPANY
RECOMMENDS VOTING "FOR" THE ELECTION OF EACH OF THE NOMINEES FOR DIRECTOR LISTED
BELOW. The persons named as proxy holders in the accompanying proxy intend to
vote each properly signed and submitted proxy for the election as directors of
the persons named as nominees below unless otherwise authorized or authority to
vote in the election of directors is withheld on such proxy. If, for any reason,
at the time of the election any of such nominees should be unable to serve, the
proxy will be voted for a substitute nominee selected by the Board of Directors.
Directors are elected by a plurality of votes cast at the Annual Meeting.
Pursuant to the Company's Bylaws, any nomination of other persons to be elected
as directors at the Annual Meeting must be received by the Secretary of the
Company not later than the close of business on the tenth day following the date
on which notice of the Annual Meeting is first given.
Unless otherwise specified, all properly executed proxies received by
the Company will be voted for the election of Messrs. Wilkinson and Dunne, each
to hold office until the 1997 and 1998 annual meeting of stockholders,
respectively, and until their respective successors are elected and qualified.
Messrs. Wilkinson and Dunne currently serve on the Board of Directors, each
having been appointed to the Board of Directors after the Initial Board of
Directors approved the Acquisition Agreement and recommended the Asset Sale to
the stockholders, but shortly before the execution of the Acquisition Agreement.
The appointments of Messrs. Wilkinson and Dunne were made to fill the vacancies
on the Board of Directors after Messrs. William L. Armstrong and James M.
Piette, each a director since 1991, chose to resign and not to stand for
re-election after the Initial Board of Directors approved the Acquisition
Agreement and the Asset Sale and recommended approval of the Asset Sale to the
stockholders, but shortly before the execution of the Acquisition Agreement. Mr.
Jack F. Rowe, a director since 1989, also chose to resign and not to stand for
re-election
16
<PAGE> 21
at the same time that Messrs. Armstrong and Piette resigned. None of Messrs.
Armstrong, Piette and Rowe were directors, officers or stockholders of CRSS at
the time of approval and recommendation by the Initial Board of Directors of the
Asset Sale, nor were they directors, officers or stockholders of the Company or
CRSS at the time of approval by the Board of the Liquidation and Dissolution.
See "THE ACQUISITION PROPOSAL--Background of the Acquisition Proposal".
Mr. John T. McCormack, a director since 1993, continues to serve on
the Board of Directors. Mr. McCormack's term of office expires in 1996. See
"BOARD OF DIRECTORS".
NOMINEES FOR DIRECTORS
The following table sets forth the name and age of each of the
nominees listed in the enclosed form of proxy for directors to hold office until
the 1998 annual meeting of stockholders, their respective principal positions
with the Company and the year each became a director of the Company.
<TABLE>
<CAPTION>
POSITIONS
NAME AGE DIRECTOR SINCE AND OFFICES
---- --- -------------- -----------
<S> <C> <C> <C>
Mr. Bruce W. Wilkinson 50 March 1995 N/A
Mr. Timothy R. Dunne 43 March 1995 Secretary
</TABLE>
Mr. Wilkinson is the Chairman of the Board of CRSS and has served in
that position since 1989. Mr. Wilkinson has served CRSS in various other
official capacities since joining CRSS in 1978, including President from 1982 to
1989 and again from 1992 to 1994 and Chief Executive Officer since 1982. Mr.
Wilkinson has been a member of the Board of Directors of Triten Corporation
since 1990.
Mr. Dunne is the Vice President, General Counsel and Secretary of CRSS
since his appointment effective August 25, 1994. Mr. Dunne has served as General
Counsel of CRSS Capital, Inc. since 1991, Assistant Secretary of CRSS from 1991
to 1994, and Assistant General Counsel of CRSS Capital, Inc. from 1990 to 1991.
Since November 1989, CRSS has provided the Company administrative
support, including legal, tax, accounting and cash management services, and a
sublease of space for the Company's headquarters in Houston, Texas. CRSS has
also incurred expenses on behalf of the Company for which the Company has agreed
to reimburse CRSS. Total billings for services and reimbursements were $213,517
during 1994. CRSS also has made cash advances to the Company. See "EXECUTIVE
COMPENSATION AND OTHER INFORMATION--Employment Agreement and Certain
Transactions".
17
<PAGE> 22
PROPOSAL NO. 2
THE ACQUISITION PROPOSAL
The description of the material terms and provisions of the
Acquisition Agreement and related agreements (the "Ancillary Agreements") are
set forth in this Section; however, such description does not purport to be
complete and is qualified in its entirety by reference to the Acquisition
Agreement and the Ancillary Agreements, a copy of each of which is attached
hereto as Exhibits C through F.
BACKGROUND OF THE ACQUISITION PROPOSAL
The Company historically has been involved in the control of
pollutants commonly associated with acid rain. The Company's technology uses
nahcolite (a naturally occurring form of sodium bicarbonate), which the Company
obtains from White River, a joint venture producer of nahcolite in which the
Company has an indirect 50% ownership interest.
Despite many years of diligent effort to develop a market for this
technology, the Company has had only limited success. This has been in part due
to unexpected delays in the implementation and clarification of regulations by
the Environmental Protection Agency (the "EPA") and regulations relating to the
federal Clean Air Act Amendments (the "Clean Air Act"). In addition to
regulatory delays and uncertainties, stable prices and adequate supplies of low
sulfur coal allowed the majority of utilities affected by Phase I of the Clean
Air Act to switch from high sulphur coal to low sulphur coal in order to achieve
compliance. As a result, the Company has been unable to generate the necessary
cash flow to support its ongoing operations, and has recorded substantial losses
in each of its three latest fiscal years, with a loss of over $1.8 million in
1994 (excluding the adjustments resulting from the Company's adoption of the
liquidation basis of accounting as of December 31, 1994), its most recently
completed fiscal year. The Company's adoption of the liquidation basis of
accounting resulted in an additional loss in excess of $2 million as of December
31, 1994. See "THE ACQUISITION PROPOSAL--Accounting Treatment".
CRSS has in the past supplied to the Company total funds of
approximately $18 million through investments of $6 million in Common Stock and
of $12 million in preferred stock of the Company, as well as cash advances of
$2.3 million and expenses of $.9 million incurred on behalf of the Company which
have not been reimbursed, and a guaranty of various letters of credit in the
amount of approximately $2,600,000. In 1992, CRSS informed the Company that CRSS
was not prepared to make available further funding to the Company.
In an effort to obtain additional funding and other support, in June
1992 the Company engaged in a transaction pursuant to which, on November 19,
1992, it effectively sold 50% of its interest in White River to NACC for a
purchase price of $10 million (the "1992 Sale"). Of the $10 million purchase
price, $2 million was received at closing, and $8 million was represented by a
non-interest bearing promissory note (the "NACC Note"). Pursuant to the NACC
Note, $1 million was received by the Company on December 31, 1992, and
$2,875,000 was received by the Company during 1993. The remaining balance was
due to the Company as follows: $2,500,000 in 1994, $1,375,000 in 1995, and
$250,000 in 1996. The Company received only $625,000 from NACC as payments on
the NACC Note during 1994. NACC has ceased payment on the NACC Note, alleging
that the nahcolite production facility operated by White River has not yet
demonstrated an effective annual production capacity of 106,000 tons of sodium
bicarbonate per year. Pursuant to the Joint Venture Agreement between the
Company and NACC relating to this facility (the "Joint Venture Agreement"), the
Company was required to make all expenditures necessary for the facility to have
an effective annual production capacity of 106,000 tons per year by April 15,
1994. In the event the effective annual production capacity of 106,000 tons of
sodium bicarbonate per year had not been achieved by that date as reasonably
agreed between the Company and NACC, NACC would have been entitled to reduce the
purchase price payable by NACC for its interest in White River proportionately,
based on the percentage of such capacity that is obtained. Any such reduction
could have been applied pro rata to reduce each subsequent payment due under the
NACC Note. NACC apparently relied on these provisions in ceasing payment on the
NACC Note. If so, then based on the amount NACC has paid under the NACC Note,
NACC apparently believes that the nahcolite production facility operated by
White River demonstrated an effective annual production capacity of only 69,000
tons, which is only 65% of the targeted 106,000 tons, of sodium bicarbonate per
year as of April 15, 1994, thereby allegedly justifying its payment of only 65%
of the purchase price. However,
18
<PAGE> 23
Management believes that NACC's failure to continue its payments on the NACC
Note is wrongful in view of the fact that, according to the Company's forecasts
and calculations, production data from the plant demonstrates an effective
annual capacity at or near 106,000 tons of sodium bicarbonate and that, if full
capacity has not been achieved, NACC, as the manager of White River, is solely
responsible for such deficiency in that it has prevented the production
facility from achieving its full capacity by its refusal to utilize additional
recovery equipment already located at the facility and to implement certain
process modifications in a timely manner and that the Company was not required
to make any expenditures necessary for the facility to have an effective annual
production capacity of 106,000 tons per year by April 15, 1994. The Company
has filed a lawsuit against NACC to collect on the NACC Note, asserting the
above and other arguments (the "NACC Lawsuit"); however, there are no
assurances that this lawsuit or similar collection efforts will prove
successful.
As a result of the continued unfavorable outlook for the flue gas
desulphurization market, limited revenues, and limited cash flows, the Company
likely will not be able to continue its operations as a going concern. The
Company's primary source of cash since November 1992 has been the payments on
the NACC Note. However, as noted above, payments on the NACC Note have been
deferred by NACC due to the current dispute with NACC, and any efforts to
resolve such dispute would result in significant additional expense which would
have a further negative impact on capital resources. Additionally, the Company's
principal creditor, CRSS, continues to indicate that it will not infuse any
additional cash into the Company. Management does not believe that financing can
be obtained from any other sources. As a result, during 1994, the Company ceased
all of its operations other than supplying its existing customers with sodium
bicarbonate through its indirect 50% ownership in White River, with no current
intent to reinitiate those operations.
Because of these and other concerns about the Company's current and
future financial situation, in early 1994 the Company began in earnest to
attempt to identify potential buyers of the Company. A diligent market search
was made by the Company to find prospective buyers of the Company's indirect 50%
interest in White River. Simultaneously, CRSS engaged in efforts to sell its
interests in the Company. The Company and CRSS contacted approximately 30
minerals and chemicals-related companies worldwide to solicit interest in a
possible transaction. As part of its effort to find a purchaser for its
interests in the Company, CRSS engaged a consultant in February 1994 to contact
and provide information to prospective purchasers with respect to the purchase
of CRSS' interests in the Company. To the extent these efforts produced any
prospective purchasers expressing interest in a merger or asset sale transaction
with the Company, as opposed to a purchase of CRSS' interests in the Company,
such prospective purchasers were put in contact with the appropriate persons at
the Company.
These efforts resulted in the commencement of discussions between the
Company and NACC in August 1994 regarding a possible asset transaction. Other
than NACC, only two companies expressed any preliminary interest in an asset
transaction with the Company by requesting and receiving preliminary written
information about the Company and conducting an on-site due diligence review of
the Company's facilities. Only one of these two companies submitted a
preliminary offer to the Company, which offer was based on an assumption that
the Joint Venture Agreement and the related operating agreement among NACC, NMI
19
<PAGE> 24
and OXA (the "Operating Agreement") would be amended or restructured so as to
ensure that such company would have appropriate access to White River's
production of nahcolite.
The market search efforts also produced only one company interested in
acquiring CRSS' interests in the Company. Although that company has submitted
various bids for CRSS' interests, such company has been unable to obtain
financing to support its bid. CRSS has discussed with NACC the possibility of
selling CRSS' interests in the Company to NACC, but NACC was not interested in
such a transaction.
Two factors apparently diminishing the interest of any potential
acquiror are the presence of NACC as a 50% owner in White River, and the
existence of the Joint Venture Agreement and Operating Agreement, which have
made it difficult to attract bidders because most potential bidders' interests
are conditioned on its ability to control White River.
After various levels of discussions by the Company with the various
prospective acquirors of the Company, the bid submitted by NACC was considered
by Management to be the best bid offered to the Company. Consequently, on
November 14, 1994, NACC and the Company entered into a letter of intent with
respect to the Asset Sale. After further consideration and evaluation of such
transaction, on February 2, 1995 the Initial Board of Directors approved,
subject to the approval of the Asset Sale by the Company's stockholders, and
recommended to the Company's stockholders, based on certain determinations made
by the Initial Board of Directors, the Asset Sale. The Initial Board of
Directors, in connection with its approval and recommendation of the Asset Sale,
required, as a condition precedent to the consummation of the Asset Sale, the
delivery and nonwithdrawal of the Fairness Opinion. Such approval and
recommendation did not then, and does not now, contemplate the liquidation and
dissolution of the Company. On March 21, 1995, after such approval and
recommendation, Messrs. Armstrong, Piette and Rowe resigned from the Board of
Directors. Messrs. Armstrong, Piette and Rowe believed at the time of their
authorization and recommendation that the Acquisition Agreement and the Asset
Sale were in the best interest of the Company and its stockholders and continued
in that belief through their resignations. Having done everything necessary to
fulfill their fiduciary duties to the Company and its stockholders with respect
to the Acquisition Agreement and the transactions contemplated thereby, and
having authorized the execution and consummation of the same, Messrs. Armstrong,
Piette and Rowe's resignations reflected their belief that their duties to the
Company and the stockholders had been fulfilled to the best of their abilities.
Their resignations were not, and were not meant as, a direct or implied
statement that they no longer support the Asset Sale.
Upon the resignations of Messrs. Armstrong, Piette and Rowe, Mr.
McCormack, the only remaining director, appointed Messrs. Dunne and Wilkinson to
fill the vacancies and, along with Mr. McCormack (who together constitute the
current Board of Directors), to complete the Asset Sale originated and
authorized by the Initial Board of Directors. The Board of Directors obtained
the Fairness Opinion on March 24, 1995. The Company entered into the Acquisition
Agreement on or about April 5, 1995. The Purchase Price is the result of
arm's-length negotiations between the Company and NACC, after the
above-described search for potential purchasers of the Company.
THE BOARD OF DIRECTORS ADVISES THAT (1) THE PROCEEDS OF THE ASSET SALE
WILL NOT BE SUFFICIENT TO MAKE ANY DISTRIBUTIONS TO THE HOLDERS OF COMMON STOCK
AFTER THE SATISFACTION OF THE COMPANY'S OUTSTANDING PRIOR DEBTS TO CREDITORS
(CRSS BEING THE PRINCIPAL CREDITOR) AND THE PAYMENT OF THE REDEMPTION PRICE (OR
LIQUIDATION PREFERENCE IN THE EVENT OF LIQUIDATION) TO CRSS AS THE SOLE HOLDER
OF SERIES A PREFERRED STOCK, (2) IT IS LIKELY THAT, EVEN IF THE PROCEEDS OF THE
ASSET SALE WERE USED OTHER THAN TO SATISFY ITS OUTSTANDING PRIOR DEBTS AND
REDEEM (OR LIQUIDATE) OUTSTANDING SERIES A PREFERRED STOCK AS DESCRIBED HEREIN,
THE COMPANY WOULD NOT GENERATE SIGNIFICANT ADDITIONAL REVENUES AFTER THE
CONSUMMATION OF THE ASSET SALE, AND (3) EVEN IF THE COMPANY DID GENERATE
ADDITIONAL REVENUES, THE AMOUNT GENERATED LIKELY WOULD NOT BE SUFFICIENT TO
PROVIDE ANY RETURN TO THE HOLDERS OF COMMON STOCK OR TO ENABLE THE COMPANY TO
CONTINUE ANY OPERATIONS AS A GOING CONCERN. See "THE ACQUISITION PROPOSAL--Use
of Proceeds" and "--Description of Acquisition Agreement and Ancillary
Agreements--Fairness Opinion".
20
<PAGE> 25
USE OF PROCEEDS
If the Acquisition Proposal and the Liquidation and Dissolution
Proposal are approved by the Company's stockholders at the Annual Meeting and
the transactions contemplated thereby are consummated, the Board of Directors
intends to liquidate or distribute in kind the Excluded Assets and dissolve the
Company within 30 days after the consummation of the Asset Sale and use all of
the proceeds from the Asset Sale (including the Purchase Price Note) and
Liquidation, and the Excluded Assets (to the extent they will be distributed in
kind), to (1) pay costs and expenses incurred by the Company in connection with
the Asset Sale and the Liquidation and Dissolution, (2) retire all prior debt
outstanding of the Company to its creditors, which debt as of April 30, 1995
aggregated $7,291,417, and included $6,960,222 outstanding to CRSS, and (3)
partially pay the total Liquidation Preference to which the Company's
outstanding shares of Series A Preferred Stock, which are held solely by CRSS,
are entitled in the event of the Liquidation, which total Liquidation Preference
as of April 30, 1995 was $5,038,000.
Upon the consummation of the Asset Sale, the Company intends to assign
the Purchase Price Note to CRSS in redemption of a portion of Series A Preferred
Stock held by CRSS equal to $3.1 million par value or, in the event of the
Liquidation, in payment of $3.1 million of the aggregate Liquidation Preference.
CRSS is the holder of approximately 50.2% of the Company's outstanding shares of
Common Stock and 100% of the Company's outstanding shares of Series A Preferred
Stock. See "THE ACQUISITION PROPOSAL--Description of Acquisition Agreement and
Ancillary Agreements--Purchase Price" and "EXECUTIVE COMPENSATION AND OTHER
INFORMATION--Employment Agreement and Certain Transactions".
If the Liquidation and Dissolution Proposal is approved by the
stockholders of the Company, the Company intends to transfer all of the Excluded
Assets, or the proceeds of the sale of the Excluded Assets, to CRSS as partial
payment of the Liquidation Preference to which CRSS will be entitled as the
principal creditor of the Company and as the sole holder of Series A Preferred
Stock. See "THE ACQUISITION PROPOSAL--Description of Acquisition Agreement and
Ancillary Agreements--Purchase Price" and "EXECUTIVE COMPENSATION AND OTHER
INFORMATION--Employment Agreement and Certain Transactions".
If the Acquisition Agreement is approved by the Company's stockholders
at the Annual Meeting and the transactions contemplated thereby are consummated,
but the Liquidation and Dissolution Proposal is not approved by the Company's
stockholders, the Board of Directors intends to use all of the proceeds from the
Asset Sale (including the Purchase Price Note) to (1) pay costs and expenses
incurred by the Company in connection with the Asset Sale, (2) retire all prior
debt outstanding of the Company to its creditors, as described above, and (3)
partially redeem, at the option of the Company, the Company's outstanding shares
of Series A Preferred Stock. See "THE ACQUISITION PROPOSAL--Use of Proceeds".
THE BOARD OF DIRECTORS ADVISES THAT (1) THE PROCEEDS OF THE ASSET SALE
WILL NOT BE SUFFICIENT TO MAKE ANY DISTRIBUTIONS TO THE HOLDERS OF COMMON STOCK
AFTER THE SATISFACTION OF THE COMPANY'S OUTSTANDING PRIOR DEBTS TO CREDITORS
(CRSS BEING THE PRINCIPAL CREDITOR) AND THE PAYMENT OF THE REDEMPTION PRICE (OR
LIQUIDATION PREFERENCE IN THE EVENT OF LIQUIDATION) TO CRSS AS THE SOLE HOLDER
OF SERIES A PREFERRED STOCK, (2) IT IS LIKELY THAT, EVEN IF THE PROCEEDS OF THE
ASSET SALE WERE USED OTHER THAN TO SATISFY ITS OUTSTANDING PRIOR DEBTS AND
21
<PAGE> 26
REDEEM (OR LIQUIDATE) OUTSTANDING SERIES A PREFERRED STOCK AS DESCRIBED HEREIN,
THE COMPANY WOULD NOT GENERATE SIGNIFICANT ADDITIONAL REVENUES AFTER THE
CONSUMMATION OF THE ASSET SALE, AND (3) EVEN IF THE COMPANY DID GENERATE
ADDITIONAL REVENUES, THE AMOUNT GENERATED LIKELY WOULD NOT BE SUFFICIENT TO
PROVIDE ANY RETURN TO THE HOLDERS OF COMMON STOCK OR TO ENABLE THE COMPANY TO
CONTINUE ANY OPERATIONS AS A GOING CONCERN.
THE BOARD OF DIRECTORS FURTHER ADVISES THAT THE PROCEEDS OF THE ASSET
SALE AND THE LIQUIDATION WILL RESULT IN THE FULL SATISFACTION OF THE COMPANY'S
OUTSTANDING PRIOR DEBTS TO CREDITORS, BUT WILL NOT RESULT IN SUFFICIENT PROCEEDS
OR ASSETS TO PAY THE ENTIRE LIQUIDATION PREFERENCE TO CRSS AS THE SOLE HOLDER OF
SERIES A PREFERRED STOCK OR TO MAKE ANY DISTRIBUTION TO THE HOLDERS OF COMMON
STOCK AFTER THE SATISFACTION OF SUCH PRIOR DEBTS.
See "EXECUTIVE COMPENSATION AND OTHER INFORMATION--Employment
Agreement and Certain Transactions" with respect to certain liabilities of the
Company.
The tables below describe the proposed use of proceeds in more detail.
USE OF PROCEEDS UPON ASSET SALE AND LIQUIDATION:
<TABLE>
<S> <C>
Proceeds:
Asset Sale Proceeds $9,085,078
Liquidation Proceeds(1) $ 670,066
----------
$9,755,144
Uses:
Payment of Costs and Expenses of $ 319,582
Asset Sale, Liquidation and
Dissolution
Payment of Prior Obligations(2) $ 331,195
(other than outstanding to CRSS)
Payment of Prior Obligations $6,960,222
outstanding to CRSS(2,3)
Partial Payment of Liquidation $2,144,145
Preference(4) to CRSS
----------
$9,755,144
USE OF PROCEEDS UPON ASSET SALE WITHOUT LIQUIDATION:
Proceeds:
Asset Sale Proceeds $9,085,078
----------
$9,085,078
Uses:
Payment of Costs and Expenses $ 150,000
of Asset Sale
Payment of Prior Obligations(2) $ 331,195
(other than outstanding to CRSS)
Payment of Prior Obligations $6,960,222
outstanding to CRSS(2,3)
Payment of Redemption Price $1,643,661
to CRSS(5)
----------
$9,085,078
</TABLE>
___________________________
(1) Comprised of the Excluded Assets of the Company to be liquidated or
distributed in kind within 30 days after the consummation of the Asset
Sale. The Excluded Assets have an estimated current market value as
follows:
<TABLE>
<CAPTION>
Estimated Market Value
----------------------
<S> <C>
Cash $314,014
Accounts Receivable 210,087
Patents and Technology 84,977(a)
</TABLE>
22
<PAGE> 27
<TABLE>
<S> <C>
Colorado Water Rights 10,000(b)
Furniture and Miscellaneous 50,988(a)
Testing Equipment
--------
$670,066
========
</TABLE>
The Company emphasizes that the above market values are estimates,
and that there can be no assurances that the actual market value is
not greater than or less than such estimates.
(a) Based on recent discussions with one potential
purchaser and conditioned on the sale of the
miscellaneous equipment together with the patents and
technology.
(b) These water rights were acquired in 1989 at a price of
$100,000; however, recent attempts to sell such rights
indicate that there is no interest in such rights.
(2) As of April 30, 1995.
(3) Comprised of the following as of April 30, 1995:
<TABLE>
<S> <C>
Fees and reimbursements under Services Agreement $ 41,183
Outstanding Principal on 5-Year 4,122,604
Convertible Promissory Note
Outstanding Principal on Six Promissory Notes 2,145,000
issued in 1993 and 1994 in payment of
Series A, B & C Preferred Stock Dividends
Outstanding Interest on 5-Year 313,177
Convertible Promissory Note
Outstanding Interest on Six Promissory Notes 223,258
issued in 1993 and 1994 in payment of
Series A, B and C Preferred Stock Dividends
Accrued and Unpaid Series B and C Preferred 115,000
Stock Dividends
----------
$6,960,222
==========
</TABLE>
(4) CRSS, as owner of all 44,380 shares of the Company's outstanding
shares of Series A Preferred Stock, is entitled upon Liquidation of
the Company to receive a total Liquidation Preference of $100 per
share of Series A Preferred Stock plus an amount equal to accrued and
unpaid dividends on such shares through the payment date. Accrued and
unpaid dividends on the Series A Preferred Stock were $600,000 as of
April 30, 1995. As a result, the total Liquidation Preference, all of
which is owed to CRSS, was $5,038,000 with respect to all such shares
as of April 30, 1995.
(5) CRSS, as owner of all 44,380 shares of the Company's outstanding
shares of Series A Preferred Stock, is entitled, to the extent of
available funds, upon redemption of all of its shares of Series A
Preferred Stock between October 31, 1994 and October 31, 1995, to
receive an aggregate redemption price equal to 104% of the stated
value of $100 per share, plus an amount equal to the accrued and
unpaid dividends on such shares through the redemption date. However,
CRSS has agreed to forego the 4% redemption premium. Accrued and
unpaid dividends on the Series A Preferred Stock were $600,000 as of
April 30, 1995. As a result, the aggregate redemption price that would
be owed to CRSS upon redemption of its shares of Series A Preferred
Stock is $5,215,520 as of April 30, 1995, of which CRSS has agreed to
forego $177,520 of redemption premium.
23
<PAGE> 28
STOCKHOLDER APPROVAL
Since the consummation of the Acquisition Agreement will constitute a
sale of all, or substantially all, of the property of the Company, the
Acquisition Proposal must be approved by the stockholders of the Company
entitled to vote, pursuant to the terms of Section 16-10a-1202 of the Utah
Revised Business Corporation Act. See "VOTING RIGHTS AND PROXY INFORMATION".
Because CRSS has agreed with NACC, subject to certain conditions, to vote CRSS'
13,499,449 shares of Common Stock (representing approximately 50.2% of the
outstanding shares of Common Stock) and 44,380 shares of Series A Preferred
Stock (representing 100% of the outstanding shares of Series A Preferred Stock)
in favor of the Acquisition Proposal, approval of the Acquisition Proposal is
assured, provided CRSS so votes. In the event the requisite approval is not
received, the Asset Sale will not be consummated. For other reasons why the
Asset Sale may not be consummated, see "THE ACQUISITION PROPOSAL--Possibility
that the Asset Sale will not be Consummated". Stockholders voting in favor of
the Acquisition Proposal will forfeit their respective appraisal rights under
Utah law. See "THE ACQUISITION PROPOSAL--Dissenters' Rights of Appraisal" and
Exhibit H with respect to appraisal rights and certain notice requirements by
stockholders.
DESCRIPTION OF ACQUISITION AGREEMENT AND ANCILLARY AGREEMENTS
The material terms and provisions of the Acquisition Agreement and the
Ancillary Agreements are summarized below. Reference is hereby made to the
Acquisition Agreement and the Ancillary Agreements accompanying this Proxy
Statement for the complete terms of such provisions as well as for other
provisions that are not summarized below.
General
The Acquisition Agreement by and among the Company and NACC provides
for the sale of all of the assets of the Company used in the Transferred
Business, including all of the shares of capital stock of each of NMI and OXA
owned by the Company. Each of NMI and OXA are engaged in the business of owning
membership interests in White River. After the closing and consummation of the
Asset Sale (the "Closing"), NACC will have acquired from the Company the Assets,
comprised of the Company's indirect 50% ownership interest in White River and
all of the assets, properties and rights of any kind owned by the Company and
used, planned to be used or relating to the operation of the Transferred
Business, and thereby will own all of the business presently conducted by White
River. The Assets do not include certain designated Excluded Assets unrelated to
the Transferred Business, including the Company's accounts receivable, patents
and technology relating to its dry sodium injection system, Colorado River water
rights, and certain furniture and equipment. The Excluded Assets are immaterial
in amount. See "THE ACQUISITION AGREEMENT--Use of Proceeds".
Under the Acquisition Agreement, NACC will not assume any liabilities
of the Company, and NMI and OXA will remain liable with respect to the
liabilities of the Company relating to the Transferred Business and the Assets.
Under the terms of the Acquisition Agreement, NACC and the Company
mutually have agreed to release each other and each of their respective
affiliates, effective as of the Closing Date and conditioned upon the Closing,
from all liability to the other as of the Closing Date, including, without
limitation, with respect to the NACC Lawsuit. The litigation and arbitration
proceedings that constitute the NACC Lawsuit are the proceedings pending in the
District Court of Harris County, Texas, 125th Judicial District, captioned NaTec
Resources, Inc. and NaTec Minerals, Inc. v. D. George Harris & Associates, Inc.,
Harris Chemical Group, Inc. and North American Chemical Company, having Cause
No. 94-025523, and the arbitration proceeding now pending under the
administration of the American Arbitration Association, New York Office,
captioned In the Matter of the Arbitration between North American Carbonate
Company and North American Bicarbonate Company, and NaTec Minerals, Inc., and
Oldexaer, Inc., having caption number 13-181-00582-94. Additionally, NACC has
agreed under the Acquisition Agreement to use its best efforts and cooperate
with the Company and CRSS to substitute NACC for CRSS as the
24
<PAGE> 29
obligor of certain obligations of CRSS with respect to guaranties of
performance bonds, letters of credit and other similar obligations of White
River. To the extent CRSS is not released from such obligations, NACC will
agree to indemnify and hold harmless CRSS from such obligations and to provide
to the Company a letter of credit as security for such obligations. See "THE
ACQUISITION PROPOSAL--Description of Acquisition Agreement and Ancillary
Agreements--Ancillary Agreements" and "LEGAL PROCEEDINGS".
Purchase Price
At the Closing, NACC will, subject to the terms and conditions of the
Acquisition Agreement, purchase from the Company, directly or indirectly, all of
the Assets. The Purchase Price of $10 million is payable $6 million in cash on
the Closing Date and $4 million payable in quarterly installments commencing on
the thirtieth day after the end of the first full calendar quarter following the
Closing Date, with subsequent payments due at the end of each third calendar
month thereafter. All such deferred payment obligations will be evidenced by the
non-interest bearing Purchase Price Note, a copy of which is attached hereto as
Exhibit D. The Purchase Price Note will be fully secured by a lien on all of the
assets of White River. The Purchase Price Note will be promptly assigned to CRSS
in redemption or liquidation of a portion of Series A Preferred Stock held by
CRSS. See "THE ACQUISITION PROPOSAL--Use of Proceeds". The Purchase Price Note
is payable in installments in an amount equal to $10.00 times the number of tons
of sodium bicarbonate sold by NACC or any of its affiliates (including, without
limitation, White River) during the respective fiscal quarter to persons other
than NACC or any of its affiliates (including, without limitation, White River);
provided, however, that sales of sodium bicarbonate not produced by White River
shall not count as sales for purposes of the Purchase Price Note; provided,
further, that the amount payable after the fourth fiscal quarter shall be not
less than the amount by which $600,000 exceeds the aggregate amount paid with
respect to the first three fiscal quarters and that the amount payable with
respect to the eighth fiscal quarter shall not be less than the amount by which
$700,000 exceeds the aggregate amount paid with respect to the fifth, sixth and
seventh fiscal quarters. Anything to the contrary notwithstanding, if the holder
of the Purchase Price Note accelerates such note pursuant to an event of default
thereunder, or if NACC voluntarily prepays the Purchase Price Note, the
aggregate amount payable by NACC under the Purchase Price Note shall not exceed
the discounted value of the Purchase Price Note (calculated pursuant to the
terms of the Purchase Price Note) on the date of any acceleration of the
Purchase Price Note as contemplated by such Note or the voluntary pre-payment of
the Purchase Price Note as contemplated by such Note. On the fifth anniversary
of the date of the Purchase Price Note, the unpaid balance on the Purchase Price
Note will be payable in full. The Purchase Price is estimated to have a
discounted value of $9.1 million, which reflects the discount to present value
of the Purchase Price Note. The Purchase Price Note has been discounted to
present value using an interest rate of 9%. The valuation of the Purchase Price
Note assumes that the Purchase Price Note will be collected $600,000 in the
first year, $700,000 in the second year (each such amount being the minimum
required to be paid on the Purchase Price Note in those years in accordance with
its terms) and $900,000 per year for the third through fifth years (such amount
being estimated on a straight-line basis due to the inability to reasonably
estimate production and sales for such years). See "THE ACQUISITION
PROPOSAL--Use of Proceeds" and footnote (a) to the table captioned NATEC
RESOURCES, INC. PRO FORMA STATEMENT OF NET ASSETS IN LIQUIDATION.
Capital Call
Additionally, under the Acquisition Agreement, the Company and NACC
have agreed to a capital expenditure program at White River, which program
commenced upon execution of the Acquisition Agreement and is not contingent upon
the Closing and consummation of the Asset Sale. Under the program, each of the
Company and NACC have caused White River to approve and make a capital call of
$2,113,250 (the "Capital Call") as of the date of this Proxy Statement
25
<PAGE> 30
to the extent that White River does not have adequate funds to make certain
capital expenditures. Each of the Company and NACC is liable for 50% (i.e.,
$1,056,625) of the Capital Call. To the extent that either the Company or NACC
does not honor such Capital Call within 90 days of the date of this Proxy
Statement, the other party may, in its sole discretion, either (i) by paying
all or a portion of such unpaid Capital Call, purchase all or a portion of the
defaulting party's membership interest in White River, with the amount of the
membership interest thus purchased equaling the portion of the unpaid Capital
Call paid by the non-defaulting member divided by the net book value of White
River, or (ii) by contributing to White River all or a portion of such unpaid
Capital Call, increase such party's membership interest in White River
accordingly (the amount of the increase in membership interest thus obtained
will equal the portion of the unpaid Capital Call contributed by the
non-defaulting member divided by the net book value of White River, and the
membership interest of all of the parties will be adjusted accordingly). If
the Company does not pay any of the Capital Call, then its membership interest
in White River would be reduced from 50% to 43.57%. However, it is
contemplated that the sale of the Company's 50% interest in White River
pursuant to the Acquisition Agreement will be completed before the Capital Call
will be due, in which case, under the terms of the Acquisition Agreement, the
Company will not be liable for its share of the Capital Call. Furthermore, if
the Company pays its share of the Capital Call (at any time prior to NACC
paying or contributing such share) and subsequently consummates the Asset Sale,
the amount paid will be reimbursed to the Company in full by NACC and/or White
River upon such consummation. Finally, any reduction in the Company's interest
in White River would not affect the Purchase Price if the Asset Sale ultimately
is consummated.
Ancillary Agreements
The Acquisition Agreement contemplates the execution of the Ancillary
Agreements described below. The material provisions of the Ancillary Agreements
are summarized below. Reference is made to the Acquisition Agreement and the
forms of the Ancillary Agreements accompanying this Proxy Statement for the
complete terms of the provisions summarized below as well as other provisions
not herein summarized.
Under a certain side letter agreement dated as of April 5, 1995 (the
"CRSS Voting Letter Agreement"), CRSS has agreed with NACC, subject to certain
specified assumptions and conditions, to have at the appropriate time the right
to vote a sufficient number of shares of Common Stock and Series A Preferred
Stock to approve the Acquisition Proposal, and to vote those shares in favor of
the Acquisition Proposal. The CRSS Voting Letter Agreement is attached hereto as
Exhibit E. CRSS is not prohibited, under the CRSS Voting Letter Agreement or
otherwise, from selling or otherwise transferring all or any part of its shares
of Common Stock and Series A Preferred Stock. However, if the Asset Sale is not
consummated as a result of such sale or transfer, the Company will be obligated
to pay up to $250,000 of NACC's out-of-pocket expenses incident to the
preparation and performance of the Acquisition Agreement and Ancillary
Agreements. See "THE ACQUISITION PROPOSAL--Description of Acquisition Agreement
and Ancillary Agreements--Fees and Expenses".
In connection with the execution of the Acquisition Agreement, CRSS
will deliver a letter of guaranty (the "CRSS Letter of Guaranty") to NACC as a
condition to NACC's obligations under the Acquisition Agreement. The letter of
guaranty, to be effective as of the Closing, will guarantee to NACC and each of
its respective successors, assigns and affiliates all obligations of the Company
to indemnify and hold harmless such indemnitees with respect to all claims made
by any such indemnitee under Article 8 of the Acquisition Agreement; provided,
however, that the obligations of CRSS under the CRSS Letter of Guaranty will be
subject to the same rights, limits and defenses available to the Company under
the Acquisition Agreement; and provided, further, that the liability of CRSS to
guarantee such obligations shall be limited to the amount by which the
discounted value of the Purchase Price Note at the time such indemnification
claim is made exceeds the sum of (1) the amount previously paid by CRSS pursuant
to the CRSS Letter of Guaranty ("CRSS Payments") and (2) the extent to which the
aggregate amount of both paid and unpaid accrued obligations of NACC under the
Purchase Price Note exceeds the aggregate amount of CRSS Payments. The CRSS
Letter of Guaranty is attached hereto as Exhibit F.
Pursuant to the Acquisition Agreement, in connection with the Closing,
the Company, CRSS, NMI and OXA have agreed to execute and deliver a General
Release of D. George Harris & Associates, Inc., Harris
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<PAGE> 31
Chemical Group, Inc., NACC, North American Carbonate Company, and North
American Bicarbonate Company with respect to certain liabilities arising in
connection with White River prior to the Closing Date, including with respect
to the NACC Note and the NACC Lawsuit, other than liabilities or obligations
created under the Acquisition Agreement and related documents. See "THE
ACQUISITION PROPOSAL--Description of Acquisition Agreement and Ancillary
Agreements--General".
Pursuant to the Acquisition Agreement, in connection with the Closing,
D. George Harris & Associates, Inc., Harris Chemical Group, Inc., NACC, North
American Carbonate Company, and North American Bicarbonate Company have agreed
to execute and deliver a General Release of the Company, CRSS, NMI and OXA from
all liabilities arising in connection with White River prior to the Closing
Date, other than any liability or obligation created under the Acquisition
Agreement and related documents. See "THE ACQUISITION PROPOSAL--Description of
Acquisition Agreement and Ancillary Agreements--General".
Representations and Warranties; Conditions to Closing
The Company has made to NACC various representations and warranties
which cover, among other things, the following: the organization of the Company;
the qualification to do business of the Company; NMI and OXA; the ownership and
capitalization of NMI and OXA; subsidiaries and equity investments of NMI and
OXA; ownership of CRSS in the Company; required approvals for the Acquisition
Proposal; the accuracy of various audited and unaudited financial statements;
the title to the Assets; tax matters; litigation; liabilities; employee matters;
compliance by NMI and OXA with applicable federal, state and local laws; the
absence of violations of any law, statute, rule, regulation, judicial or
administrative decision, any articles or certificates of incorporation or
by-laws, any mortgage, deed of trust, lease, note, stockholders' agreement,
bond, indenture, other instrument or agreement, license, permit, trust,
custodianship or other restriction, or any judgment, order, writ, injunction or
decree of any court, governmental body, administrative agency or arbitrator; the
absence of any broker or finder in connection with the Acquisition Agreement or
the Asset Sale; and other matters connected with the Transferred Business, the
Assets and the Asset Sale. See "THE ACQUISITION PROPOSAL--Description of
Acquisition Agreement and Ancillary Agreements--Ancillary Agreements" and
"--Fees and Expenses".
NACC has made various representations and warranties to the Company
which cover, among other things, the following: the organization and
qualification of NACC, required approvals, the absence of any violations of any
law, statute, rule, regulation, judicial or administrative decision, any
articles or certificate of incorporation or by-laws, any mortgage, deed of
trust, lease, note, stockholders' agreement, bond, indenture, other instrument
or agreement, license, permit, trust, custodianship or other restriction, or any
judgment, order, writ, injunction or decree of any court, governmental body,
administrative agency or arbitrator, NACC's investment intent, and the absence
of any broker or finder in connection with the Acquisition Agreement or the
Asset Sale.
The obligations of NACC to consummate the Asset Sale are conditioned
on the truth and correctness in all material respects of all representations and
warranties of the Company made under the Acquisition Agreement or under any
certificate or document delivered pursuant to the Acquisition Agreement, the
performance and compliance in all material respects with all agreements and
conditions required to be performed or complied with by the Company prior to
Closing, the delivery of an opinion of the Company's counsel dated the Closing
Date as to certain matters, the absence of any injunction, restraining order or
decree of any court or governmental or regulatory authority that restrains,
prevents or materially changes the transactions contemplated by the Acquisition
Agreement, and the acquisition or effectiveness of all third party consents and
all filings with and notifications of governmental authorities, regulatory
agencies or other entities which regulate and are necessary for the conduct of
NACC's, the Company's, NMI's or OXA's business, and the execution and delivery
of the CRSS Letter of Guaranty.
The obligations of the Company to consummate the Asset Sale are
conditioned upon the truth and correctness in all material respects of all
representations and warranties of NACC under the Acquisition Agreement or under
any certificate or document delivered pursuant to the Acquisition Agreement,
the performance and compliance in all material respects with all agreements and
conditions required to be performed or complied with by NACC prior to Closing,
the delivery
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<PAGE> 32
of an opinion of NACC's counsel dated the Closing Date as to certain matters,
the absence of any injunction, restraining order or decree of any court or
governmental or regulatory authority that restrains, prevents or materially
changes the transactions contemplated by the Acquisition Agreement, the
acquisition or effectiveness of all third party consents and all filings with
and notifications of governmental authorities, regulatory agencies or other
entities which regulate and are necessary for the conduct of NACC's, the
Company's, NMI's or OXA's business, the approval by the Company's stockholders
of the Acquisition Agreement and the transactions contemplated by the
Acquisition Agreement, delivery and nonwithdrawal of the Fairness Opinion, and
the execution and delivery of the Security Agreement, the Deed of Trust (both
of which secure the Purchase Price Note) and various other documents
contemplated by the Acquisition Agreement.
Fairness Opinion
The Acquisition Agreement requires, as a condition precedent to the
Company's obligations thereunder, the delivery and nonwithdrawal of the Fairness
Opinion. The Fairness Opinion, dated March 24, 1995, has been rendered by
Houlihan Valuation Advisors (the "Advisors"), an independent, disinterested
valuation firm, consisting of chartered financial analysts, certified public
accountants, Senior Members of the American Society of Appraisers, and
economists with solid academic credentials as well as hands-on business
experience in creating, capitalizing, operating and selling business
enterprises, selected by the Company based on their experience in performing
business valuations since 1975. The Fairness Opinion is solely to the effect
that, as of March 24, 1995, the Asset Sale is fair from a financial point of
view to the Company. The Fairness Opinion does not address either the relative
fairness of the Asset Sale to the holders of Common Stock or of the ultimate use
of the proceeds generated by the Asset Sale, as the Advisors were not requested
to render such opinions. The full text of the Fairness Opinion, which sets forth
the assumptions made, matters considered and the review undertaken with regard
to such opinion, is attached as Exhibit G hereto. The Fairness Opinion has not
been, and is not anticipated to be, updated.
THE BOARD OF DIRECTORS ADVISES THAT (1) THE PROCEEDS OF THE ASSET SALE
WILL NOT BE SUFFICIENT TO MAKE ANY DISTRIBUTIONS TO THE HOLDERS OF COMMON STOCK
AFTER THE SATISFACTION OF THE COMPANY'S OUTSTANDING PRIOR DEBTS TO CREDITORS
(CRSS BEING THE PRINCIPAL CREDITOR) AND THE PAYMENT OF THE REDEMPTION PRICE (OR
LIQUIDATION PREFERENCE IN THE EVENT OF LIQUIDATION) TO CRSS AS THE SOLE HOLDER
OF SERIES A PREFERRED STOCK, (2) IT IS LIKELY THAT, EVEN IF THE PROCEEDS OF THE
ASSET SALE WERE USED OTHER THAN TO SATISFY ITS OUTSTANDING PRIOR DEBTS AND
REDEEM (OR LIQUIDATE) OUTSTANDING SERIES A PREFERRED STOCK AS DESCRIBED HEREIN,
THE COMPANY WOULD NOT GENERATE SIGNIFICANT ADDITIONAL REVENUES AFTER THE
CONSUMMATION OF THE ASSET SALE, AND (3) EVEN IF THE COMPANY DID GENERATE
ADDITIONAL REVENUES, THE AMOUNT GENERATED LIKELY WOULD NOT BE SUFFICIENT TO
PROVIDE ANY RETURN TO THE HOLDERS OF COMMON STOCK OR TO ENABLE THE COMPANY TO
CONTINUE ANY OPERATIONS AS A GOING CONCERN.
In connection with preparing the Fairness Opinion, the Advisors made
such analyses, reviews and inquiries as they deemed necessary and appropriate
under the circumstances, including, without limitation, reviewing a draft of the
Acquisition Agreement, certain financial information and project and budget
information of White River, a valuation and due diligence review report of
certain of the Company's operations, the Joint Venture Agreement, certain
financial information of the Company, certain annual and quarterly reports of
competitors of White River in the sodium bicarbonate industry, various
literature on the sodium bicarbonate industry and alternative technology,
documentation reflecting expressions of interests from prior prospective
purchasers and various other documents provided by Management. The Advisors
conducted various analytical procedures in arriving at their opinion, including
inquiries made of certain employees and officers of White River and the Company,
a site visit to the White River operating facility, a review of White River's
1995 operating budget and proposed capital expenditure program, generally
recognized financial analyses and valuation procedures, a review and analysis of
the Joint Venture Agreement and other studies, analyses and investigations. The
Advisors found, based upon the foregoing procedures and analyses, that the
proposed sale pursuant to the Acquisition
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<PAGE> 33
Agreement, assuming it is consummated as proposed, is fair to the Company from
a financial point of view; that is, that the fair market value of the
consideration being received by the Company in the transaction is at least as
great as the fair market value of the Company's 50% ownership interest in White
River being sold in the transaction, assuming that such interest continues to
be bound by and subject to the terms of the Joint Venture Agreement. The
Advisors assumed without independent verification that there has been no
material change in the Assets, financial condition or business of White River
since December 31, 1994, the date of the most recent audited financial
statements made available to the Advisors.
The following is a brief summary of the valuation analyses performed
by the Advisors in connection with rendering the Fairness Opinion. The summary
set forth below is qualified in its entirety by reference to the full text of
the Fairness Opinion.
The NACC acquisition offer evidenced by the Acquisition Agreement was
analyzed by the Advisors under various White River plant production scenarios to
ascertain the present value of such acquisition offer. The Advisors concluded
that the offer had a present value of approximately $9 million, with a range of
present values under the various scenarios of between $8.8 million and $9.3
million.
The historical performance of White River was analyzed, with the
financial analysis including but not limited to: (1) trends in sales, earnings
and free cash flow growth; (2) operating and net profit margins; (3)
profitability ratios (including return on assets and return on equity); and (4)
financial risk/leverage ratios. An analysis of White River's nahcolite
production by month, including tons produced and production costs per ton, was
also conducted.
The historical operating performance of White River was compared by
the Advisors with the 1995 operating budget of White River, as prepared by White
River's management. The Advisors concluded that the 1995 operating budget, which
forms the basis for much of the market/transaction value ratio analysis and the
income/discounted cash flow value analysis below, appears to be optimistic in
light of historical financial results. For example, comparing the 1995 operating
budget to historical operating performance, the Advisors found that: (1) sales
are projected to increase from the 1994 figure of $4.66 million to $6.30 million
in 1995, or an increase of 35.3%, following an increase of only 12.8% in 1994
(from $4.13 million in 1993 to $4.66 million in 1994); (2) operating expenses
are projected to increase at a much slower rate than sales (which would be
consistent with the high operating leverage of the facility), from $3.34 million
in 1994 to $3.77 million (or by 12.8%) in 1995, following a 1994 increase of
only 5.0% (from $3.18 million in 1993 to $3.34 million in 1994); (3) as a
percentage of sales, operating expenses are projected to fall from 77.2% in 1993
and 71.8% in 1994 to only 59.9% in 1995; (4) income from operations is projected
to increase from the 1993 figure of $.94 million and the 1994 figure of $1.31
million to $6.30 million in 1995; (5) as a percentage of sales, income from
operations is projected to increase from the 1993 figure of 22.8% and the 1994
figure of 28.2% to 40.1% in 1995; (6) operating cash flow (or income from
operations less interest expense) is likewise projected to grow from $.74
million in 1993 and $1.16 million in 1994 to $2.39 million in 1995; (7) as a
percent of sales, operating cash flow is projected to increase from 17.9% in
1993 and 24.9% in 1994 to 37.8% in 1995; and (8) net income is projected to grow
from net losses of $.87 million in 1993 and $.39 million in 1994 to a profit of
$1.67 million (or 26.4% of projected sales) in 1995.
A market value ratio analysis was conducted by the Advisors, wherein
the proposed Purchase Price was compared with 1994 actual and 1995 projected
financial results of White River. The Advisors found that the present value of
the Purchase Price represents: (1) a price to 1994 actual operating cash flow
ratio of 15.5 times ($18.0 million/$1.16 million); (2) a price to 1995 projected
operating cash flow ratio of 7.5 times ($18.0 million/$2.39 million); (3) a
price to 1994 actual sales ratio of 3.87 times ($18.0 million/$4.66 million);
(4) a
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<PAGE> 34
price to 1995 projected sales ratio of 2.86 times ($18.0 million/$6.30
million); (5) a price to 1995 projected net earnings ratio of 10.8 times ($18.0
million/$1.67 million); (6) a price to 1995 projected free cash flow ratio of
17.0 times ($18.0 million/$1.06 million); (7) a price to December 31, 1994 book
value ratio of 1.235 times ($18.0 million/$14.57 million); (8) a price to
December 31, 1994 adjusted book value ratio of 1.057 times ($18.0
million/$17.03 million); and (9) a price to December 31, 1994 total asset ratio
of .903 times ($18.0 million/$19.95 million).
The value of White River was analyzed by the Advisors utilizing
various valuation methodologies, including: (1) the asset/book value approach;
(2) the market/transaction value approach; and (3) the income/discounted cash
flow value approach. Application of these methodologies is described in further
detail below.
ASSET/BOOK VALUE. As of December 31, 1994, the date of the most recent
audited balance sheet available, White River had total assets of $19.95 million,
total book value (or members' capital) of $14.57 million, and total adjusted
book value (or members' capital plus distributions payable to members) of $17.03
million.
MARKET/TRANSACTION VALUE. As mentioned in the Fairness Opinion and
discussed in "THE ACQUISITION PROPOSAL--Background of the Acquisition Proposal",
in connection with the evolution of the Asset Sale, a market search was made by
the Company to find prospective acquirors of the Company's 50% interest in White
River and the other Assets, with only one company other than NACC ultimately
making a preliminary purchase offer. Any interest expressed by prospective
acquirors other than NACC during the market search was eventually diminished by
the existence of the Joint Venture Agreement and the Operating Agreement, which
together effectively give operating control of White River to NACC. According to
the Advisors, the approximate $9 million present value of NACC's proposed
purchase price is in line with the high end of the preliminary offer range of $7
million to $9 million made by the one prospective acquiror other than NACC
making a preliminary offer. See "THE ACQUISITION PROPOSAL--Background of the
Acquisition Proposal".
NACC acquired its present 50% interest in White River from the Company
in the 1992 Sale on November 19, 1995 for $10 million, including $2 million in
cash and $8 million in the form of the NACC Note. The purchase price paid by
NACC had an adjusted present value of approximately $7.7 million, which
reflected (1) the discount to present value of the NACC Note, (2) an adjustment
of approximately $1.25 million to reflect the contractual right of NACC to
receive certain distributions in excess of its membership interest in White
River in order to compensate NACC for its assumption of approximately 50% of the
liabilities of White River, and (3) the estimated additional capital
expenditures to be made by NMI of the then estimated level of approximately
$625,000 required to increase production of the mining facility to the 106,000
ton per year level required by the Joint Venture Agreement. It should be noted
that the 1992 Sale was made without the impact of the Joint Venture Agreement
and the Operating Agreement, which, in the opinion of the Advisors, suppresses
the value of the Company's 50% interest in White River relative to the value of
the Company's 50% interest in White River without taking into consideration the
Joint Venture Agreement and the Operating Agreement.
INCOME/DISCOUNTED CASH FLOW VALUE. Eleven hypothetical
income/discounted cash flow value scenarios were analyzed by the Advisors in
valuing White River on an income-producing basis. The various scenarios all
include the 1995 projected operating budget as a base year, but utilize
differing assumptions thereafter relative to number of tons produced and sold,
selling price per ton and growth rate in price per ton, and operating expenses
and growth rate in operating expenses. An assumption common to each scenario is
that capital expenditures and working capital needs remain constant at a
projected figure of $400,000 per year, based on conversations with Management.
The various scenarios analyzed, together with the key assumptions underlying
each, and the present value figures derived by the Advisors for White River
under each, are summarized as follows:
Scenario Present Value
- ------------------------------------------------------------ -------------
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<TABLE>
<S> <C>
1. Sales remain constant at 1995 projected figure of $ 2,679,000
55,450 tons per year; price per ton remains constant
at $110 per ton; operating costs (with the exception
of royalties and NACC's management fee) grow at 3%
per year
2. 1995 projected free cash flow of $941,200 remains $ 4,706,000
constant
3. Sales remain constant at 1995 projected figure of $ 6,320,000
55,450 tons per year; price per ton grows by 3% per
year from $110 per ton; operating costs (with the
exception of royalties and NACC's management fee)
grow at 3% per year
4. Sales grow by 10,000 tons per year from 1995 $12,119,000
projected figure, reaching maximum capacity of
106,000 tons in year 2000, and remaining constant at
that amount thereafter; price per ton remains
constant at $110 per ton; operating costs grow at 3%
per year
5. Sales remain constant at 1995 projected figure of $13,769,000
55,450 tons per year; price per ton remains constant
at $150 per ton; operating costs (with the exception
of royalties and NACC's management fee) grow at 3%
per year
6. Sales grow from 1995 projected figure of 55,450 tons $16,141,000
to maximum capacity of 106,000 tons in 1996, and
remaining constant at that amount thereafter; price
per ton remains constant at $110 per ton; operating
costs (with the exception of royalties and NACC's
management fee) grow at 3% per year
7. Sales remain constant at 1995 projected figure of $19,314,000
55,450 tons per year; price per ton remains constant
at $170 per ton; operating costs (with the exception
of royalties and NACC's management fee) grow at 3%
per year
8. Sales grow by 10,000 tons per year from 1995 $19,712,000
projected figure, reaching maximum capacity of
106,000 tons in year 2000, and remaining constant at
that amount thereafter; price per ton grows by 3% per
year from $110 per ton; operating costs (with the
exception of royalties and NACC's management fee)
grow at 3% per year
9. Sales grow from projected 1995 figure of 55,450 tons $24,134,000
to maximum capacity of 106,000 tons in 1996, and
remaining constant at that amount thereafter; price
per ton grows by 3% per year from $110 per ton;
operating costs (with the exception of royalties and
NACC's management fee) grow at 3% per year
10. Sales grow by 10,000 tons per year from 1995 $29,196,000
projected figure, reaching maximum capacity of
106,000 tons in year 2000, and remaining constant at
that amount thereafter; price per ton remains
constant at $150 per ton; operating costs (with the
exception of royalties and NACC's management fee)
grow at 3% per year
11. Sales grow by 10,000 tons per year from 1995 $37,734,000
projected figure, reaching maximum capacity of
106,000 tons in year 2000, and remaining constant at
that amount thereafter; price per ton remains
constant at $170 per ton; operating costs (with the
exception of royalties and NACC's management fee)
grow at 3% per year
</TABLE>
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<PAGE> 36
The above-described scenarios yield a wide range of value figures,
ranging from $2.7 million to $37.7 million for 100% of White River. In the
opinion of the Advisors, and particularly in light of the $110 per ton effective
selling price limitation imposed by the Joint Venture Agreement (as described
below), the more realistic scenarios are those which yield values close to or
below the present value of the proposed acquisition price.
After analyzing the unencumbered value of White River utilizing the
above valuation methodologies, the Advisors sought to determine the impact of
the Joint Venture Agreement on the value of the Company's 50% ownership interest
in White River. According to the Joint Venture Agreement, the price per ton to
be paid to White River for sodium bicarbonate produced by White River shall be
no greater than $110 per ton, which price cannot be increased without the
consent of NACC. This price is below market price in at least some markets for
sodium bicarbonate, according to Management. Given the virtual absence of sodium
bicarbonate production demand on the part of the Company and the dismal
prospects for future production demand by the Company, the Advisors viewed NACC
as having a strong incentive to keep the price fixed at no higher than $110 per
ton, and no incentive to increase it. The Company's 1992 proxy statement
relating to the Company's and NACC's joint venture acquisition of White River
(the "1992 Proxy Statement") states that "the purchase price (of product)
received by White River from NACC and [the Company] has an established ceiling
which is expected to result in little or no margin earned by White River. White
River was established as a vehicle to efficiently produce and sell product to
its owners or their affiliates, rather than an entity which will generate any
significant profits. Profits will be generated by NACC and [the Company] upon
their subsequent sales of the sodium bicarbonate to their respective third party
customers." The Advisors viewed the Company as being effectively precluded by
its weak financial condition from creating demand for its prospective share of
sodium bicarbonate produced by White River through the high-risk,
capital-intensive prospect of entering other sodium bicarbonate markets, thereby
entering into competition not only with NACC, but with other large,
well-financed competitors. The Advisors consequently believed the Company to be
effectively precluded from taking advantage of the price ceiling established by
the Joint Venture Agreement.
Furthermore, the Advisors focused on the fact that the Company, as
only a 50% owner of White River, cannot sell White River as a whole without the
participation of NACC, the other 50% owner in White River. The Company at most
can sell only its 50% interest in White River, with any buyer of such interest
being subject to and bound by all of the terms of the Joint Venture Agreement.
In addition, the 1992 Proxy Statement states that "[a] member may not sell,
convey, transfer or encumber in any way any part of its membership interest in
[White River] without the prior unanimous written consent of all the remaining
members", which statement indicated to the Advisors that the Company's ability
to dispose of its 50% joint venture interest in White River may be further
restricted.
Consequently, in the opinion of the Advisors, the Joint Venture
Agreement significantly reduces the value of the Company's 50% ownership
interest from the pro rata value of White River as a whole, unencumbered by the
presence of the Joint Venture Agreement, because of (1) the presence of the $110
per ton effective sales price ceiling and the absence of incentive for NACC to
raise it, (2) the inability of the Company to sell the plant or make strategic
or operational changes without the consent of NACC, and (3) operational
management resting in the hands of NACC rather than the Company. The 1992 Proxy
Statement states that "the Board (of the Company) recognizes that the
marketability and value of [the Company's] interest in White River may be
adversely affected because of the joint venture arrangements with NACC under the
[Joint Venture Agreement] and the ancillary agreements thereto." The Advisors
have assumed without independent legal verification that the Company's 50%
interest in White River will remain bound by and subject to the terms of the
Joint Venture Agreement (including the defined maximum selling price of sodium
bicarbonate produced at the White River plant of $110 per ton) for the
foreseeable future, and that the Company will not be able to change any of the
material terms of the Joint Venture Agreement without the consent of NACC.
The Advisors received a fee of $8,000 for their services in connection
with rendering the Fairness Opinion.
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<PAGE> 37
The Company will make the Fairness Opinion available for inspection
and copying at its principal executive offices during its regular business hours
by any interested security holder or his representative who has been so
designated in writing.
No Solicitation
The Company is prohibited, consistent with its fiduciary duties under
Utah law, from directly or indirectly encouraging, soliciting, initiating and
engaging in discussions or negotiations with, or providing any non-public
information to, any person concerning any merger, sales of substantial assets,
sales of shares of capital stock or similar transactions involving NMI or OXA or
entering into any agreement with respect thereto; however, CRSS is not subject
to this restriction.
Indemnities for Breach
The Company has agreed to indemnify NACC, NMI and OXA, and their
respective successors, assigns and affiliates ("NACC Indemnitees"), against any
misrepresentation or breach of any warranty made by the Company in the
Acquisition Agreement, any failure of the Company to perform any undertaking or
agreement or obligation under the Acquisition Agreement or to discharge any
liability of the Company, NMI or OXA that arose prior to the Closing, and
certain tax-related items, including all taxes payable to any governmental
taxing authority in connection with the Transferred Business for all pre-Closing
periods. Such indemnities are generally limited to a period of 24 months after
the Closing Date, except that with respect to representations relating to
corporate organization and authority of the Company, NMI and OXA, subsidiaries
and equity investments of NMI and OXA, ownership and capitalization of NMI and
OXA, absence of violations, taxes, compliance with law and certain other
matters, such obligations to indemnify survive until the expiration of all the
applicable statutes of limitations. In all instances, any claim for
indemnification must be made on or prior to the expiration of the applicable
survival period.
NACC has agreed to indemnify and hold harmless the Company and its
successors, assigns and affiliates against any misrepresentation or breach of
any warranty made by NACC in the Acquisition Agreement, the failure of NACC to
perform or fulfill any undertaking or agreement or obligation under the
Acquisition Agreement and any assertion against the Company of any liability or
obligation stipulated in the Acquisition Agreement to be for the account of
NACC. The obligations of NACC to indemnify for breach of representations and
warranties generally are limited to a period of 24 months after the Closing
Date.
Certain monetary limitations have been imposed with respect to
indemnification for certain misrepresentations and breaches of warranties. For
example, if the Closing does not occur, the maximum indemnification amount
payable by the Company for breach of any representation, warranty, covenant or
other obligation under the Acquisition Agreement is $250,000, except with
respect to intentional breaches. Furthermore, the Company's and NACC's liability
for indemnification under the Acquisition Agreement for misrepresentations and
breaches of warranties is limited to $10,000,000.
Termination
Even if the Acquisition Proposal is approved by stockholders, the
Acquisition Agreement may be terminated by (1) the mutual written consent of the
Company and NACC, (2) by either the Company or NACC if the Closing has not taken
place on or prior to August 31, 1995 (or such later date as may be agreed upon
by the Company and NACC), provided that this right to terminate under clause (2)
will not be available to a party whose misrepresentation, breach of warranty or
failure to fulfill its obligations has been the cause of the failure of the
Closing to occur by said date, or (3) by either NACC or the Company, if the
other party materially breaches any of its representations, warranties or
obligations and such breach is not cured or waived and the non- breaching party
shall not have been provided reasonable assurance that such breach will be cured
on or before the Closing. See "THE ACQUISITION PROPOSAL--Description of the
Acquisition Agreement and Ancillary Agreements" and "--Fees and Expenses".
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RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS
The Initial Board of Directors approved the Acquisition Agreement and
the Asset Sale after diligent efforts to identify and negotiate with other
prospective purchasers of all or a part of the Company, and, based on certain
determinations made by the Initial Board of Directors, the Initial Board of
Directors recommended approval by the stockholders of the Asset Sale for the
following reasons:
(1) The Company's inability to pay its current operating expenses and
debts, primarily as a result of NACC's failure to pay its note to the
Company issued in connection with the 1992 Sale.
(2) The inability of the Company to obtain additional funds, either
from CRSS, the Company's historical source of additional capital,
from conventional lending sources, from purchasers other than NACC or
from other sources.
(3) The fact that the Acquisition Agreement represents the best offer
received by the Company after diligent efforts to identify and
negotiate with prospective buyers.
(4) If the Asset Sale is approved by stockholders and consummated,
the proceeds of the Asset Sale likely will be sufficient to satisfy
in full the outstanding prior debts of the Company to its creditors.
(5) The likelihood that if the Asset Sale is not approved and
consummated, the Company will nonetheless have to liquidate its
assets to satisfy prior debts owed to its creditors, either through a
bankruptcy, state receivership or analogous proceeding. The proceeds
from any sale of the Company in such liquidation likely will be
substantially less than the purchase price provided for in the
Acquisition Agreement, and any such proceeds likely will not be
sufficient to satisfy in full the outstanding prior debts to
creditors and the Liquidation Preference to CRSS as the sole holder
of Series A Preferred Stock, and thus will not be sufficient after
satisfaction of such priority claims to make any distribution to the
holders of Common Stock. As of February 28, 1995, the last month-end
prior to the date the Initial Board of Directors approved the
Acquisition Agreement, the Company's current liabilities and
long-term obligations, plus the Liquidation Preference of Series A
Preferred Stock, together aggregated approximately $9,807,000
(including accrued interest thereon).
The Initial Board of Directors, in connection with its approval and
recommendation, required, as a condition precedent to the Company's obligations
under the Acquisition Agreement, the delivery and nonwithdrawal of the Fairness
Opinion. The Fairness Opinion has been rendered solely to the effect that, as of
March 24, 1995, the sale of the shares of capital stock of NMI and OXA and the
other Assets as contemplated under the Acquisition Agreement is fair from a
financial point of view to the Company. The Fairness Opinion does not address
either the relative fairness of the Asset Sale to the holders of Common Stock or
of the ultimate use of the proceeds generated by the Asset Sale, as the Advisors
were not requested to render such opinions.
WHILE THE INITIAL BOARD OF DIRECTORS APPROVED THE ACQUISITION
AGREEMENT AND THE ASSET SALE, AND RECOMMENDED THE ASSET SALE TO THE STOCKHOLDERS
OF THE COMPANY BASED ON CERTAIN DETERMINATIONS MADE BY THE INITIAL BOARD OF
DIRECTORS, ITS APPROVAL AND RECOMMENDATION DOES NOT CONTEMPLATE THE LIQUIDATION
AND DISSOLUTION OF THE COMPANY. THE LIQUIDATION AND DISSOLUTION OF THE COMPANY
WAS APPROVED BY THE BOARD OF DIRECTORS AFTER THE RESIGNATIONS OF MESSRS.
ARMSTRONG, PIETTE AND ROWE FROM, AND THE APPOINTMENT OF MESSRS. WILKINSON AND
DUNNE TO, THE BOARD OF DIRECTORS. SEE "THE ACQUISITION PROPOSAL--Background of
the Acquisition Proposal".
THE BOARD OF DIRECTORS ADVISES THAT (1) THE PROCEEDS OF THE ASSET SALE
WILL NOT BE SUFFICIENT TO MAKE ANY
34
<PAGE> 39
DISTRIBUTIONS TO THE HOLDERS OF COMMON STOCK AFTER THE SATISFACTION OF THE
COMPANY'S OUTSTANDING PRIOR DEBTS TO CREDITORS (CRSS BEING THE PRINCIPAL
CREDITOR) AND THE PAYMENT OF THE REDEMPTION PRICE (OR LIQUIDATION PREFERENCE IN
THE EVENT OF LIQUIDATION) TO CRSS AS THE SOLE HOLDER OF SERIES A PREFERRED
STOCK, (2) IT IS LIKELY THAT, EVEN IF THE PROCEEDS OF THE ASSET SALE WERE USED
OTHER THAN TO SATISFY OUTSTANDING DEBT AND REDEEM OR LIQUIDATE PREFERRED STOCK
AS DESCRIBED ABOVE, THE COMPANY WOULD NOT GENERATE SIGNIFICANT ADDITIONAL
REVENUES AFTER THE CONSUMMATION OF THE ASSET SALE, AND (3) EVEN IF THE COMPANY
DID GENERATE ADDITIONAL REVENUES, THE AMOUNT GENERATED LIKELY WOULD NOT BE
SUFFICIENT TO PROVIDE ANY RETURN TO THE HOLDERS OF COMMON STOCK OR TO ENABLE
THE COMPANY TO CONTINUE ANY OPERATIONS AS A GOING CONCERN.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Introduction
This section is a summary of the material federal income tax
consequences which the Company expects, after consultation with counsel, to
result from the Asset Sale. The summary is based upon the Internal Revenue Code
(the "Code"), judicial decisions, United States Treasury Department regulations
promulgated thereunder and administrative rulings of the United States Treasury
Department and existing interpretations thereof, any of which could be changed
at any time. No rulings have been requested from the Internal Revenue Service
("Service") with respect to any consequences resulting from the Asset Sale.
Accordingly, no assurance can be given that the Service will agree with the
statements that appear below.
Tax Consequences to the Stockholders
The Asset Sale will not be a taxable event to the stockholders of the
Company for federal income tax purposes.
Federal Income Tax Consequences to the Company and its Affiliated
Members
The Company as of December 31, 1994 had existing net operating loss
carryovers ("NOLs") for federal income tax purposes of approximately
$22,042,000. It is anticipated that these NOLs would offset a substantial
portion of any gain realized from the Asset Sale. The Company may, however, be
subject to the alternative minimum tax.
NO INFORMATION IS PROVIDED WITH RESPECT TO ANY STATE, LOCAL OR FOREIGN
TAX CONSEQUENCES OF THE ASSET SALE. EACH STOCKHOLDER IS ADVISED TO CONSULT HIS
OWN TAX ADVISOR.
35
<PAGE> 40
POSSIBILITY THAT THE ASSET SALE WILL NOT BE CONSUMMATED
There are a number of conditions to the obligations of the parties to
the Asset Sale to the consummation thereof. See "THE ACQUISITION
PROPOSAL--Description of Acquisition Agreement and Ancillary Agreements".
Management believes that it can satisfy the conditions required to be satisfied
by it in order to consummate the Asset Sale. For a discussion of the
consequences of not consummating the Asset Sale, see "THE ACQUISITION
PROPOSAL--Recommendations of the Company's Board of Directors".
ACCOUNTING TREATMENT
The consummation of the Asset Sale will be reflected in the Company's
financial statements as a sale of assets of NMI and OXA, which sale includes
the Company's indirect 50% ownership interest in White River. As a result of
the Asset Sale and as a result of the Company consequently adopting the
liquidation basis of accounting in accordance with generally accepted
accounting principles, the Company has recorded a loss on sale of assets of
approximately $1,385,147 as of December 31, 1994.
FEES AND EXPENSES
Whether or not the Asset Sale is consummated, each of the Company and
NACC will pay its own expenses incident to the preparation and performance of
the Acquisition Agreement and Ancillary Agreements, except that the Company
will agree to pay NACC's out-of-pocket expenses, but only up to $250,000, if
the Acquisition Agreement is terminated (1) upon the Company's material breach
of its representations, warranties or obligations (provided that the $250,000
limit does not apply to intentional breaches), or (2) after August 31, 1995 as
a result of the failure of the Company's stockholders to approve the
Acquisition Proposal or the withdrawal of the requisite Fairness Opinion. See
"THE ACQUISITION AGREEMENT--Description of Acquisition Agreement and Ancillary
Agreements--Ancillary Agreements".
DISSENTERS' RIGHTS OF APPRAISAL
Under Part 13 of the Utah Revised Business Corporation Act ("Part
13"), holders of Common Stock and holders of Series A Preferred Stock will be
entitled to rights of appraisal in connection with the Asset Sale.
The following is a summary of Part 13. This summary is not intended
to be a complete statement of such provisions and is qualified in its entirety
by reference to Part 13, a copy of which is attached to this Proxy Statement as
Exhibit H and is incorporated herein by reference.
If the Acquisition Agreement is approved and the Asset Sale
consummated, each holder of Common Stock or Series A Preferred Stock who
follows the procedures set forth in Part 13 (a "Dissenting Stockholder") will
be entitled to demand a cash payment from the Company for the Fair Value (as
defined below) of the Dissenting Shares (as defined below). The "Fair Value"
will be determined as of the day before the first announcement of the terms of
the Asset Sale, excluding any appreciation or depreciation in anticipation of
the Asset Sale. "Dissenting Shares", for purposes of this Proxy Statement,
means shares of Common Stock or Series A Preferred Stock with respect to which
Dissenting Stockholders have perfected their dissenters' rights in accordance
with Part 13 (and have not withdrawn or lost such rights).
Prior to the vote taken to approve the Acquisition Proposal at the
Annual Meeting, a Dissenting Stockholder (1) must cause the Company to receive
written notice of the Dissenting Stockholder's intent to demand payment for his
shares if the Acquisition Proposal is approved, and (2) must not vote any shares
in favor of the Acquisition Proposal. A stockholder who does not satisfy such
requirements will not be entitled to payment for his shares under Part 13.
Within ten (10) days after the effective date of the
36
<PAGE> 41
Asset Sale, the Company must mail notice of such sale to all Dissenting
Stockholders (the "Dissenters' Notice"). The Dissenters' Notice shall (1)
state that the Acquisition Proposal was authorized, (2) state the effective
date of the Asset Sale, (3) state the address at which the Company will receive
payment demands, (4) state the address at which certificates for shares of
Common Stock or Series A Preferred Stock must be deposited by Dissenting
Stockholders, (5) state the date by which the Company must receive a payment
demand from a Dissenting Stockholder, (6) state the date by which certificates
for Common Stock or Series A Preferred Stock must be deposited at the address
specified in the Dissenters' Notice, (7) be accompanied by a form for demanding
payment (which requests that the Dissenting Stockholder state an address to
which payment is to be delivered), and (8) be accompanied by a copy of Part 13.
A Dissenting Stockholder, within the time period specified in the
Dissenters' Notice, must (1) cause the Company to receive a payment demand, and
(2) deposit certificates representing the Dissenting Shares in accordance with
the terms of the Dissenters' Notice. A stockholder who does not demand payment
and deposit share certificates as required, by the date set in the Dissenters'
Notice, is not entitled to payment under Part 13. The Company shall pay the
amount it estimates to be the Fair Value of Dissenting Shares, plus interest,
to each Dissenting Stockholder who has complied with Part 13. The payment by
the Company shall be accompanied by copies of the financial statements and
other information required by Part 13.
A Dissenting Stockholder, acting within thirty (30) days after the
Company made, or offered with respect to shares acquired after the first
announcement of the proposed Asset Sale, payment for his Dissenting Shares, may
provide the Company with an estimate of the Fair Value and demand payment of
that amount, plus interest, less any payment made under Part 13, if (1) the
Dissenting Stockholder believes that the amount offered or paid by the Company
under Part 13 is less than the Fair Value of the shares, (2) the Company fails
to make payment with sixty (60) days after the date set as the date by which
the Company must receive the payment demand, or (3) the Company, having failed
to consummate the Asset Sale, does not return share certificates deposited by a
Dissenting Stockholder as required by Part 13. If the Company denies that the
shares are Dissenting Shares, or if the Company and the Dissenting Stockholder
fail to agree upon the Fair Value of the Dissenting Shares, then within sixty
(60) days after receiving the payment demand, the Company must petition the
district court of the county where the registered office of the Company is
located (the "Court") to determine whether the shares are Dissenting Shares or
to determine the Fair Value of such shares of Common Stock or Series A
Preferred Stock, as the case may be, or both, and the amount of interest. If
the Company does not commence the proceeding within the sixty (60) day period,
it shall pay each Dissenting Stockholder whose demand remains unresolved the
amount demanded. The Company shall make all Dissenting Stockholders whose
demands remain unresolved parties to the proceeding as an action against their
shares. The Court may appoint one or more persons as appraisers to receive
evidence and recommend a decision on the question of Fair Value. Each
Dissenting Stockholder made a party to the proceeding is entitled to judgment
for the amount, if any, by which the Court finds that the Fair Value of his
shares, plus interest, exceeds the amount paid by the Company.
Dissenting Stockholders should cause a written demand for payment to
be received by the Company at 1177 West Loop South, Suite 800, Houston, Texas
77027, directed to the attention of Mr. Timothy R. Dunne, Secretary. The
demand should specify the holder's name and mailing address, the number of
shares of Common Stock or Series A Preferred Stock owned by such stockholder
and state that such holder is demanding purchase of his Dissenting Shares in
payment of their Fair Value. Upon the later of the Closing Date of the Asset
Sale and receipt by the Company of each payment demand made pursuant to Part
13, the Company shall pay the amount the Company estimates to be the Fair Value
of the Dissenting Shares, plus interest at the legal rate of interest, to each
Dissenting Stockholder who has complied with the requirements of Part 13 and
who has not yet received payment.
37
<PAGE> 42
PROPOSAL NO. 3
LIQUIDATION AND DISSOLUTION PROPOSAL
GENERAL
Subject to stockholder approval, the Board of Directors approved the
Liquidation and Dissolution. Conditioned upon stockholder approval of the
Acquisition Proposal and consummation of the Asset Sale, the Board of Directors
now seeks stockholder approval to voluntarily liquidate and dissolve the
Company by paying or making adequate provision for the payment of all of the
Company's prior remaining debts, and by using any remaining proceeds from the
Asset Sale and any other assets of the Company, including the Excluded Assets,
to satisfy any unsatisfied portion of the Liquidation Preference to which CRSS
will be entitled as the holder of Series A Preferred Stock, the Liquidation and
Dissolution being revocable by the Board of Directors in the event it deems
such revocation to be in the best interest of the Company and its stockholders.
The principal creditor of the Company is CRSS and all of the Company's debt to
CRSS would be satisfied in the Liquidation. As of the Record Date, CRSS owned
approximately 50.2% of the total outstanding shares of Common Stock and 100% of
the total outstanding shares of Series A Preferred Stock. CRSS, as sole holder
of Series A Preferred Stock, is entitled to the Liquidation Preference before
the holders of Common Stock receive any distribution in the Liquidation. THE
BOARD OF DIRECTORS ADVISES THAT THE PROCEEDS OF THE ASSET SALE AND THE
LIQUIDATION LIKELY WILL RESULT IN THE FULL SATISFACTION OF THE COMPANY'S
OUTSTANDING PRIOR DEBTS TO CREDITORS (CRSS BEING THE PRINCIPAL CREDITOR), BUT
WILL NOT RESULT IN SUFFICIENT PROCEEDS OR ASSETS TO MAKE ANY DISTRIBUTION TO
THE HOLDERS OF COMMON STOCK AFTER THE SATISFACTION OF SUCH PRIOR DEBTS AND THE
PAYMENT OF THE LIQUIDATION PREFERENCE TO CRSS AS THE SOLE HOLDER OF SERIES A
PREFERRED STOCK. See "THE LIQUIDATION AND DISSOLUTION PROPOSAL--Use of
Proceeds".
Promptly following approval of the Liquidation and Dissolution
Proposal by the stockholders and the consummation of the Asset Sale, the
Company will file articles of dissolution with the Utah Division of
Corporations and Commercial Code. The Company will continue to exist
thereafter, but solely for the purpose of winding up the Company's business and
affairs. There is no required time period within which the Company must wind
up its affairs and complete the Liquidation; however, the Company intends to
liquidate all the remaining assets of and dissolve the Company within 30 days
after the consummation of the Asset Sale.
If the stockholders approve the Liquidation and Dissolution Proposal,
the Company's reporting obligations under the Securities Exchange Act of 1934,
as amended, would be terminated upon completion of the Liquidation.
USE OF PROCEEDS
As indicated above, if the Acquisition Proposal and the Liquidation
and Dissolution Proposal are approved by the Company's stockholders at the
Annual Meeting and the transactions contemplated thereby are consummated, the
Board of Directors intends to promptly liquidate or distribute all the
remaining assets of and dissolve the Company within 30 days after the
consummation of the Asset Sale and use all of the proceeds from the Asset Sale
(including the Purchase Price Note) and the Liquidation, and the Excluded
Assets (to the extent they are to be distributed in kind), to (1) pay costs and
expenses incurred by the Company in connection with the Asset Sale and the
Liquidation and Dissolution, (2) retire all prior debt
38
<PAGE> 43
outstanding of the Company to its creditors, which debt as of April 30, 1995
aggregated $7,291,417, and included $6,960,222 outstanding to CRSS, and (3)
partially pay the Liquidation Preference to CRSS as the sole holder of Series A
Preferred Stock.
In connection with the foregoing, upon the consummation of the Asset
Sale, the Company intends to assign the Purchase Price Note to CRSS in payment
of $3.1 million of the Liquidation Preference to which CRSS will be entitled as
sole holder of Series A Preferred Stock. The Company also intends to transfer
all of the Excluded Assets, or the proceeds of the sale of the Excluded Assets,
to CRSS as partial payment of the Liquidation Preference. CRSS is the holder
of approximately 50.2% of the Company's outstanding shares of Common Stock, and
100% of the Company's outstanding shares of Series A Preferred Stock. See "THE
ACQUISITION PROPOSAL--Description of Acquisition Agreement and Ancillary
Agreement--Purchase Price" and "EXECUTIVE COMPENSATION AND OTHER
INFORMATION--Employment Agreement and Certain Transactions".
THE BOARD OF DIRECTORS ADVISES THAT THE PROCEEDS OF THE ASSET SALE
AND THE LIQUIDATION LIKELY WILL RESULT IN THE FULL SATISFACTION OF THE
COMPANY'S OUTSTANDING PRIOR DEBTS TO CREDITORS (CRSS BEING THE PRINCIPAL
CREDITOR), BUT WILL NOT RESULT IN SUFFICIENT PROCEEDS OR ASSETS TO PAY THE
ENTIRE LIQUIDATION PREFERENCE TO CRSS AS THE SOLE HOLDER OF SERIES A PREFERRED
STOCK OR TO MAKE ANY DISTRIBUTION TO THE HOLDERS OF COMMON STOCK AFTER THE
SATISFACTION OF SUCH PRIOR DEBTS.
See the tables contained under "THE ACQUISITION PROPOSAL--Use of
Proceeds" for a more detailed description of the proposed use of the proceeds
of the Asset Sale and the Liquidation.
STOCKHOLDER APPROVAL
The Liquidation and Dissolution Proposal must be approved by the
stockholders of the Company entitled to vote, pursuant to the terms of Section
16-10a-1402 and 16-10a-1404 of the Utah Revised Business Corporation Act. See
"VOTING RIGHTS AND PROXY INFORMATION". Because CRSS has indicated its intent
to vote CRSS' 13,499,449 shares of Common Stock (representing approximately
50.2% of the outstanding shares of Common Stock) and 44,380 shares of Series A
Preferred Stock (representing 100% of the outstanding shares of Series A
Preferred Stock) in favor of the Liquidation and Dissolution Proposal, approval
is assured, provided CRSS so votes (which CRSS is not obligated to do). In the
event such approval is not received, the Liquidation and Dissolution Proposal
will not be consummated; however, the Company intends to redeem all of the
Company's outstanding Series A Preferred Stock, all of which is held solely by
CRSS, in the event that the Asset Sale is approved and the transactions
contemplated thereby consummated, but the Liquidation and Dissolution Proposal
is not approved by the Company's stockholders.
RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS
Assuming the consummation of the Asset Sale, the Board of Directors
believes the Liquidation and Dissolution Proposal to be the best course of
action available to the Company at this time, for the following reasons:
(1) The Company's inability to conduct its historical business on an
ongoing basis as a result of the Asset Sale.
(2) The Company's inability to conduct any other business after the
Asset Sale that has a reasonable prospect of generating revenues in
an amount sufficient to pay the Company's operating costs and
obligations to creditors, and still provide any return to the
Company's stockholders; instead, the most likely result of any effort
to conduct any business after the Asset Sale is further diminishment
of the Company's assets, with the result that the return available to
the Company's various constituencies, including both its creditors
and stockholders, would decrease.
39
<PAGE> 44
The Board of Directors has chosen not to recommend approval by the
stockholders of the Liquidation and Dissolution Proposal principally due to the
potential conflict of interest created by (1) CRSS' position as a majority
stockholder of Common Stock, the sole holder of Series A Preferred Stock
entitled to the Liquidation Preference and the principal creditor of the
Company, to which proceeds of the Liquidation will be distributed and (2) the
presence on the three member Board of Directors of Mr. Wilkinson, Chairman of
the Board of CRSS, and Mr. Dunne, Vice President, General Counsel and Secretary
of CRSS.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Introduction
This section is a summary of the material federal income tax
consequences which the Company expects, after consultation with counsel, to
result from the Liquidation and Dissolution. The summary is based upon the
Code, judicial decisions, United States Treasury Department regulations
promulgated thereunder and administrative rulings of the United States Treasury
Department and existing interpretations thereof, any of which could be changed
at any time. No rulings have been requested from the Service with respect to
any consequences resulting from the Liquidation and Dissolution Proposal.
Accordingly, no assurance can be given that the Service will agree with the
statements that appear below.
Tax Consequences to the Stockholders
The Liquidation and Dissolution in exchange for the stock held by the
stockholders will be treated for federal income tax purposes as a sale or
exchange of such stock. The gain or loss will be measured by the difference
between the stockholder's tax basis in the stock and the value of any property
distributed to such stockholder in liquidation of the Company. Any such gain
or loss will be a capital gain or loss if the stock was held as a capital
asset.
Federal Income Tax Consequences to the Company and its Affiliated
Members
The Company as of December 31, 1994 had existing NOLs for federal
income tax purposes of approximately $22,042,000. It is anticipated that these
NOLs would offset a substantial portion of any gain realized from the Asset
Sale and the subsequent Liquidation and Dissolution. The Company may, however,
be subject to the alternative minimum tax.
NO INFORMATION IS PROVIDED WITH RESPECT TO ANY STATE, LOCAL OR
FOREIGN TAX CONSEQUENCES OF THE LIQUIDATION AND DISSOLUTION PROPOSAL. EACH
STOCKHOLDER IS ADVISED TO CONSULT HIS OWN TAX ADVISOR.
ACCOUNTING TREATMENT
The Liquidation and Dissolution Proposal will be reflected in the
Company's financial statements using the liquidation basis of accounting, which
values assets at their estimated net realizable value and liabilities at their
estimated settlement amount. The Company has already adopted the liquidation
basis of accounting effective December 31, 1994, in anticipation of a
liquidation of the Company.
DISSENTERS' RIGHTS OF APPRAISAL
Under the Utah Revised Business Corporation Act, holders of Common
Stock and holders of Series A Preferred Stock will not be entitled to rights of
appraisal in connection with the Liquidation and Dissolution Proposal.
REVOCATION OF DISSOLUTION
40
<PAGE> 45
Under the Utah Revised Business Corporation Act, once the act of
corporate dissolution has been approved by the stockholders, the Liquidation
and Dissolution may be revoked by the Board of Directors only with the approval
of the stockholders. The Board of Directors, as part of the approval of the
Liquidation and Dissolution Proposal, seeks the approval of the stockholders to
revoke or not consummate the Dissolution in the event that circumstances arise
or exist after the consummation of the Asset Sale that cause the Board of
Directors to revoke or not consummate the Liquidation and Dissolution.
Approval of the Liquidation and Dissolution Proposal by the stockholders will
constitute approval of the Board of Directors' authority to revoke or not
consummate the Liquidation and Dissolution. The Board of Directors is not
presently considering or negotiating with respect to any proposal or
circumstance which might cause the Board of Directors to revoke or not
consummate the Liquidation and Dissolution in the event that the Liquidation
and Dissolution Proposal is approved by the stockholders.
SELECTED FINANCIAL DATA
The following table summarizes certain consolidated audited (and,
with respect to the three months ended March 31, 1995, unaudited) historical
financial data of the Company. The historical data as of and for the years
ended December 31, 1994, 1993, 1992, 1991 and 1990 are derived from the audited
consolidated financial statements of the Company. This information should be
read in conjunction with the historical consolidated financial statements and
the related notes incorporated by reference in this Proxy Statement.
<TABLE>
<CAPTION>
As of and for
the three months
ended As of and for the Years Ended December 31,
March 31, 1995 -----------------------------------------------------------------------
(unaudited)
1994(1) 1993 1992(2) 1991 1990(3)
---------------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net operating $ 0 $1,106,173 $2,536,743 $3,578,896 $ 769,490 $ 1,035,671
revenues
Loss from 0 (3,826,426) (1,331,110) (5,072,691) $(4,214,264) $(3,034,584)
continuing
operations
Loss from 0 $ (0.21) $ (0.11) $ (0.26) $ (0.23) $ (0.12)
continuing
operations per
share of
Common Stock
Total assets 9,755,144 10,053,479 13,651,347 16,677,856 23,399,633 24,915,902
Long-term 0 0 4,180,104 4,422,604 2,365,635 0
obligations
Redeemable 0 0 0 0 12,000,000 10,000,000
preferred
stock
Stockholders 0 0 7,157,070 10,057,287 5,341,900 11,001,070
equity
</TABLE>
41
<PAGE> 46
<TABLE>
<CAPTION>
As of and for
the three months
ended As of and for the Years Ended December 31,
March 31, 1995 ------------------------------------------------------------------------
(unaudited)
1994(1) 1993 1992(2) 1991 1990(3)
---------------- ----------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Net operating $ 0 $1,106,173 $2,536,743 $3,578,896 $ 769,490 $ 1,035,671
revenues
Net assets in $ 1,901,645 $1,901,645 N/A N/A N/A N/A
liquidation
Cash dividends 0 0 0 0 0 0
per share of
Common Stock
- ----------------------------
</TABLE>
(1) The Company adopted the liquidation basis of accounting effective
December 31, 1994; therefore, total assets as of that date have been
valued at estimated net realizable value and liabilities are
reflected at their estimated settlement amounts, including estimated
costs to be incurred during liquidation.
(2) 1992 reflects the reclassification of preferred stock to
stockholders' equity as the result of the cancellation of the
mandatory redemption requirement.
(3) 1990 results include the results of operations for AER*X, a division
of WPL Holdings, Inc., the assets of which division were acquired by
the Company in August 1990 and sold in December 1990, from August 1
through December 28, in addition to a $500,000 gain recognized on the
sale of the assets of AER*X.
NATEC RESOURCES, INC.
UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS
The accompanying unaudited pro forma consolidated financial
statements are presented to illustrate the effect of certain adjustments to the
historical consolidated financial statements of the Company that result from
the Asset Sale as if the Asset Sale had occurred at January 1, 1994 for the
consolidated statements of operations for the year ended December 31, 1994, and
as of March 31, 1995, for the pro forma consolidated statement of net assets in
liquidation. The accompanying unaudited pro forma consolidated financial
statements do not reflect the effect of any such adjustments that result from
the Liquidation and Dissolution Proposal.
42
<PAGE> 47
The Asset Sale, as reflected in the pro forma financial statements,
has been accounted for as a sale of the Transferred Business to NACC. The
primary assets of NMI and OXA are the investment in White River and the NACC
Note. An estimated loss on sale of $1,385,000 has been reflected in the
consolidated financial statements as of March 31, 1995 and for the year ended
December 31, 1994. This estimated loss represents the adjustment of the assets
constituting the Transferred Business to net realizable value of $9,085,078,
which represents the discounted present value of the Purchase Price.
The accompanying pro forma consolidated financial statements should
be read in conjunction with the Company's historical consolidated financial
statements and notes thereto incorporated by reference in this Proxy Statement.
The pro forma consolidated financial statements are not necessarily indicative
of actual results had the Asset Sale been consummated as of January 1, 1994
(with respect to the pro forma consolidated statements of operations) and as of
March 31, 1995 (with respect to the pro forma consolidated statement of net
assets in liquidation).
43
<PAGE> 48
NATEC RESOURCES, INC.
PRO FORMA STATEMENT OF NET ASSETS IN LIQUIDATION
AS OF MARCH 31, 1995
<TABLE>
<CAPTION>
NaTec Pro forma NaTec
Historical Adjustments(1) Pro forma
---------- -------------- ---------
<S> <C> <C> <C>
Assets
Cash and cash equivalents $ 314,014 $ 6,000,000 (2) $ 660,924
(5,653,090)(3)
Accounts receivable 210,087 -- 210,087
Property, plant and equipment, net 50,988 -- 50,988
Investment in joint venture 9,085,078 (9,085,078)(2) --
Other assets 94,977 -- 94,977
Note receivable from NACC 0 3,085,078 (2) 3,085,078
----------- ------------ ---------
9,755,144 (5,653,090) 4,102,054
Liabilities
Accounts payable 37,447 -- 37,447
Accrued expenses 227,470 -- 227,470
Amounts payable to related party 7,202,722 (5,653,090)(3) 1,549,632
Note payable 66,278 -- 66,278
Estimated costs during period of liquidation 319,582 -- 319,582
----------- ------------ ---------
7,853,499 (5,653,090) 2,200,409
----------- ------------ ---------
Net assets in liquidation 1,901,645 -- 1,901,645
=========== ============ =========
</TABLE>
- ----------------------------
(1) Reflects pro forma results giving effect to the Asset Sale, but does
not give effect to the Liquidation and Dissolution.
44
<PAGE> 49
(2) To reflect cash received of $6 million and the $4 million Purchase
Price Note (discounted to present value of $3.1 million) in exchange
for the sale of the Transferred Business. The Purchase Price Note
has been discounted to present value at an interest rate of 9%, and
the valuation of the Purchase Price Note assumes it will be collected
$600,000 in the first year, $700,000 in the second year (each such
amount being the minimum required to be paid on the Purchase Price
Note in those years in accordance with its terms), and $900,000 per
year for the third through fifth years (such amount being estimated
on a straight-line basis due to the inability to reasonably estimate
production and sales for such years). Regarding the discounting and
the assignment to CRSS of the Purchase Price Note upon consummation
of the Asset Sale, see "THE ACQUISITION PROPOSAL--Use of Proceeds"
and "--Description of Acquisition Agreement and Ancillary
Agreements--Purchase Price", and "THE LIQUIDATION AND DISSOLUTION
PROPOSAL--Use of Proceeds".
(3) To satisfy obligations to CRSS which are due and payable as of March
31, 1995. Such obligations consist of a convertible note in the
principal amount of approximately $4,100,000, three promissory notes
in the aggregate principal amount of approximately $1,100,000, and
accrued interest of approximately $500,000.
45
<PAGE> 50
NATEC RESOURCES, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
NaTec Pro forma NaTec
Historical Adjustments Pro forma
---------- ----------- ---------
<S> <C> <C> <C>
Revenues $ 1,106,173 $ (926,901)(1) $ 179,272
Cost of sales 1,101,424 (909,108)(1) 192,316
----------- ----------- -----------
Gross profit (loss) 4,749 (17,793) (13,044)
Operating costs (2) 1,147,585 (300,000)(3) 847,585
Equity loss in joint venture (193,874) 193,874 (4) --
----------- ----------- -----------
Loss from operations (1,336,710) 476,081 (860,629)
Other income and expenses
Interest income 85,948 (51,281)(5) 306,860
272,193 (6)
Interest expense (540,517) -- (540,517)
Loss on sale of stock -- (1,385,147)(7) (1,385,147)
Adjustment to liquidation basis (2,035,147) 1,385,147 (8) (650,000)
----------- ----------- -----------
(2,489,716) 220,912 (2,268,804)
----------- ----------- -----------
Net loss (3,826,426) 696,993 (3,129,433)
Preferred stock dividends (1,430,000) -- (1,430,000)
----------- ----------- -----------
Net loss attributable to common shares $(5,256,426) $ 696,993 $(4,559,433)
=========== =========== ===========
Net loss from common shares $ (0.21) $ (0.18)
=========== ===========
Average shares outstanding 25,482,616 25,482,616
=========== ===========
</TABLE>
46
<PAGE> 51
NATEC RESOURCES, INC.
PRO FORMA STATEMENT OF OPERATIONS ADJUSTMENTS
PROFORMA STATEMENT OF OPERATIONS ADJUSTMENTS
(1) To reduce revenues and cost of sales of sodium bicarbonate sales
under supply agreements which will be sold to NACC. The Company has
no material continuing liability to customers under such supply
agreements.
(2) Includes only fixed overhead and administrative costs which will not
be reduced as a result of the Asset Sale. All other costs related to
the sale of sodium bicarbonate are included in "Cost of sales" in the
Pro Forma Statement of Operations.
(3) To adjust for salaries and other costs associated with employees that
would have been terminated as of January 1, 1994 if the transaction
had occurred on that date.
(4) To reflect sale contemplated by the Acquisition Agreement as if the
transaction occurred as of January 1, 1994.
(5) To reduce imputed interest income on the NACC Note to be canceled
under the terms of the Acquisition Agreement.
(6) To reflect imputed interest income on the Purchase Price Note to be
received by the Company under the terms of the Acquisition Agreement.
(7) To reflect the estimated loss on sale of the Transferred Business
under the terms of the Acquisition Agreement.
(8) To reduce the adjustment resulting from the adoption of the
liquidation basis of accounting for amounts reflected in (6) above.
See "THE ACQUISITION PROPOSAL--Background of the Acquisition
Proposal".
CERTAIN INFORMATION CONCERNING THE COMPANY
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Certain documents filed by and relating to the Company, including the
Company's Annual Report on Form 10-K for the year ended December 31, 1994 and
its Quarterly Report on Form 10-Q for the quarter ended March 31, 1995, are
included herewith and incorporated herein by reference. See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE".
INTERESTS OF CERTAIN PERSONS
No director or executive officer of the Company has any material
direct or indirect financial interest in NACC, the Acquisition Proposal or the
Liquidation and Dissolution Proposal other than as a director, executive
officer or stockholder of the Company, except (1) Mr. Bruce W. Wilkinson, who
is the Chairman of the Board, Chief Executive Officer and Chairman of the
Nominating Committee of CRSS and who at the time of approval by the Board of
Directors of the Liquidation and Dissolution was a 2.84% stockholder in CRSS,
and (2) Mr. Timothy R. Dunne, who is the Vice President, General Counsel and
Secretary of CRSS
47
<PAGE> 52
and who at the time of approval by the Board of Directors of the Liquidation
and Dissolution was an .18% stockholder in CRSS. However, since June 16, 1995,
Messrs. Wilkinson and Dunne each has terminated his respective ownership
interest in CRSS. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT". For information about CRSS' interests in the Company, see
"INTRODUCTION", "THE ACQUISITION PROPOSAL--Use of Proceeds", "--Stockholder
Approval", "THE LIQUIDATION AND DISSOLUTION PROPOSAL--Use of Proceeds", and
"--Stockholder Approval".
CERTAIN INFORMATION CONCERNING NACC
NACC BUSINESS DESCRIPTION
NACC was established in December 1990 following the purchase by an
investor group of the inventory, plant and other facilities of Kerr-McGee
Chemical Corporation's Soda Products Division. NACC produces and sells
chemical products including soda products, boron chemicals and potassium salts.
These products are chiefly produced at three plants located in Searles Valley,
California, approximately 130 miles northeast of Los Angeles. NACC also sells
sodium bicarbonate produced at White River.
Soda products include soda ash, sodium sulfate and sodium
bicarbonate. Soda ash is used in the production of glass, sodium-based
chemicals, detergents, pulp and paper and for water treatment and numerous
other applications. Sodium sulfate is used as an inactive ingredient in dry
detergents and as a source of sulfur in pulp processing. Sodium bicarbonate is
used as a buffering agent in animal feeds, as a chemical additive and in
pharmaceutical, food and other consumer applications.
Boron chemicals include boric acid, several sodium borate products
and a number of related specialty compounds intended for specific applications.
Boron compounds are used in a wide range of applications. Approximately 60% of
their use is in glass and ceramic products to improve chemical and thermal
stability. The remaining 40% is used in fire retardants, fertilizers, soaps
and detergents, and pesticides.
Boric acid is used primarily in the production of textile fiberglass
and other borosilicate glasses where it improves strength and imparts chemical
and thermal stability. Sodium borates are used in a broader range of glass and
ceramic products to enhance manufacturing processes. They also improve
chemical resistance and thermal stability in products such as frits, ceramics,
fiberglass insulation and specialty glasses such as PyrexR and automobile
headlights.
NACC also produces sulfate of potash and muriate of potash, which are
chemical products used in fertilizer applications.
NACC has its principal executive office located at 8300 College
Boulevard, Overland Park, Kansas 66210, telephone number (913) 344-9200.
RELATIONSHIP WITH THE COMPANY
NACC is the owner of a 50% interest in White River, which interest
was purchased from the Company in the 1992 Sale. NACC currently has
outstanding the NACC Note to the Company on which NACC has ceased payments.
The Company has filed the NACC Lawsuit against NACC to collect on the NACC
Note. See "THE ACQUISITION PROPOSAL--Background of the Acquisition Proposal"
and "LEGAL PROCEEDINGS".
48
<PAGE> 53
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the shares
of Common Stock and Series A Preferred Stock owned of record and beneficially
as of March 31, 1995, unless otherwise specified, by (1) all persons who own of
record or are known by the Company to own beneficially more than 5% of the
outstanding shares of such class of stock, (2) each director, nominee as
director and named executive officer, and (3) all directors and executive
officers of the Company as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP OF THE COMPANY
--------------------------------------------------------
COMMON STOCK SERIES A PREFERRED STOCK
---------------------- ----------------------------
NAMES AND ADDRESSES NO. OF PERCENT NO. OF PERCENT
OF BENEFICIAL OWNERS SHARES OF CLASS SHARES OF CLASS
-------------------- --------- -------- --------- --------
<S> <C> <C> <C> <C>
15,942,473 54.4% 44,380 100%
CRSS Inc.(1)
1177 West Loop South
Houston, Texas 77027-9096
John T. McCormack,(2) 193,500 .7% 0 0
President, Chief Executive Officer and
Director
Directors and Executive Officers as a Group 193,500 .7% 0 0
____________________________
</TABLE>
(1) CRSS has sole power to vote and dispose of shares beneficially owned
by it. CRSS is the holder of a promissory note from the Company
which is currently convertible into 2,443,024 shares of Common Stock.
Such 2,443,024 shares of Common Stock are included in this table. In
addition, CRSS' shares of Series A Preferred Stock are currently
convertible into 717,978 shares of Common Stock. Such 717,978 shares
of Common Stock into which CRSS' shares of Preferred Stock are
convertible are not included in this table, since such shares of
Series A Preferred Stock are included in this table.
(2) Mr. McCormack has been granted under the Company's 1989 Long-Term
Incentive Plan the option to purchase 255,000 shares of Common Stock,
which option has vested with respect to 185,000 shares of Common
Stock. Such 185,000 shares are included in this table.
49
<PAGE> 54
The total voting power of CRSS on most matters, as the holder of both
Common Stock and Series A Preferred Stock, is approximately 51.5%.
No director or officer owns more than one percent 1% of the Company's
outstanding shares of Common Stock or any outstanding shares of Series A
Preferred Stock.
The following table sets forth information with respect to the shares
of common stock (including shares of common stock issuable upon the exercise of
vested stock options) of CRSS, the Company's parent corporation, owned of
record and beneficially as of March 31, 1995, unless otherwise specified, by
(1) each director, nominee as director and named executive officer of the
Company and (2) all directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
NAMES AND ADDRESSES AMOUNT AND NATURE OF
OF BENEFICIAL OWNERS BENEFICIAL OWNERSHIP OF CRSS INC.
-------------------- ----------------------------------
TOTAL PERCENT
----- OF CLASS
--------
<S> <C> <C>
Bruce W. Wilkinson, Director and Nominee 377,772 2.84%
Timothy R. Dunne, Director and Nominee 23,906 .18%
Directors and Executive Officers as a Group 401,678 3.02%
</TABLE>
Messrs. Wilkinson and Dunne each has recently terminated his ownership interest
in CRSS.
BOARD OF DIRECTORS
The following table sets forth the name and age of each director of
the Company not up for election this year, his principal position with the
Company, the year he became a director of the Company and the year that his
term as a director expires.
<TABLE>
<CAPTION>
TERM DIRECTOR
NAME AGE EXPIRES SINCE POSITION AND OFFICES
---- --- ------- -------- --------------------
<S> <C> <C> <C> <C>
Mr. John T. McCormack 48 1996 1993 President, Chief Executive
Officer and Director
</TABLE>
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
50
<PAGE> 55
During the Company's last fiscal year, the Board of Directors held
four meetings. Each director attended all the meetings of the Board of
Directors and all the meetings of the committees on which they served.
The Board of Directors has appointed and there now exists the
following standing Board Committees: Executive, Audit, Compensation and Long
Term Incentive Plan Administrative. The Board of Directors has not appointed
and there does not now exist a nominating committee or any committee performing
a similar function.
Messrs. McCormack and Wilkinson comprise the Executive Committee. The
Executive Committee, when the Board of Directors is not in session, has the
power and authority of the Board of Directors in the management of the business
and affairs of the Company, subject to certain limitations under the Utah
Revised Business Corporation Act. Any and all action taken by the Executive
Committee is required to be reported to the Board of Directors at the meeting
thereof next succeeding such action. The Executive Committee did not hold any
meetings during 1994.
The Audit Committee is comprised of Messrs. Wilkinson and Dunne. The
Audit Committee is responsible for the review of the scope and results of
audits by the Company's independent auditors, the scope of other services
performed by the independent auditors and the cost of such services. The Audit
Committee recommends to the Board of Directors for its appointment independent
certified public accountants to audit the Company's books, records and
accounts. During 1994, the Audit Committee held one meeting.
The Compensation Committee is comprised of Messrs. Wilkinson and
Dunne. The Compensation Committee has as its function the review and approval
of compensation for officers of the Company and the approval of incentive plans
developed by Management. The Compensation Committee held one meeting during
1994.
The Long Term Incentive Plan Administrative Committee is comprised of
Messrs. Wilkinson and Dunne. The Long Term Incentive Plan Administrative
Committee has as its function the review and approval of the granting of option
and stock awards pursuant to the Company's 1989 Long Term Incentive Plan. The
Long Term Incentive Plan Committee held one meeting during 1994.
DIRECTOR COMPENSATION
Directors who are not employees of the Company or of CRSS, the
Company's largest stockholder, or the affiliates of either, receive $1,000 per
meeting for attendance at the meetings of the Board of Directors and $750 per
meeting for attendance at meetings of each committee on which such director
serves (in the case of committee meetings not held immediately before or after
Board of Directors meetings). In addition to the above fees, directors who are
not employees of the Company or of CRSS, or the affiliates of either, receive
an annual retainer in the amount of $10,000 (in quarterly payments). No
current director receives any compensation for his service as a director of the
Company.
EXECUTIVE OFFICERS
Other than as set forth below under the heading "EXECUTIVE
COMPENSATION AND OTHER INFORMATION--Employment Agreement and Certain
Transactions", the executive officers serve at the pleasure of the Board of
Directors.
There are no family relationships between any of the directors and
officers of the Company.
51
<PAGE> 56
EXECUTIVE COMPENSATION AND OTHER INFORMATION
COMPENSATION TABLES
The following table sets forth compensation information for the Chief
Executive Officer during the Company's fiscal years 1994, 1993 and 1992, for
services rendered during such years to the Company or any of its subsidiaries.
52
<PAGE> 57
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------------------- ---------------------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL FISCAL OTHER ANNUAL STOCK SARS/ LTIP ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATION(1)
- ----------------------- ---- ------ ----- ------------ ------ ------- ------- ---------------
($) ($) ($) ($) (#) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John T. McCormack...... 1994 140,000 0 0 0 50,000 0 969
President and 1993 140,000 0 0 0 10,000 0 4,200
Chief Executive Officer 1992 140,000 20,000 0 0 50,000 0 4,200
</TABLE>
- -----------------------
(1) Represents the amount of the Company's matching contribution to the
Company's 401(k) Savings and Investment Plan.
The following table contains information concerning the grant of
stock options made during fiscal 1994 under the Company's long-term incentive
program to the executive officers of the Company.
SAR/OPTION GRANTS IN FISCAL YEAR 1994
<TABLE>
<CAPTION>
SECURITIES POTENTIAL REALIZABLE
UNDERLYING PERCENTAGE OF TOTAL EXERCISE VALUE AT
SARS/OPTIONS SARS/OPTIONS OR BASE PRICE EXPIRATION ASSUMED STOCK PRICE APPRECIATION
NAME GRANTED(1) GRANTED TO EMPLOYEES (PER SHARE) DATE FOR OPTION TERM
- ----------------------- ------------ -------------------- ------------- ---------- --------------------------------
(#) (%) ($) 0% 5% 10%
--- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
John T. McCormack...... 50,000 71 1.063 2/2/03 0 45,190 123,941
</TABLE>
- -----------------------
(1) The 50,000 stock options vest 60% on February 2, 1996 and 20% on each
of February 2, 1997 and 1998. The options expire ten years after the
vesting date.
The following table sets forth information with respect to the
Executive Officers concerning the exercise of SARs and options during the last
fiscal year and unexercised options and SARs held as of the end of fiscal year
1994.
AGGREGATED SAR/OPTION EXERCISES IN FISCAL YEAR 1994
AND SAR/OPTION VALUES AT END OF FISCAL YEAR 1994
<TABLE>
<CAPTION>
NO. OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SARS/OPTIONS AT SARS/OPTIONS
SHARES FY1994 AT FY1994
ACQUIRED VALUE (EXERCISABLE/ (EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE) UNEXERCISABLE)
- ----------------- ----------- -------- ----------------- --------------
(#) ($) (#)
<S> <C> <C> <C> <C>
John T. McCormack 0 0 185,000/70,000 0/0
</TABLE>
53
<PAGE> 58
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors (the
"Compensation Committee") is responsible for the review and approval of
compensation for officers of the Company and the approval of incentive plans
developed by Management. This Committee Report sets forth the components of the
Company's executive officer compensation and describes the basis on which the
fiscal year 1994 compensation determinations were made by the Compensation
Committee with respect to the executive officers of the Company.
The Company's policy during 1994 concerning executive officer
compensation continued to be based on the necessity of retaining executive
officers displaying the following attributes: (1) versatility in responding to
the changing conditions of an emerging market, (2) ability, experience and
background to achieve a high level of credibility with the power/industrial core
client base, and (3) commitment and discipline to fill a variety of executive
functions and roles due to the necessarily small number of executive officers
which the Company can presently afford. However, this policy was applied during
1994 with the recognition that an important role during 1994 was to identify
potential sources of working capital, particularly potential purchasers for the
Company, and to negotiate terms of potential sales transactions with potential
purchasers in an attempt to obtain the maximum sales price for the Company.
The foregoing policy and goal required that the Company keep its
personnel cost to a minimum. During 1994, one highly compensated position was
eliminated.
The most significant near-term compensation criterion was the
maintenance of the strategic position of the Company in order to maximize the
sales price of the Company. The Company's financial performance was a
secondary compensation criterion.
Mr. John T. McCormack's 1994 salary reflects his responsibilities as
Chief Executive Officer and President, his management and leadership abilities,
and his engineering service company background. We believe that the Company
has received significant value for Mr. McCormack's services during 1994.
Respectfully submitted by the Compensation Committee:
Bruce W. Wilkinson, Chairman
Timothy R. Dunne
July 7, 1995
The foregoing are the current members of the Compensation Committee.
54
<PAGE> 59
PERFORMANCE GRAPH
The following performance graph provided by Zacks Investment Research
compares the performance of the Company's Common Stock to the Standard & Poor's
500 Stock Index and the Standard & Poor's Pollution Control Index for the
Company's last five fiscal years.
<TABLE>
<CAPTION>
S&P POLLUTION
NATEC S&P 500 CONTROL
------- ------- -------------
<S> <C> <C> <C>
1989 $100.00 $100.00 $100.00
1990 $ 77.08 $ 96.89 $ 89.43
1991 $ 31.25 $126.42 $105.15
1992 $ 28.12 $136.05 $105.39
1993 $ 14.17 $149.76 $ 77.10
1994 $ 1.57 $151.74 $ 79.89
</TABLE>
55
<PAGE> 60
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 1994, James M. Piette, Socrates S. Christopher and
Jack F. Rowe served as members of the Compensation Committee. Messrs. Piette,
Christopher and Rowe no longer serve as directors of the Company. Mr.
Christopher resigned his position on the Board of Directors as of August 8,
1994, in connection with the sale by CRSS of certain of its divisions and the
resignation by Mr. Christopher of all positions held by him with CRSS, the
Company and their affiliates. Messrs. Piette and Rowe resigned their positions
on the Board of Directors as of March 21, 1995. See "ELECTION OF
DIRECTORS--General".
No member of the Compensation Committee was, during fiscal year 1994,
an officer or employee of the Company or any of its subsidiaries, or was
formerly an officer of the Company or any of its subsidiaries. No member of the
Compensation Committee had any relationships requiring disclosure by the Company
under Item 404 of Regulation S-K.
During fiscal year 1994, no executive officer of the Company served
as (1) a member of the compensation committee (or other board committee
performing equivalent functions) of another entity, one of whose executive
officers served on the Compensation Committee, (2) a director of another
entity, one of whose executive officers served on the Compensation Committee,
or (3) a member of the compensation committee (or other board committee
performing equivalent functions) of another entity, one of whose executive
officers served as a director of the Company.
EMPLOYMENT AGREEMENT AND CERTAIN TRANSACTIONS
Mr. John T. McCormack's employment agreement with the Company (the
"Employment Agreement"), which had a term ending December 31, 1995 was
terminated effective May 24, 1995 upon the payment by the Company to Mr.
McCormack of the cash amount of $164,085.20 as consideration for Mr.
McCormack's agreement to terminate such Employment Agreement. The cash amount
paid is approximately equal to the cash amount to which Mr. McCormack would
have been entitled under the Employment Agreement had his employment been
terminated after the consummation of the Asset Sale (other than for cause) or
by Mr. McCormack. Mr. McCormack continues to serve as President and Chief
Executive Officer of the Company, though such service is terminable at will by
either Mr. McCormack or the Company.
The Company's Articles of Incorporation presently require the Company
to indemnify to the full extent permitted by Utah law any person who is, or is
threatened to be made, a party to any legal action by reason of the fact that
such person is or was a director or officer of the Company.
56
<PAGE> 61
The Company presently knows of no pending or threatened claims
involving the Company's directors' and officers' liability insurance or the
indemnity provisions of the Company's Articles of Incorporation.
On November 1, 1989, the Company entered into a Facilities and
Services Agreement with CRSS to provide administrative support for the Company,
including legal, tax, accounting and cash management services, and a sublease
of space for the Company's headquarters in Houston. The obligation incurred by
the Company in 1994 pursuant to this agreement was $213,517. The outstanding
obligation of the Company under this agreement is $41,183 as of March 31, 1995.
See "ELECTION OF DIRECTORS--Nominees for Directors".
All amounts payable to CRSS as of December 31, 1992 for services and
reimbursements, outstanding promissory notes (principal and accrued interest),
and accrued dividends payable on the Company's preferred stock were consolidated
into a five-year convertible note issued on February 2, 1993 for $4,722,604,
bearing interest at the rate of prime plus two points per annum. The principal
of the note was payable $600,000 in 1994 and $1,274,201 in each of the years
1995, 1996 and 1997; however, the payments due in 1994 were only partially paid,
in the amount of $300,000 plus accrued interest of $368,734 through June 30,
1994, due to limitations on capital resources. The outstanding principal
balance of the note was $4,122,604 at April 30, 1995, and is convertible at the
option of CRSS into 2,443,025 shares of Common Stock. THIS PAYMENT DEFAULT
ENTITLES CRSS, AT ITS OPTION, TO ACCELERATE THE ENTIRE AMOUNT OF THE NOTE,
MAKING IT CURRENTLY DUE AND PAYABLE.
The Company has two additional promissory notes payable to CRSS in
the aggregate principal amount of $715,000, each of which was issued in payment
of quarterly dividends on the Company's preferred stock on July 15, 1993 and on
October 15, 1993. The Company deferred principal and interest payments on such
notes, which matured on July 15, 1994 and October 15, 1994, respectively, which
deferrals constituted defaults on such notes. THESE DEFAULTED NOTES ARE
CURRENTLY DUE AND PAYABLE.
The Company paid $1,430,000 to CRSS in 1994 in dividends on the
previously issued Series A, B and C Preferred Stock of the Company, all of
which was paid in the form of promissory notes bearing interest equal to prime
plus two points, with maturity dates of January 15, 1995, April 15, 1995, July
15, 1995, and October 15, 1995. Subsequent to December 31, 1994, the Company
deferred payment on the notes which matured January 15, 1995 and April 15,
1995, which deferrals constituted defaults on such notes. THESE DEFAULTED
NOTES ARE CURRENTLY DUE AND PAYABLE.
There were accrued and unpaid dividends in the amount of $715,000
payable to CRSS with respect to previously issued Series A, B and C Preferred
Stock as of March 31, 1995. An additional dividend obligation on the Series A
Preferred Stock will accrue and become due on June 30, 1995.
Accrued interest payable to CRSS on the five-year convertible note
and the six other promissory notes collectively was $313,177 and $223,358 at
March 31, 1995, respectively.
57
<PAGE> 62
Securities and Exchange Commission Forms 5, Annual Statement of
Changes in Beneficial Ownership, which were required to be reported to the
Securities and Exchange Commission by February 14, 1995 for Messrs. Socrates
Christopher, former Chairman of the Board of Directors, and John T. McCormack,
Director, President and Chief Executive Officer of the Company, were timely
reported.
MARKET PRICES OF COMMON STOCK
On April 6, 1995, the day prior to the first public announcement by
the Company of the Acquisition Agreement, the closing price of Common Stock on
The NASDAQ SmallCap Market System was approximately $.22, and the high and low
prices for such day were approximately $.22 and $.19, respectively.
LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings, nor are any
threatened to its knowledge and belief other than (1) a lawsuit filed by DeTer,
Inc. during 1993 alleging breach of a previous settlement agreement related to
the Company's discontinued specialty chemical business which lawsuit was settled
during the fourth quarter of 1994 for an amount within previously established
financial reserves, and (2) the litigation and arbitration proceedings which
constitute the NACC Lawsuit, namely the proceedings filed June 2, 1994 and
pending in the District Court of Harris County, Texas, 125th Judicial District,
captioned, NaTec Resources, Inc. and NaTec Minerals, Inc. v. D. George Harris &
Associates, Inc., Harris Chemical Group, Inc. and North American Chemical
Company, having Cause No. 94-025523, which lawsuit the Company filed to collect
on the NACC Note, asserting, among other arguments, that NACC's failure to
continue its payments on the NACC Note is wrongful in view of the fact that,
according to the Company's forecasts and calculations, production data from the
White River plant demonstrates an effective annual capacity at or near 106,000
tons of sodium bicarbonate and that, if full capacity has not been achieved,
NACC, as the manager of White River, is solely responsible for such deficiency
in that it has prevented the production facility from achieving its full
capacity by its refusal to utilize additional recovery equipment already located
at the facility and to implement certain process modifications in a timely
manner and that the Company was not required to make any expenditures necessary
for the facility to have an effective annual production capacity of 106,000 tons
per year by April 15, 1994; and the arbitration proceeding instituted June 30,
1994 and now pending under the administration of the American Arbitration
Association, New York Office, captioned In the Matter of the Arbitration between
North American Carbonate Company and North American Bicarbonate Company, and
NaTec Minerals, Inc., and Oldexaer, Inc., having caption number 13-181-00582-94.
The Company intends to vigorously prosecute the NACC Lawsuit if the Asset Sale
is not consummated; however, there are no assurances that the NACC Lawsuit will
prove successful. See "THE ACQUISITION PROPOSAL--Description of Acquisition
Agreement and Ancillary Agreements--Ancillary Agreements".
58
<PAGE> 63
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the
Commission are incorporated herein by reference and also are attached hereto as
Exhibits A and B, respectively:
(1) The Company's Annual Report on Form 10-K for the year ended
December 31, 1994 (File No. 0-8104); and
(2) The Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995 (File No. 0-8104).
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date hereof and prior to the
date of the Meeting to which this Proxy Statement relates are deemed to be
incorporated herein by reference, and shall be deemed a part hereof from the
date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein, or contained in this Proxy Statement, shall
be deemed to be modified or superseded for purposes of this Proxy Statement to
the extent that a statement contained herein or in any subsequently filed
document which also is deemed to be incorporated herein modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed to
constitute a part of this Proxy Statement, except as so modified or superseded.
Neither the delivery of this Proxy Statement nor any distribution of
securities made hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs of the Company, since
the date of this Proxy Statement.
INDEPENDENT ACCOUNTANTS
During the past year, the Audit Committee recommended and the Board
of Directors selected the firm of Ernst & Young LLP to serve as independent
auditors of the Company for the year ended December 31, 1994. It is the
intention of the Board to select independent auditors during calendar year
1995. Since ratification of the appointment of auditors is not required as a
matter of state or federal law or by the rules of the National Association of
Securities Dealers Automatic Quotation System ("NASDAQ"), the Board will not
request at this time, nor subsequently during 1995, ratification by the
Company's stockholders of such selection.
The consolidated financial statements of the Company for the year
ended December 31, 1994 have been audited by Ernst & Young LLP, independent
public accountants, as indicated in their reports with respect thereto and have
been so included upon the authority of such firm as experts in accounting and
auditing. Representatives of Ernst & Young LLP will not be present at the
Annual Meeting. So far as is known to Management, neither Ernst & Young LLP
nor any of its members has any direct or indirect material financial interest
in the securities of the Company.
STOCKHOLDER PROPOSALS
Stockholders are entitled to submit proposals on matters appropriate
for stockholder action consistent with regulations of the Securities and
Exchange Commission. Stockholder proposals must be received by the Company on
or before February 4, 1996 in order to be presented at the Company's 1996
Annual Meeting of Stockholders.
59
<PAGE> 64
OTHER MATTERS
Management knows of no matters other than those described above which
are expected to be presented at the Annual Meeting. If other matters properly
come before the meeting for action, the persons named in the accompanying form
of proxy acting thereunder intend to vote in accordance with their best
judgment on such matters.
Under the federal securities laws, Company directors, certain
officers, and ten percent stockholders are required to report to the SEC, by
specific due dates, transactions and holdings in the Company's Common Stock.
The Company believes that during the 1994 fiscal year all of these filing
requirements were satisfied.
PROVISION OF CERTAIN ADDITIONAL INFORMATION
Accompanying this Proxy Statement is a copy of the Company's latest
Form 10-K, the Company's Form 10-Q for the quarter ended March 31, 1995, the
Acquisition Agreement, certain of the Ancillary Agreements, the Fairness
Opinion referenced herein and certain portions of the Utah Revised Business
Corporation Act.
By Order of the Board of Directors
/s/ TIMOTHY R. DUNNE
--------------------
Timothy R. Dunne, Secretary
Houston, Texas
July 7, 1995
THE COMPANY WILL FURNISH WITHOUT CHARGE ADDITIONAL COPIES OF ITS
ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS AND SCHEDULES,
BUT EXCLUDING THE EXHIBITS THERETO, FOR THE FISCAL YEAR ENDED DECEMBER 31,
1994, TO INTERESTED SECURITY HOLDERS WHOSE PROXY IS BEING SOLICITED, UPON
WRITTEN REQUEST. THE COMPANY WILL FURNISH TO ANY SUCH PERSON ANY EXHIBITS
DESCRIBED IN THE LIST ACCOMPANYING SUCH REPORT UPON PAYMENT OF REASONABLE FEES
RELATING TO THE COMPANY'S COST OF FURNISHING SUCH EXHIBITS. REQUESTS FOR
COPIES SHOULD BE DIRECTED TO MR. TIMOTHY R. DUNNE, SECRETARY, NATEC RESOURCES,
INC., 1177 WEST LOOP SOUTH, SUITE 800, HOUSTON, TEXAS 77027-9096.
60
<PAGE> 65
PROXY NATEC RESOURCES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF THE DIRECTORS OF THE COMPANY
The undersigned, hereby revoking all prior proxies, hereby appoints Mr.
John T. McCormack and Mr. Timothy R. Dunne, and each of them, as proxies and
attorneys-in-fact of the undersigned, with full and several power of
substitution, to represent and to vote all the shares of Common Stock or Series
A Preferred Stock of NATEC RESOURCES, INC. standing in the name of the
undersigned and with respect to which the undersigned would be entitled to vote
if personally present at the Annual Meeting of Stockholders of NATEC RESOURCES,
INC. to be held on July 21, 1995, and at any adjournment(s) thereof, with
respect to the following proposals by the Company as follows:
(CONTINUED, AND TO BE SIGNED ON REVERSE SIDE)
- --------------------------------------------------------------------------------
[FOLD AND DETACH HERE]
<PAGE> 66
I plan to attend
the meeting
/ /
Note #3
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFIC INDICATIONS ON THE REVERSE SIDE. IN THE ABSENCE OF SUCH INDICATIONS
THIS PROXY WILL BE VOTED FOR THE NOMINEES FOR DIRECTORS NAMED IN THE PROXY
STATEMENT, FOR THE ACQUISITION PROPOSAL AND FOR THE LIQUIDATION AND DISSOLUTION
PROPOSAL, AND IN ACCORDANCE WITH THE JUDGEMENT OF THE PERSON VOTING THE PROXY
WITH RESPECT TO ANY OTHER BUSINESS PROPERLY BEFORE THE MEETING, EXCEPT THAT
PROXIES VOTING "AGAINST" PROPOSAL 2 OR PROPOSAL 3, RESPECTIVELY, MAY NOT BE
VOTED "FOR" ANY PROPOSED ADJOURNMENT OF THE 1995 ANNUAL MEETING OF STOCKHOLDERS
FOR THE PURPOSE OF SOLICITING VOTES "FOR" PROPOSAL 2 OR PROPOSAL 3,
RESPECTIVELY, IN THE DISCRETION OF THE PERSON VOTING THE PROXY.
The Board of Directors recommends a vote "FOR" each of the nominees set forth
below and "FOR" the Acquisition Proposal.
The Board of Directors does not make any recommendation with respect to the
liquidation and Dissolution Proposal.
PROPOSAL 1 ELECTION OF DIRECTORS:
FOR all nominees listed below (except as marked to the contrary below)
/ /
WITHHOLD AUTHORITY to vote for all nominees listed below
/ /
(To withhold authority to vote for any individual nominees, strike a line
through the nominee's name in the list below).
BRUCE W. WILKINSON AND TIMOTHY R. DUNN
PROPOSAL 2. ACQUISITION PROPOSAL. To approve the sale of substantially all of
the Company's business and assets to North American Chemical Company.
FOR AGAINST ABSTAIN
/ / / / / /
PROPOSAL 3. LIQUIDATION AND DISSOLUTION PROPOSAL. To approve the complete and
voluntary liquidation and dissolution of the Company conditional upon the
approval by stockholders and consummation of the proposed sale of assets to
NACC, such liquidation and dissolution being revocable by the Board of
Directors in the event it deems such revocation to be in the best interest of
the Company and its stockholders.
FOR AGAINST ABSTAIN
/ / / / / /
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the 1995 Annual Meeting of Stockholders
or any adjournment thereof, all as more particularly described in the Proxy
Statement.
The undersigned acknowledge(s) receipt of the Notice of the aforesaid Annual
Meeting and the Proxy Statement accompanying the same, each dated May 1, 1995,
and the Annual Report to Stockholders for 1994.
Please sign exactly as your name appears hereon. When signing as attorney,
executor, administrator, trustee, guardian, etc., give your full title as such.
For joint accounts, each joint owner should sign.
Dated: , 1995
---------------------
- ----------------------------------
(Signature of Shareholder)
- ----------------------------------
(Signature of Shareholder)
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD USING THE ENCLOSE ENVELOPE.
- --------------------------------------------------------------------------------
[FOLD AND DETACH HERE]
<PAGE> 67
EXHIBIT A (EX-13.A)
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-8104
NATEC RESOURCES, INC.
(Exact name of Registrant as specified in its Charter)
UTAH 36-6059098
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1177 WEST LOOP SOUTH, HOUSTON, TEXAS 77027
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (713) 552-2552
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, WITHOUT PAR VALUE
(Title of class)
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Yes No X
--- ---
As of April 10, 1995, 25,477,387 common shares were outstanding, and the
aggregate market value of the shares (based on the closing sales price on the
NASDAQ Small Capitalization on April 10, 1995) of NaTec Resources, Inc. held by
non-affiliates was approximately $836,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of NaTec Resources, Inc.'s Proxy Statement in connection with its 1995
Annual Meeting of Shareholders are incorporated by reference in Part III
hereof.
- --------------------------------------------------------------------------------
<PAGE> 68
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item No. Page No.
- -------- --------
<S> <C> <C>
PART I
1. Business 2
2. Properties 4
3. Legal Proceedings 5
4. Submission of Matters to a Vote of Security Holders 5
PART II
5. Market for Registrant's Common Equity and Related Shareholder Matters 6
6. Selected Financial Data 6
7. Management's Discussion and Analysis of Financial Condition and Results of Operations 7
8. Financial Statements and Supplementary Data 12
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 29
PART III
10. Directors and Executive Officers of the Registrant 29
11. Executive Compensation 29
12. Security Ownership of Certain Beneficial Owners and Management 29
13. Certain Relationships and Related Transactions 29
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 30
</TABLE>
1
<PAGE> 69
PART I
ITEM 1. BUSINESS
NaTec Resources, Inc. ("NaTec" or "Company") historically has been involved in
the control of pollutants commonly associated with acid rain. The Company's
technology uses nahcolite (a naturally occurring form of sodium bicarbonate),
which the Company obtains from White River Nahcolite Minerals, Limited
Liability Company ("White River"), a joint venture producer of nahcolite in
which the Company has a 50% interest.
The Company was originally incorporated in 1931 as The Utah Corporation. Prior
to 1988, the Company was operating under the name Industrial Resources, Inc.
and was engaged primarily in the purchase, development and sale of natural
resources. In July 1988, Wolf Ridge Corporation, a wholly-owned subsidiary of
the Company and CRSS Nahcolite, Inc. ("CRSN"), a subsidiary of CRSS Inc.
("CRSS"), formed a limited partnership to develop, engineer and market
integrated dry sorbent injection ("DSI") systems and products which are
believed to control pollutants commonly associated with acid rain. On October
30, 1989, the shareholders of the Company approved an exchange in which CRSS
exchanged approximately $6,100,000 in cash and their interest in CRSN for
11,118,000 shares of newly issued NaTec common stock, which represented
approximately 45% of the total outstanding common shares of the Company. The
Company also changed its name from Industrial Resources, Inc. to NaTec
Resources, Inc. As a result of this transaction, all operations and assets
relating to DSI technology previously carried out by the partnership became
wholly controlled by NaTec.
On November 1, 1990, CRSS purchased 100,000 shares of NaTec Series A Cumulative
Convertible Exchangeable Preferred Stock ("Preferred Stock"). CRSS has the
option of receiving the 12% per annum Preferred Stock dividend in cash, in an
equivalent amount (based on market value) of the Company's common stock, or in
the form of a promissory note. At the option of CRSS and at any time prior to
redemption, the Preferred Stock may be converted into approximately 1,618,000
shares of NaTec common stock. The Preferred Stock severally has voting rights
based upon the number of "as if converted" shares of NaTec common stock.
On April 25, 1991, CRSS purchased an additional 700,000 shares of NaTec common
stock for $3,300,000. This purchase, along with the common shares received as
payment for Preferred Stock dividends, increased CRSS's holding of NaTec common
stock to approximately 11,990,000 shares or a 47.2% equity ownership. When
combined with the voting rights obtained in conjunction with the November 1,
1990 Preferred Stock purchase, CRSS obtained controlling interest in the
Company with voting rights in NaTec of 50.6% as a result of this additional
stock purchase.
CRSS purchased 10,000 shares of Series B Preferred Stock on July 22, 1991, and
10,000 shares of Series C Preferred Stock on September 1, 1991. Dividends are
payable quarterly at a rate of 11.5% per share per annum and are payable, at
the option of CRSS, in cash, an equivalent amount of NaTec common stock, or in
the form of a promissory note. The Series B and Series C Preferred Stock may
be converted at the option of CRSS into approximately 224,000 shares and
279,000 shares of common stock, respectively. Other terms of the Series B and
Series C Preferred Stock are substantially identical to Series A. With the
voting rights obtained with these additional purchases of Preferred Stock
combined with common stock received as payment for Preferred Stock dividends,
CRSS effectively controls approximately 52% of the voting rights of the
Company.
CRSS currently intends to convert to common stock all of the Series B and
Series C Preferred Stock and 55,620 shares of the Series A Preferred Stock.
Following this conversion, CRSS will own 13,499,450 shares of common stock,
which represents 50.22% of total common stock outstanding, and 44,380 shares of
Series A Preferred Stock.
In August of 1990, the Company acquired the assets of AER*X, a division of WPL
Holdings, Inc. AER*X is engaged in consulting services related to the trading
of air emission credits. In December of 1990, the Company sold the assets of
AER*X, Inc. to Energy Management Associates, Inc. for a gain of approximately
$500,000 and retained a 10% interest in its future operations. NaTec sold its
remaining 10% interest in 1991 for $120,000.
2
<PAGE> 70
On June 24, 1992, Oldexaer, Inc. ("OXA"), a wholly-owned subsidiary of the
Company, and North American Bicarbonate Company ("NABC"), a wholly-owned
subsidiary of North American Chemical Company ("NACC") formed the White River
joint venture in order to combine the sodium bicarbonate production facilities
of NaTec Minerals, Inc. ("NMI"), a wholly-owned subsidiary of the Company, with
the expertise and experience in supervising production facilities of NACC. In
November 1992, the shareholders of the Company approved a transaction whereby
substantially all of NMI's assets were contributed to White River pursuant to a
Joint Venture Agreement ("Agreement") dated June 22, 1992. Upon consummation
of the Agreement, North American Carbonate Company ("NACCarb"), a wholly-owned
subsidiary of NACC purchased from NMI a membership interest in White River
resulting in ownership, directly or indirectly of 50% by NACC and 50% by the
Company. In connection with the Agreement, White River entered into a
Management Agreement with NACC pursuant to which NACC will provide it with
technical, financial, operational and overall management supervisory services
for an initial term of five years (subject to renewal unless terminated by NACC
or the Company), at NACC's costs for the first two years, and for costs plus a
management fee thereafter. White River also entered into 30-year supply
contracts with each of NACC and the Company providing for the sale of nahcolite
by White River on a cost plus basis. See "Item 7 -- Management's Discussion
and Analysis of Financial Condition and Results of Operations" for certain
aspects of the relationship between NACC and the Company.
On May 21, 1993, NaTec Inc., a wholly-owned subsidiary of the Company, sold all
assets and business activity related to its specialty chemical business to
Benetech Group Ltd. This business supplied specialty chemicals such as dust
suppressants, flow aids and other products utilized in the fuel combustion
process to the utility and refining industries.
Due to the continued unfavorable near-term outlook for the flue-gas
desulfurization market, limited revenues, and limited cash flows, the Company
likely will not be able to continue its operations as a going concern. As
discussed above, the Company has ceased all of its operations other than
supplying its existing customers with sodium bicarbonate through its 50%
ownership in White River, with no current intent to reinitiate those
operations. Subsequent to December 31, 1994, the Company entered into an
agreement, subject to certain conditions, to sell its stock in NMI and OXA to
NACC, thereby selling its 50% interest in White River, in addition to its
existing sodium bicarbonate supply agreements and purchase orders. After the
proposed transaction, all operations of the Company would be terminated. Under
the terms of the Acquisition Agreement, which is subject to approval by the
shareholders of the Company, the Company will receive $10,000,000, payable
$6,000,000 at closing with the balance to be paid with a non-interest bearing
note payable in quarterly installments according to a formula based on sales of
White River's production of sodium bicarbonate over a period of five years.
The purchase price is estimated to have a discounted value of approximately
$9,085,000 which reflects the discount to present value of the $4,000,000
non-interest bearing note. The note is secured by the assets of White River.
Subject to shareholder approval, the Board of Directors of the Company has also
approved the liquidation of the Company. Proceeds from the sale of the
Company's investment in White River will be used to satisfy the claims of
creditors and CRSS as the holder of the Company's Preferred Stock. It is
unlikely that there will be sufficient assets upon liquidation for any
distribution to be made to holders of common stock of the Company.
NaTec currently employs 1 full-time employee, the chief executive officer.
Other administrative functions for the routine operations of the Company,
including treasury, accounting, and tax are provided by CRSS under an
administrative services agreement. Information on major customers is included
in the Financial Statements and Supplementary Data for the year ended December
31, 1994, which are included in Item 8 of this Form 10-K.
COMPETITION
As noted above, the Company has ceased all of its operations other than
supplying its existing customers with sodium bicarbonate. The primary
competition with respect to supplying existing customers are price and service.
The market for supply of sodium bicarbonate is highly competitive.
3
<PAGE> 71
ITEM 2. PROPERTIES
Offices - The Company maintains offices in Houston, Texas.
Limestone - The Company holds placer claims to limestone on 2,221 acres in the
Glenwood Canyon area in Eagle and Garfield Counties, Colorado. The evaluation
has been confined to geological mapping, electromagnetic surveys, outcrop
sampling and road construction. No exploratory drilling has been performed,
and the actual limestone quality and quantity has not been determined by drill
cores. However, channel samples of the limestone outcrops were assayed in
excess of 98.5% calcium carbonate (CaC03).
Although the Company has preliminary estimates indicating that there is
commercial quality and quantity of limestone, any commercial development will
be dependent primarily upon establishing a market. The marketing of limestone
products from the Company's claims would involve considerable freight expense
as the limestone deposit is not located near major populated or industrial
areas. Other competitive limestone deposits are located in closer proximity to
the industrial areas.
Water Rights - The Company has been granted conditional water decrees on the
Colorado River located in Mesa County, Colorado. The Company has been granted
decrees amounting to 320 cubic feet per second of water for consumptive use and
2,000 cubic feet per second of water for nonconsumptive use. The decrees
include an active storage capacity of 15,530 acre-feet in a proposed reservoir
on the Colorado River, a proposed pipeline to fill another proposed reservoir
which has a capacity of 13,538 acre-feet and is located north of the Colorado
River, and a proposed pumping pipeline for a potential power plant located
along the Colorado River. A prior right to 10 cubic feet per second of this
water had been conveyed to Sheridan Enterprises, Inc. in 1977 and subsequently
assigned to the Colorado Ute Electric Association in 1987. As a part of the
water development program, engineering and environmental evaluations are being
performed on an ongoing basis. The Colorado River conditional decrees, if
finally perfected, could have importance if coal mining operations and energy
related processing industries expand in the western portion of Mesa and
Garfield Counties of western Colorado. The water rights could also be of value
for environmental purposes to provide habitat for certain species of fish in
the Colorado River.
WHITE RIVER
Nahcolite Mining and Processing Facility - The nahcolite solution mining and
processing facility was completed and in start-up production in the first
quarter of 1991 and placed into commercial production in July 1991. The
state-of-the-art facility is located on the sodium leases in Rio Blanco
County, Colorado (see Federal Sodium Leases below).
The facility utilizes proprietary technology involving bicarbonate solution
mining and crystallization techniques. The facility also includes storage for
approximately 3,000 tons of processed nahcolite and a laboratory to provide
ongoing quality control.
Federal Sodium Leases - On July 1, 1971, the United States Department of the
Interior issued sodium leases to the Company in an area known as the Piceance
Creek Basin in Colorado. These leases, which are now held by White River,
cover an area of 8,224 acres and are located approximately 48 miles northwest
of Rifle, Colorado, in Rio Blanco County, Colorado. The two principal sodium
minerals contained in the leases are nahcolite (NaHCO3) and dawsonite
(NaA1(OH)2CO3).
Although no formal studies have been undertaken for the sole purpose of
estimating the total reserves, core drilling samples taken in several areas of
the property and engineering studies of these areas indicate that a 26 foot
thick bed of nahcolite, known as the Boies Bed, exists at approximately 1900
feet below the surface. The purity of the nahcolite in the Boies bed varies
from 76% to 85% of the total volume. Based upon present data, it is estimated
that a probable reserve of 10.8 million tons of nahcolite exist within the
Boies Bed. While it is estimated that there may be an additional amount of 70
million tons of nahcolite bearing material as indicated by other drill holes,
such additional amount cannot be classified as a reserve under Securities and
Exchange Commission standards until further field data is obtained and a
feasibility study has been conducted. Of the 10.8 million tons of nahcolite
estimated to constitute a probable reserve, it has been further estimated that
approximately 20% (2.1 million tons)
4
<PAGE> 72
is recoverable under the present solution mining extract method and that there
are no estimated losses projected in processing of such material.
The primary terms of the leases are 20 years, and the lessee may file a timely
application for renewal of the leases for successive 10-year periods on terms
fixed by the Department of the Interior unless otherwise provided by law at the
time of renewal. A royalty of 5% of the quantity or gross value of output (as
determined by the Secretary of the Interior) is payable through the remaining
term of the leases. Whether in production or not, minimum annual rental
payments of $5.00 per acre are payable to the Department of Interior. Rental
and royalties, as well as other terms of the leases, may be changed at the
option of the United States Department of the Interior, Bureau of Land
Management, for renewal periods following the initial term. In 1991, the
Bureau of Land Management renewed the sodium leases now held by White River for
a period of 10 years.
Water Rights - White River holds various conditional water decrees on the White
River and in the Piceance Creek Basin and the Yellow Creek Basin areas of
western Colorado in addition to conditional decrees for water wells on the
sodium lease property in Rio Blanco County, Colorado. White River also owns
various surface direct flow rights and a reservoir storage water right
diverting out of Piceance Creek. Under the conditional decrees, reasonable
diligence must be exercised to divert the water which is the subject of the
decrees. The cost of complying with these requirements has not been
determined. In August 1991, a decree from the Colorado Water Court was
received approving an operational plan for utilizing the water rights in the
Piceance Creek, Yellow Creek and White River Basins for mining operations.
ITEM 3. LEGAL PROCEEDINGS
A lawsuit filed against the Company by DeTer, Inc. during 1993 in the Dallas
Federal Court for the Northern District of Texas alleging breach of a previous
settlement agreement related to the Company's discontinued specialty chemical
business was settled during the fourth quarter of 1994. The amount of the
settlement was within previously established financial reserves.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
5
<PAGE> 73
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
NaTec Resources, Inc. common stock is traded on NASDAQ Small Capitalization
market under the trading symbol "NATC". As of April 10, 1995 there were 5,672
shareholders of record owning the outstanding common stock. The Company did
not pay any dividends on common shares during 1994 and 1993. No dividend
payments are expected to be made in the future.
<TABLE>
<CAPTION>
1994 High Low
---- ---- ----
<S> <C> <C>
First Quarter $1.09 $0.75
Second Quarter 0.88 0.50
Third Quarter 1.00 0.50
Fourth Quarter 0.63 0.09
<CAPTION>
1993 High Low
---- ---- ----
<S> <C> <C>
First Quarter $2.38 $1.63
Second Quarter 2.00 1.25
Third Quarter 1.28 0.88
Fourth Quarter 1.00 0.91
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial information for NaTec
Resources, Inc. and its subsidiaries as of and for each of the five years ended
December 31, 1994. Selected financial data should be read in conjunction with
the Consolidated Financial Statements and accompanying notes.
<TABLE>
<CAPTION>
1994 (a) 1993 1992 (b) 1991 1990 (c)
-------- ---- -------- ---- --------
<S> <C> <C> <C> <C> <C>
Revenues $1,106,173 $2,536,743 $ 3,578,896 $ 769,490 $ 1,035,671
Loss from continuing
operations (3,826,426) (1,331,110) (5,072,691) (4,214,264) (3,034,584)
Loss from continuing
operations per common share $(0.21) $(0.11) $(0.26) $(0.23) $(0.12)
Total assets 10,053,479 13,651,347 16,677,856 23,399,633 24,915,902
Long-term obligations - 4,180,104 4,422,604 2,365,635 -
Redeemable preferred stock - - - 12,000,000 10,000,000
Shareholders' equity - $7,157,070 $10,057,287 $ 5,341,900 $11,001,070
Net assets in liquidation $1,901,645 - - - -
</TABLE>
(a) The Company adopted the liquidation basis of accounting effective
December 31, 1994. Total assets as of that date have been valued
at estimated net realizable value and liabilities are reflected at
their estimated settlement amounts, including estimated costs to be
incurred during liquidation.
(b) 1992 reflects the reclassification of preferred stock to stockholders'
equity as the result of the cancellation of the mandatory redemption
requirement.
(c) 1990 results include the results of operations for AER*X from August 1
through December 28 in addition to a $500,000 gain recognized on the
sale of the assets of AER*X.
6
<PAGE> 74
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
CONTINUING OPERATIONS
Revenues for 1994 were $1,106,000 compared to $2,537,000 for 1993, a decrease
of $1,431,000, or 56%. The decrease in revenues is primarily due to current
year revenues being primarily generated from sorbent sales, compared to prior
year revenues which were primarily derived from an installation of the dry
sorbent injection ("DSI") emissions control technology. Revenues attributable
to installations of the DSI emissions control technology were $104,000 for 1994
compared to $1,894,000 for 1993. The prior year revenue related primarily to
equipment installations at the Wisconsin Electric Power Company Units #1 and
#4. Unit #1 was completed during 1993 and Unit #4 was completed during 1994.
Sorbent sales for 1994 were $927,000 compared to $642,000 for 1993.
Revenues for 1993 of $2,537,000 decreased $1,042,000, or 29% as compared to
revenues of $3,579,000 for 1992. Included in revenues for 1992 were sales of
sorbent to North American Chemical Company ("NACC") of $1,606,000. Subsequent
to the formation of a joint venture between the Company and NACC, White River
Nahcolite Minerals, Limited Liability Company ("White River") during the fourth
quarter of 1992, NACC began purchasing sorbent directly from White River. The
joint venture, which is owned 50% by the Company and 50% by NACC and its
affiliates, owns and operates the nahcolite production facilities which were
previously wholly-owned by the Company. Excluding sales to NACC for 1992,
revenues were $2,537,000 for 1993 compared to $1,973,000 for 1992, representing
an increase of $564,000, or 29%. The increase in revenues, exclusive of sales
to NACC, is primarily due to a $604,000 increase in sales of sorbent and a
$161,000 increase in revenues from installations of the dry sorbent injection
("DSI") emissions control technology, partially offset by a decrease in
revenues from demonstrations.
The gross profit for 1994 was $5,000 compared to $398,000 for 1993,
representing gross profit margins of 0% and 16%, respectively. The decrease in
1994 is primarily due to the current year mix of projects with lower margins
generated from sorbent sales as compared to the higher margin on the DSI
equipment installation in 1993.
Gross profit for 1993 was $398,000 compared to a gross loss of $627,000 for
1992. During 1992, production costs related to the nahcolite facility were
included in cost of sales. The gross loss for that year was primarily
attributable to the high cost per ton of nahcolite being produced, which
resulted from relatively low levels of production and attendent fixed portion
of production costs. During 1993, results of operations of the nahcolite
facility are reflected as "equity loss in joint venture" as the Company only
owned a 50% interest in the facility through White River. Therefore, the
improved operating margins resulted primarily from the joint venture with NACC.
Also contributing to the improved operating margins during 1993 are the higher
margins recognized on the DSI equipment installation.
Operating costs for 1994 were $1,148,000 compared to $1,355,000 for 1993, and
$3,721,000 for 1992. Operating costs for 1992 included (i) $704,000 of legal
and other transaction costs related to the joint venture agreement with NACC,
(ii) an increase in the reserve for idle equipment of $330,000, and (iii)
severance related costs totalling $303,000. Excluding the effect of these
items, operating costs were $1,148,000, $1,355,000 and $2,384,000 for 1994,
1993, and 1992, respectively. The decreases in operating costs are primarily
attributable to the continued effort to control overall administrative and
overhead costs, which have included additional employee reductions in each
year.
7
<PAGE> 75
Equity loss in joint venture reflects the Company's 50% interest in White
River. The loss for 1994 was $194,000 compared to $437,000 for 1993. The loss
for White River for 1994 at 100% of $388,000 includes a $321,831 charge due to
a claim submitted from NACC related to 2,876 tons of poor quality sodium
bicarbonate sold to them during the year. Excluding the effect of this claim,
the improved results for 1994 are primarily due to improved operating margins.
Increases in the current year level of production resulted in a reduction in
the production cost per ton as compared to the prior year. The loss of $35,000
for 1992 only reflects activity from November 19, 1992 (inception) through
December 31, 1992.
During 1992, the Company sold a 50% interest in White River to NACC in exchange
for cash and a note receivable as further discussed below in "Liquidity and
Capital Resources." The Company recognized a loss on sale of $522,000 related
to this transaction.
Non-operating income for 1994 was $86,000 compared to $470,000 for 1993, and
$160,000 for 1992. Non-operating income includes imputed interest income
recognized on the note receivable from NACC of $51,000, $404,000 and $48,000 in
1994, 1993, and 1992, respectively. Interest expense was $541,000, $407,000,
and $327,000 for 1994, 1993, and 1992, respectively. The increases in interest
expense are due to additional promissory notes payable to CRSS, as further
discussed below under "Liquidity and Capital Resources".
As further discussed under "Liquidity and Capital Resources", the Company has
adopted the liquidation basis of accounting in accordance with generally
accepted accounting principles as of December 31, 1994. Therefore, assets have
been valued at estimated net realizable value and liabilities have been
reflected at their estimated settlement amounts, including estimated costs to
be incurred during liquidation. The Company has recorded an adjustment to
liquidation basis of $2,035,000 which consists of (i) the write-off of the
note receivable from NACC of $3,257,000, (ii) estimated costs to be incurred
during the period of liquidation of $650,000, offset by (iii) an increase of
the investment in joint venture of $1,872,000 to reflect the discounted value
of the purchase price of $9,085,000 as discussed below. The valuation of the
assets and liabilities are based on management estimates and assumptions as of
the date of the financial statements; actual realization of the assets and
settlement of liabilities could be higher or lower than the amounts indicated.
The estimated costs to be incurred during liquidation, which were determined
based on management's assumption that the liquidation will be completed by June
30, 1995, consist of salaries and severance ($210,000), legal and accounting
fees ($150,000), insurance ($80,000), administrative services ($30,000), and
other expenses ($180,000).
DISCONTINUED OPERATIONS
In March 1993, the Company announced its intent to divest its specialty
chemical business. This business, which was classified as discontinued
operations in 1992, supplied specialty chemicals and application systems in
order to improve coal handling operations at power generation facilities. The
discontinued specialty chemical business was sold on May 21, 1993 as further
discussed below under "Liquidity and Capital Resources."
In conjunction with the decision to divest the specialty chemical business, the
Company recognized a $630,000, or $0.03 per share charge related to the
estimated loss on sale, the estimated costs of disposal, and estimated
operating losses during the phase-out period of $250,000. In 1993, the Company
increased the estimated loss on disposal of the discontinued segment by
$150,000 for estimated legal expenses related to the defense of a lawsuit
related to that business. The lawsuit was settled during 1994. Accruals which
were established at December 31, 1993 were sufficient to cover the settlement
and no additional charges to earnings for discontinued operations were required
during 1994.
The loss from discontinued operations for 1992 was $316,000. Gross revenues
generated by the discontinued segment were $419,000 in 1993 (through the date
of sale) and $1,710,000 in 1992. The gross profit margins for 1993 and 1992
were 30% and 44%, respectively. The fluctuation in revenues and in the gross
profit margin is primarily due to a change in the volume and the mix of
projects.
8
<PAGE> 76
CONSOLIDATED RESULTS
The net loss attributable to common shares was $5,256,000 in 1994, $2,911,000
in 1993, and $7,449,000 in 1992. In addition to the items noted above, results
included preferred stock dividends of $1,430,000 for 1994, 1993 and 1992.
LIQUIDITY AND CAPITAL RESOURCES
The Consolidated Statement of Net Assets in Liquidation at December 31, 1994
reflects cash and cash equivalents of $507,000, which represents a net decrease
of $1,422,000 from the prior year's Consolidated Balance Sheet. The net
decrease in cash and cash equivalents during 1994 is primarily attributable to
(i) cash used in operating activities of $1,068,000, (ii) the contribution to
the joint venture of $256,000 for capital expenditures related to the expansion
of plant production capacity and for working capital requirements, and (iii)
payments of $650,000 for notes payable to CRSS. Partially offsetting the
decrease in cash and cash equivalents is $625,000 received from NACC in payment
on a note receivable. Prior to adoption of the liquidation basis of accounting
at December 31, 1994 as discussed above, the Company had negative working
capital of $6,396,000 compared to working capital of $2,333,000 at December 31,
1993. In addition to the decrease in cash and cash equivalents as discussed
above, the decrease in working capital is primarily attributable to current
maturities of notes payable to CRSS in addition to the reclassification of the
note receivable from NACC to noncurrent as further discussed below.
The Company has a five-year convertible note payable to CRSS with a balance of
$4,123,000 at December 31, 1994 bearing interest equal to prime plus two points
per annum. The balance of the note is currently convertible at the option of
CRSS into 2,443,025 shares of common stock. The amount which was payable
during 1994 was $600,000 plus accrued interest; however due to limitations on
capital resources, the Company only paid $300,000 plus accrued interest through
June 30, 1994. This payment default entitled CRSS, at its option, to
accelerate the entire amount of the note, making it currently due and payable.
The Company paid $350,000 plus accrued interest of $28,000 to CRSS for a
promissory note that matured on April 26, 1994. The Company has six additional
promissory notes payable to CRSS for $357,500 each. These promissory notes
were issued in payment of quarterly dividends on Preferred Stock from July 15,
1993 to October 15, 1994. The Company has deferred principal and interest
payments to CRSS on notes which matured on July 15, 1994 and October 15, 1994.
Subsequent to year-end, the Company also deferred payment on a note which
matured on January 15, 1995. The remaining promissory notes mature on April
15, 1995, July 15, 1995, and October 15, 1995. The promissory notes bear
interest equal to prime plus two points per annum. Cumulative dividends on the
Preferred Stock which have not been declared were $357,500 at December 31,
1994.
During 1993, NaTec Inc., a wholly-owned subsidiary of the Company, sold all
assets and business activity relating to the specialty chemical business to
Benetech Group Ltd. ("Benetech") for $370,000, of which $250,000 was received
at closing with the remaining $120,000 receivable thirty-six months from the
date of closing. During 1994, the Company received $100,000 as final payment,
which represented the discounted value of the remaining balance. The sales
proceeds of $250,000 plus proceeds of $147,995 from a three-year bank note
payable were utilized to retire industrial revenue bonds associated with the
specialty chemical business. At December 31, 1994, the balance of the note
payable was $82,000, which is payable $49,000 in 1995, and $33,000 in 1996.
The note payable bears interest of prime plus one point per annum.
On November 19, 1992, the Company contributed substantially all of the assets
and liabilities of NMI, a wholly-owned subsidiary of the Company, to a newly
created subsidiary, White River. The Company sold a 50% interest in White
River to NACC for $10,000,000. Of the $10,000,000 purchase price, $2,000,000
was received at closing, $1,000,000 was received on December 31, 1992, and
$2,875,000 was received during 1993. The remaining balance was due to the
Company as follows: $2,500,00 in 1994, $1,375,000 in 1995, and $250,000 in
1996. The Company received $625,000 from NACC in payment on the note during
1994. NACC has ceased payment on the note alleging that the nahcolite
production facility has not yet demonstrated an effective annual production
capacity of 106,000 tons per year. Pursuant to the joint venture agreement,
the Company was required to make all expenditures necessary for the facility to
achieve the effective annual production capacity of the White River nahcolite
production to that level by April 15, 1994. In the event the effective annual
production capacity of
9
<PAGE> 77
106,000 tons per year had not been achieved on that date as reasonably agreed
between the Company and NACC, the purchase price payable by NACC for its
interest in White River could have been reduced proportionately based on the
percentage of such capacity that is obtained. Any such reduction could have
been applied pro rata to reduce each subsequent installment of the purchase
price. The Company could have, however, continued efforts to demonstrate such
effective annual production capacity of 106,000 tons, which would thereby have
acted to defer the computation of the purchase price adjustment and defer the
remaining payments by NACC on the note until such effective annual production
capacity was attained. Management of the Company believes that NACC's failure
to make its May 31, 1994 payment on the note was wrongful in view of the facts
that production data from the plant demonstrates an effective annual capacity at
or near 106,000 tons and that, as the manager of the joint venture owning the
nahcolite production facility, NACC has prevented the production facility from
achieving its full capacity by its refusal to utilize additional recovery
equipment already located at the facility and to implement certain process
modifications in a timely manner. The Company filed a lawsuit against NACC to
collect on the note, asserting the above and other arguments.
The Company made working capital contributions of $200,000 to White River
during 1994 and may be required in the future to make additional contributions
as needed for working capital requirements. In connection with the Acquisition
Agreement, White River is authorized to make a capital call of $2,113,250, of
which the Company's share would be $1,056,625. It is contemplated that the
sale of the Company's 50% interest will be completed before the capital call
will be due, in which case the Company will not be required to pay it; however,
if the sale is not completed by such due date, and the Company becomes
responsible for its share of the capital call, the Company likely would not
have sufficient liquidity to satisfy such capital call, in which case its
interest in White River would decrease.
As a result of the unfavorable near-term outlook for the flue-gas
desulfurization market, limited revenues, and limited cash flows, the Company
likely will not be able to continue its operations as a going concern. The
Company's primary source of cash since November 1992 has been the payments on
the note receivable from NACC. However, as discussed above, collections on the
note receivable have been deferred due to the current dispute with NACC, and
any efforts to resolve such dispute would result in additional expense which
would have a further negative impact on capital resources. Additionally, the
Company's major creditor, CRSS, has indicated that it will not infuse any
additional cash into the Company and management does not believe financing can
be obtained from any other sources. During 1994, the Company ceased all of
its operations other than supplying its existing customers with sodium
bicarbonate through its 50% ownership in White River with no current intent to
reinitiate those operations. The Company has terminated all of its employees
with the exception of the chief executive officer. Other administrative
functions for the routine operations of the Company, including treasury,
accounting, and tax, continue to be provided by CRSS under an administrative
services agreement.
Subsequent to year end, the Company entered into the Acquisition Agreement to
sell its stock in NMI and OXA, and its sodium bicarbonate supply agreements
and purchase orders, to NACC. NMI and OXA own the Company's 50% interest in
White River through their respective ownership interests of 49.75% and 0.25%.
The only other assets and liabilities of NMI and OXA are the note receivable
from NACC and the potential capital call obligation described above. The
Company will be required to release any claims it has against NACC upon closing
of the sale contemplated by the Acquisition Agreement (other than claims
arising under the Acquisition Agreement), including claims on the note
receivable from NACC.
Under the terms of the Acquisition Agreement, which is subject to various
conditions, including approval by the shareholders of the Company, the Company
will receive $10,000,000, payable $6,000,000 at closing with the balance to be
paid with a non-interest bearing note payable in quarterly installments
according to a formula based on sales of White River's production of sodium
bicarbonate, over a period of five years. The purchase price is estimated to
have a discounted value of approximately $9,085,000 which reflects the discount
to present value of the $4,000,000 non-interest bearing note. The note is
secured by the assets of White River.
Subject to shareholder approval, the Board of Directors of the Company has also
approved the liquidation of the Company. Proceeds from the sale of the
Company's investment in White River will be used to satisfy the claims of
creditors and CRSS as the holder of the Company's preferred stock. It is
unlikely that there will be sufficient assets upon liquidation for any
distribution to be made to holders of common stock of the Company.
10
<PAGE> 78
OTHER
In February 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 109 "Accounting for Income Taxes" which
requires a change in the method of accounting for income taxes. Statement No.
109 requires the use of the "liability method" which bases the amount of
current and future taxes payable on events recognized in the financial
statements and on existing tax laws.
The Company adopted the new method as of the beginning of 1993. There was no
effect on the results of operations or the financial position of the Company as
the result of the adoption.
11
<PAGE> 79
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Report of Independent Auditors 13
2. Management Report 14
3. Consolidated Statement of Net Assets in Liquidation as of December 31, 1994 15
4. Consolidated Balance Sheet as of December 31, 1993 16
5. Consolidated Statements of Operations for the Years Ended
December 31, 1994, 1993, and 1992 17
6. Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1994, 1993, and 1992 18
7. Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1993, and 1992 19
8. Notes to Consolidated Financial Statements 20
</TABLE>
12
<PAGE> 80
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders of NaTec Resources, Inc.:
We have audited the accompanying consolidated statement of net assets in
liquidation of NaTec Resources, Inc. as of December 31, 1994. In addition, we
have audited the accompanying consolidated balance sheet of NaTec Resources,
Inc. as of December 31, 1993, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As more fully described in Note 2 to the consolidated financial statements,
subject to shareholder approval, the Board of Directors of the Company has
approved the liquidation of the Company. As a result, the Company has changed
its basis of accounting as of December 31, 1994 to the liquidation basis of
accounting.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the net assets in liquidation at
December 31, 1994, the consolidated financial position of NaTec Resources, Inc.
at December 31, 1993, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended December 31, 1994,
in conformity with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, it is not presently
determinable whether the amounts realizable from the disposition of the
remaining assets or the amounts that creditors agree to accept in settlement of
the obligations due them will differ materially from the amounts shown in the
accompanying financial statements.
ERNST & YOUNG LLP
Houston, Texas
January 27, 1995, except for Note 2, as to which the date is April 6, 1995
13
<PAGE> 81
MANAGEMENT REPORT
The management of NaTec Resources, Inc. and its subsidiaries has prepared the
accompanying consolidated financial statements and related footnotes. The
statements and footnotes were prepared in accordance with generally accepted
accounting principles applied on a consistent basis and, accordingly, include
certain estimates which reflect management's judgment and interpretation of
currently available information.
Management of the Company has established and maintains an effective system of
internal control designed to provide reasonable assurance as to the integrity
and reliability of the financial statements as well as the safeguarding of
Company assets. However, inherent in any system of internal control are
limitations based on the cost of the system versus the benefits derived.
The Audit Committee of the Board of Directors, composed solely of outside
directors, meets with the independent auditors to evaluate the effectiveness of
their work performed in the discharge of their respective responsibilities and
to assure their independent and free access to the Committee.
The Company's financial statements have been audited by Ernst & Young LLP,
independent auditors. Management has made available to Ernst & Young LLP all
the Company's financial records and related data, as well as the minutes of
shareholders' and directors' meetings.
14
<PAGE> 82
NATEC RESOURCES, INC.
CONSOLIDATED STATEMENT OF NET ASSETS IN LIQUIDATION
as of December 31, 1994
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents $ 506,852
Accounts receivable 315,584
Property, plant and equipment 50,988
Investment in joint venture 9,085,078
Other assets 94,977
-----------
10,053,479
LIABILITIES
Accounts payable 160,814
Accrued expenses 225,454
Amounts payable to related party 7,033,215
Note payable 82,351
Estimated costs during period of liquidation 650,000
-----------
8,151,834
-----------
NET ASSETS IN LIQUIDATION (DUE TO PREFERRED SHAREHOLDERS) $ 1,901,645
===========
</TABLE>
See Notes to Consolidated Financial Statements
15
<PAGE> 83
NATEC RESOURCES, INC.
CONSOLIDATED BALANCE SHEET
(GOING CONCERN BASIS)
as of December 31, 1993
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents $ 1,929,269
Accounts receivable 227,391
Note receivable from North American Chemical Company 2,275,579
Unbilled fees 112,875
Prepaid expenses and other 102,468
-----------
Total current assets 4,647,582
Property, plant and equipment:
Machinery and equipment 519,435
Computer equipment 70,864
Furniture and fixtures 830
-----------
591,129
Accumulated depreciation (495,617)
-----------
95,512
Investments and Other Assets:
Note receivable from North American Chemical Company 1,555,776
Investment in joint venture 7,252,147
Other assets 100,330
-----------
8,908,253
-----------
TOTAL ASSETS $13,651,347
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 157,286
Accrued expenses 185,224
Obligation to joint venture 101,570
Current portion of amounts payable to related party 1,715,032
Net current liabilities from discontinued operations 155,061
-----------
Total current liabilities 2,314,173
Note payable to related party 4,180,104
STOCKHOLDERS' EQUITY
Preferred stock, $100 stated value,
2,000,000 shares authorized 12,000,000
Common stock, no par, 50,000,000 shares authorized
issued and outstanding 1993 - 25,484,687 554,829
Additional paid-in-capital 12,431,160
Retained deficit (17,816,523)
Non-vested incentive stock awards (12,396)
-----------
Total Stockholders' Equity 7,157,070
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $13,651,347
===========
</TABLE>
See Notes to Consolidated Financial Statements
16
<PAGE> 84
NATEC RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(GOING CONCERN BASIS)
For the Years Ended December 31, 1994, 1993, and 1992
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $1,106,173 $2,536,743 $3,578,896
Cost of sales 1,101,424 2,138,733 4,205,914
----------- ----------- -----------
Gross profit (loss) 4,749 398,010 (627,018)
Operating costs 1,147,585 1,355,117 3,721,225
Equity loss in joint venture (193,874) (437,225) (35,326)
----------- ----------- -----------
Operating loss from continuing operations (1,336,710) (1,394,332) (4,383,569)
Other income and expense
Loss on sale of assets of subsidiary - - (522,203)
Non-operating income 85,948 470,227 159,951
Interest expense (540,517) (407,005) (326,870)
Adjustment to liquidation basis (2,035,147) - -
----------- ----------- -----------
Loss from continuing operations (3,826,426) (1,331,110) (5,072,691)
Loss from discontinued operations - - (315,935)
Estimated loss on disposal of discontinued operations - (150,000) (630,000)
----------- ----------- -----------
Net loss (3,826,426) (1,481,110) (6,018,626)
Preferred stock dividends (1,430,000) (1,430,000) (1,430,000)
----------- ----------- -----------
Net loss attributable to common shares $(5,256,426) $(2,911,110) $(7,448,626)
=========== =========== ===========
Loss per common share:
From continuing operations* $ (0.21) $ (0.11) $ (0.26)
=========== =========== ===========
Net loss* $ (0.21) $ (0.11) $ (0.29)
=========== =========== ===========
Average Shares Outstanding 25,482,616 25,486,081 25,462,885
=========== =========== ===========
* Includes effect of Preferred stock dividends.
</TABLE>
See Notes to Consolidated Financial Statements
17
<PAGE> 85
NATEC RESOURCES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
Net Assets
in
Liquidation
Non-vested (Due to
Preferred Common Additional Retained Incentive Preferred
Stock Stock Paid-in capital Deficit Stock Awards Shareholders)
----------- ------- --------------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1992 $ - $554,267 $12,400,308 ($7,456,787) ($155,888) $ -
Net loss for 1992 - - - (6,018,626) - -
Reclassification of preferred stock 12,000,000 - - - - -
Issuance of stock under
incentive compensation
plans (30,000 shares) - 651 36,849 - (37,500) -
Preferred stock dividends - - - (1,430,000) - -
Incentive stock awards
vested during the year - - - - 164,013 -
----------- ----------- ----------- ------------ ---------- ----------
BALANCE AT DECEMBER 31, 1992
(GOING CONCERN BASIS) 12,000,000 554,918 12,437,157 (14,905,413) (29,375) -
Net loss for 1993 - - - (1,481,110) - -
Preferred stock dividends - - - (1,430,000) - -
Forfeiture of stock under
incentive compensation plans
(2,400 shares) - (52) (2,948) - 3,000 -
Incentive stock awards
vested during the year - - - - 13,979 -
Other - (37) (3,049) - - -
----------- ----------- ----------- ------------ ---------- ----------
BALANCE AT DECEMBER 31, 1993
(GOING CONCERN BASIS) 12,000,000 554,829 12,431,160 (17,816,523) (12,396) -
Net loss for 1994 - - - (3,826,426) - -
Preferred stock dividends - - - (1,430,000) - -
Forfeiture of stock under
incentive compensation plans
(7,200 shares) - (156) (8,844) - 8,750 -
Incentive stock awards
vested during the year - - - - 1,251 -
Change from going concern to
liquidation basis of accounting (12,000,000) (554,673) (12,422,316) 23,072,949 2,395 1,901,645
----------- ----------- ----------- ------------ ---------- ----------
NET ASSETS IN LIQUIDATION
AS OF DECEMBER 31, 1994
(DUE TO PREFERRED SHAREHOLDERS) $ - $ - $ - $ - $ - $1,901,645
=========== =========== =========== =========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
18
<PAGE> 86
NATEC RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(GOING CONCERN BASIS)
For the Years Ended December 31, 1994, 1993, and 1992
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss from continuing operations $(3,826,426) $(1,331,110) $(5,072,691)
Adjustment to liquidation basis 2,035,147 - -
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 51,505 104,298 1,187,720
Equity loss of unconsolidated joint venture 193,874 437,225 35,326
Imputed interest income on note receivable (51,281) (403,854) (48,384)
(Gain) loss on disposition of assets - (12,311) 319,638
Loss on sale of net assets - 522,203
(Increase) decrease in receivables 37,407 70,299 (46,697)
Decrease in other current assets 89,743 12,493 112,015
Increase (decrease) in accounts payable and
accrued liabilities 402,407 (1,026,443) 1,354,731
Other operating activities (625) (3,086) -
---------- ---------- ----------
Net cash used in operating activities (1,068,249 (2,152,489 (1,636,139)
INVESTING ACTIVITIES:
Purchase of equipment and construction in process - - (117,693)
Purchase and development of mineral property - - (3,491)
Proceeds from sale of fixed assets - 133,885 -
Proceeds from sale of net assets of subsidiary - - 2,000,000
Collection of note receivable 625,000 2,875,000 1,000,000
Joint venture contributions (255,887) (901,862) (101,000)
Funding of discontinued operations (73,281) (151,690) (516,626)
---------- ---------- ----------
Net cash provided by investing activities 295,832 1,955,333 2,261,190
FINANCING ACTIVITIES:
Payment of long-term obligations (650,000) (300,000) (178,299)
Debt proceeds - 350,000 900,000
Payment of preferred stock dividends - (357,500) -
---------- ---------- ----------
Net cash provided by (used in)
financing activities (650,000) (307,500) 721,701
---------- ---------- ----------
Increase (decrease) in cash and cash equivalents (1,422,417) (504,656) 1,346,752
Cash and cash equivalents at beginning of year 1,929,269 2,433,925 1,087,173
---------- ---------- ----------
Cash and cash equivalents at end of period $ 506,852 $1,929,269 $2,433,925
========== ========== ==========
Other cash flow information:
Cash payments for interest $ 218,549 $ 416,022 $ 269,656
Non-cash investing and financing activities:
Notes payable issued as dividends on
preferred stock 1,072,500 1,072,500 16,321,033
Net assets contributed to joint venture
Investment in joint venture 6,932,766
Note received in exchange for sale of
50% interest in joint venture 7,254,116
</TABLE>
See Notes to Consolidated Financial Statements
19
<PAGE> 87
NATEC RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The accompanying Consolidated Financial Statements include the accounts of
NaTec Resources, Inc. and its majority-owned subsidiaries, herein referred to
as the "Company." All significant intercompany accounts and transactions are
eliminated. Investments in less than majority-owned affiliates are accounted
for under the equity method. Certain amounts in the December 31, 1993 and 1992
Consolidated Financial Statements have been reclassified to conform to the
current year presentation.
Basis of presentation
As a result of the unfavorable near-term outlook for the flue-gas
desulfurization market, limited revenues, and limited cash flows, the Company
likely would not be able to continue its operations as a going concern. The
Company's primary source of cash since November 1992 has been the payments on
the note receivable from North American Chemical Company ("NACC"). However, as
discussed in Note 3, collections on the note receivable have been deferred due
to the current dispute with NACC, and any efforts to resolve such dispute would
result in additional expense which would have a further negative impact on
capital resources. Additionally, the Company's major creditor, CRSS Inc.
("CRSS"), has indicated that it will not infuse any additional cash into the
Company and management does not believe financing can be obtained from any
other sources. During 1994, the Company ceased all of its operations other
than supplying its existing customers with sodium bicarbonate through its 50%
ownership in White River with no current intent to reinitiate those operations.
Subject to shareholder approval, on April 6, 1995 the Board of Directors of the
Company approved the liquidation of the Company. As a result, the Company has
changed its basis of accounting as of December 31, 1994 to the liquidation
basis of accounting. It is unlikely that there will be sufficient assets upon
liquidation for any distributions to be made to holders of common stock of the
Company. As a result of changing the Company's basis of accounting for its
financial statements at December 31, 1994 from the going concern basis to the
liquidation basis in accordance with generally accepted accounting principles,
assets have been valued at estimated net realizable value and liabilities are
reflected at their estimated settlement amounts, including estimated costs to
be incurred during the period of liquidation. The valuations of the assets and
liabilities are based on management estimates and assumptions as of the date of
the financial statements; actual realization of the assets and settlement of
liabilities could be higher or lower than the amounts indicated.
Cash equivalents
The Company considers all highly liquid investments with original maturities of
less than three months to be cash equivalents. Cash equivalents consist
primarily of interest bearing deposits and money market instruments. These
investments are stated at historical cost which approximates market.
Property, plant and equipment
Property, plant and equipment at December 31, 1994 is stated at estimated net
realizable value. Under the going concern basis, property, plant and equipment
was recorded at cost. Maintenance and repairs are expensed as incurred.
Expenditures which significantly increase asset values or extend useful lives
are capitalized. Depreciation was provided using the straight-line method
over the estimated useful lives of the assets, which range from three to 25
years.
20
<PAGE> 88
NATEC RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Revenue recognition
Revenues earned on long-term engineering and construction contracts are
reported using the percentage-of-completion method. Percent complete is based
primarily on contract costs incurred to date compared with total estimated
costs on an individual contract basis. Where there is a change in the
estimated cost to complete a project, the Company recognizes the effect of the
change in the period in which it becomes known using a cumulative catch-up
method. Charges are made to operations for losses anticipated on individual
contracts when such losses become known. Sales of dry sorbent products and
services are recorded as products are shipped or services are rendered.
Earnings per share
Net loss per common share is calculated as net loss after preferred stock
dividends divided by the weighted average number of common shares outstanding
during each year. For the periods presented, no effect has been given to
common stock equivalents, which would arise from the exercise of stock options
or the conversion of convertible preferred stock, as their inclusion would be
antidilutive.
Concentration of Credit Risk
The Company has a concentration of customers in the utility and industrial
markets. This concentration of customers may affect the Company's overall
credit risk in that the customers may be similarly affected by changes in
economic, regulatory, or other factors. Receivables are not collateralized;
however, historical credit losses from these industries have been minimal.
NOTE 2: LIQUIDATION BASIS OF ACCOUNTING
As a result of the unfavorable near-term outlook for the flue-gas
desulfurization market, limited revenues, and limited cash flows, the Company
likely will not be able to continue its operations as a going concern as
discussed in Note 1. Consequently, subject to shareholder approval, the Board
of Directors on April 6, 1995 has approved the liquidation of the Company. In
accordance with the liquidation basis of accounting, assets were restated to
estimated net realizable value and liabilities were adjusted to include the
estimated costs to be incurred during the period of liquidation. The net
adjustment required to convert from the going concern (historical cost) basis
to the liquidation basis of accounting was a decrease in carrying value of
$2,035,147 which is included in the Consolidated Statement of Operations.
Adjustment in the carrying value of the net assets are as follows:
<TABLE>
<CAPTION>
Increase
(Decrease)
<S> <C>
Adjust investment in joint venture to
net realizable value $1,872,489
Write-off of note receivable from NACC (3,257,636)
Estimated costs to be incurred during
period of liquidation (650,000)
------------
Net decrease in carrying value to adjust to
liquidation basis of accounting $(2,035,147)
===========
</TABLE>
The valuation of the assets and liabilities are based on management estimates
and assumptions as of the date of the financial statements; actual realization
of the assets and settlement of liabilities could be higher or lower than the
amounts indicated. The estimated costs to be incurred during liquidation of
$650,000, which were determined based on management's assumption that the
liquidation will be completed by June 30, 1995, consist of salaries and
21
<PAGE> 89
NATEC RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
severance ($210,000), legal and accounting fees ($150,000), insurance
($80,000), administrative services ($30,000), and other expenses ($180,000).
Subsequent to year end, the Company reached an agreement in principle (the
"Acquisition Agreement") to sell its stock in NaTec Minerals, Inc. ("NMI") and
Oldexaer, Inc. ("OXA"), and its sodium bicarbonate supply agreements and
purchase orders, to NACC. NMI and OXA, which are both wholly-owned
subsidiaries of the Company, own the Company's 50% interest in White River
Nahcolite Minerals, Limited Liability Company ("White River") through their
respective ownership interests of 49.75% and 0.25%. The only other assets and
liabilities of NMI and OXA are the note receivable from NACC and a potential
capital call obligation under the Acquisition Agreement. The currently
outstanding note receivable from NACC is to be released upon the closing of the
sale contemplated by the Acquisition Agreement.
Under the terms of the Acquistion Agreement, which is subject to various
conditions, including approval by the shareholders of the Company, the Company
will receive $10,000,000, payable $6,000,000 at closing with the balance to be
paid with a non-interest bearing note payable in quarterly installments
according to a formula based on sales of White River's production of sodium
bicarbonate, over a period of five years. The purchase price is estimated to
have a discounted value of approximately $9,085,000 which reflects the discount
to present value of the $4,000,000 non-interest bearing note. The note is
secured by the assets of White River.
NOTE 3: INVESTMENT IN JOINT VENTURE
On November 19, 1992, the Company contributed substantially all of the assets
and liabilities of NMI to a newly created subsidiary, White River. The
Company sold a 50% interest in White River to NACC for $10,000,000. The
purchase price had an adjusted value of approximately $7,692,000 which
reflected: (i) the discount to present value, using an 8% effective interest
rate, of the $8,000,000 non-interest bearing portion of the purchase price,
(ii) an adjustment of approximately $1,250,000 to reflect the contractual right
of NACC to receive certain distributions in excess of its membership interest
in the new subsidiary in order to compensate NACC for their assumption of
approximately 50% of the liabilities of the joint venture, and (iii) the
estimated additional capital expenditures to be made by the Company of
approximately $625,000 required to increase production of the mining facility
to the 106,000 ton per year level required by the joint venture agreement with
NACC. The preferential distributions were accounted for as a reduction to the
investment in joint venture. The Company recognized a loss of approximately
$522,000 in conjunction with this transaction.
The obligation to joint venture reflected the portion of the estimated
additional capital expenditures to be made by the Company to increase
production of the mining facility. Total contributions made by the Company for
this purpose were $55,884 in 1994 and $421,862 in 1993. The Company made
additional capital contributions to White River of $200,000 and $480,000 for
general working capital requirements during 1994 and 1993, respectively.
22
<PAGE> 90
NATEC RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The Company accounts for its investment in White River using the equity method
of accounting. Summarized financial information of White River at 100%
follows:
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
----------------- -----------------
<S> <C> <C>
Current assets $ 2,671,264 $ 2,034,010
Noncurrent assets 17,274,090 17,842,821
Current liabilities 1,044,886 867,952
Noncurrent liabilities 4,328,814 4,504,359
Members' capital 14,571,654 14,504,520
</TABLE>
<TABLE>
<CAPTION>
Year ended Year ended From inception
December 31, 1994 December 31, 1993 to December 31, 1992
----------------- ----------------- --------------------
<S> <C> <C> <C>
Revenues $4,657,074 $ 4,127,756 $ 219,346
Gross loss (234,659) (667,844) (47,029)
Net loss (387,748) (874,450) (70,651)
</TABLE>
Of the $10,000,000 purchase price, $2,000,000 was received at closing,
$1,000,000 was received on December 31, 1992, and $2,875,000 was received
during 1993. The remaining balance was due to the Company as follows:
$2,500,00 in 1994, $1,375,000 in 1995, and $250,000 in 1996. The Company
received $625,000 from NACC in payment on the note during 1994. NACC ceased
payment on the note during 1994 alleging that the nahcolite production facility
has not yet demonstrated an effective annual production capacity of 106,000
tons per year. Pursuant to the joint venture agreement, the Company was
required to make all expenditures necessary for the facility to achieve the
effective annual production capacity of the White River nahcolite production to
that level by April 15, 1994. In the event the effective annual production
capacity of 106,000 tons per year had not been achieved on that date as
reasonably agreed between the Company and NACC, the purchase price payable by
NACC for its interest in White River could have been reduced proportionately
based on the percentage of such capacity that is obtained. Any such reduction
could have been applied pro rata to reduce each subsequent installment of the
purchase price. The Company could have, however, continued efforts to
demonstrate such effective annual production capacity of 106,000 tons, which
would thereby have acted to defer the computation of the purchase price
adjustment and defer the remaining payments by NACC on the note until such
effective annual production capacity was attained. Management of the Company
believes that NACC's failure to make its May 31, 1994 payment on the note was
wrongful in view of the facts that production data from the plant demonstrates
an effective annual capacity at or near 106,000 tons and that, as the manager
of the joint venture owning the nahcolite production facility, NACC has
prevented the production facility from achieving its full capacity by its
refusal to utilize additional recovery equipment already located at the
facility and to implement certain process modifications in a timely manner.
Subsequent to year end, the Company reached an agreement in principle with NACC
to sell its stock in NMI and OXA as discussed in more detail in Note 2.
23
<PAGE> 91
NATEC RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 4: DISCONTINUED OPERATIONS
In March 1993, the Company announced its intent to divest its specialty
chemical business. This business, which was classified as discontinued
operations in 1992, supplied specialty chemicals and application systems in
order to improve coal handling operations at power generation facilities.
On May 21, 1993, NaTec Inc., a wholly-owned subsidiary of the Company, sold all
assets and business activity relating to the specialty chemical business to
Benetech Group Ltd. ("Benetech") for $370,000, of which $250,000 was received
at closing with the remaining $120,000 to be received thirty-six months from
the date of closing. During 1994, the Company received $100,000 as final
payment, which represented the discounted value of the remaining balance.
The sales proceeds of $250,000 received at closing plus proceeds of $147,995
from a three-year bank note payable were utilized to retire industrial revenue
bonds associated with the specialty chemical business. At December 31, 1994,
the balance of the note payable of $82,351 is reflected on the Consolidated
Statement of Net Assets in Liquidation. The note payable bears interest of
prime plus one point per annum.
The estimated loss on disposal of the discontinued segment in 1992 was
$630,000, or $0.02 per share, which consisted of the estimated loss on sale of
the business segment, the estimated costs of disposal, and estimated operating
losses during the phase-out period of $250,000. In 1993, the Company increased
the estimated loss on disposal of the discontinued segment by $150,000 for
estimated legal expenses related to the defense of a lawsuit. The lawsuit was
settled during 1994. Accruals which were established at December 31, 1993 were
sufficient to cover the settlement and no additional charges to earnings for
discontinued operations were required during the current year.
Loss from operations for the discontinued segment for the year ended December
31, 1992 was $315,935 or $0.01 per common share. Gross revenues generated by
the discontinued segment were $1,710,309 in 1992.
NOTE 5: INCOME TAXES
At December 31, 1994, the Company had a net operating loss carryforward for tax
purposes of approximately $22,042,000, for which a net deferred tax asset has
not been recognized in the financial statements. The net operating loss may be
used to reduce future taxable income. The sale of the stock of NMI and OXA as
discussed in Note 2 is expected to result in a gain for tax purposes of
approximately $6,300,000, which will reduce the net operating loss
carryforward. The net operating loss carryforward expires as follows:
$2,051,000 in 2004, $3,748,000 in 2005, $7,529,000 in 2006, $3,051,000 in 2007,
$3,157,000 in 2008 and $2,506,000 in 2009.
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," effective January 1, 1993. There was no effect
on the results of operations or the financial position of the Company as the
result of the adoption.
24
<PAGE> 92
NATEC RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 6: PREFERRED STOCK
The estimated net realizable value of preferred stock at December 31, 1994 is
$1,901,645.
Preferred stock at 1993 consisted of the following issues:
<TABLE>
<S> <C>
Series A Cumulative Convertible Exchangeable,
100,000 shares issued and outstanding $10,000,000
Series B Cumulative Convertible Exchangeable,
10,000 shares issued and outstanding 1,000,000
Series C Cumulative Convertible Exchangeable,
10,000 shares issued and outstanding 1,000,000
-----------
$12,000,000
===========
</TABLE>
All of the outstanding shares of Series A, Series B, and Series C Cumulative
Convertible Exchangeable Preferred Stock ("Preferred Stock") are owned by CRSS
Inc. ("CRSS"). Quarterly dividends for the Preferred Stock are payable in
cash, or at the option of CRSS, in an equivalent amount of common stock, or in
the form of a promissory note. The Preferred Stock severally has voting rights
based upon the number of "as if converted" shares of NaTec common stock.
Dividends accrue at a rate of 12% per annum for Series A and 11.5% per annum
for Series B and Series C.
At the option of CRSS, the Series A, Series B, and Series C Preferred Stock may
be converted into 1,617,796 shares, 224,404 shares, and 278,528 shares of
common stock, respectively. Additionally, the Company, at its option, may
exchange the Preferred Stock into convertible notes, maturing on December 31,
2004. At the option of the Company, the Preferred Stock may be redeemed based
on a declining value ranging from 108% to 100% of the stated value of the
shares depending on the date of redemption.
NOTE 7: RELATED PARTY TRANSACTIONS
The Company, under an administrative services agreement, contracts for CRSS to
provide various services including treasury, tax and legal. In addition, CRSS
incurs expenses on behalf of the Company for which the Company has agreed to
reimburse CRSS. The billings for these services and reimbursements amounted to
$213,517, $311,676, and $501,335 in 1994, 1993, and 1992, respectively, and are
included in the Company's Consolidated Statements of Operations. The amount
payable to CRSS for services and reimbursements was $39,012 and $11,499 at
December 31, 1994 and 1993, respectively.
Effective December 31, 1992, all amounts payable to CRSS for services and
reimbursements, outstanding promissory notes (principal and accrued interest),
and accrued dividends payable on Preferred Stock, were consolidated into a
five-year convertible note for $4,722,604 bearing interest of prime plus two
points per annum. The current balance of $4,122,604 is convertible at the
option of CRSS into 2,443,025 shares of common stock. The amount which was
payable during 1994 was $600,000 plus accrued interest; however, due to
limitations on capital resources, the Company only paid $300,000 plus accrued
interest through June 30, 1994. This payment default entitled CRSS, at its
option, to accelerate the entire amount of the note, making it currently due
and payable.
25
<PAGE> 93
NATEC RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The Company paid $357,500 of cash dividends on Preferred Stock to CRSS during
1993. In April 1993, the Company issued a promissory note to CRSS in exchange
for $350,000. The note matured on April 26, 1994 and the Company paid CRSS
$350,000 plus accrued interest of $28,000.
The Company has six additional promissory notes payable to CRSS for $357,500
each. These promissory notes were issued in payment of quarterly dividends on
Preferred Stock from July 15, 1993 to October 15, 1994. The Company has
deferred principal and interest payments to CRSS on notes which matured on July
15, 1994 and October 15, 1994. Subsequent to year-end, the Company also
deferred payment on a note which matured on January 15, 1995. The remaining
promissory notes mature on April 15, 1995 July 15, 1995 and October 15, 1995.
The promissory notes bear interest equal to prime plus two points per annum.
Accrued interest payable to CRSS on the five-year convertible note and the six
promissory notes was $369,098 and $38,534 at December 31, 1994 and 1993,
respectively.
CRSS holds approximately 47.5% of the outstanding shares of NaTec common stock
and 100% of the outstanding shares of Preferred Stock. When combined with the
voting rights associated with the Preferred Stock, CRSS has approximately
51.5% of the voting rights and, upon conversion of the notes, would have
approximately 55.5% of the voting rights.
During 1994 and 1993, the Company made nahcolite purchases from White River of
$689,920 and $323,982, respectively. The amount payable to White River at
December 31, 1994 and 1993 for nahcolite purchases and costs related to the
capacity expansion of the mining facilities was $81,810 and $58,408,
respectively.
NOTE 8: STOCK AWARD AND OPTION PLANS
The Company maintains a long-term incentive plan which provides for the
issuance of incentive stock options, non-qualified stock options, stock
appreciation rights, restricted stock awards and performance grants. The total
number of shares which may be issued under the plan is limited to 1,250,000
shares of the Company's common stock. This plan is administered by the
Compensation Committee of the Board of Directors.
The Company's restricted stock awards under the plan may be made to Company
employees as part of their incentive compensation. Generally, the awards vest
over a four-year period with 20% vesting at the date of grant and 20% vesting
each year thereafter providing that the employee remains in the service of the
Company at the anniversary date. The cost of awards made under the plan is
charged to expense over the period of vesting. At December 31, 1994 there were
117,810 shares outstanding under the stock award plan. Compensation expense
recognized related to the stock award plan was $1,251, $13,979, and $164,013
for 1994, 1993, and 1992, respectively. Compensation expense for 1992 included
$156,000 for the accelerated vesting of all previously issued stock awards as
approved by the Compensation Committee of the Board of Directors in August
1992.
26
<PAGE> 94
NATEC RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The Company's stock options under the plan may be granted to Company officers
and key Company personnel. Options expire ten years from the date of grant and
generally vest 60% two years after the grant date and 20% each year for the
next two years.
The following is a summary of the activity with respect to the non-qualified
stock options under the plan for the three years ended December 31, 1994:
<TABLE>
<CAPTION>
Shares Option Price
------ ------------
<S> <C> <C>
Outstanding at January 1, 1992 954,500 $2.125 to $5.50
Granted 50,000 $1.375
Expired (18,000) $5.50
-------
Outstanding at December 31, 1992 986,500 $1.375 to $5.50
Granted 10,000 $1.875
Expired (75,000) $4.00 to $5.50
-------
Outstanding at December 31, 1993 921,500 $1.375 to $5.50
Granted 70,000 $1.0625
Expired (30,000) $4.00 to $5.125
Forfeited (20,000) $1.0625
--------
Outstanding at December 31, 1994 941,500 $1.0625 to $5.50
=======
Exercisable at December 31, 1994 871,500
=======
</TABLE>
NOTE 9: MAJOR CUSTOMERS
The Company's continuing operations were conducted within one business segment:
dry sorbent injection ("DSI") emissions control. Operations consist of the
sale of commercial grade nahcolite, a naturally occurring form of sodium
bicarbonate, along with engineering and field services in support of the
Company's DSI pollution control technology.
Sales to customers which individually comprised more than 10% of the Company's
revenues follow:
<TABLE>
<CAPTION>
1994 1993 1992
Customer Revenues % Revenues % Revenues %
- -------- ----------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Wisconsin Electric Power $446,052 40% $1,880,298 74% (a) $ 355,000 10% (a)
Bunnett and Associates 192,917 17% - - - -
Phoenix Tech Corporation 261,630 24% 224,702 9% - -
Hoechst Celanese 26,780 2% 22,955 1% 1,117,617 31% (a)
North American Chemical - - - - 1,605,850 45%
</TABLE>
(a) Revenues are primarily attributable to installations of DSI technology.
27
<PAGE> 95
NATEC RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 10: UNAUDITED QUARTERLY RESULTS OF OPERATIONS
The following is a summary of the unaudited quarterly results of operations for
the years ended December 31, 1994 and 1993.
<TABLE>
<CAPTION>
Year Ended December 31, 1994
--------------------------------------------------------------
Quarter
--------------------------------------------------------------
First Second Third Fourth (a)
----- ------ ----- -------
<S> <C> <C> <C> <C>
Revenues $ 246,036 $207,752 $ 280,668 $ 371,717
Gross profit (loss) 13,287 18,858 (115) (27,281)
Loss from continuing operations (359,829) (357,919) (392,600) (2,716,078)
Net loss attributable to common shares (717,329) (715,419) (750,100) (3,073,578)
Loss per common share from continuing
operations $(.03) $(.03) $(.03) $(.12)
Net loss per common share $(.03) $(.03) $(.03) $(.12)
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1993
--------------------------------------------------------------
Quarter
--------------------------------------------------------------
First Second Third Fourth (a)
----- ------ ----- -------
<S> <C> <C> <C> <C>
Revenues $1,252,529 $514,170 $379,335 $ 390,709
Gross profit 222,812 96,305 33,420 45,473
Loss from continuing operations (164,508) (195,174) (397,231) (574,197)
Net loss attributable to common shares (522,008) (552,674) (754,731) (1,081,697)
Loss per common share from continuing
operations $(.02) $(.02) $(.03) $(.04)
Net loss per common share $(.02) $(.02) $(.03) $(.04)
</TABLE>
(a) The fourth quarter of 1994 includes an adjustment to liquidation basis of
accounting as discussed in Note 2.
(b) The fourth quarter of 1993 includes an additional provision of $150,000
related to the discontinuance of the specialty chemical business as
further discussed at Note 4.
28
<PAGE> 96
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the Company's directors will be contained under the
caption "Election of Directors" in NaTec Resources, Inc.'s Proxy Statement with
respect to the Company's 1995 Annual Meeting of Shareholders, and is hereby
incorporated by reference. Information with respect to the Company's executive
officers will be contained under the caption "Executive Officers" in NaTec
Resources, Inc.'s Proxy Statement with respect to the Company's 1995 Annual
Meeting of Shareholders, which is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to the Company's directors will be contained under the
caption "Executive Compensation and Other Information" in NaTec Resources,
Inc.'s Proxy Statement with respect to the Company's 1995 Annual Meeting of
Shareholders, and is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information with respect to the Company's directors will be contained under the
caption "Security Ownership of Certain Beneficial Owners and Management" in
NaTec Resources, Inc.'s Proxy Statement with respect to the Company's 1995
Annual Meeting of Shareholders, and is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to the Company's directors will be contained under the
caption "Employment Agreements and Certain Transactions" in NaTec Resources,
Inc.'s Proxy Statement with respect to the Company's 1995 Annual Meeting of
Shareholders, and is hereby incorporated by reference.
29
<PAGE> 97
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) The following documents are filed as a part of this Report:
1. and 2. Financial Statements and Financial Statement Schedules
See Index to Financial Statements in Item 8, which information
is incorporated herein by reference, for the financial
statements of NaTec Resources, Inc. The schedules of NaTec
Resources, Inc. are omitted as the required information is
inapplicable or is included in the financial statements or notes
thereto. The financial statements of White River Nahcolite
Minerals Limited Liability Company (an unconsolidated affiliate)
are listed in the Index to Financial Statements on page 33.
3. Exhibits
3.a Articles of Incorporation of the Company as amended October 30,
1989, incorporated herein by reference from the Company's 1991
Annual Report on Form 10-K
3.b Amendments to the Articles of Incorporation of the Company June
5, 1990, incorporated herein by reference from the Company's
1991 Annual Report on Form 10-K
3.c Bylaws of the Company, incorporated herein by reference from the
Company's 1991 Annual Report on Form 10-K
4.a Series A Cumulative Convertible Exchangeable Preferred Stock
Purchase Agreement, dated October 24, 1990, incorporated herein
by reference from the Company's 1990 Annual Report on Form 10-K
4.b Series B Cumulative Convertible Exchangeable Preferred Stock
Purchase Agreement, dated July 22, 1991, incorporated herein by
reference from the Company's Quarterly Report on Form 10-Q for
the period ended June 30, 1991
4.c Series C Cumulative Convertible Exchangeable Preferred Stock
Purchase Agreement, dated September 1, 1991, incorporated herein
by reference from the Company's Quarterly Report on Form 10-Q
for the period ended September 30, 1991
4.d First Amendment to Series A Cumulative Convertible Exchangeable
Preferred Stock Purchase Agreement, dated October 24, 1990,
incorporated herein by reference from the Company's 1992 Annual
Report on Form 10-K
4.e Second Amendment to Series A Cumulative Convertible Exchangeable
Preferred Stock Purchase Agreement, dated October 24, 1990,
incorporated herein by reference from the Company's 1992 Annual
Report on Form 10-K
4.f Third Amendment to Series A Cumulative Convertible Exchangeable
Preferred Stock Purchase Agreement, dated October 24, 1990,
incorporated herein by reference from the Company's 1992 Annual
Report on Form 10-K
4.g Fourth Amendment to Series A Cumulative Convertible Exchangeable
Preferred Stock Purchase Agreement, dated October 24, 1990,
incorporated herein by reference from the Company's Quarterly
Report on Form 10-Q for the period ended June 30, 1993
30
<PAGE> 98
4.h First Amendment to Series B Cumulative Convertible Exchangeable
Preferred Stock Purchase Agreement, dated July 22, 1991,
incorporated herein by reference from the Company's 1992 Annual
Report on Form 10-K
4.i Second Amendment to Series B Cumulative Convertible Exchangeable
Preferred Stock Purchase Agreement, dated July 22, 1991,
incorporated herein by reference from the Company's 1992 Annual
Report on Form 10-K
4.j Third Amendment to Series B Cumulative Convertible Exchangeable
Preferred Stock Purchase Agreement, dated July 22, 1991,
incorporated herein by reference from the Company's Quarterly
Report on Form 10-Q for the period ended June 30, 1993
4.k First Amendment to Series C Cumulative Convertible Exchangeable
Preferred Stock Purchase Agreement, dated September 1, 1991,
incorporated herein by reference from the Company's 1992 Annual
Report on Form 10-K
4.l Second Amendment to Series C Cumulative Convertible Exchangeable
Preferred Stock Purchase Agreement, dated September 1, 1991,
incorporated herein by reference from the Company's 1992 Annual
Report on Form 10-K
4.m Third Amendment to Series C Cumulative Convertible Exchangeable
Preferred Stock Purchase Agreement, dated September 1, 1991,
incorporated herein by reference from the Company's Quarterly
Report on Form 10-Q for the period ended June 30, 1993
4.n Convertible Note, dated December 31, 1992, between NaTec
Resources, Inc. and CRSS Inc., incorporated herein by reference
from the Company's Quarterly Report on Form 10-Q for the period
ended March 31, 1993
10.a Employment contract dated as of November 1, 1989 between NaTec
Resources, Inc. and S. Christopher, incorporated herein by
reference from the Company's 1989 Annual Report on Form 10-K
10.b Employment contract dated as of November 1, 1989 between NaTec
Resources, Inc. and J. McCormack, incorporated herein by
reference from the Company's 1989 Annual Report on Form 10-K
10.c Amendment, dated as of September 1, 1991, to the employment
contract between NaTec Resources, Inc. and S. Christopher,
incorporated herein by reference from the Company's 1991 Annual
Report on Form 10-K
10.d Amendment, dated as of September 1, 1991, to the employment
contract between NaTec Resources, Inc. and J. McCormack,
incorporated herein by reference from the Company's 1991 Annual
Report on Form 10-K
10.e Consulting agreement dated as of October 1, 1992 between NaTec
Resources, Inc. and S. Christopher, incorporated herein by
reference from the Company's 1992 Annual Report on Form 10-K
10.f Amendment, dated as of December 8, 1992, to the consulting
agreement between NaTec Resources, Inc. and S. Christopher,
incorporated herein by reference from the Company's 1992 Annual
Report on Form 10-K
10.g Amendment, dated as of August 6, 1992, to the employment
contract between NaTec Resources, Inc. and J. McCormack,
incorporated herein by reference from the Company's 1992 Annual
Report on Form 10-K
31
<PAGE> 99
*10.h Amendment, dated as of September 30, 1994, to the employment
contract between NaTec Resources, Inc. and J. McCormack
10.i Joint Venture Agreement among NaTec Resources, Inc,. NaTec
Minerals, Inc. and North American Chemical Company, dated as of
June 22, 1992, incorporated herein by reference from the
Company's 1992 Annual Report on Form 10-K
10.j Sales agreement between NaTec, Inc. and Benetech Group, Ltd.
dated as of May 21, 1993, incorporated herein by reference from
the Company's Current Report on Form 8-K dated May 24, 1993
*10.k Technology License Agreement between NaTec Resources, Inc. and
Paragon Environmental Systems, a division of Paragon Controls
Limited, dated as of April 1, 1994
*10.l Amending Agreement between NaTec Resources, Inc., Paragon
Environmental Systems, a division of Paragon Controls Limited,
and Airborne Pollution Abatement Technologies, Inc., dated as of
April 1, 1994
*10.m Acquisition Agreement between North American Chemical Company
and NaTec Resources, Inc. dated as of April 5, 1995
22.a List of significant subsidiaries of the Registrant, incorporated
herein by reference from the Company's 1992 Annual Report on
Form 10-K
29.a Portions of the NaTec Resources, Inc. Proxy Statement in
connection with its 1995 Annual Meeting of Shareholders.
Portions of the NaTec Resources, Inc. Proxy Statement are not
deemed to be "filed" under this Report. The Proxy Statement is
not available as of the date of filing of this Form 10-K, but
will be filed within 120 days subsequent to December 31, 1994
* designates item filed with this Report
(b) Reports on Form 8-K Filed in the Fourth Quarter of Fiscal Year 1994:
None
32
<PAGE> 100
INDEX TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
WHITE RIVER NAHCOLITE MINERALS, LIMITED LIABILITY COMPANY
Year ended December 31, 1994 and 1993, and period from inception (June 24, 1992) to
December 31, 1992
Report of Independent Auditors 34
Balance Sheet 35
Statement of Operations 36
Statement of Member's Capital 37
Statement of Cash Flows 38
Notes to Financial Statements 39
</TABLE>
33
<PAGE> 101
[LOGO] ERNST & YOUNG LLP o One Houston Center o Phone: 713 750 1500
Suite 2400 Fax: 713 750 1501
1221 McKinney Street
Houston, Texas 77010-2007
Report of Independent Auditors
The Board of Directors
White River Nahcolite Minerals, Limited
Liability Company
We have audited the accompanying balance sheets of White River Nahcolite
Minerals, Limited Liability Company, as of December 31, 1994 and 1993, and the
related statements of operations, members' capital, and cash flows for each of
the two years ended December 31, 1994, and for the period from inception
(June 24, 1992) through December 31, 1992. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of White River Nahcolite
Minerals, Limited Liability Company, at December 31, 1994 and 1993, and the
results of its operations and its cash flows for the two years ended
December 31, 1994, and for the period from inception (June 24, 1992) through
December 31, 1992, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Ernst & Young
January 24, 1995,
except for Note 9, as to which the date is
March 3, 1995
34
<PAGE> 102
White River Nahcolite Minerals, Limited Liability Company
Balance Sheets
<TABLE>
<CAPTION>
December 31
1994 1993
---------------------------
<S> <C> <C>
ASSETS
Cash $ 624,639 $ 465,941
Accounts receivable from sales to related parties 450,677 458,647
Other related party receivable 13,777 34,588
Inventory 299,476 34,388
Well set costs (net of accumulated amortization of
$1,511,112 and $811,938 in 1994 and 1993,
respectively) 1,251,556 988,386
Prepaid expenses and other 31,139 52,060
---------------------------
Total current assets 2,671,264 2,034,010
Property, plant, and equipment:
Machinery and equipment 14,031,105 13,716,851
Transportation equipment 43,248 43,248
Furniture and fixtures 74,188 73,859
Construction in progress 67,304 58,857
Less accumulated depreciation (1,261,390) (616,670)
---------------------------
12,954,455 13,276,145
Mineral properties and patents, net 4,155,876 4,359,346
Other noncurrent assets 163,759 207,330
---------------------------
4,319,635 4,566,676
---------------------------
Total assets $19,945,354 $19,876,831
===========================
LIABILITIES AND MEMBERS' CAPITAL
Accounts payable to related party $ 321,838 $ -
Trade accounts payable 113,982 264,302
Current portion of long-term obligations 212,469 197,576
Accrued payroll and benefits 116,233 109,213
Other current liabilities 280,364 296,861
---------------------------
Total current liabilities 1,044,886 867,952
Long-term obligations 1,755,270 1,961,230
Distributions payable to members 2,455,500 2,455,500
Other noncurrent liabilities 118,044 87,629
---------------------------
Total liabilities 5,373,700 5,372,311
Members' capital 14,571,654 14,504,520
---------------------------
Total liabilities and members' capital $19,945,354 $19,876,831
===========================
</TABLE>
See accompanying notes.
35
<PAGE> 103
White River Nahcolite Minerals, Limited Liability Company
Statements of Operations
<TABLE>
<CAPTION>
Period from
inception
(June 24,
1992) to
Year ended December 31 December 31
1994 1993 1992
-------------------------------------------
<S> <C> <C> <C>
Revenues $4,657,074 $4,127,756 $ 219,346
Cost of sales 4,891,733 4,795,600 266,375
-------------------------------------------
(234,659) (667,844) (47,029)
General and administrative expenses - 973 1,248
-------------------------------------------
Loss from operations (234,659) (668,817) (48,277)
Interest expense 153,089 205,633 22,374
-------------------------------------------
Net loss $ (387,748) $ (874,450) $ (70,651)
===========================================
</TABLE>
See accompanying notes.
36
<PAGE> 104
White River Nahcolite Minerals, Limited Liability Company
Statements of Members' Capital
<TABLE>
<CAPTION>
OXA NMI NABC NACCarb Total
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial cash contributions $ 50,255 $ 50,745 $ 50,255 $ 50,745 $ 202,000
NMI contribution of
net assets - 16,321,033 - - 16,321,033
NACCarb purchase of
50% of NMI's interest - (8,160,516) - 8,160,516 -
Distributions to be paid
to members (6,139) (1,221,611) (6,139) (1,221,611) (2,455,500)
Net loss from inception
to December 31, 1992 (177) (35,149) (177) (35,148) (70,651)
-----------------------------------------------------------------
Balance at December 31,
1992 43,939 6,954,502 43,939 6,954,502 13,996,882
Cash contributions 3,457 687,587 3,457 687,587 1,382,088
Net loss for 1993 (2,186) (435,039) (2,186) (435,039) (874,450)
-----------------------------------------------------------------
Balance at December 31,
1993 45,210 7,207,050 45,210 7,207,050 14,504,520
Cash contributions 1,137 226,304 1,137 226,304 454,882
Net loss for 1994 (969) (192,905) (969) (192,905) (387,748)
-----------------------------------------------------------------
Balance at December 31,
1994 $ 45,378 $ 7,240,449 $ 45,378 $ 7,240,449 $14,571,654
=================================================================
</TABLE>
See accompanying notes.
37
<PAGE> 105
White River Nahcolite Minerals, Limited Liability Company
Statements of Cash Flows
<TABLE>
<CAPTION>
Period from
inception (June
24, 1992) to
Year Ended December 31 December 31
1994 1993 1992
-----------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (387,748) $ (874,450) $ (70,651)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,547,808 1,611,920 66,536
Decrease (increase) in accounts receivable 28,781 (204,002) (289,233)
Decrease (increase) in inventory (265,088) 105,758 (140,146)
Decrease (increase) in other assets 64,492 (8,706) 64,371
Increase in other noncurrent liabilities 30,415 87,629 -
Increase (decrease) in accounts payable and accrued liabilities (159,797) 377,515 292,861
Increase in accounts payable to related party 321,838 - -
-----------------------------------------------
Net cash provided by (used in) operating activities 1,180,701 1,095,664 (76,262)
INVESTING ACTIVITIES
Purchases of property, plant, and equipment (369,930) (536,660) -
Sale of property, plant, and equipment 10,900 - -
Well set costs (926,788) (1,340,860) -
Payment of organizational costs - - (46,014)
-----------------------------------------------
Net cash used in investing activities (1,285,818) (1,877,520) (46,014)
FINANCING ACTIVITIES
Capital contributions 454,882 1,382,088 202,000
Payment of long-term obligations (191,067) (206,160) (7,855)
-----------------------------------------------
Net cash provided by financing activities 263,815 1,175,928 194,145
-----------------------------------------------
Increase in cash and cash equivalents 158,698 394,072 71,869
Cash at beginning of period 465,941 71,869 -
-----------------------------------------------
Cash at end of period $ 624,639 $465,941 $ 71,869
===============================================
Noncash investing and financing activities:
Net assets transferred to joint venture $ - $ - $16,321,033
</TABLE>
See accompanying notes.
38
<PAGE> 106
White River Nahcolite Minerals, Limited Liability Company
Notes to Financial Statements
December 31, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OWNERSHIP AND NATURE OF OPERATIONS
White River Nahcolite Minerals, Limited Liability Company ("White River" or
the "Company"), was organized on June 24, 1992 under the laws of the state of
Colorado by and among North American Bicarbonate Company ("NABC"), a Delaware
corporation and a wholly owned subsidiary of North American Chemical Company
("NACC"), and Oldexaer, Inc. ("OXA"), a Delaware corporation and a wholly owned
subsidiary of NaTec Resources, Inc. ("NaTec"). The Company was formed in order
to provide a long-term, low-cost supply of sodium bicarbonate to both NACC and
NaTec. On November 19, 1992, substantially all of the assets of NaTec Minerals,
Inc. ("NMI"), a wholly owned subsidiary of NaTec, were contributed to White
River, and North American Carbonate Company ("NACCarb"), a wholly owned
subsidiary of NACC, purchased from NMI a 50% membership interest through two
subsidiaries in White River. Ownership interest by member is 0.25% each for
NABC and OXA and 49.75% each for NACC and NaTec.
WELL SET COSTS
Costs of drilling and preparing the solution mining cavities are capitalized as
prepaid expense and amortized to expense based on the units-of-production
method.
PROPERTY, PLANT, AND EQUIPMENT
The constructed property, plant, and equipment that were contributed by NMI
were recorded at net book value. Subsequent additions are recorded at cost.
Depreciation is provided using the straight-line method over the estimated
useful lives, which range from 3 to 40 years.
INVENTORIES
Inventories consist of sodium bicarbonate which is stated at the lower of
production costs or market. Production costs include all identifiable costs of
the plant including depreciation and royalties and rental on the sodium leases.
39
<PAGE> 107
White River Nahcolite Minerals, Limited Liability Company
Notes to Financial Statements (continued)
2. ALLOCATION OF INCOME, CONTRIBUTIONS, AND DISTRIBUTIONS
Each member shares in net income or loss based on their respective ownership
percentages.
Contributions for working capital requirements and capital expenditures, except
as noted below, are contributed by the members in proportion to each member's
interest. Capital expenditures to achieve an annual production capacity of
106,000 tons will be made by NaTec. Any capital required for additional
capacity expansion of the processing facility will be contributed by the member
requiring the additional production.
Cash distributions of available cash will be made to members in proportion to
each member's interest; however, 87.5% will be distributed to NACC's affiliates
and 12.5% will be distributed to NaTec's affiliates until a total of $3.3
million has been so distributed. The preferential distributions to NACC in
excess of its membership interest is to compensate NACC for effectively
assuming 50% of certain liabilities of NaTec related to the mining and
processing facility. The preferential distributions have been accrued and
reflected in the members' respective capital accounts.
3. RELATED PARTY TRANSACTIONS
White River is provided technical, financial, operational, and overall
management supervision by NACC under a five-year management agreement. During
the first two years of the agreement, NACC was reimbursed for all out-of-pocket
expenses incurred related to providing the services, plus fees for any
administrative services mutually agreed upon. During the third year of the
agreement, NACC will also receive a management fee of $2.50 per ton of product
produced, not to exceed $500,000 per year, in addition to out-of-pocket
expenses and fees for any administrative services mutually agreed upon.
Thereafter, the management fee will be reviewed and adjusted as necessary.
Amounts owed to NACC under this agreement at December 31, 1994 and 1993 were
$1,500 and $1,500, respectively.
White River paid $87,532 for certain costs incurred prior to November 19, 1992
which were reimbursed by NaTec during 1993. From November 19, 1992 through
December 31, 1992, NaTec provided medical insurance and incurred other
payroll-related costs of $17,644 for employees transferred to White River.
Related party receivables at December 31, 1994 and 1993 of $13,777 and $34,588,
respectively, relate primarily to
40
<PAGE> 108
White River Nahcolite Minerals, Limited Liability Company
Notes to Financial Statements (continued)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
costs incurred by the Company which will be reimbursed by NaTec (regarding
bringing the facility to a certain production level) and NACC (regarding costs
incurred to produce food grade product).
All revenues from inception through December 31, 1994 were generated by sales
to NACC and NaTec.
Accounts payable to related party represents reimbursement due to NACC related
to 2,876 tons of poor quality sodium bicarbonate sold to NACC during 1994. The
1994 statement of operations reflects a $321,831 charge to revenues related to
these sales.
4. INCOME TAXES
White River, as a limited liability corporation, is treated as a partnership
for federal income tax purposes. Any profit or loss passes through the Company
and is included in the taxable income or loss of the individual members;
therefore, no taxes have been provided for in the financial statements.
5. MINERAL PROPERTIES AND PATENTS
Mineral properties and patents at December 31 consisted of the
following:
<TABLE>
<CAPTION>
1994 1993
---------------------------
<S> <C> <C>
Mineral property development $3,380,204 $3,380,204
Mineral leases 898,652 898,652
Plant start-up 406,281 406,281
Patents 3,857 3,857
Accumulated depreciation and amortization (533,118) (329,648)
---------------------------
$4,155,876 $4,359,346
===========================
</TABLE>
41
<PAGE> 109
White River Nahcolite Minerals, Limited Liability Company
Notes to Financial Statements (continued)
5. MINERAL PROPERTIES AND PATENTS (CONTINUED)
Mineral property development includes costs associated with the development of
the mining and processing facility. Such items include the access road, 25KV
power line, monitoring wells, and water well at the mine facility. Mineral
property development is amortized using the units-of-production method.
Plant start-up costs consist of direct and incremental costs incurred during
the period from January 1991 to June 1991 during which time the construction of
the mine was not considered complete and ready for its intended use, as
commercial quality product was not yet being produced. Activities during the
start-up period included (i) initial mining process monitoring and testing,
(ii) identification and resolution of mining process and equipment problems,
(iii) adjustments of mining equipment, (iv) process refinement necessary to
achieve commercial quality of product, and (v) recovery well sonar scans
necessary in identification of process problems. Such costs were amortized on a
straight-line basis over three years.
Costs involved in registering, developing, and defending patents related to the
solution mining process are capitalized and amortized on a straight-line basis
over the 17-year life of the patent.
6. OTHER CURRENT LIABILITIES
Other current liabilities at December 31 consisted of the following:
<TABLE>
<CAPTION>
1994 1993
-------------------------
<S> <C> <C>
Accrued property tax $ 82,438 $ 89,124
Accrued utilities 83,108 44,698
Accrued insurance 55,328 64,707
Accrued other 59,490 98,332
-------------------------
$280,364 $296,861
=========================
</TABLE>
42
<PAGE> 110
White River Nahcolite Minerals, Limited Liability Company
Notes to Financial Statements (continued)
7. LONG-tERM OBLIGATIONS
Long-term obligations at December 31 consisted of the following:
<TABLE>
<CAPTION>
1994 1993
------------------------
<S> <C> <C>
Local Improvement District Bonds, maturing 1993
through 2001; interest from 6.5% to 7.75% $1,320,000 $1,430,000
Financing agreement for electric power line to
nahcolite mine facility, payable in monthly
installments through December 2000; interest at 10% 647,739 715,882
Other - 12,924
------------------------
1,967,739 2,158,806
Less current portion 212,469 197,576
------------------------
$1,755,270 $1,961,230
========================
</TABLE>
White River is obligated to repay Local Improvement District Bonds issued to
construct an access road to the nahcolite mine facility in western Colorado.
This obligation will be repaid through special assessments levied on the
facility, which is also subject to a special assessment lien.
Interest paid by White River during the years ended December 31, 1994 and 1993
and the period from inception to December 31, 1992 was $150,461, $207,032, and
$7,064, respectively.
Scheduled maturities of long-term obligations outstanding at December 31, 1994
for the next five years are $212,469 in 1995, $246,104 in 1996, $280,644 in
1997, $301,183 in 1998, and $327,825 in 1999.
8. WELL SET CAVITY NO. 2
Included in well set costs at December 31, 1994 are $726,412 in net unamortized
costs of drilling and preparing Well Set Cavity No. 2. Estimated unamortized
abandonment costs related to this well set totaled $102,000 at December 31,
1994. Mining of Well Set Cavity No. 2 was suspended in August 1994 because of
high chlorides contained in the resource. To date, only 32,893 tons of the
permitted 61,500 tons have been mined. Management is evaluating alternatives to
mine the remaining tons in the cavity to avoid chlorides.
43
<PAGE> 111
White River Nahcolite Minerals, Limited Liability Company
Notes to Financial Statements (continued)
8. WELL SET CAVITY NO. 2 (CONTINUED)
Two alternatives being pursued are a downhole pump or a secondary recovery
well. Management expects all or part of the remaining tons to be recovered
using one of these technologies.
9. SUBSEQUENT EVENT
Subsequent to year-end, NaTec reached an agreement in principle to sell its
stock in NMI and OXA to NACC. This agreement is subject to approval by the
shareholders of NaTec.
44
<PAGE> 112
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, NaTec Resources, Inc. has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NaTec Resources, Inc.
/s/ JOHN T. MCCORMACK
---------------------------------------
John T. McCormack
(President and Chief Executive Officer)
Date: April 11, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
/s/ JOHN T. MCCORMACK
---------------------------------------
John T. McCormack
(Chairman of the Board)
/s/ BRUCE W. WILKINSON
---------------------------------------
Bruce W. Wilkinson
(Director)
/s/ TIMOTHY R. DUNNE
---------------------------------------
Timothy R. Dunne
(Director)
Date: April 11, 1995
<PAGE> 113
EXHIBIT B (EX-13.B)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-8104
NATEC RESOURCES, INC.
(Exact name of Registrant as specified in its Charter)
UTAH 36-6059098
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1177 WEST LOOP SOUTH, HOUSTON, TEXAS 77027
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (713) 552-2552
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 .
----- -----
The Registrant had 26,880,136 shares of common stock, no par value, outstanding
as of May 12, 1995.
<PAGE> 114
NATEC RESOURCES, INC. AND SUBSIDIARIES
FORM 10-Q
MARCH 31, 1995
INDEX
<TABLE>
PAGE
NUMBER
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statement
Consolidated Statement of Net Assets in Liquidation-
March 31, 1995 and December 31, 1994 . . . . . . . . . . . . . . . . 3
Notes to Consolidated Financial Statement . . . . . . . . . . . . . . 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . 5
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 3. Defaults upon Senior Securities . . . . . . . . . . . . . . . . . . . 6
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . 6
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . 6
</TABLE>
2
<PAGE> 115
NATEC RESOURCES, INC.
CONSOLIDATED STATEMENT OF NET ASSETS IN LIQUIDATION
<TABLE>
March 31, December 31,
1995 1994
----------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 314,014 $ 506,852
Accounts receivable 210,087 315,584
Property, plant and equipment 50,988 50,988
Investment in joint venture 9,085,078 9,085,078
Other assets 94,977 94,977
---------- ----------
9,755,144 10,053,479
LIABILITIES
Accounts payable 37,447 160,814
Accrued expenses 227,470 225,454
Amounts payable to related party 7,202,722 7,033,215
Note payable 66,278 82,351
Estimated costs during period of liquidation 319,582 650,000
---------- ----------
7,853,499 8,151,834
---------- ----------
NET ASSETS IN LIQUIDATION (DUE TO PREFERRED SHAREHOLDERS) $1,901,645 $1,901,645
========== ==========
See Notes to Consolidated Financial Statement
</TABLE>
3
<PAGE> 116
NATEC RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The accompanying Consolidated Financial Statement includes the accounts of
NaTec Resources, Inc. and its majority-owned subsidiaries, herein referred to
as the "Company." In the opinion of Management, the accompanying unaudited
consolidated financial statement contains all adjustments necessary to present
fairly the financial position of NaTec Resources, Inc. and subsidiaries
("Company") as of March 31, 1995. All adjustments are of a normal recurring
nature.
The accounting policies followed by the Company are set forth in Note 1 to the
Company's Consolidated Financial Statements in the Company's 1994 Annual Report
on Form 10-K ("Annual Report"). These quarterly financial statements should be
read in conjunction with the financial statements and notes contained in the
Annual Report.
Basis of presentation
Subject to shareholder approval, on April 6, 1995 the Board of Directors of the
Company approved the liquidation of the Company. As a result, the Company
adopted the liquidation basis of accounting in accordance with generally
accepted accounting principles as of December 31, 1994. Assets have been
valued at estimated net realizable value and liabilities are reflected at their
estimated settlement amounts, including estimated costs to be incurred during
the period of liquidation. The valuations of the assets and liabilities are
based on management estimates and assumptions as of the date of the financial
statements; actual realization of the assets and settlement of liabilities
could be higher or lower than the amounts indicated. It is unlikely that there
will be sufficient assets upon liquidation for any distributions to be made to
holders of common stock of the Company.
NOTE 2: RELATED PARTY
Effective April 14, 1995, CRSS Inc. ("CRSS") converted a portion of its Series
A Cumulative Convertible Exchangeable Preferred Stock ("Preferred Stock") and
all of its Series B and Series C Cumulative Convertible Exchangeable Preferred
Stock into 1,402,749 shares of common stock. Following the conversion, CRSS
holds approximately 50.2% of the outstanding shares of NaTec common stock and
100% of the 44,380 shares of NaTec Preferred Stock outstanding.
4
<PAGE> 117
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
As a result of the unfavorable near-term outlook for the flue-gas
desulfurization market, limited revenues, and limited cash flows, the Company
likely will not be able to continue its operations as a going concern. The
Company's primary source of cash since November 1992 has been the payments on
the note receivable from North American Chemical Company ("NACC"). However, as
discussed in the Annual Report, collections on the note receivable have been
deferred due to the current dispute with NACC, and any efforts to resolve such
dispute would result in additional expense which would have a further negative
impact on capital resources. Additionally, the Company's major creditor, CRSS,
has indicated that it will not infuse any additional cash into the Company and
management does not believe financing can be obtained from any other sources.
In April 1995, the Company entered into an agreement in principle (the
"Acquisition Agreement") to sell its stock in NaTec Minerals, Inc. ("NMI") and
Oldexaer, Inc. ("OXA"), and its sodium bicarbonate supply agreements and
purchase orders, to NACC. NMI and OXA own the Company's 50% interest in White
River Nahcolite Minerals, Limited Liability Company ("White River") through
their respective ownership interests of 49.75% and 0.25%. The only other
assets and liabilities of NMI and OXA are the note receivable from NACC and the
potential capital call obligation described above. The Company will be
required to release any claims it has against NACC upon closing of the sale
contemplated by the Acquisition Agreement (other than claims arising under the
Acquisition Agreement), including claims on the note receivable from NACC.
Under the terms of the Acquisition Agreement, which is subject to various
conditions, including approval by the shareholders of the Company, the Company
will receive $10,000,000, payable $6,000,000 at closing with the balance to be
paid with a non-interest bearing note payable in quarterly installments
according to a formula based on sales of White River's production of sodium
bicarbonate, over a period of five years. The purchase price is estimated to
have a discounted value of approximately $9,085,000 which reflects the discount
to present value of the $4,000,000 non-interest bearing note. The note is
secured by the assets of White River.
Subject to shareholder approval, the Board of Directors of the Company has also
approved the liquidation of the Company. Proceeds from the sale of the
Company's investment in White River will be used to satisfy the claims of
creditors and CRSS as the holder of the Company's preferred stock. It is
unlikely that there will be sufficient assets upon liquidation for any
distribution to be made to holders of common stock of the Company.
As discussed in the Company's Annual Report, the Company adopted the
liquidation basis of accounting as of December 31, 1994. Therefore, the assets
have been valued at estimated realizable value and liabilities have been
reflected at their estimated settlement amounts, including costs to be incurred
during the period of liquidation. The valuation of the assets and liabilities
are based on management assumptions as of the date of the financial statements;
actual realization of the assets and settlements of liabilities could be higher
or lower than the amounts indicated.
During the first quarter of 1995, the Company continued supplying its existing
customers with sodium bicarbonate through its 50% ownership in White River.
Revenues for the three months ended March 31, 1995 from sales of sodium
bicarbonate were $250,000; gross profit from these sales was $17,000. On May
3, 1995, the White River plant experienced a major disruption in production and
all shipments have been suspended until futher notice. It is anticipated that
such suspension will continue for at least four to eight weeks.
5
<PAGE> 118
Other costs incurred during the three months ended March 31, 1995 of $185,000
consisted primarily of salary and benefits, legal, insurance, and rent and
other office expenses.
The Consolidated Statement of Net Assets in Liquidation at March 31, 1995
reflects cash and cash equivalents of $314,000 compared to $507,000 at March
31, 1995. The decrease is attributable to the funding of existing operations
of $178,000 and payments on the bank note payable of $15,000. Amounts payable
to related party increased $170,000, which primarily reflects additional
accrued interest payable to CRSS on outstanding notes payable of $6,268,000.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
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
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
6
<PAGE> 119
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, NaTec Resources, Inc. has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NaTec Resources, Inc.
/s/ JOHN T. MCCORMACK
-------------------------
John T. McCormack
President
(Chief Executive Officer)
Date: May 12, 1995
7
<PAGE> 120
[ARTICLE] 5
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-END] MAR-31-1995
[CASH] 314
[SECURITIES] 0
[RECEIVABLES] 210
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 9,755
[PP&E] 51
[DEPRECIATION] 0
[TOTAL-ASSETS] 9,755
[CURRENT-LIABILITIES] 7,853
[BONDS] 0
[COMMON] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 1,902
[TOTAL-LIABILITY-AND-EQUITY] 9,755
[SALES] 0
[TOTAL-REVENUES] 0
[CGS] 0
[TOTAL-COSTS] 0
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 0
[INCOME-PRETAX] 0
[INCOME-TAX] 0
[INCOME-CONTINUING] 0
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 0
[EPS-PRIMARY] 0
[EPS-DILUTED] 0
</TABLE>
<PAGE> 121
EXHIBIT C (EX-10.A)
___________________________________________________________________________
ACQUISITION AGREEMENT
Between
NORTH AMERICAN CHEMICAL COMPANY
and
NATEC RESOURCES, INC.
Dated as of April 5, 1995
__________________________________________________________________________
<PAGE> 122
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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ARTICLE 1
SALE AND PURCHASE OF SHARES
1.1 Sale of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Purchase Price and Payment for Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(a) Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(b) Payment of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(c) Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(d) Assumption of Certain Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Transactions on the Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 2
CLOSING AND TERMINATION
2.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
3.1 Corporate Organization and Authority of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Corporate Organization and Authority of
the Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.3 Subsidiaries and Equity Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.4 Ownership of Membership Interests and Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.5 Capitalization of the Companies; Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.6 No Violation; Creditor Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.8 The Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.9 Seller Reports; Financial Statements; Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.10 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.11 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.12 Absence of Change or Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.13 Compliance With Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.14 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.15 Seller's Best Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
4.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.2 Corporate Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.3 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.4 Investment Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 5
CERTAIN COVENANTS AND AGREEMENTS
OF SELLER AND BUYER
5.1 Conduct of Business Prior to the Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.2 Tax Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.3 Expenses and Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.4 Access to Information and Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.5 No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.6 Press Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.7 Shareholder Approvals and Best Efforts; Reimbursement of Expenses . . . . . . . . . . . . . . . . . . . . 20
5.8 CRSS Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE 6
CONDITIONS PRECEDENT OF BUYER
6.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.2 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.3 No Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.4 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE 7
CONDITIONS PRECEDENT OF SELLER
7.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.2 Opinion of Buyer's Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.3 No Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.4 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.5 Shareholder Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.6 Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.7 Security Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE 8
INDEMNIFICATION
8.1 Indemnification by Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.2 Indemnification by Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
8.3 Characterization of Indemnity Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.4 Remedies Exclusive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.5 Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE 9
SURVIVAL OF REPRESENTATIONS,
WARRANTIES AND COVENANTS
9.1 Representations, Warranties and Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE 10
MISCELLANEOUS
10.1 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.2 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.3 Mutual Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.4 Capital Expenditure Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.6 Governing Law and Consent to Jurisdiction;
Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.8 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.9 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.10 Amendment and Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.11 Binding Effect; Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.12 Assignability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
10.13 Disclosure Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
10.14 Certain References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
</TABLE>
Schedule 1.2(c)(i) Included Assets
Schedule 1.2(c)(ii) Excluded Assets
Schedule 1.2(d) Assumed Liabilities
Schedule 1.3(a)(v) Bill of Sale
Schedule 1.3(a)(vi) Assumption Agreement
Schedule 1.3(a)(vii) Security Agreement
Schedule 1.3(b)(iv)(A) Deed of Trust
Schedule 1.3(b)(iv)(B) Permitted Lien Exceptions and Exclusions
Schedule 3.2 Jurisdictions in which the Company is
qualified to do business
Schedule 3.3 List of Subsidiaries
Schedule 3.5 Capitalization of the Companies; Ownership
Schedule 3.6 No Violations
Schedule 3.7 List of Litigations
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<TABLE>
<S> <C>
Schedule 3.8 Encumbrances on Personal Property
Schedule 3.9 Financial Statements
Schedule 3.10 Tax Issues
Schedule 3.12 Absence of Change or Event
Schedule 3.13(a) Non-Compliance with Law
Schedule 3.13(b) List of Permits
Schedule 4.3 No Violation
Schedule 5.8 CRSS Released Obligations
Schedule 6.2 Opinion of Seller's Counsel
Schedule 7.2 Opinion of Buyer's Counsel
Schedule 10.4 Capital Expenditure Program
Exhibit A-1 Best Efforts of CRSS Inc.
Exhibit A-2 CRSS Inc. Guaranty
Exhibit B Note
Exhibit C FIRPTA Certificate of Seller
Exhibit 10.3-1 General Release
Exhibit 10.3-2 General Release
</TABLE>
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<PAGE> 126
ACQUISITION AGREEMENT dated as of April 5, 1995 (herein,
together with the Schedules and Exhibits attached hereto, referred to as the
"Agreement") between NORTH AMERICAN CHEMICAL COMPANY, a Delaware corporation
("Buyer"), and NATEC RESOURCES, INC., a Utah corporation (the "Seller").
W I T N E S S E T H :
WHEREAS, Seller is the beneficial and record holder of all of
the shares of capital stock (the "NMI Shares") of Natec Minerals, Inc., a
Delaware corporation ("NMI") engaged in the business (the "NMI Business") of
the ownership of membership interests in the White River Nahcolite Minerals
Limited Liability Company ("White River"); and
WHEREAS, Seller is the beneficial and record holder of all of
the shares of capital stock (the "OXA Shares") of Oldexaer, Inc., a Delaware
corporation ("OXA") engaged in the business (the "OXA Business") of the
ownership of membership interests in White River;
WHEREAS, NMI and OXA are henceforth collectively referred to
as the "Companies" and the NMI shares and the OXA Shares are henceforth
collectively referred to as the "Shares";
WHEREAS, Seller wishes to sell and Buyer wishes to purchase
the Shares upon the terms of this Agreement;
WHEREAS, Seller wishes to sell, transfer and convey to Buyer
all of its assets, other than the Excluded Assets (as defined below) and
certain designated liabilities as further described below, all such transferred
assets and liabilities being used in the business conducted by White River (the
use of such assets and liabilities in such business, collectively with the NMI
Business and the OXA Business, is hereinafter referred to as the "Business");
WHEREAS, Buyer wishes to acquire said assets and assume said
liabilities; and
WHEREAS, CRSS Inc., which effectively controls approximately
52% of the voting interests of Seller, has agreed pursuant to and subject to
the terms of a letter executed simultaneously herewith, a copy of which is
attached hereto as Exhibit A-1, to vote in favor of the transactions
contemplated hereby and has agreed pursuant to a letter executed simultaneously
herewith, a copy of which is attached hereto as Exhibit A-2, to guarantee
certain of Seller's obligations hereunder.
<PAGE> 127
NOW, THEREFORE, in reliance upon the representations and
warranties made herein and in consideration of the mutual agreements herein
contained, the parties agree as follows:
ARTICLE 1
SALE AND PURCHASE OF SHARES AND ASSETS
1.1 Sale of Shares. At the Closing provided for in
Section 2.1, Seller shall sell the Shares to Buyer and Buyer shall purchase the
Shares for the purchase price provided in Section 1.2.
1.2 Purchase Price and Payment for Shares.
(a) Purchase Price. The purchase price for the Shares
and the Assets (as defined below) is $10,000,000, payable on the terms and
conditions set forth below (the "Purchase Price").
(b) Payment of Purchase Price. The Purchase Price shall
be paid by Buyer as follows. At the Closing, Buyer shall deliver to Seller
$6,000,000 in immediately available funds by wire transfer to an account
designated by Seller at least two business days prior to the Closing Date (the
"Cash Consideration"). In addition, Buyer shall deliver to Seller at the
Closing a non-negotiable note in the amount of $4,000,000, bearing no interest,
in the form of Exhibit B attached hereto (the "Note").
(c) Sale of Assets. At the Closing provided for in Section
2.1, Seller shall sell, transfer, convey, assign and deliver to Buyer and Buyer
shall purchase all of the assets of Seller, each of which is set forth in
Schedule 1.2(c)(i) attached hereto, other than the assets set forth on Schedule
1.2(c)(ii), each of which shall be retained by Seller (the "Excluded Assets")
(said assets of Seller being so sold, transferred, conveyed, assigned and
delivered (other than the Excluded Assets) are hereinafter referred to as the
"Assets").
(d) Assumption of Certain Liabilities. At the Closing
provided for in Section 2.1, Seller shall delegate and Buyer shall assume those
liabilities set forth on Schedule 1.2(d) attached hereto (the "Assumed
Liabilities"), it being understood and agreed that Buyer shall assume no other
liabilities or obligations of Seller hereunder, and that any liabilities of the
Companies shall remain as liabilities of the Companies.
1.3 Transactions on the Closing Date. (a) At the
Closing, Seller will deliver to Buyer the following:
(i) stock certificates, in form suitable for
transfer, registered in the name of Seller, evidencing the Shares,
endorsed in blank or with an executed blank stock
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<PAGE> 128
transfer power attached, and with all necessary stock transfer tax
stamps attached thereto;
(ii) all stock certificates, stock books, stock
transfer ledgers, minute books and the corporate seals of each of the
Companies;
(iii) resignations of the directors and officers
of each of the Companies;
(iv) each of the certificates and documents
contemplated by Article 6;
(v) a bill of sale, substantially in the form of
Schedule 1.3(a)(v) attached hereto (the "Bill of Sale");
(vi) an assignment and assumption agreement,
substantially in the form of Schedule 1.3(a)(vi) attached hereto (the
"Assumption Agreement"), and, where required for such assignment and
assumption, the consent or waiver of any third party, such consents
and waivers in each case to be in form and substance reasonably
satisfactory to Buyer; and
(vii) the Security Agreement substantially in the
form of Schedule 1.3(a)(vii) (the "Security Agreement").
(b) At the Closing, Buyer will deliver to Seller the
following:
(i) the Cash Consideration and the Note in
accordance with Section 1.2 above;
(ii) each of the certificates and documents
contemplated by Article 7;
(iii) the Assumption Agreement; and
(iv) (1) the Security Agreement, (2) the Deed of
Trust substantially in the form of Schedule 1.3(b)(iv)(A), and (3)
such other agreements and UCC filings as may be mutually agreed upon
to create, perfect, or allow a first priority perfected security
interest in, assignment of, and lien on all of the assets of White
River with the exception of Permitted Lien Exceptions (collectively,
the "Security Documents"). As used herein, the term "Permitted Lien
Exceptions" shall mean (i) those assets of White River which, as a
matter of law, require notice to or the consent or approval of a
governmental or a quasi-governmental authority to the assignment
thereof or to create a first priority perfected security interest
therein and those assets of White River constituting contract rights
and other general intangibles which require the notice to or consent
or approval of a third party to the assignment thereof or the grant of
a first priority perfected security interest
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therein (it being understood and agreed that Buyer shall cooperate
with Seller after the Closing in sending notices in those instances
where the absence of said notice results in a Permitted Lien Exception
and where Seller reasonably requests that such notice be given) and
(ii) Permitted Liens. As used herein, the term "Permitted Liens"
shall mean, with respect to any person: (i) pledges or deposits under
workers' compensation laws, unemployment insurance laws or similar
legislation, or good faith deposits in connection with bids, tenders,
contracts or leases to which such person is a party, or deposits to
secure public or statutory obligations of such person or deposits of
cash or U.S. Government bonds to secure surety or appeal bonds to
which such person is a party, or deposits as security for contested
taxes or import duties or for the payment of rent; (ii) liens imposed
by law, such as carriers', warehousemen's and mechanics' liens or
other liens arising out of judgments or awards against such person
with respect to which such person shall then be prosecuting an appeal
or other proceedings for review; (iii) liens for property taxes not
yet subject to penalties for non-payment or which are being contested
in good faith and by appropriate proceedings; (iv) liens in favor of
issuers of performance bonds issued pursuant to the request of and for
the account of such person in the ordinary course of its business; (v)
survey exceptions, encumbrances, easements or reservations of, or
rights of others for rights of way, sewers, electric lines, telegraph
and telephone lines and other similar purposes, or zoning or other
restrictions as to the use of real properties or liens incidental to
the conduct of the business of such person or to the ownership of its
properties which do not in the aggregate materially detract from the
value of said properties or materially impair their use in the
operation of the business of such person; (vi) any lien arising
pursuant to an order of attachment, distraint or similar legal process
arising in connection with legal proceedings, but only if and so long
as execution or enforcement thereof is not unstayed for more than 90
days; (vii) liens existing on November 19, 1992; (viii) any lien
securing purchase money indebtedness but only if, in the case of each
such lien, (A) such lien shall at all times be confined to the
property or asset the purchase price of which was financed through the
incurrence of the purchase money indebtedness secured by such lien and
to fixed improvements thereafter erected on such property or asset and
(B) such lien attached to such property or asset within 90 days of the
acquisition of such property or asset; and (ix) any lien constituting
a renewal, extension or replacement of a Lien constituting a Permitted
Lien by virtue of clause (vi), (vii), (viii) or (ix) of this
definition; provided that Permitted Lien Exceptions shall not include
any of the matters described on Schedule 1.3(b)(iv)(B).
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ARTICLE 2
CLOSING AND TERMINATION
2.1 Closing. The closing of the transactions provided
for herein (the "Closing") will take place at the offices of Winthrop, Stimson,
Putnam & Roberts, One Battery Park Plaza, New York, New York, at 10:00 A.M.
(local time) on the fifth business day after the receipt of shareholder
approval referred to in Section 7.5 hereof (the "Closing Date") or at such
other place, time and date as may be agreed upon by Buyer and Seller.
2.2 Termination. Anything contained in this Agreement
other than in this Section 2.2 to the contrary notwithstanding, this Agreement
may be terminated in writing at any time:
(a) without liability on the part of any party hereto by
mutual consent of Buyer and Seller;
(b) without liability (except as set forth in Section 2.3) on
the part of any party hereto (unless occasioned by reason of a breach
by any party hereto of any of its representations, warranties or
obligations hereunder) by either Buyer or Seller, if the Closing shall
not have occurred on or before August 31, 1995 (or such later date as
may be agreed upon in writing by the parties hereto);
(c) by Buyer, if Seller shall materially breach any of its
representations, warranties or obligations hereunder and such breach
shall not have been cured or waived and Seller shall not have provided
reasonable assurance that such breach will be cured on or before the
Closing Date; or
(d) by Seller, if Buyer shall materially breach any of its
representations, warranties or obligations hereunder and such breach
shall not have been cured or waived and Buyer shall not have provided
reasonable assurance that such breach will be cured on or before the
Closing Date.
2.3 Buyer's Expenses. Seller hereby agrees to pay to Buyer
an amount equal to the out-of-pocket expenses incurred by Buyer in connection
with the transactions contemplated hereby, up to a maximum amount of $250,000,
if this Agreement is terminated (i) by Buyer pursuant to Section 2.2(c), in
which case said payment shall constitute Buyer's sole and exclusive remedy;
provided, however, that said $250,000 maximum shall not apply in the case of an
Intentional Breach (as defined in Article 8 hereof) by Seller, or (ii) by Buyer
or Seller pursuant to Section 2.2(b), but only if the shareholder approval
referred to in Section 7.5 shall not have been obtained or if the Fairness
Opinion (as defined in Section 7.6) shall have been withdrawn, in which case
said payment shall constitute Buyer's sole and exclusive remedy. Such
reimbursement for out-of-pocket expenses shall be made promptly, but in any
event within five (5) days
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after receipt by Seller of a statement prepared by Buyer documenting such
expenses. The provisions of this Section 2.3 shall survive termination of this
Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as of the date hereof
and as of the Closing Date that:
3.1 Corporate Organization and Authority of Seller. Seller
is a corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation and has all corporate power
and authority to carry on its business as now being conducted and to own its
properties. Seller has full corporate power and authority to enter into this
Agreement, the Bill of Sale, the Assignment and Assumption Agreement and the
Security Agreement (this Agreement, collectively with such other agreements,
are hereinafter collectively referred to as the "Agreements") and to consummate
the transactions contemplated hereby and thereby. The execution, delivery and
performance by Seller of the Agreements have been duly authorized by all
requisite corporate action (other than the approval of Seller's shareholders).
This Agreement has been, and each of the other Agreements will be as of the
Closing Date, duly executed and delivered by Seller, and (assuming due
execution and delivery by Buyer) this Agreement constitutes, and each of the
other Agreements when executed and delivered will constitute, a valid and
binding obligation of Seller, enforceable in accordance with its terms, except
as such enforceability may be limited by bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally or by general equitable
principles.
3.2 Corporate Organization and Authority of the Companies.
Each of the Companies is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation and has all
corporate power and authority to carry on its business as now being conducted
and to own its properties and is duly licensed or qualified and in good
standing as a foreign corporation in each jurisdiction in which it is required
to be so licensed or so qualified, except where the failure to be so licensed
or so qualified would not have a material adverse effect on the financial
condition, assets, liabilities (contingent or otherwise), results of
operations, business or business prospects (a "Material Adverse Effect") of the
Companies considered as a whole. Schedule 3.2 sets forth the jurisdictions in
which each of the Companies is qualified to do business. Seller has heretofore
delivered to Buyer complete and correct copies of the articles or certificates
of incorporation, by-laws or similar corporate organizational documents of each
of the Companies as currently in effect.
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3.3 Subsidiaries and Equity Investments. (a) Each of
the Companies has no subsidiaries and is not a general partner in any
partnership or coventurer in any joint venture or other business enterprise,
other than White River. The term "subsidiary" means any corporation of which
either of the Companies, directly or indirectly, owns or controls capital stock
representing more than fifty percent of the general voting power under ordinary
circumstances of such corporation.
(b) Except for White River, neither of the Companies owns,
directly or indirectly, any capital stock or other equity securities of any
corporation or has any direct or indirect equity or ownership interest,
including interests in partnerships and joint ventures, in any business. All
of the outstanding membership interests in White River owned by each of the
Companies are owned free and clear of all Encumbrances, (as such term is
defined in Section 3.4) except for restrictions on transfer under federal and
state securities laws and pursuant to agreements with Buyer and its affiliates.
Neither of the Companies has granted any outstanding options, warrants or other
rights of any kind to acquire any additional membership interests in White
River or securities convertible into or exchangeable for, or which otherwise
confer on the holder thereof any right to acquire, any such additional
interests, nor are any of the Companies committed to grant any such option,
warrant, right or security. Except as set forth in Schedule 3.3, there are no
agreements relating to the voting, purchase or sale of capital stock of any
joint venture interest held by either of the Companies.
3.4 Ownership of Membership Interests and Shares. (a)
Membership interests representing fifty percent of all of the membership
interests in White River are owned of record and beneficially by the Companies,
except for any change in percentage ownership of membership interests in White
River as provided for in Section 10.4. All of the outstanding shares of
capital stock of each of the Companies are owned of record and beneficially by
Seller.
(b) Seller has good and valid title to the Shares, free and
clear of any and all liens, claims, security interests or options
("Encumbrances"). Seller has full legal right, power and authority to sell,
transfer and convey the Shares to Buyer. Upon the delivery of the Shares in
the manner contemplated under Section 1.3, Buyer will acquire the beneficial
and legal, valid and indefeasible title to such Shares, free and clear of all
Encumbrances, except for restrictions on transfer under federal and state
securities laws.
(c) CRSS Inc. owns 12,096,700 shares constituting 47.5% of
the outstanding common stock of the Seller and 120,000 shares constituting 100%
of the outstanding preferred stock of the Seller.
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(d) Except for voting securities issued after the date hereof
pursuant to the exercise of options outstanding on the date hereof, Seller
currently has, and at the record date with respect to the Shareholder Approval
referred to in Section 7.5 will have, 25,477,387 shares of Common Stock issued
and outstanding, 100,000 shares of Series A Preferred Stock issued and
outstanding, 10,000 shares of Series B Preferred Stock issued and outstanding,
and 10,000 shares of Series C Preferred Stock issued and outstanding (not
taking into account any conversion by CRSS Inc. of any of the Series A, Series
B or Series C Preferred Stock or any of CRSS Inc.'s other convertible
instruments), and does not have any, and as of such record date will not have
any, other voting securities issued and outstanding, and (2) Seller has not
taken any action and will not take any action to impair CRSS Inc.'s rights,
including without limitation its voting and conversion rights, with respect to
any of the common stock, preferred stock or indebtedness of Seller which CRSS
Inc. currently owns or will own as of such record date. Seller will reasonably
cooperate with CRSS Inc. in exercising such rights.
3.5 Capitalization of the Companies; Ownership. The
authorized, issued and outstanding capital stock of each of the Companies is
set forth in Schedule 3.5. All of the issued and outstanding shares of capital
stock of each of the Companies are duly authorized, validly issued, fully paid
and nonassessable. There are no outstanding options, warrants or other rights
of any kind to acquire any additional shares of capital stock of the Companies
or securities convertible into or exchangeable for, or which otherwise confer
on the holder thereof any right to acquire, any such additional shares, nor are
the Companies committed to issue any such option, warrant, right or security.
3.6 No Violation; Creditor Consent. Except as set forth in
Schedule 3.6, neither Seller, nor either of the Companies, is subject to or
bound by any provision of:
(a) to Seller's best knowledge any law, statute, rule,
regulation or judicial or administrative decision,
(b) any articles or certificate of incorporation or by-laws,
(c) any mortgage, deed of trust, lease, note, shareholders'
agreement, bond, indenture, other instrument or agreement, license,
permit, trust, custodianship, other restriction, or
(d) to Seller's best knowledge any judgment, order, writ,
injunction or decree of any court, governmental body, administrative
agency or arbitrator,
that would prevent or be violated by or that would result in the creation of
any Encumbrance as a result of, or under which there
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would be a default or right of cancellation, termination, payment or
acceleration of payment as a result of, the execution, delivery and performance
by Seller of the Agreements and the consummation of the transactions
contemplated hereby and thereby. Except as set forth in Schedule 3.6 and for
filings required by the applicable federal securities laws, no consent,
approval or authorization of or declaration or filing with any individual,
corporation, partnership, trust or unincorporated organization or any
government or any agency or political subdivision thereof (a "Person") is
required for the valid execution, delivery and performance by Seller of the
Agreements and the consummation of the transactions contemplated hereby and
thereby. Except for CRSS Inc., the consent or approval of no creditor of
Seller or any Company is necessary to consummate the transactions contemplated
hereby.
3.7 Litigation. Except as set forth in Schedule 3.7,
there is (i) no outstanding consent, order, judgment, injunction, award or
decree of any court, government or regulatory body or arbitration tribunal
against or involving either of the Companies or Seller, (ii) no action, suit,
dispute or governmental, administrative, arbitration or regulatory proceeding
pending or, to Seller's best knowledge, threatened against or involving either
of the Companies or Seller and (iii) to Seller's best knowledge, no
investigation pending or threatened against or relating to either of the
Companies, any of their respective officers or directors as such or Seller
(collectively, "Proceedings"). None of the foregoing Proceedings, if adversely
determined against Seller or either of the Companies, would have a Material
Adverse Effect on the Companies either singularly or in the aggregate or on the
ability of Seller to consummate the transactions contemplated hereby.
3.8 The Assets. Except as set forth in Schedule 3.8, neither
the Seller, the Companies, nor any of Seller's affiliates (other than White
River) use any asset, other than the Assets, in the Business. Except as set
forth in Schedule 3.8, either the Seller or a Company, as the case may be, has
good and valid title to all of the Assets, free and clear of all Encumbrances.
3.9 Seller Reports; Financial Statements; Liabilities.
Except as set forth on Schedule 3.9:
(a) Since January 1, 1992, Seller has filed all reports,
registrations, proxy or information statements and all other documents,
together with any amendments required to be made thereto, required to be filed
with the Securities and Exchange Commission ("SEC") under the Securities Act or
the Exchange Act (collectively, the "Seller Reports"). Included in such Seller
Reports are (i) audited consolidated balance sheets of Seller and its
subsidiaries at December 31, 1993 and 1992, and the related consolidated
statements of income, shareholders' equity and cash flows (or changes in
financial position prior to the adoption of statement of Financial Accounting
Standards Board Number 95
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("FASB 95")) for the years then ended, and the notes thereto and (ii) the
unaudited consolidated balance sheet of Seller and its subsidiaries at
September 30, 1994, and the related unaudited consolidated statements of
income, shareholders' equity and cash flows for the nine-month period then
ended and the notes thereto. Seller shall furnish Buyer copies of its filings
with the SEC filed after the date hereof and prior to the Closing Date. Seller
has heretofore furnished to Buyer balance sheets and statements of income of
each of the Companies (each of which is attached as part of Schedule 3.9) as at
the dates and for the periods ended as reflected therein (the "Company
Financials").
(b) All of the financial statements included in the Seller
Reports (which are collectively referred to herein as the "Seller Consolidated
Financial Statements") and the Company Financials fairly presented, or will
fairly present, as the case may be, in all material respects, the consolidated
financial position of Seller and its subsidiaries, and the financial position
of each of the Companies, as the case may be, at the dates mentioned and the
consolidated results of operations, shareholders' equity and, in the case of
the Seller Reports, cash flows (or changes in financial position) for the
periods then ended in conformity with generally accepted accounting principles
applied on a consistent basis (subject to any exceptions as to consistency
specified therein or as may be indicated in the notes thereto or in the case of
the unaudited statements, as may be permitted by Article 10 of Regulation S-X
promulgated by the SEC), and, in the case of the Company Financials, to the
absence of footnotes. The unaudited consolidated statements of income for the
period ended September 30, 1994 include, and all subsequent statements
furnished pursuant hereto, will include, all adjustments necessary for a fair
presentation. To the best of Seller's knowledge, as of their respective dates,
the Seller Reports referred to herein complied, or will comply, as the case may
be, in all material respects with all applicable rules and regulations
promulgated by the SEC and did not, or will not, as the case may be, contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The foregoing provisions of this paragraph (b) shall be deemed not
to be breached with respect to any matter relating solely to Seller and which
matter reflects an item which is not adverse to Seller and does not affect the
value of the assets being purchased hereunder.
(c) There are no liabilities, debts, obligations or claims
against the Companies of any nature, absolute or contingent, except (i) as and
to the extent reflected or reserved against on the financial statements
referred to in Section 3.9; (ii) specifically described and identified as an
exception to this paragraph in any of the Schedules delivered to Buyer pursuant
to this Agreement; or (iii) incurred since September 30,
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1994 in the ordinary course of business consistent with prior practice and
Section 3.12 hereof.
3.10 Tax Matters. (a) For purposes of this Agreement,
(i) "Tax" or "Taxes" shall mean any federal, state,
local, foreign or other taxes (including, without limitation, income
(net or gross), gross receipts, profits, alternative or add-on
minimum, franchise, license, capital, capital stock, intangible,
services, premium, mining, transfer, sales, use, ad valorem, payroll,
wage, severance, employment, occupation, property (real or personal),
windfall profits, import, excise, custom, stamp, withholding or
estimated taxes), fees, duties, assessments, withholdings or
governmental charges of any kind whatsoever (including interest,
penalties, additions to tax or additional amounts with respect to such
items);
(ii) "Pre-Closing Periods" shall mean all Tax periods of
either of the Companies ending on or before the Closing Date and, with
respect to any Tax period that includes but does not end on the
Closing Date, the portion of such period that ends on and includes the
Closing Date;
(iii) "Returns" shall mean all returns, declarations,
reports, estimates, information returns and statements of any nature
regarding Taxes for any Pre-Closing Period required to be filed by any
Person and relating to either of the Companies; and
(iv) "Code" shall mean the Internal Revenue Code of 1986,
as amended, or, if appropriate, any predecessor statute.
(b) Except as set forth in Schedule 3.10,
(i) all Returns have been or will be timely filed
when due in accordance with all applicable laws;
(ii) all Taxes due regarding either of the Companies in
respect of the Pre-Closing Tax Periods, whether or not shown to be due
on the Returns, including all Taxes for which a notice of assessment
or demand for payment has been received by either of the Companies,
have been or will be timely paid when due;
(iii) the Returns completely, accurately and correctly
reflect the facts regarding the income, properties, operations and
status of any entity required to be shown thereon;
(iv) the charges, accruals, and reserves for Taxes due,
or accrued but not yet due, relating to the income, properties or
operations of the Companies for any Pre-
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Closing Period as reflected on the books of the Companies are adequate
to cover such Taxes;
(v) there are no agreements or consents currently in
effect for the extension or waiver of the time (A) to file any Return
or (B) for assessment or collection of any Taxes relating to either of
the Companies for any Pre-Closing Period, and no Person has been
requested to enter into any such agreement or consent;
(vi) no Return of either of the Companies, or of any
affiliated, consolidated, combined or similar groups of which either
of the Companies is a member, is being examined by, and no written
notification of intention to examine has been received from, the
Internal Revenue Service or any other taxing authority;
(vii) all Returns with respect to taxable years ending on
or prior to December 31, 1990 have been examined and closed, or are
Returns with respect to which the applicable statute of limitations,
after giving effect to any extensions and waivers, has expired;
(viii) all Taxes that each of the Companies is required by
law to withhold or collect have been duly withheld or collected, and
have been timely paid over to the appropriate governmental authorities
to the extent due and payable;
(ix) the Companies have treated White River as a
partnership for United States federal income tax purposes and have not
taken any position that is inconsistent with such treatment; and
(x) no Tax ruling has been requested of any governmental
authority, with respect to any Tax matter relating to either of the
Companies.
Anything in this Section to the contrary notwithstanding, Seller makes no
representations or warranties with respect to the amount of any net operating
losses of the Companies.
3.11 Employee Matters. Neither Company has any employees.
3.12 Absence of Change or Event. Except as set forth in
Schedule 3.12, since September 30, 1994, the Companies have conducted their
respective businesses only in the ordinary course and have not:
(a) when considered as a whole, incurred any obligation or
liability, absolute, accrued, contingent or otherwise, whether due or
to become due, except liabilities
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or obligations incurred in the ordinary course of business and
consistent with prior practice;
(b) declared or paid any dividend or made any other payment
or distribution in respect of their capital stock, or directly or
indirectly redeemed, purchased or otherwise acquired any of their
capital stock; or
(c) made or changed any election concerning Taxes or Tax
Returns, changed an annual accounting period, adopted or changed any
accounting method, filed any amended return or claim for Tax refund,
entered into any closing agreement with respect to Taxes, settled any
Tax claim, examination, audit or assessment or surrendered any right
to claim a refund of Taxes or obtained or entered into any Tax ruling,
agreement, contract, understanding, arrangement or plan.
3.13 Compliance With Law. (a) Except as set forth in
Schedule 3.13(a), the operations and activities of the Companies have complied
and are in material compliance in all respects with all applicable federal,
state and local laws, including, without limitation, health and safety statutes
and regulations and all Environmental Laws, including, without limitation, all
restrictions, conditions, standards, limitations, prohibitions, requirements,
obligations, schedules and timetables contained in the Environmental Laws or
contained in any regulation, code, plan, order, decree, judgment, injunction,
notice or demand letter issued, entered, promulgated or approved thereunder.
The foregoing provisions of this paragraph (a) shall be deemed not to be
breached with respect to any matter relating solely to Seller and which matter
reflects an item which is not adverse to Seller and does not affect the value
of the assets being purchased hereunder.
(b) Schedule 3.13(b) sets forth all material federal, state,
local and foreign governmental licenses, permits and other authorizations
("Permits") of the Companies.
3.14 Disclosure. (a) To Seller's best knowledge, no
representations or warranties by Seller in this Agreement, including the
Schedules, and no statement contained in any document (including, without
limitation, the financial statements, certificates, or other writings furnished
or to be furnished by Seller to Buyer or any of its representatives pursuant to
the provisions hereof or in connection with the transactions contemplated
hereby), contains or will contain any untrue statement of material fact or
omits or will omit to state any material fact necessary, in light of the
circumstances under which it was made, in order to make the statements herein
or therein not misleading.
(b) Seller has furnished or caused to be furnished to Buyer
complete and correct copies of all agreements, instruments
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and documents set forth on a Schedule. Each of the Schedules is complete and
correct.
3.15 Seller's Best Knowledge. The term "Seller's best
knowledge", shall mean the best knowledge of John T. McCormack, President of
Seller, after due inquiry.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as of the date hereof
and as of the Closing Date that:
4.1 Organization. Buyer is a corporation duly organized
and validly existing and in good standing under the laws of the State of
Delaware and has full corporate power to carry on its business as currently
conducted.
4.2 Corporate Authority. Buyer has full corporate power
and authority to enter into the Agreements and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance by
Buyer of the Agreements have been duly authorized by all requisite corporate
action. This Agreement has been, and each of the other Agreements will be as
of the Closing Date, duly executed and delivered by Buyer, and (assuming due
execution and delivery by Seller) this Agreement constitutes, and each of the
other Agreements when executed and delivered will constitute, a valid and
binding obligation of Buyer, enforceable in accordance with its terms, except
as such enforceability may be limited by bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally or by general equitable
principles.
4.3 No Violation. Except as set forth in Schedule 4.3,
and except for any notice, consent or approval contemplated by Permitted Lien
Exceptions, Buyer is not subject to or bound by any provision of:
(a) to the best of Buyer's knowledge, any law,
statute, rule, regulation or judicial or administrative decision,
(b) any articles or certificate of incorporation
or by-laws,
(c) any mortgage, deed of trust, lease, note,
shareholders' agreement, bond, indenture, other instrument or
agreement, license, permit, trust, custodianship, other restriction,
or
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(d) to the best of Buyer's knowledge any
judgment, order, writ, injunction or decree of any court, governmental
body, administrative agency or arbitrator,
that would prevent or be violated by, or under which there would be a default
as a result of, or under which there would be a default or right of
cancellation, termination, payment or acceleration of payment as a result of,
the execution, delivery and performance by Buyer of the Agreements and the
consummation of the transactions contemplated hereby and thereby. Except as
set forth in Schedule 4.3, and except for notices, consents or approvals
contemplated by Permitted Lien Exceptions, no consent, approval or
authorization of or declaration or filing with any Person is required for the
valid execution, delivery and performance by Buyer of the Agreements and the
consummation of the transactions contemplated hereby and thereby.
4.4 Investment Intent. Buyer is acquiring the Shares for its
own account for investment and not with a view to any distribution thereof.
ARTICLE 5
CERTAIN COVENANTS AND AGREEMENTS
OF SELLER AND BUYER
5.1 Conduct of Business Prior to the Closing Date. Seller
agrees that, between the date hereof and the Closing Date, except as
contemplated by this Agreement or permitted by written consent of Buyer, Seller
shall cause each of the Companies to operate its respective business only in
the ordinary course consistent with prior practice and not to take any action
of the nature referred to in Section 3.12, except as permitted therein.
5.2 Tax Covenants: (a) Seller shall cause the Companies to
be included in Seller's consolidated federal income Tax Returns for all periods
for which they are eligible to be so included, including without limitation the
period from January 1, 1995 to the Closing Date, and in any other required
state, local and foreign consolidated, affiliated, combined, unitary or other
similar group Tax Returns that include Seller or any affiliate of Seller for
all Pre-Closing Periods for which either of them is required to be so included.
Seller shall (A) timely prepare and file all such Returns and timely pay when
due all Taxes relating to such Returns and (B) timely prepare and file, or
cause to be prepared and filed, all other Returns of the Companies (x) for all
taxable periods ending on or prior to the Closing Date or (y) required to be
filed prior to the Closing Date, taking into account extensions of the time to
file, and timely pay, or cause to be paid, when due all Taxes relating to such
Returns. Prior to the filing of any Return described in the preceding sentence
that was not filed before the Closing Date (other than Seller's consolidated
federal income Tax Return for the 1994 taxable year
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and any other required state, local and foreign consolidated, affiliated,
combined, unitary or other similar group Tax Returns for the 1994 taxable year
that include Seller), Seller shall provide Buyer with a substantially final
draft of such Return (or, with respect to Returns described in clause (A)
above, the portion of such draft Return that relates to either of the
Companies) at least fifteen (15) business days prior to the due date for filing
such Return, and Buyer shall have the right to review such Return prior to the
filing of such Return. Buyer shall notify Seller of any reasonable objections
Buyer may have to any items set forth in such draft Returns, and Buyer and
Seller agree to consult and resolve in good faith any such objections and to
mutually consent to the filing of such Returns. Such Returns shall be prepared
or completed in a manner consistent with prior practice of Seller and the
Companies with respect to Returns concerning the income, properties or
operations of the Companies (including elections and accounting methods and
conventions), except as otherwise required by law or regulation or otherwise
agreed to by Buyer prior to the filing thereof.
(b) Seller and Buyer shall use their best efforts to agree,
on or prior to the Closing Date, to an allocation of the Purchase Price
(together with liabilities assumed hereunder and other relevant items) among
the Assets, the NMI Shares and the OXA Shares. Provided the parties are able
to agree to an allocation, such allocation will comply with the requirements of
Code Section 1060 and the Temporary Treasury Regulations thereunder. Seller
and Buyer represent, warrant and agree that such allocation will be determined
through arm's length negotiations. Seller and Buyer each agrees that, to the
extent they are able to agree to such an allocation and to the extent permitted
by applicable law, it will adopt and utilize the amounts allocated to each of
the Assets (or class of assets), the NMI Shares and the OXA Shares for purposes
of all federal, state and other income Tax returns or reports of any nature
filed by it and that it will not voluntarily take any position inconsistent
therewith upon examination of any such Tax returns or reports, in any claim for
refund, in any litigation or otherwise with respect to such Tax returns or
reports.
(c) Any Taxes with respect to either of the Companies that
relate to a tax period beginning before the Closing Date and ending after the
Closing Date (an "Overlap Period") shall be apportioned between Seller and
Buyer, (i) in the case of real and personal property Taxes (and any other
Taxes not measured or measurable, in whole or in part, by net or gross income
or receipts), on a per diem basis and, (ii) in the case of other Taxes, as
determined from the books and records, including workpapers, of the Companies
during the portion of such period ending on the Closing Date and the portion of
such period beginning on the day following the Closing Date consistent with the
past practices of Seller and the Companies. Buyer shall cause the Companies to
file any Returns for any Overlap Period,
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and Buyer shall pay, or cause to be paid, all state, local or foreign Taxes
shown as due on any such Returns. Prior to the filing of any Return described
in the preceding sentence, Buyer shall provide Seller with a draft of such
Return at least fifteen (15) business days prior to the due date for filing
such Return, and Seller shall have the right to review such Return prior to the
filing of such Return. Seller shall notify Buyer of any reasonable objections
Seller may have to any items set forth in such draft Returns, and Buyer and
Seller agree to consult and resolve in good faith any such objections and to
mutually consent to the filing of such Returns. Seller shall pay Buyer its
share of any such Taxes (to the extent Seller is liable therefor in accordance
with this Section 5.2(c) and to the extent not already paid by Seller) due
pursuant to the filing of any such Returns under the provisions of this Section
5.2(c) within five (5) business days of receipt of notice of such filing by
Buyer, which notice shall set forth in reasonable detail the calculations
regarding Seller's share of such Taxes.
(d) Seller shall have the right to represent the interests of
the Companies in any Tax audit or administrative or court proceeding relating
to any Returns in respect of any period ending on or prior to the Closing Date
(including any proceeding relating to either of the Companies for Pre-Closing
Periods) and to employ counsel reasonably acceptable to Buyer at its own
expense. Buyer agrees to cooperate fully with Seller and its counsel in the
defense against or compromise of any claim in said proceeding. Buyer shall
have the right to represent the interests of the Companies in any such audits
or proceedings for any Overlap Period; provided that, Buyer shall keep Seller
informed on a reasonable basis of the status of such audits or proceedings and
review any proposed or final assessment with respect to any Overlap Period with
Seller. In the event that (i) Seller compromises or settles any Tax claim, or
consents or agrees to any Tax liability, relating to the Companies for any
Pre-Closing Period or (ii) Buyer compromises or settles any Tax claim, or
consents or agrees to any Tax liability, relating to the Companies for any
Overlap Period, the other party shall have the right to review such compromise,
settlement, consent or agreement. Notwithstanding anything to the contrary
contained or implied in this Agreement, without the prior written approval of
the other party, neither Seller or any affiliate of Seller, on the one hand,
nor Buyer or any affiliate of Buyer, on the other hand, shall agree or consent
to compromise or settle, either administratively or after the commencement of
litigation, any issue or claim arising in any such audit or proceeding, or
otherwise agree or consent to any Tax liability, relating to the Companies, to
the extent that any such compromise, settlement, consent or agreement may
materially affect the Tax liability of the other party, any of its affiliates,
or either of the Companies, (x) in the case of Seller, acting in respect of a
Pre-Closing Period, for any period ending after the Closing Date and (y) in the
case of Buyer, acting in respect of an Overlap Period, for any period ending on
or before the Closing Date.
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(e) Buyer shall promptly notify Seller in writing upon
receipt by Buyer, any affiliate of Buyer, or either of the Companies of notice
of any pending or threatened Tax audits or assessments relating to the income,
properties or operations of either of the Companies for Pre-Closing Periods
only, so long as Pre-Closing Periods remain open; provided, however, that
failure by Buyer to comply with this Section 5.2(e) shall not affect Buyer's
right to indemnification relating to Taxes to the extent that such failure does
not prejudice the rights of Seller. Seller shall promptly notify Buyer in
writing upon receipt by Seller or any affiliate of Seller of notice of any
pending or threatened Tax audits or assessments relating to the income,
properties or operations of either of the Companies for Pre-Closing Periods
only.
(f) Neither Seller nor any affiliate of Seller shall, without
the prior written consent of Buyer, file, or cause to be filed, any amended Tax
return or claim for Tax refund, with respect to either of the Companies for any
Pre-Closing Period, to the extent that any such filing may affect the Tax
liability of Buyer, any of its affiliates or either of the Companies for any
period ending after the Closing Date.
(g) Any and all existing Tax sharing, allocation,
compensation or like agreements or arrangements, whether or not written, that
include either of the Companies, including without limitation any arrangement
by which either of the Companies makes compensating payments to the other or to
any other member of any affiliated, consolidated, combined, unitary or other
similar Tax group for the use of certain Tax attributes, shall be terminated as
of the day before the Closing Date (pursuant to a writing executed on or before
the Closing Date by all parties concerned) and shall have no further force or
effect. All liabilities of either of the Companies to Seller or any affiliate
of Seller (for Taxes or otherwise pursuant to such agreements or arrangements)
shall be canceled on or prior to the Closing Date. Any and all powers of
attorney relating to Tax matters concerning either of the Companies shall be
terminated as to that Company on or prior to the Closing Date and shall have no
further force or effect.
(h) After the Closing Date, Buyer and Seller shall provide
each other, and Buyer shall cause the Companies to provide Seller, with such
cooperation and information relating to the Companies as either party
reasonably may request in (A) filing any Tax return, amended return or claim
for refund, (B) determining any Tax liability or a right to refund of Taxes,
(C) conducting or defending any audit or other proceeding in respect of Taxes
or (D) effectuating the terms of this Agreement. The parties shall retain, and
Buyer shall cause the Companies to retain, all returns, schedules and work
papers, and all material records and other documents relating thereto, until
the expiration of the statute of limitations (and, to the extent notified by
any party, any extensions thereof) of the taxable years to which such returns
and other documents relate and,
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unless such returns and other documents are offered and delivered to Seller or
Buyer, as applicable, until the final determination of any Tax in respect of
such years. Any information obtained under this Section 5.2 shall be kept
confidential, except as may be otherwise necessary in connection with filing
any Tax return, amended return, or claim for refund, determining any Tax
liability or right to refund of Taxes, or in conducting or defending any audit
or other proceeding in respect of Taxes. Notwithstanding the foregoing,
neither Seller nor Buyer, nor any of their affiliates, shall be required
unreasonably to prepare any document, or determine any information not then in
its possession, in response to a request under this Section 5.2(i).
(i) Seller shall deliver to Buyer, on or before the Closing
Date, a certificate, in the form of Exhibit C, to the effect that Seller is not
a "foreign person" within the meaning of Code Section 1445. If, on or before
the Closing Date, Buyer shall not have received such certificate, Buyer may
withhold from the Purchase Price payable at Closing to Seller pursuant hereto
such sums as are required to be withheld therefrom under Section 1445 of the
Code.
(j) Buyer and Seller shall share equally, and shall pay when
due, any liability for any transfer, gains, documentary, sales, use,
registration, stamp, value added or other similar Taxes payable by reason of
the transactions contemplated by this Agreement or attributable to the sale,
transfer or delivery of the Assets or Shares hereunder, and shall also share
equally all expenses related to the filing of all necessary Tax returns and
other documentation with respect to all such Taxes.
5.3 Expenses and Finder's Fees. Buyer and Seller will bear
their own expenses in connection with this Agreement and its performance.
Seller, on the one hand, and Buyer, on the other hand, each represents and
warrants to the other that the negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on in such a manner as not
to give rise to any valid claims against the other party or the Companies for a
brokerage commission, finder's fee or other like payment.
5.4 Access to Information and Confidentiality. Seller agrees
that Buyer may conduct such reasonable investigation with respect to the
business, business prospects, assets, liabilities (contingent or otherwise),
results of operations, employees and financial condition of the Companies as
will permit Buyer to evaluate its interest in the transactions contemplated by
this Agreement. Each of Seller and Buyer will hold and will cause its
representatives to hold in strict confidence, unless compelled to disclose by
judicial or administrative process, or, in the opinion of its counsel, by other
requirements of law, all documents and information concerning the Companies
furnished to Buyer and all documents and information concerning Buyer furnished
to Seller in connection with the transactions
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contemplated by this Agreement (except to the extent that such information can
be shown to have been (a) previously known by Buyer prior to its disclosure to
Buyer by Seller, (b) previously known by Seller prior to its disclosure to
Seller by Buyer, (c) in the public domain through no fault of either Seller or
Buyer or (d) later lawfully acquired by either Seller or Buyer from other
sources that are not under an obligation of confidentiality) and will not
release or disclose such information to any other Person, except in connection
with this Agreement to its lenders, auditors, attorneys, financial advisors and
other consultants and advisors. In the event that any party subject to the
requirements of this Section 5.4 is required pursuant to applicable law or
regulation or required by legal process to disclose any of such information
protected by this Section, such party will provide the other party with prompt
written notice of such request or receipt of such legal process to enable the
other party to seek an appropriate protective order and will consult with the
other party to enable the other party to take appropriate actions to resist or
narrow the scope of such request or process.
5.5 No Solicitation. Except as set forth in the last
sentence of this Section 5.5, Seller shall not, and shall direct each of the
Companies and its affiliates (other than CRSS Inc.), officers, employees,
representatives and agents not to, directly or indirectly, encourage, solicit,
initiate or engage in discussions or negotiations with, or provide any
non-public information to, any Person concerning any merger, sales of
substantial assets, sales of shares of capital stock or similar transactions
involving the Companies or enter into any agreement with respect thereto.
Seller will promptly communicate to Buyer the terms of any proposal which it
may receive in respect of all such transactions prohibited by the foregoing.
Seller shall be relieved of its obligations under this Section 5.5 to the
extent that it is advised in a written opinion of Utah counsel expert in the
area that it would be inconsistent with its fiduciary obligations to the
shareholders of Seller under Utah law to comply with this Section 5.5.
5.6 Press Releases. Except as required by law or stock
exchange regulation, any public announcements regarding the transactions
contemplated hereby shall be made only with the mutual consent of Seller and
Buyer. If any public announcement is required by law or applicable stock
exchange regulation, the parties hereto shall consult with each other
regarding, and coordinate, such announcements to the extent consistent with
such legal obligations.
5.7 Shareholder Approvals and Best Efforts; Reimbursement of
Expenses. As soon as is reasonably practicable after the execution of this
Agreement, Seller shall prepare and file with the SEC an information or proxy
statement with respect to the transactions contemplated hereby and which
complies with all applicable laws. Each party hereto shall furnish all
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information concerning it and the holders of its capital stock as the other
party hereto may reasonably request in connection with such actions. Seller
shall call a shareholders' meeting (or cause such meeting to be called) in
accordance with applicable laws to be held as soon as practicable after the
execution of this Agreement for the purpose of voting upon this Agreement and
the transactions contemplated hereby. In connection with said shareholders'
meeting, Seller shall prepare and file said information or proxy statement with
the SEC and Seller shall mail it to its shareholders. The Board of Directors
of Seller has approved this Agreement and the transactions contemplated hereby
and has recommended to Seller's shareholders that they approve this Agreement
and the transactions contemplated hereby, subject only to the exercise of its
Fiduciary Out (as defined below). Seller shall use its best efforts to obtain
all shareholder approvals and creditor approvals necessary to consummate the
transactions contemplated hereby, except in each case to the extent that the
Board of Directors of Seller shall be advised in a written opinion of Utah
counsel expert in the area that it would be inconsistent with its fiduciary
obligations to the shareholders of Seller under Utah law to so use such best
efforts (the "Fiduciary Out").
5.8 CRSS Release. Schedule 5.8 sets forth certain
obligations of CRSS Inc. with respect to guarantees of performance bonds,
letters of credit and other obligations of White River of a similar nature.
Buyer shall use its best efforts and cooperate with Seller and CRRS Inc. in
trying to substitute Buyer for CRSS Inc. as the obligor of such obligations, it
being understood and agreed that Buyer shall be under no obligation to pay any
consideration to the obligees of such obligations to obtain such substitutions.
To the extent CRSS Inc. is not released from such obligations, Buyer hereby
agrees to indemnify and hold harmless CRSS Inc. from such obligations under,
but not subject to the limitations of, Article 8 hereof and to provide to
Seller a letter of credit as security for said obligations from a bank having
total assets of not less than $100 million.
ARTICLE 6
CONDITIONS PRECEDENT OF BUYER
Buyer need not consummate the transactions contemplated by
this Agreement unless the following conditions shall be fulfilled:
6.1 Representations and Warranties. Except as otherwise
contemplated or permitted by this Agreement, (a) the representations and
warranties of Seller contained in this Agreement or in any certificate or
document delivered to Buyer pursuant hereto shall be deemed to have been made
again at and as
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of the Closing Date and shall then be true in all material respects and (b)
Seller shall have performed and complied in all material respects with all
agreements and conditions required by this Agreement to be performed or
complied with by Seller prior to or on the Closing Date, and Buyer shall have
been furnished with a certificate of an appropriate officer of Seller, dated
the Closing Date, certifying to the effect of clauses (a) and (b) of this
Section 6.1.
6.2 Opinion of Counsel. Buyer shall have been furnished
with an opinion dated the Closing Date of Messrs. Van Cott, Bagley, Cornwall &
McCarthy, counsel for Seller, substantially in the form attached hereto as
Schedule 6.2.
6.3 No Injunction. No injunction, restraining order or
decree of any nature of any court or governmental or regulatory authority shall
exist against Buyer, Seller, the Companies or any of their respective
affiliates, or any of the principals, officers or directors of any of them,
that restrains, prevents or materially changes the transactions contemplated
hereby.
6.4 Consents. All consents of third parties, including,
without limitation, governmental authorities and non-governmental
self-regulatory agencies, and all filings with and notifications of
governmental authorities, regulatory agencies (including non-governmental
self-regulatory agencies) or other entities which regulate the business of
Buyer, Seller or any Company necessary on the part of Buyer, Seller or any
Company, to the execution and delivery of the Agreements and the consummation
of the transactions contemplated hereby and thereby and to permit the continued
operation of the Business in substantially the same manner after the Closing
Date as theretofore conducted, other than routine post-closing notifications or
filings, shall have been obtained or effected.
ARTICLE 7
CONDITIONS PRECEDENT OF SELLER
Seller need not consummate the transactions contemplated
hereby unless the following conditions shall be fulfilled:
7.1 Representations and Warranties. Except as otherwise
contemplated or permitted by this Agreement, (a) the representations and
warranties of Buyer contained in this Agreement or in any certificate or
document delivered to Seller pursuant hereto shall be deemed to have been made
again at and as of the Closing Date and shall then be true in all material
respects and (b) Buyer shall have performed and complied in all
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material respects with all agreements and conditions required by this Agreement
to be performed or complied with by it prior to or on the Closing Date, and
Seller shall have been furnished a certificate of an appropriate officer of
Buyer, dated the Closing Date, certifying to the effect of clauses (a) and (b)
of this Section 7.1.
7.2 Opinion of Buyer's Counsel. Seller shall have been
furnished with an opinion dated the Closing Date of Messrs. Winthrop, Stimson,
Putnam & Roberts, special counsel for Buyer, substantially in the form attached
hereto as Schedule 7.2.
7.3 No Injunction. No injunction, restraining order or
decree of any nature of any court or governmental or regulatory authority shall
exist against Buyer, Seller, the Companies or any of their respective
affiliates, or any of the principals, officers or directors of any of them,
that restrains, prevents or materially changes the transactions contemplated
hereby.
7.4 Consents. All consents of third parties including,
without limitation, governmental authorities, and non-governmental
self-regulatory agencies, and all filings with and notifications of
governmental authorities, regulatory agencies (including non-governmental
self-regulatory agencies) or other entities which regulate the business of
Seller, necessary on the part of Seller, to the execution and delivery of the
Agreements and the consummation of the transactions contemplated hereby and
thereby, other than routine post-closing notifications or filings, shall have
been obtained or effected.
7.5 Shareholder Approval. Seller's shareholders shall have
approved this Agreement and the transactions contemplated hereby.
7.6 Fairness Opinion. A fairness opinion from an
investment banker or valuation firm selected by Seller and addressed to the
Board of Directors of Seller to the effect that the sale of the Shares and the
Assets is fair to Seller from a financial point of view (the "Fairness
Opinion") shall not have been withdrawn prior to Closing.
7.7 Security Documents. Buyer shall have executed and
delivered the Security Documents.
ARTICLE 8
INDEMNIFICATION
8.1 Indemnification by Seller. Seller hereby agrees to
defend, indemnify and hold harmless Buyer and each of the Companies and their
respective successors, assigns and affiliates
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(collectively, the "Buyer Indemnitees") from and against any and all losses,
deficiencies, liabilities, damages, assessments, judgments, costs and expenses,
including attorneys' fees (both those incurred in connection with the defense
or prosecution of the indemnifiable claim and those incurred in connection with
the enforcement of this provision), (collectively, "Buyer Losses"), caused by,
resulting from or arising out of:
(a) (i) breaches of representation or warranty hereunder on
the part of Seller; (ii) failures by Seller to perform or otherwise
fulfill any undertaking or other agreement or obligation hereunder;
and (iii) any liabilities or obligations of Seller or either of the
Companies that arose prior to Closing (provided the Closing shall have
occurred), whether absolute or contingent, known or unknown, other
than the Assumed Liabilities;
(b) provided the Closing shall have occurred, any and all (i)
Taxes imposed on Seller or any affiliate of Seller (including, without
limitation, the Companies) for, or relating to, all Pre-Closing
Periods, including, but not limited to, (A) any liability of either of
the Companies under any Tax sharing agreement, whether or not written,
and (B) any Tax liability resulting from the termination, as of the
Closing Date, of either Company as a member of any consolidated,
affiliated, combined, unitary or other similar Tax group and (ii)
liabilities of Seller or any affiliate of Seller (including, without
limitation, the Companies) for Taxes imposed under Treasury Regulation
Section 1.1502-6 or any analogous state, local or foreign tax
provision, as a result of being a member of a consolidated,
affiliated, combined, unitary or other similar group for any taxable
period commencing before the Closing Date; and
(c) any and all actions, suits, proceedings, claims, demands,
incident to any of the foregoing or such indemnification;
provided, however, that if any claim, liability, demand, assessment, action,
suit or proceeding ("Proceeding") shall be asserted in respect of which a Buyer
Indemnitee proposes to demand indemnification ("Buyer Indemnified Claims"),
Buyer or such other Buyer Indemnitee shall notify Seller thereof, provided
further, however, that the failure to so notify Seller shall not reduce or
affect Seller's obligations with respect thereto except to the extent that
Seller is prejudiced thereby. Subject to rights of or duties to any insurer or
other third Person having liability therefor, Seller shall have the right
promptly upon receipt of such notice and after acknowledging liability to Buyer
therefor to assume the control of the defense, compromise or settlement of any
such Buyer Indemnified Claims (provided that any compromise or settlement must
be reasonably approved by Buyer), including, at its own expense, employment of
counsel reasonably satisfactory to Buyer; provided, however, that if
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Seller shall have exercised its right to assume such control, Buyer may, in its
sole discretion and at its expense, employ counsel to represent it (in addition
to counsel employed by Seller) in any such matter, and in such event counsel
selected by Seller shall be required to reasonably cooperate with such counsel
of Buyer in such defense, compromise or settlement.
Seller may, without Buyer's prior written consent, settle or
compromise any such Proceeding or consent to entry of any judgment with respect
to any such Proceeding that requires solely the payment of money damages by
Seller and that includes as an unconditional term thereof the release by the
claimant or the plaintiff of the Buyer Indemnitees from all liability in
respect of such Proceeding. As a condition to asserting any rights under this
Article, each of the Buyer's Indemnitees must appoint Buyer as its sole agent
for all matters relating to any claim under this Article.
Buyer acknowledges that it has been responsible for the
management of White River, and therefore in no event shall Seller or any of its
affiliates be liable or otherwise responsible for, and in no event shall Buyer
be entitled to terminate this Agreement based on (i) any losses, deficiencies,
liabilities, acts or omissions of Buyer or any of its affiliates relating to
White River or (ii) any breach of representation, warranty or covenant of
Seller herein resulting therefrom.
8.2 Indemnification by Buyer. Buyer hereby agrees to
defend, indemnify and hold harmless Seller and its successors, assigns and
affiliates (collectively, "Seller Indemnitees") from and against any and all
losses, deficiencies, liabilities, damages, assessments, judgments, costs and
expenses, including attorneys' fees (both those incurred in connection with the
defense or prosecution of the indemnifiable claim and those incurred in
connection with the enforcement of this provision) (collectively, "Seller
Losses"), resulting from or arising out of:
(a) (i) breaches of representation and warranty hereunder on
the part of Buyer; (ii) failures by Buyer to perform or otherwise
fulfill any undertaking or agreement or obligation hereunder; (iii)
the Assumed Liabilities (provided the Closing shall have occurred);
and (iv) all other post-Closing liabilities of the Companies or White
River (provided the Closing shall have occurred) including, without
limitation, with respect to environmental matters arising after the
Closing as to which Seller is liable or claimed to be liable as a
secured party of White River; and
(b) any and all actions, suits, proceedings, claims and
demands incident to any of the foregoing or such indemnification;
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provided, however, that if any Proceeding shall be asserted in respect of which
a Seller Indemnitee proposes to demand indemnification ("Seller Indemnified
Claims"), Seller or such other Seller Indemnitee shall notify Buyer thereof,
provided further, however, that the failure to so notify Buyer shall not reduce
or affect Buyer's obligations with respect thereto except to the extent that
Buyer is materially prejudiced thereby. Subject to rights of or duties to any
insurer or other third Person having liability therefor, Buyer shall have the
right promptly upon receipt of such notice and after acknowledging liability to
Seller therefor to assume the control of the defense, compromise or settlement
of any such Seller Indemnified Claims (provided that any compromise or
settlement must be reasonably approved by Seller) including, at its own
expense, employment of counsel reasonably satisfactory to Seller; provided,
however, that if Buyer shall have exercised its right to assume such control,
Seller may, in its sole discretion and at its expense, employ counsel to
represent it (in addition to counsel employed by Buyer) in any such matter, and
in such event counsel selected by Buyer shall be required to reasonably
cooperate with such counsel of Seller in such defense, compromise or
settlement.
Buyer may, without Seller's prior written consent, settle or
compromise any such Proceeding or consent to entry of any judgment with respect
to any such Proceeding that requires solely the payment of money damages by
Buyer and that includes as an unconditional term thereof the release by the
claimant or the plaintiff of the Seller Indemnitees from all liability in
respect of such Proceeding. As a condition to asserting any rights under this
Article, each of the Seller's Indemnitees must appoint Seller as its sole agent
for all matters relating to any claim under this Article.
8.3 Characterization of Indemnity Payments. Any
indemnification payment made pursuant to this Agreement shall be treated by the
parties for Tax purposes as an adjustment to the Purchase Price, unless
otherwise required by law.
8.4 Remedies Exclusive. The remedies provided herein
shall be exclusive and shall preclude the assertion by any party hereto of any
other rights or the seeking of any other remedies against the other party
hereto; provided that this Section shall not preclude either party from
asserting that it was fraudulently induced by the other party to enter into
this Agreement.
8.5 Limitations. (a) In calculating the amount of any
Buyer Losses or Seller Losses for which Seller or Buyer, respectively, is
liable under this Article, there shall be taken into consideration the amount
of any insurance recoveries the Buyer's Indemnitees or the Seller's
Indemnitees, respectively, in fact receive as a direct consequence of the
circumstances to which the Buyer Losses or the Seller Losses, respectively,
related, or from which the Buyer Losses or Seller Losses,
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respectively, resulted or arose (net of any additional costs (including,
without limitation, retrospective or future premiums, self-retention amounts,
deductibles, legal and administrative costs, costs of investigation and
attorneys' fees (whether or not incurred by any Buyer Indemnitee in connection
with any action, suit, proceeding or claim against the Company or Seller
hereunder or by a Seller Indemnitee against the Buyer hereunder), overhead and
costs of compliance under any insurance policy) of any nature incurred by
reason of such recovery).
(b) Neither CRSS nor any of its affiliates other than
Seller shall be liable, directly or indirectly, to Buyer or any Buyer
Indemnitee with respect to any Buyer Losses, either pursuant to this Article 8
or otherwise, except to the extent set forth in the letter from CRSS to Buyer
dated the date hereof, substantially in the form of Exhibit A-2 hereof, and
except to the extent provided in Section 10.12.
(c) Except for Buyer Losses with respect to claims for
breach of Sections 3.4(a)-(b), 3.5 or 3.9(c) hereof, no claim or claims shall
be asserted by a Seller Indemnitee or a Buyer Indemnitee pursuant to the
provisions of this Section 8.1(a)(i) or Section 8.2(a)(i), unless and until the
aggregate amount of such damages for all Seller Indemnitees or Buyer
Indemnitees, as the case may be, exceeds $250,000 in the aggregate, in which
case the Seller Indemnitee or the Buyer Indemnitee, as the case may be, may
recover the full amount of such damages. No claim for Buyer Losses shall be
asserted by a Buyer Indemnitee by reason of a breach of Section 3.9(c) hereof
unless and until the aggregate amount of such Buyer Losses paid to Buyer
Indemnitees exceeds $100,000 in the aggregate, in which case the Buyer
Indemnitee may recover the full amount of such Buyer Losses. No claim for
Buyer Losses shall be asserted by a Buyer Indemnitee with respect to any
attorneys fees incurred by reason of a claim under Sections 3.4(a)-(b) or 3.5
hereof, if the underlying claim giving rise to such claim for Buyer Losses
shall not prevail, unless and until the aggregate amount of such Buyer Losses
paid to Buyer Indemnitees exceeds $100,000 in the aggregate, in which case the
Buyer Indemnitee may recover the full amount of such Buyer Losses (it being
understood and agreed that no threshold shall apply with respect to claims for
Buyer Losses by reason of a breach of Sections 3.4(a)-(b) and Section 3.5
(other than Buyer Losses comprising attorneys fees incurred in connection with
unsuccessful claims under said Sections)). Seller's liability hereunder for
claims under Section 8.1(a)(i) shall not exceed $10 million in the aggregate.
Buyer's liability hereunder for claims under Section 8.2(a)(i) shall not exceed
$10 million in the aggregate.
(d) Except with respect to damages recoverable by a Buyer
Indemnitee for an intentional breach of a representation, warranty, covenant or
other obligation hereunder (an "Intentional Breach"), the aggregate amount of
Buyer Losses recoverable by all Buyer Indemnitees for any breach of a
representation, warranty,
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covenant or other obligation hereunder shall be limited to $250,000 in the
aggregate if the Closing shall not have occurred. Anything in this Agreement
to the contrary notwithstanding, no Buyer Indemnitee shall assert as Buyer
Losses the amount of any benefit that would have accrued to such Buyer
Indemnitee had the Closing occurred and the release of litigation contemplated
by Section 10.3 hereof become effective.
ARTICLE 9
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
9.1 Representations, Warranties and Covenants. The
covenants contained in this Agreement shall survive the Closing Date without
limitation. The representations and warranties contained herein shall survive
the Closing Date for a period of two (2) years, except that any representation
or warranty of Seller contained in Sections 3.1 (Corporate Organization and
Authority of Seller) through and including 3.6 (No Violation), 3.10 (Tax
Matters) and 3.13 (Compliance with Law) shall survive until expiration of the
applicable statute of limitations. Buyer's claim for indemnification under
Section 8.1(a)(i) for a breach of any representation or warranty shall be made
on or prior to the date, if any, on which the survival period for such
representation or warranty expires, it being understood that claims made on or
prior to such expiration date shall survive such expiration date.
ARTICLE 10
MISCELLANEOUS
10.1 Cooperation. Each of the parties hereto shall use its
reasonable efforts to take or cause to be taken all actions, to cooperate with
the other party hereto, with respect to all actions, and to do or cause to be
done all things necessary, proper or advisable to consummate and make effective
the transactions contemplated by this Agreement.
10.2 Waiver. Any failure of Seller to comply with any of its
obligations or agreements herein contained may be waived only in writing by
Buyer. Any failure of Buyer to comply with any of its obligations or
agreements herein contained may be waived only in writing by Seller.
10.3 Mutual Release. Buyer and Seller hereby release the
other and each of their respective affiliates (and each of their respective
officers and directors), effective as of the Closing Date and conditional upon
the occurrence of the Closing, from all liability to the other as of the
Closing Date, including, without limitation, with respect to the ongoing
litigation and arbitration proceedings. In furtherance thereof,
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each shall deliver at Closing a release in the form of Exhibit 10.3 attached
hereto. No party to such litigation shall pursue such litigation until the
Closing or until this Agreement shall have been terminated. Seller shall and
shall cause each of the Companies to file on the Closing Date a Notice of
Dismissal with Prejudice or similar document in proceedings pending in the
District Court of Harris County, Texas, 125th Judicial District, captioned,
NaTec Resources, Inc. and NaTec Minerals, Inc. v. D. George Harris &
Associates, Inc., Harris Chemical Group, Inc. and North American Chemical
Company, having Cause No. 94-025523. Buyer shall cause to be filed on the
Closing Date a Notice of Withdrawal of Demand for Arbitration and Statement of
Claim in arbitration proceedings now pending under the administration of the
American Arbitration Association, New York office, captioned, In the Matter of
the Arbitration between North American Carbonate Company and North American
Bicarbonate Company, and NaTec Minerals, Inc., and Oldexaer, Inc., having
caption number 13-181-00582-94. Effective as of the Closing, the parties
hereto shall take all steps necessary to terminate the mediation proceedings
between the Members of White River now pending under the auspices of the Center
for Public Resources.
10.4 Capital Expenditure Program. Buyer and Seller hereby
agree to and approve the commencement of a capital expenditure program at White
River described in detail on Schedule 10.4 hereof, which expenditure program
shall commence immediately, and shall cause the management committee of White
River to approve said program and make a capital call therefor to the extent
White River does not have adequate funds to make such capital expenditures.
Such capital calls shall be made effective (the "Call Date") as of the date
that Seller mails a proxy or an information statement in respect of the
transactions contemplated hereby to its shareholders. These funds shall be
contributed by the owners of the membership interests in White River in
accordance with the Limited Liability Company Operating Agreement Among Buyer,
North American Bicarbonate Company and the Companies dated November 19, 1992
(the "Operating Agreement") on the 90th day following the Call Date. To the
extent that any party shall not honor such capital call by such 90th day, the
other party may, in its sole discretion, either (i) by paying all or a portion
of such unpaid amount, purchase all or a portion of the defaulting member's
Membership Interest (as defined in the Operating Agreement) (the amount of the
Membership Interest thus purchased will equal the portion of the unpaid amount
paid by the non-defaulting member divided by the net book value of White River)
or (ii) by contributing all or a portion of such unpaid amount and increase its
Membership Interest accordingly (the amount of the increase in Membership
Interest thus obtained will equal the portion of the unpaid amount contributed
by the non-defaulting member divided by the net book value of White River and
the Membership Interests of the members as provided in Section 3.03 of the
Operating Agreement will thereupon by deemed restated accordingly). The
provisions of this Section 10.4 shall remain in full force and effect
regardless of whether or not the
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Closing shall have occurred. If Seller shall have honored any such capital
call, Buyer and/or White River shall return the amount thereof to Seller at the
Closing if the Closing shall occur. Nothing in this Section 10.4 shall
prejudice or impair in any way the claims or rights of either Buyer or Seller
with respect to the proceedings described in Section 10.3 above or the subject
matters of those proceedings.
10.5 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given upon receipt
of: hand delivery; certified or registered mail, return receipt requested; or
telecopy transmission with confirmation of receipt:
(i) If to Seller, to:
Natec Resources, Inc.
1177 West Loop South
P.O. Box 56571
Houston, Texas 77256-6571
Telecopier: (713) 552-2538
Telephone: (713) 552-2344
Attention: John T. McCormack
with a copy to:
Van Cott, Bagley, Cornwall & McCarthy
50 South Main Street, Suite 1600
P.O. Box 45340
Salt Lake City, Utah 84145
Telecopier: (801) 534-0058
Telephone: (801) 532-3333
Attention: Brent Christensen, Esq.
(ii) If to Buyer, to
North American Chemical Company
c/o Harris Chemical Group, Inc.
399 Park Avenue, 32nd Floor
New York, New York 10022
Telecopier: (212) 207-6450
Attention: Donald G. Kilpatrick, Esq.
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(with a copy to)
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004
Telecopier: (212) 858-1500
Telephone: (212) 858-1000
Attention: Kenneth E. Adelsberg, Esq.
Such names and addresses may be changed by written notice to each person listed
above.
10.6 Governing Law and Consent to Jurisdiction; Dispute
Resolution. (a) This Agreement shall be governed by and construed in
accordance with the internal substantive laws and not the choice of law rules
of the State of New York.
(b) Subject to the next succeeding sentence, any judicial
proceeding brought against any party to this Agreement with respect to any
claim related to this Agreement, shall be brought in any court of competent
jurisdiction in the City of New York, and, by the execution and delivery of
this Agreement, each party to this Agreement accepts, generally and
unconditionally, the exclusive jurisdiction of such courts and any related
appellate court and irrevocably agrees to be bound by any judgment rendered
thereby in connection with any claim related to this Agreement and irrevocably
waives any objection it may now or hereafter have as to the venue of any such
proceeding brought in such a court or that such a court is an inconvenient
forum. Each party to this Agreement hereby waives personal service of process
and consents that service of process upon it may be made by certified or
registered mail, return receipt requested, at its address specified or
determined in accordance with the notice provisions of this Agreement, and
service so made shall be deemed completed on the third business day after such
service is deposited in the mail.
(c) EACH PARTY TO THIS AGREEMENT HEREBY WAIVES TRIAL BY JURY
IN ANY JUDICIAL PROCEEDING TO WHICH THEY ARE PARTIES INVOLVING ANY CLAIM
ARISING OUT OF OR RELATED TO THIS AGREEMENT.
10.7 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
10.8 Headings. The section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
10.9 Entire Agreement. This Agreement, including the
Exhibits and Schedules hereto and the documents referred to herein, embodies
the entire agreement and understanding of the
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parties hereto in respect of the subject matter contained herein. This
Agreement supersedes all prior agreements and understandings between the
parties with respect to such subject matter.
10.10 Amendment and Modification. This Agreement may be
amended or modified only by written agreement of the parties hereto.
10.11 Binding Effect; Benefits. This Agreement shall inure
to the benefit of and be binding upon the parties hereto and their respective
successors and assigns; nothing in this Agreement, express or implied, is
intended to confer on any Person other than the parties hereto and their
respective successors and assigns (and, to the extent provided in Sections 8.1
and 8.2, the other Buyer Indemnitees and Seller Indemnitees) any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
10.12 Assignability. This Agreement shall not be assignable
by any party hereto without the prior written consent of the other party except
as follows: Buyer (i) may grant a security interest in its rights under this
Agreement to its lender(s) as security for Buyer's obligations to such
lender(s) (and such lender(s) may exercise its rights and remedies with respect
to such security interest) and (ii) may assign its rights under the Agreement
to any affiliate of Buyer; provided in each case that Buyer remain primarily
liable hereunder. Seller may assign all of its rights and obligations
hereunder to CRSS Inc. in which case Seller shall remain liable and CRSS Inc.
shall become liable for all of Seller's obligations hereunder.
10.13 Disclosure Letter. All references in this Agreement to
Schedules to this Agreement shall be deemed to mean Schedules to a disclosure
letter delivered by Seller to Buyer on the date hereof or to a disclosure
letter delivered by Buyer to Seller on the date hereof, as the case may be.
10.14 Certain References. The use of the terms "herein",
"hereof" or similar words contained in this Agreement shall refer to this
Agreement in its entirety unless there shall be a specific reference to the
contrary.
10.15 Supply of Sodium Bicarbonate. Seller hereby agrees to
use its best efforts to cause White River to be granted a right of first
refusal to supply sodium bicarbonate to any user (including, without
limitation, Seller) or licensee of technology or patents constituting Excluded
Assets and to permit White River to have the Seller's benefits of, and the
right to exercise on behalf of Seller, the right of first refusal set forth in
paragraph 10 of the Amending and Assignment Agreement made as of the 1st day of
April, 1994 between Seller, Paragon Environmental Systems and Airborne
Pollution Abatement Technologies, Inc.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
NORTH AMERICAN CHEMICAL COMPANY
By________________________________
Name:
Title:
NATEC RESOURCES, INC.
By________________________________
Name:
Title:
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<PAGE> 159
EXHIBIT D (EX-10.B)
NORTH AMERICAN CHEMICAL COMPANY
SECURED NON-NEGOTIABLE NOTE
$4,000,000
New York, New York
, 1995
------------
FOR VALUE RECEIVED, the undersigned, North American Chemical
Company, a Delaware corporation ("NACC"), hereby promises to pay to Natec
Resources, Inc., a Utah corporation ("NRI"), or its assignee (together the
"Holder"), in lawful money of the United States of America and in immediately
available funds, Four Million Dollars ($4,000,000), payable on the dates and in
the amounts and manner and subject to reduction as specified below.
This note is the "Note" referred to in the Acquisition Agreement
(the "Agreement") dated as of _______, 1995, between NACC and NRI for the
purchase by NACC of all the shares of capital stock held by NRI in Natec
Minerals, Inc. and Oldexaer, Inc., and the assets and liabilities of NRI as
described therein. This Note is subject to all the terms and conditions of the
Agreement. NACC shall have no right to set-off any amounts due under this Note.
All capitalized terms used herein and not otherwise defined shall
have the meaning ascribed to them in the Agreement.
This Note will bear no interest.
This Note will be due and payable in separate installments payable
30 days after the end of each Fiscal Quarter, the first installment being due 30
days after the first full Fiscal Quarter following the Closing Date. The amount
payable with respect to each Fiscal Quarter shall equal $10.00 times the number
of tons of sodium bicarbonate sold by NACC or any of its affiliates (including,
without limitation, White River) during such Fiscal Quarter to persons other
than NACC or any of its affiliates (including, without limitation, White River);
provided, however, that sales of sodium bicarbonate not produced by White River
shall not count as sales for purposes of this Note; provided, further, that the
amount payable after the fourth fiscal Quarter shall be not less than the amount
by which $600,000 exceeds the aggregate amount paid with respect to the first
three Fiscal Quarters and that the amount payable with respect to the eighth
Fiscal Quarter shall be not less than the amount by which $700,000 exceeds the
aggregate amount paid with respect to the fifth, sixth and seventh Fiscal
Quarters. Anything to the contrary notwithstanding, the aggregate amount
payable by NACC under this Note shall not exceed the Note Amount (as defined
herein).
As used herein, the term Fiscal Quarter shall mean, respectively,
the quarters ended on the last Saturday of March, June, September and December.
D-1
<PAGE> 160
On the fifth anniversary of the Closing Date, NACC shall pay an
amount equal to the excess of $4,000,000 over the amount previously paid under
this Note, unless this Note shall have been accelerated or prepaid as
contemplated by the next two paragraphs.
Upon the occurrence and continuance of an Event of Default, the
Holder may declare all the obligations of NACC to be forthwith due and payable
without presentment, demand, protest or notice of any kind, all of which are, to
the extent permitted by law, expressly waived. For purposes of determining the
amount to be due and payable in accordance with the immediately preceding
sentence (or upon a voluntary prepayment as contemplated by the next paragraph),
the outstanding principal amount of this Note shall be discounted using a
discount rate equal to the Prime Rate (as defined below) as of the date of the
Triggering Event (as defined below) and assuming that the remaining balance of
the Note would be paid in equal quarterly installments. As used herein, the
term "Event of Default" shall mean (x) the failure of NACC to pay when due any
amount under this Note and the continuance of such failure for ten (10) days or
(y) a Bankruptcy Event and the term "Triggering Event" shall mean the
acceleration of the Note as contemplated by this paragraph or the voluntary
prepayment of the Note as contemplated by the next paragraph. The discounted
value of the Note on the date of any Triggering Event is referred to herein as
the Note Amount. As used herein, the term "Bankruptcy Event" shall mean that
both of NACC and White River shall have filed, allowed to be filed, or have
filed against them, any petition or proceeding under any bankruptcy, insolvency,
reorganization, arrangement, readjustment of debt, dissolution or liquidation
law of any jurisdiction, and such filing if involuntary or not consented to
shall not have been dismissed or stayed within ninety (90) days after the filing
thereof.
NACC may prepay this Note in full at any time without premium or
penalty by paying the Note Amount calculated as of the time of payment.
Holder shall have the right to have the books and records of White
River audited annually on twenty (20) days prior written notice in order to
confirm the amount and number of payments required to be made hereunder. The
audit shall be performed at the expense of Holder by an auditing and accounting
firm chosen by Holder and reasonably acceptable to NACC. If an audit determines
that, at any time, additional payments are required under this Note at such
time, and NACC agrees with such conclusion, then NACC shall make such payments
within three (3) business days after notification from Holder of the required
payment amount. If NACC does not so agree, then items disputed shall be subject
to binding arbitration in accordance with Section 10.6 of the Agreement. If an
audit determines that NACC has, at any time, made over-payments on this Note at
such time, then Holder shall within three (3) business days pay to NACC the
amount equal to such over-payments. Each such adjusting payment made by NACC or
Holder, as the case may be, shall be made with interest accrued at the Prime
Rate as published in the Wall Street Journal (the "Prime Rate") from the date
such payments were due or made, as the case may be, until they are so paid.
This Note is secured by a security interest, mortgage, lien and
assignment to NRI in all of the assets of White River.
D-2
<PAGE> 161
This Note may not be assigned or otherwise transferred by Holder,
other than to CRSS Inc. or any direct or indirect majority owned subsidiary of
CRSS Inc., without the prior written consent of NACC. Any assignee, distributee
or other transferee of this Note shall receive and hold this Note subject to all
of the terms and conditions hereof.
No amendment, modification, termination or waiver of any provision
of this Note shall be effective unless it shall be in writing and signed by NACC
and Holder (or its assignee, as the case may be).
All notices and other communications in relation to this Note shall
be given in accordance with Section 10.5 of the Agreement.
This Note shall be governed by and construed under and in accordance
with the internal substantive laws and not the choice of law rules of the State
of New York.
Any dispute, claim or controversy arising out of or relating to this
Note, the interpretation thereof, or the demand for payment thereunder, shall be
resolved in accordance with Section 10.6 of the Agreement.
NORTH AMERICAN CHEMICAL COMPANY
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
D-3
<PAGE> 162
EXHIBIT E (EX-10.C)
[CRSS LOGO]
5 April 1995
FAX: 212/207-6409
North American Chemical Company, c/o Harris Chemical Group, Inc., 399 Park
Avenue, 32nd Floor, New York, New York 10022
GENTLEMEN, This letter is in reference to the Acquisition Agreement (the
"Agreement") between North American Chemical Company (the "Buyer"), and NaTec
Resources, Inc. (the "Seller"), dated of even date herewith, pursuant to which
Buyer seeks to purchase and Seller seeks to sell the shares of capital stock
held by Seller in Natec Minerals, Inc. and Oldexaer, Inc., and pursuant to
which Buyer seeks to acquire, and Seller seeks to sell, transfer and convey,
certain assets and liabilities of Seller (the "Transactions").
You have made it a condition to your execution of the Agreement that we execute
and deliver this letter. Accordingly, CRSS Inc. agrees, subject to the
provisions of this letter, to vote in favor of or otherwise consent to (and to
cause each of its affiliates that own stock in Seller to vote in favor of or
otherwise consent to) the Transactions in its capacity as creditor of Seller,
holder of shares of common stock of Seller and holder of shares of preferred
stock of Seller.
CRSS Inc. also covenants, subject to the provisions of this letter, to have, as
of the time of any vote or consent described in the above paragraph, the right
to vote a sufficient number of voting securities in Seller to approve the
Transactions.
This covenant is conditioned on the assumptions that (1) Seller currently has,
and at the record date with respect to any such vote or consent will have
25,477,387 shares of Common Stock issued and outstanding, 100,000 shares of
Series A Preferred Stock issued and outstanding, 10,000 shares of Series B
Preferred Stock issued and outstanding, and 10,000 shares of Series C Preferred
Stock issued and outstanding (not taking into account any conversion by CRSS
Inc. of any of the Series A, Series B or Series C Preferred Stock, or any of
CRSS Inc's other convertible interests) and does not have any, and as of such
record date will not have any, other voting securities issued and outstanding,
and (2) Seller has not taken any action and will not take any action to impair
CRSS Inc.'s rights, including without limitation its voting and conversion
rights, with respect to any of the common stock, preferred stock or
indebtedness of Seller which CRSS Inc. currently owns or will own as of such
record date by CRSS Inc., and that Seller will reasonably cooperate with CRSS
Inc. in exercising such rights.
<PAGE> 163
All of the above obligations of CRSS Inc. are subject to the following
additional conditions, for so long as these conditions are continuing:
1. If Seller has the right to terminate the Agreement, without regard to
any waiver or non-exercise by Seller of any of its rights, then CRSS Inc. shall
not have any obligations under this letter;
2. Satisfaction of the conditions precedent to Seller's obligations
specified in Sections 7.3 and 7.6 of the Agreement, without regard to any
waiver by Seller of any of its rights;
3. The Board of Directors of Seller has approved the Transactions and has
recommended same to its shareholders, and has not changed or conditioned such
approval or recommendation;
4. There is no injunction, restraining order or decree of any nature of
any court of governmental or regulatory authority against CRSS Inc. or any of
its affiliates, or any of the principals, officers or directors of CRSS Inc.,
that restrains, prevents or materially changes the Transactions.
Furthermore, the obligations of this letter shall not apply with respect to any
of CRSS Inc.'s interests in Seller (including without limitation any of its
debt, common stock or preferred stock interests in Seller) that CRSS Inc. has
sold or entered into a binding agreement to sell to a person or entity that is
not an affiliate of CRSS Inc., prior to the date of any applicable vote or
consent.
Without limiting the foregoing, CRSS Inc. shall be relieved of its obligations
set forth in this letter if and to the extent counsel advises it in writing
that it would be a breach of fiduciary obligations to the shareholders of CRSS
Inc. under Delaware law if it were to act in accordance with this letter.
CRSS INC.
By /s/ BRUCE WILKINSON
Name Bruce W. Wilkinson
Title Chairman/CEO
Accepted:
North American Chemical Company
By /s/ D. G. KILPATRICK
Name D. G. Kilpatrick
Title Vice President
<PAGE> 164
EXHIBIT F (EX-10.D)
[CRSS LOGO]
Fax: 212/207-6450
North American Chemical Company, c/o Harris Chemical Group, Inc., 399 Park
Avenue, 32nd Floor, New York, New York 10022
GENTLEMEN, This letter is in reference to the Acquisition Agreement (the
"Agreement") between North American Chemical Company (the "Buyer"), and NaTec
Resources, Inc. (the "Seller"), dated April 5, 1995 pursuant to which Buyer
seeks to purchase, and Seller seeks to sell, the shares of capital stock held
by Seller in Natec Minerals, Inc. and Oldexaer, Inc., and pursuant to which
Buyer seeks to acquire, and Seller seeks to sell, transfer and convey,
certain assets and liabilities of Seller (the "Transactions"). All capitalized
terms used but not defined herein shall have the same meaning as in the
Agreement.
You have made it a condition to your execution of the Agreement that we execute
and deliver this letter. This letter shall be effective as of the Closing.
Subject to the terms and conditions hereof, CRSS Inc. ("CRSS") hereby
unconditionally guarantees to each Buyer Indemnitee all obligations of Seller
to indemnify and hold harmless said Buyer Indemnitee with respect to all claims
made by any such Buyer Indemnitee under Article 8 of this Agreement. The
obligations of CRSS hereunder shall be subject to the same rights, limits and
defenses available to Seller under the Agreement.
Anything to the contrary notwithstanding, with respect to any claim made by any
Buyer Indemnitee under the Agreement, the liability of CRSS hereunder to
guarantee Seller's obligations under the Agreement with respect to such claim
shall be limited to the Available Amount. As used herein the term "Available
Amount" shall mean, with respect to any claim, the amount by which the note
Amount (as defined in the Note) at the time such claim is made exceeds the sum
of (x) the amount previously paid by CRSS Inc. pursuant to this letter ("CRSS
Payments") and (y) the extent to which the aggregate amount of payments by NACC
under the Note (plus, without duplication of any payment actually made,
payments due from NACC which have not been paid when due) exceeds the aggregate
amount of CRSS Payments.
The obligation of CRSS under this letter shall not be dependent upon or
affected by any action or failure to take action on the part of Seller under or
with respect to the Agreement, any other dealings between Seller and NACC, or
any proceeding, voluntary or involuntary, involving the bankruptcy, insolvency,
receivership, reorganization or arrangement of Seller. CRSS hereby agrees that
in the event any amount guaranteed hereunder is paid by Seller, the liability
of CRSS with respect thereto shall continue and remain in full force and effect
in the event that all or part of such payment is recovered from NACC as a
preference, fraudulent conveyance or otherwise under any applicable law.
<PAGE> 165
Any dispute, claim or controversy arising out of or relating to this letter or
the interpretation thereof shall be resolved in accordance with Section 10.6 of
the Agreement.
CRSS INC.
By /s/ BRUCE W. WILKINSON
Name Bruce W. Wilkinson
Title Chairman/CEO
Accepted:
North American Chemical Company
By /s/ D. G. KILPATRICK
Name D. G. Kilpatrick
Title Vice President
<PAGE> 166
EXHIBIT G (EX-99.A)
FAIRNESS OPINION
NATEC RESOURCES, INC.
PROPOSED SALE OF 50% INTEREST IN
WHITE RIVER NAHCOLITE MINERALS TO
NORTH AMERICAN CHEMICAL COMPANY
PREPARED BY:
HOULIHAN VALUATION ADVISORS
MARCH 24, 1995
<PAGE> 167
March 24, 1995
Board of Directors
NaTec Resources, Inc.
1177 West Loop South, Suite 800
Houston, Texas 77027
Dear Board Members:
You have requested Houlihan Valuation Advisors (hereinafter "HVA") to
render an opinion (the "Opinion") as to the fairness from a financial point of
view to NaTec Resources, Inc. ("NaTec" or "the Company") of the proposed sale
(the "Transaction") of the 50% ownership interest in White River Nahcolite
Minerals Limited Liability Company ("White River") collectively held by NaTec
Minerals, Inc. and Oldexaer, Inc., both wholly-owned subsidiaries of NaTec, to
North American Chemical Company ("NACC"), assuming the Transaction is
consummated as proposed. The Opinion addresses the fairness of the Transaction
to NaTec, and is limited to opining as to whether the fair market value of the
consideration being received by the Company in the Transaction is at least as
great as the fair market value of the Company's 50% ownership interest in White
River being sold in the Transaction.
DESCRIPTION OF THE TRANSACTION
It is proposed that NaTec sell to NACC the Company's 50% ownership
interest in White River for consideration of $10,000,000, comprised of an
immediate cash payment of $6,000,000 upon closing together with a non-interest
bearing note in the amount of $4,000,000, payable in certain installments
(based on sales of sodium bicarbonate produced by White River) over a five year
period. The note will be secured by all of the assets of White River. The
Transaction is described in a preliminary draft of the Acquisition Agreement
Between North American Chemical Company and NaTec Resources, Inc., dated March
___, 1995. It is contemplated that the Transaction will close shortly following
approval of the Transaction by NaTec's shareholders. The present value of the
consideration to be received by NaTec in the Transaction is estimated to be
approximately $9,000,000.
<PAGE> 168
Page 2
ANALYSIS LEADING TO ADVISORY CONCLUSIONS
In connection with preparing this Opinion, we have made such analyses,
reviews and inquiries as we have deemed necessary and appropriate under the
circumstances. In conducting our analysis and forming our Opinion, we have
reviewed a number of documents, including but not limited to the following:
1. A preliminary draft of the Acquisition Agreement Between North
American Chemical Company and NaTec Resources, Inc., dated March
___ 1995, which describes the proposed Transaction, together with
accompanying schedules and documents.
2. The audited financial statements of White River for the period
from inception (June 24, 1992) through December 31, 1993.
3. A draft of the preliminary audited financial statements of White
River for the year ended December 31, 1994.
4. Internally generated monthly financial statements and status
reports for White River for each month of the period December 1993
through January 1995.
5. The White River 1994 Project Status and Annual Plan of Development,
submitted to the Bureau of Land Management on January 31, 1995.
6. White River's 1995 operating budget and proposed capital
expenditure program, prepared by NACC and NaTec.
7. A copy of a report entitled "Valuation and Due Diligence Review of
NaTec Minerals, Inc.'s Wolf Ridge, Colorado Nahcolite Operation",
prepared for NaTec by Pincock, Allen & Holt, Inc., dated March 6,
1992.
8. A proxy statement, dated October 26, 1992, describing the effective
sale of an earlier 50% interest in White River owned by NaTec to
NACC.
9. The Joint Venture Agreement, Operating Agreement, and Supply
Agreement, each dated June 22, 1992, by and between NaTec and NACC
(collectively referred to hereinafter as the "Joint Venture
Agreement"), which describes the rights and responsibilities of
both NaTec and NACC relative to the operation of White River.
10. NaTec's Annual Reports to Shareholders for each of the years ended
December 31, 1989 through 1993.
11. NaTec's Forms 10-K, filed with the Securities and Exchange
Commission, for the years ended December 31, 1992 and 1993.
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12. A preliminary draft of NaTec's Form 10-K, to be filed with the
Securities and Exchange Commission, for the year ended
December 31, 1994.
13. NaTec's Forms 10-Q, filed with the Securities and Exchange
Commission, for the quarters ended March 31, 1994, June 30,
1994, and September 30, 1994.
14. 1993/94 annual reports and/or Forms 10-K and 10-Q for Church &
Dwight Co., Inc. and FMC Corporation, the primary publicly
traded competitors of White River, NACC and NaTec in the
sodium bicarbonate industry.
15. NaTec's promotional brochure.
16. A profile and overview of the sodium bicarbonate industry
contained in the January 12, 1995 edition of Purchasing
magazine.
17. An article entitled "Electric Utility Response to the Clean
Air Act Amendments" contained in the January 1994 edition of
Power Engineering magazine, which describes the less
expensive market alternatives to NaTec's dry sodium
bicarbonate injection technology.
18. A letter from FMC Corporation to NaTec expressing preliminary
interest in acquiring NaTec's 50% interest in White River for
a price ranging between $7 million and $9 million, with a
condition precedent that the Joint Venture Agreement be
restructured.
19. Various other documents provided by management of NaTec.
In addition to review of the above described documents, the following
analytical procedures were conducted in arriving at our Opinion:
1. Inquiries were made of certain employees and officers of both
White River and NaTec regarding: (i) the operations, financial
condition, future prospects, and projected operations and
performance of both White River and NaTec; (ii) whether
management of either White River or NaTec is aware of any events
or conditions which might cause any of the assumptions set forth
in this Opinion to be incorrect; and (iii) whether management of
either White River or NaTec is aware of any material change in
the assets, financial condition or business outlook of either
White River or NaTec since December 31, 1994, the date of the
most recent preliminary financial statements available.
2. A site visit was made to the White River operating facility,
wherein interviews were conducted with certain employees and
officers of both White River and NaTec and a tour of the
facility was completed.
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Page 4
3. White River's 1995 operating budget and proposed capital
expenditure program, as prepared by NACC and NaTec, was
reviewed, and the assumptions underlying these documents were
discussed with NaTec management.
4. Generally recognized financial analysis and valuation
procedures were undertaken to ascertain the financial
condition of White River as well as to estimate its fair
market value. Several operating scenarios (assuming various
levels of both future production and product pricing) were
analyzed in an attempt to ascertain the fair market value of
White River.
5. The Joint Venture Agreement was reviewed and analyzed in an
attempt to ascertain its impact on the fair market value of
NaTec's 50% ownership interest in White River.
6. Other studies, analyses and investigations were conducted as
deemed appropriate.
In connection with our analysis of and Opinion relating to the
Transaction, the following points should be briefly mentioned:
1. In connection with the evolution of the Transaction, an extensive
market search was made by NaTec to find prospective buyers of
the Company's 50% interest in White River. Of approximately 30
companies contacted worldwide, only two or three expressed any
preliminary interest, with only FMC Corporation expressing
significant interest. Eventually, any interest prospective
acquirors had was derailed by the existence of the Joint Venture
Agreement, which effectively gives operating control of
White River to NACC.
2. The Joint Venture Agreement effectively specifies a price per ton
to be paid to White River for sodium bicarbonate produced by
White River of no greater than $110 per ton. This price is below
market price in at least some markets for sodium bicarbonate. The
price cannot be increased without the consent of NACC (the issue
could presumably be taken to arbitration by NaTec; however, there
is no assurance that the price would be increased in
arbitration). Given the virtual absence of sodium bicarbonate
production demand on the part of NaTec, and the dismal prospects
for future production demand by the Company, NACC has a strong
incentive to keep the price fixed at no higher than $110 per ton,
and no incentive to increase it. The 1992 joint venture
acquisition proxy states that "the purchase price (of product)
received by White River from NACC and the Company has an
established ceiling which is expected to result in little or no
margin earned by White River. White River was established as a
vehicle to efficiently produce and sell product to its owners or
their affiliates, rather than an entity which will generate any
significant profits. Profits will be generated by NACC and the
Company upon their subsequent sale of the sodium bicarbonate to
their respective third party customers."
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Page 5
3. NaTec appears to be effectively precluded by its weak financial
condition from creating demand for its prospective share of
sodium bicarbonate produced by White River through the high-risk,
capital-intensive prospect of entering other sodium bicarbonate
markets, thereby entering into competition not only with NACC but
with such large, well-financed competitors as Church & Dwight
and FMC Corporation.
4. NaTec management has indicated that the Company will almost
certainly be forced to seek protection from its creditors under
Chapter 11 and/or Chapter 7 of the Bankruptcy Code if the
Transaction is not consummated. Given this scenario, it is
possible that the Company's 50% interest in White River might
ultimately be sold for a price well below that being offered
in the Transaction.
5. NaTec has no ability to sell White River as a whole without the
consent of NACC, the other 50% owner in White River. NaTec has
the ability to sell only its 50% interest in White River, with
the prospective buyer of this interest becoming subject to and
bound by all of the terms of the Joint Venture Agreement.
Consequently, the fair market value of the Company's 50%
interest in White River appears to be well below the pro-rata
fair market value of a 100% interest in White River unencumbered
by the existence of the Joint Venture Agreement. The 1992 joint
venture acquisition proxy statement states that "the Board (of
NaTec) recognizes that, in the event the Company is forced to
liquidate because such additional funding cannot then be
obtained, the marketability and value of the Company's equity
interest in White River may be adversely affected because of the
joint venture arrangements with NACC under the Joint Venture
Agreement and the ancillary agreements thereto."
LIMITING CONDITIONS
The Opinion is subject to the following limiting conditions:
1. Neither HVA or its principals have any present or intended
interest in any of the parties involved in the Transaction,
including but not limited to NaTec, NACC, White River, and CRSS
Inc. ("CRSS"). HVA's fees for the Opinion are based on
professional time charges and a charge for our expert opinion as
to fairness, and are in no way contingent upon the final
conclusions derived.
2. The Opinion is intended only for the specific use and purpose
stated herein. It is intended for no other uses and is not to be
copied or given to unauthorized persons without the direct
written consent of HVA. The Opinion may, however, be included in
the proxy statement relating to the Transaction to be issued by
NaTec to its shareholders, as well as in any required filings to
be made with the Securities and Exchange Commission as required
by the Commission's rules and regulations, and we hereby consent
to such inclusion. The Opinion and information contained herein
are valid only for the stated purpose and date of the Opinion,
and should in no way be construed to be investment or loan
advice.
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Page 6
3. HVA does not purport to be a guarantor of value. Valuation is an
imprecise science, with value being a question of informed
judgement, and reasonable persons can differ in their estimates
of value. HVA does certify that the Opinion was conducted and the
conclusions arrived at independently using conceptually sound and
commonly accepted methods of valuation and financial analysis.
4. In preparing the Opinion, HVA used information and relied upon
representations provided by management of both NaTec and White
River. It has been represented to us that the information is
reasonably complete and accurate. We did not make independent
examinations of any financial statements, projections or other
information prepared by management of either NaTec or White River
which was relied upon and, accordingly, we make no
representations or warranties nor do we express any opinion
regarding the accuracy or reasonableness of such.
5. It is beyond the scope of the Opinion to render any opinion
relative to the solvency or insolvency of any of the parties
involved in the Transaction, including but not limited to NaTec,
NACC, White River, and CRSS, either prior to or following the
Transaction. HVA has not been requested to render any such
opinion, and nothing contained in the Opinion should be
construed as such.
6. It is beyond the scope of the Opinion to render any opinion
relative to either the fairness of the Transaction to the common
shareholders of NaTec or the ultimate use of the proceeds
generated by the Transaction. HVA has not been requested to
render any such opinion, and nothing contained in the Opinion
should be construed as such. As previously mentioned, the Opinion
addresses the fairness of the Transaction to the Company as a
whole, and is limited to opining as to whether the fair market
value of the consideration being received by the Company in the
Transaction is at least as great as the fair market value of the
Company's 50% ownership interest in White River being sold in the
Transaction. It should be recognized by the Company's common
shareholders that the proceeds generated by the Transaction will
likely not be sufficient, even when combined with the Company's
other tangible assets, to pay the Company's liabilities and
redeem the Company's preferred stock in full. The Company's
September 30, 1994 Form 10-Q states that "the Company is
considering the sale of its ownership in White River, the primary
remaining asset of the Company, and is holding preliminary
discussions with several parties. If the Company were to sell
its ownership in White River, as contemplated under these
discussions, proceeds would only be sufficient to satisfy the
claims of creditors and the preferred shareholder."
7. It is beyond the scope of the Opinion to render any opinion
relative to the fairness of the Transaction to CRSS, the sole
preferred shareholder of NaTec. HVA has not been requested to
render any such opinion, and nothing contained in the Opinion
should be construed as such. CRSS has indicated its support
of the Transaction.
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Page 7
8. It is beyond the scope of the Opinion to render any opinion
relative to the future performance of the common stock of NaTec,
either following or in anticipation of the Transaction. HVA has
not been requested to render any such opinion, and nothing
contained in the Opinion should be construed as such.
9. Publicly available information utilized in the analysis (e.g.,
economic, industry, statistical and/or investment information)
was obtained from sources deemed to be reliable. It is beyond the
scope of the Opinion to verify the accuracy of such information,
and we make no representation as to its accuracy.
10. This engagement is limited to the production of the Opinion and
the conclusions and opinions contained herein. HVA has no
obligation to provide future services (e.g., expert testimony in
court or before governmental agencies) related to the contents of
the Opinion unless prior arrangements for such services have been
made.
11. The Opinion is necessarily based on economic and market
conditions as they existed as of the date of the Opinion.
It has been represented to us and we have assumed without
independent verification that the 1995 operating budget prepared by White River
management was reasonably prepared and reflects the best informed estimate of
White River management as to the 1995 operating prospects of White River. We
are unaware of and have not received any information which would lead us to
believe that it was unreasonable to utilize the 1995 operating budget as part
of our analysis related to the Opinion. However, we assume no responsibility
for the operating budget or the assumptions related to it.
We have assumed without independent verification that there has
been no material change in the assets, financial condition or business of White
River since December 31, 1994, the date of the most recent preliminary audited
financial statements made available to us, and that those statements accurately
reflect the assets and financial condition of White River at that point in
time. We are unaware of and have not received any information which would
lead us to believe that such a material change exists.
We have assumed without independent legal verification that
NaTec's 50% interest in White River will remain bound by and subject to the
terms of the Joint Venture Agreement (including the defined maximum selling
price of sodium bicarbonate produced at the White River plant of $110 per ton)
for the foreseeable future, and that NaTec will not be able to change any of
the material terms of the Joint Venture Agreement without the consent of
NACC.
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Page 8
CONCLUSION
Based upon the foregoing and in reliance thereon, it is our opinion
that the Transaction, assuming it is consummated as proposed, is fair to NaTec
from a financial point of view; that is, that the fair market value of the
consideration being received by the Company in the Transaction is at least as
great as the fair market value of the Company's 50% ownership interest in White
River being sold in the Transaction, assuming that such interest continues to
be bound by and subject to the terms of the Joint Venture Agreement.
HVA reserves the right, in the event that events or facts subsequent
to the date of the Opinion become known which have a material impact on either
the value of Natec's 50% interest in White River or on the terms of the
Transaction, to supplement or withdraw the Opinion prior to the closing date of
the Transaction. HVA has not, as of the date of the Opinion, had an
opportunity to review certain material information, namely: (i) the proxy
statement relating to the Transaction; (ii) a final copy of the Acquisition
Agreement relating to the Transaction; (iii) the final audited financial
statements for White River for the year ended December 31, 1994; and (iv) the
final audited financial statements for NaTec for the year ended December 31,
1994. It is our understanding that these documents will be provided to us when
they become available. HVA reserves the right to supplement or withdraw the
Opinion upon review of these documents.
It is our understanding that NaTec's Board of Directors and the
existing shareholders of the Company either have had or will have the
opportunity to make their own independent investigation of the Transaction, and
their decision to participate in the Transaction should be based primarily on
such investigation. Delivery of this Opinion to the Company and its
shareholders is, as to such entities, subject to the conditions, limitations
and assumptions set forth in this Opinion and our engagement letter dated
February 15, 1995.
Houlihan Valuation Advisors
By: David Dorton, CFA, ASA
Accredited Senior Appraiser
American Society of Appraisers
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EXHIBIT H (EX-99.B)
PART 13. DISSENTERS' RIGHTS
16-10a-1301 DEFINITIONS.--For purposes of Part 13:
(1) "Beneficial shareholder" means the person who is a beneficial
owner of shares held in a voting trust or by a nominee as the record
shareholder.
(2) "Corporation" means the issuer of the shares held by a
dissenter before the corporate action, or the surviving or acquiring
corporation by merger or share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent
from corporate action under Section 16-10a-1302 and who exercises that right
when and in the manner required by Sections 16-10a-1320 through 16-10a-1328.
(4) "Fair value" with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the corporate action
to which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action.
(5) "Interest" means interest from the effective date of the
corporate action until the date of payment, at the statutory rate set forth in
Section 15-1-1, compounded annually.
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares
that are registered in the name of the nominee to the extent the beneficial
owner is recognized by the corporation as the shareholder as provided in
Section 16-10a-723.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
16-10a-1302 RIGHT TO DISSENT.--
(1) A shareholder, whether or not entitled to vote, is entitled to
dissent from, and obtain payment of the fair value of shares held by him in the
event of, any of the following corporate actions:
(a) consummation of a plan of merger to which the
corporation is a party if:
(i) shareholder approval is required for the
merger by Section 16-10a-1103 or the articles of incorporation; or
(ii) the corporation is a subsidiary that is
merged with its parent under Section 16-10a-1104;
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(b) consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be acquired;
(c) consummation of a sale, lease, exchange, or other
disposition of all, or substantially all, of the property of the corporation
for which a shareholder vote is required under Subsection 16-10a-1202(1), but
not including a sale for cash pursuant to a plan by which all or substantially
all of the net proceeds of the sale will be distributed to the shareholders
within one year after the date of sale; and
(d) consummation of a sale, lease, exchange, or other
disposition of all, or substantially all, of the property of an entity
controlled by the corporation if the shareholders of the corporation were
entitled to vote upon the consent of the corporation to the disposition
pursuant to Subsection 16-10a-1202(2).
(2) A shareholder is entitled to dissent and obtain payment of the
fair value of his shares in the event of any other corporate action to the
extent the articles of incorporation, bylaws, or a resolution of the board of
directors so provides.
(3) Notwithstanding the other provisions of this part, except to
the extent otherwise provided in the articles of incorporation, bylaws, or a
resolution of the board of directors, and subject to the limitations set forth
in Subsection (4), a shareholder is not entitled to dissent and obtain payment
under Subsection (1) of the fair value of the shares of any class or series of
shares which either were listed on a national securities exchange registered
under the federal Securities Exchange Act of 1934, as amended, or on the
National Market System of the National Association of Securities Dealers
Automated Quotation System, or were held of record by more than 2,000
shareholders, at the time of:
(a) the record date fixed under Section 16-10a-707 to
determine the shareholders entitled to receive notice of the shareholders'
meeting at which the corporate action is submitted to a vote;
(b) the record date fixed under Section 16-10a-704 to
determine shareholders entitled to sign writings consenting to the proposed
corporate action; or
(c) the effective date of the corporate action if the
corporate action is authorized other than by a vote of shareholders.
(4) The limitation set forth in Subsection (3) does not apply if
the shareholder will receive for his shares, pursuant to the corporate action,
anything except:
(a) shares of the corporation surviving the consummation
of the plan of merger or share exchange;
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(b) shares of a corporation which at the effective date
of the plan or merger or share exchange either will be listed on a national
securities exchange registered under the federal Securities Exchange Act of
1934, as amended, or on the National Market System of the National Association
of Securities Dealers Automated Quotation System, or will be held of record by
more than 2,000 shareholders;
(c) cash in lieu of fractional shares; or
(d) any combination of the shares described in Subsection
(4), or cash in lieu of fractional shares.
(5) A shareholder entitled to dissent and obtain payment for his
shares under this part may not challenge the corporate action creating the
entitlement unless the action is unlawful or fraudulent with respect to him or
to the corporation.
16-10a-1303 DISSENT BY NOMINEES AND BENEFICIAL OWNERS.--
(1) A record shareholder may assert dissenters' rights as to fewer
than all the shares registered in his name only if the shareholder dissents
with respect to all shares beneficially owned by any one person and causes the
corporation to receive written notice which states the dissent and the name and
address of each person on whose behalf dissenters' rights are being asserted.
The rights of a partial dissenter under this subsection are determined as if
the shares as to which the shareholder dissents and the other shares held of
record by him were registered in the names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to
shares held on his behalf only if:
(a) the beneficial shareholder causes the corporation to
receive the record shareholder's written consent to the dissent not later than
the time the beneficial shareholder asserts dissenters' rights; and
(b) the beneficial shareholder dissents with respect to
all shares of which he is the beneficial shareholder.
(3) The corporation may require that, when a record shareholder
dissents with respect to the shares held by any one or more beneficial
shareholders, each beneficial shareholder must certify to the corporation that
both he and the record shareholders of all shares owned beneficially by him
have asserted, or will timely assert, dissenters' rights as to all the shares
unlimited on the ability to exercise dissenters' rights. The certification
requirement must be stated in the dissenters' notice given pursuant to Section
16-10a-1322.
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16-10a-1320 NOTICE OF DISSENTERS' RIGHTS.--
(1) If a proposed corporate action creating dissenters' rights
under Section 16-10a-1302 is submitted to a vote at a shareholders' meeting,
the meeting notice must be sent to all shareholders of the corporation as of
the applicable record date, whether or not they are entitled to vote at the
meeting. The notice shall state that shareholders are or may be entitled to
asset dissenters' rights under this part. The notice must be accompanied by a
copy of this part and the materials, if any, that under this chapter are
required to be given the shareholders entitled to vote on the proposed action
at the meeting. Failure to give notice as required by this subsection does not
affect any action taken at the shareholders' meeting for which the notice was
to have been given.
(2) If a proposed corporate action creating dissenters' rights
under Section 16-10a-1302 is authorized without a meeting of shareholders
pursuant to Section 16-10a-704, any written or oral solicitation of a
shareholder to execute a written consent to the action contemplated by Section
16-10a-704 must be accompanied or preceded by a written notice stating that
shareholders are or may be entitled to assert dissenters' rights under this
part, by a copy of this part, and by the materials, if any, that under this
chapter would have been required to be given to shareholders entitled to vote
on the proposed action if the proposed action were submitted to a vote at a
shareholders' meeting. Failure to give written notice as provided by this
subsection does not affect any action taken pursuant to Section 16-10a-704 for
which the notice was to have been given.
16-10a-1321 DEMAND FOR PAYMENT--ELIGIBILITY AND NOTICE OF INTENT.--
(1) If a proposed corporate action creating dissenters' rights
under Section 16-10a-1302 is submitted to a vote at a shareholders' meeting, a
shareholder who wishes to assert assenters' rights:
(a) must cause the corporation to receive, before the
vote is taken, written notice of his intent to demand payment for shares if the
proposed action is effectuated; and
(b) may not vote any of his shares in favor of the
proposed action.
(2) If a proposed corporate action creating dissenters' rights
under Section 16-10a-1302 is authorized without a meeting of shareholders
pursuant to Section 16-10a-704, a shareholder who wishes to assert dissenters'
rights may not execute a writing consenting to the proposed corporate action.
(3) In order to be entitled to payment for shares under this part,
unless otherwise provided in the articles of incorporation, bylaws, or a
resolution adopted by the board of directors, a shareholder must have been a
shareholder with respect to the shares for which payment is demanded as of the
date the proposed corporate action creating dissenters' rights
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under Section 16-10a-1302 was approved by the shareholders, if shareholder
approval is required, or as of the effective date of the corporate action if
the corporate action is authorized other than by a vote of shareholders.
(4) A shareholder who does not satisfy the requirements of
Subsections (1) through (3) is not entitled to payment for shares under this
part.
16-10a-1322 DISSENTERS' NOTICE.--
(1) If a proposed corporate action creating dissenters' rights
under Section 16-10a-1302 is authorized, the corporation shall give a written
dissenters' notice to all shareholders who are entitled to demand payment for
their shares under this part.
(2) The dissenters' notice required by Subsection (1) must be sent
no later than ten days after the effective date of the corporate action
creating dissenters' rights under Section 16-10a-1302, and shall:
(a) state that the corporate action was authorized and
the effective date or proposed effective date of the corporate action;
(b) state an address at which the corporation will
receive payment demands and an address at which certificates for certificated
shares must be deposited;
(c) inform holders of uncertificated shares to what
extent transfer of the shares will be restricted after the payment demand is
received;
(d) supply a form for demanding payment, which form
requests a dissenter to state an address to which payment is to be made;
(e) set a date by which the corporation must receive the
payment demand and by which certificates for certificated shares must be
deposited at the address indicated in the dissenters' notice, which dates may
not be fewer than 30 nor more than 70 days after the date the dissenters'
notice required by Subsection (1) is given;
(f) state the requirement contemplated by Subsection
16-10a-1303(3), if the requirement is imposed; and
(g) be accompanied by a copy of this part.
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16-10a-1323 PROCEDURE TO DEMAND PAYMENT.--
(1) A shareholder who is given a dissenters' notice described in
Section 16-10a-1322, who meets the requirements of Section 16-10a-1321, and
wishes to assert dissenters' rights must, in accordance with the terms of the
dissenters' notice:
(a) cause the corporation to receive a payment demand,
which may be the payment demand form contemplated in Subsection
16-10a-1322(2)(d), duly completed, or may be stated in another writing;
(b) deposit certificates for his certificated shares in
accordance with the terms of the dissenters' notice; and
(c) if required by the corporation in the dissenters'
notice described in Section 16-10a-1322, as contemplated by Section
16-10a-1327, certify in writing, in or with the payment demand, whether or not
he or the person on whose behalf he asserts dissenters' rights acquired
beneficial ownership of the shares before the date of the first announcement to
news media or to shareholders of the terms of the proposed corporate action
creating dissenters' rights under Section 16-10a-1302.
(2) A shareholder who demands payment in accordance with
Subsection (1) retains all rights of a shareholder except the right to transfer
the shares until the effective date of the proposed corporate action giving
rise to the exercise of dissenters' rights and has only the right to receive
payment for the shares after the effective date of the corporate action.
(3) A shareholder who does not demand payment and deposit share
certificates as required, by the date or dates set in the dissenters' notice,
is not entitled to payment for shares under this part.
16-10a-1324 UNCERTIFICATED SHARES.--
(1) Upon receipt of a demand for payment under Section 16-10a-1323
from a shareholder holding uncertificated shares, and in lieu of the deposit of
certificates representing the shares, the corporation may restrict the transfer
of the shares until the proposed corporate action is taken or the restrictions
are released under Section 16-10a-1326.
(2) In all other respects, the provisions of Section 16-10a-1323
apply to shareholders who own uncertificated shares.
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16-10a-1325 PAYMENT.--
(1) Except as provided in Section 16-10a-1327, upon the later of
the effective date of the corporate action creating dissenters' rights under
Section 16-10a-1302, and receipt by the corporation of each payment demand
pursuant to Section 16-10a-1323, the corporation shall pay the amount the
corporation estimates to be the fair value of the dissenters' shares, plus
interest to each dissenter who has complied with Section 16-10a-1323, and who
meets the requirements of Section 16-10a-1321, and who has not yet received
payment.
(2) Each payment made pursuant to Subsection (1) must be
accompanied by:
(a) (i) (A) the corporation's balance sheet as of the
end of its most recent fiscal year, or if not available, a fiscal year ending
not more than 16 months before the date of payment;
(B) an income statement for that year;
(C) a statement of changes in
shareholders' equity for that year and a statement of cash flow for that year,
if the corporation customarily provides such statements to shareholders; and
(D) the latest available interim
financial statements, if any;
(ii) the balance sheet and statements referred to
in Subsection (i) must be audited if the corporation customarily provides
audited financial statements to shareholders;
(b) a statement of the corporation's estimate of the fair
value of the shares and the amount of interest payable with respect to the
shares;
(c) a statement of the dissenter's right to demand
payment under Section 16-10a-1328; and
(d) a copy of this part.
16-10a-1326 FAILURE TO TAKE ACTION.--
(1) If the effective date of the corporate action creating
dissenters' rights under Section 16-10a-1302 does not occur within 60 days
after the date set by the corporation as the date by which the corporation must
receive payment demands as provided in Section 16-10a-1322, the corporation
shall return all deposited certificates and release the transfer restrictions
imposed on uncertificated shares, and all shareholders who submitted a demand
for payment pursuant to Section 116-10a-1323 shall thereafter have all rights
of a shareholder as if no demand for payment had been made.
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(2) If the effective date of the corporate action creating
dissenters' rights under Section 16-10a-1302 occurs more than 60 days after the
date set by the corporation as the date by which the corporation must receive
payment demands as provided in Section 16-10a-1322, then the corporation shall
send a new dissenters' notice, as provided in Section 16-10a-1322, and the
provisions of Sections 16-10a-1323 through 16-10a-1328 shall again be
applicable.
16-10a-1327 SPECIAL PROVISIONS RELATING TO SHARES ACQUIRED AFTER
ANNOUNCEMENT OF PROPOSED CORPORATE ACTION.--
(1) A corporation may, with the dissenters' notice given pursuant
to Section 16-10a-1302, state the date of the first announcement to news media
or to shareholders of the terms of the proposed corporate action creating
dissenters' rights under Section 16-10a-1302 and state that a shareholder who
asserts dissenters' rights must certify in writing, in or with the payment
demand, whether or not he or the person on whose behalf he asserts dissenters'
rights acquired beneficial ownership of the shares before that date. With
respect to any dissenter who does not certify in writing, in or with the
payment demand that he or the person on whose behalf the dissenters, rights are
being asserted, acquired beneficial ownership of the shares before that date,
the corporation may, in lieu of making the payment provided in Section
16-10a-1325, offer to make payment if the dissenter agrees to accept it in full
satisfaction of the demand.
(2) An offer to make payment under Subsection (1) shall include
or be accompanied by the information required by Subsection 16-10a-1325(2).
16-10a-1328 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.--
(1) A dissenter who has not accepted an offer made by a
corporation under Section 16-10a-1327 may notify the corporation in writing of
his own estimate of the fair value of his shares and demand payment of the
estimated amount, plus interest, less any payment made under Section
16-10a-1325; if:
(a) the dissenter believes that the amount paid under
Section 16-10a-1325 or offered under Section 16-10a-1327 is less than the fair
market value of the shares;
(b) the corporation fails to make payment under Section
16-10a-1325 within 60 days after the date set by the corporation as the date by
which it must receive the payment demand; or
(c) the corporation, having failed to take the proposed
corporate action creating dissenters' rights, does not return the deposited
certificates or release the transfer restrictions imposed on uncertificated
shares as required by Section 16-10a-1326.
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(2) A dissenter waives the right to demand payment under this
section unless he causes the corporation to receive the notice required by
Subsection (1) within 30 days after the corporation made or offered payment for
his shares.
16-10a-1330 JUDICIAL APPRAISAL OF SHARES--COURT ACTION.--
(1) If a demand for payment under Section 16-10a-1328 remains
unresolved, the corporation shall commence a proceeding within 60 days after
receiving the payment demand contemplated by Section 16-10a-1328, and petition
the court to determine the fair value of the shares and the amount of interest.
If the corporation does not commence the proceeding within the 60-day period,
it shall pay each dissenter whose demand remains unresolved the amount
demanded.
(2) The corporation shall commence the proceeding described in
Subsection (1) in the district court of the county in this state where the
corporation's principal office, or if it has no principal office in this state,
the county where its registered office is located. If the corporation is a
foreign corporation without a registered office in this state, it shall
commence the proceeding in the county in this state where the registered office
of the domestic corporation merged with, or whose shares were acquired by, the
foreign corporation was located.
(3) The corporation shall make all dissenters who have satisfied
the requirements of Sections 16-10a-1321, 16-10a-1323, and 16-10a-1328, whether
or not they are residents of this state whose demands remain unresolved,
parties to the proceeding commenced under Subsection (2) as an action against
their shares. All such dissenters who are named as parties must be served with
a copy of the petition. Service on each dissenter may be by registered or
certified mail to the address stated in his payment demand made pursuant to
Section 16-10a-1328. If no address is stated in the payment demand, service
may be made at the address stated in the payment demand given pursuant to
Section 16-10a-1323. If no address is stated in the payment demand, service
may be made at the address shown on the corporation's current record of
shareholders for the record shareholder holding the dissenter's shares.
Service may also be made otherwise as provided by law.
(4) The jurisdiction of the court in which the proceeding is
commenced under Subsection (2) is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend decision on
the question of fair value. The appraisers have the powers described in the
order appointing them, or in any amendment to it. The dissenters are entitled
to the same discovery rights as parties in other civil proceedings.
(5) Each dissenter made a party to the proceeding commenced under
Subsection (2) is entitled to judgment:
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(a) for the amount, if any, by which the court finds that
the fair value of his shares, plus interest, exceeds the amount paid by the
corporation pursuant to Section 16-10a-1325; or
(b) for the fair value, plus interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold payment
under Section 16-10a-1327.
16-10a-1331 COURT COSTS AND COUNSEL FEES.--
(1) The court in an appraisal proceeding commenced under Section
16-10a-1330 shall determine all costs of the proceeding, including the
reasonable compensation and expenses of appraisers appointed by the court. The
court shall assess the costs against the corporation, except that the court may
assess costs against all or some of the dissenters, in amounts the court finds
equitable, to the extent the court finds that the dissenters acted arbitrarily,
vexatiously, or not in good faith in demanding payment under Section
16-10a-1328.
(2) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable:
(a) against the corporation and in favor of any or all
dissenters if the court finds the corporation did not substantially comply with
the requirements of Sections 16-10a-1320 through 16-10a-1328; or
(b) against either the corporation or one or more
dissenters, in favor of any other party, if the court finds that the party
against whom the fees and expenses are assessed acted arbitrarily, vexatiously,
or not in good faith with respect to the rights provided by this part.
(3) If the court finds that the services of counsel for any
dissenter were of substantial benefit to the other dissenters similarly
situated, and that the fees for those services should not be assessed against
the corporation, the court may award to those counsel reasonable fees to be
paid out of the amounts awarded the dissenters who were benefitted.
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