<PAGE> i
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, 1998
OR
[ ] Transition Report Under Section 13 OR 15(d)
of the Securities Exchange Act of 1934
Commission File No. 0-12807
Golden Genesis Company
(Exact name of registrant as specified in its charter)
Delaware 86-0411983
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4585 McIntyre St. Golden, Colorado 80403
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303)271-7465
Securities Registered under Section 12(b) of the Exchange Act:
Not Applicable
Securities Registered under Section 12(g) of the Exchange Act:
common stock, $0.10 par value
Title of Class
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months 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 the 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. ( )
As of March 5, 1999, the aggregate market value of the 8,223,569 shares of
Common Stock of the Registrant issued and outstanding on such date based on the
average of the bid and ask prices as represented by the Nasdaq SmallCap Market,
excluding shares held by all affiliates of the Registrant, was approximately
$11,948,846.
Number of shares of Common Stock outstanding at March 5, 1999: 17,152,948.
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TABLE OF CONTENTS
PART I Page
Item 1. Business 1
Item 2. Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of
Security Holders 7
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 8
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 7a. Quantitative and Qualitative Disclosure About
Market Risk 15
Item 8. Financial Statements and Supplementary Data 16
Item 9. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure 42
PART III
Item 10. Directors and Executive Officers of the Registrant 42
Item 11. Executive Compensation 45
Item 12. Security Ownership of Certain Beneficial
Owners and Management 47
Item 13. Certain Relationships and Related Transactions 49
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 51
<PAGE> 1
PART I
Item 1. Business
Company Background
Golden Genesis Company, directly and through its wholly owned subsidiaries
(collectively, the "Company"), is engaged primarily in the development,
manufacturing and marketing of photovoltaic (solar electric) power systems and
related products.
The Company was incorporated as Photocomm, Inc. in 1981 under the laws of the
State of Arizona. On April 1, 1998, Photocomm, Inc. began doing business as
("dba") Golden Genesis Company. On May 27, 1998, the Company's shareholders
voted to reincorporate in Delaware under the name Golden Genesis Company.
On November 21, 1996, the Company entered into a new financial and strategic
agreement with Golden Technologies, Inc. ("GTC"), a wholly owned subsidiary of
ACX Technologies, Inc. ("ACX"), and New World Power Corporation ("NWP") (the
"Stock Purchase Agreement"). Pursuant to the Stock Purchase Agreement, GTC
acquired NWP's 44% interest in the Company, and NWP and the Company terminated
all of their respective rights and options pursuant to prior agreements. GTC
also acquired from the Company 1,000,000 shares of newly issued common stock,
par value $0.10 per share (the "Common Stock"), at a purchase price of $2.75
per share.
In conjunction with the Stock Purchase Agreement, GTC also acquired 450,000
shares of common stock from Programmed Land, Inc., 450,000 shares of common
stock from Robert R. Kauffman, the Company's former President, 50,000 shares of
common stock from Myron Anduri, one of the Company's Vice Presidents, and
50,000 shares of common stock from Thomas LaVoy, the Company's former Chief
Financial Officer, in each case at a purchase price of $2.75 per share. As a
result of the Stock Purchase Agreement and the transactions contemplated
thereby, at March 5, 1999 GTC held approximately 52% of the outstanding common
stock and had the voting rights to an additional 3% of the outstanding common
stock. The Company granted demand registration rights to GTC covering the
shares purchased from NWP, the Company and all other shares they may own,
provided that GTC shall pay 50% of the costs of any demand registration.
In addition, the Stock Purchase Agreement granted GTC the preemptive right to
purchase its proportionate share of all future equity offerings of the Company
provided that GTC owns at least 20% of the shares of the issued and outstanding
stock of the Company or at least 6,000,000 shares. The Stock Purchase
Agreement also permits GTC to designate three members of the Company's six
member Board of Directors.
In accordance with the designation rights granted to GTC pursuant to the Stock
Purchase Agreement, Jeff Coors, John Coors and Jed Burnham were appointed to
the Board of Directors of the Company on November 21, 1996, replacing three
incumbent directors. On January 31, 1997 the Company's Board of Directors
terminated Robert R. Kauffman, President and Thomas LaVoy, Chief Financial
Officer. The Board replaced these executives with John Coors, President and
Jeffrey Brines, Chief Financial Officer.
On February 3, 1997, upon recommendation of the Audit Committee, the Company's
Board of Directors changed its fiscal year end to December 31 from August 31.
On July 2, 1997, the Company acquired certain assets, customer contracts and
sales representative agreements of Integrated Power Corporation, Inc. ("IPC").
IPC specializes in highly engineered alternative power systems incorporating
solar, wind and diesel generators. IPC has historically focused on the
industrial markets in Northern Africa and the Middle East. The Company believes
the addition of these distribution channels will better enable it to penetrate
these active markets. The Company paid $450,000 in cash to acquire these
assets.
On January 23, 1998 the Company acquired Silicon Energy Corporation, a
California corporation doing business as Utility Power Group. Utility Power
Group functions as a value added systems integrator of solar electric products,
specializing in on-grid and off-grid solar and hybrid power systems,
headquartered in Chatsworth, California. The acquisition was structured as a
merger, with Utility Power Group, Inc. ("UPG"), a wholly owned subsidiary of
the Company, as the surviving corporation. The aggregate consideration paid by
the Company in connection with this merger was $1,250,000. The Company issued
400,000 shares of its common stock valued at $650,000 and paid $600,000 in
cash.
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On July 21, 1998 the Company acquired Remote Power, Inc. ("RPI"), a Colorado
corporation. RPI, headquartered in Westminster, Colorado, is a distributor and
systems integrator of solar electric systems for customers primarily within the
oil and gas and railroad industries. The aggregate consideration paid by the
Company in connection with this purchase was $490,000. The Company issued
150,000 shares of its common stock valued at $370,000 and paid $120,000 in
cash.
On September 4, 1998 the Company acquired Golden Genesis do Brazil Energy
Renovavel, Ltda. ("GGB"), a corporation organized under the laws of the
Federative Republic of Brazil. GGB is a leader in solar water pumping and
remote power applications in Brazil. The acquisition was structured as a stock
purchase with GGB becoming a wholly owned subsidiary of the Company. GGB was
purchased from GTC, the Company's majority shareholder and ACX, GTC's parent
corporation. The purchase was accounted for as a transfer of the assets and
liabilities of GGB from GTC and ACX to the Company. At the date of transfer
GGB had net liabilities of approximately $120,000. The aggregate consideration
paid, in addition to net liabilities assumed, by the Company in connection with
this purchase was $5,000.
On September 4, 1998 the Company acquired Solartec Sociedad Anonima
("Solartec"), a corporation organized under the laws of the Republic of
Argentina. Solartec is Argentina's leading manufacturer, system integrator, and
wholesaler of solar electric systems and related equipment. The acquisition was
structured as a stock purchase with Solartec becoming a wholly owned subsidiary
of the Company. Solartec was purchased from GTC and ACX. The purchase was
accounted for as a transfer of the net assets and liabilities of Solartec from
GTC and ACX to the Company. The aggregate consideration paid by the Company in
connection with this purchase was a one-year note payable to GTC in the amount
of $3,600,000. On September 22, 1998 the Board of Directors of the Company
received an opinion from Hanifen, Imhoff Inc., Investment Bankers stating that
the total consideration paid by the Company for Solartec was fair to the
holders of GGC common stock.
During 1998 the Company completed plans to centralize operations, warehousing
and administration in Scottsdale, Arizona and reorganize manufacturing by
moving specialty module manufacturing to Argentina and pump manufacturing to
the new Scottsdale facility. This reorganization was possible due to the
capabilities of Solartec (the new subsidiary in Argentina) to manufacture the
specialty modules. The main objective of the plans is to reduce costs and
become more efficient. The less efficient or higher cost locations were closed
(Texas, Tucson and Safford) and their operations moved to the Scottsdale
facility. As a result of the plan, the Company's former Scottsdale facility did
not have enough space to support the continued growth of the Company.
Therefore, the Company moved its Scottsdale operation to a new leased facility
on April 1, 1998 and sold the former facility, on September 16, 1998. The
Company has committed to a lease on the new facility with a lease term through
February 2008.
Solar Electric Industry - Background
Solar electric power generation is a high technology industry using advanced
semiconductor devices that convert sunlight directly to electricity.
The first applications of solar electric technology were in space satellite
power systems in the 1950's. These early solar electric systems utilized in
the United States space program were extremely expensive, but their reliability
and elimination of conventional fuel proved ideal for this remote application.
As a potential earth-based alternative energy source, solar electric systems
offered the additional benefits of silent, pollution-free power generation,
requiring no power lines and virtually no maintenance. Although prohibitively
expensive for commercial use when first developed, the potential of solar
electric technology as an ideal energy alternative generated worldwide interest
and increasing levels of research and development investments, particularly in
the U.S. and Japan. In the early 1970's, the dramatic increases in oil prices
and the accelerated search for energy alternatives spurred investment in solar
electric technologies, particularly by the large oil companies. By the early
1980's, dramatic cost reductions and greatly improved system performance set
the stage for the commencement of the market development phase of this emerging
technology in a wide range of commercial applications throughout the world.
Technology
The fundamental element of a solar electric system is the semiconductor device,
or cell, which generates a variable electric current that is directly
proportionate to the quantity of
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sunlight energy absorbed. Solar cells are
electrically interconnected to form a module unit in which the cell groupings
are formatted to achieve desired module electrical power specifications, such
as voltage and current. The solar module is the power-generating component of
a complete solar electric system. Additional components of these systems are
collectively termed balance of system items, and typically comprise such
products as electronic controllers, batteries for energy storage, electrical
fuses, switches, wiring and metal structures for the modules, and the actual
device to be powered such as lights, motors and other electrical devices.
Since the initial use of expensive solar electric power systems in the space
program, the major obstacle to broader commercial application has been the high
cost of the solar cells or modules. During the last decade an estimated one
billion dollars has been invested worldwide by governments and corporations in
various research and development efforts targeted to achieve cost reductions in
manufacturing solar electric modules. These continuing efforts have resulted
in current module prices that are approximately 30% of the pricing level of ten
years ago.
Industry Structure
As a result of the extensive capital requirements and research expenditures
necessary to design, develop and produce solar electric modules, the
manufacturing side of the market has been dominated by large, multi-national
oil and electronics companies in the United States, Japan and Europe. Three
companies are the acknowledged world leaders in module manufacturing technology
and market share: Siemens Solar Industries ("Siemens Solar"), a division of
Siemens A.G.; Solarex Corporation ("Solarex"), a jointly held venture of Amoco
Corporation/BP Solar International ("BP Solar"), a subsidiary of British
Petroleum Company p.l.c. and Enron Corp.; and Kyocera Corporation ("Kyocera")
in Japan. Other major international module manufacturers are Sharp
Corporation, Sanyo Corporation, and United Solar Systems Corp. ("United
Solar"). British Petroleum Company and Amoco Corporation merged in 1998,
bringing BP Solar into the Solarex joint venture with Enron Corp.
The major module manufacturers primarily market their product lines through a
network of distributors and dealers who resell modules, with complementary
components, to the end-user. The larger distributors in this marketing channel
are known as systems integrators who provide design, engineering and technical
service to their customers. In the past two years the module manufacturers
have begun to provide systems integration directly for end users.
Markets and Products
The market for the Company's solar electric systems is primarily in remote area
applications, generally defined as those electric power applications where
access to utility power is relatively expensive, inconvenient or not available.
The Company develops, engineers and distributes fully integrated systems to
service a variety of industrial customers' needs, including:
* Communication systems where conventional utility power is not available or
the cost to extend a line to these sites is prohibitive.
* Traffic signal systems used in urban and remote areas where solar electric
applications can frequently be more cost-effective than conventional electric
systems that require installing a transformer and underground cable.
* Railroad traffic signaling where the investment in conventional utility lines
is often the more expensive option.
* Remote monitoring systems used in production, consumption and scientific data
collection where solar electric systems provide reliable power to customers who
require monitoring of such diverse facilities or physical locations as well
heads, oil and gas pipelines, remotely located weather stations or water
tables. Generally, only a small amount of power is needed to operate a
transmitter sending a signal over a phone line, a radio transmitter or via
satellite.
* Backup power systems in urban areas.
The Company's products within these markets include complete solar electric
power systems, system components and certain accessory products. Complete
systems consist of one or more solar modules; controllers to monitor, regulate
and control the output; and, in most systems, batteries to store the energy
generated by the solar modules. Occasionally, backup generators or inverters,
which convert DC electric power to AC power, are included
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as integral
components of a system. The Company markets standard prepackaged systems for a
wide range of applications. Each system contains the basic components as well
as related wiring and connections, mounting devices, and other installation
components as appropriate. Grid interconnected systems consist of many solar
modules, controllers, inverters and support structures which are connected to a
utility's power grid.
The Company designs and installs solar electric systems used by utility power
providers who connect arrays of modules directly to their power grid. These are
known as grid interconnected systems. A growing number of homeowners in the
U.S., Europe, and Asia are expressing a desire for "green electricity." Surveys
have shown that a growing percentage of U.S. homeowners will pay a premium for
energy produced by clean, renewable sources, such as solar energy. Although
this form of electrical power generation continues to cost much more than
conventional sources, or fossil fuels, it is anticipated that as restructuring
in the U.S. electric utility industry accelerates, and the electric service
monopolies are opened up to competition, solar will become more desirable based
on real economics as compared to alternative sources.
The Company's distribution market includes a wide range of customers. Today,
more than 800 solar energy dealers, predominantly located in North and South
America, are part of this service family. The Company delivers both products
and services as described below:
* Dealers are supported by delivery of a wide range of solar modules and
related hardware. These dealers and their customers are supported by the
Company's extensive dealer program, which includes product catalogs, expert
application assistance, advertising support to promote their businesses and
training to introduce new applications and products at the new corporate
training facility.
* The distribution market is also supported by the Company at the retail level
by concentrating in system integration and mail-order system design. An
extensive catalog is maintained by the Company to provide information about
sizing and installation of remote solar energy systems and a web site with a
shopping cart feature has been introduced to reach a broader customer base.
* Direct sales of solar electric systems to owners of recreational vehicles and
boats are an emerging market. Prepackaged solar energy systems provide the
customer with a new source of electricity when conventional sources are
unavailable.
* The water pumping system market is another market within the distribution
group. The Company manufactures solar electric pumps and designs complete
systems for deployment anywhere in the world. With the sun as the energy
source, water can be delivered at rates from .5 gallons per minute for small
residential customers to over 120 gallons a minute for agricultural or village
applications.
Products offered by the Company in these markets include solar modules,
inverters, controllers, batteries, battery chargers, switches, metering
devices, mounting hardware, water pumps, light fixtures and high efficiency
appliances, most of which are either integral to, or used in conjunction with,
solar electric power systems.
The Company's international market includes Australia, Argentina and Brazil.
The Company offers products to industrial and distribution customers within
this market. The dealer network includes over 200 dealers in Argentina and
Australia. The international industrial market includes government and private
systems for water pumping, rural electrification, and telecommunications in
Brazil and Argentina.
The Company manufactures a wide range of products used in solar systems and
sold in all segments. Products manufactured by the Company to be used in
industrial systems include modules (both Duravolttm and other types),
controllers, inverters, and module structures. Products manufactured by the
Company to be sold in its distribution network include specialty modules,
controllers, inverters and water pump motors. The Company's manufactured
products account for less than 10% of the Company's sales.
Suppliers
The photovoltaic module is the most critical element comprising a solar
electric power system.
The Company has a photovoltaic module distribution agreement with United Solar.
The Company has the exclusive rights to distribute United Solar's Unisolar
brand module in the United States and Canada. United Solar is believed to be
the world's largest producer of thin film solar modules. The unique Unisolar
modules are lightweight durable modules
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which are less expensive but also less efficient than traditional modules.
The Company also has a solar module distribution arrangement with Kyocera's
United States subsidiary Kyocera America, Inc. The Company represents Kyocera
solar electric modules in the United States, Canada, Latin America and South
America. Kyocera, the world's largest manufacturer of solar electric modules,
offers the Company competitive terms and the opportunity to develop and
establish a Western Hemisphere dealer organization.
The Company's requirements for other solar electric systems components and
related equipment are purchased from numerous vendors, and the Company believes
that such components and equipment are generally available from other sources
at competitive prices. Suppliers for sales in markets outside North America are
generally the same as those for sales in North America except when specific
contracts require specific components.
Certain key systems components, electronic controllers and Solarjack water
pumps are manufactured by the Company and considered to be proprietary. Solar
cells are the key raw material used in the Company's manufacturing process.
The Company can use solar cells from any of the major module manufacturers but
the majority of the solar cells used in its modules are from Kyocera. All
other raw materials required in the Company's manufacturing are available from
a variety of sources at competitive prices.
Company Marketing Organization
The Company markets its products to a broad range of customers in its
distribution and industrial markets domestically and in the international
market. Within the North and South American distribution market, Company sales
are through a network of over 800 dealers who purchase products from the
Company for resale to their own customer accounts, and through direct retail
customers primarily accessed by the Company's Sunelco mail-order operation. The
distribution segment's sales accounted for approximately 41%, 42%, 33% and 54%
of the Company's sales for the years ended December 31, 1998 and 1997, the four
months ended December 31, 1996, and the year ended August 31, 1996,
respectively. The Company has aggressively expanded its distribution markets
through certain dealers in Central and South America. No single customer within
the distribution market accounted for more than 10% of the Company's annual
sales for any of the reported periods.
Industrial sales, in which the Company develops, engineers and distributes
fully integrated systems, for a diverse array of industrial customers are made
either through direct sales employees of the Company or through independent
sales representatives. Industrial sales represented approximately 45%, 47%, 60%
and 44% of the Company's sales for the years ended December 31, 1998 and 1997,
the four months ended December 31, 1996 and the year ended August 31, 1996,
respectively. During the years ended December 31, 1998 and 1997 no single
customer accounted for more than 10% of the Company's sales. During the four
months ended December 31, 1996 Motorola Indonesia represented approximately 27%
of the Company's sales and no other customer accounted for more than 10% of the
Company's sales. During the year ended August 31, 1996, no single customer
accounted for more than 10% of the Company's sales.
International sales through the Company's wholly owned subsidiaries in
Australia, Brazil and Argentina are to customers in both distribution and
industrial markets. There are an additional 200 dealers in these subsidiaries'
dealer networks. Large projects have been completed for a variety of
industrial customers. International sales represented approximately 14% and
11% of the Company's sales for the years ended December 31, 1998 and 1997,
respectively. No single customer within the international market accounted for
more than 10% of the Company's annual sales for any of the reported periods.
Competition
The Company's principal competition in the distribution markets consists of
numerous regional distributors who purchase solar electric modules from the
major manufacturers and resell modules and other system components to dealers
or end-users. The major competitive factors are product price, service,
technical capability and delivery. The Company has an advantage over the small
regional distributors by having the resources to provide better service,
technical capability and delivery.
In the industrial markets the Company's competition consists principally of the
major international module manufacturers and distributors who have technical
capabilities to deliver fully integrated systems. Manufacturers that market
integrated systems include
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U.S.-based Siemens Solar and Solarex, U.K.-based BP
Solar and Japan-based Kyocera. The most serious competition of the reporting
period has been from BP Solar who has demonstrated the most capability with
respect to vertical integration (system integration and manufacturing). Module
pricing, technical ability and service are the important competitive factors
internationally. The major module manufacturers have an advantage in module
pricing but the Company is able to compete evenly in service and technical
capability.
Backlog
The Company's products are generally shipped within one to two months after
receipt of an order. The Company's backlog as of December 31, 1998 was
approximately $4,900,000. The comparable backorder level as of December 31,
1997 was approximately $4,500,000. All backlogged sales are expected to be
filled within the next fiscal year.
Subsidiary Operations
Golden Genesis Australia ("Australia"), UPG, RPI, Solartec, and GGB operate as
wholly subsidiaries of the Company from the day they were opened or purchased.
Balance of Systems Specialists, Inc. ("BOSS"), Photocomm Credit Corporation
and Photocomm of Texas, Inc. operated as wholly owned subsidiaries of the
Company until December 31, 1997 when they were merged into Photocomm, Inc. The
merger was done to reduce administrative costs of the Company.
Employees
On March 1, 1999, the Company employed a total of 146 persons, 47 of whom are
management and marketing personnel, 32 of whom are engaged principally in
sales, 15 of whom provide administrative, engineering and secretarial services,
and 52 of whom are manufacturing personnel. No employee is subject to a
collective bargaining agreement. The Company believes it has favorable
relations with its employees.
Patents, Copyrights, Trade Secrets and Trademarks
The Company has certain copyright and trademark rights relating to its
products, and claims rights to various trade secrets and proprietary rights.
However, the Company does not believe that these rights would necessarily
preclude others from developing substantially similar products.
The Company markets its products under a variety of registered and unregistered
trademarks, none of which it regards as being material to its overall success.
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Item 2. Properties
The Company owns an 11,300 square foot facility in LaRioja, Argentina for
manufacturing and warehousing and a 7,100 square foot facility in Buenos Aires,
Argentina for sales and warehousing. The Company leases space for regional
sales offices and warehousing. The following table describes the Company's
principal leased facilities, including square footage and lease expiration
dates:
Lease Approximate
Expiration floor area in Location
Location Date square feet Purpose
Scottsdale, AZ February 2008 55,000 Sales, warehousing,
manufacturing and
operations.
San Diego, CA Month to month 425 Sales
Golden, CO Month to month 6,220 Corporate
headquarters
and sales
Hamilton, MT Month to month 2,500 Sales
Matlacha, FL Month to month 500 Sales
Queensland, Australia Month to month 3,200 Sales and
warehousing
Chatsworth, CA Month to month 7,000 Office and
manufacturing
San Luis Obispo, CA Month to month 1,000 Office,
manufacturing
and warehousing
Sacramento, CA Month to month 14,000 Manufacturing
and warehousing
Rio de Janeiro, Brazil Month to month 7,300 Sales and
warehousing
Westminster, CO December 2000 3,500 Manufacturing,
Closed October 1998 and subleased warehousing
and sales
Through November 30, 1998, the Company was leasing 10,750 square feet of
office/warehouse space in a building adjacent to the former corporate
headquarters in Scottsdale. The Company's former President and former Chief
Financial Officer own this adjacent office/warehouse building. The lease was
negotiated at fair market value rates.
On May 1, 1998 the Company relocated the Scottsdale offices, manufacturing and
warehouse functions to a new facility. The new, 55,000 square foot facility is
leased with a lease term through February 2008. The former Scottsdale facility
has been sold.
The Company believes that future space requirements can be met with the new
facility as well as available leasable property in each of its geographical
areas to provide for sufficient facilities to conduct its operations and expand
its business consistent with its strategic objectives in 1999.
Item 3. Legal Proceedings
On February 18, 1998, the Company was named as one of two dozen defendants in a
lawsuit brought in the U. S. District Court for the District of New Hampshire.
The suit alleged various violations of securities laws and breaches of
fiduciary duties, among other things. The Company was subsequently dismissed as
a defendant from the lawsuit.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of the shareholders during the fourth quarter
ended December 31, 1998, through the solicitation of proxies or otherwise.
<PAGE> 8
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The Company's Common Stock trades on the NASDAQ small cap market system under
the symbol GGGO. The following information sets forth the high and low bid
quotations in dollars per share for the Company's common stock as reported by
NASDAQ.
Low High
Four months ended December 31, 1996
Period September 1, 1996 to December 31, 1996 $2.06 $2.81
Year ended December 31, 1997
First Quarter (through March 31, 1997) $2.06 $3.13
Second Quarter (through June 30, 1997) 1.88 2.50
Third Quarter (through September 30, 1997) 1.50 2.31
Fourth Quarter (through December 31, 1997) 1.38 2.03
Year ended December 31, 1998
First Quarter (through March 31, 1998) $1.53 $2.38
Second Quarter (through June 30, 1998) 1.88 2.81
Third Quarter (through September 30, 1998) 1.13 2.72
Fourth Quarter (through December 31, 1998) 1.13 1.81
On March 5, 1999 there were 787 stockholders of record for the Company's common
stock. The Company estimates that there are approximately 3,700 beneficial
owners of the Company's common stock.
The Company has never paid cash dividends on its common stock, and it intends
for the foreseeable future to retain any earnings to support the growth of its
business.
On January 23, 1998 the Company issued 400,000 shares of unregistered common
stock in exchange for all the outstanding shares of UPG. On July 21, 1998 the
Company issued 150,000 shares of unregistered common stock in exchange for all
the outstanding shares of RPI. The transactions were exempt pursuant to
Section 4(2) of the Securities Act of 1933, as amended.
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<TABLE>
<CAPTION>
Item 6. Selected Financial Data
Selected financial data for the years ended December 31, 1998 and 1997, the four months ended December 31, 1996 and
the years ended August 31, 1996, 1995 and 1994 follows.
(In thousands, except per share data)
Income Data
Four Months
Year Ended Year Ended Ended Year Ended Year Ended Year Ended
12/31/98 (2) 12/31/97 12/31/96 8/31/96 (1) 8/31/95 8/31/94
<S> <C> <C> <C> <C> <C> <C>
Sales $ 43,348 $ 32,829 $ 9,706 $ 22,995 $ 20,541 $ 14,272
Gross profit 7,202 6,909 2,198 5,558 4,821 3,408
Net income (loss) (1,482) (525) (1,389) 1,148 904 216
Net income (loss) per
basic common share (0.09) (0.03) (0.10) 0.08 0.06 0.02
In-kind dividends declared, per:
Series A preferred share - - - - - 0.15
Series B preferred share - - - - - 0.20
Cash dividends declared, per:
Series A preferred share 0.30 0.46 0.30 0.60 0.60 0.45
Series AA preferred share 0.33 0.51 0.33 0.66 0.66 0.66
Weighted average number of
common shares outstanding 16,722 16,216 14,906 13,917 12,342 11,264
Balance Sheet Data
12/31/98 12/31/97 12/31/96 8/31/96 8/31/95 8/31/94
Total assets $28,025 $19,505 $15,287 $15,586 $ 8,825 $ 7,327
Working capital 7,932 12,054 7,017 5,719 4,745 3,253
Long-term debt 5,155 4,150 134 638 720 844
Stockholders' equity 10,921 11,706 11,559 9,733 6,397 4,958
(1) Fiscal year 1996 includes the acquisitions of Solarjack Manufacturing, Inc. on February 2, 1996 and Sunelco,
Inc. on October 3, 1995.
(2) Fiscal year 1998 includes the acquisitions of Utility Power Group, on January 23, 1998, Remote Power, Inc. on
July 21, 1998, and Solartec S.A. and Golden Genesis do Brazil on September 4, 1998.
</TABLE>
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
References herein to 1998 and 1997 refer to the Company's fiscal years ended
December 31, 1998 and 1997, respectively. References herein to fiscal 1996
refer to the Company's previous fiscal year ended August 31, 1996.
Introduction
The Company markets, engineers, manufactures and distributes solar electric
systems utilized primarily in remote areas. Areas generally include those
where electric power is needed but access to electricity is not available,
costs are relatively high or access is inconvenient. Three primary markets
compose the majority of the Company's results from operations: the industrial
market, the distribution market and the international market.
The Company services a variety of customers in the industrial market. These
customers have power generation needs for communication systems, remote
monitoring systems and traffic signal systems.
The Company's distribution market includes more than 800 solar energy dealers,
which are predominantly located in North and South America. The Company
delivers a wide range of solar modules and related hardware to the dealer
network. The distribution market also includes retail sales through Sunelco, a
system integrator and mail-order design firm, and direct sales to end users of
prepackaged solar systems for recreational vehicles and boats and water pumping
systems for small residential customers or large agricultural and village
applications.
The Company expanded into new international markets during 1998 through the
purchase of two new wholly owned subsidiaries located in Brazil and Argentina.
These subsidiaries, added to the Company's existing Australian subsidiary,
allow the Company to serve a wide variety of international customers in South
America and Australia.
The Company's operating results reflect the strategic decisions to increase
marketing resources to expand current domestic and international sales,
activities to consolidate manufacturing, operations support and administration
and settlement costs with former management. The consolidation will allow the
Company to serve customers with higher quality goods and services at a lower
overall cost.
Results of Operations
The following table sets forth certain operational data as a percent of net
sales for the periods indicated:
Four
Year months
ended ended Year ended
December 31, August 31,
1998 1997 1996 1996
Sales 100% 100% 100% 100%
Cost of sales 83% 79% 77% 76%
Gross profit 17% 21% 23% 24%
Selling, general & administrative 19% 22% 36% 20%
Income (loss) from operations (2%) (1%) (13%) 4%
Year ended December 31, 1998 vs. year ended December 31, 1997
Sales
Sales for 1998 were $43,348,000, a 32% increase over sales of $32,829,000, for
1997. Sales increased in every market in which the Company operates.
Industrial sales increased $3,935,000 or 26%, primarily due to sales of UPG
purchased in January of 1998 and sales of RPI purchased in July of 1998. Sales
to the distribution network increased $3,807,000 or 28%, primarily due to the
increased number of distributors, increased demand for backup power systems in
North America and increased demand in South America. International sales
increased $2,690,000, or 77%, primarily due to the acquisition of GGB and
Solartec in September of 1998 and special projects delivered to Brazil.
<PAGE> 11
The Company's sales mix changed slightly during 1998 compared to 1997. The
Company derived approximately 45% of its revenue from industrial customers, 41%
from distribution markets and 14% from international subsidiaries and special
projects. Sales during 1997 are comprised of 47% from the industrial markets,
42% from distribution markets and 11% from international subsidiaries and
special projects.
Gross Profit
Gross profit for 1998 was $7,202,000, a 4% increase over gross profit of
$6,909,000 for 1997. Gross margins were 17% in 1998 and 21% in 1997. The
slight increase in gross profit was due to a significant increase in overall
sales offset by a lower gross profit margin. The lower gross profit margins
are partially attributable to certain one time charges in 1998 for inventory,
severance and other organizational changes totaling approximately $916,000.
Excluding the one time charges, gross profit for 1998 would have been
$8,118,000, a 17% increase over 1997. Gross margins would have been 19% in
1998 versus 21% in 1997. This decrease in the gross margins is due to
increased competition from major module suppliers in the industrial and
telecommunications markets and lower absorption of fixed costs by the Company
in its manufacturing facilities.
Selling, General and Administrative Expenses ("SG&A")
SG&A expenses for 1998 were $8,318,000, a 15% increase over SG&A expenses of
$7,240,000 for 1997. The increase was partially due to a 1998 one time charge
of approximately $346,000 for certain fixed asset write downs relating to the
Company's consolidation of module manufacturing in Argentina and pump
manufacturing in Scottsdale. Included in 1997 SG&A expenses was a
compensation charge of approximately $800,000 for severance payments to former
executives of the Company.
Excluding the one time charges, SG&A expenses would have been $7,972,000 for
1998, a 24% increase over 1997. The increase was attributable to the purchase
of UPG, RPI, GGB and Solartec, increased facility costs, travel and other
expenses to support the Company's continued growth. Excluding the one time
charges, SG&A as a percentage of sales would have been 18% in 1998 versus 20%
in 1997. This decrease is primarily due to increased efficiencies through the
Company's centralization of operations and administration in the new
Scottsdale facility.
Other Income (Expense)
The Company's non-operating income and expense is primarily comprised of
interest expense offset by gains on the sale of fixed assets and the 1998 gain
of $177,000 on the sale of the former Scottsdale facility. Interest expense
increased in 1998 versus 1997 due to additional outstanding indebtedness
relating to the acquisitions of UPG, RPI, GGB and Solartec and investments in
upgraded infrastructure.
Income Tax
The Company did not recognize any income tax benefit or expense for 1998.
Utilization of the net operating loss ("NOL") carryforward as of December 31,
1998 totaling approximately $8,800,000, is dependent on generation of future
taxable income and is limited by ownership changes. At this time, management
has not determined that it is more likely than not that all of the deferred
tax asset will be realized and has provided a valuation allowance for a
significant portion of the value of the NOL carryforward.
Net Loss
The Company experienced a net loss of $1,482,000 or $0.09 per diluted common
share in 1998 versus net loss of $525,000 or $0.03 per diluted common share in
1997. The increase in net loss was primarily due to one time charges and
lower gross profit margins in 1998.
Year ended December 31, 1997 vs. year ended August 31, 1996.
Sales
Sales for 1997 were $32,829,000, a 43% increase over sales of $22,995,000, for
fiscal 1996. Sales increased in every market in which the Company operates.
Industrial sales increased $4,854,000 or 48%, primarily due to the acquisition
of the IPC contracts in July of 1997 and increased domestic sales to industrial
original equipment manufacturer customers. Sales to the distribution network
increased $1,306,000 or 10%, primarily due to the increased number of domestic
distributors. International sales increased due to sales by the Company's new
Australian subsidiary and increased special projects in South America.
<PAGE> 12
The Company's sales mix changed slightly during 1997 compared to fiscal 1996.
The Company derived approximately 47% of its revenue from industrial customers
42% from distribution markets and 11% from international subsidiaries and
special projects. Sales during fiscal 1996 are comprised of 45% from the
industrial markets and 55% from distribution markets.
Gross Profit
Gross profit for 1997 was $6,909,000, a 24% increase over gross profit of
$5,558,000 for fiscal 1996. Gross margins were 21% in 1997 and 24% in fiscal
1996. The increase in gross profit was due to a significant increase in
overall sales. The lower gross profit margins are attributable to increased
sales within the international distribution markets, (where module suppliers
are often the major competitors and the Company is at a price disadvantage),
costs associated with entering new industrial markets, increased prices of
solar modules resulting from supply restrictions and lower absorption of fixed
costs by Company manufacturing facilities.
Selling, General and Administrative Expenses
SG&A expenses for 1997 were $7,240,000, a 54% increase over SG&A expenses of
$4,707,000 for fiscal 1996. The increase was partially due to a 1997
compensation charge of approximately $800,000 for severance payments to former
executives of the Company.
Excluding severance, SG&A expenses would have been $6,440,000 for 1997, a 37%
increase over fiscal 1996. The increase was attributable to overall staffing
increases including significant increases in sales and marketing salaries and
personnel, an expanded incentive bonus program, increased facility costs,
travel and other expenses for activities to support the Company's continued
growth.
Other Income (Expense)
The Company's non-operating income and expense is primarily comprised of
interest expense. Interest expense increased in 1997 versus fiscal 1996 due to
additional outstanding indebtedness relating to investments in upgraded
infrastructure, former executive settlements and the acquisition of IPC
assets.
Income Tax
The Company did not recognize any income tax benefit or expense for 1997.
Utilization of the NOL carryforward as of December 31, 1997 totaling
approximately $8,500,000, is dependent on generation of future taxable income
and is limited by ownership changes. At this time, management has not
determined that it is more likely than not that all of the deferred tax asset
will be realized and has provided a valuation allowance for a significant
portion of the value of the NOL carryforward.
Net Loss
The Company experienced a net loss of $525,000 or $0.03 per diluted common
share in 1997 versus net income of $1,148,000 or $0.07 per diluted common
share in fiscal 1996. The change to a net loss position was primarily due to
severance charges and lower gross profit margins in 1997. In addition, the
Company recognized a $350,000 income tax benefit in fiscal 1996.
Four months ended December 31, 1996 vs. four months ended December 31, 1995.
Sales
Sales for the four month period ended December 31, 1996 were $9,706,000, a 44%
increase over sales of $6,719,000 for the same period of 1995. The four month
period for 1996 included a $2,200,000 sale to an Indonesian telecommunications
customer.
Distribution increased approximately 12% during the four month period ended
December 31, 1996 versus the same 1995 period. In general, sales revenue
increases were due to volume increases with little or no effect related to
price changes.
Gross Profit
Gross profit increased 29% from $1,707,000 in the four month period ended
December 31, 1995 to $2,198,000 in the same period in 1996. Gross margins
were 25% in the four month period ended December 31, 1995 and 23% in the four
month period ended December 31, 1996. The gross profit for the 1996 period
included a $411,000 charge
<PAGE> 13
related to inventory valuation allowances.
Exclusive of this inventory valuation allowance, gross margins would have been
27% for the four month period in 1996, a 2% improvement compared to the same
period in 1995. This was attributable to the higher margin realized on the
Indonesian telecommunications sale in 1996.
Selling, General and Administrative Expenses
SG&A expenses increased 139% from $1,481,000 in the four month period ended
December 31, 1995 to $3,540,000 in 1996. The increase in SG&A in 1996 was
largely driven by a $1,200,000 charge relating to severance with former
executives, increased labor costs and expanded marketing programs.
Labor costs increased $430,000 in the four month period of 1996 as compared to
the same period in 1995. Most of this increase was a result of salary
increases and increased staffing and bonus and benefit awards. Staffing
increases were largely the result of start-up of the Australia subsidiary in
October 1996 and from the acquisitions of Solarjack and Sunelco. The increase
in sales and marketing expenses was primarily attributable to increased
marketing of the Company's new solar water pumping division, advertising cost
associated with the retail distribution business through Sunelco and new
industrial markets.
Other Income (Expense)
The Company's non-operating income and expense is primarily comprised of
interest expense. Interest expense increased in the four month period ended
December 31, 1996 versus 1995 due to additional outstanding debt in 1996.
Income Tax
The Company did not recognize any income tax benefit or expense for the four
months ended December 31, 1996 or 1995. Utilization of the NOL carryforward
as of December 31, 1996 totaling approximately $8,000,000, is dependent on
generation of future taxable income and is limited by ownership changes. The
Company utilized NOL carryforward of $65,000 in the four months ended December
31, 1995 to offset current income tax expense.
Net Loss
The Company experienced a net loss of $1,389,000 or $0.10 per diluted common
share in the four month period of 1996 versus net income of $223,000 or $0.01
per diluted common share for the same period in 1995. Without the inventory
valuation allowance and other charges discussed above in the aggregate of
$1,823,000, net income would have been $434,000, a 95% improvement from the
same period in the prior year.
Liquidity and Capital Resources
The Company's liquidity is generated from both internal and external sources
and is used to fund short-term working capital needs, capital expenditures and
acquisitions. Internally generated liquidity is measured by net cash flows
from operations, as discussed below, and working capital. At December 31,
1998, the Company's working capital (current assets minus current liabilities)
was $7,932,000 with a current ratio (current assets divided by current
liabilities) of 1.66 to 1.
The Company has established an unsecured, $4,750,000 line of credit with ACX,
the parent of the Company's majority shareholder. This facility bears
interest, payable quarterly, at 1% below prime. The principal balance is due
October 31, 2000. At December 31, 1998, the Company had borrowed $4,250,000
under this line for use in funding working capital needs, capital expenditures,
and the acquisition of certain assets of IPC and Utility Power Group.
In 1998, the Company entered into a one year $3,600,000 note payable with GTC,
the Company's majority shareholder. This note was given for the purchase of
GGB and Solartec and bears interest, payable quarterly, at 6%. The principal
balance is due September 4, 1999.
As shown in the Consolidated Statement of Cash Flows, net cash provided by
operations was $94,000 for the year ended December 31, 1998 and net cash used
in operations was $2,806,000, $435,000 and $1,059,000 for the year ended
December 31, 1997, the four months ended December 31, 1996, and the fiscal year
ended August 31, 1996, respectively. A decrease in inventories net of
inventory acquired offset by a decrease in accounts payable and an increase in
other current assets account for the change to cash provided by operations in
the year ended December 31, 1998 from cash used in
<PAGE> 14
operations in the year ended
December 31, 1997. Increased inventories and accounts receivable resulting
from the Company's significant revenue growth account for the increased use of
cash for operations between the fiscal year ended August 31, 1996 and the year
ended December 31, 1997. During the four months ended December 31, 1996, the
Company used $435,000 of cash for operations, compared with $24,000 generated
from operations for the comparable period of 1995. A $696,000 decrease in
current liabilities, partially offset by the liquidation of inventory and
receivables, was the primary use of cash for the four months ended December 31,
1996.
During 1998, the Company invested $514,000 in capital expenditures to continue
to upgrade equipment. This is a decrease of $64,000 from capital expenditures
in 1997. The Company received approximately $1,325,000, in proceeds from the
sale of assets during 1998. This mainly represents the sale of the Company's
former Scottsdale facility. In 1998, the Company also paid cash for the
acquisition of new subsidiaries and other assets. During 1997, the Company
invested $578,000 in capital expenditures to upgrade equipment. This
represents an increase of $260,000 over capital expenditures in fiscal 1996.
The Company invested $378,000 during 1997 for the purchase of patents,
trademarks, and other intangible assets, primarily for the purchase of
contracts from IPC. The Company believes these contracts will provide access
to key markets in the Middle East and Northern Africa. The Company will
continue to evaluate potential acquisitions and planned capital spending in
light of internally generated cash flows and the availability of external
sources of funds.
Although no assurances can be made, the Company currently expects that cash
flows from operations and access to its line of credit will be sufficient to
meet the Company's needs for working capital, temporary financing for capital
expenditures and acquisitions.
The impact of inflation on the Company's financial position and results of
operations has been minimal and is not expected to adversely affect future
results.
Year 2000 Readiness
The Year 2000 issue arose because many existing computer programs use only the
last two digits to refer to a year. Therefore, these computer programs do not
properly recognize a year that begins with "20" instead of the familiar "19".
If not corrected, many computer applications could fail or create erroneous
results disrupting normal business operations.
Management has implemented an enterprise-wide program to prepare the Company's
financial, manufacturing, and other critical systems and applications for the
Year 2000. The program includes a task force established in September 1998
that has the support and participation of upper management and includes
individuals with expertise in information technologies, accounting, legal and
engineering. The Board of Directors monitors the progress of the program on a
quarterly basis. The task force's objective is to ensure an uninterrupted
transition to the year 2000 by assessing, testing, and modifying all
information technology (IT) and non-IT systems, interdependent systems, and
third parties such as suppliers and customers.
The Year 2000 task force has taken an inventory of all IT and non-IT systems.
This inventory categorizes potential systems date failures into three
categories: "major" (critical to production and potentially threatening to
business with no short-term alternatives available); "limited" (disrupting to
the business operations with short-term solutions available); and "minor"
(inconsequential to the business operations). The task force has prioritized
the program to focus first on "major" systems. It is the Company's goal to
have all systems Year 2000 compliant no later than August 1, 1999.
IT Systems - The Company is primarily using internal resources to remediate IT
systems. External resources are used to assist in testing compliance of IT
systems. The Company does not rely on any one IT system. The majority of the
IT systems have been recently purchased from third party vendors. These
systems were already Year 2000 compliant or had Year 2000 compliance upgrades.
As of December 31, 1998, approximately 60% of the Company's IT systems were
Year 2000 compliant.
Non-IT Systems - The Company has only three manufacturing facilities and eight
sales facilities, none of which have a significant number of non-IT systems.
Two of the three manufacturing facilities are located in North America. To
ensure Year 2000
<PAGE> 15
compliance for non-IT systems, the Year 2000 task force has
contacted the suppliers of these non-IT systems and obtained statements that
the systems are Year 2000 compliant and is in the process of testing Year 2000
compliance. The majority of these non-IT systems use time intervals instead of
dates, thus, the Company believes that potential disruptions of such systems
due to the Year 2000 issue should be minimal. As of December 31, 1998,
approximately 70% of the Company's "major" and "limited" non-IT systems are
Year 2000 compliant. The "minor" non-IT systems are in various stages of
compliance.
Third Parties - The Year 2000 task force has been in contact with key suppliers
and customers to minimize potential business disruptions related to the Year
2000 issue between the Company and these third parties. The task force has
focused on suppliers and customers that are classified as "major" and
"limited." While the Company cannot guarantee compliance by third party
suppliers, the Company is in the process of developing contingency plans to
ensure the availability of inventory supplies in the event a supplier is not
Year 2000 compliant.
Contingency Plans - The Company is in the process of forming contingency plans
in the event there are Year 2000 failures related to the Company's IT and non-
IT systems and/or key third parties. The Company's manufacturing facilities
are not interdependent in terms of non-IT systems, and its facilities utilize a
diverse range of non-IT systems. In addition, no one manufacturing facility
accounts for a significant amount of revenue. Thus, for non-IT systems the
contingency plan includes the transfer of production between facilities and
manufacturing equipment. Currently, the Company believes that there is enough
manufacturing capacity to accommodate the contingency plan.
The Company's IT systems are somewhat interdependent between locations, however
the Company still utilizes a diverse range of IT systems. The contingency plan
for IT systems includes the ability to transfer transaction processing, record
keeping, and compliance work between facilities in addition to maintaining
"hard" copies of critical information.
The Company is not dependent on any one supplier. The Company has established
back-up suppliers and will maintain adequate inventory levels at December 31,
1999 to minimize the potential business disruption in the event of a Year 2000
failure by a supplier.
Costs - Through December 31, 1998, the Company has spent approximately $33,000
out of an estimated total of $120,000 related to the Year 2000 issue. These
costs include the costs incurred for external consultants and professional
advisors and the costs for software and hardware. The Company has not
separately tracked internal costs such as payroll related costs for its
information technologies group and other employees working on the Year 2000
project. The Company expenses all costs related to the Year 2000 issue as
incurred. These costs are being funded through operating cash flows.
The Company's current estimate of the time and costs related to the remediation
of the Year 2000 issue are based on the facts and circumstances existing at
this time. New developments could affect the Company's estimates to remediate
the Year 2000 issue. These developments include, but are not limited to: (i)
the availability and cost of personnel trained in this area; (ii) the ability
to identify and remediate all IT and non-IT systems; (iii) unanticipated
failures in IT and non-IT systems; and (iv) the planning and Year 2000
compliance success that key customers and suppliers attain.
Forward-Looking Statements
Certain statements in this report that are not historical facts contain
forward-looking statements which involve uncertainties and factors that may
cause actual results to be materially different from those that may be implied
by such statements. Forward-looking statements include, but are not limited
to, statements of the Company's beliefs, expectations and strategies. Forward-
looking statements and related factors that may cause actual results to differ
from such forward-looking statements include but are not limited to, market
demand and acceptance of the Company's products, the impact of competitive
technologies, products and services, risks associated with international
operations including currency fluctuations, litigation, seasonality, claims to
which the Company may be a party, availability of critical materials or supply,
the Company's ability to managed planned expansion of its business and to
integrate acquisitions of other businesses.
Item 7a. Quantitative and Qualitative Disclosure About Market Risk
For the years ended December 31, 1998 and 1997, the four months ended December
31, 1996 and the year ended August 31,1996, approximately 38%, 35%, 14% and
18%, respectively, of the Company's revenue was generated by its international
operations. The Company sells products directly through its subsidiaries in
Australia, Brazil and Argentina and through domestic channels that have end-
user customers located outside the United States. The Company expects that it
will continue to generate a significant portion of its revenue from
international operations in the future. The majority of the Company's
international operations involve transactions denominated in United States
dollars. Only the local transactions generated by the Company's subsidiaries
in Australia and Brazil are subject to currency exchange rate fluctuations, as
Argentina's currency is equal to the United States dollar. An increase in the
exchange value of the United States dollar reduces the value of revenue and
profits generated by the Company's international subsidiaries in Australia and
Brazil. The Company's operating and financial results can be materially
affected by fluctuations in foreign currency exchange rates. The Company does
not employ a foreign currency hedging program.
<PAGE> 16
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements Page
Report of Independent Accountants - December 31, 1998, 1997 and 1996 17
Independent Auditors' Report - Year Ended August 31, 1996 18
Consolidated Balance Sheets as of December 31, 1998 and 1997 19
Consolidated Statements of Operations for the years ended
December 31, 1998 and 1997, the four months ended December
31, 1996 and the year ended August 31, 1996 20
Consolidated Statements of Comprehensive Income for the years ended
December 31, 1998 and 1997, the four months ended December 31,
1996 and the year ended August 31, 1996 21
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1998 and 1997, the four months ended
December 31, 1996 and the year ended August 31, 1996 22
Consolidated Statements of Cash Flows for the years ended
December 31, 1998 and 1997, the four months ended December
31, 1996 and the year ended August 31, 1996 24
Notes to Consolidated Financial Statements 25
<PAGE> 17
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Golden Genesis Company
In our opinion, the accompanying consolidated balance sheets and related
consolidated statements of operations, comprehensive income, stockholders'
equity and cash flows present fairly, in all material respects, the financial
position of Golden Genesis Company and its subsidiaries at December 31, 1998
and 1997, and the results of their operations and their cash flows for the
years ended December 31, 1998 and 1997 and the four months ended December 31,
1996, in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Denver, Colorado
January 22, 1999
<PAGE> 18
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Golden Genesis Company:
We have audited the accompanying consolidated statements of operations,
comprehensive income, stockholders' equity, and cash flows of Golden Genesis
Company and subsidiaries (formerly Photocomm, Inc. and subsidiaries) for the
year ended August 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and the cash flows
of Golden Genesis Company and subsidiaries (formerly Photocomm, Inc. and
subsidiaries) for the year ended August 31, 1996 in conformity with generally
accepted accounting principles.
KPMG LLP
Phoenix, Arizona
October 18, 1996
<PAGE> 19
GOLDEN GENESIS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
December 31, December 31,
1998 1997
Assets
Current assets
Cash & cash equivalents $ 1,259 $ 1,182
Accounts receivable, net of allowance
for doubtful accounts of $84 and
$147, respectively 9,931 7,277
Inventories, net 7,130 5,810
Property held for sale, net - 1,018
Deferred tax asset 350 193
Other current assets 1,211 222
Total current assets 19,881 15,702
Property & equipment, net 2,327 1,684
Goodwill, net 5,278 1,620
Deferred tax asset - 157
Other assets, net 539 342
Total assets $28,025 $19,505
====== ======
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 5,663 $ 2,912
Short term notes payable 5,075 -
Other accrued expenses 1,146 654
Current installments of long-term debt 65 82
Total current liabilities 11,949 3,648
Long-term debt 5,155 4,151
Total liabilities 17,104 7,799
Commitments and contingencies (Note 13) - -
Stockholders' equity
Preferred stock: $0.001 par value,
5,000,000 shares authorized
Series A 12% convertible preferred stock,
125,000 shares authorized; zero and 38,972
shares issued and outstanding, respectively - -
Series AA 11% convertible preferred
stock, 200,000 shares authorized;
zero and 44,165 shares issued
and outstanding, respectively - -
Common Stock:
$0.10 par value, 25,000,000 shares
authorized; 17,151,948 and 16,245,044
shares issued and outstanding,
respectively 1,715 1,625
Additional paid-in capital 17,023 16,122
Accumulated other comprehensive
income (loss) (296) (2)
Accumulated deficit (7,521) (6,039)
Total stockholders' equity 10,921 11,706
Total liabilities and
stockholders' equity $28,025 $19,505
====== ======
See accompanying notes to consolidated financial statements.
<PAGE> 20
GOLDEN GENESIS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Four Months
Year Ended Year Ended Ended Year Ended
December 31, December 31, December 31, August 31,
1998 1997 1996 1996
<S> <C> <C> <C> <C>
Net sales $43,348 $32,829 $ 9,706 $22,995
Cost of sales 36,146 25,920 7,508 17,437
Gross profit 7,202 6,909 2,198 5,558
Selling, general and
administrative expenses 8,318 7,240 3,540 4,707
Income (loss) from
operations (1,116) (331) (1,342) 851
Other income (expense):
Interest expense (573) (161) (60) (101)
Other, net 207 (33) 13 48
Income (loss)
before taxes (1,482) (525) (1,389) 798
Income tax benefit - - - 350
Net income (loss) $(1,482) $ (525) $(1,389) $ 1,148
====== ====== ====== ======
Preferred stock dividend (2) (42) (68) (92)
====== ====== ====== ======
Net income (loss) applicable
to common stockholders $(1,484) $ (567) $(1,457) $ 1,056
====== ====== ====== ======
Net income (loss) per basic
share of common stock $ (0.09) $ (0.03) $ (0.10) $ 0.08
====== ====== ====== ======
Weighted average shares
outstanding - basic 16,722 16,216 14,906 13,917
Net income (loss) per diluted
share of common stock $ (0.09) $ (0.03) $ (0.10) $ 0.07
====== ====== ====== ======
Weighted average shares
outstanding - diluted 16,722 16,216 14,906 14,535
====== ====== ====== ======
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 21
GOLDEN GENESIS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
<TABLE>
<CAPTION>
Four Months
Year Ended Year Ended Ended Year Ended
December 31, December 31, December 31, August 31,
1998 1997 1996 1996
<S> <C> <C> <C> <C>
Net income (loss) $(1,482) $ (525) $(1,389) $ 1,148
Other comprehensive income
(loss), net of tax of $0:
Foreign currency translation (294) (2) - -
Other comprehensive income (294) (2) - -
Comprehensive income (loss) $(1,776) $ (527) $(1,389) $ 1,148
===== ===== ===== =====
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 22
<TABLE>
<CAPTION>
GOLDEN GENESIS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands) Accumulated
Convertible Preferred Stock Additional Other
Series A Series AA Common Stock Paid-in Accumulated Comprehensive
Shares Amount Shares Amount Shares Amount Capital Deficit Income(Loss) Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, August 31, 1995 109,972 $ - 69,365 $ - 13,014,159 $1,301 $10,369 $(5,273) $ - $ 6,397
Common stock issued upon
exercise of stock options 391,085 39 351 390
Common stock issued as part
of Sunelco purchase agreement 225,000 23 377 400
Common stock issued as part
of Solarjack purchase agreement 560,000 56 1,344 1,400
Common stock issued upon
exercise of warrants 50,000 5 85 90
Series AA convertible
preferred stock converted
to common stock 4 to 1 (16,800) - 67,200 7 (7) -
Cash dividends on Series A
and Series AA preferred stock
$0.60 and $0.66 per share,
respectively (92) (92)
Net income 1,148 1,148
Balance, August 31, 1996 109,972 $ - 52,565 $ - 14,307,444 $1,431 $12,427 $(4,125) $ - $9,733
Common stock issued upon
exercise of stock options 560,000 56 585 641
Common stock issued as part
of GTC stock purchase agreement 1,000,000 100 2,542 2,642
Common stock issued upon
conversion of preferred
stock 4 to 1 (71,000) - 284,000 28 (28) -
Cash dividends on Series A
and Series AA preferred stock
$0.60 and $0.66 per share,
respectively (68) (68)
Net loss (1,389) (1,389)
Balance, December 31, 1996 38,972 $ - 52,565 $ - 16,151,444 $1,615 $15,458 $(5,514) $ - $11,559
See accompanying notes to consolidated financial statements.
<PAGE> 23
GOLDEN GENESIS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
(Dollars in thousands) Accumulated
Convertible Preferred Stock Additional Other
Series A Series AA Common Stock Paid-in Accumulated Comprehensive
Shares Amount Shares Amount Shares Amount Capital Deficit Income(Loss) Total
Balance, December 31, 1996 38,972 $ - 52,565 $ - 16,151,444 $1,615 $15,458 $(5,514) $ - $11,559
Common stock issued upon
exercise of stock options 60,000 6 60 66
Common stock issued upon
conversion of preferred
stock 4 to 1 (8,400) - 33,600 4 (4) -
Settlement of stock options 650 650
Cash dividends on Series A
and Series AA preferred stock
$0.60 and $0.66 per share,
respectively (42) (42)
Cumulative translation adjustment (2) (2)
Net loss (525) (525)
Balance, December 31, 1997 38,972 $ - 44,165 $ - 16,245,044 $1,625 $16,122 $(6,039) $ (2) $11,706
Common stock issued upon
exercise of stock options
and common stock sold to
officers 24,356 2 39 41
Common stock issued upon
conversion of preferred
stock 4 to 1 (38,972) - (44,165) - 332,548 33 (33) -
Common stock issued as part
of UPG purchase agreement 400,000 40 610 650
Common stock issued as part
of RPI purchase agreement 150,000 15 355 370
Purchase of GGB and Solartec
from GTC and ACX (68) (68)
Cash dividends on Series A
and Series AA preferred stock
$0.30 and $0.33 per share,
respectively (2) (2)
Cumulative translation adjustment (294) (294)
Net loss (1,482) (1,482)
Balance, December 31, 1998 - $ - - $ - 17,151,948 $1,715 $17,023 $(7,521) $ (296) $10,921
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 24
GOLDEN GENESIS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Four Months
Year Ended Year Ended Ended Year Ended
December 31, December 31, December 31, August 31,
1998 1997 1996 1996
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss) $(1,482) $ (525) $(1,389) $1,148
Adjustments to reconcile net
income (loss) to net cash
used in operating activities:
Depreciation and amortization 801 616 149 379
Non-cash stock option
settlement charge - 650 - -
Gain on sale of assets (21) - - -
Change in accounts receivable (33) (2,719) 1,042 (3,242)
Change in inventories 1,690 (1,320) 214 (1,178)
Change in accounts payable
and other accrued expenses (619) 529 (696) 2,361
Change in other current assets (242) (37) 245 (177)
Deferred tax benefit - - - (350)
Net cash provided by (used in)
operating activities 94 (2,806) (435) (1,059)
Cash flows from investing
activities:
Purchase of property and
equipment (514) (578) (155) (318)
Proceeds from sale of assets 1,325 - - -
Purchase of patents, trademarks
and other assets (355) (378) (18) -
Cash paid for acquisitions (245) - - (395)
Net cash provided by (used in)
investing activities 211 (956) (173) (713)
Cash flows from financing
activities:
Proceeds from issuance of debt 750 4,102 - 1,199
Repayments of debt (1,008) (561) (1,429) (136)
Proceeds from issuance of stock 34 66 3,283 481
Cash dividends on preferred
stock (4) (41) (68) (92)
Net cash (used in) provided by
financing activities (228) 3,566 1,786 1,452
Net increase (decrease) in
cash and cash equivalents 77 (196) 1,178 (320)
Cash and cash equivalents at
beginning of period 1,182 1,378 200 520
Cash and cash equivalents at
end of period $1,259 $1,182 $1,378 $200
===== ===== ===== ===
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 25
GOLDEN GENESIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996 AND AUGUST 31, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Golden Genesis Company and its subsidiaries (the "Company") are engaged in the
designing, manufacturing and marketing of solar electric systems in the United
States, Australia, the Middle East, Asia and South America. The Company was
formerly known as Photocomm, Inc.
At December 31, 1998, 1997 and 1996, respectively, the Company was 52%, 55% and
52% owned by Golden Technologies Company, Inc. ("GTC"), a wholly owned
subsidiary of ACX Technologies, Inc. ("ACX"). At December 31, 1998 and 1997
ACX had the voting rights to an additional 3% of the Company's common stock,
par value $0.10 per share ("Common Stock"). At August 31, 1996 the Company was
46% owned by New World Power Corporation ("NWP"). At August 31, 1996 and 1995,
the Company was 10% and 14% owned by Programmed Land, Inc. ("PLI"),
respectively.
Basis of Presentation
The consolidated financial statements of the Company include the accounts of
Golden Genesis Company; Utility Power Group ("UPG"); Remote Power Incorporated
("RPI"); Photocomm Pty. Ltd. ("Australia"); Integrated Power Corporation, Inc.
("IPC"); Solartec S.A. ("Solartec" or "Argentina") and Golden Genesis do Brazil
("GGB" or "Brazil").
The financial statements of the Company's Brazilian and Australian subsidiaries
are recorded in the functional currency of Brazil ("Real" or "R$") and
Australia ("Australian Dollar" or "A$"), respectively. Prior to consolidation
with the Company, the local financial statements are translated into United
States dollars. Changes in currency exchange rates are reflected as a
cumulative translation adjustment in the Consolidated Balance Sheets and
Consolidated Statements of Comprehensive Income.
All material intercompany balances and transactions have been eliminated in
consolidation.
Certain reclassifications have been made in the financial statements for the
year ended August 31, 1996 to conform to the classifications used in the
financial statements as of and for the four months ended December 31, 1996 and
the years ended December 31, 1997 and 1998.
Revenue Recognition
Sales and related cost of sales are recorded when goods are shipped and
services rendered to customers. Certain sales related to the construction of
large solar systems are recognized on a percentage of completion basis.
Financial Instruments
The Company's financial instruments include cash, accounts receivable, accounts
payable and debt. The carrying value of these financial instruments
approximates their fair values.
Inventories
Inventories are valued at the lower of historical cost, determined by the
first-in, first-out method, or market. Provisions are made for excess,
obsolete and slow-moving inventory.
<PAGE> 26
Inventories consist of the
following (In thousands): December 31, December 31,
1998 1997
Raw materials and goods purchased for resale $ 7,868 $ 5,703
Work-in-progress 157 209
Less allowance for obsolescence (895) (102)
$ 7,130 $ 5,810
====== ======
Property and Equipment
Property and equipment are stated at cost. Costs of repairs and maintenance
are expensed when incurred.
Depreciation of equipment is computed using the straight-line method over 5 to
10 years. Leasehold improvements are amortized over the term of the lease or
life of the asset, whichever is shorter. The buildings are depreciated using
the straight-line method over 31 1/2 years. The building and land are
mortgaged for $172,000.
Property and equipment consist of the following (In thousands):
December 31, December 31,
1998 1997
Machinery and equipment $1,843 $ 1,859
Computer equipment 726 427
Furniture and fixtures 533 527
Billboard systems 396 415
Building 335 -
Leasehold improvements 182 108
Land 155 -
Automobiles 103 10
4,273 3,346
Less accumulated depreciation (1,946) (1,662)
$ 2,327 $ 1,684
===== =====
Depreciation expense for the years ended December 31, 1998 and 1997, the four
months ended December 31, 1996 and the year ended August 31, 1996 was $537,000,
$426,000, $122,000 and $306,000, respectively.
As part of the Company's overall plan to centralize operations, warehousing and
administration in Scottsdale, the Company's Board of Directors approved
relocation of central operations to a new larger facility. The Board also
approved the sale of the existing land and building. The land had an original
cost of $300,000 and the building had an original cost of $897,000 with
accumulated depreciation of $179,000. The land and building were sold on
September 16, 1998 for approximately $1,325,000 with a gain of $177,000 after
commissions, taxes and fees.
The Company recorded a total of $184,000 in asset impairment charges in 1998.
The charges consisted of fixed asset impairments related to the relocation of
module manufacturing to Argentina and pump manufacturing to the new Scottsdale
facility.
Goodwill and Other Assets
Goodwill, which represents the excess of the purchase price over the fair value
of net assets acquired, is amortized on a straight-line basis over the expected
periods of benefit, generally 20 years. The Company assesses the
recoverability of goodwill and other assets by determining whether such assets
can be recovered through undiscounted future operating cash flows of the
acquired operations. The amount of goodwill impairment, if any, is measured
based on the requirements of Statement of Financial Accounting Standards No.
121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of."
<PAGE> 27
Goodwill and other assets consist of the following (In thousands):
December 31, December 31,
1998 1997
Goodwill $ 5,768 $ 1,896
Less accumulated amortization (490) (276)
$ 5,278 $ 1,620
===== =====
Other assets $ 807 $ 560
Less accumulated amortization (268) (218)
$ 539 342
===== =====
On July 2, 1997, the Company purchased certain assets and contracts of
Integrated Power Corporation, Inc. from Westinghouse Electric Corporation for
$450,000. Integrated Power Corporation specializes in highly engineered
alternative power systems incorporating solar, wind and diesel generators. The
assets purchased included contracts, fixed assets and intangible assets.
During 1998 the Company purchased goodwill and other assets through the
acquisition of UPG, RPI, Solartec and GGB. See Note 3.
Short Term Notes Payable
Short term notes payable consist of the following (In thousands):
December 31,
1998
Note payable to GTC (a related party),
interest payable quarterly at 6%, principal
due September 3, 1999. $ 3,600
Bank line of credit for Solartec S.A. with
ABN Bank, Argentina, with variable rate
of interest, interest payable monthly and
revolving principal, guaranteed by ACX 1,234
Bank line of credit for GGB with ABN Bank,
Brazil, with variable rate of interest,
interest payable monthly and revolving
principal, guaranteed by ACX 211
Other notes payable 30
Total short term notes payable $ 5,075
=======
The weighted average interest rate at December 31, 1998 for short term
borrowings was approximately 10%.
Other Accrued Expenses
Other accrued expenses consist of the following (In thousands):
December 31, December 31,
1998 1997
Billings in excess of costs $ 380 -
Employee compensation 319 $ 258
Non-employee commission 125 135
Accrued warranty 80 -
Accrued interest 72 -
Accrued freight 17 177
Other 153 84
Total other accrued expenses $1,146 $ 654
====== =====
Supplementary Cash Flow Information
The Company paid interest of $430,000 $143,000, $26,000 and $101,000 for the
years
<PAGE> 28
ended December 31, 1998 and 1997, the four months ended December 31,
1996 and the year ended August 31, 1996, respectively.
No income taxes were paid for the years ended December 31, 1998 and 1997, the
four months ended December 31, 1996 or the year ended August 31, 1996.
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments with an initial maturity of three months or less at the
time of purchase to be cash equivalents.
Non-cash investing and financing activities include the following:
On October 1, 1995, in connection with the Sunelco acquisition (see Note 3),
the Company issued 225,000 shares of its Common Stock valued at $400,000. On
February 2, 1996, in connection with the Solarjack acquisition (see Note 3),
the Company issued 560,000 shares of its Common Stock valued at $1,400,000. On
January 23, 1998, in connection with the UPG acquisition (see Note 3) the
Company issued 400,000 shares of its Common Stock valued at $650,000. On July
21, 1998, in connection with the RPI acquisition (see Note 3), the Company
issued 150,000 shares of its Common Stock valued at $370,000. On September 4,
1998, in connection with the Solartec and Brazil acquisitions (see Note 3) the
Company incurred a note payable to GTC for $3,600,000.
Significant assets and liabilities acquired as a part of purchase transactions
are as follows:
(In thousands) UPG RPI GGB Solartec
Accounts receivable $ 710 $ 156 $ 339 $1,748
Inventory 1,977 111 254 813
Other current assets - - 334 413
Fixed assets, net 45 - 67 841
Goodwill, net 484 84 153 1,961
Accounts payable &
accrued liabilities 2,724 154 430 806
Notes payable - - 234 4,854
Long term debt 176 82 743 164
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities, the disclosure of
contingent assets and liabilities and the reporting of revenues and expenses to
prepare these financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
Comprehensive Income
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," was issued in June 1997. The statement establishes
standards for reporting and display of comprehensive income in financial
statements and was adopted by the Company in the first quarter of 1998. The
Company's comprehensive income consists of net income and certain foreign
currency translation adjustments.
Segment Reporting
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," was issued in June 1997. This statement establishes standards
for the way public business enterprises report information about operating
segments. It also established standards for related disclosures about products
and services, geographical areas and major customers. This statement was
adopted in the Company's financial statements for the year ended December 31,
1998. See Note 12.
(2) CHANGE IN FISCAL YEAR END
On February 3, 1997 the Board of Directors elected to change the fiscal year
end of the Company from August 31 to December 31. As a result, the audited
financial statements presented herein include the period as of and for the four
months ended
<PAGE> 29
December 31, 1996. The following supplemental unaudited
consolidated statement of operations and unaudited consolidated statement of
cash flows for the four months ended December 31, 1995 are presented for
comparative purposes only.
Consolidated Statement of Operations (unaudited)
(In thousands except per share data)
Four Months Ended
December 31,1995
Net Sales $ 6,719
Cost of sales 5,012
Gross profit 1,707
Selling, general and 1,481
administrative expenses
Income from operations 226
Other income (expense):
Interest expense (40)
Other, net 37
Income before taxes 223
Income taxes -
Net income $ 223
======
Preferred stock dividends 61
Net income applicable to common
stockholders $ 162
======
Net income per basic share of common stock $ 0.01
Weighted average shares outstanding - basic 13,354
Net income per diluted share of common stock $ 0.01
Weighted average shares outstanding - diluted 14,054
Consolidated Statement of Cash Flows (unaudited)
(In thousands)
Four Months Ended
December 31,1995
Cash flows from operating activities:
Net income $ 223
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 99
Decrease in accounts receivable 123
Increase in inventories (1,155)
Increase in accounts payable
and accrued expenses 617
Decrease in other current assets 117
Net cash provided by operating activities 24
Cash flows from investing activities:
Purchase of property and equipment (46)
Purchase of patents, trademarks and
other assets (33)
<PAGE> 30
Net cash used in investing activities (79)
Cash flows from financing activities:
Repayments of debt (252)
Proceeds from issuance of common stock 333
Cash dividends on preferred stock (61)
Net cash provided by financing activities 20
Net decrease in cash and cash equivalents (35)
Cash and cash equivalents at beginning of period 520
Cash and cash equivalents at end of period $ 485
=====
(3) ACQUISITIONS
On September 4, 1998 the Company acquired Golden Genesis do Brazil Energy
Renovavel, Ltda. ("GGB"), a corporation organized under the laws of the
Federative Republic of Brazil. The acquisition was structured as a stock
purchase with GGB becoming a wholly owned subsidiary of the Company. GGB was
purchased from GTC, the Company's majority shareholder and ACX, GTC's parent
corporation. The purchase was accounted for as a transfer of the assets and
liabilities of GGB from GTC and ACX to the Company. As of the date of purchase
GGB had net liabilities of approximately $120,000. The aggregate
consideration, in addition to liabilities assumed, paid by the Company in
connection with this purchase was a one-year note payable to GTC in the amount
of $5,000. Goodwill of $159,000 transferred to the Company related to GGB is
being amortized over 20 years using the straight line method. The amount of
purchase price in excess of ACX's and GTC's historical net book value of GGB
was recorded by the Company as an adjustment to additional paid-in capital.
On September 4, 1998 the Company acquired Solartec Sociedad Anonima
("Solartec"), a corporation organized under the laws of the Republic of
Argentina. The acquisition was structured as a stock purchase with Solartec
becoming a wholly owned subsidiary of the Company. Solartec was purchased from
GTC and ACX. The purchase was accounted for as a transfer of the net assets
and liabilities of Solartec from GTC and ACX to the Company. The aggregate
consideration paid by the Company in connection with this purchase was a one-
year note payable to GTC in the amount of $3,600,000. Goodwill of $2,026,000
transferred to the Company related to Solartec is being amortized over 20
years using the straight-line method. The amount of purchase price in excess
of ACX's and GTC's historical net book value of Solartec was recorded by the
Company as an adjustment to additional paid-in capital.
On July 21, 1998 the Company acquired Remote Power, Inc. ("RPI"), a Colorado
corporation. RPI, headquartered in Westminster, Colorado, is a distributor
and systems integrator utilizing solar electric systems for customers
primarily within the oil and gas and railroad industries. The acquisition was
structured and accounted for as a stock purchase with RPI becoming a wholly
owned subsidiary of the Company. The aggregate consideration paid by the
Company in connection with this purchase was $490,000. The Company issued
150,000 shares of its Common Stock valued at $370,000 and paid $120,000 in
cash. The excess of purchase price over the fair market value of net assets
acquired of $474,000 is being amortized over 20 years using the straight-line
method.
On January 23, 1998 the Company acquired Silicon Energy Corporation, a
California corporation doing business as Utility Power Group ("UPG"). UPG,
headquartered in Chatsworth, California, functions as a value added systems
integrator of solar electric products, specializing in on-grid and off-grid
solar and hybrid power systems. The acquisition was structured as a merger
with Utility Power Group, Inc., a wholly owned subsidiary of the Company, as
the surviving corporation. The aggregate consideration paid by the Company in
connection with this merger was $1,250,000. The Company issued 400,000 shares
of its Common Stock valued at $650,000 and paid $600,000 in cash. The
Company's principal stockholder financed the cash portion of the merger. The
acquisition of UPG was accounted for as a
<PAGE> 31
purchase and has been included in
the Company's results of operations since January 23, 1998. The excess of
purchase price over the fair market values of net assets acquired of
$1,210,000 is being amortized over 20 years using the straight-line method.
The following unaudited pro forma information has been prepared assuming that
the Solartec and UPG acquisitions had occurred on January 1, 1997. The pro
forma information does not include the effects of the acquisitions of RPI and
GGB. The effect of these acquisitions net of adjustments for non recurring
transactions adjusted out of these acquisitions financial statement is not
material to the Company's financial statements. The pro forma information
includes adjustments for increased interest expense related to new borrowings
at applicable rates for the purchase and amortization expense for goodwill
purchased. The pro forma financial information is presented for informational
purposes only and may not be indicative of the results of operations as they
would have been had the transaction actually been effected on January 1, 1997,
nor is it necessarily indicative of the results of operations which may occur
in the future.
(In thousands Year Ended
except per share data) December 31,
--------------------
1998 1997
(unaudited) (unaudited)
-------- --------
Sales, net $46,692 $41,162
======= =======
Net income (loss) $(1,674) $ (914)
======= =======
Net income (loss) per basic and
diluted share of common stock $ (0.10) $ (0.06)
======= =======
On February 2, 1996, the Company acquired all of the assets, excluding certain
accounts receivable, of Solarjack Manufacturing, Inc. ("Solarjack"), a solar
electric pumping products manufacturer located in Safford, Arizona. The
aggregate consideration paid by the Company in connection with this acquisition
was $1,737,000. The Company paid $337,000 in cash and 560,000 shares of its
Common Stock, valued at $1,400,000. The acquisition of Solarjack has been
accounted for as a purchase. The excess of purchase price over the fair market
values of net assets acquired of $1,091,000 is being amortized over 20 years
using the straight-line method.
On October 3, 1995, the Company acquired all of the assets and liabilities of
Sunelco, Inc. ("Sunelco"), a distributor of solar electric products located in
Hamilton, Montana. The aggregate consideration paid by the Company in
connection with this acquisition was $915,000. The Company issued 225,000
shares of its Common Stock, valued at $400,000, assumed Sunelco liabilities of
$457,000 and paid $58,000 in cash. The acquisition of Sunelco has been
accounted for as a purchase. The excess of purchase price over the fair market
values of net assets acquired of $458,000 is being amortized over 20 years
using the straight-line method.
In connection with the Sunelco and Solarjack acquisitions, the Company entered
into covenants not to compete with the principal owners of the acquired
companies. Pursuant to these agreements, the Company makes monthly payments
through February 2001, in a total aggregate amount of $400,000.
The accompanying consolidated statements of operations reflect the operating
results of Sunelco and Solarjack since the effective dates of the acquisitions.
Proforma unaudited consolidated operating results of the Company, Sunelco and
Solarjack for the year ended August 31, 1996, assuming the acquisitions had
occurred on September 1, 1995, would be as follows: sales, $23,615,000; net
income, $1,249,000; and basic and diluted earnings per share, $0.08 each.
These unaudited proforma results have been prepared for comparative purposes
only and include certain adjustments such as additional amortization expense as
a result of goodwill. They do not purport to be indicative of the results of
operations which actually would have resulted had the combination been in
effect on September 1, 1995 or of future results of operations of the
consolidated entities.
<PAGE> 32
(4) OPERATING LEASES
The Company has leases covering office facilities and equipment. Total rental
expense was approximately $576,000, $366,000, $98,000 and $226,000 for the
years ended December 31, 1998 and 1997, the four months ended December 31, 1996
and the year ended August 31, 1996, respectively.
Future minimum lease payments for non-cancelable operating leases are as
follows:
(In thousands)
Years ending December 31 Amount
1999 $ 477
2000 471
2001 470
2002 470
2003 470
Thereafter 2,391
Future minimum lease payments are related primarily to the lease of the
Scottsdale facility. This lease began in March, 1998 and has a 10 year term.
Minor rate adjustments are built into the lease which are based on the Consumer
Price Index and are not to exceed 5% per year.
(5) LONG-TERM DEBT
Long-term debt consists of the following:
(In thousands) December 31, December 31,
1998 1997
Notes payable to ACX Technologies, Inc.
(a related party), variable annual interest
rate calculated at 1% below prime rate,
interest payments due quarterly, principal
due in full October 31, 2000. $4,250 $4,000
Notes payable to Golden International Inc.
(a related party), annual interest rate of 11%,
interest payments due quarterly beginning
September 1, 1999, principal payments due
quarterly beginning June 1, 2000. 527 -
Notes payable to Golden Technologies Company Inc.
(a related party), annual interest rate of 11%,
interest payments due quarterly beginning
April 15, 1999, principal payments due quarterly
beginning January 15, 2000. 243 -
Mortgage payable to Banco de Galicia y Buenos
Aires S.A., annual interest rate of 12.75%,
monthly payments of $6,943 through May 18, 2001;
collateralized by land and building. 172 -
Notes payable to Arizona Department of
Commerce, annual interest rate of 5%. - 227
Other 28 6
5,220 4,233
Current Installments 65 82
$5,155 $4,151
===== =======
Maturities of the long-term debt in years subsequent to 1998 are as follows:
1999, $65,000; 2000, $4,494,000; 2001, $240,000; 2002 $207,000; 2003 $186,000;
and thereafter, $28,000.
<PAGE> 33
(6) INCOME TAXES
The Company did not have any income tax expense for the years ended December
31, 1998 and 1997, or the four months ended December 31, 1996. The Company's
tax benefit of $350,000 in the year ended August 31, 1996 resulted from the
recognition of a deferred tax asset.
The tax effects of temporary differences which give rise to significant
portions of the deferred tax assets (liabilities) as of December 31, 1998 and
1997, are as follows:
(In thousands) 1998 1997
Net operating loss carryforwards $3,543 $3,376
Inventory allowances 485 131
Intangible assets 164 104
Accounts receivable allowances 148 59
Depreciation and other property related 32 49
Employee benefits 24 4
Total gross deferred tax asset 4,396 3,723
Less: valuation allowance (4,046) (3,373)
Net deferred tax asset $ 350 $ 350
===== =====
The change in the valuation allowance was a net increase of $673,000 and
$196,000 for the years ended December 31, 1998 and 1997, respectively. In
assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets
is dependent upon generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable
income, and tax planning strategies in making this assessment. Based upon the
level of historical taxable income and projections for future taxable income
over the periods which the deferred tax assets are deductible, management
believes it is more likely than not that the Company will realize the deferred
tax asset, net of the valuation allowance.
The increase in the valuation allowance for the years ended December 31, 1998
and 1997 resulted primarily from generation of additional net operating loss
("NOL") carryforwards and increases in inventory and accounts receivable
reserves.
The Company has NOL carryforwards for federal income tax purposes of
approximately $8,800,000 at December 31, 1998. These NOLs expire in the years
2000 through 2018. Due to ownership changes, the Company is limited to
approximately $1,000,000 per year of net operating loss carryforwards which may
be utilized. Included in the NOL amount is approximately $1,500,000
attributable to tax deductions taken for stock options exercised, the benefit
of which will be credited to additional paid-in capital when realized.
(7) STOCK OPTION PLANS
The Company's 1998 Stock option plan (the "1998 Plan") provides for the
issuance of all ungranted or forfeited shares of all predecessor plans. The
1998 Plan replaces, on an ongoing basis, all prior plans. The Company's
predecessor plans include; the 1990 Stock Option Plan (the "1990 Plan") which
provided for the issuance of 2,895,000 shares of Common Stock, the 1996 Stock
Option Plan (the "1996 Plan") which provided for the issuance of 3,100,000
shares of Common Stock, and the Non-Employee Directors Stock Option Plan (the
"Directors Plan") which provided for the issuance of 100,000 shares of Common
Stock.
Options granted under the 1990 and 1998 Plans may be either (i) options
intended to constitute incentive stock options ("ISOs") under the Internal
Revenue Code or (ii) non-statutory options. ISOs may be granted under the 1990
Plan to employees and officers of the Company. Options granted under the 1996
Plan and the Directors Plan are non-statutory options.
The stockholders approved the 1998 plan at the annual stockholders meeting held
on May 27, 1998. The Board of Directors administers the 1998 Plan. The board
<PAGE> 34
determines and designates from time to time those employees of the Company to
whom options are to be granted.
As a part of the 1998 Plan, the stockholders approved grants to outside
directors ("Director Grants"). Under the former Directors Plan and Directors
Grants under the 1998 Plan, non-employee members of the Board of Directors are
granted 10,000 options to acquire shares when they become a member of the board
and 3,000 options to acquire shares annually upon meeting certain requirements.
The options are immediately 25% vested, become 50% vested on the first
anniversary of grant and 100% vested on the second anniversary of grant. The
exercise price is set at the stock price on the date of grant.
ISOs granted under the 1990 and 1998 Plans may not be granted at a price less
than the fair market value of the common stock on the date of grant (or less
than 110% of fair market value in the case of employees or officers holding 10%
or more of the voting stock of the Company). The aggregate fair market value
of shares for which ISOs are granted to any employee exercisable for the first
time by such employee may not exceed $100,000. The options generally become
exercisable over a four year period, and ultimately lapse if unexercised at the
end of ten years.
Except for options granted to employees in 1998, options vest based upon the
anniversary of the date of each grant. Generally, a portion of the options
vest starting after the first anniversary and become fully vested between the
third and fifth anniversary. The 1998 options vest based on the Company's
performance. A portion of the options vest when the Company's Earnings Per
Share ("EPS") reaches $0.07 and become fully vested when the Company's EPS
reaches $0.13. All options become fully vested on or before the seventh
anniversary of their grant.
Activity under the Company's stock option plans is as follows:
Number of Shares Option Price
Incentive Non-Statutory Per Share
Outstanding August 31, 1995 540,500 1,107,000 $0.75-$1.88
Granted 207,000 315,000 $2.75
Exercised (111,085) (280,000) $0.75-$1.88
Canceled (32,375) - $0.75-$2.75
Outstanding August 31, 1996 604,040 1,142,000 $0.88-$2.75
Granted - 36,000 $2.69
Exercised (60,000) (500,000) $0.88-$1.88
Canceled - -
Outstanding December 31, 1996 544,040 678,000 $0.88-$2.75
Granted 90,000 1,852,000 $1.69-$3.09
Exercised (45,000) (15,000) $0.88-$1.88
Canceled (37,350) (597,000) $0.88-$2.75
Outstanding December 31, 1997 551,690 1,918,000 $0.88-$3.09
Granted - 672,373 $1.63-$2.13
Exercised - (2,500) $1.63-$1.69
Canceled (84,136) (644,174) $1.00-$3.09
Outstanding December 31, 1998 467,554 1,943,699 $0.88-$2.94
======= =========
At December 31, 1998, 1997 and 1996 and August 31, 1996, options to purchase
1,621,333, 1,453,915, 812,207, and 796,041 shares, respectively, were
exercisable at prices ranging from $0.88 to $2.94.
At December 31, 1998 the plans had the following options outstanding:
Shares Exercise price Weighted average Weighted average
range exercise price remaining life
86,125 $0.88 - $1.25 $1.05 2.90
1,235,478 $1.63 - $2.44 $1.72 7.34
1,089,650 $2.46 - $2.94 $2.58 7.05
2,411,253
=========
<PAGE> 35
At December 31, 1998 the plans had the following options exercisable:
Shares Exercise price Weighted average
range exercise price
86,125 $0.88 - $1.25 $1.05
587,415 $1.63 - $2.44 $1.81
947,793 $2.46 - $2.94 $2.59
1,621,333
=========
All options granted under any plan are non-transferable during an optionee's
lifetime (except as noted below), but are transferable at death by will or by
laws of descent and distribution or disability. Options granted terminate
within a specified period of time following termination of an optionee's
employment or position as a director or consultant with the Company (except as
noted below).
On June 18, 1997, the Company entered into severance agreements with two former
executives that included amending certain option agreements by allowing them to
be transferable. As a result, 500,000 options were transferred to Programmed
Land, Inc., a corporation controlled by certain Directors of the Company, and
400,000 options were transferred to certain Directors of the Company. At
December 31, 1997 these options were included in the outstanding non-statutory
options. A separate option agreement was amended to permit immediate vesting at
termination and extended the exercise period after termination. In connection
with the severance agreements, the Company recorded a non-cash $650,000
compensation charge related to stock option activity.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
stock option plans. If the Company had elected to recognize compensation cost
based on the fair value of the options at grant date as allowed by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," compensation expense of $518,000, $563,000, $103,000, and
$312,000 would have been recorded for the years ended December 31, 1998 and
1997, the four months ended December 31, 1996 and the year ended August 31,
1996, respectively. Net income (loss) and earnings per share would have been
reduced to the pro forma amounts indicated below:
Four months
Years ended ended Year ended
December 31, December 31, August 31,
(In thousands) 1998 1997 1996 1996
Net income (loss)
As reported $(1,482) $ (525) $(1,389) $1,148
Pro forma (2,000) (1,088) (1,492) 836
Earnings (loss) per share
As reported - Basic (0.09) (0.03) (0.10) 0.08
As reported - Diluted (0.09) (0.03) (0.10) 0.07
Pro forma - Basic (0.12) (0.07) (0.10) 0.05
Pro forma - Diluted (0.12) (0.07) (0.10) 0.05
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions: (i)
dividend yield of 0%; (ii) expected volatility of 51%; (iii) risk-free
interest rate ranging from 5.2% to 5.4%; and (iv) expected life of 2.40 to 5.40
years. The weighted average per share fair value of options granted during the
years ended December 31, 1998 and 1997, the four months ended December 31, 1996
and the year ended August 31, 1996 was $0.77, $0.56, $0.69, and $0.92,
respectively.
(8) STOCKHOLDERS' EQUITY
The $5.00 Series A Preferred Stock was convertible on the basis of four common
shares per preferred share. The cumulative 12% dividend ($0.60 per share) was
payable in cash. The Company had the right to redeem the outstanding preferred
stock at any time for $5.00 per share. The preferred stock had voting rights
based upon the common stock conversion rate. During the years ended December
31, 1998 and 1997, the four months ended December 31, 1996 and the year ended
August 31, 1996 the Company paid cash dividends of $2,000, $18,000, $44,000 and
$52,000 respectively. During the year ended December 31, 1998, 38,927 shares
were converted to 155,888 common shares in accordance with the common stock
conversion rights of the
<PAGE> 36
agreement. During the four months ended December 31,
1996 71,000 shares were converted to 284,000 common shares in accordance with
the common stock conversion rights of the agreement. At December 31, 1998
there are no shares of Series A Preferred Stock outstanding.
The $6.00 Series AA Convertible Preferred Stock was convertible on the basis of
four common shares per preferred share. The cumulative 11% cash dividend
($0.66 per share) was payable quarterly. The Company had the right to redeem
the outstanding preferred stock at any time after the fifth anniversary of the
date of issuance of the shares for $6.00 per share. The Series AA Preferred
Stock had voting rights based upon the common stock conversion rate. During the
years ended December 31, 1998 and 1997, the four months ended December 31, 1996
and the year ended August 31, 1996 the Company paid cash dividends of $2,000,
$23,000, $24,000 and $40,000, respectively. During the year ended December 31,
1998, 44,165 shares were converted to 176,660 common shares, during the year
ended December 31, 1997, 8,400 shares were converted to 33,600 common shares
and during the year ended August 31, 1996, 16,800 shares were converted to
67,200 common shares in accordance with the common stock conversion rights of
the agreement. At December 31, 1998 there are no shares of Series AA Preferred
Stock outstanding.
NWP owned 6,612,447 shares of Common Stock at August 31, 1996 which represented
approximately 46.2% of the issued and outstanding shares of Common Stock and
approximately 44.2% of the total voting shares of the Company.
On November 21, 1996, the Company entered into an agreement with GTC and NWP
(the "Stock Purchase Agreement"). Pursuant to the Stock Purchase Agreement,
GTC acquired NWP's 44% interest in the Company, and NWP and the Company
terminated all of its rights and options pursuant to a November 9, 1993 stock
purchase agreement between NWP, Westinghouse, PLI and Robert R. Kauffman, the
Company's former president. GTC also acquired from the Company 1,000,000
shares of unregistered common stock for $2.75 per share. In conjunction with
the Stock Purchase Agreement, GTC also acquired an additional 1,000,000 common
shares held by related parties of the Company at $2.75 per share.
The Company granted demand registration rights to GTC covering the shares
purchased from NWP and the Company and all other shares they may own, as long
as GTC pays 50% of the costs of any demand registration. In addition, GTC has
the preemptive right to subscribe for its proportionate share of all future
equity offerings of the Company provided that GTC owns at least 20% of the
issued and outstanding stock of the Company or 6,000,000 shares. GTC is a
wholly owned subsidiary of ACX Technologies, Inc., a New York Stock Exchange
company.
On June 18, 1997 the Company entered into a settlement agreement with Robert
R. Kauffman. Pursuant to this agreement, GTC acquired the rights to an
additional 197,000 common shares and 75,763 preferred shares. Each of the
preferred shares are convertible to four common shares for an additional
303,052 equivalent common shares. As collateral for a loan in the settlement
agreement GTC acquired the voting rights to an additional 500,000 shares. As
of December 31, 1998, GTC owned or had the voting rights to approximately 55%
of the issued and outstanding shares of Common Stock of the Company.
(9) EARNINGS PER SHARE
The following is a reconciliation between basic and diluted earnings per common
share.
(Dollars in thousands) Year ended Year ended
December 31, December 31,
1998 1997
Income EPS Shares Income EPS Shares
Net loss $ (1,452) $ (525)
Preferred stock
dividends $ (2) $ (42)
Basic EPS $ (1,454) $(0.09) 16,721,959 $ (567) $(0.03) 16,215,919
<PAGE> 37
Effect of dilutive
securities - - - - - -
Diluted EPS $ (1,454) $(0.09) 16,721,959 $ (567) $(0.03) 16,215,919
Four months
ended Year ended
August 31, August 31,
1996 1996
Income EPS Shares Income EPS Shares
Net income(loss)$ (1,389) $ 1,148
Preferred stock
dividends $ (68) $ (92)
Basic EPS $ (1,457) $(0.10) 14,906,251 $ 1,056 $0.08 13,917,490
Effect of dilutive
securities:
Stock options - - - - - 617,654
Diluted EPS $ (1,457) $(0.10) 14,906,251 $ 1,056 $0.07 14,535,144
Options to purchase 2,411,253 shares of Common Stock were outstanding at
December 31, 1998. Options to purchase 2,469,690 shares of Common Stock and
351,926 common share equivalents relating to 87,982 weighted average shares of
series A and series AA convertible preferred stock were outstanding at December
31, 1997. Options to purchase 1,222,040 shares of Common Stock and 579,148
common share equivalents relating to 144,787 weighted average shares of series
A and series AA convertible preferred stock were outstanding at December 31,
1996. Common share equivalents totaling 682,232 relating to 170,558 weighted
average shares of series A and series AA convertible preferred stock were
outstanding at August 31, 1996. These shares were not included in computation
of diluted EPS for 1998, 1997, the four months ended December 31, 1996 and the
year ended August 31, 1996 because the effect of adding the shares would
increase EPS.
(10) RETIREMENT SAVINGS PLAN
The Company has a 401(k) Retirement Savings Plan (the "Plan") which covers
certain employees 21 years of age and over who have completed ninety days of
service. Employees may voluntarily contribute up to 20% of pre-tax earnings to
the Plan, subject to a maximum IRS limit. The Company may contribute
additional amounts at its sole discretion. Company contributions to the Plan
were $96,000, $60,000, $65,000 and $36,000 for the years ended December 31,
1998 and 1997, the four months ended December 31, 1996 and the year ended
August 31, 1996, respectively.
(11) RELATED PARTIES
As of December 31, 1998 and 1997, ACX owned or had the voting rights to
approximately 55% and 58%, respectively, of the Company's Common Stock through
its wholly-owned subsidiary GTC. At December 31, 1998, ACX has loaned
$4,250,000 to the Company under a revolving credit facility. Subsequent to
December 31, 1998, the Company borrowed an additional $500,000 under this
facility. Interest accrues at 1% under the prime rate and is payable
quarterly. The principal is due October 31, 2000. (See Note 5.) The Company
has $4,250,000 principal and $80,000 of accrued interest outstanding at
December 31, 1998. The Company incurred $347,000 and $132,000 in interest
expense related to this note during the years ended December 31, 1998 and
1997, respectively.
As of December 31, 1998, the Company owed $3,600,000 under a one year note
payable to GTC. This note bears interest, payable quarterly, at 6%. The
principal is due September 3, 1999. As of December 31, 1998, the Company owed
approximately $72,000 of accrued interest under the note.
<PAGE> 38
During the years ended December 31, 1998 and 1997, the Company purchased
$21,000 and $9,000 in goods and services from GTC, respectively. The Company
had $21,000 and $4,000 in accounts payable to GTC at December 31, 1998 and
1997, respectively.
Through September 4, 1998, the Company sold solar electric systems and related
products to GTC's subsidiaries. Sales are on equivalent terms to those
provided to non-related customers. Total sales to GTC's subsidiaries in 1998
and 1997 were $325,000 and $824,000, respectively. As of December 31, 1997,
the Company had $569,000 in receivables from GTC's subsidiaries.
The Company also purchases inventory and certain administrative services from
GTC's subsidiaries. Purchases are on equivalent terms to those provided by
non-related vendors. Total purchases during the year ended December 31, 1998
and 1997 from GTC's subsidiaries were $453,000 and $108,000, respectively. As
of December 31, 1998 and 1997, the Company had payables to GTC's subsidiaries
of $268,000 and $92,000, respectively.
Through November 1998 the Company leased approximately 10,750 square feet of
warehouse and sales office space in a building owned by Robert Kaufmann, the
Company's former President, and Thomas LaVoy, the Company's former Chief
Financial Officer. Rental expense for this lease was $66,000, $85,000, $28,000
and $80,000 for the years ended December 31, 1998 and 1997, the four months
ended December 31, 1996 and the year ended August 31, 1996, respectively. The
lease expired November 1, 1998.
Robert R. Kauffman sold 35,763 shares of Series A Convertible Preferred Stock
and 40,000 shares of Series AA Convertible Preferred Stock to GTC as a part of
the settlement agreement.
(12) Segment Information
The Company's reportable segments are based on its method of internal
reporting, which is based on a combination of product category and geographic
location. The Company's reportable segments are Distribution, Industrial and
International.
The accounting policies of the segments are the same as those described in
Note 1. The Company evaluates the performance of its segments and allocates
resources to them based primarily on operating income. Asset information and
depreciation and amortization information is not reported as the Company does
not produce such information internally.
The table below summarizes information about reported segments as of and for
the years ended:
(In thousands) Net Operating
Sales Income (Loss)
December 31, 1998
Distribution $17,624 $ 1,828
Industrial 18,908 2,032
International 6,191 354
Other 1,541 (661)
Segment total 44,264 3,553
Corporate - (4,669)
Other reconciling items (916) -
Consolidated total $43,348 $(1,116)
======= ======
December 31, 1997
Distribution $13,817 $ 1,242
Industrial 14,973 2,579
International 3,501 267
Other 1,838 (753)
Segment total 34,129 3,335
Corporate - (3,666)
<PAGE> 39
Other reconciling items (1,300) -
Consolidated total $32,829 $ (331)
======= ======
August 31, 1996
Distribution $12,511 $ 1,306
Industrial 10,119 1,707
International - -
Other 1,514 (29)
Segment total 24,144 2,984
Corporate - (2,133)
Other reconciling items (1,149) -
Consolidated total $22,995 $ 851
====== ======
Other reconciling items in each period are intersegment sales. These sales
are recorded based on the total overhead applied to each manufacturing
segment.
The following is net sales and long-lived asset information by geographic area
as of and for the year ended:
(In thousands) Net Long-Lived
Sales Assets
December 31, 1998
United States $26,618 $7,186
Argentina 2,854 873
Brazil 2,546 70
United Kingdom 1,941 -
Israel 1,428 -
Canada 1,386 -
United Arab Emirates 1,119 -
Australia 1,094 15
Other 4,362 -
Total $43,348 $8,144
====== =====
Sales to unaffiliated customers located outside the United States aggregated
approximately $11,600,000, $1,400,000 and $4,200,000 for the year ended
December 31, 1997, the four months ended December 31, 1996 and the year ended
August 31, 1996, respectively. For the year ended December 31, 1997, sales
were approximately $1,600,000, $2,600,000, $4,700,000 and $2,700,000 in
Australia, the Middle East, North and South America, and other parts of the
world, respectively.
(13) COMMITMENTS AND CONTINGENCIES
On May 20, 1998 the Company opened an $800,000 credit facility with Norwest
Bank Arizona. The credit limit was increased to $1,600,000 on December 10,
1998. This facility is used to support the issuance of commercial and standby
letters of credit. As of December 31, 1998 the Company is contingently liable
for approximately $1,329,000 supporting standby letters of credit. The Company
will only be liable for this amount only if it does not perform as agreed on
certain contracts.
Financial instruments, which potentially expose the Company to a concentration
of credit risk, consist principally of cash and trade receivables. The Company
places substantially all of its cash with major financial institutions. The
balances , at times, may exceed federally insured limits. At December 31,
1998, the Company had approximately $406,000 which exceeded the insured limit
and approximately $542,000 in foreign banks. Approximately 30% of the
Company's accounts receivable was due from four customers at December 31, 1998.
On February 18, 1998, the Company was named as one of two dozen defendants in a
lawsuit brought in the U. S. District Court for the District of New Hampshire.
The suit alleged various violations of securities laws and breaches of
fiduciary duties, among other things. The Company was subsequently dismissed as
a defendant from the lawsuit.
<PAGE> 40
The Company is named as a defendant in various actions and proceedings arising
in the normal course of business. In all such cases, the Company is denying
the allegations made against it and vigorously defending against them.
Although the eventual outcome of these lawsuits cannot be predicted, it is
management's opinion that these suits will not materially affect the Company's
financial position or results of operations.
Subsequent to December 31, 1998 the functional currency for GGB devalued from
R$1.21 per US dollar to R$2.04 per US dollar. This devaluation decreases the
US dollar value of the assets held in Brazil. The Company cannot determine at
this time if this devaluation will have a significant impact on the performance
of GGB, the international segment or the Company.
(14) SUPPLEMENTAL FINANCIAL INFORMATION
(In thousands) Additions
Balance at charged to Balance
beginning costs and at end
of period expenses Deductions1 of period
Year ended
August 31, 1996:
Allowance for
doubtful accounts $ 25 $ 48 $ 47 $ 26
Reserve for obsolete
inventory 25 131 106 50
Four months ended
December 31, 1996:
Allowance for
doubtful accounts 26 16 (3) 45
Reserve for obsolete
inventory 50 411 409 52
Year ended
December 31, 1997:
Allowance for
doubtful accounts 45 104 2 147
Reserve for obsolete 52 90 40 102
inventory
Year ended
December 31, 1998:
Allowance for
doubtful accounts 147 262 325 84
Reserve for obsolete 102 886 93 895
inventory
1 Allowance for doubtful accounts: Uncollectible accounts written off, net of
recoveries from accounts previously written off.
(15) UNAUDITED QUARTERLY FINANCIAL DATA
(In thousands except per share data)
Fiscal 1996
quarter ended 11/30/95 2/29/96 5/31/96 8/31/96
Sales $ 5,281 $ 4,811 $ 5,178 $ 7,725
Gross profit 1,288 1,397 1,409 1,464
<PAGE> 41
Net income 221 273 173 480
Net income per basic
share of common stock $ 0.01 $ 0.02 $ 0.01 $ 0.03
Net income per diluted
share of common stock $ 0.01 $ 0.02 $ 0.01 $ 0.03
Fiscal 1997
quarter ended 3/31/97 6/30/97 9/30/97 12/31/97
Sales $ 6,370 $ 7,865 $ 8,569 $10,025
Gross profit 1,495 1,285 2,175 1,954
Net income (loss) (188) (917) 478 102
Net income (loss) per basic
share of common stock $ (0.01) $ (0.06) $ 0.03 $ 0.01
Net income (loss) per diluted
share of common stock $ (0.01) $ (0.06) $ 0.03 $ 0.01
Fiscal 1998
quarter ended 3/31/98 6/30/98 9/30/98 12/31/98
Sales $ 9,792 $ 9,534 $11,859 $12,163
Gross profit 1,888 1,934 1,080 2,300
Net income (loss) 68 51 (1,300) (301)
Net income (loss) per basic
share of common stock $ 0.00 $ 0.00 $ (0.08) $ (0.02)
Net income (loss) per diluted
share of common stock $ 0.00 $ 0.00 $ (0.08) $ (0.02)
<PAGE> 42
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
On February 3, 1997, the Board of Directors of the Company, upon recommendation
of the Board's Audit Committee, appointed PricewaterhouseCoopers LLP as the
independent accountants to audit and report on the financial statements of the
Company for the transition period ended December 31, 1996 and the year ended
December 31, 1997. Also on February 3, 1997, at the recommendation of the Audit
Committee, the Board of Directors dismissed KPMG LLP as its independent
accountants.
The reports of KPMG LLP on the financial statements for the fiscal years ended
August 31, 1996 and 1995 contained no adverse opinion or disclaimer of opinion
and were not qualified or modified as to uncertainty, audit scope or accounting
principle.
The Company provided notice to KPMG LLP on February 6, 1997 and filed a Form
8-K on February 7, 1997 in accordance with Item 304 of Regulation S-K.
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors
The following table sets forth certain information regarding the Board of
Directors as of March 5, 1999.
Director Current Position(s)
Age Since(1) with the Company
John K. Coors 42 1996 Chairman and Director
Joseph Coors, Jr. 57 1998 Director
Jed J. Burnham (2) 54 1997 Director
Norman E. Miller (3) 60 1997 Director
Gerritt J. Wolfaardt(2)(3) 52 1997 Director
John Markle(2) 43 1998 Director
(1) The dates shown reflect the year in which these persons were first
elected as directors of the Company or its predecessors.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
The principal occupations for the past five years of each of the six directors
are set forth below.
John K. Coors. Dr. John Coors has served as Chairman of the Company since
October 1998 and as a director of the Company since November 1996. He served
as President and Chief Executive Officer of the Company from January 1997 to
October 1998. He has served as President of Golden International, Inc., a
wholly owned subsidiary of ACX (Golden International), since July 1992. Dr.
John Coors is also a director of ACX. Dr. Coors received a B.S. in Chemical
and Petroleum Refining Engineering from the Colorado School of Mines, a M.S.
in Biochemistry from the University of Texas at Austin and a Doctorate in
Engineering from the Technical University of Munich.
Joseph Coors, Jr. Mr. Joseph Coors, Jr. has served as a director of the
Company since May 1998. He has served as President of ACX, the beneficial
owner of a majority of the outstanding capital stock of the Company, since
August 1992. He served as President and Chief Executive Officer of Coors
Porcelain Company, a wholly owned subsidiary of ACX ("Coors Ceramics"), from
March 1997 to October 1998, and as Chairman of the Board of Directors of Coors
Ceramics since 1989. Mr. Joseph Coors, Jr. is also a director of ACX and
Hecla Mining Company.
<PAGE> 43
Jed J. Burnham. Mr. Burnham has served as a director of the Company since
November 1996. He served as Chairman of the Board of the Company from May 1998
to October 1998. He has served as Chief Financial Officer of ACX since March
1995 and as Treasurer of ACX since August 1992.
Norman E. Miller. Mr. Miller has served as a director of the Company since
August 1997. He has served as Chairman of Interstate Battery System of
America, Inc., a wholesaler of automotive batteries, since 1963.
Gerritt J. Wolfaardt. Mr. Wolfaardt has served as a director of the Company
since January 1997. He has served as Director, Economic Development in
Africa, for Development Associates International, an organization to
facilitate economic progress and leadership in developing nations, since
August 1997 and President of Global Marketrace Services Inc., an economic
development consulting service, since October 1996. Mr. Wolfaardt was a
Missionary/Base Director for Youth With a Mission, an international missionary
training and development program of the University of Nations in Cape Town,
South Africa, from April 1986 to July 1997.
John Markle. Mr. Markle has served as a director of the Company since May
1998. He has served as Senior Vice President of Operations, Western Region
for Rental Service Corporation, a construction equipment rental and sale
company, since January 1998. Mr. Markle was President of Center Rental and
Sales, Inc., a construction equipment rental and sale company, from 1987 to
December 1997.
Family Relationships
Joseph Coors, Jr. and John K. Coors are brothers. In addition, Joseph Coors,
Jr. and John K. Coors are both brothers of Jeffrey H. Coors and nephews of
William K. Coors, all of whom serve on the Board of Directors of ACX, the
parent of GTC, the Company's majority stockholder.
Executive Officers
The following table sets forth as of the date hereof the executive officers of
the Company as of March 5, 1999.
Name Age Position
J. Michael Davis 52 President and Chief
Executive Officer
Jeffrey C. Brines 41 Vice President, Chief
Financial Officer and
Secretary
Myron D. Anduri 43 Vice President - Industrial
Thomas P. Dyer 57 Vice President - International
Ronald Kenedi 51 Vice President - Distribution
Michael Stern 41 Vice President - Utilities
Donald E. Anderson 66 Vice President
J. Michael Davis. Mr. Davis has served as President and Chief Executive
Officer since March 1999. He served as Vice President of the Company since
February 1997 and as Chief Operating Officer of the Company since May 1997.
He was Vice President-Marketing of GTC from July 1993 to January 1997 and
Assistant Secretary of the United States Department of Energy from June 1989
to January 1993. Mr. Davis received a B.S. in Civil Engineering from the
United States Air Force Academy and a M.S. in Civil Engineering from the
University of Illinois.
Jeffrey C. Brines. Mr. Brines has served as Vice President, Chief Financial
Officer and Secretary of the Company since January 1997. He has served as
Vice President - Finance of Golden International since September 1996. Mr.
Brines was a Plant Manager of Golden Photon, Inc. ("Golden Photon," the
predecessor of Golden International), a solar module manufacturer and a wholly
owned subsidiary of GTC, from January 1995 to August 1996 and Controller of
Golden Photon from October 1993 to December 1994. Mr. Brines worked at Coors
Brewing Company from August 1980 to September 1993, where his last position was
Manager of Finance and Accounting. Mr. Brines received a B.S. in Accounting and
a M.B.A. from Regis University.
Myron D. Anduri. Mr. Anduri has served as Vice President - Industrial of the
<PAGE> 44
Company since January 1999, prior to which he was Vice President - Marketing
and Sales from January 1994 to January 1999, prior to which he was Vice
President - Industrial Division of the Company from 1989 to 1994 and Manager -
Industrial Division of the Company from 1987 to 1989. Mr. Anduri received his
B.A. in Economics from Colorado State University.
Thomas P. Dyer. Mr. Dyer has served as Vice President - International of the
Company since January 1999, prior to which he was Vice President -
Manufacturing and Operations of the Company from August 1997 to January 1999.
Mr. Dyer served as Operations Manager of the Company from May 1997 to August
1997 and Marketing Coordinator and Manager of New Business Development of the
Company from January 1996 to May 1997. He served as a consultant for his own
consumer sales and marketing consulting company, TPD Consulting Services, from
1990 to 1996. Mr. Dyer worked at Arco Solar/Siemens Solar Industries, a
manufacturer of solar electric modules, from 1977 to 1990, where his last
position was Vice President of Sales and Marketing.
Ronald Kenedi. Mr. Kenedi has served as Vice President - Distribution of the
Company since June 1989, prior to which he was Manager - Distribution Division
of the Company since June 1988. From 1985 to 1988 Mr. Kenedi managed the
Company's mail order division and dealer development business. From 1976 to
1985 Mr. Kenedi was the co-owner and operator of Independent Power Company, a
solar electric company that was acquired by the Company. Mr. Kenedi received
his B.S. in Psychology and Fine Arts from the State University of New York at
Stonybrook.
Michael Stern. Mr. Stern has served as Vice President - Utilities of the
Company since January 1998. He was President of Silicon Energy Company, a
company which he founded, from its establishment in 1985 until it was acquired
by the Company in January 1998. Prior to starting Silicon Energy Company, Mr.
Stern worked at Arco Solar from 1980 to 1985, where his last position was
Manufacturing Manager. Mr. Stern received his B.E. from UCLA.
Donald E. Anderson. Mr. Anderson has served as Vice President of the Company
since January 1997. He served as a director of the Company from 1981 to May
1998 and Chairman of the Board of Directors of the Company from 1981 to
January 1997. Mr. Anderson received his B.A. form Minneapolis Business
College.
<PAGE> 45
Item 11. Executive Compensation
<TABLE>
<CAPTION>
Summary Compensation Table
The following table sets forth certain information concerning the compensation paid during the periods
indicated to the Chief Executive Officer and the four other most highly compensated officers of the Company
whose combined salary and bonus exceeded $100,000 during the fiscal year ended December 31, 1998 (the "Named
Executive Officers").
Long Term
Compensation
Awards
Annual Securities
Compensation Underlying All Other
Name and Principal Position Year(1) Salary Bonus Options Compensation
<S> <C> <C> <C> <C> <C>
J. Michael Davis 1998 $157,731 $ - 100,000 $ 20,641(2)
President and Chief 1997 133,769 25,560 125,000 1,333(3)
Executive Officer
Jeffrey C. Brines 1998 115,077 - 100,000 19,439(2)
Executive Vice President, 1997 97,615 24,059 125,000 10,000(3)
Chief Financial Officer and
Secretary
John K. Coors(4) 1998 121,038 - 200,000 13,325(2)
Former President and Chief 1997 139,673 25,560 250,000 6,000(3)
Executive Officer
(1) The Company's 1996 fiscal year ended August 31.
(2) Other compensation for Mr. Davis in 1998 represents the Company's contributions to the 401(k) Plan for
his benefit and automobile allowance of $5,000 and $12,000, respectively. Other compensation for Mr. Brines
in 1998 represents Company's contributions to the 401(k) Plan for his benefit and automobile allowance of
$3,798 and $12,000, respectively. Other compensation for Mr. Coors in 1998 represents automobile allowance
of $10,000.
(3) Other compensation for Coors, Brines and Davis in 1997 represents in each case an automobile allowance.
(4) Mr. Coors resigned as President and Chief Executive Officer on October 7, 1998.
</TABLE>
<PAGE> 46
<TABLE>
<CAPTION>
Option Grants
The following table sets forth information with respect to grants of stock options to each of the Named
Executive Officers during the year ended December 31, 1998.
Potential Realized
Percent of Value at
Number of Total Assumed Annual
Securities Options Rates of Stock
Underlying Granted to Price Appreciation
Options Employees in Exercise for Option Term
Name Granted Fiscal Year Price Grant Date Expiration Date 5% 10%
<S> <C> <C> <C> <C> <C> <C> <C>
J. Michael Davis 100,000 14.9 $1.625 1-27-98 1-27-08 $102,195 $258,983
Jeffrey C. Brines 100,000 14.9 $1.625 1-27-98 1-27-08 $102,195 $258,983
John K. Coors 200,000 29.7 $1.625 1-27-98 1-27-08 $204,391 $517,966
The options vest based on Company performance. The first third of the options vest when the Company reaches
$0.07 earnings per share, the second third vest when the Company reaches $0.10 earnings per share and the
final third vest when the Company reaches $0.13 earnings per share.
Aggregate Option Exercises and Fiscal Year-End Values
The following table sets forth information with respect to the Named Executive Officers concerning the
exercise of options during fiscal year ended December 31, 1998, the number of securities underlying
unexercised options at the 1998 year-end and the year-end value of all unexercised in-the-money options held
by such individuals.
Shares Value of Unexercised
Acquired Number of Unexercised In-the-Money Options
on Value Options at Fiscal Year-End at Fiscal Year-End(1)
Exercise(2) Realized Exercisable Unexercisable Exercisable Unexercisable
J. Michael Davis - $ - - 100,000 $ - $ -
Jeffrey C. Brines - - - 100,000 - -
John K. Coors - - 10,000 200,000 - -
(1) Represents the difference between the exercise price and the closing price for the Common Stock on the
NASDAQ SmallCap Market at December 31, 1998. At December 31, 1998 none of the options held by any of the
Named Executive Officers were in-the-money.
(2) None of the Named Executive Officers exercised options during the year ended December 31, 1998.
</TABLE>
Stock Option Plans
On April 24, 1998, the Board of Directors adopted the Photocomm, Inc. 1998 Stock
Option and Incentive Plan (the "1998 Plan"). The stockholders of the Company
subsequently approved the 1998 Plan. The Plan is administered by the
Compensation Committee (the "Committee") of the Board of Directors.
The maximum number of shares of Common Stock for which awards may be made under
the 1998 Plan is (a) 1,305,828, which is comprised of shares of Common Stock
represented by shares reserved under any prior stock option plan of the Company
plus (b) any shares of Common Stock that are represented by awards granted under
any prior stock option plan of the Company which are forfeited or expire without
delivery of shares of Common Stock. No more than 20,000 shares of Common Stock
may be issued pursuant to awards of restricted stack or restricted stock units.
The maximum number of shares of Common Stock for which options may be granted to
any eligible person under the 1998 Plan is 250,000 per year. The maximum number
of shares of Common Stock which may be granted as restricted stock or restricted
stock units to any eligible person under the 1998 Plan is 500 per year.
The Committee will have discretion to grant options, restricted stock or
restricted stock units under the 1998 Plan to (i) employees (including officers
and directors) of the Company and of any "subsidiary" of the Company (within the
meaning of Section 424(f) of the Code) (ii) any consultant or adviser to the
Company and (iii) any non-employee directors.
All options granted under the 1998 Plan are intended to be treated as
nonstatutory stock options, unless the Committee specifically designates a stock
option as an ISO within the limitations of the 1998 Plan. For both ISOs and
nonstatutory options granted under the 1998 Plan, the exercise price per share
(the "Option Price") is equal to 100% of the fair market falue of a share of
Common Stock on the date of grant (but not less than the par value per share).
The Option Price of ISO's to any participant owning more than 10% of the
Company's outstanding voting stock on the date of grant must be at least equal
to 110% of the fair market value on such date.
Unless otherwise provided in the agreement evidencing the grant of an option,
each option under the 1998 Plan will generally vest over a three-year period
from the date of grant at the rate of one-third per year. Options are subject
to acceleration of vesting under certain circumstances or in the descretion of
the Committee.
<PAGE> 47
Directors' Compensation
Directors of the Company who are also employees of the Company or its parent
receive no director's fees. Non-employee directors receive directors fees of
$1,000 for each Board meeting attended in person and, annually, $6,000 to
serve on one committee or $9,000 to serve on two committees. In addition,
directors are reimbursed for their reasonable out-of-pocket travel
expenditures incurred. Non-employee directors of the Company are also eligible
to receive grants of stock options under the Company's Directors Stock Option
Plan (the "Directors Plan") and starting in 1998 under the 1998 Stock Option
and Incentive Plan (the "1998 Plan").
The Directors Plan was adopted by the Board of Directors and approved by the
stockholders in January 1996. Under the Directors Plan, 100,000 shares of
Common Stock were initially reserved for purchase pursuant to options (subject
to adjustment for certain events, such as recapitalizations or stock splits,
effected without consideration) for grants to directors of the Company who are
not officers or employees of the Company (each an "Eligible Director"). The
1998 Plan replaces the Director plan on an ongoing basis. All ungranted
shares of Common Stock reserved under the Directors Plan were transferred to
the 1998 Plan. Under the 1998 Plan, each Eligible Director who commences
service as a director is granted an initial option to purchase 10,000 shares
of Common Stock. Each such Eligible Director is also granted an additional
option to purchase 3,000 shares of Common Stock immediately after the annual
meeting of the shareholders of each year if the Eligible Director continues to
be an Eligible Director at such time and has attended 75% of the meetings held
by the Board of Directors over the prior 12 month period or, if shorter,
during the term during which such Eligible Director has served as director at
least 75% of the meetings of the Board of Directors on which such Eligible
Director serves during such time. The stockholders of the Company approved the
1998 Plan in May 1998, which incorporates terms substantially similar to the
Directors Plan with respect to non-employee directors and allows for shares
reserved for issuance under the 1998 Plan to be used for option grants to such
directors. Subsequent to the approval of the 1998 Plan there have been no
further grants of options under the Directors Plan.
Other than the compensation described above, none of the directors received
any other compensation from the Company in 1998 in connection with their
service as directors.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of March 5, 1999 by each Named Executive
Officer, director and all directors and executive officers as a group.
Beneficial Ownership(1)(2)
Number of
Name of Beneficial Owner Shares Percent
J. Michael Davis 4,500(3) *
Jeffrey C. Brines 5,000(3) *
John K. Coors 16,000(3)(4)(5) *
Joseph Coors, Jr. 2,500(4)(6) *
Jed J. Burnham 11,500(7) *
Norman E. Miller 11,000(8) *
Gerritt J. Wolfaardt 11,500(9) *
John Markle 2,500(10) *
Directors and executive officers
as a group (13 persons) 1,235,708 6.8%
<PAGE> 48
* Less than one percent.
(1) In accordance with Rule 13d-3 under the Exchange Act, a person is deemed
to be a "beneficial owner" of a security if he or she has or shares the
power to vote or direct the voting of such security or the power to dispose or
direct the disposition of such security. A person is also deemed to be a
beneficial owner of any securities of which that person has the right to
acquire beneficial ownership within 60 days of March 5, 1999. More than one
person may be deemed to be a beneficial owner of the same securities. The
percentage ownership of each stockholder is calculated based on the total number
of outstanding shares of Common Stock as of the Record Date and those shares of
Common Stock that may be acquired by such stockholder within 60 days of March 5,
1999. Consequently, the denominator for calculating such percentage may be
different for each stockholder.
(2) This table is based upon information supplied by directors and executive
officers of the Company. Unless otherwise indicated in the footnotes to this
table, each of the stockholders named in this table has sole voting and
investment power with respect to the shares shown as beneficially owned.
(3) During 1998 Mr. Davis, Mr. Brines and Mr. Coors without consideration
forfeited options to purchase shares of common stock of 125,000, 125,000 and
250,000, respectively.
(4) Does not include shares of Common Stock and Preferred Stock beneficially
owned by ACX. Joseph Coors, Jr. and John K. Coors are both directors of ACX,
and John K. Coors is a President, of Coors Ceramics, a wholly owned subsidiary
of ACX. In addition, Joseph Coors, Jr. is a co-trustee of one or more family
trusts that collectively own approximately 46 percent of the outstanding
common stock of ACX. As of March 5, 1999, ACX beneficially owned 9,429,379
shares of Common Stock of the Company, representing approximately 55% of the
voting power of the Common Stock outstanding at that date.
(5) Includes 10,000 shares of Common Stock that may be purchased pursuant to
options exercisable within 60 days of March 5, 1999.
(6) Includes 2,500 shares of Common Stock that may be purchased pursuant to
options exercisable within 60 days of March 5, 1999.
(7) Does not include shares of Common Stock and Preferred Stock beneficially
owned by ACX. Mr. Burnham is Chief Financial Officer and Treasurer of ACX.
Includes 11,500 shares of Common Stock that may be purchased pursuant to
options exercisable within 60 days of March 5, 1999.
(8) Includes 5,000 shares of Common Stock that may be purchased pursuant to
options exercisable within 60 days of March 5, 1999.
(9) Includes 11,500 shares of Common Stock that may be purchased pursuant to
options exercisable within 60 days of March 5, 1999.
(10) Includes 2,500 shares of Common Stock that may be purchased pursuant to
options exercisable within 60 days of March 5, 1999.
Principal Holders of Voting Securities
The following table sets forth information as of March 5, 1999 with respect to
the ownership of shares of capital stock of the Company by each person
believed by management to be the beneficial owner of more than five percent of
the Company's outstanding Common Stock. The information is based on the most
recent Schedule 13D or 13G filed with the SEC on behalf of such persons or
other information made available to the Company. Except as otherwise
indicated, the reporting persons have stated that they possess sole voting and
<PAGE> 49
sole dispositive power over the entire number of shares reported.
Amount and
Nature of Percent of
Beneficial Class
Name of Beneficial Owner Class of Stock Ownership Outstanding
ACX Technologies, Inc. Common Stock 9,429,379(1) 55.0%
16000 Table Mountain Parkway
Golden, CO 80403
Programmed Land Incorporated Common Stock 1,550,000(2) 8.8%
9414 E San Salvador Dr Ste 99
Scottsdale AZ 85258
(1) Includes the voting rights to 500,000 shares pledged to ACX as a part of
ACX's loan agreement with Mr. Kauffman.
(2) Includes 500,000 shares of Common Stock that may be purchased pursuant to
options exercisable within 60 days of March 5, 1999.
Item 13. Certain Relationships and Related Transactions
Joseph Coors, Jr. and John K. Coors are both directors of ACX, the parent of
GTC, the Company's majority stockholder. Jed J. Burnham is an executive
officer of ACX. Joseph Coors, Jr. is a co-trustee of one or more family
trusts that collectively own approximately 46 percent of the outstanding
common stock of ACX. Joseph Coors, Jr. and John K. Coors are brothers.
As of the Record Date, ACX owned or had the voting rights to approximately 55%
of the Company's Voting Stock directly or indirectly through its wholly owned
subsidiary GTC.
The Company has extablished an unsecured, $4,750,000 line of credit (the "Line
of Credit") with ACX pursuant to a Loan Agreement entered into between the
Copmpany and ACX dated as of November 30, 1997. At December 31, 1998, ACX has
loaned $4,250,000 to the Company under the Line of Credit. Subsequent to
December 31, 1998, the Company borrowed an additional $500,000 under the Line
of Credit. Interest accrues at 1% under the prime rate and is payable
quarterly. The principal is due October 31, 2000. The Company has $4,250,000
principal and $80,000 of accrued interest outstanding at December 31, 1998.
The Company incurred $347,000 and $132,000 in interest expense related to this
note during the years ended December 31, 1998 and 1997, respectively.
As of December 31, 1998, the Company owed $3,600,000 under a one year note
payable to GTC. This note bears interest, payable quarterly, at 6%. The
principal is due September 3, 1999. As of December 31, 1998, the Company owed
approximately $72,000 of accrued interest under the note.
During the years ended December 31, 1998 and 1997, the Company purchased
$21,000 and $9,000 in goods and services from GTC, respectively. The Company
had $21,000 and $4,000 in accounts payable to GTC at December 31, 1998 and
1997, respectively.
Through September 4, 1998, the Company sold solar electric systems and related
products to GTC's subsidiaries. Sales are on equivalent terms to those
provided to non-related customers. Total sales to GTC's subsidiaries in 1998
and 1997 were $325,000 and $824,000, respectively. As of December 31, 1997,
the Company had $569,000 receivables from GTC's subsidiaries.
The Company also purchases inventory and certain administrative services from
GTC's subsidiaries. Purchases are on equivalent terms to those provided by
non-related vendors. Total purchases during the year ended December 31, 1998
and 1997 from GTC's subsidiaries were $453,000 and $108,000, respectively. As
<PAGE> 50
of December 31, 1998 and 1997, the Company had payables to GTC's subsidiaries
of $268,000 and $92,000, respectively.
Through November 1998 the Company leased approximately 10,750 square feet of
warehouse and sales office space in a building owned by Robert Kaufmann, the
Company's former President, and Thomas LaVoy, the Company's former Chief
Financial Officer. Rental expense for this lease was $66,000, $85,000, $28,000
and $80,000 for the years ended December 31, 1998 and 1997, the four months
ended December 31, 1996 and the year ended August 31, 1996, respectively. The
lease expired November 1, 1998.
On July 22, 1997 the Company reached a settlement of the pending arbitration
proceedings with former executives Robert Kauffman and Thomas LaVoy. In
connection with the settlement, the Company paid Mr. Kauffman lump sum
severance, benefit and settlement payments in the aggregate amount of $638,135
and Mr. LaVoy lump sum severance, benefit and settlement payments in the
aggregate amount of $353,098. Additionally, the Company paid certain
attorney's fees of Messrs. Kauffman and LaVoy in the aggregate amount of
$65,425. As part of the settlement, Mr. Kauffman resigned from the Board of
Directors of the Company.
Pursuant to the settlement agreement with Mr. Kauffman and in accordance with
the terms of an agreement between Mr. Kauffman and ACX that was entered into
prior to the settlement, ACX purchased 197,000 shares of Common Stock, 35,763
shares of Series A Preferred Stock and 40,000 shares of Series AA Preferred
Stock at a price of $2.75 per share of Common Stock or Common Stock equivalent.
Each share of Preferred Stock was equivalent to four shares of Common Stock.
As part of the settlement agreement, ACX also made a 3 year, $2,000,000 non-
recourse loan to Mr. Kauffman secured by the remaining 1,000,000 shares of
Common Stock held by Mr. Kauffman. ACX has a proxy to vote one-half of the
shares of Common Stock held by Mr. Kauffman and used as collateral for such
loan.
As part of the settlement between the Company and Messrs. Kauffman and LaVoy,
Programmed Land, Inc., a company owned by Donald Anderson a former member of
the Company's Board of Directors, acquired from Mr. Kauffman for $375,000 in
the aggregate options to purchase 500,000 shares of Common Stock. In addition,
Mr. Anderson purchased from Mr. Kauffman for $135,000 options to purchase in
the aggregate 200,000 shares of Common Stock, and Mr. Baker purchased from Mr.
Kauffman for $135,000 in the aggregate options to purchase 200,000 shares of
Common Stock. The Company agreed to amend the terms of the options acquired
individually by Messrs. Anderson and Baker to reduce the exercise price for
such options from $2.46 per share to $2.125 per share, which was the prevailing
market price of the Common Stock on the date such options were acquired by
Messrs. Anderson and Baker.
In December 1998, ACX converted 35,763 shares of Series A Preferred Stock and
40,000 shares of Series AA Preferred Stock to a total of 303,052 shares of
Common Stock.
<PAGE> 51
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
(a) Exhibits
The following exhibits are filed as part of this report:
Exhibit
Number Description Page
3.1 Certificate of Incorporation of Golden Genesis Company
(filed as Exhibit 3.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998 and
incorporated herein by reference).
3.2 Golden Genesis Company Bylaws adopted June 8, 1998.
(filed as Exhibit 3.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998 and
incorporated herein by reference).
4.1 Specimen Certificate representing the Common Stock
of the Company (filed as Exhibit 4-A to the Company's
Annual Report on Form 10-KSB for the year ended August
31, 1988 and incorporated herein by reference).
4.2 Specimen Certificate representing the Series A
Convertible Preferred Stock of the Company (filed as
Exhibit 4.2 to the Company's Form S-3 dated September
19, 1994 and incorporated herein by reference).
4.3 Specimen Certificate representing the Series AA
Convertible Preferred Stock of the Company (filed as
Exhibit 4.3 to the Company's Form S-3 dated September
19, 1994 and incorporated herein by reference).
4.4 Specimen Certificate representing the Series B
Convertible Preferred Stock of the Company (filed as
Exhibit 4.4 to the Company's Form S-3 dated September
19, 1994 and incorporated herein by reference).
4.5 Registration Rights Agreement between the Company,
and Golden Technologies, Inc. and ACX Technologies,
Inc. dated November 21, 1996 (filed as Exhibit 4.5 to
the Company's Annual Report on Form 10-KSB for the year
ended August 31, 1996 and incorporated herein by reference).
10.1 Photocomm, Inc. Stock Option Plan, Non-Statutory
Stock Option Agreement and Incentive Stock Option
Agreement (filed as Exhibit 10-K to the Company's
Quarterly Report on Form 10-QSB for the quarter ended
May 31, 1990 and incorporated herein by reference).
<PAGE> 52
10.2 Promissory Notes, Loan Agreement, Deed of Trust,
Security Agreement dated February 4, 1991 for the
Arizona Department of Commerce loans for the
construction of the 10,000 square foot addition to
the corporate headquarters and the purchase and
construction of additional module manufacturing
equipment (filed as Exhibit 10-S to the Company's
Quarterly Report on Form 10-QSB for the quarter ended
February 28, 1991 and incorporated herein by reference).
10.3 Convertible Preferred Stock Subscription and
Purchase Agreement with Powers, Preferences and
Rights of the Series AA Private issue in April and
May of 1993. (Filed as Exhibit 10-X to the Company's
Quarterly Report on 10-QSB for the quarter ended
May 31, 1993 and incorporated herein by reference).
10.4 Agreement and Plan of Reorganization between
Photocomm, Inc., Sunelco, Inc. and Daniel M.
Brandborg and Rebecca M. Brandborg dated October
3, 1995 (filed as Form 8-K, on October 18, 1995
and incorporated herein by reference).
10.5 Agreement and Plan of Reorganization between
Photocomm, Inc., Jadco Manufacturing and James C.
Allen dated January 31, 1996 (filed as Form 8-K on
February 14, 1996 and incorporated herein by reference).
10.6 Executive Compensation Agreement between Photocomm,
Inc. and Myron Anduri dated November 20, 1996
(filed as Exhibit 10.12 to the Company's Annual Report
on Form 10-KSB for the year ended August 31, 1996 and
incorporated herein by reference).
10.7 Executive Compensation Agreement between Photocomm,
Inc. and Donald Anderson dated November 20, 1996
(filed as Exhibit 10.13 to the Company's Annual Report
on Form 10-KSB for the year ended August 31, 1996 and
incorporated herein by reference).
10.8 Stock Purchase Agreement dated November 15, 1996
among Golden Technologies Company, Inc., The New
World Power Corporation and Photocomm, Inc. (filed
as Exhibit 10.17 to the Company's Annual Report on Form
10-KSB for the year ended August 31, 1996 and
incorporated herein by reference)
10.9 Photocomm, Inc. 1996 Stock Option Plan and Non-
Statutory Stock Option Agreement dated September
16, 1996 and November 19, 1996, respectively
(filed as Exhibit 3.3 to the Company's Annual Report
on Form 10-KSB for the year ended August 31, 1996 and
incorporated herein by reference).
10.10 Agreement and plan of merger between Photocomm, Inc. and
Silicon Energy Corporation dated January 23, 1998 (filed as
Form 8-K on February 18, 1998 and incorporated herein by
reference).
10.11 Loan agreement and promissory note between Photocomm, Inc.
and ACX Technologies, Inc. dated November 30, 1997. (filed
as Exhibit 10.11 to the Company's Annual Report on Form
<PAGE> 53
10-K for the year ended December 31, 1997 and incorporated
herein by reference).
10.12 Settlement agreements and mutual releases between Photocomm,
Inc. and Robert R. Kauffman and Thomas C. LaVoy dated June
18, 1997 (filed as Exhibits 10.1 and 10.2 to the Company's
Quarterly Report on Form 10-QSB for the Quarter ended June
30, 1997 and incorporated herein by reference).
10.13 Agreement and Plan of Merger between Photocomm, Inc. and
Silicon Energy Corporation dated January 23, 1998 (filed
as Exhibit 2.1 to Form 8-K on February 18, 1998 and
incorporated herein by reference).
10.14 Agreement and Plan of Merger between Photocomm, Inc., an
Arizona corporation, and Golden Genesis Company, a Delaware
corporation, dated June 9, 1998. (filed as Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998 and incorporated herein by reference).
10.15 Articles of Merger of Photocomm, Inc., an Arizona corporation,
into Golden Genesis Company, a Delaware corporation, dated
June 9, 1998. (filed as Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998 and
incorporated herein by reference).
10.16 Certificate of Merger of Photocomm, Inc., an Arizona
corporation, into Golden Genesis Company, a Delaware
corporation, dated June 9, 1998. (filed as Exhibit 3.1 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998 and incorporated herein by reference).
10.17 Share Purchase Agreement between Golden Genesis Company
Remote Power, Inc. and its shareholders dated July 21, 1998.
(filed as Exhibit 3.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998 and
incorporated herein by reference).
10.18 Share Purchase Agreement between Golden Genesis Company,
Golden Technologies Company, Inc. and ACX Technologies, Inc.
dated September 4, 1998. (filed as Exhibit 2 to the Company's
Form 8-K dated September 4, 1998 and incorporated herein by
reference).
10.19 Photocomm, Inc. d/b/a Golden Genesis Company 1998 Stock Option
and Incentive Plan. 56
21 List of Subsidiaries 74
23 Consents of Independent Accountants 75
27 Financial Data Schedule 77
(b) Reports on 8-K
The following reports on Form 8-K were filed during the year ended December 31,
1998.
Form 8-K/A dated September 4, 1998 Acquisition of Solartec Sociedad Anonima,
filed November 20, 1998.
<PAGE> 54
(c) Financial Statements: Page
Incorporated in Form 10-K Item 8. 16
(d) Financial Statement Schedule.
Schedules not listed above have been omitted because of the absence of
conditions under which they are required or because the required material
information is included in the Financial Statements or Notes to the
Financial Statements included herein.
<PAGE> 55
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
GOLDEN GENESIS COMPANY
Date: March 31, 1999 By /s/ J Michael Davis
President &
Chief Executive Officer
Date: March 31, 1999 By /s/ Jeffrey C. Brines
Chief Financial Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
GOLDEN GENESIS COMPANY
Date: March 31, 1999 By /s/ John K. Coors
Chairman of the Board
and Director
Date: March 31, 1999 By /s/ Joseph Coors, Jr.
Director
Date: March 31, 1999 By /s/ Jed J. Burnham
Director
Date: March 31, 1999 By /s/ Norman E. Miller
Director
Date: March 31, 1999 By /s/ Gerrit J. Wolfaardt
Director
Date: March 31, 1999 By /s/ John Markle
Director
<PAGE> 56
EXHIBIT 10.19
PHOTOCOMM, INC.
d/b/a GOLDEN GENESIS COMPANY
1998 STOCK OPTION AND INCENTIVE PLAN
<PAGE> 57
TABLE OF CONTENTS
Page
1. PURPOSE
2. DEFINITIONS
3. ADMINISTRATION OF THE PLAN
3.1. Board.
3.2. Committee.
3.3. Discretionary Grants.
3.4. Grants to Outside Directors.
3.5. No Liability.
3.6. Applicability of Rule 16b-3.
4. STOCK SUBJECT TO THE PLAN
5. EFFECTIVE DATE AND TERM OF THE PLAN
5.1. Effective Date.
5.2. Term.
6. OPTION GRANTS
6.1. Company or Subsidiary Employees.
6.2. Successive Grants.
7. GRANTS TO OUTSIDE DIRECTORS
7.1. Initial Grants of Options.
7.2. Subsequent Grants of Options.
8. LIMITATIONS ON GRANTS
8.1. Limitation on Shares of Stock Subject to Grants.
8.2. Limitations on Incentive Stock Options.
9. AWARD AGREEMENT
10. OPTION PRICE
11. VESTING, TERM AND EXERCISE OF OPTIONS
11.1. Vesting and Option Period.
11.2. Term.
11.3. Acceleration.
11.4. Termination of Employment or Other Relationship.
11.5. Rights in the Event of Death.
11.6. Rights in the Event of Disability.
11.7. Limitations on Exercise of Option.
11.8. Method of Exercise.
11.9. Delivery of Stock Certificates.
12. TRANSFERABILITY OF OPTIONS
12.1. General Rule
12.2. Family Transfers.
13. RESTRICTED STOCK
13.1. Grant of Restricted Stock or Restricted Stock Units.
13.2. Restrictions.
13.3. Restricted Stock Certificates.
13.4. Rights of Holders of Restricted Stock.
13.5. Rights of Holders of Restricted Stock Units.
13.6. Termination of Employment or Other Relationship.
13.7. Rights in the Event of Death.
13.8. Rights in the Event of Disability.
13.9. Delivery of Stock and Payment Therefor.
14. PARACHUTE LIMITATIONS
15. REQUIREMENTS OF LAW
15.1. General.
15.2. Rule 16b-3.
16. AMENDMENT AND TERMINATION OF THE PLAN
17. EFFECT OF CHANGES IN CAPITALIZATION
17.1. Changes in Stock.
17.2. Reorganization in Which the Company Is the Surviving
Entity and in Which No Change of Control Occurs.
17.3. Reorganization, Sale of Assets or Sale of Stock
Which Involves a Change of Control.
17.4. Adjustments.
17.5. No Limitations on Company.
18. DISCLAIMER OF RIGHTS
<PAGE> 58
19. NONEXCLUSIVITY OF THE PLAN
20. WITHHOLDING TAXES
21. CAPTIONS
22. OTHER PROVISIONS
23. NUMBER AND GENDER
24. SEVERABILITY
25. POOLING
26. GOVERNING LAW
<PAGE> 59
PHOTOCOMM, INC.
d/b/a GOLDEN GENESIS COMPANY
1998 STOCK OPTION AND INCENTIVE PLAN
Photocomm, Inc., an Arizona corporation d/b/a Golden Genesis Company that
expects to reincorporate as a Delaware corporation upon stockholder approval at
its 1998 annual meeting (the "Company"), sets forth herein the terms of its
1998 Stock Option and Incentive Plan (the "Plan") as follows:
1. PURPOSE
The Plan is intended to enhance the Company's ability to attract and retain
highly qualified officers, key employees, outside directors and other persons,
and to motivate such officers, key employees, outside directors and other
persons to serve the Company and its affiliates (as defined herein) and to
expend maximum effort to improve the business results and earnings of the
Company, by providing to such officers, key employees, outside directors and
other persons an opportunity to acquire or increase a direct proprietary
interest in the operations and future success of the Company. To this end, the
Plan provides for the grant of stock options, restricted stock and restricted
stock units in accordance with the terms hereof. Stock options granted under
the Plan may be non-qualified stock options or incentive stock options, as
provided herein, except that stock options granted to outside directors shall
in all cases be non-qualified stock options.
2. DEFINITIONS
For purposes of interpreting the Plan and related documents (including Award
Agreements), the following definitions shall apply:
2.1 "Affiliate" of, or person "affiliated" with, a person means any company
or other trade or business that controls, is controlled by or is under common
control of such person within the meaning of Rule 405 of Regulation C under the
Securities Act.
2.2 "Award Agreement" means the stock option agreement, restricted stock
agreement, restricted stock unit agreement or other written agreement between
the Company and a Grantee that evidences and sets out the terms and conditions
of a Grant.
2.3 "Benefit Arrangement" shall have the meaning set forth in Section 0
hereof.
2.4 "Board" means the Board of Directors of the Company.
2.5 "Change of Control" means (i) the dissolution or liquidation of the
Company or a merger, consolidation, or reorganization of the Company with one
or more other entities in which the Company is not the surviving entity, (ii) a
sale of substantially all of the assets of the Company to another entity, or
(iii) any transaction (including without limitation a merger or reorganization
in which the Company is the surviving entity) which results in any person or
entity (other than persons who are stockholders or affiliates of the Company at
the time the Plan is approved by the Company's stockholders) owning 50% or more
of the combined voting power of all classes of stock of the Company.
2.6 "Code" means the Internal Revenue Code of 1986, as now in effect or as
hereafter amended.
2.7 "Committee" means a committee of, and designated from time to time by
resolution of, the Board, which shall consist of no fewer than two members of
the Board, none of whom shall be an officer or other salaried employee of the
Company or any affiliate of the Company.
2.8 "Company" means Photocomm, Inc. d/b/a Golden Genesis Company.
2.9 "Effective Date" means April 24, 1998, the date on which the Plan was
adopted by the Board.
2.10 "Exchange Act" means the Securities Exchange Act of 1934, as now in
effect or as hereafter amended.
2.11 "Fair Market Value" means the value of a share of Stock, determined as
follows: if on the Grant Date or other determination date the Stock is listed
on an established national or regional stock exchange, is admitted to quotation
on the NASDAQ National Market, or is publicly traded on an established
securities market, the Fair Market Value of a share of Stock shall be the
<PAGE> 60
closing price of the Stock on such exchange or in such market (the highest such
closing price if there is more than one such exchange or market) on the Grant
Date or such other determination date (or if there is no such reported closing
price, the Fair Market Value shall be the mean between the highest bid and
lowest asked prices or between the high and low sale prices on such trading
day) or, if no sale of Stock is reported for such trading day, on the next
preceding day on which any sale shall have been reported. If the Stock is not
listed on such an exchange, quoted on such system or traded on such a market,
Fair Market Value shall be the value of the Stock as determined by the Board in
good faith.
2.12 "Grant" means an award of an Option, Restricted Stock or Restricted Stock
Units under the Plan.
2.13 "Grant Date" means, (a) for Grants other than Grants to Outside Directors
pursuant to Section 0 hereof, as determined by the Board or authorized
Committee, (i) the date as of which the Board or such Committee approves a
Grant, (ii) the date on which the recipient of a Grant first becomes eligible
to receive a Grant under Section 0 hereof, or (iii) such other date as may be
specified by the Board or such Committee, and (b) for Grants to Outside
Directors pursuant to Section 0 hereof, the date on which such Grant is made in
accordance with Section 0 hereof.
2.14 "Grantee" means a person who receives or holds an Option, Restricted
Stock or Restricted Stock Unit under the Plan.
2.15 "Immediate Family Members" means the spouse, children and grandchildren
of the Grantee.
2.16 "Incentive Stock Option" means an "incentive stock option" within the
meaning of Section 422 of the Code, or the corresponding provision of any
subsequently enacted tax statute, as amended from time to time.
2.17 "Option" means an option to purchase one or more shares of Stock pursuant
to the Plan.
2.18 "Option Period" means the period during which Options may be exercised as
set forth in Section 0 hereof.
2.19 "Option Price" means the purchase price for each share of Stock subject
to an Option.
2.20 "Other Agreement" shall have the meaning set forth in Section 0 hereof.
2.21 "Outside Director" means a member of the Board who is not an officer or
employee of the Company.
2.22 "Plan" means this Photocomm, Inc. [d/b/a Golden Genesis Company] 1998
Stock Option and Incentive Plan.
2.23 "Reporting Person" means a person who is required to file reports under
Section 16(a) of the Exchange Act.
2.24 "Restricted Period" means the period during which Restricted Stock or
Restricted Stock Units are subject to restrictions or conditions pursuant to
Section 0 hereof.
2.25 "Restricted Stock" means shares of Stock, awarded to a Grantee pursuant
to Section 0 hereof, that are subject to restrictions and to a risk of
forfeiture.
2.26 "Restricted Stock Unit" means a unit awarded to a Grantee pursuant to
Section 0 hereof, which represents a conditional right to receive a share of
Stock in the future, and which is subject to restrictions and to a risk of
forfeiture.
2.27 "Securities Act" means the Securities Act of 1933, as now in effect or as
hereafter amended.
2.28 "Service Provider" means a consultant or adviser to the Company, a
manager of the Company's properties or affairs, or other similar service
provider or affiliate of the Company, and employees of any of the foregoing, as
such persons may be designated from time to time by the Board pursuant to
Section 0 hereof.
2.29 "Stock" means the common stock, par value $0.10 per share, of the
Company.
2.30 "Subsidiary" means any "subsidiary corporation" of the Company within the
meaning of Section 424(f) of the Code.
2.31 "Termination Date" shall be the date upon which an Option shall terminate
or expire, as set forth in Section 0 hereof.
<PAGE> 61
3 ADMINISTRATION OF THE PLAN
3.1 Board.
The Board shall have such powers and authorities related to the administration
of the Plan as are consistent with the Company's certificate of incorporation
and by-laws and applicable law. The Board shall have full power and authority
to take all actions and to make all determinations required or provided for
under the Plan, any Grant or any Award Agreement, and shall have full power and
authority to take all such other actions and make all such other determinations
not inconsistent with the specific terms and provisions of the Plan that the
Board deems to be necessary or appropriate to the administration of the Plan,
any Grant or any Award Agreement. All such actions and determinations shall be
by the affirmative vote of a majority of the members of the Board present at a
meeting or by unanimous consent of the Board executed in writing in accordance
with the Company's certificate of incorporation and by-laws and applicable law.
The interpretation and construction by the Board of any provision of the Plan,
any Grant or any Award Agreement shall be final and conclusive. As permitted
by law, the Board may delegate its authority under the Plan to a member of the
Board of Directors or an executive officer of the Company.
3.2 Committee.
The Board from time to time may delegate to a Committee such powers and
authorities related to the administration and implementation of the Plan, as
set forth in Section 0 above and in other applicable provisions, as the Board
shall determine, consistent with the certificate of incorporation and by-laws
of the Company and applicable law. In the event that the Plan, any Grant or
any Award Agreement entered into hereunder provides for any action to be taken
by or determination to be made by the Board, such action may be taken by or
such determination may be made by the Committee if the power and authority to
do so has been delegated to the Committee by the Board as provided for in this
Section. Unless otherwise expressly determined by the Board, any such action
or determination by the Committee shall be final, binding and conclusive. As
permitted by law, the Committee may delegate the authority delegated to it
under the Plan to a member of the Board of Directors or an executive officer of
the Company.
3.3 Discretionary Grants.
Subject to the other terms and conditions of the Plan, the Board shall have
full and final authority (i) to designate Grantees, (ii) to determine the type
or types of Grant to be made to a Grantee, (iii) to determine the number of
shares of Stock to be subject to a Grant, (iv) to establish the terms and
conditions of each Grant (including, but not limited to, the exercise price of
any Option, the nature and duration of any restriction or condition (or
provision for lapse thereof) relating to the vesting, exercise, transfer, or
forfeiture of a Grant or the shares of Stock subject thereto, and any terms or
conditions that may be necessary to qualify Options as Incentive Stock
Options), (v) to prescribe the form of each Award Agreement evidencing a Grant,
and (vi) to amend, modify, or supplement the terms of any outstanding Grant.
Such authority specifically includes the authority, in order to effectuate the
purposes of the Plan but without amending the Plan, to modify Grants to
eligible individuals who are foreign nationals or are individuals who are
employed outside the United States to recognize differences in local law, tax
policy, or custom. As a condition to any subsequent Grant, the Board shall
have the right, at its discretion, to require Grantees to return to the Company
Grants previously awarded under the Plan. Subject to the terms and conditions
of the Plan, any such new Grant shall be upon such terms and conditions as are
specified by the Board at the time the new Grant is made.
3.4 Grants to Outside Directors.
With respect to Grants of Options to Outside Directors pursuant to Section 0
hereof, the Committee's responsibilities under the Plan shall be limited to
taking all legal actions necessary to document the Options so granted, to
interpret the Award Agreements evidencing such Options, to maintain appropriate
<PAGE> 62
records and reports regarding such Options, and to take all acts authorized by
this Plan or otherwise reasonably necessary to effect the purposes hereof.
3.5 No Liability.
No member of the Board or of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Grant or Award
Agreement.
3.6 Applicability of Rule 16b-3.
Those provisions of the Plan that make express reference to Rule 16b-3 under
the Exchange Act shall apply only to Reporting Persons.
4 STOCK SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 0 hereof, the number of shares of
Stock available for issuance under the Plan shall be equal to the sum of
(i) the shares of capitalized Stock that are reserved for issuance pursuant to
awards granted under any prior plan of the Company for the grant of options to
acquire Stock (the "Prior Plans") and (ii) any shares of Stock that are
represented by awards granted under any Prior Plans which are forfeited, expire
or are canceled without delivery of shares of Stock or which result in the
forfeiture of shares of Stock back to the Company. Stock issued or to be
issued under the Plan shall be authorized but unissued shares. If any shares
covered by a Grant are not purchased or are forfeited, or if a Grant otherwise
terminates without delivery of any Stock subject thereto, then the number of
shares of Stock counted against the aggregate number of shares available under
the Plan with respect to such Grant shall, to the extent of any such forfeiture
or termination, again be available for making Grants under the Plan. The
maximum number of shares of Stock that may be issued by Options intended to be
Incentive Stock Options shall be 1,305,828 shares. No more than 20,000 Shares
may be issued pursuant to awards of Restricted Stock or Restricted Stock Units.
5 EFFECTIVE DATE AND TERM OF THE PLAN
5.1 Effective Date.
The Plan shall be effective as of the Effective Date, subject to approval of
the Plan within one year of the Effective Date, by a majority of the votes cast
on the proposal at a meeting of stockholders, provided that the total votes
cast represent a majority of all shares entitled to vote or by the written
consent of the holders of a majority of the Company's shares entitled to vote.
Upon approval of the Plan by the stockholders of the Company as set forth
above, all Grants made under the Plan on or after the Effective Date shall be
fully effective as if the stockholders of the Company had approved the Plan on
the Effective Date. If the stockholders fail to approve the Plan within one
year after the Effective Date, any Grants made hereunder shall be null and void
and of no effect.
5.2 Term.
The Plan has no termination date; however, no Incentive Stock Option may be
granted under the Plan on or after the tenth anniversary of the Effective Date.
6 OPTION GRANTS
6.1 Company or Subsidiary Employees.
Grants (including Grants of Incentive Stock Options) may be made under the Plan
to any employee of, or Service Provider or employee of a Service Provider
providing, or who has provided, services to, the Company or any Subsidiary,
including any such employee who is an officer or director of the Company or of
any Subsidiary, as the Board shall determine and designate from time to time.
6.2 Successive Grants.
An eligible person may receive more than one Grant, subject to such
restrictions as are provided herein.
7 GRANTS TO OUTSIDE DIRECTORS
7.1 Initial Grants of Options.
<PAGE> 63
Each Outside Director who is initially elected to the Board on or after the
Effective Date shall, upon the date of his or her initial election by the Board
or the stockholders of the Company, automatically be awarded a Grant of an
Option, which shall not be an Incentive Stock Option, to purchase 10,000 shares
of Stock (which amount shall be subject to adjustment as provided in Section 0
hereof).
7.2 Subsequent Grants of Options.
Immediately following each annual meeting of stockholders of the Company held
after the Effective Date, each Outside Director then duly elected and serving
(other than an Outside Director initially elected to the Board at such annual
meeting of stockholders) shall automatically be awarded a Grant of an Option,
which shall not be an Incentive Stock Option, to purchase 3,000 shares of Stock
(which amount shall be subject to adjustment as provided in Section 0 hereof);
provided, however, that no Outside Director shall be eligible to receive a
Grant of Options under this Section 0 unless such person attended, in person or
by telephone, at least seventy-five percent of the meetings held by the Board
during the immediately preceding calendar year (or such portion thereof during
which the Outside Director served on the Board).
8 LIMITATIONS ON GRANTS
8.1 Limitation on Shares of Stock Subject to Grants.
During any time when the Company has a class of equity security registered
under Section 12 of the Exchange Act, no person eligible for a Grant under
Section 0 hereof may be awarded Options in any calendar year exercisable for
greater than 250,000 shares of Stock (subject to adjustment as provided in
Section 0 hereof). During any time when the Company has a class of equity
security registered under Section 12 of the Exchange Act, the maximum number of
shares of Restricted Stock that can be awarded under the Plan (including for
this purpose any shares of Stock represented by Restricted Stock Units) to any
person eligible for a Grant under Section 0 hereof is 500 per calendar year
(subject to adjustment as provided in Section 0 hereof).
8.2 Limitations on Incentive Stock Options.
An Option shall constitute an Incentive Stock Option only (i) if the Grantee of
such Option is an employee of the Company or any Subsidiary of the Company;
(ii) to the extent specifically provided in the related Award Agreement; and
(iii) to the extent that the aggregate Fair Market Value (determined at the
time the Option is granted) of the shares of Stock with respect to which all
Incentive Stock Options held by such Grantee become exercisable for the first
time during any calendar year (under the Plan and all other plans of the
Grantee's employer and its affiliates) does not exceed $100,000. This
limitation shall be applied by taking Options into account in the order in
which they were granted.
9 AWARD AGREEMENT
Each Grant pursuant to the Plan shall be evidenced by an Award Agreement, in
such form or forms as the Board shall from time to time determine. Award
Agreements granted from time to time or at the same time need not contain
similar provisions but shall be consistent with the terms of the Plan. Each
Award Agreement evidencing a Grant of Options shall specify whether such
Options are intended to be non-qualified stock options or Incentive Stock
Options, and in the absence of such specification such options shall be deemed
non-qualified stock options.
10 OPTION PRICE
The Option Price of each Option shall be fixed by the Board and stated in the
Award Agreement evidencing such Option. The Option Price shall be the Fair
Market Value on the Grant Date of a share of Stock; provided, however, that in
the event that a Grantee would otherwise be ineligible to receive an Incentive
Stock Option by reason of the provisions of Sections 422(b)(6) and 424(d) of
the Code (relating to ownership of more than ten percent of the Company's
outstanding Stock), the Option Price of an Option granted to such Grantee that
<PAGE> 64
is intended to be an Incentive Stock Option shall be not less than the greater
of the par value or 110 percent of the Fair Market Value of a share of Stock on
the Grant Date. In no case shall the Option Price of any Option be less than
the par value of a share of Stock.
11 VESTING, TERM AND EXERCISE OF OPTIONS
11.1 Vesting and Option Period.
Subject to Sections 0 and 0 hereof, each Option granted under the Plan, other
than a grant to an Outside Director, shall become exercisable at such times and
under such conditions as shall be determined by the Board and stated in the
Award Agreement. Each Option granted under the Plan to an Outside Director
pursuant to Section 0 hereof shall become exercisable in accordance with the
following schedule: (i) prior to the first anniversary of the Grant Date, the
Option shall not be exercisable; (ii) on the first anniversary of the Grant
Date, the Option shall become exercisable with respect to one-third of the
shares of Stock subject to such Option; (iii) on each the next two
anniversaries of the Grant Date, the Option shall become exercisable with
respect to an additional one-third of the shares of Stock subject to such
Option. For purposes of this Section 0, fractional numbers of shares of Stock
subject to an Option shall be rounded down to the next nearest whole number.
The period during which any Option shall be exercisable shall
constitute the "Option Period" with respect to such Option.
11.2 Term.
Each Option granted under the Plan shall terminate, and all rights to purchase
shares of Stock thereunder shall cease, upon the expiration of ten years from
the date such Option is granted, or, as to Options other than Options granted
to Outside Directors pursuant to Section 0 hereof, under such circumstances and
on such date prior thereto as is set forth in the Plan or as may be fixed by
the Board and stated in the Award Agreement relating to such Option (the
"Termination Date"); provided, however, that in the event that the Grantee
would otherwise be ineligible to receive an Incentive Stock Option by reason of
the provisions of Sections 422(b)(6) and 424(d) of the Code (relating to
ownership of more than ten percent of the outstanding Stock), an Option granted
to such Grantee that is intended to be an Incentive Stock Option shall not be
exercisable after the expiration of five years from its Grant Date.
11.3 Acceleration.
Any limitation on the exercise of an Option contained in any Award Agreement
may be rescinded, modified or waived by the Board, in its sole discretion, at
any time and from time to time after the Grant Date of such Option, so as to
accelerate the time at which the Option may be exercised. Notwithstanding any
other provision of the Plan, no Option shall be exercisable in whole or in part
prior to the date the Plan is approved by the stockholders of the Company as
provided in Section 0 hereof.
11.4 Termination of Employment or Other Relationship.
Upon the termination of a Grantee's employment or other relationship with the
Company other than by reason of death or "permanent and total disability"
(within the meaning of Section 22(e)(3) of the Code), any Option or portion
thereof held by such Grantee that has not vested in accordance with the
provisions of Section 0 hereof shall terminate immediately, and any Option or
portion thereof that has vested in accordance with the provisions of Section 0
hereof but has not been exercised shall terminate at the close of business on
the 90th day following the Grantee's termination of employment or other
relationship (or, if such 90th day is a Saturday, Sunday or holiday, at the
close of business on the next preceding day that is not a Saturday, Sunday or
holiday), unless, the Board, in its discretion, extends the period during which
the Option may be exercised (which period may not be extended beyond the
original term of the Option). Notwithstanding the prior sentence, Options
granted to Outside Directors pursuant to Section 0 hereof shall not terminate
<PAGE> 65
upon the termination of a Grantee's service as an Outside Director of the
Company other than by reason of death or "permanent and total disability" but
shall remain exercisable until the Termination Date, as set forth in Section 0
hereof unless earlier terminated pursuant to Sections 0 or 0. Upon termination
of an Option or portion thereof, the Grantee shall have no further right to
purchase shares of Stock pursuant to such Option or portion thereof. Whether a
leave of absence or leave on military or government service shall constitute a
termination of employment or other relationship for purposes of the Plan shall
be determined by the Board, which determination shall be final and conclusive.
For purposes of the Plan, a termination of employment, service or other
relationship shall not be deemed to occur if the Grantee is immediately
thereafter employed with the Company or any other Service Provider, or is
engaged as a Service Provider or an Outside Director of the Company. Whether a
termination of a Service Provider's or an Outside Directors relationship with
the Company shall have occurred shall be determined by the Committee, which
determination shall be final and conclusive.
11.5 Rights in the Event of Death.
If a Grantee dies while employed by or providing services to the Company, all
Options granted to such Grantee shall fully vest on the date of death, and the
executors or administrators or legatees or distributees of such Grantee's
estate shall have the right, at any time within one year after the date of such
Grantee's death (or, as to Grantees other than Outside Directors, such longer
period as the Board, in its discretion, may determine prior to the expiration
of such one-year period) and prior to termination of the Option pursuant to
Section 0 above, to exercise any Option held by such Grantee at the date of
such Grantee's death.
11.6 Rights in the Event of Disability.
If a Grantee's employment or other relationship with the Company is terminated
by reason of the "permanent and total disability" (within the meaning of
Section 22(e)(3) of the Code) of such Grantee, such Grantee's Options shall
continue to vest, and shall be exercisable to the extent that they are vested,
for a period of one year after such termination of employment or service (or,
as to Grantees other than Outside Directors, such longer period as the Board,
in its discretion, may determine prior to the expiration of such one-year
period), subject to earlier termination of the Option as provided in Section 0
above. Whether a termination of employment or service is to be considered by
reason of "permanent and total disability" for purposes of the Plan shall be
determined by the Board, which determination shall be final and conclusive.
11.7 Limitations on Exercise of Option.
Notwithstanding any other provision of the Plan, in no event may any Option be
exercised, in whole or in part, prior to the date the Plan is approved by the
stockholders of the Company as provided herein, or after ten years following
the date upon which the Option is granted, or after the occurrence of an event
referred to in Section 0 hereof which results in termination of the Option.
11.8 Method of Exercise.
An Option that is exercisable may be exercised by the Grantee's delivery to the
Company of written notice of exercise on any business day, at the Companys
principal office, addressed to the attention of the Board. Such notice shall
specify the number of shares of Stock with respect to which the Option is being
exercised and shall be accompanied by payment in full of the Option Price of
the shares for which the Option is being exercised. The minimum number of
shares of Stock with respect to which an Option may be exercised, in whole or
in part, at any time shall be the lesser of (i) 100 shares or such lesser
number set forth in the applicable Award Agreement and (ii) the maximum number
of shares available for purchase under the Option at the time of exercise.
Payment of the Option Price for the shares purchased pursuant to the exercise
of an Option shall be made (i) in cash or in cash equivalents; (ii) through the
tender to the Company of shares of Stock, which shares, if acquired from the
Company, shall have been held for at least six months and which shall be
valued, for purposes of determining the extent to which the Option Price has
<PAGE> 66
been paid thereby, at their Fair Market Value on the date of exercise; or (iii)
by a combination of the methods described in (i) and (ii). The Board may
provide (shall provide as to Outside Directors), by inclusion of appropriate
language in an Award Agreement, that payment in full of the Option Price need
not accompany the written notice of exercise provided that the notice of
exercise directs that the certificate or certificates for the shares of Stock
for which the Option is exercised be delivered to a licensed broker acceptable
to the Company as the agent for the individual exercising the Option and, at
the time such certificate or certificates are delivered, the broker tenders to
the Company cash (or cash equivalents acceptable to the Company) equal to the
Option Price for the shares of Stock purchased pursuant to the exercise of the
Option plus the amount (if any) of federal and/or other taxes which the Company
may in its judgment, be required to withhold with respect to the exercise of
the Option. An attempt to exercise any Option granted hereunder other than as
set forth above shall be invalid and of no force and effect. Unless otherwise
stated in the applicable Award Agreement, an individual holding or exercising
an Option shall have none of the rights of a stockholder (for example, the
right to receive cash or dividend payments or distributions attributable to the
subject shares of Stock or to direct the voting of the subject shares of Stock)
until the shares of Stock covered thereby are fully paid and issued to such
individual. Except as provided in Section 0 hereof, no adjustment shall be
made for dividends, distributions or other rights for which the record date is
prior to the date of such issuance.
11.9 Delivery of Stock Certificates.
Promptly after the exercise of an Option by a Grantee and the payment in full
of the Option Price, such Grantee shall be entitled to the issuance of a stock
certificate or certificates evidencing his or her ownership of the shares of
Stock subject to the Option.
12 TRANSFERABILITY OF OPTIONS
12.1 General Rule
Except as provided in Section 0, during the lifetime of a Grantee, only the
Grantee (or, in the event of legal incapacity or incompetency, the Grantee's
guardian or legal representative) may exercise an Option. Except as provided
in Section 0, no Option shall be assignable or transferable by the Grantee to
whom it is granted, other than by will or the laws of descent and distribution.
12.2 Family Transfers.
If authorized in the applicable Award Agreement, a Grantee may transfer all or
part of an Option that is not an Incentive Stock Option to (i) any Immediate
Family Member, (ii) a trust or trusts for the exclusive benefit of any
Immediate Family Member, or (iii) a partnership in which Immediate Family
Members are the only partners, provided that (x) there may be no consideration
for any such transfer, and (y) subsequent transfers of transferred Options are
prohibited except those in accordance with this Section 0 or by will or the
laws of descent and distribution. Following transfer, any such Option shall
continue to be subject to the same terms and conditions as were applicable
immediately prior to transfer, provided that for purposes of Section 0 hereof
the term "Grantee" shall be deemed to refer to the transferee. The events of
termination of the employment or other relationship of Section 0 hereof shall
continue to be applied with respect to the original Grantee, following which
the Option shall be exercisable by the transferee only to the extent and for
the periods specified in Sections 0, 0 or 0.
13 RESTRICTED STOCK
13.1 Grant of Restricted Stock or Restricted Stock Units.
The Board may from time to time grant Restricted Stock or Restricted Stock
Units to persons eligible to receive Grants under Section 0 hereof, subject to
such restrictions, conditions and other terms as the Board may determine.
13.2 Restrictions.
At the time a Grant of Restricted Stock or Restricted Stock Units is made, the
<PAGE> 67
Board shall establish a period of time (the "Restricted Period") applicable to
such Restricted Stock or Restricted Stock Units. Each Grant of Restricted
Stock or Restricted Stock Units may be subject to a different Restricted
Period. The Board may, in its sole discretion, at the time a Grant of
Restricted Stock or Restricted Stock Units is made, prescribe restrictions in
addition to or other than the expiration of the Restricted Period, including
the satisfaction of corporate or individual performance objectives, which may
be applicable to all or any portion of the Restricted Stock or Restricted Stock
Units. Such performance objectives shall be established in writing by the
Board prior to the ninetieth day of the year in which the Grant is made and
while the outcome is substantially uncertain. Performance objectives shall be
based on Stock price, market share, sales, earnings per share, return on equity
or costs. Performance objectives may include positive results, maintaining the
status quo or limiting economic losses. Subject to the second sentence of this
Section 0, the Board also may, in its sole discretion, shorten or terminate the
Restricted Period or waive any other restrictions applicable to all or a
portion of the Restricted Stock or Restricted Stock Units. Neither Restricted
Stock nor Restricted Stock Units may be sold, transferred, assigned, pledged or
otherwise encumbered or disposed of during the Restricted Period or prior to
the satisfaction of any other restrictions prescribed by the Board with respect
to such Restricted Stock or Restricted Stock Units.
13.3 Restricted Stock Certificates.
The Company shall issue, in the name of each Grantee to whom Restricted Stock
has been granted, stock certificates representing the total number of shares of
Restricted Stock granted to the Grantee, as soon as reasonably practicable
after the Grant Date. The Secretary of the Company shall hold such
certificates for the Grantee's benefit until such time as the Restricted Stock
is forfeited to the Company, or the restrictions lapse.
13.4 Rights of Holders of Restricted Stock.
Unless the Board otherwise provides in an Award Agreement, holders of
Restricted Stock shall have the right to vote such Stock and the right to
receive any dividends declared or paid with respect to such Stock. The Board
may provide that any dividends paid on Restricted Stock must be reinvested in
shares of Stock, which may or may not be subject to the same vesting conditions
and restrictions applicable to such Restricted Stock. All distributions, if
any, received by a Grantee with respect to Restricted Stock as a result of any
stock split, stock dividend, combination of shares, or other similar
transaction shall be subject to the restrictions applicable to the original
Grant.
13.5 Rights of Holders of Restricted Stock Units.
Unless the Board otherwise provides in an Award Agreement, holders of
Restricted Stock Units shall have no rights as stockholders of the Company.
The Board may provide in an Award Agreement evidencing a Grant of Restricted
Stock Units that the holder of such Restricted Stock Units shall be entitled to
receive, upon the Company's payment of a cash dividend on its outstanding
Stock, a cash payment for each Restricted Stock Unit held equal to the per-
share dividend paid on the Stock. Such Award Agreement may also provide that
such cash payment will be deemed reinvested in additional Restricted Stock
Units at a price per unit equal to the Fair Market Value of a share of Stock on
the date that such dividend is paid.
13.6 Termination of Employment or Other Relationship.
Upon the termination of the employment of a Grantee with the Company or a
Service Provider or of a Service Provider's relationship with the Company, in
either case other than, in the case of individuals, by reason of death or
"permanent and total disability" (within the meaning of Section 22(e)(3) of the
Code), any shares of Restricted Stock or Restricted Stock Units held by such
Grantee that have not vested, or with respect to which all applicable
restrictions and conditions have not lapsed, shall immediately be deemed
forfeited, unless the Board, in its discretion, determines otherwise. Upon
<PAGE> 68
forfeiture of Restricted Stock or Restricted Stock Units, the Grantee shall
have no further rights with respect to such Grant, including but not limited to
any right to vote Restricted Stock or any right to receive dividends with
respect to shares of Restricted Stock or Restricted Stock Units. Whether a
leave of absence or leave on military or government service shall constitute a
termination of employment or other relationship for purposes of the Plan shall
be determined by the Board, which determination shall be final and conclusive.
For purposes of the Plan, a termination of employment, service or other
relationship shall not be deemed to occur if the Grantee is immediately
thereafter employed with the Company or any other Service Provider, or is
engaged as a Service Provider or an Outside Director of the Company. Whether a
termination of a Service Provider's or an Outside Director's relationship with
the Company shall have occurred shall be determined by the Committee, which
determination shall be final and conclusive.
13.7 Rights in the Event of Death.
If a Grantee dies while employed by the Company or a Service Provider, or while
serving as a Service Provider, all Restricted Stock or Restricted Stock Units
granted to such Grantee shall fully vest on the date of death, and the shares
of Stock represented thereby shall be deliverable in accordance with the terms
of the Plan to the executors, administrators, legatees or distributees of the
Grantee's estate.
13.8 Rights in the Event of Disability.
If a Grantee's employment or other relationship with the Company or a Service
Provider, or while serving as a Service Provider, is terminated by reason of
the "permanent and total disability" (within the meaning of Section 22(e)(3) of
the Code) of such Grantee, such Grantee's Restricted Stock or Restricted Stock
Units shall continue to vest in accordance with the applicable Award Agreement
for a period of one year after such termination of employment or service (or
such longer period as the Board, in its discretion, may determine prior to the
expiration of such one-year period), subject to the earlier forfeiture of such
Restricted Stock or Restricted Stock Units in accordance with the terms of the
applicable Award Agreement. Whether a termination of employment or service is
to be considered by reason of "permanent and total disability" for purposes of
the Plan shall be determined by the Board, which determination shall be final
and conclusive.
13.9 Delivery of Stock and Payment Therefor.
Upon the expiration or termination of the Restricted Period and the
satisfaction of any other conditions prescribed by the Board, the restrictions
applicable to shares of Restricted Stock or Restricted Stock Units shall lapse,
and, upon payment by the Grantee to the Company, in cash or by check, of the
aggregate par value of the shares of Stock represented by such Restricted Stock
or Restricted Stock Units, a stock certificate for such shares shall be
delivered, free of all such restrictions, to the Grantee or the Grantee's
beneficiary or estate, as the case may be.
14 PARACHUTE LIMITATIONS
Notwithstanding any other provision of this Plan or of any other agreement,
contract, or understanding heretofore or hereafter entered into by a Grantee
with the Company or any Subsidiary, except an agreement, contract, or
understanding hereafter entered into that expressly modifies or excludes
application of this paragraph (an "Other Agreement"), and notwithstanding any
formal or informal plan or other arrangement for the direct or indirect
provision of compensation to the Grantee (including groups or classes of
participants or beneficiaries of which the Grantee is a member), whether or not
such compensation is deferred, is in cash, or is in the form of a benefit to or
for the Grantee (a "Benefit Arrangement"), if the Grantee is a "disqualified
individual," as defined in Section 280G(c) of the Code, any Option, Restricted
Stock or Restricted Stock Unit held by that Grantee and any right to receive
any payment or other benefit under this Plan shall not become exercisable or
vested (i) to the extent that such right to exercise, vesting, payment, or
<PAGE> 69
benefit, taking into account all other rights, payments, or benefits to or for
the Grantee under this Plan, all Other Agreements, and all Benefit
Arrangements, would cause any payment or benefit to the Grantee under this Plan
to be considered a "parachute payment" within the meaning of Section 280G(b)(2)
of the Code as then in effect (a "Parachute Payment") and (ii) if, as a result
of receiving a Parachute Payment, the aggregate after-tax amounts received by
the Grantee from the Company under this Plan, all Other Agreements, and all
Benefit Arrangements would be less than the maximum after-tax amount that could
be received by the Grantee without causing any such payment or benefit to be
considered a Parachute Payment. In the event that the receipt of any such
right to exercise, vesting, payment, or benefit under this Plan, in conjunction
with all other rights, payments, or benefits to or for the Grantee under any
Other Agreement or any Benefit Arrangement would cause the Grantee to be
considered to have received a Parachute Payment under this Plan that would have
the effect of decreasing the after-tax amount received by the Grantee as
described in clause (ii) of the preceding sentence, then the Grantee shall have
the right, in the Grantee's sole discretion, to designate those rights,
payments, or benefits under this Plan, any Other Agreements, and any Benefit
Arrangements that should be reduced or eliminated so as to avoid having the
payment or benefit to the Grantee under this Plan be deemed to be a Parachute
Payment.
15 REQUIREMENTS OF LAW
15.1 General.
The Company shall not be required to sell or issue any shares of Stock under
any Grant if the sale or issuance of such shares would constitute a violation
by the Grantee, any other individual exercising an Option, or the Company of
any provision of any law or regulation of any governmental authority, including
without limitation any federal or state securities laws or regulations. If at
any time the Company shall determine, in its discretion, that the listing,
registration or qualification of any shares subject to a Grant upon any
securities exchange or under any governmental regulatory body is necessary or
desirable as a condition of, or in connection with, the issuance or purchase of
shares hereunder, no shares of Stock may be issued or sold to the Grantee or
any other individual exercising an Option pursuant to such Grant unless such
listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Company, and
any delay caused thereby shall in no way affect the date of termination of the
Grant. Specifically, in connection with the Securities Act, upon the exercise
of any Option or the delivery of any shares of Restricted Stock or Stock
underlying Restricted Stock Units, unless a registration statement under such
Act is in effect with respect to the shares of Stock covered by such Grant, the
Company shall not be required to sell or issue such shares unless the Board has
received evidence satisfactory to it that the Grantee or any other individual
exercising an Option may acquire such shares pursuant to an exemption from
registration under the Securities Act. Any determination in this connection by
the Board shall be final, binding, and conclusive. The Company may, but shall
in no event be obligated to, register any securities covered hereby pursuant to
the Securities Act. The Company shall not be obligated to take any affirmative
action in order to cause the exercise of an Option or the issuance of shares of
Stock pursuant to the Plan to comply with any law or regulation of any
governmental authority. As to any jurisdiction that expressly imposes the
requirement that an Option shall not be exercisable until the shares of Stock
covered by such Option are registered or are exempt from registration, the
exercise of such Option (under circumstances in which the laws of such
jurisdiction apply) shall be deemed conditioned upon the effectiveness of such
registration or the availability of such an exemption.
15.2 Rule 16b-3.
During any time when the Company has a class of equity security registered
under Section 12 of the Exchange Act, it is the intent of the Company that
Grants pursuant to the Plan and the exercise of Options granted hereunder will
qualify for the exemption provided by Rule 16b-3 under the Exchange Act. To
<PAGE> 70
the extent that any provision of the Plan or action by the Board does not
comply with the requirements of Rule 16b-3, it shall be deemed inoperative to
the extent permitted by law and deemed advisable by the Board, and shall not
affect the validity of the Plan. In the event that Rule 16b-3 is revised or
replaced, the Board may exercise its discretion to modify this Plan in any
respect necessary to satisfy the requirements of, or to take advantage of any
features of, the revised exemption or its replacement.
16 AMENDMENT AND TERMINATION OF THE PLAN
The Board may, at any time and from time to time, amend, suspend, or terminate
the Plan as to any shares of Stock as to which Grants have not been made;
provided, however, that the Board shall not, without approval of the Company's
stockholders, amend the Plan such that it does not comply with the Code. The
Company may retain the right in an Award Agreement to cause a forfeiture of the
gain realized by a Grantee on account of the Grantee taking actions in
"competition with the Company," as defined in the applicable Award Agreement.
Furthermore, the Company may annul a Grant if the Grantee is an employee of the
Company or an affiliate and is terminated "for cause" as defined in the
applicable Award Agreement. Except as permitted under this Section 0 or
Section 0 hereof, no amendment, suspension, or termination of the Plan shall,
without the consent of the Grantee, alter or impair rights or obligations under
any Grant theretofore awarded under the Plan.
17 EFFECT OF CHANGES IN CAPITALIZATION
17.1 Changes in Stock.
If the number of outstanding shares of Stock is increased or decreased or the
shares of Stock are changed into or exchanged for a different number or kind of
shares or other securities of the Company on account of any recapitalization,
reclassification, stock split, reverse split, combination of shares, exchange
of shares, stock dividend or other distribution payable in capital stock, or
other increase or decrease in such shares effected without receipt of
consideration by the Company occurring after the Effective Date, the number and
kinds of shares for which Grants of Options, Restricted Stock and Restricted
Stock Units may be made under the Plan shall be adjusted proportionately and
accordingly by the Company. In addition, the number and kind of shares for
which Grants are outstanding shall be adjusted proportionately and accordingly
so that the proportionate interest of the Grantee immediately following such
event shall, to the extent practicable, be the same as immediately before such
event. Any such adjustment in outstanding Options shall not change the
aggregate Option Price payable with respect to shares that are subject to the
unexercised portion of an Option outstanding but shall include a corresponding
proportionate adjustment in the Option Price per share. The conversion of any
convertible securities of the Company shall not be treated as an increase in
shares effected without receipt of consideration.
17.2 Reorganization in Which the Company Is the Surviving Entity and in Which
No Change of Control Occurs.
Subject to Section 0 hereof, if the Company shall be the surviving entity in
any reorganization, merger, or consolidation of the Company with one or more
other entities in which no Change in Control occurs, any Option theretofore
granted pursuant to the Plan shall pertain to and apply to the securities to
which a holder of the number of shares of Stock subject to such Option would
have been entitled immediately following such reorganization, merger, or
consolidation, with a corresponding proportionate adjustment of the Option
Price per share so that the aggregate Option Price thereafter shall be the same
as the aggregate Option Price of the shares remaining subject to the Option
immediately prior to such reorganization, merger, or consolidation. Subject to
any contrary language in an Award Agreement evidencing a Grant of Restricted
Stock, any restrictions applicable to such Restricted Stock shall apply as well
to any replacement shares received by the Grantee as a result of the
reorganization, merger or consolidation.
17.3 Reorganization, Sale of Assets or Sale of Stock Which Involves a Change
of Control.
<PAGE> 71
Subject to the exceptions set forth in the last sentence of this Section 0, (i)
upon the occurrence of a Change of Control, all outstanding shares of
Restricted Stock and Restricted Stock Units shall be deemed to have vested, and
all restrictions and conditions applicable to such shares of Restricted Stock
and Restricted Stock Units shall be deemed to have lapsed, immediately prior to
the occurrence of such Change of Control, and (ii) fifteen days prior to the
scheduled consummation of a Change of Control, all Options outstanding
hereunder shall become immediately exercisable and shall remain exercisable for
a period of fifteen days. Any exercise of an Option during such fifteen-day
period shall be conditioned upon the consummation of the event and shall be
effective only immediately before the consummation of the event. Upon
consummation of any Change of Control, the Plan and all outstanding but
unexercised Options shall terminate. The Board shall send written notice of an
event that will result in such a termination to all individuals who hold
Options not later than the time at which the Company gives notice thereof to
its stockholders. This Section 0 shall not apply to any Change of Control to
the extent that (A) provision is made in writing in connection with such Change
of Control for the continuation of the Plan or the assumption of the Options,
Restricted Stock and Restricted Stock Units theretofore granted, or for the
substitution for such Options, Restricted Stock and Restricted Stock Units of
new options, restricted stock and restricted stock units covering the stock of
a successor entity, or a parent or subsidiary thereof, with appropriate
adjustments as to the number and kinds of shares or units and exercise prices,
in which event the Plan and Options, Restricted Stock and Restricted Stock
Units theretofore granted shall continue in the manner and under the terms so
provided or (B) a majority of the full Board determines that such Change of
Control shall not trigger application of the provisions of this Section 0
subject to Section 0.
17.4 Adjustments.
Adjustments under this Section 0 related to shares of Stock or securities of
the Company shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. No fractional shares or other
securities shall be issued pursuant to any such adjustment, and any fractions
resulting from any such adjustment shall be eliminated in each case by rounding
downward to the nearest whole share.
17.5 No Limitations on Company.
The making of Grants pursuant to the Plan shall not affect or limit in any way
the right or power of the Company to make adjustments, reclassifications,
reorganizations, or changes of its capital or business structure or to merge,
consolidate, dissolve, or liquidate, or to sell or transfer all or any part of
its business or assets.
18 DISCLAIMER OF RIGHTS
No provision in the Plan or in any Grant or Award Agreement shall be construed
to confer upon any individual the right to remain in the employ or service of
the Company or any affiliate, or to interfere in any way with any contractual
or other right or authority of the Company or Service Provider either to
increase or decrease the compensation or other payments to any individual at
any time, or to terminate any employment or other relationship between any
individual and the Company. In addition, notwithstanding anything contained in
the Plan to the contrary, unless otherwise stated in the applicable Award
Agreement, no Grant awarded under the Plan shall be affected by any change of
duties or position of the Optionee, so long as such Grantee continues to be a
director, officer, consultant or employee of the Company. The obligation of
the Company to pay any benefits pursuant to this Plan shall be interpreted as a
contractual obligation to pay only those amounts described herein, in the
manner and under the conditions prescribed herein. The Plan shall in no way be
interpreted to require the Company to transfer any amounts to a third party
trustee or otherwise hold any amounts in trust or escrow for payment to any
participant or beneficiary under the terms of the Plan. No Grantee shall have
<PAGE> 72
any of the rights of a stockholder with respect to the shares of Stock subject
to an Option except to the extent the certificates for such shares of Stock
shall have been issued upon the exercise of the Option.
19 NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan nor the submission of the Plan to the
stockholders of the Company for approval shall be construed as creating any
limitations upon the right and authority of the Board to adopt such other
incentive compensation arrangements (which arrangements may be applicable
either generally to a class or classes of individuals or specifically to a
particular individual or particular individuals) as the Board in its discretion
determines desirable, including, without limitation, the granting of stock
options otherwise than under the Plan.
20 WITHHOLDING TAXES
The Company or a Subsidiary, as the case may be, shall have the right to deduct
from payments of any kind otherwise due to a Grantee any Federal, state, or
local taxes of any kind required by law to be withheld with respect to the
vesting of or other lapse of restrictions applicable to Restricted Stock or
Restricted Stock Units or upon the issuance of any shares of Stock upon the
exercise of an Option. At the time of such vesting, lapse, or exercise, the
Grantee shall pay to the Company or the Subsidiary, as the case may be, any
amount that the Company or the Subsidiary may reasonably determine to be
necessary to satisfy such withholding obligation. Subject to the prior
approval of the Company or the Subsidiary, which may be withheld by the Company
or the Subsidiary, as the case may be, in its sole discretion, the Grantee may
elect to satisfy such obligations, in whole or in part, (i) by causing the
Company or the Subsidiary to withhold shares of Stock otherwise issuable to the
Grantee or (ii) by delivering to the Company or the Subsidiary shares of Stock
already owned by the Grantee. The shares of Stock so delivered or withheld
shall have an aggregate Fair Market Value equal to such withholding
obligations. The Fair Market Value of the shares of Stock used to satisfy such
withholding obligation shall be determined by the Company or the Subsidiary as
of the date that the amount of tax to be withheld is to be determined. A
Grantee who has made an election pursuant to this Section 0 may satisfy his or
her withholding obligation only with shares of Stock that are not subject to
any repurchase, forfeiture, unfulfilled vesting, or other similar requirements.
21 CAPTIONS
The use of captions in this Plan or any Award Agreement is for the convenience
of reference only and shall not affect the meaning of any provision of the Plan
or such Award Agreement.
22 OTHER PROVISIONS
Each Grant awarded under the Plan may contain such other terms and conditions
not inconsistent with the Plan as may be determined by the Board, in its sole
discretion.
23 NUMBER AND GENDER
With respect to words used in this Plan, the singular form shall include the
plural form, the masculine gender shall include the feminine gender, etc., as
the context requires.
24 SEVERABILITY
If any provision of the Plan or any Award Agreement shall be determined to be
illegal or unenforceable by any court of law in any jurisdiction, the remaining
provisions hereof and thereof shall be severable and enforceable in accordance
with their terms, and all provisions shall remain enforceable in any other
jurisdiction.
25 Pooling
Notwithstanding anything in the Plan to the contrary, if any right under or
feature of the Plan would cause to be ineligible for pooling of interest
<PAGE> 73
accounting a transaction that would, but for the right or feature hereunder, be
eligible for such accounting treatment, the Board may modify or adjust the
right or feature so that the transaction will be eligible for pooling of
interest accounting. Such modification or adjustment may include payment of
cash or issuance to a Grantee of Stock having a Fair Market Value equal to the
cash value of such right or feature.
26 GOVERNING LAW
The validity and construction of this Plan and the instruments evidencing the
Grants awarded hereunder shall be governed by the laws of the State of
Delaware.
* * *
The Plan was duly adopted and approved by the Board of Directors of the Company
as of the ___ day of April, 1998.
/S/
The Plan was duly approved by the stockholders of the Company on the ___ day of
April, 1998.
/S/
<PAGE> 74
EXHIBIT 21
List of Subsidiaries
Utility Power Group, Inc., incorporated in the state of Arizona.
Remote Power Incorporated, incorporated in the state of Colorado.
Photocomm Pty. Ltd. formed under the laws of Australia.
Integrated Power Corporation, Inc., incorporated in the state of Maryland.
Solartec S.A. formed under the laws of Argentina.
Golden Genesis do Brazil formed under the laws of Brazil.
<PAGE> 75
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-40097, 33-62392, 33-01801 and 33-01799) of
Golden Genesis Company of our report dated January 22, 1999 relating to the
consolidated financial statements of Golden Genesis Company as of and for the
four months ended December 31, 1996 and as of and for the years ended December
31, 1997 and 1998, which report appears on page 17 of this Annual Report on
Form 10-K.
PricewaterhouseCoopers LLP
Denver, Colorado
March 30, 1999
<PAGE> 76
INDEPENDENT ACCOUNTANTS' CONSENT
The Board of Directors
Golden Genesis Company:
We consent to incorporation by reference in the Registration Statements (No.
33-40097, 33-62392, 33-01801 and 33-01799) on Form S-8 of Golden Genesis
Company (formerly Photocomm, Inc.) of our report dated October 18, 1996,
relating to the consolidated statements of operations, comprehensive income,
stockholders' equity, and cash flows of Golden Genesis Company and subsidiaries
(formerly Photocomm, Inc. and subsidiaries) for the year ended August 31, 1996,
which report appears in the December 31, 1998 annual report on Form 10-K of
Golden Genesis Company.
KPMG LLP
Phoenix, Arizona
March 30, 1999
</TEXT
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at December 31, 1998 and the Consolidated Statement
of Operations for the Twelve Months Ended December 31, 1998, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-1-1998
<PERIOD-END> Dec-31-1998
<CASH> $ 1,259
<SECURITIES> 0
<RECEIVABLES> 10,015
<ALLOWANCES> 84
<INVENTORY> 7,130
<CURRENT-ASSETS> 19,881
<PP&E> 4,273
<DEPRECIATION> 1,946
<TOTAL-ASSETS> 28,025
<CURRENT-LIABILITIES> 11,949
<BONDS> 0
<COMMON> 1,715
0
0
<OTHER-SE> 9,206
<TOTAL-LIABILITY-AND-EQUITY> 28,025
<SALES> 43,348
<TOTAL-REVENUES> 43,348
<CGS> 36,146
<TOTAL-COSTS> 44,464
<OTHER-EXPENSES> (207)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 573
<INCOME-PRETAX> (1,482)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,482)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,482)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
