<PAGE>
U.S. Securities and Exchange Commission Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(Amendment No. )
--
DYNATEC INTERNATIONAL, INC.
UTAH 3661 87-0367267
- ------------------------------ ---------------------------- -------------------
(State or Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
3820 GREAT LAKES DRIVE, SALT LAKE CITY, UT 84120 TEL. (801) 973-9500
- --------------------------------------------------------------------------------
(Address and telephone number of principal executive officers)
SAME
- --------------------------------------------------------------------------------
(Address of principal place of business or intended principal place of business)
BRUCE L. DIBB, 311 S. STATE, SUITE 380, SALT LAKE CITY, UT 84111 (801) 531-6600
- --------------------------------------------------------------------------------
(Name, address and telephone number of agent for service)
Approximate date of proposed sale to the public: August 21, 1998
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Title of each Amount to be Proposed Proposed Amount
class of registered Maximum maximum of
securities to offering aggregate registration
be registered price per offering fee
unit price (1)
- ------------- ------------- --------- -------------- --------------
<S> <C> <C> <C> <C>
Common Stock $5,263,336.00 Variable $17,817,500.00 $5,260.00
- --------------------------------------------------------------------------------
</TABLE>
- ----------------
(1) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933. The above calculation is
based on the closing bid price of the Common Stock reported in Bloomberg L. P.
on May 21, 1998
<PAGE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8 (a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8 (a),
MAY DETERMINE.
ii
<PAGE>
PROSPECTUS DATED AUGUST __, 1998
Form SB-2
Up to 5,263,336 Shares of Common Stock Issued, Or To Be Issued,
Pursuant to Various Options and Subscriptions Rights
DYNATEC INTERNATIONAL, INC.
A Utah corporation
3820 Great Lakes Drive
Salt Lake City, UT 84120
(801) 973-9500
100,000,000 Shares Authorized, at $0.01 Par
The Company trades on the National Association of Securities Dealers
Small Capitalization Market-"NASDAQ-SmallCap." under the trading symbol "DYNX."
Eighty Thousand shares are being currently registered as issued to a
placement agent for a group of private investors (the "Investors") incident to
an earlier Private Placement with registration rights. The Company will in the
future issue up to Three Million Seventeen Thousand additional shares to the
Investors as such future stock rights may be exercised by the Investors or the
Company pursuant to an updated version of this Prospectus. See Summary of
Offering at page 2.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This offering involves certain risk factors disclosed at page 7.
<TABLE>
<CAPTION>
Number of Shares(1) Offering Price(2) Underwriting Proceeds to
Commissions(3) Company(4)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
5,263,336 Shares Variable N/A Up to
(Maximum) $17,817,500.00
- -------------------------------------------------------------------------------
</TABLE>
(1) The maximum total shares which may be issued is premised upon the
assumption that Investors will exercise all subscription rights and the Company
will exercise all put options, as described in this offering.
(2) The price at which various shares of the Company may be acquired
pursuant to this offering vary according to certain contingencies, primarily the
market price at certain prescribed dates. See Terms of the Offering.
(3) The Company is not directly paying commissions related to this
registration, nor retaining any underwriter. However, various cash and stock
placement fees or incentives have been or will be paid to a third party
placement agent incident to the Private Placement upon the exercise of the
rights. The net proceeds have been adjusted for these payments.
(4) Net proceeds may vary based upon the number of shares actually
acquired pursuant to the exercise of the rights described in this Prospectus.
This amount represents the maximum gross proceeds to the Company.
<PAGE>
SUMMARY OF OFFERING
THIS OFFERING IS SOLELY FOR THE PURPOSE OF REGISTERING SHARES ALREADY ISSUED
PURSUANT TO A PRIVATE PLACEMENT, OR TO BE ISSUED PURSUANT TO SUCH PRIOR PRIVATE
PLACEMENT. HENCE, NO NEW CAPITAL IS BEING CURRENTLY RAISED PURSUANT TO THIS
OFFERING, EXCEPT AS ADDITIONAL MONEY WILL BE PAID FOR THE EXERCISE OF THE FUTURE
STOCK RIGHTS AS DESCRIBED HEREIN.
On May 21, 1998, the Company entered into a Convertible Debenture and
Equity Line of Credit Agreement ("Credit Agreement") with a group of five
investors (the "Investors") who had not previously been shareholders of the
Company. Pursuant to the Credit Agreement, the Investors purchased on May 22,
1998, Convertible Debentures in the aggregate face amount of $1,500,000.00. The
Investors have also agreed to purchase additional Convertible Debentures in the
aggregate face amount of $500,000.00 within five trading days of the effective
date of the Registration Statement, of which this Prospectus is a part.
Under the Credit Agreement, the Company may receive additional
capital funding up to an aggregate amount of $10,000,000.00 pursuant an Equity
Line of Credit. The Equity Line of Credit is essentially the contractual
agreement of the Investors to purchase additional shares of common stock of the
Company at sales prices determined at the time that the Company chooses to
exercise the line of credit. Each exercise is defined as a "put" of common
stock. The transaction is referred to as an equity line of credit because the
agreement allows the Company to draw down additional funding through the
prearranged sale of equity securities of the Company. The Company is required to
put to the Investors at least $1,000,000 of common stock under the Equity Line
of Credit and has the right to exercise additional puts during the term of the
two year commitment period of the Credit Agreement. Such two year period begins
on the effective date of the Registration Statement.
In addition to the Convertible Debentures and the Equity Line of
Credit, the Company has issued certain restricted common stock of the Company
(the "Placement Stock"), Class A Warrants (the "A Warrants") and Class B
Warrants (the "B Warrants") to the Investors and to Settondown Capital
International Ltd. (the "Placement Agent"). The A Warrants and the B Warrants
are sometimes collectively referred to in the Prospectus as the "Warrants."
SUMMARY OF REGISTRATION RIGHTS
All of the foregoing stock and rights to obtain stock of the Company
were issued, or are to be issued, in an unregistered private placement (the
"Private Placement"). The Company has agreed to register the Placement Stock,
and the shares
2
<PAGE>
underlying the Convertible Debentures, the Warrants and the
Equity Line of Credit. Such Registration is to be made pursuant to a
Registration Statement filed under the Securities Act of 1933. This Prospectus
is a part of the Registration Statement.
The following table sets out, in an abbreviated fashion, the general
terms of the Private Placement and the shares which are or will become subject
to registration pursuant to the Registration Statement and subject to resale
pursuant to this Prospectus. A more complete description of each of these
particular investments, and their attendant exercise rights, is contained in the
subsequent narrative sections of this Prospectus: A chart providing the identity
of the Investors; the entities that are the beneficial owners of the securities
described below; and that portion of the securities owned by each entity is set
forth at page 12 under the heading "Selling Security Holders."
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Component Issuance Number of Shares or Exercise Price
Amount of
Transaction
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 Equity Line of Credit $1,000,000 to 80% of market price on
$10,000,000 date of put
- --------------------------------------------------------------------------------------------
2 Convertible Debentures $1,500,000 Conversion at lesser of $6.50
issued May 22, 1998 or 75% of the average of the
three lowest closing bid prices
- ----------------------------------------------------------- during the ten day trading
3 Convertible $500,000 period before conversion,
Debentures(1) which period increases to
twenty two days over the term
of the Convertible Debentures.
- --------------------------------------------------------------------------------------------
4 A Warrants 300,000 shares $6.50 per share
- --------------------------------------------------------------------------------------------
5 A Warrants 100,000 shares 100% of closing bid price on
the day before the closing of
the Debentures referred to as
component 3 of this table.
- --------------------------------------------------------------------------------------------
6 B Warrants 450,000 shares $7.15 per share
- --------------------------------------------------------------------------------------------
7 Common Stock 20,000 shares NA
- --------------------------------------------------------------------------------------------
8 Common Stock 60,000 shares(2) NA
- --------------------------------------------------------------------------------------------
</TABLE>
(1) To be issued within five trading days of the effective date of the
Registration Statement.
(2) To be issued in increments of 6,000 shares upon the put of each
$1.0 million under the Equity Line of Credit.
Since various of the subscription rights may or will require the
future issuance of shares pursuant to this Prospectus, this registration should
be considered as a continuing or "shelf registration" such that the provisions
of the Registration Statement
3
<PAGE>
may be required to be updated periodically to complete the registration of
future shares issued pursuant to one or more of the prospective subscription
rights or entitlements.
Further, other persons purchasing shares of the Company from the
Investors or their assigns within 90 days of their sale or issuance to the
Investors in this offering should be supplied a copy of this Prospectus and may
rely on its contents.
The Company cannot make an accurate prediction of what effect, if
any, the exercise of future stock subscription rights or options may have on the
profitability of the Company or market value of the Company's shares. To the
extent these factors are not completely known, they should be considered a risk
factor to both existing shareholders and those acquiring shares pursuant to this
Registration Statement. If all shares are issued and all potential subscription
rights or options are exercised pursuant to this Registration Statement, there
would be issued approximately 3,097,000 additional shares in the Company which
would constitute, when added to current issued and outstanding shares, 52.7% of
the issued and outstanding shares of the Company.
If only the mandatory put of $1,000,000 is exercised by the Company,
and all conversion rights and warrants are exercised, there could be issued
approximately 1,489,500 additional shares in the Company. When added to current
issued and outstanding shares, this would constitute 34.9 % of the issued and
outstanding shares of the Company.
A precise calculation of the number of shares of stock which may be
issued under the various instruments discussed in this Prospectus cannot be made
because the number of shares of common stock issued under the Convertible
Debentures and under the Equity Line of Credit is, in part, dependant on the
trading price of the stock at the time of the exercise of the conversion rights
under the Debentures or at the time of the exercise of a put (the "Put Date")
under the Equity Line of Credit. The foregoing estimates of shares to be issued
are based upon an assumed stock price of $7.00 on the conversion dates and on
the Put Dates. Further uncertainty exists with regard to the number of shares
which may be issued because no assurance can be given as to whether all or any
of the rights to stock may be exercised under the Warrants which have been
issued in the transaction.
Since the shares to be acquired will most likely be acquired at
discounts to prevailing market prices there will most typically be some dilution
to existing shareholders. The shareholders holding the subscription rights will
most likely also incur some immediate dilution to the investment price paid by
them upon purchase. See Dilution Section.
4
<PAGE>
THE CONVERTIBLE DEBENTURES. On May 22, 1998, the Company issued
$1,500,000 of Convertible Debentures to the Investors pursuant to the Credit
Agreement. Additional Convertible Debentures in the face amount of $500,000 are
to be issued within five days of the effective date of the Registration
Statement. The Company received $1,335,000.00, after the payment of private
placement costs, on the May 22, 1998 Convertible Debentures, and will receive
$445,000.00, after the payment of private placement costs, on the additional
Convertible Debentures.
No cash premium or interest is to be paid on the Convertible
Debentures, if a conversion is elected by the debenture holders during the three
year term of the Convertible Debentures. However, the Convertible Debentures
provide that each Debenture shall be convertible into that number of shares of
fully paid and nonassessable shares of common stock which is to be derived from
dividing the Conversion Amount by the Conversion price. For purposes of the
Convertible Debentures, the Conversion Amount shall mean the principal dollar
amount of the Debenture being converted, plus a premium on that amount, which
will accrue at a rate of twelve (12%) percent per annum from the date the
Debenture was issued until the effective date of the Registration Statement, at
which time the accrual rate shall be reduced to six (6%) percent per annum until
the Debenture is fully converted. The Conversion Price shall be equal to the
lesser of: (i) seventy five (75%) percent of the average of the three lowest
closing bid prices of the Common Stock during the ten day trading period
immediately preceding the Conversion Date (referred to as the "Lookback
Period"), or (ii) one hundred (100%) percent of the closing bid price on the
trading day immediately preceding the Closing Date. For the purposes of the May
22, 1998 Convertible Debentures, the amount referred to in item (ii) in the
preceding sentence is $6.50. In the event a Debenture is still outstanding on
the first day of the fifth month after the date the Debenture was issued, the
Lookback Period will be increased by two trading days, and will continue to be
increased by two trading days for every month thereafter that the Debenture is
outstanding, until the Lookback Period equals a maximum of twenty two (22)
trading days. The closing bid price shall be deemed to be the reported last bid
price as reported by Bloomberg LP.
THE WARRANTS. On the May 22, 1998 closing date of the $1,500,000
Convertible Debentures, the Company issued Class A Warrants providing for the
acquisition of 300,000 shares of the common stock of the Company at an exercise
price of $6.50 per share. The Company also issued Class B Warrants providing for
the acquisition of 450,000 shares of the common stock of the Company at $7.10
per share. On the closing date of the $500,000 Convertible Debentures, the
Company will issue additional Class A Warrants providing for the acquisition of
100,000 shares of the common stock of the Company. The exercise price for these
last Class A Warrants shall be fixed at one hundred percent of the closing bid
price of the stock of the Company on the date prior to the closing of the
$500,000 Convertible Debentures. This closing is to take place within five days
of the effective date of the Registration Statement, of which
5
<PAGE>
this Prospectus is a part. All Warrants have a three year term from the date
they are issued.
THE EQUITY LINE OF CREDIT. An important factor in the capital raising
function of the transaction described in this Prospectus is the ability of the
Company to place with the Investors additional shares of stock and to receive
the purchase price for such shares under the Equity Line of Credit. The purchase
price (the "Put Market Price") of the shares placed pursuant to a put under the
Equity Line of Credit is determined from a six day trading period (the
"Valuation Period") beginning three trading days immediately preceding, and
ending on the second trading day following the trading day on which a notice
(the "Put Notice") is delivered by the Company to the Investors for the exercise
of the put rights of the Company under the Equity Line of Credit. The Company
may exercise multiple puts under the Equity Line of Credit, and has an
obligation to exercise puts aggregating at least $1,000,000.
The dollar amount of any put exercised under the Equity Line of
Credit is limited by the closing price of the stock of the Company on such Put
Date and upon the 30 day average daily trading volume on such Put Date, as set
forth in the table below:
<TABLE>
<CAPTION>
- ---------------- -------------- -------------- ------------- --------------
30-Day Avg. 30-Day Avg. 30-Day Avg. 30-Day Avg.
Daily Trading Daily Trading Daily Trading Daily Trading
Closing Price Volume Volume Volume Volume
7,500-25,000 25,001-50,000 50,001-75,000 75,001-Above
- ---------------- -------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
$3.00 - $6.00 $ 600,000 $ 750,000 $1,000,000 $1,250,000
- ---------------- -------------- -------------- ------------- --------------
$6.01 - $8.00 $ 750,000 $1,000,000 $1,250,000 $1,500,000
- ---------------- -------------- -------------- ------------- --------------
$8.01 - $10.00 $1,000,000 $1,250,000 $1,500,000 $1,750,000
- ---------------- -------------- -------------- ------------- --------------
$10.01 - $12.00 $1,250,000 $1,500,000 $1,750,000 $2,000,000
- ---------------- -------------- -------------- ------------- --------------
$12.01 - $14.00 $1,500,000 $1,750,000 $2,000,000 $2,250,000
- ---------------- -------------- -------------- ------------- --------------
$14.01 - ABOVE $1,750,000 $2,000,000 $2,250,000 $2,500,000
- ---------------- -------------- -------------- ------------- --------------
</TABLE>
6
<PAGE>
RISK FACTORS
THE FOLLOWING REPRESENTS MANAGEMENT'S VIEW OF THE MORE SIGNIFICANT
RISK FACTORS THAT SHOULD BE CONSIDERED IN THIS OFFERING, BUT DOES NOT PURPORT TO
BE AN EXCLUSIVE LISTING OF ALL POTENTIAL RISK FACTORS. CONSEQUENTLY, EACH
INVESTOR SHOULD REVIEW CAREFULLY ALL PARTS OF THE OFFERING MEMORANDUM IN
ADDITION TO REVIEWING THE FOLLOWING:
a. GENERAL BUSINESS RISKS
(1) DEVELOPING MARKETS AND COMPETITION. The Company primarily
produces and distributes telephone accessory products, as well
as some general diversified consumer and business products.
Because a significant portion of the Company's products are
dependent upon the telecommunications industry, the emphasis on
this market sector must be considered a risk factor not only
because of the substantial reliance on a single market sector,
but because this is a rapidly developing technological area in
which the Company may face obsolescence of its accessory
products, or to one or more of the core products to which it is
an accessory distributor. Also, the Company is primarily in an
industry which employs molded plastic product devices. This is
an industry in which there is substantial international
competition and in which there is relative ease of entry. As a
result, the Company may face substantial future potential
competition in its markets which may adversely affect future
profitability.
(2) GOVERNMENT REGULATION. Various aspects of the industries in
which the Company has historically engaged have been subject to
both domestic and foreign government regulation. Examples of
domestic regulation would include regulation by the Federal
Trade Commission (FTC), the Federal Communications Commission
(FCC) as well as ongoing regulations by various taxing
authorities, such as the Internal Revenue Service, (IRS), and
regulation by the Securities and Exchange Commission (SEC) as a
public company. At present, the Company and its trading
activities are the subject of review by the SEC.
b. PARTICULAR RISK OF THIS OFFERING
(1) ARBITRARY OFFERING PRICE. The offering price of the Company's
stock
7
<PAGE>
which will be registered pursuant to this registration has
been arbitrarily set by negotiation between the Investors and
the Company and may not necessarily reflect the market price
of the shares at the time issued. As a result, the issuance of
shares pursuant to this registration may cause an adverse
affect upon the market price of the Company's stock at the
time issued.
(2) DILUTION. As various shares may be issued pursuant to this
registration at prices below the market valuation of the
stock, or below prices for which other investors have
previously invested, the issuance of stock in this offering
may constitute dilution to existing shareholders. The exercise
of the options or stock pursuant to this offering may also
constitute a dilution factor to the investors. See Dilution
Section.
(3) FUTURE CAPITALIZATION. No present or prospective shareholder
in the Company should deem that the receipt of proceeds now or
in the future from the private placement offering to which
this registration is applicable necessarily constitutes an
assurance of sufficient future capital for the Company to meet
its growth and operating needs. Moreover, the issuance of
shares in the present placement may have an adverse affect
upon the future ability of the Company to raise capital
through subsequent registrations.
(4) OPERATING LOSS. While the Company is optimistic about its
present revenue and income growth, it did incur a net loss for
the last reported calendar year. No assurance as to future
profitability can be given.
(5) EXERCISE OF OPTIONS. While the present agreement by the
Company with Investors requires certain minimum future capital
participation by those Investors, no warranty can be given
concerning the Investors future performance.
c. SECURITIES RISK FACTORS.
(1) LIMITED MARKET. The Company has a limited public market and
the issuance of shares pursuant to this registration may
adversely affect the price of shares currently issued and
outstanding, or adversely affect the ability of the Company to
raise future capital through equity offerings.
(2) UPDATING OF MATERIAL. This is essentially a "shelf
registration" in
8
<PAGE>
which the Company will be required to keep updating the offering
material during the pendency of the outstanding options or
rights to purchase future shares as explained in this Offering.
This type of offering constitutes a risk factor due to the cost
and effort required of the Company in maintaining an "open
registration" until all stock rights are vested.
USE OF PROCEEDS
Proceeds of this offering must be thought of both in terms of monies
received to date for which shares are being registered herein, as well as future
proceeds which will be received from the exercise of stock rights or options.
One Million Five Hundred Thousand Dollars of the proceeds from the
private placement have been received to date from the sale of the convertible
debentures which may subsequently be converted into equity securities pursuant
to the terms of this registration. An additional Five Hundred Thousand Dollars
will be received within five days of the effective date of this Registration
Statement.
In addition to these funds, a maximum of $15,817,500 may be received
by the Company if all of the Warrants and put rights under the Equity Line of
Credit are fully exercised at the maximum potential share price under the terms
of the registration.
The $1,500,000 received to date has been used primarily for inventory
acquisition and operating costs related to the flashlight production division of
the Company. It is anticipated that the additional $500,000 to be received
within five days of the effective date of this registration will be used for
substantially similar purposes.
The prospective $15,817,500 maximum amount which may be received for
the future conversion or option rights will be used primarily for inventory
expansion; and, to a lesser degree, for advertising, research and development
and capital expansion projects of the Company. IT SHOULD BE UNDERSTOOD THAT THE
FOREGOING CONSTITUTES MANAGEMENT'S BEST PRESENT FORECAST OR PREDICTION OF THE
OPTIMUM USE OF PROCEEDS, AND MANAGEMENT RESERVES THE RIGHT TO ALTER OR AMEND
SUCH USE IN THE EXERCISE OF SOUND BUSINESS DISCRETION.
DIVIDEND POLICY
The Company does not anticipate declaring or paying cash dividends in
the foreseeable future. In addition, the Company's existing credit facilities
prohibit the payment of dividends.
9
<PAGE>
PRICE RANGE OF COMMON STOCK
The following table sets forth the high and low sale prices of the
Common stock as reported by the Nasdaq SmallCap Market, where the Common
stock trades under the Symbol "DYNX." The Referenced quotations do not
reflect inter-dealer prices, dealer retail markup, markdown, or commissions,
and may not necessarily represent actual transactions.
PRICE RANGE OF COMMON STOCK
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Quarter & Year Market High Market Low
- --------------------------------------------------------------------
<S> <C> <C>
2nd 1996 $4.13 $3.88
- --------------------------------------------------------------------
3rd 1996 $4.00 $3.38
- --------------------------------------------------------------------
4th 1996 $3.00 $2.25
- --------------------------------------------------------------------
1st 1997 $5.75 $2.63
- --------------------------------------------------------------------
2nd 1997 $11.00 $5.75
- --------------------------------------------------------------------
3rd 1997 $10.69 $4.00
- --------------------------------------------------------------------
4th 1997 $8.81 $4.50
- --------------------------------------------------------------------
1st 1998 $7.88 $6.06
- --------------------------------------------------------------------
- --------------------------------------------------------------------
</TABLE>
DETERMINATION OF OFFERING PRICE
The offering price for shares issued or to be issued under this
registration was derived from private negotiations between the Company and the
investors, and does not necessarily reflect the value of the Company's shares
based upon net worth. The exercise price for the A Warrants was set at the
closing bid price of the stock on May 21, 1998. The exercise price for the B
Warrants was set at 110% of the closing bid price of the stock on May 21, 1998.
The conversion price of the Debentures and the exercise price for the shares to
be sold pursuant to the Equity Line of Credit are to be determined at prices
discounted to the market price of the stock.The price of shares to be sold in
this offering should generally be considered to be an arbitrary price
established by arms length negotiations between the Company and the Investors.
Various of the shares to be issued in the future have triggering
mechanisms which are tied to the actual prevailing price of the stock. See
particularly Summary of Registration Rights on page 2 of this prospectus.
10
<PAGE>
DILUTION
Dilution is typically defined as the measure of the decrease in the
value of an investor's shares when contrasted with the actual subscription or
investment price to the investor. For illustration purposes only, if an investor
were to purchase shares at an offering price of $1 per share, and the Company's
net worth per share was $0.75 immediately following the close of the offering,
then the investor would incur a dilution of $0.25 per share or 25%.
Net worth is typically defined as total assets minus total
liabilities. Net worth per share would be the derived net worth figure divided
by all outstanding shares.
Dilution most frequently occurs in offerings because there are
various shares which have been previously issued for intangible consideration,
or at a discount to subsequent subscription rates; or, alternatively, the
Company has a small or negative net worth per share at the time of the offering
when compared to the price at which shares are sold.
In this Offering, the shareholders are acquiring shares pursuant to
the registration rights from the prior private placement funding, or will
acquire shares pursuant to future stock options or rights. Because the majority
of the shares will be acquired in the future, it is difficult to generally
predict dilution, and impossible to give exact dilution figures. However, based
solely on the present net worth per share of the Company, and assuming the
maximum number of potential shares acquired at current prices, it is possible to
project the following PRO FORMA dilution.
Based upon the current net worth of the Company per share and
assuming the present exercise of all shares acquired pursuant to this
registration on a theoretical basis at an estimated average exercise price of
$5.75, the dilution from the estimated average price per share would be 37.4% or
an average dilution per share of $2.15.
The Company has not determined at the date of this Prospectus the
amount of the proceeds from the issuance of the Convertible Debentures that
should be allocated to the value of the detachable Warrants issued in
conjunction with the Convertible Debentures.
11
<PAGE>
SELLING SECURITY HOLDERS
Substantially all of the shares to be registered pursuant to the
Registration Statement of the Company have not been issued as of the original
effective date of the registration, but are to be issued under the Convertible
Debentures and Warrants at the election of the Investors or of the Placement
Agent, or issued under the Equity Line of Credit at the election of the Company.
The five initial Investors are the first five entities listed in the
table below. Shares issued under the Equity Line of Credit pursuant to the
election of the Company will generally be issued in the names of such initial
Investors, and will be free trading shares of common stock of the Company,
immediately available for sale by the Investors. Because the number of shares to
be issued pursuant to the Equity Line of Credit is dependant upon the market
price of the stock at the time that the Company elects to exercise a put under
the Equity Line of Credit, it is not possible to specify the number of shares to
be issued under the Equity Line of Credit. The percentage of the shares to be
taken down by each put of the Company is reflected in the last column of the
chart on the following page.
12
<PAGE>
The number of shares to be issued pursuant to the Convertible
Debentures also cannot be determined at this time because such number is
dependent upon the market price of the stock at the time of the exercise of the
conversion rights of the Investors.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Selling Shareholder Shares Shares Shares Shares
Underlying Underlying Underlying Underlying
Convertible A Warrants B Warrants Equity Line
Debentures of Credit
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Austost Anstalt Schaan 41.67% 83,335 62,500 41.67%
733 Fuerstentum
Lichtenstein Landstrasse 163
- ------------------------------------------------------------------------------------------------
Balmore Funds S.A. 41.67% 83,335 62,500 41.67%
Trident Chambers
P.O. Box 146
Roadstown, Tortola BVI
- ------------------------------------------------------------------------------------------------
Ellis Enterprises 6.67% 13,335 10,000 6.67%
12 A Waterloo Road
London NW2 7UF, England
- ------------------------------------------------------------------------------------------------
Hewlette Fund 3.32% 6,660 5,000 3.32%
1615 Avenue I
Brooklyn, NY 11230
- ------------------------------------------------------------------------------------------------
TLG Realty 6.67% 13,335 10,000 6.67%
c/o Melo
525 West 52nd St.
New York, NY 10019
- ------------------------------------------------------------------------------------------------
Settondown Capital Intl., None 110,000 None None
Ltd.
Charlotte House,
Charlotte St.
P.O. Box N. 9204
Naussau, Bahamas
- ------------------------------------------------------------------------------------------------
Manchester Asset None 90,000 50,000 None
Management Limited
Charlotte House,
Charlotte Street
Naussau, Bahamas
- ------------------------------------------------------------------------------------------------
Avalon Capital Limited None None 125,000 None
487 Sherwood Drive, Suite 101
Sausalito, California 94965
- ------------------------------------------------------------------------------------------------
Avalon Capital, Inc. None None 125,000 None
17 Earlsfort Terrace
Dublin 2, Ireland
- ------------------------------------------------------------------------------------------------
Total 100% 400,000 450,000 100%
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
On May 22, 1998, the Placement Agent received 20,000 shares of common
stock of the Company which are covered securities in the Registration Statement.
The Placement Agent
13
<PAGE>
has also received, or will receive within five trading days of the effective
date of the Registration Statement, an aggregate of 200,000 A Warrants and
300,000 B Warrants. The Warrants issued on May 22, 1998, were divided between
the last four individuals or entities listed in the foregoing table. The
50,000 A Warrants which are to be issued subsequent to the effective date of
the Registration Statement will be divided on the same basis.
Each time the Company exercises its rights under the Equity Line of
Credit for an aggregate of $1,000,000 of equity capital, the Placement Agent
will receive an additional 6,000 shares of the common stock of the Company.
Such shares will also be registered pursuant to the Registration Statement
and subject to resale pursuant to this Prospectus.
Except to the extent the Investors are currently receiving registration
of their stock pursuant to the terms of the Credit Agreement subject to this
registration, as more fully described above, there are no insiders or other
prior holders of securities selling stock in this Offering.
PLAN OF DISTRIBUTION
There is no plan to employ any Underwriter, Broker, Dealer, or other
securities agent in the completion of this distribution of shares registered
pursuant to this Offering, although individual shareholders may subsequently
engage in transactions through broker/dealers for the shares acquired
pursuant to this Registration. The Company will exercise no control over the
sale or retention of shares received by Investors pursuant to the Private
Placement or this Registration.
The Company intends to bear all costs of the registration process with
the Securities and Exchange Commission as well as any Blue Sky Registration
costs in those jurisdictions where the Investors may reside and which require
registration of the shares. The cost of the registration process, which
primarily includes legal and accounting services, is estimated not to exceed
$108,000. There will be no commission or finders fees incident to
distribution paid by the Company.
14
<PAGE>
DESCRIPTION OF SECURITIES TO BE REGISTERED
All of the securities being registered, or which will be registered
in the future under this registration statement, are common stock of the
Company.
The Company has authorized 100,000,000 shares of common stock at a par
value of $0.01/per share, of which 2,780,112 are presently issued and
outstanding. Assuming the exercise of all rights and options to acquire stock
under the present registration statement are exercised there would be an
estimated additional 3,097,000 shares issued. If these shares were combined
with the presently issued and outstanding shares they would constitute 52.7%
of all issued and outstanding shares.
A precise calculation of the number of shares of stock which may be
issued under the various instruments discussed in this Prospectus may not be
made because the number of shares of common stock issued under the
Convertible Debentures and under the Equity Line of Credit is, in part,
dependant on the trading price of the stock at the time of the exercise of
the conversion rights under the Debentures or at the time of the exercise of
a put (the "Put Date") under the Equity Line of Credit. The foregoing
estimates of shares to be issued are based upon an assumed stock price of
$7.00 on the conversion dates and on the Put Dates. Further uncertainty
exists with regard to the number of shares which may be issued because no
assurance can be given as to whether all or any of the rights to stock may be
exercised under the Warrants which have been issued in the transaction.
This is a shelf registration such that the Company will be required to
maintain the information contained in this registration current on an ongoing
basis until the outside date when all of the shares subject to this
registration could be exercised.
15
<PAGE>
BUSINESS OF THE COMPANY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Prospectus are "forward-looking statements"
intended to qualify for the safe harbors from liability established by the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements can generally be identified as such because the context of the
statement will include words such as the Company "believes," "anticipates,"
"expects," "estimates" or words of similar meaning. Similarly, statements
that describe the Company's future plans, objectives or goals are also
forward-looking statements. Such forward-looking statements are subject to
certain risks and uncertainties which are described in close proximity to
such statements and which could cause actual results to differ materially
from those anticipated as of the date of this Prospectus. Shareholders,
potential investors and other readers are urged to consider these factors in
evaluating the forward-looking statements and are cautioned not to place
undue reliance on such forward-looking statements. The forward-looking
statements included herein are only made as of the date of this Prospectus
and the Company undertakes no obligation to publicly update such
forward-looking statements to reflect subsequent events or circumstances.
1.1 GENERAL DESCRIPTION OF THE BUSINESS OF THE COMPANY - MARKETING AND
MARKET SEGMENT INFORMATION. Dynatec International, Inc., is engaged in the
manufacture and distribution of consumer products.
TELEPHONE ACCESSORIES
Historically the telephone accessory products have been the principal
source of revenues for the Company. The telephone shoulder rest products are
currently distributed by the Company under the trade names of "Softalk" (R)
"Mini-Softalk" (TM) "Softalk II" and "Universal Phone Rest". Other telephone
accessory products include "Twisstop", "Twist Cord", "Value Pack", and "Cord
Manager". For the calendar year ended December 31, 1997, revenues from the
telephone accessory products accounted for 41.6% of the total revenues of the
Company and 63.3% of revenues for the year ended December 31, 1996. Major
customers in this category include United Stationers, Lucent Technologies,
Boise Cascades, Radio Shack, Staples, and Gemini Industries.
HARDWARE/HOUSEWARES
For the calendar year ended December 31, 1997, the hardware/housewares
products of the Company accounted for 24.8% of the revenues of the Company
compared to 30.3% of Company revenues for the year ended December 31, 1996.
The hardware products currently being sold by the Company include the
"Expand-A- Shelf", "Mini Expand-A-Shelf", "Mega Expand-A-Shelf", "Expandable
Book Shelf", "Sofstop", "Cover-Up", "Hide It", "The Wedge", "Super Wedge" ,
"Medicine Cabinet Organizer", "Drawer Organizer", "Freedom Hanger",
"Expand-A-Drawer", "Expanding- Roll-Out", and "Easy Reach Roll-Out" shelves.
16
<PAGE>
The hardware products are being sold directly to retail stores, distributors,
and catalogs including National Manufacturing, Lechters, Container Store,
Sams Club, Walmart, Target, Bed Bath & Beyond, and others.
MASS MARKET
The Company has been aggressively pursuing the marketing of commodity
type products to national mass-market merchandisers, such as Dolgencorp, Inc.
Such products included disposable cameras, audio cassette tapes, three piece
flashlights, and disposable lighters to Dolgencorp. Sales for these types of
products accounted for 26.7% and 3.3% of the Company's revenues for the years
ended December 31, 1997 and 1996, respectively.
FLASHLIGHT
The Company has been aggressively pursuing the establishment of
manufacturing sources in the Far East for a line of flashlight products.
Sales of flashlight products for the year ended December 31, 1997 amounted to
$892,828 or 6.1% of the Company's total revenues. Flashlight sales in 1996
were nominal. Management believes that substantial savings will result from
the production of flashlights overseas. During July of 1997, assets
previously used for domestic production of flashlights were sold. The
resulting receivable on the sale was settled by the receipt of treasury stock.
TELECOMMUNICATION HEADSETS
The Company has invested significant capital in Research and Development
(R&D). The Company has been developing a new line of telephonic/computer
headset amplifiers and headset telephones during the years ended December 31,
1997 and 1996. Most of the $91,638 in revenues from sales of these new
headset lines for the year ended December 31, 1997 were generated from fourth
quarter sales. During the last quarter of 1997, the Company received initial
orders from Lucent Technologies to provide headsets to be delivered in 1998.
MISCELLANEOUS
Miscellaneous products of the Company include the "Softalk Erasable
Board" a soft wipe erasable planning board for office and personal use, as
well as product packaging for AT&T and the Fuji Novel Battery Line. The
miscellaneous products segment accounted for less than one percent of
revenues for the year ended December 31, 1997.
17
<PAGE>
1.2 SUBSIDIARIES OF THE COMPANY. For the year ended December 31, 1997,
the Company conducted most of its operations through certain of its
subsidiaries. The name of the subsidiary, the date of organization, date of
acquisition by the Company, and percentage owned by the Company are set out
in chart form below.
<TABLE>>
<CAPTION>
Date Percentage
Date Acquired Shares Held
Subsidiary Organized By Company By Company
<S> <C> <C> <C>
(1) Softalk, Inc. 7/15/82 4/18/83 100%
(2) Arnco Marketing, Inc. 7/22/86 9/30/91 100%
(3) Nordic Technologies, Inc. 10/25/96 10/25/96 100%
(4) SofTalk Communications, Inc. 12/23/96 12/23/96 100%
</TABLE>
(1) Engaged in the manufacturing/sourcing and distribution of the
telephone accessory, hardware/housewares, and mass market products
of the Company.
(2) Arnco Marketing imports and markets Twisstop to Softalk and others
under a license agreement with Recoton Inc.
(3) Involved in the research, development and marketing of flashlight
products.
(4) Engaged in the research and development of telecommunications
products.
1.3 RAW MATERIAL AND SUPPLIES. The Company uses a premixed plastisol
to manufacture the Softalk, Mini Softalk, Universal Phone Rest, Sofstop, and
Softalk II products. "Plastisol" is a generic term for the petroleum based
raw material from which the vinyl substance or product is formed.
Most of the Company's products are purchased in finished form and
packaged by the supplier or at the Company headquarters. The Company, to
date, has relied upon approximately fifteen primary suppliers for plastic and
other materials ordered to specification for its assembly, manufacturing, and
marketing processes. The Company has not experienced any shortage of plastic
products or of plastisol in the past year, and does not anticipate any
shortage in the future. However, the Company anticipates increases in the
price of plastics products, freight, and packaging in calendar year 1998.
Additionally, the Company purchases the majority of products to be sold from
a combination of various domestic and foreign suppliers. Both domestic and
foreign suppliers have demonstrated continued dependability in supplying
quality product in a timely manner.
1.4 TRADEMARKS AND PATENTS. The Company currently owns or has a contract
right in Federal Trademark and Patent Registry filed for the following
products, as well as certain Foreign Trademark and Patent Rights.
18
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TRADEMARKS
<TABLE>
<CAPTION>
Year of
Trademark
Trademark Expiration
Product Country Granted/Filed or Renewal
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(a) Softalk U.S.A. 08/10/90 Each 20 Years
Canada 02/05/81 Each 15 Years
(b) Mini-Softalk U.S.A. 08/10/90 Each 20 Years
(c) Sofstop U.S.A. 08/04/92 Each 10 Years
(d) The Wedge U.S.A. 10/20/92 Each 10 Years
(e) Wall Saver U.S.A. 07/15/97 Each 10 Years
(f) Expand-A-Shelf U.S.A. 09/24/95 ----
(g) Phoneworks U.S.A. 05/10/96 ----
(h) Audioworks U.S.A. 05/10/96 ----
(i) Videoworks & Design U.S.A. 05/10/96 ----
(j) Easy Reach U.S.A. 02/21/97 ----
(k) Tele Link U.S.A. 04/10/97 ----
(l) Computer Link U.S.A. 04/10/97 ----
(m) Power Link U.S.A. 04/10/97 ----
(n) Pace Setter U.S.A. 04/10/97 ----
(o) Power Phone U.S.A. 04/10/97 ----
(p) Smart Sound U.S.A. 04/10/97 ----
(q) Softalk Design U.S.A. 04/09/96 Each 10 Years
(r) Mini Softalk Design U.S.A. 05/21/96 Each 10 Years
(s) Cord Manager U.S.A. 09/16/97 Each 10 Years
Canada 10/27/97 Each 15 Years
European Community 05/31/96 ----
Japan 09/24/96 ----
(t) Home Organization U.S.A. 07/23/97 ----
(u) Nordic Lite U.S.A. 04/03/96 ----
(v) Nordic Helmet Design U.S.A. 07/05/97 Each 10 Years
(w) Smoke Cutter U.S.A. 12/23/97 Each 10 Years
(x) Nite-Site-Lite U.S.A. 12/18/90 Each 10 Years
(y) Zoom Switch U.S.A. 08/19/96 ----
</TABLE>
- --------------------------------------------------------------------------------
PATENTS
<TABLE>
Year of
Patents
Trademark Expiration
Product Country Granted/Filed or Renewal
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(a) Universal Softalk U.S.A. 09/06/94 2011
(b) Softalk II U.S.A. 02/11/92 2009
(c) Expand-A-Drawer U.S.A. 08/09/96 ----
19
<PAGE>
<CAPTION>
<S> <C> <C> <C> <C>
(d) Easy Reach Roll-Out U.S.A. 08/01/97 ----
(e) Expand-A-Shelf, Book Edition U.S.A. 06/25/96 2013
(f) Door Protector U.S.A. 01/10/95 2012
(g) Interchangeable Doorstop U.S.A. 02/18/97 2014
(h) Zoom Light U.S.A. 07/24/96 ----
PCT 11/10/97 ----
(i) Switch w/Spare Bulb Carrier U.S.A. 11/14/89 2007
(j) Flashlight w/Switch Assembly U.S.A. 06/27/89 2007
(k) Flashlight w/Nite-Site-Lite U.S.A. 05/07/91 2008
(l) Cord Manager U.S.A. 08/19/96 ----
Canada 06/25/97 ----
China 07/31/97 ----
Taiwan 08/15/97 ----
PCT 07/29/97 ----
(d) Medicine Cabinet Organizer U.S.A. 07/15/93 ----
(e) Spring Wedge U.S.A. 07/18/96 2008
(f) Hole-in-the-Wall U.S.A. 10/02/84 ----
</TABLE>
- --------------------------------------------------------------------------------
Management believes that the trademark protection afforded by the
described trademarks is important to each of the products identified above.
1.5 SEASONAL NATURE OF PRODUCTS. Because the Company sells several of
the telephone accessories and the hardware/housewares products to retailers,
seasonality is common for these segments. Historically, the retail market
performs better during third and fourth quarter of each calendar year.
1.6 INVENTORY SUPPLY AND BACKLOG ORDERS. The Company has followed a
standard policy of shipping within forty-eight hours of receipt of payment on
orders, or within forty-eight hours of orders on approved credit lines with
the exception of large hardware/housewares orders. Such orders are filled
within two to four weeks. The Company has been able to ship within the
foregoing guidelines on almost all occasions. The Company keeps an inventory
of approximately two months of all products in order to meet the shipping
policy.
1.7 MAJOR CUSTOMERS. For the calendar year ended December 31, 1997, 15%
of the telephone accessory products were distributed through sales to United
Stationers whose headquarters are at 1900 South Des Plaines Ave., Forest
Park, IL 60130. Another 13% of sales of the telephone accessory products were
distributed through S.P. Richards whose headquarters are at P.O. Box 1266,
Smyrna, GA 30081. Boise Cascade, whose headquarters are at 800 West Bryn Mawr
Road, Itasca, IL 60143, accounted for another 11% of sales in the telephone
accessory product category.
For the year ended December 31, 1997, 17% of the hardware/houseware
products were distributed through Walmart whose headquarters are at 702 S.W.
8th Street, Bentonville, AR 72716. Another 12% of the hardware/houseware
products was to Target Stores whose headquarters are at P.O. Box 1392,
Minneapolis, MN55440-1392. National Manufacturing,
20
<PAGE>
whose headquarters are at 1 First Avenue, Sterling IL 61081, accounted for
another 11% of the distribution of the hardware/houseware products.
Dolgencorp, Inc., whose headquarters are at 427 Beech Street,
Scottsville, KY 42164 accounted for virtually all of the Company's mass
market revenues of $3,900,000 for the year ended December 31, 1997.
Dolgencorp, Inc. was the only customer who accounted for more than 10%
of total Company revenues. The loss of a single customer in any of the other
product lines of the Company would not have a significant, adverse effect on
the Company as a whole.
1.8 COMPETITIVE CONDITIONS IN THE MARKET. The Company believes that it
is engaged in highly competitive market segments for each of its products
produced. The Company bases this conclusion on the fact that the generic
design or function of the telephone accessory products could probably be
functionally replicated without any great difficulty. Further, many of the
other products of the Company involve relatively easy assembly processes
which would allow for ease of entry into the marketplace by competitors. Not
withstanding this fact, the telephone accessory products of the Company have
proven to be very competitive products.
The doorstop products, as with other hardware items, experience
significant competition with numerous other doorstop products, but are
substantially different than traditional doorstops. Competition with this
product is largely on the basis of price, although it is believed that the
Company's products are competitively priced. The majority of the other
products could be easily replicated, although the mold costs for such
products could be substantial. The Company also has legal protection on
various products in the forms of various trademarks and patents.
The Company believes that both the flashlight and telephonic headset
markets are also very competitive. However, the Company feels that its
proprietary rights for both flashlights and headsets, as well as innovative
features, provide the Company with a strong ability to compete in each of
these markets.
1.9 ENVIRONMENTAL REGULATION. The Company believes that it is in
compliance with all environmental quality regulations pertaining to such
matters as emission, waste disposal, safety equipment, and like procedures.
The Company further believes that it is exempted from specific Environmental
Protection Agency (EPA) requirements or regulations as to its manufacturing
and distribution of products. The Company believes it is in compliance with
all state and local environmental statutes. The Company also believes that it
is in compliance with all Occupational, Safety, and Health Administration
standards in its work place.
1.10 NUMBER OF PERSONS EMPLOYED. The Company employs a full-time sales,
administrative and clerical staff of 20 people. The Company also has an
average monthly assembly, warehouse and distribution staff of approximately
45 people. The number of assembly, warehouse and distribution employees is
subject to adjustment based upon demand
21
<PAGE>
and has ranged, during the year ended December 31, 1997, from a high of
approximately 70 employees to a low of approximately 56 employees.
1.11 YEAR 2000 COMPLIANCE. The Company utilizes and is dependent upon
computer systems and software to conduct its business. In fourth quarter of
1997, the Company began implementing a new accounting and materials resource
planning integrated software system. The system was implemented to provide
better inventory tracking mechanisms and to lessen the time necessary for
financial reporting. The software system, Made2Manage, is also year 2000
compliant. All in-house systems and software are expected to be year 2000
compliant by third quarter of 1998. The expenditures made for implementing
the new software program have been capitalized for 1997, as the program was
implemented not only for year 2000 compliance, but also to provide better
inventory management and financial controls. Future expenditures incurred for
ensuring year 2000 compliance are not expected to have a material impact on
the Company's consolidated financial statements.
PROPERTIES
The Company owns and occupies one facility that was built upon real
estate purchased by the Company in 1996. The facility has approximately
54,000 square feet of which approximately 6,000 square feet (11%) is used for
office and administrative purposes, and 48,000 square feet (89%) is used for
manufacturing, assembly and storage area.
LEGAL PROCEEDINGS
The Company has received a telephonic contact from the SEC indicating
that the SEC anticipates filing an administrative proceeding in the later
part of calendar year 1998 against various individuals and entities which had
engaged in business transactions with a British Columbia corporation. The SEC
representative indicated that the Company may be named in such agency action.
The Company has been invited to make a Wells Submission to clarify its
position as to why it should not be named in the administrative proceeding.
The Company did enter into two 1994 subscription agreements with the British
Columbia corporation. However, the transactions were never consummated and
the Company received no consideration with regard to the transactions. The
Company believes that its actions involving the British Columbia corporation
are significantly different from the transactions engaged in by other
entities with such corporation. In this regard, the Company insisted on the
use of a different restrictive legend on its stock certificates which were to
be held in escrow pursuant to the proposed transactions. Further, the Company
made a press release on the day following the first such transaction, and
filed Form 8-K reports on the day following both transactions. Such actions
immediately put all third parties, and the investing public, on notice of the
unpaid nature of the subscriptions. A formal Wells Submission will be
submitted by the Company by June 26, 1998. Management believes that, although
agency action is possible, such action may not be likely after the SEC has
reviewed the Wells Submission of the Company.
On February 12, 1998, Fuji Corporation filed a claim with the
International Trade Commission seeking a cease and desist order against
approximately 30 entities. The relief
22
<PAGE>
sought is to enlist the aid of the U.S. Customs Department in preventing the
importation of single-use cameras which are manufactured by any of the
entities named as defendants in the proceeding and which infringe the patents
of Fuji. The Company does not manufacture single-use cameras, but merely
distributes to warehouses in Asia cameras which have been refurbished and
reloaded in mainland China. The Company has engaged intellectual property
counsel to vigorously defend the position of the Company.
Canaccord Capital Corporation, a Canadian broker/dealer, filed an action
against the Company in the U.S. District Court in Salt Lake City, Utah on
June 16,1998. The action seeks an order compelling the issuance of 125,000
shares of common stock of the Company, or in the alternative, monetary
damages. Canaccord and the Company agree that the Company, or its transfer
agent, had erroneously over-issued shares of stock to Canaccord in early
1997. In September 1997, Canaccord tendered shares to the transfer agent of
the Company and directed the transfer agent to cancel the shares represented
by the tendered certificates in acknowledgment of the over issuance.
Management of the Company believed that additional shares had been over
issued. The erroneously issued certificate, No. 21625, was subsequently
returned to the transfer agent and then canceled at the direction of the
board of directors of the Company. This action was taken by the Company based
upon the understanding of the management that the entity believed by the
Company to be holding the beneficial interest in the certificate was not a
holder in due course, or a "protected person" under applicable Uniform
Commercial Code provisions.
The Company is involved in various other claims and legal actions
arising in the ordinary course of business. In the opinion of management, the
ultimate disposition of these other matters will not have a material adverse
effect on the Company's consolidated financial position, results of
operations, or liquidity.
MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's stock is listed on the NASDAQ Stock Market under the
symbol DYNX. As of the 31st day of December, 1997 there were 1,277 share
holders of the stock of the Company and 2,859,940 shares of the stock were
issued and 2,780,112 outstanding.
The price range of the Company's stock for the two most recent fiscal
years is set forth on a quarterly basis at page 10. The referenced quotations
reflect inter-dealer prices without retail markup, markdown, or commissions,
and may not necessarily represent actual transactions.
The Company has paid no dividends on common stock and, at present, has
no intent to pay dividends in calendar year 1998. The Company intends to
retain earnings to facilitate business expansion in the foreseeable future.
On November 12, 1996, the board of directors approved a stock split
whereby each shareholder of record received an additional one half share for
each share previously owned. All references in this Prospectus to shares
outstanding and net income (loss) per share have been restated on a
retroactive basis to reflect this forward stock split.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
information set forth in the consolidated financial statements and the notes
thereto contained in this Prospectus.
FIRST QUARTER ENDED MARCH 31, 1998, COMPARED WITH FIRST QUARTER ENDED MARCH 31,
1997.
RESULTS OF OPERATIONS:
For the quarter ended March 31, 1998, the Company generated total
revenues of $3,647,786 compared to total revenues of $2,554,618 in the prior
three month period ended March 31, 1997. Comparative period revenues
increased $1,093,168 or 43%.
Overall, the Company experienced a net income of $683,878 for the first
quarter of 1998 compared to a net loss of $511,864 for the first quarter of
1997, primarily due to the sale of non-exclusive rights to market Company
products to an overseas supplier.
TELEPHONE ACCESSORIES:
For the quarter ended March 31, 1998, there was an overall increase of
$254,997 (17%) in the revenues generated from the Telephone Accessory product
segment of the Company compared to total revenues for the quarter ended March
31, 1997. Although the sales mix for various shoulder rests changed slightly,
overall 1998 sales of shoulder rests remained fairly constant, increasing by
approximately $96,799 over 1997 sales. The remainder of the increase was
attributable to increased volume on sales of other telephone accessory
products.
HARDWARE/HOUSEWARES:
The Hardware/Housewares products segment produced an increase in
revenues during the three month period ended March 31, 1998 of $189,0151 or
23% compared to the period ended March 31, 1997. During 1997, the Company
introduced several new drawer organizer products which have accounted for the
majority of the increase in the current year. Sales in this segment continue
to grow as the Company continues to aggressively market and expand the
housewares product lines.
MASS MARKET:
Sales in the Mass Market segment were $114,051 for the quarter ended
March 31, 1998 compared to $-0- for the quarter ended March 31, 1997.
Virtually all of the sales in this segment were to Dolgencorp, Inc.
Historically, products in this segment have consisted of cameras, audio
cassette tapes, three piece flashlights, and disposable lighters.
FLASHLIGHTS:
Total sales in the Flashlight segment were $190,941 compared to $128,143
for the periods ended March 31, 1998 and 1997, respectively. In February of
1998, Nordic Technologies, Inc. (Nordic), a wholly owned subsidiary of the
Company, signed a letter of intent setting forth terms and
24
<PAGE>
conditions to form the basis of a joint venture/partnership with a flashlight
supplier in Taiwan. According to terms of this letter of intent, Nordic and
the supplier would each own 50% of the new company with Nordic occupying four
of the seven Board of Director seats of the new company. Other terms of the
agreement are still under negotiation.
TELECOMMUNICATIONS HEADSETS
Revenues in the Telecommunication Headset segment were $455,095 for
the quarter ending March 31, 1998 compared to $-0- for the same period in 1997.
The Company has been aggressively developing a line of telecommunications
products to include wired and wireless telephone headsets, telephones,
conference speakers, and other products. In first quarter 1998 initial orders
for telephonic amplifiers and headsets were filled with Lucent Technologies. The
Company has been able to secure pages in several catalogues of providers for
various office products which will be coming out during the second and third
quarter of 1998.
In the period ended March 31, 1998, the Company recognized revenue
related to an agreement with an overseas supplier whereby non-exclusive rights
to market Company products internationally were sold for $580,000. According to
the agreement, the purchase price was paid by the sale of Company stock owned by
the supplier. The supplier sold the stock in March of 1998, and the cash was
received by the Company in April of 1998. The receivable associated with this
transaction is reflected as part of related party and other receivables in the
accompanying condensed balance sheet.
EXPENSES
Overall gross margins of the Company, excluding the non-exclusive
sale of product rights for $580,000, for the quarters ending March 31, 1998 and
1997 were 37% and 30% , respectively. This overall increase in gross margin is
largely attributable to increased sales of telephone accessory and headset
products which have gross margins ranging from 35% to 50%.
The Company spent $33,200 and $136,154 in research and development
expenses for the quarters ending March 31, 1998 and 1997. Most of the research
and development expenses over these two periods was spent in developing the
headset and flashlight product lines. Research and development expenses
have decreased during 1998, as current year research and development efforts
relate to product enhancements as opposed to initial product development.
LIQUIDITY AND CAPITAL RESOURCES:
At March 31, 1998, the Company experienced a net increase in its cash
position of $346,753 from December 31, 1997. The Company had a decrease in cash
from operations of $438,364. The majority of this decrease was caused by
increases in accounts receivable ($598,513) and inventory ($465,297), offset by
first quarter income. The increase in inventories was offset by a corresponding
increase in accounts payable of $238,221 for the same period. The Company
experienced a net increase in cash position resulting from the receipt of funds
($940,000) pursuant to a Regulation S stock offering, as authorized by the Board
of Directors in March of 1997, which was partially offset by capital
expenditures of $167,478 in the quarter ending March 31, 1998. The Company
anticipates that the inventory and related payables will increase throughout
1998 as sales increase in the flashlight and telecommunication headset segments.
25
<PAGE>
Current assets increased from $5,092,374 at December 31, 1997 to
$6,691,797 at March 31, 1998. Of this increase, $465,297 reflects increases in
inventory which are offset by increases in accounts payable and the obligation
under the line of credit of $547,338 as the Company prepares for increased sales
in calendar year 1998. Additionally, accounts receivable also increased due to
increased first quarter sales of approximately $168,323 over fourth quarter
1997.
The Company has closed a transaction with a financing institution
offering a $5,000,000 line-of-credit. The Company has paid off the prior bank
line and has additional availability under the new line of credit to fund future
operations.
CALENDAR YEAR ENDED DECEMBER 31, 1997, COMPARED WITH CALENDAR TEAR ENDED
DECEMBER 31, 1996.
RESULTS OF OPERATIONS:
For the year ended December 31, 1997, the Company experienced total
revenues of $14,566,079 compared to total revenues of $9,808,314 in the prior
calendar year ended June 30, 1996. Comparative period revenues increased
$4,757,765 or 49%.
TELEPHONE ACCESSORIES:
For the year ended December 31, 1997, there was an overall decrease
of $150,856 (2.43%) in the revenues generated from the Telephone Accessory
product segment of the Company compared to total revenues for the year ended
December 31, 1996. Although the sales mix for various shoulder rests changed
slightly, overall 1997 sales of shoulder rests remained fairly constant,
increasing by approximately $17,000 over 1996 sales. The majority of the
decrease represents reduced sales of Twisstops of approximately $224,000.
HARDWARE/HOUSEWARES:
The Hardware/Housewares products segment produced an increase in
revenues during the year ended December 31, 1997 of $644,341 or 22% compared to
the year ended December 31, 1996. During 1997, the Company introduced several
new drawer organizer products which accounted for $439,630 of the change.
Additionally, sales decreases of approximately $130,000 in doorstop products
were offset by increases in sales of Expand-A-Shelf products of approximately
$246,000. The closet hanger introduced in 1996 also experienced an increase of
sales of approximately $88,000. Sales in this segment continue to grow as the
Company continues to aggressively market and expand the housewares product
lines.
MASS MARKET:
The Company has been aggressively pursuing the marketing of commodity
type products to national mass market merchandisers. Sales in the Mass Market
segment increased $3,566,927 over 1996. Disposable camera sales accounted for
87% of the year-over-year increase. Virtually all of the sales in this segment
were to Dolgencorp, Inc. In addition to cameras, the Company also distributed
audio cassette tapes, three piece flashlights, and disposable lighters to
Dolgencorp, Inc.
26
<PAGE>
FLASHLIGHTS:
On December 2, 1996, the Company acquired substantially all of the
assets of Nordic Lights, Inc., a Texas Corporation, doing business as Nordic
Lites, Inc. This closing and acquisition took place pursuant to an Asset
Purchase Agreement which provided that its effective date was December 1, 1996.
The assets described in the transition were transferred to a new
wholly owned subsidiary of the Company. The subsidiary is named, Nordic
Technologies, Inc. ("Nordic Technologies"), a Utah corporation. Nordic
Technologies sells a broad range of flashlight products and accessories under
the trademark "Nordic Lites." These products include aluminum and plastic light
products.
The initial purchase of the assets of Nordic Lights, Inc. was
accomplished through the issuance of 550,000 shares of common stock of the
Company. A value of $1.60 per share was determined based upon subsequent sales
of stock by shareholders of Nordic Lights, Inc. In April 1997 an agreement was
reached whereby several third parties bought a number of shares back from the
shareholders of Nordic Lites, Inc.
Total sales in the flashlight segment were $892,828 compared to
$54,266 for the years ended December 31, 1997 and 1996, respectively. The
Company is pursuing an agreement to ensure adequate manufacturing capacity of
flashlights offshore.
TELECOMMUNICATIONS HEADSETS
The Company has been aggressively developing a line of
telecommunications products to include wired and wireless telephone headsets,
telephones, conference speakers, and other products. Significant research and
development expense has been dedicated to the development of this product line,
including the hiring of two full time employees. Significant cash outlays have
been made for molds, engineering, and other development costs. By year-end 1997,
the Company had a full line of amplifier headsets available for resale. Although
1997 sales for this segment were only $91,638, orders for 14,000 headsets had
been received by year end and several catalogue commitments have been made with
various office products wholesalers.
EXPENSES
Overall gross margins of the Company for the years ending December
31, 1997 and 1996 were 30 percent and 39 percent, respectively. This overall
decrease in gross margin is largely attributable to increased sales of
miscellaneous mass market products including disposable cameras, plastic
flashlights, and audio cassettes which the Company sourced to Dolgencorp, Inc.
Additionally, the Company spent $508,314 and $627,583 in research and
development expenses for the years ending December 31, 1997 and 1996. Most of
the research and development expenses for both years was spent in developing the
headset and flashlight product lines. However, management believes that future
research and development expenses will be less during 1998, as enhancements to
existing products should be less expensive to develop.
Interest expense for the years ending December 31, 1997 and 1996 were
$427,392 and $269,292, respectively. The increase in interest expense reflects
interest paid on the long-term notes payable which were used to obtain the
Company's plant in late 1996.
27
<PAGE>
Overall Company net loss decreased from a net loss of $1,045,149 for
the year ended December 31, 1996 to a net loss of $409,172 for the year ended
December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES:
At December 31, 1997, the Company experienced a net increase in its
cash position of $93,000. The Company had a decrease in cash from operations of
approximately $1.2 million. The majority of this decrease was caused by a $1.3
million increase in inventory from the year ended December 31, 1997 over the
year ended December 31, 1996. This increase in inventories was offset by a
corresponding increase in accounts payable of $537,000 for the same period. The
Company experienced a net increase in cash position resulting from the issuance
of Regulation S stock ($2 million) offset by capital expenditures ($590,000).
The Company anticipates that the inventory and related payables will increase
throughout 1998 as sales increase in the flashlight and telecommunication
headset segments.
Current assets increased from $3 million at December 31, 1996 to $5.1
million at December 31, 1997. Of this increase, approximately $1.3 million
reflects increases in inventory which is offset by increases in accounts payable
and line of credit of $646,000 as the Company prepares for increased sales in
calendar year 1998. Additionally, accounts receivable also increased year-over-
year due to increased fourth quarter sales of approximately $190,000. The
December sale of 3.23 acres of real property owned by the Company led to a
decrease in fixed assets and an increase in the current portion of long-term
debt for the portion of the long-term debt to be paid off in 1998 relative to
the sold property.
Under the terms of the then existing line-of-credit agreement with a
bank, the Company was required to maintain certain financial covenants and
ratios. The bank had the right to withdraw the line-of-credit upon default by
the Company of various provisions in the line-of-credit agreement. At December
31, 1997, the Company was not in compliance with the provisions requiring a
minimum current ratio of 1.5 to 1. The ratio of total current assets to total
current liabilities was 1.26 at the end of 1997 compared to .96 at December 31,
1996. As reflected in the discussion above, the bank line-of-credit was replaced
in May 1998.
On December 11, 1997, the Company entered into an agreement with an
overseas supplier whereby non-exclusive rights to market Company products
internationally were sold for $580,900. According to the agreement, the purchase
price was paid from the proceeds of the sale of Company stock owned by the
supplier. As reflected above, the revenue from this sale was recognized in the
first quarter of 1998.
FORWARD LOOKING STATEMENTS
The Management's Discussion and Analysis contains certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1936,
as amended, which are intended to be covered by the safe harbors created
thereby. Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurance that
the forward-looking statements will prove to be accurate. Factors that could
cause actual results to differ from results discussed in forward-looking
statements include, but are not limited to, potential increases in inventory
costs, competition, and the Company's ability to obtain additional working
capital to fund future growth.
28
<PAGE>
IMPACT OF INFLATION AND CHANGING PRICES:
There was some impact on the Company by reason of inflation during
the past year. Freight carriers used by the Company increased their rates in
calendar year 1997. Also, prices increased for raw materials used in injection
and blow molded products as well as for packaging. These price increases were
not passed along to customers in 1997.
FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Reference is made to the consolidated balance sheets and operations
of the company which are incorporated as part of this Prospectus and which
contain the Consolidated Balance Sheets for the calendar years ended December
31, 1997 and 1996.
The Consolidated Balance Sheets of the Company, as shown in the
Financial Statements, reflect the financial position of the Company. The
Consolidated Statements of Operations of the Company, as shown in the Financial
Statements, reflect the Company's operations.
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in
connection with, and is limited by, the more complete information in the
attached Consolidated Financial Statements and the accompanying notes. The
market prices for the quarter and year ended December 31, 1996 reflect the one
and one-half for one stock split occurring during that quarter.
<TABLE>
<CAPTION>
Six-Month
Year Ended Year Ended Period Fiscal Year Ended June 30,
12/31/97 12/31/96 12/31/95 1995 1994 1993
----------------- ---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Telephone accessories $ 6,054,000 6,204,000 3,278,000 5,495,000 5,659,000 5,763,000
Hardware products 3,618,000 2,973,000 1,415,000 2,375,000 2,100,000 1,673,000
Mass market 3,893,000 326,000 -- -- -- --
Flashlights 892,000 54,000 -- -- -- --
Headsets 92,000 -- -- -- -- --
Batteries -- 45,000 524,000 1,032,000 1,187,000 --
Other 17,000 206,000 14,000 78,000 75,000 98,000
----------------- ---------------- ---------------- ---------------- ---------------- ----------------
Total revenues $14,566,000 9,808,000 5,231,000 8,980,000 9,021,000 7,534,000
Income (loss) from
continuing operations
before taxes $ (348,000) (1,053,000) 110,000 (28,000) 346,000 511,000
Income tax
expense (benefit) $ 61,000 (8,000) 46,000 (33,000) 55,000 3,000
Net income (loss) $ (409,000) (1,045,000) 64,000 5,000 291,000 508,000
Total assets $9,409,000 8,216,000 6,070,000 4,844,000 4,279,000 3,598,000
Stockholder's equity $3,330,000 2,664,000 2,783,000 2,698,000 2,678,000 2,008,000
Long term liabilities $2,045,000 2,483,000 969,000 444,000 419,000 560,000
Shares outstanding 2,768,000 1,974,000 1,412,000 1,403,000 1,311,000 1,151,000
29
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three- Three-
Months Months
Ended Ended
03/31/98 03/31/97
----------- ---------
<S> <C> <C>
Revenues
Telephone accessories $ 1,788,000 1,533,000
Hardware products 1,027,000 838,000
Mass market 114,000 --
Flashlights 191,000 128,000
Headsets 455,000 --
Other 73,000 56,000
----------- ---------
Total revenues $ 3,648,000 2,555,000
Income (loss) from continuing
operations before taxes $ 684,000 (511,000)
Income tax expense (benefit) -- (500)
Net income (loss) $ 684,000 (512,000)
Total assets $10,941,600 8,511,000
Stockholder's equity $ 4,014,000 2,632,000
Long term liabilities $ 1,945,000 2,461,000
Shares outstanding 2,750,000 2,224,000
</TABLE>
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES
In late 1997, the Company decided to engage a larger,
international auditing firm. During a regularly scheduled Board of Director
meeting, the audit committee presented the motion that management pursue the
engagement of a "Big 6" auditing firm. In December 1997, KPMG Peat Marwick
LLP became engaged as the Company's new auditing firm.
30
<PAGE>
MANAGEMENT OF THE COMPANY
During the year ended December 31, 1997, or portions thereof, the
following have served in the capacities indicated for the Company or have
been nominated to serve until the next annual meeting of shareholders. As of
the date of this Prospectus, the four members serving on the board as
directors are Mr. Wood, Mr. Jack, Mr. Newbold, and Mr. Volcansek.
Information regarding these directors and the Secretary to the Board of
Directors is as follows:
<TABLE>
<CAPTION>
NAME AND OFFICE PRINCIPAL OCCUPATION DURING THE
HELD IN THE CORPORATION AGE PAST FIVE YEARS
- ------------------------ --- -------------------------------
<S> <C> <C>
Donald M. Wood 53 Officer and Director for the Company
Chief Executive Officer, since 1982. Prior to 1982, Vice
Chairman of the Board, President and Head of Sao Paulo
and Director Brazil office for Bank of America,
N.T. & S.A. Received Masters of
Business Administration from Brigham
Young University in 1972.
Fredrick R. Jack 55 Officer and Director of the Company
President, Chief Operating since 1981. Prior experience as
Officer, and Director District Manager, AT&T, US West, and
Pacific Telephone. Received B.S.
degree from University of Utah in 1967.
Reed Newbold 52 Outside Director of the Company
Outside Director since 1988. Currently is a
Financial Planner and Mortgage
Broker. Owner of Newbold Financial
Services. Prior experience as Vice
President of Tracy Collins Bank &
Trust. Graduated with B.S. degree
from University of Utah in 1974.
Frederick W. Volcansek 53 Outside Director of Company since 1988.
Outside Director Currently Vice President of
Mosbacker Companies, Houston, Texas.
Prior experience as U.S. Deputy
Undersecretary of Commerce in
Washington, D.C. Graduated with
B.S. degree from Texas Tech
University in 1967
Jerry R. Andersen 32 Secretary and Officer of the Company
Chief Financial Officer since 1997. Prior experience as
Secretary Manager of Financial Reporting at
CIGNA Corporation and auditing
experience with Coopers & Lybrand,
LLP. Received Masters of
Accountancy from Brigham Young
University in 1992.
</TABLE>
Mr. Wood was first elected to the Board of Directors at the
Company's Annual Meeting of Shareholders in April, 1983. Mr. Jack was elected
to the Board of Directors by Board action in April 1987. Mr. Newbold, and
Mr. Volcansek were elected to the Board of Directors at the Company's Annual
Meeting of Shareholders in December 1988. The members of the Board currently
serving are director nominees to be elected at the 1998 Annual Meeting of
Shareholders. Each board member receives $2,000 for each board meeting held
during the year.
31
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
During the year ended December 31, 1997, all officers and
directors prepared and filed all Forms 3,4 and 5 required by Section 16 (a)
of the Exchange Act. Mr. Wood and Mr. Jack had a technical obligation to file
a Form 4 within ten days of the end of July 1997 by reason of a purchase and
sale of stock taking place in the month of July. Because the net effect of
this transaction reflected no change in ownership, these transactions were
not reported until Form 5s were filed on April 24, 1998.
OTHER INFORMATION REGARDING THE BOARD
The Board of Directors of the Company held seven meetings in the
year ended December 31, 1997. None of the directors participated in less than
75% of the meetings held during the period. During the year ended December
31, 1997, each Board member was paid $2,000 for each meeting attended.
None of the directors, officers or five percent owners of the
stock of the Company are involved in any significant legal proceedings
adverse to the Company or has a material interest adverse to the Company. The
directors, officers and five percent owners of the stock of the Company do
not believe that their interests are, in fact, adverse to the Company.
32
<PAGE>
EXECUTIVE COMPENSATION
The table set forth below contains information about the
remuneration received and accrued during the last calendar year and prior two
calendar years from the Company and its subsidiaries by each of the most
highly compensated executive officers of the Corporation whose remuneration
for that year exceeded $100,000.
Dynatec International, Inc
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
(1)
Other
Year Annual Restricted (3) All other
Ended (2) Compen- Stock Options/ LTIP Compen
Decem. Salary Bonus sation Award(s) SARs Payouts sation
Principal Position 31 ($) ($) ($) ($) (#) ($) ($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Donald M. Wood 1997 94,433 3,249 14,000 14,000 - -
- - Chief Executive 1996 194,640 1,421 8,000 10,000 - -
Officer 1995 194,330 1,421 12,000 - - -
F. Randy Jack 1997 129,142 3,465 14,000 10,000 - -
- - President 1996 142,440 1,522 8,000 9,000 - -
1995 142,215 1,522 12,000 - -
</TABLE>
(1) Total cash compensation shown above does not include the value of
company leased or owned vehicles and insurance payments made on
behalf of officers. Such items are included on the individual
officers W-2's. The amounts shown as other annual compensation are
directors fees received during the fiscal year.
(2) Bonus compensation includes time in service bonus and merit bonus at
discretion of the Board of Directors.
(3) An incentive stock option plan was implemented in November 1996.
Options were granted as approved by the Board of Directors on
December 30, 1996 and again on January 2, 1997.
33
<PAGE>
Option/SAR Grants in Last Fiscal Year
Individual Grants
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
PERCENT OF TOTAL
OPTIONS/SARS MARKET
OPTIONS/ GRANTED TO VALUE ON
SARS EMPLOYEES IN EXERCISE OR BASE DATE OF EXPIRATION
NAME GRANTED (#) FISCAL YEAR PRICE ($/SH) GRANT DATE
----- ----------- ----------- ------------ ----- --------
<S> <C> <C> <C> <C> <C>
Donald M. Wood 14,000 13.3 $2.50 $2.50 1/02/06
400,000 (1) 50.0 $2.00 $2.50 See Note
F. Randy Jack 10,000 9.5 $2.50 $2.50 1/02/06
100,000 (1) 12.1 $2.00 $2.50 See Note
</TABLE>
I. These options represent non-qualified stock options which were
granted to nine employees and two board members. To be able to
exercise these options, employment must continue for six years,
and the Company must be profitable three out of six years.
Mr. Wood and Mr. Jack have employment contracts with the Company.
The contracts call for annual renewals. The contracts may be terminated by
the Company with written notice prior to year-end and severance would be
equal to six months base salary. Compensation to be paid under the contracts
is equal to current base salary as well as vacation, health insurance, and
vehicle privileges. In the event of a merger, acquisition or transfer of
assets the contract must then be honored by the surviving entity.
In November 1996, the Company shareholders approved an Incentive
Stock Option plan for the benefit of the officers and employees of the
Company. No formal criteria have been established to determine the amount of
benefits to be granted pursuant to the 1996 plan. The Plan provides that
options are granted at exercise prices equal to the market value as of the
date the option is granted. On January 2, 1997 and December 30, 1996, the
Board of Directors approved the issuance of 105,000 and 95,000 options to
purchase stock pursuant to the 1996 incentive stock option plan. Further
description of the Plan and the exercise prices are provided in the attached
Consolidated Financial Statements.
In fiscal year 1997 the Company provided a medical and health
insurance program for all salaried and office employees. All full-time
salaried and office employees of the Company were entitled to the payment by
the Company of health insurance premiums after certain mandatory waiting
periods.
34
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The only persons known by the Board of Directors to be the beneficial
owners of more than five percent of the outstanding shares of the Common Stock
of the Company, as of April 14, 1998 are indicated in the following table:
<TABLE>
<CAPTION>
Amount and Percent
Nature of of Class
Name and Address of Beneficial as of
Beneficial Owner Ownership 4/14/98
- ----------------- ------------- -----------
<S> <C> <C>
Boa Sorte Limited Partnership 162,000 5.8%
1819 East Southern Avenue
Mesa, AZ 85204
CEDE & Co. 427,759(1) 15.4%
P.O. Box 222
Bowling Green Station
New York, NY 10274
Chegamos Inc. 215,000 7.7%
1 East 1st Street
Reno, NV 89501
Muito Bem, LTD 162,000(2) 5.8%
3078 American Saddler Drive
Park City, UT 84060
</TABLE>
- -------------------------
The above table reflects the actual Beneficial Ownership as of April 14,
1998. It does not take into account shares available under the incentive stock
option plans. A total of 2,780,112 shares were outstanding at April 14, 1998.
(1) CEDE & Co. is the nominee for the Depository Trust Company and
its participants.
(2) Muito Bem LTD is a limited partnership for which Mr. Donald
M. Wood is a limited partner and the president of the
corporate general partner. Mr. Wood is deemed to be a
beneficial owner of these shares.
During 1996, the board of directors authorized the granting of
non-qualified stock options which are tied to the profitability of the Company
and based upon minimum years of employment. A total of 840,000 shares at a
strike price of $2.00 per share were authorized. Employment must continue
through the year 2001 and the company must be profitable three out of four years
commencing January 1, 1998. Another 800,000 non-qualified stock options, with
similar terms, was authorized by the board and granted on January 2, 1997.
Employment must continue through the year 2002 and the company must be
profitable three out of five years commencing January 1, 1998.
In 1996, the board of directors also authorized and granted 537,500
non-qualified stock options for to Muito Bem Ltd. at a strike price of $2.50 per
share in consideration of all knowledge, trade secrets and a continuing
non-compete, regarding the telephone headset product line, as well as personal
real estate pledged as collateral on Company debts by the chief executive
officer. In addition, WAC Research, Inc.
35
<PAGE>
was authorized and granted 200,000 options for restricted shares of the
Company's stock under similar terms. These options are non-exercisable until
December 30, 2000. Subsequent to the issuance of these shares, the strike
price was adjusted from $2.00 to $2.50 per share to reflect the market value
on the date of grant.
SECURITY OWNERSHIP OF MANAGEMENT
<TABLE>
<CAPTION>
Amount of Nature of
Beneficial Ownership
of Common Stock by
Management as of Percent
April 14, 1998 of Class
---------------------- ----------
<S> <C> <C>
Donald M. Wood 188,007(1) 6.7%
Fredrick R. Jack 39,009(2) 1.4%
Reed D. Newbold 2,000 (3)
All directors and
officers as a
group (5 persons) 229,016 8.1%
</TABLE>
(1) This reflects the 2,007 shares owned by Annalee G. Wood,
wife of Donald M. Wood;162,000 shares held by Muito Bem LTD
of which Donald M. Wood is deemed a beneficial owner; and
24,000 shares subject to options exercisable under the
incentive stock option plan.
(2) This number includes 19,000 shares subject to options
exercisable under the incentive stock option plan.
(3) Ownership is less than 1% of the outstanding shares of the
Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's subsidiary Softalk, Inc., maintains a royalty agreement
for patent and trade-mark rights on telephone accessories from WAC Research
Inc., a Utah corporation. Donald M. Wood, CEO and director of the Company, is
the beneficial owner of one-half of WAC Research. In August 1986, WAC Research,
Inc. purchased a 10% royalty right from the inventor of Softalk and related
products in a private transaction. This involved both cash and stock in a
transaction valued between one and two million dollars being paid to Practical
Innovations, Inc. At that time, WAC Research and the Board of Directors of the
Company determined that the 10% royalty was onerous and non-sustainable.
Therefore, WAC Research agreed to lower the royalty to 5%. In addition, the
agreement also states that the payment of royalties for third and fourth quarter
is contingent upon the Company obtaining a certain level of earnings
36
<PAGE>
for each calendar year.
It is anticipated that approximately $200,000 of royalties will be
accrued or paid to WAC Research in calendar year 1998. During 1997 Softalk
Inc. paid $120,000 to WAC Research in payment of royalties.
During 1995, the Company sold all rights and interest in various
discontinued products to WAC Research for $150,000 in the form of a demand note
bearing 8% interest. As part of the transaction, inventory and molds were also
sold at cost to WAC. In June 1997, the Company received 18,000 shares of Dynatec
International, Inc. common stock from WAC as payment in full of all outstanding
balances. Such shares were valued at the market price of $10.00 per share, which
represented the current market value of the stock. In addition, WAC Research,
Inc. was authorized and granted 200,000 options for restricted shares of the
Company's stock under similar terms. These options are non-exercisable until
December 30, 2000.
Mr. Wood, the CEO and a Director of the Company, has guaranteed
certain bank lines of credit and an equipment loan of the Company. The
balances owing on the bank lines and loans at December 31, 1997 were
$1,900,000. During 1997 the highest outstanding balance on the bank lines
and equipment notes was $2,360,000. During 1996 the Company completed
construction of a manufacturing, assembly and office facility. The facility
was subsequently financed with a local bank and the Small Business
Administration. Mr. Wood is a guarantor on the real estate loans. The
balance due at December 31, 1997, was $2,150,000.
Mr. Wood, the CEO and a Director of the Company, is the beneficial
owner of rental property in Park City, Utah which the Company leases on an
annual basis. The Company uses the property for travel, promotional work,
lodging and entertainment for customers, suppliers and employees. The total
amount paid by the Company for operating, maintenance and general care of the
property for 1997 was $84,000. The Company is terminating the contract in 1998.
During 1997 and 1996 the Board of Directors authorized the granting
of various options under both non-qualified and incentive stock options plans.
These options are described in detail in the note to the consolidated financial
statement sections included with this Prospectus. The non-qualified plans
included 537,500 options granted to Muito Bem Ltd. at a strike price of $2.50
per share in consideration of all knowledge, trade secrets and a continuing
non-compete, regarding the telephone headset product line, as well as personal
real estate pledged as collateral on Company debts by the chief executive
officer.
LEGAL MATTERS
The validity of the securities offered hereby have been passed upon
for the Company by Julian D. Jensen and Bruce L. Dibb of 311 South State Street,
Suite 380, Salt Lake City, Utah 84111. The firm of Jensen, Duffin, Carmen, Dibb
and Jackson acts as general counsel to the Company. It is not believed that that
firm or any member in that firm has any interest in the registrant other than
Mr. Jensen of that firm is the Trustee and a beneficiary of a family trust which
holds 1,000 shares of the Company's stock.
37
<PAGE>
EXPERTS
The financial statements of the Company as of and for the year
ended December 31, 1997 included in the Prospectus have been included in the
Prospectus in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and as indicated in
their report, and are included herein in reliance upon the authority of said
firm as experts in accounting and auditing. The audited financial statements
of the Company for the year ended December 31, 1996 included in this
Prospectus have been audited by Jones Jensen & Company, independent public
accountants, as indicated in their report, and are included herein in
reliance upon the authority of said firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
This Prospectus, which constitutes a part of a Registration
Statement on Form SB-2 ( the "Registration Statement") filed by the Company
with the Securities and Exchange commission (the "Commission") under the
Securities Act of 1933, omits certain of the information set forth in the
Registration Statement. Reference is hereby made to the Registration
Statement and to the exhibits thereto for further information with respect to
the company and the securities offered hereby. Copies of the Registration
Statement and the exhibits thereto are on file at the offices of the
Commission and may be obtained upon payment of the prescribed fee or may be
examined without charge at the public reference facilities of the Commission
described below.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, and, in accordance therewith, files reports,
proxy statements and other information with the Commission. Such reports,
proxy statements and other information can be inspected and copied at the
public reference facility maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's regional offices located at Seven World Trade Center, Suite
1300, New York, New York 10048 and Citicorp Center, 400 West Madison Street,
Suite 1400, Chicago, Illinois 60661. The Commission maintains an Internet web
site that contains reports, proxy statements and information statements and
other information regarding registrants, like the Company, that file
electronically with the Commission. The address of such web site is
http://www.sec.gov. Copies of such material can be obtained in person from
the Public Reference Section of the Commission at its principal office
located at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates, or without charge on the referenced web site. The Company's Common
Stock is quoted on the Nasdaq Smallcap Market. Reports, proxy statements and
other information concerning the Company may be inspected at the National
Association of Securities Dealers, Inc. at 1735 K Street, N.W., Washington,
D.C. 20006
38
<PAGE>
Index to Financial Statements
DYNATEC INTERNATIONAL, INC.
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
Page
-----
<S> <C>
CONSOLIDATED BALANCE SHEETS.......................................F-4
CONSOLIDATED STATEMENTS OF OPERATIONS.............................F-6
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY........F-7
CONSOLIDATED STATEMENTS OF CASH FLOWS.............................F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.......................F-10
</TABLE>
DYNATEC INTERNATIONAL, INC.
CONSOLIDATED FINANCIAL STATEMENTS
unaudited first quarter ending March 31, 1998 and 1997
<TABLE>
<CAPTION>
Page
-----
<S> <C>
CONSOLIDATED BALANCE SHEETS......................................F-23
CONSOLIDATED STATEMENTS OF OPERATIONS............................F-25
CONSOLIDATED STATEMENTS OF CASH FLOWS............................F-26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.......................F-28
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT OF KPMG PEAT MARWICK LLP
The Board of Directors
Dynatec International, Inc.:
We have audited the accompanying consolidated balance sheet of Dynatec
International, Inc. as of December 31, 1997, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the year
then ended. 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 included 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 financial position of Dynatec
International, Inc. as of December 31, 1997, and the results of its
operations audits cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Salt Lake City, Utah
April 10, 1998
F-2
<PAGE>
Independent Auditors' Report of Jones, Jensen and Company
Board of Directors
Dynatec International, Inc.
Salt Lake City, Utah
We have audited the accompanying consolidated balance sheet of Dynatec
International, Inc. and subsidiaries as of December 31, 1996 and the related
consolidated statements of operations, stockholders' equity, and cash flows
for the year then ended. 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 required that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amount and disclosures in the
consolidated financial statements. Any 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 statement referred to above
present fairly, in all material respects, the consolidated financial position
of Dynatec International, Inc. and subsidiaries as of December 31, 1996 and
the results of their operations and their cash flows for the year then ended
in conformity with generally accepted accounting principles.
/s/ Jones, Jensen and Company
Jones, Jensen & Company
Salt Lake City, Utah
March 27, 1997
F-3
<PAGE>
DYNATEC INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash ................................................... $ 332,894 $ 240,145
Trade accounts receivable, net of allowance for doubtful
accounts of $29,684 in 1997 and $29,000 in 1996 ...... 1,549,888 1,125,750
Related party and other receivables (Note 11) .......... 426,131 145,419
Inventories (Note 3) ................................... 2,522,149 1,256,440
Prepaid expenses ....................................... 234,120 180,157
Other .................................................. 27,192 19,523
---------- ----------
TOTAL CURRENT ASSETS .......................... 5,092,374 2,967,434
PROPERTY, PLANT AND EQUIPMENT, NET (Note 4) .............. 3,941,587 4,673,999
OTHER ASSETS
Deposits ............................................... 107,631 22,355
Deferred tax asset (Note 9) ............................ -- 69,960
Note receivable-related party (Note 11) ................ -- 150,000
Intangible assets, net (Note 5) ........................ 267,825 332,092
---------- ----------
TOTAL OTHER ASSETS ............................ 375,456 574,407
---------- ----------
TOTAL ASSETS ..................... $9,409,417 $8,215,840
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
DYNATEC INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
AS OF DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Short-term note payable (Note 6) ............................................ $ 1,331,169 $ 1,222,722
Current portion of long-term debt (Note 7) .................................. 1,003,477 795,415
Current portion of capital lease obligations (Note 8) ...................... 15,699 22,363
Accounts payable ............................................................ 1,077,632 523,668
Accrued expenses ............................................................ 238,121 153,533
Accrued advertising ......................................................... 350,000 304,500
Accrued royalties payable ................................................... 17,882 66,207
Income taxes payable ........................................................ -- 500
----------- -----------
TOTAL CURRENT LIABILITIES .............................. 4,033,980 3,088,908
LONG-TERM LIABILITIES
Long-term debt, excluding current portion (Note 7) ......................... 1,994,355 2,393,052
Capital lease obligations, excluding current portion (Note 8) .............. 46,086 76,196
Deferred income taxes (Note 9) ............................................. 5,036 13,402
----------- -----------
TOTAL LIABILITIES ..................................... 6,079,457 5,571,558
STOCKHOLDERS' EQUITY (NOTE 10)
Common stock, $.01 par value, authorized 100,000,000 shares, 2,859,940 issued
at December 31, 1997 and 1,974,104 issued
and outstanding at December 31, 1996 ..................................... 28,599 19,741
Treasury stock at cost, 91,515 shares ....................................... (915,150) --
Additional paid-in capital .................................................. 5,596,840 3,595,699
Accumulated deficit ......................................................... (1,380,329) (971,158)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY ........................... 3,329,960
2,644,282
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY .................................... $ 9,409,417 $ 8,215,840
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
DYNATEC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
REVENUE ..................................... $ 14,566,079 $ 9,808,314
COST OF SALES ............................... 10,174,205 6,194,749
------------ -----------
GROSS PROFIT ................................ 4,391,874 3,613,565
EXPENSES
Selling expenses .......................... 2,378,547 2,207,285
Research and development .................. 508,314 627,583
General and administration expenses ....... 1,689,481 1,564,663
Provision for losses on accounts receivable 40,158 23,000
------------ -----------
TOTAL EXPENSES ..................... 4,616,500 4,422,531
------------ -----------
OPERATING LOSS .............................. (224,626) (808,966)
------------ -----------
OTHER INCOME/(EXPENSE)
Interest income ........................... 9,417 29,373
Interest expense .......................... (427,392) (269,292)
Gain (loss) on sale of asset .............. 90,829 (3,826)
Other income .............................. 204,194 --
------------ -----------
TOTAL OTHER EXPENSE ......................... (122,952) (243,745)
------------ -----------
LOSS FROM CONTINUING OPERATIONS ............. (347,578) (1,052,711)
INCOME TAX BENEFIT (EXPENSE) (Note 9) ....... (61,594) 7,562
------------ -----------
NET LOSS .................................... $ (409,172) $(1,045,149)
------------ -----------
------------ -----------
BASIC & DILUTED NET LOSS PER SHARE .......... $ (0.18) $ (0.71)
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
DYNATEC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Common Stock
------------------- Treasury Additional
Number Stock Paid-In Accumulated
of Shares Amount Amount Capital Deficit
--------- ------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1995 1,411,829 $ 14,118 $ -- $ 2,694,532 $ 73,991
Shares issued for rights & non-compete 12,275 123 -- 26,667 --
Shares issued for acquisition of assets 550,000 5,500 -- 874,500 --
Net loss -- -- -- -- (1,045,149)
---------- -------- --------- ---------- ----------
BALANCE DECEMBER 31, 1996 1,974,104 19,741 -- 3,595,699 (971,157)
Shares issued pursuant to Regulation S
Stock offerings 881,836 8,818 -- 1,991,181 --
Treasury stock (18,000 shares) received
to satisfy related-party receivable -- -- (180,000) -- --
Treasury stock (73,515 shares) received
in exchange for assets -- -- (735,150) -- --
Shares issued pursuant to stock option
plans 4,000 40 -- 9,960 --
Net loss -- -- -- -- (409,172)
-------- --------- -------- --------- ---------
BALANCE DECEMBER 31, 1997 2,859,940 $ 28,599 $(915,150) $ 5,596,840 $ (1,380,329)
--------- --------- ---------- ----------- -------------
--------- --------- ---------- ----------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-7
<PAGE>
DYNATEC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (409,172) $(1,045,149)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 396,964 435,937
Amortization 64,267 24,267
Loss (gain)on sale of assets (90,829) 3,826
Provision for losses on accounts receivable 40,158 23,000
Changes in operating assets and liabilities:
Trade accounts receivable (464,296) 170,042
Related party and other accounts receivable 80,325 (1,918)
Inventories (1,337,963) 189,769
Prepaid expenses (53,963) 33,071
Other (11,575) --
Deposits (85,276) (8,147)
Deferred income taxes 61,594 (10,622)
Accounts payable 537,488 66,382
Accrued expenses 84,588 188,749
Accrued advertising 45,500 --
Accrued royalties payable (48,325) 34,688
Income tax payable (500) (29,229)
----------- -----------
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES (1,191,015) 74,666
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
DYNATEC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets $ 6,007 $ 53,620
Receivable from related parties (30,000) --
Capital expenditures (587,187)
(2,144,649) -----------
-----------
NET CASH USED IN INVESTING ACTIVITIES (611,180) (2,091,029)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit agreements 108,447
533,823
Decrease (increase) in debt issuance costs 3,906 (3,906)
Net borrowings (payments) on long-term debt (190,635)
1,429,826
Net payments on capital lease obligations (36,774) (22,158)
Issuance of Stock pursuant to Regulation S offerings 2,000,000 --
Issuance of Stock pursuant to Incentive Stock Option Plan 10,000 --
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,894,944 1,937,585
----------- -----------
INCREASE (DECREASE) IN CASH 92,749 (78,778)
CASH AT BEGINNING OF YEAR 240,145 318,923
----------- -----------
CASH AT END OF YEAR $ 332,894 $ 240,145
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest $ 418,241 $ 346,648
Cash paid for income taxes -- 500
Issuance of common stock for:
Inventory -- 130,000
Property and equipment -- 750,000
Non-compete agreement -- 26,790
Treasury stock received for:
Related party receivable 180,000 --
Sale of Nordic assets 735,150 --
Capital acquisitions financed by accounts payable 16,476 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE>
NOTE 1 - DESCRIPTION OF BUSINESS
Dynatec International, Inc. and subsidiaries (the Company)
was incorporated in the State of Utah on January 29, 1981.
The Company is principally engaged in the manufacture,
assembly, and distribution of consumer products consisting
primarily of telephone accessories, hardware/housewares,
mass market products, flashlights, and telecommunication
headsets.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries-Softalk,
Inc., Arnco Marketing, Inc., Softalk Communications, Inc.,
and Nordic Technologies, Inc. (Nordic). All significant
inter-company accounts and transactions have been
eliminated.
Effective December 1, 1996, the Company entered into an
agreement with unrelated parties to acquire certain assets
and assume certain related liabilities in exchange for
550,000 shares of restricted common stock of the Company.
The acquisition has been accounted for using the purchase
method. The assets and liabilities were placed into Nordic
and valuated at the estimated fair market or replacement
value of the acquired assets, net of the assumed
liabilities. These assets were subsequently sold (Note 10),
as flashlights are now being manufactured overseas at
significantly lower costs.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES
Inventories consisting principally of telephone accessory,
hardware/houseware, flashlights, telecommunication
headsets, and other miscellaneous products sold to mass
market merchandisers are stated at the lower of cost or
market value as determined by the last-in, first-out
method.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are recorded at cost.
Property and equipment under captial leases are stated at
the present value of minimum lease payments. Depreciation
on property, plant, and equipment is computed on the
straight-line method over the following estimated useful
lives:
<TABLE>
<CAPTION>
<S> <C>
Building and Improvements 7-39 years
Capital Leases 5-7 years
Equipment 5-10 years
Office Equipment & Fixtures 5-7 years
Vehicles 5 years
Signs 5-7 years
</TABLE>
F-10
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Equipment held under capital leases and leasehold
improvements are amortized on straight line over the
shorter of the lease term or estimated useful life of the
asset.
INCOME TAXES
The Company uses the asset and liability method of
accounting for income taxes. Under this method, deferred
tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax basis. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which
those temporary differences are expected to be settled or
recovered. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized on the
income statement in the period that includes the enactment
date.
STOCK-BASED COMPENSATION
Effective January 1, 1996, the Company adopted the
provisions of Financial Accounting Standard (FAS) No. 123,
Accounting for Stock- Based Compensation. As permitted by
FAS No. 123, the Company continues to use the intrinsic
value method prescribed by Accounting Principles Board
(APB) Opinion No. 25 when accounting for its employee stock
compensation plans. As such, compensation expense is
recorded on the date of grant only if the current market
price of the stock exceeds the exercise price. Pro-forma
net income and earnings per share information, including
compensation expense which would have been recognized for
stock options granted based on the fair market value method
prescribed by FAS No. 123, are presented in Note 14.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company
to concentrations of credit risk consist principally of
trade receivables. The Company provides credit to its
customers in the normal course of business, and accordingly
performs ongoing credit evaluations and maintains
allowances for potential credit losses. Concentrations of
credit risk with respect to trade receivables are limited
due to the Company's large number of customers and their
dispersion across many geographic areas.
For the year ended December 31, 1997, one customer
accounted for 28% and no other customer accounted for more
than 10% of of the Company's total revenues. No customer
accounted for more than 10% of Company revenues for the
year ended December 31, 1996.
F-11
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
NET LOSS PER SHARE
------------------
On December 31, 1997, the Company adopted the provisions of
FAS No. 128, Earnings Per Share. FAS 128 requires the
presentation of both basic and diluted earnings per share
(EPS). Basic EPS is the amount of net income or loss
divided by the weighted average number of shares of common
stock outstanding. Potentially dilutive shares have not
been included in the computation of EPS for the years
ending December 31, 1997 and 1996 as they would be
anti-dilutive.
The basic weighted average number of shares used for
calculating EPS for the years ending December 31, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Basic Weighted Average
Shares................... 2,290,847 1,463,877
</TABLE>
USE OF ESTIMATES
----------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the
reported amounts of revenue and expense for the period
being reported. Actual results could differ from those
estimates.
YEAR 2000
---------
In mid-1997, the Company developed a plan to deal with the
Year 2000 problem and began converting its computer systems
to be Year 2000 compliant. During the fourth quarter of
1997 and the first quarter of 1998, the Company began
converting to a new accounting and materials resource
planning software program. The Year 2000 problem is the
result of the computer programs being written using two
digits rather than four to define the applicable year. The
Company is capitalizing costs associated with the new
software as the new software is being implemented to
provide better inventory tracking and accounting controls.
All other system changes are being expensed as incurred.
NEW ACCOUNTING PRONOUNCEMENTS
-----------------------------
FAS No. 130, Reporting Comprehensive Income, was issued by
the Financial Accounting Standards Board (FASB) in June
1997. This Statement requires that all items that are
required to be recognized under accounting standards as
components of comprehensive income be reported in a
financial statement that is displayed with the same
prominence as other financial statements. The Company will
adopt FAS No. 130 beginning January 1, 1998.
F-12
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
FAS No. 131, Disclosures about Segments of an Enterprise
and Related Information, was issued by FASB in June 1997.
This Statement establishes standards for reporting of
selected information about operating segments in annual
financial statements and requires reporting of selected
information about operating segments in interim financial
reports issued to shareholders. It also establishes
standards for related disclosures about products and
services, geographic areas, and major customers. The
Company will adopt FAS No. 131 beginning December 31, 1998.
NOTE 3 - INVENTORIES
Inventories as of December 31, 1997 and 1996 are summarized
as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Raw.................. $831,483 $583,138
Finished............. 1,690,666 673,302
---------- ----------
$2,522,149 $1,256,440
---------- ----------
---------- ----------
</TABLE>
The estimated replacement cost of inventories exceeded the
LIFO inventory cost by $34,869 and $2,000 at December 31,
1997 and 1996, respectively.
NOTE 4 - PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consists of the following at
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land......................................... $365,860 $626,153
Building and improvements.................... 2,214,144 2,214,144
Capital lease assets......................... 82,356 91,857
Equipment.................................... 2,722,477 2,977,130
Office equipment & fixtures.................. 358,788 301,114
Vehicles..................................... 104,000 65,588
Signs and show booths........................ 22,275 17,198
---------- ----------
5,869,890 6,293,184
Less accumulated depreciation................ 1,928,303 1,619,185
---------- ----------
Net Property, Plant, and Equipment........... $3,941,587 $4,673,999
---------- ----------
---------- ----------
</TABLE>
NOTE 5 - INTANGIBLE ASSETS
Intangible assets include purchased patents, product
licenses, and other agreements allowing the Company
non-exclusive rights to manufacture, produce, and sell
various products. Such costs are amortized on a
straight-line basis over their estimated useful lives of 5
to 40 years. Accumulated amortization totaled $324,446 and
$260,179 at December 31, 1997 and 1996, respectively.
F-13
<PAGE>
NOTE 6 - SHORT-TERM NOTE PAYABLE
The short-term note payable consists of a revolving
line-of-credit with a bank up to $2,100,000 bearing
interest at a rate of prime plus one percent with interest
payable monthly. The note is secured by accounts
receivable, inventory and equipment and is personally
guaranteed by the chief executive officer of the Company
who is also a director. The note is due May 1, 1998. As of
December 31, 1997 and 1996, direct borrowings under the
agreement totaled $1,331,169 and $1,222,722, respectively.
Maximum and average borrowings as well as weighted average
interest rate for the years ended December 31, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Maximum Outstanding................... $1,471,802 $1,453,340
Average Outstanding................... 1,127,635 1,038,877
Weighted average interest rate........ 9.91% 9.27%
</TABLE>
Under the terms of the agreement, the Company is required
to maintain certain financial covenants and ratios. The
bank may withdraw the lines-of-credit upon default by the
Company of various provisions in the line-of-credit
agreement. At December 31, 1997 the Company was not in
compliance with the provisions requiring a minimum current
ratio of 1.5 to 1. The current ratio at December 31, 1997
was 1.26 to 1.
Management is currently negotiating with other lenders to
obtain a new, larger line-of-credit to pay off the current
short-term note payable and to fund future operations. In
addition, the Board of Directors approved the terms of an
engagement letter with a financial services firm which
provides for the placement of $1,500,000 in convertible
debentures and up to $10,000,000 in common stock in the
form of an equity line-of-credit.
On December 11, 1997, the Company entered into an agreement
with an overseas supplier whereby non-exclusive rights to
market Company products internationally were sold for
$590,000, as amended. According to the agreement, the
purchase price will be paid by the sale of Company stock
owned by the supplier.
Funds received from these various financing activities will
be utilized to fund the Company's ongoing operations. The
consolidated financial statements do not include any
adjustments that might result if the Company is
unsuccessful in obtaining new financing.
F-14
<PAGE>
NOTE 7 - LONG-TERM DEBT
Long-term debt consists of the following at December 31,
1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Revolving line-of-credit up to $1,000,000
payable to a bank, interest at prime plus
1.0% due May 1, 1998; secured by
equipment........................................ $564,816 $620,552
Note payable to a company due in
quarterly installments of $15,908
with interest at 8.0% due December 1996.......... -- 15,596
Note payable to a company due in
a lump sum of $25,000; due March
1997 based on product sales with
interest at 8%; unsecured........................ -- 25,000
Note payable to a company; due in
annual installments of $79,560
plus interest at 7%; unsecured................... 195,991 238,680
Note payable to a financial
institution; due in monthly
installments of $455 with interest
at 8.75%; secured by a vehicle................... 17,992 21,958
Note payable to a company; due
in monthly installments of
$1,160 plus accrued interest
with interest at 7.9%; secured
by equipment..................................... 70,800 82,400
Note payable to a bank; due in monthly
installments of $10,234 with
interest at 9.5%; secured by land and
building as well as personal guarantees
and assets of an officer of the Company.......... 1,182,158 1,194,602
F-15
<PAGE>
NOTE 7 - LONG-TERM DEBT (Continued)
1997 1996
---- ----
<S> <C> <C>
Note payable to the Small Business
Administration; due in monthly
installments of $8,541 with interest at
7.32%; secured by land and building
as well as personal guarantees and assets
of an officer of the Company........................ 966,075 989,679
--------- ---------
Total long-term debt................................ 2,997,833 3,188,467
Less current portion................................ 1,003,477 795,415
--------- ---------
Total long-term debt excluding
current portion..................................... $1,994,355 $2,393,052
</TABLE>
Aggregate maturities for each of the five years subsequent to
December 31, 1997, are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 $1,003,477
1999 135,433
2000 59,364
2001 62,699
2002 60,413
Later 1,676,447
----------
Total long-term debt................ $2,997,833
----------
----------
</TABLE>
NOTE 8 - LEASES
The following represents assets under capital lease at December 31,
1997 and 1996.
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
---- ----
Equipment................................. $82,357 $91,857
Less accumulated depreciation............. 19,409 5,211
------- -------
Net property under capital lease.......... $62,948 $86,646
------- -------
------- -------
</TABLE>
Amortization of assets held under capital lease is included with
depreciation expense. Rental expense for operating leases during the
years ended December 31, 1997 and 1996 was $28,007 and $29,286,
respectively.
F-16
<PAGE>
NOTE 8 - LEASES (CONTINUED)
At December 31, 1997, the Company is liable under the terms
of noncancelable leases for the following minimum lease
commitments:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
---------------- -------------
<S> <C> <C>
Year ended December 31: 1998 $ 15,699 $ 13,590
1999 17,432 6,142
2000 12,958 3,115
2001 15,965 2,077
---------------- -------------
Total minimum lease payments $ 61,784 $ 23,238
Less interest 5,628 -------------
---------------- -------------
Present value of net minimum
lease payments $ 61,785
Less current portion 15,699
----------------
Capital lease obligations
excluding current portion $ 46,086
----------------
----------------
</TABLE>
NOTE 9 - INCOME TAXES
Income tax expense (benefit) attributable to income from
continuing operations consists of:
<TABLE>
<CAPTION>
Current Deferred Total
--------- --------- --------
<S> <C> <C> <C>
Year ended December 31, 1997
Federal $ -- $ 53,694 $ 53,694
State -- 7,900 7,900
--------- --------- --------
$ -- $ 61,594 $ 61,594
--------- --------- --------
--------- --------- --------
Year ended December 31, 1996
Federal $ -- $ (11,324) $(11,324)
State 3,060 702 3,762
--------- --------- --------
$ 3,060 $ (10,622) $ (7,562)
--------- --------- --------
--------- --------- --------
</TABLE>
Income tax expense (benefit) from continuing operations
differed from the amounts computed by applying the U.S.
federal income tax rate of 34 percent to pretax loss from
continuing operations as a result of the following:
F-17
<PAGE>
NOTE 9 - INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Computed "expected" tax benefit $ (118,177) $ (277,641)
Change in the valuation
allowance for deferred tax
assets allocated to income tax expense 177,961 308,320
State taxes, net of income tax benefit -- 793
Other 1,810 (39,034)
---------- ----------
$ 61,594 $ (7,562)
---------- ----------
---------- ----------
</TABLE>
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and
deferred tax liabilities at December 31, 1997 and 1996, are
presented below.
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Inventory capitalization $165,343 $34,043
Allowance for bad debts 11,072 6,167
Compensated absences accrued
for financial reporting purposes 14,377 --
Net operating loss carryforward 290,216 338,070
Intangibles, principally due
to differences in amortization 5,273 --
-------- --------
Total gross deferred tax assets 486,281 378,280
Less valuation allowance 486,281 308,320
-------- --------
Total deferred tax assets 0 69,960
-------- --------
Deferred tax liabilities:
Plant and equipment,
principally due to differences
in depreciation (5,036) (1,365)
Intangibles, principally due
to differences in amortization -- (12,037)
-------- --------
Total gross deferred tax liabilities (5,036) (13,402)
-------- --------
Net deferred tax assets (liabilities) $ (5,036) $ 56,558
-------- --------
-------- --------
</TABLE>
F-18
<PAGE>
NOTE 9 - INCOME TAXES (CONTINUED)
The valuation allowance for deferred tax assets as of
January 1, 1996 was -0-. The net change in the total
valuation allowance for the years ended December 31, 1997
and 1996 was $177,961 and $308,320 respectively.
NOTE 10 - STOCKHOLDERS' EQUITY
On March 11, 1997, the Board of Directors approved
Regulation S offerings of its common stock to raise between
three to five million dollars in working capital. The stock
was made available to foreign investors at a price of
approximately 50 percent of market value which was $3.88 on
March 11, 1997. Regulation S stock is routinely offered at
a discount from the bid price because of its temporarily
restrictive nature.
During June 1997, the Company received 18,000 shares of
stock in exchange for debts owed to the Company. These
shares were recorded as treasury stock at the fair market
value of $10.00 per share. In July 1997, the Company
received an additional 73,515 shares of stock in exchange
for assets sold by the Company. The shares received in
exchange for these assets were recorded as treasury stock
at the fair market value of $10.00 per share. In addition,
four thousand shares were exercised under the 1996
incentive stock option plan.
NOTE 11 - RELATED PARTY TRANSACTIONS
The Company's subsidiary, Softalk, Inc., maintains a
royalty agreement for patent and trademark rights on
telephone accessories from WAC Research (WAC), a Utah
corporation. The Chief Executive Officer (CEO) and director
of the Company, is the beneficial owner of 50 percent of
WAC. WAC has at various times been involved in assisting
the Company financially. During the years ended December
31, 1997 and 1996, the Company paid WAC $120,312 and
$222,313, respectively in royalties.
During 1995, the Company sold all rights and interest in
various discontinued products to WAC for $193,000 in the
form of a demand note bearing 8% interest. As part of the
transaction, inventory and molds were also sold at cost to
WAC. During June 1997, the Company received 18,000 shares
of its common stock from WAC as payment in full of all
outstanding balances. Such shares were valued at the market
price of $10.00 per share, which represented the current
market value of the stock. The treasury stock was used to
pay off $154,000 on the note and accrued interet and
$26,000 of other WAC related receivables.
The CEO and director of the Company is an owner of rental
property in Park City, Utah which the Company leases on an
annual basis. The Company uses the rental property for
travel, promotional work, lodging, and entertainment for
customers, suppliers, and employees. The Company paid
$84,000 for each of the years ending December 31, 1997 and
1996. This cost covered operating, maintenance, and general
care of the property.
F-19
<PAGE>
NOTE 11 - RELATED PARTY TRANSACTIONS (CONTINUED)
The Company pays credit card bills for members of the Board
of Directors on a month-to-month basis. The amounts are
generally paid back to the Company in the following month.
At December 31, 1997 and 1996, the amounts owed to the
Company were $5,094 and $11,485, respectively. These
amounts are included in other receivables in the
accompanying consolidated balance sheets. Also included in
other receivables are related party receivables of $60,000
and $145,419 for the years ending December 31, 1997 and
1996.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
On December 1, 1996, Nordic purchased the assets of Nordic
Lights, Inc. including equipment, inventory, and product
rights related to the flashlight industry. As part of the
purchase agreement, restricted common stock warrants were
to be issued if the following conditions were met.
1.) Upon Nordic Technologies achieving $5,000,000 in
gross sales on or before December 31, 1999, a
warrant to purchase an additional 50,000 shares
at $1.00 per share would be earned by Nordic
Lights, Inc.;
2.) Upon achieving $7,500,000 in gross sales on or
before December 31, 2000, Nordic Lights was to
receive a warrant to purchase an additional
50,000 at $1.00 per share;
3.) Upon achieving $10,000,000 in gross sales on or
before December 31, 2001, a warrant for an
additional 50,000 shares to be purchased at $1.00
per share was to be issued to Nordic Lights,
Inc.;
4.) Upon achieving $15,000,000 in gross sales on or
before December 31, 2002, a warrant for an
additional 50,000 shares to be purchased at $1.00
per share was to be issued to Nordic Lights,
Inc.;
5.) Upon achieving $20,000,000 in gross sales on or
before December 31, 2003, a warrant for a final
50,000 shares to be purchased at $1.00 per share
was to be issued to Nordic Lights, Inc.;
Additionally, options for 250,000 shares may be granted to
Nordic employees if determined to be key contributors to
the success of the Company as determined by the Company's
Board of Directors. However, such options may be granted
only in fiscal years in which Nordic shall experience not
less than $2,500,000 in gross sales. In addition, only
100,000 shares may be granted in each year meeting this
sales criteria. Such options shall be exercisable at $.50
per share.
In connection with issuances of Regulation S stock during
1997, management believed that 125,000 shares were issued
in error. The certificate relating to these shares was
canceled upon approval by the Board of Directors.
Subsequent to cancellation, demand has been made for the
re-issuance of these shares. Management of the Company is
currently investigating this demand and will reissue any
shares, if appropriate, to any entity which may be entitled
to such shares.
The Company is involved in various claims and legal actions
arising in the ordinary course of business. In the opinion
of management, the ultimate disposition of these matters
will not have a material adverse effect on the Company's
consolidated financial position, results of operations, or
liquidity.
F-20
<PAGE>
NOTE 13 - STOCK OPTIONS
The Company has established two stock option plans under
which it is authorized to grant both non-qualified and
incentive stock options to employees, board members, and
certain related entities. The NonQualified Stock Option
Plan (Non-Qualified Plan) provides for the granting of
options to acquire a maximum of 2,377,500 shares of common
stock of the Company, while the 1996 Incentive Option Plan
(1996 Plan) provides options to acquire a maximum of
200,000 shares of common stock.
Under the Non-Qualified Plan, options issued to employees
to acquire up to 1,640,000 shares become exercisable upon
continued employment with the Company for six years and the
achievement of profitable operations for three out of the
six years. Such options expire sixteen years from the date
of the grant. Options to acquire 737,500 become exercisable
four years from the date of grant and expire in the year
2010.
Options granted under the 1996 Plan become exercisable
as of the date of grant and expire five years from the
date of grant, or three months following termination, or
24 months following death of the employee.
A summary of stock options is as follows for the years
ended December 31:
<TABLE>
<CAPTION>
FIXED OPTIONS: 1997 1996
------------- ------------------------------ ----------------------------
Exercise Exercise
Shares (000) Price Shares (000) Price
------------ -------- ------------ --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 833 $2.50 -- --
Granted 105 $2.50 833 $2.50
Exercised (4) $2.50 -- --
----- -----
Outstanding at end of year 934 $2.50 833 $2.50
----- -----
----- -----
Options exercisable at year-end 196 $2.50 95 $2.50
----- -----
----- -----
Weighted average fair value of
options granted during the year $1.42 $2.00
Weighted average remaining
contractual life for
exercisable options at year-end 3.5 years 4 years
<CAPTION>
VARIABLE OPTIONS: 1997 1996
----------------- ------------------------------ ----------------------------
Exercise Exercise
Shares (000) Price Shares (000) Price
------------ -------- ------------ --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 840 $2.00 -- - -
Granted 800 $2.00 840 $2.00
----- -----
Outstanding at end of year 1,640 $2.00 840 $2.00
----- -----
----- -----
Weighted average fair value of
options granted during the year $2.22 $2.19
</TABLE>
F-21
<PAGE>
NOTE 13 - STOCK OPTIONS (CONTINUED)
The Company applies the intrinsic value method under APB No. 25
in accounting for stock-based employee compensation
arrangements. Had compensation cost for the Company's stock
options plans been determined pursuant to the fair value method
under SFAS No. 123, the Company's net loss and net loss per
share would have increased accordingly. The fair value of
options granted under the Company's stock option plans has been
estimated using the Black-Scholes option pricing model with the
following weighted average assumptions: dividend yield of 0%,
risk free interest rate of 5.5%, expected volatility of 60.3%
and expected lives of 16 years for options granted under the
Non-Qualified Plan and 10 years for options granted under the
1996 Plan.
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C> <C>
Net loss As Reported $ (409,172) $(1,045,149)
Pro forma $(2,333,753) $(4,550,164)
Basic and diluted loss per share As Reported $ (0.18) $(0.71)
Pro forma $ (1.02) $(3.11)
</TABLE>
NOTE 15 - SUBSEQUENT EVENTS
In February of 1998, Nordic signed a letter of intent setting
forth terms and conditions to form the basis of a joint
venture/partnership with a flashlight supplier in Taiwan.
According to terms of this letter of intent, Nordic and the
supplier would each own 50% of the new company with Nordic
occupying four of the seven Board of Director seats of the new
company. Other terms of the agreement are still under
negotiation.
On April 2, 1998, the Board of Directors approved the terms of
an engagement letter with a financial services firm which
provides for the placement of $1,500,000 of Company convertible
debentures and up to $10,000,000 in common stock in the form of
an Equity Line of Credit.
NOTE 16 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the amount at which
the instrument could be exchanged in a current transaction
between willing parties. Financial instruments are included in
the consolidated balances sheets at carrying cost.
The carrying amounts approximate fair value for cash, trade
accounts receivable, related party and other receivables,
prepaid expenses, other assets, trade accounts payable, and
accrued expenses because of the short maturity of these
instruments. Because the blended interest rate of long-term debt
approximates the current interest rates available, the carrying
value of long-term debt instruments also approximates fair
market value.
F-22
<PAGE>
DYNATEC INTERNATIONAL, INC.
CONDENSED BALANCE SHEETS
MARCH 31, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
ASSETS March 31, 1998
(Unaudited)
---------------
- ------------------------------------------------------------------------------------------------
<S> <C>
CURRENT ASSETS
- ------------------------------------------------------------------------------------------------
Cash $ 679,647
- ------------------------------------------------------------------------------------------------
Trade accounts receivable, net of allowance for doubtful
accounts of $21,038 in 1998 and $29,684 in 1997 2,148,401
- ------------------------------------------------------------------------------------------------
Related party and other receivables 633,520
- ------------------------------------------------------------------------------------------------
Inventories (Note 2) 2,987,446
- ------------------------------------------------------------------------------------------------
Prepaid expenses 226,468
- ------------------------------------------------------------------------------------------------
Other 16,315
-----------
- ------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 6,691,797
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 3,941,811
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
OTHER ASSETS
- ------------------------------------------------------------------------------------------------
Deposits 55,361
- ------------------------------------------------------------------------------------------------
Intangible assets, net 251,633
-----------
- ------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 306,994
-----------
- ------------------------------------------------------------------------------------------------
TOTAL ASSETS $10,940,602
-----------
-----------
- ------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
F-23
<PAGE>
DYNATEC INTERNATIONAL, INC.
CONDENSED BALANCE SHEETS (CONTINUED)
MARCH 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
March 31, 1998
LIABILITIES AND EQUITY (Unaudited)
--------------
- --------------------------------------------------------------------------------------------------------
<S> <C>
CURRENT LIABILITIES
- --------------------------------------------------------------------------------------------------------
Short-term note payable $ 1,653,873
- --------------------------------------------------------------------------------------------------------
Current portion of long-term debt 745,845
- --------------------------------------------------------------------------------------------------------
Current portion of capital lease obligations 16,492
- --------------------------------------------------------------------------------------------------------
Accounts payable 1,230,853
- --------------------------------------------------------------------------------------------------------
Accounts payable-other 961,250
- --------------------------------------------------------------------------------------------------------
Accrued expenses 153,362
- --------------------------------------------------------------------------------------------------------
Accrued advertising 128,481
- --------------------------------------------------------------------------------------------------------
Accrued royalties payable 91,401
------------
- --------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 4,981,557
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
LONG-TERM LIABILITIES
- --------------------------------------------------------------------------------------------------------
Long-term debt 1,899,259
- --------------------------------------------------------------------------------------------------------
Capital lease obligations 40,912
- --------------------------------------------------------------------------------------------------------
Deferred income taxes 5,036
------------
- --------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 6,926,764
- --------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------
Common stock, $.01 par value, authorized 100,000,000 shares
- --------------------------------------------------------------------------------------------------------
2,871,627 issued at December at March 31, 1998 and
- --------------------------------------------------------------------------------------------------------
2,859,940 issued at December 31, 1997 28,716
- --------------------------------------------------------------------------------------------------------
Treasury stock, at cost, 91,515 shares (915,150)
- --------------------------------------------------------------------------------------------------------
Additional paid-in capital 5,596,723
- --------------------------------------------------------------------------------------------------------
Accumulated deficit (696,451)
------------
- --------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 4,013,838
------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 10,940,602
------------
------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
F-24
<PAGE>
DYNATEC INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
For the Three Months ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended March Ended March
31, 1998 31, 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
REVENUE AND PRODUCT RIGHTS (Note 9) $4,227,786 $ 2,554,618
COST OF SALES 2,281,051 1,779,783
---------- ------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
GROSS PROFIT 1,946,735 774,835
- ----------------------------------------------------------------------------------------
EXPENSES
- ----------------------------------------------------------------------------------------
Selling expenses 665,767 587,749
- ----------------------------------------------------------------------------------------
Research and development 33,200 136,154
- ----------------------------------------------------------------------------------------
General and administration expenses 439,215 457,563
- ----------------------------------------------------------------------------------------
Provision for losses on accounts receivable -- 5,000
----------- ------------
- ----------------------------------------------------------------------------------------
TOTAL EXPENSES 1,138,182 1,186,466
----------- ------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
OPERATING GAIN (LOSS) 808,553 (411,631)
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
OTHER INCOME/(EXPENSE)
- ----------------------------------------------------------------------------------------
Interest income 3,340 3,982
- ----------------------------------------------------------------------------------------
Interest expense (107,009) (103,715)
- ----------------------------------------------------------------------------------------
Loss on sale of asset (21,006) --
----------- ------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
TOTAL OTHER EXPENSE (124,675) (99,733)
----------- ------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS 683,878 (511,364)
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
INCOME TAX EXPENSE (Note 6) -- (500)
----------- ------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 683,878 (511,864)
----------- ------------
----------- ------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
BASIC NET INCOME (LOSS) PER SHARE $ 0.25 (0.25)
----------- ------------
----------- ------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
DILUTED NET INCOME (LOSS) PER SHARE $ 0.20 (0.25)
----------- ------------
----------- ------------
- ----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
F-25
<PAGE>
DYNATEC INTERNATIONAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
For the Three Months ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended March Ended March
31, 1998 31, 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------------------------------------------------------------------
Net income (loss) $ 683,878 $ (511,864)
Adjustments to reconcile net income (loss) to net cash
- -------------------------------------------------------------------------------------------------
used in operating activities:
- -------------------------------------------------------------------------------------------------
Depreciation 87,333 110,670
- -------------------------------------------------------------------------------------------------
Amortization 15,942 16,067
- -------------------------------------------------------------------------------------------------
Loss on sale of assets 21,006 --
- -------------------------------------------------------------------------------------------------
Provision for losses on accounts receivable -- 5,000
- -------------------------------------------------------------------------------------------------
Changes in operating assets and liabilities:
- -------------------------------------------------------------------------------------------------
Trade accounts receivable (598,513) (391,145)
- -------------------------------------------------------------------------------------------------
Related party and other accounts receivable (207,389) --
- -------------------------------------------------------------------------------------------------
Inventories (465,297) (151,507)
- -------------------------------------------------------------------------------------------------
Prepaid expenses 7,652 (15,719)
- -------------------------------------------------------------------------------------------------
Other 10,877 6,500
- -------------------------------------------------------------------------------------------------
Deposits 52,270 (30,290)
- -------------------------------------------------------------------------------------------------
Accounts payable 238,221 401,658
- -------------------------------------------------------------------------------------------------
Accounts payable-other (63,750) --
- -------------------------------------------------------------------------------------------------
Accrued expenses (72,594) (62,725)
- -------------------------------------------------------------------------------------------------
Accrued advertising (221,519) --
- -------------------------------------------------------------------------------------------------
Accrued royalties payable 73,519 7,378
- -------------------------------------------------------------------------------------------------
Income tax payable -- 100
------------ ------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES $ (438,364) (615,877)
------------ ------------
- -------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
F-26
<PAGE>
DYNATEC INTERNATIONAL, INC.
CONSDENSED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months
Ended March 31, Ended March 31,
1998 1997
------------------------------------
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of assets $ 47,000 $ --
Receivable from related parties -- 60,876
Capital expenditures (167,478) (87,699)
---------- -------------
NET CASH USED IN INVESTING ACTIVITIES (120,478) (26,823)
---------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit agreements 322,704 (372,215)
Decrease in debt issuance costs -- 3,255
Net borrowings (payments) on long-term debt (352,728) 339,811
Net payments on capital lease obligations (4,381) (6,808)
Cash received for future Regulation S offerings 940,000 --
Issuance of Stock pursuant to Regulation S offerings -- 500,000
---------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 905,595 464,043
---------- -------------
INCREASE (DECREASE) IN CASH 346,753 (178,657)
CASH AT BEGINNING OF YEAR
332,894 240,145
---------- -------------
CASH AT END OF PERIOD $ 679,647 $ 61,488
---------- -------------
---------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest $ 118,818 $ 93,587
Cash paid for income taxes -- 400
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
F-27
<PAGE>
DYNATEC INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited, condensed financial statements have
been prepared in accordance with the instructions to Form 10-QSB,
and therefore, do not include all information and footnotes
necessary for a complete presentation of the results of operations,
the financial position, and cash flows, in conformity with
generally accepted accounting principles. This report on Form
10-QSB for the three months ended March 31, 1998 should be read in
conjunction with the Company's annual report on form 10-KSB for the
year ended December 31, 1997.
The accompanying unaudited condensed consolidated financial balance
sheets, statements of operations and cash flows reflect all normal
recurring adjustments which are, in management's opinion, necessary
for a fair presentation of the Company's financial position,
results of operation, and cash flows. The results of operations for
the interim period ended March 27, 1998 are not necessarily
indicative of the results to be expected for the full year.
NOTE 2 - INVENTORIES
Effective January 31, 1998, the Company changed its method of
determining the cost of inventory from last-in, first-out (LIFO) to
first-in, first-out (FIFO). Historically, the difference between
the LIFO and current costs of inventories has been immaterial.
Inventories, consisting principally of telephone accessory,
hardware/houseware, flashlights, telecommunication headsets, and
other miscellaneous products sold to mass market merchandisers as
of March 31, 1998 are summarized as follows:
<TABLE>
<CAPTION>
March 31
1998
------------
<S> <C>
Raw $ 1,185,819
Finished 1,801,627
------------
$ 2,987,446
------------
------------
</TABLE>
NOTE 3 - NET EARNINGS PER SHARE
On December 31, 1997, the Company adopted the provisions of FAS No.
128, Earnings Per Share. FAS 128 requires the presentation of both
basic and diluted earnings per share (EPS). Basic EPS is the amount
of net income or loss divided by the weighted average number of
shares of common stock outstanding. Diluted EPS is the amount of
income or loss for the period divided by the weighted average
number of shares plus all potentially dilutive common shares.
F-28
<PAGE>
DYNATEC INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
In calculating EPS, the earnings were the same for both the basic
and diluted calculation. The effect of common stock
options is not included in the 1997 calculation as such options
would be anti-dilutive. A reconciliation between the basic and
diluted weighted-average number of shares outstanding as of March
31, 1998 and 1997 is summarized as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Basic weighted-average number of shares 2,779,882 2,047,982
Weighted-average number of common stock options 584,090 --
---------- ----------
Diluted weighted-average number of shares 3,363,972 2,047,982
---------- ----------
---------- ----------
</TABLE>
NOTE 4 - YEAR 2000
During 1997, the Company developed a plan to deal with the Year
2000 problem and began converting its computer systems to be Year
2000 compliant. During the fourth quarter of 1997 and the first
quarter of 1998, the Company began converting to a new accounting
and materials resource planning software program. The Year 2000
problem is the result of the computer programs being written using
two digits rather than four to define the applicable year. The
Company is capitalizing costs associated with the new software as
the new software is being implemented to provide better inventory
tracking and accounting controls. All other system changes are
being expensed as incurred. The Company does not anticipate any
year 2000 compliance problems.
NOTE 5 - NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted Financial Accounting Standards No. 130 (SFAS
130), Reporting Comprehensive Income, effective January 1, 1998.
SFAS 130 establishes standards for reporting and displaying
comprehensive earnings and its components in financial statements.
As of March 31, 1998, the Company has no items to report as
components of comprehensive income.
NOTE 6 - INCOME TAXES
The Company has net operating loss carryforwards from prior years
which will exceed the income generated in the first quarter of
1998. The deferred tax asset related to these carryfowards was
fully reserved for as of December 31, 1997. Accordingly, no income
tax expense is being reported for the period ended March 31, 1998.
F-29
<PAGE>
DYNATEC INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
NOTE 7 - STOCKHOLDERS' EQUITY
As of March 31, 1998, $940,000 in funds, which is included in
accounts payable-other in the accompanying condensed balance sheet,
has been received in anticipation of future Regulation S common
stock offerings as approved by the Board of Directors in March
1997. The terms and agreements for these stock offerings are still
under negotiation. Regulation S stock is typically sold at a
significant discount from market value because of its restricted
nature.
NOTE 8 - STOCK OPTIONS
A summary of stock options is as follows for the period
ended March 31, 1998:
<TABLE>
<CAPTION>
FIXED OPTIONS:
----------------------------------------------------------------------
Shares Exercise
(000) Price
----------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1997 934 $2.50
Granted 100 $6.50
Exercised (12) $2.50
-----
Outstanding at March 31, 1998 1,022 Various
-----
-----
Options exercisable at March 31, 1998 284 $2.50
-----
-----
Weighted average fair value of
options granted during first quarter $3.69
Weighted average remaining contractual
life for exercisable options at
March 31, 1998 3.9 years
----------------------------------------------------------------------
</TABLE>
VARIABLE OPTIONS:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
Shares Exercise
(000) Price
----------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1997 945 $2.50
Granted 840 $6.50
------
Outstanding at March 31, 1998 1,785 Various
------
Weighted average fair value of
options granted during first quarter $5.58
----------------------------------------------------------------------
</TABLE>
F-30
<PAGE>
DYNATEC INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
NOTE 9 - OTHER
In February of 1998, the Company's subsidiary, Nordic Technologies,
Inc. (Nordic), signed a letter of intent setting forth terms and
conditions to form the basis of a joint venture/partnership with a
flashlight supplier in Taiwan. According to terms of this letter of
intent, Nordic and the supplier would each own 50% of the new
company with Nordic occupying four of the seven Board of Director
seats of the new company. Other terms of the agreement are still
under negotiation.
On December 11, 1997, the Company entered into an agreement with an
overseas supplier whereby non-exclusive rights to market Company
products internationally were sold. According to the agreement, the
purchase price was paid by the sale of Company stock owned by the
supplier. The supplier sold the stock in March of 1998, and the
proceeds of $580,000 were received by the Company in April of 1998.
The receivable associated with this transaction is reflected as
part of related party and other receivables in the accompanying
condensed balance sheet.
On May 22, 1998, the Company closed a transaction that has provided
net proceeds to the Company of $1,335,000. These funds have been
raised pursuant to the sale by the Company of a convertible
debenture in the face amount of $1,500,000. The transaction has
been accomplished pursuant to a credit agreement between the
Company and a group of five investors which have not previously
been shareholders of the Company. In addition, the Company can use
a "put" mechanism to periodically draw down up to $10,000,000 under
an equity line of credit.
Additionally, upon registration of the underlying shares which may
be purchased pursuant to the convertible debentures, the Company
will receive an additional $500,000 of gross sales proceeds. The
Company is obligated to issue warrants to the investors and the
placement agent associated with the transaction in proportion to
the amount of cash actually received pursuant to the credit
agreement. The terms of the credit agreement are more fully
discussed in a Form 8-K report filed with the SEC on June 8, 1998.
F-31
<PAGE>
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY BY ANY PERSON IN ANY JURISDICTION IN WHICH IT
IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY OFFER, SOLICITATION OF SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THE
PROSPECTUS.
---------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary................................... 2
Risk Factors.........................................
Use of Proceeds......................................
Dividend Policy......................................
Price Range of Common Stock..........................
Capitalization.......................................
Selling Security Holders............................. 12
Business.............................................
Selected Consolidated Financial
Data.............................................
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................
Management...........................................
Certain Transactions.................................
Description of Capital Stock.........................
Legal Matters........................................ 37
Experts..............................................
Available Information................................ 38
Index to Financial Statements........................ F-1
</TABLE>
________SHARES
DYNATEC INTERNATIONAL, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
The Company has included in its Restated Article of Incorporation
provisions to indemnify its directors and officers from personal liability to
the Company or any of its shareholders for damages for the breach of a
fiduciary duty. The Restated Article also provide for rights of
indemnification as allowed under the laws of the state of Nevada. The Amended
and Restated Bylaws of the Company contain provisions to indemnify the
directors and officers from personal liability to the Company or any of its
shareholders for damages arising out of any act or conduct of said officer or
director performed for or on behalf of the Company. The directors and
officers enjoy rights of indemnification for defending criminal or civil
actions, suits, or proceedings involving alleged acts or omissions by the
director or officer while acting in said party's capacity on behalf of the
corporation. The corporation does not indemnify a director or officer for any
acts or omissions involving negligence or willful misconduct. The Bylaws
further provide that by agreement, stockholder vote or by the action of
disinterested directors, additional rights of indemnification may.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Company pursuant to such indemnification provisions, the
Company has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth an estimate of the expenses expected
to be incurred in connection with the issuance and distribution of the
securities being registered, other than underwriting compensation, all of
which will be paid by the Company:
<TABLE>
<CAPTION>
<S> <C>
Registration Fee - Securities and Exchange Commission.....................$5,260
Listing Fee - Nasdaq SmallCap Market.......................................5,264
Transfer Agent and Registrar Fees and Expenses.............................2,000
Blue Sky Fees and Expenses (including legal fees)........................10,000
Legal Fees and Expenses...................................................45,000
Accounting Fees and Expenses..............................................25,000
Printing and Engraving Expenses............................................5,000
Miscellaneous.............................................................10,476
--------
Total...............................................................$108,000
--------
--------
</TABLE>
Item 26. Recent Sales of Unregistered Securities.
Set forth below is a table summarizing all transactions of the sale of
securities of the Company for the past three years, which securities were not
registered under the Securities Act. The table does not include (a) the
Private Placement which is the subject of this Registration Statement, or
(b) the employee options granted pursuant to the non-qualified options and the
II-1
<PAGE>
1996 Incentive Stock Option Plan of the Company, as discussed in the Executive
Compensation section of this Registration Statement.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
NO. OF NAME OR CLASS OF
DATE SHARES PURCHASER(S) CONSIDERATION
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 11/27/96 474,469 All of the then existing Issued pursuant to the one and one-
shareholders of the Company half for one forward split of the
stock of the Company
- ------------------------------------------------------------------------------------------------
2 12/2/96 550,000 Shareholders of Nordic Lites, Assets of Nordic Lites, Inc.
Inc., a Texas corporation
- ------------------------------------------------------------------------------------------------
3 2/26/97 173,500 Non-U.S. Purchasers $250,000
- ------------------------------------------------------------------------------------------------
4 3/26/97 125,000 Non-U.S. Purchasers $250,000
- ------------------------------------------------------------------------------------------------
5 7/1/97 125,000 Non-U.S. Purchasers $250,000
- ------------------------------------------------------------------------------------------------
6 7/10/97 125,000 Non-U.S. Purchasers $250,000
- ------------------------------------------------------------------------------------------------
7 12/31/97 333,334 Non-U.S. Purchasers $1,000,000
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
Transactions 1 and 2 are deemed exempt from registration pursuant
to the provisions of Regulation D adopted by the Securities and Exchange
Commission. Transaction 1 was merely a private placement to the existing
shareholders of the Company pursuant to the forward split of the stock of the
Company. Transaction 2 is documented by signed investment intent letters of
the shareholders of Nordic Lites, Inc. The certificates representing each of
the issued shares bear an appropriate restrictive legend, and the transfer
agent of the Company has been given stop transfer instructions with regard to
shares issued under any Regulation D exemption.
The remaining transactions are deemed exempt from registration
pursuant to the provisions of Regulation S adopted by the Securities and
Exchange Commission. Each of these transactions is documented by signed
subscription agreements. The Company reasonably believes, and each of the
purchasers specifically warranted and represented to the Company, that
(a) the purchaser was not a U.S. person as that term is defined under
Regulation S; (b) at the time the buy order for the securities was
originated, the purchaser was outside the United States and was outside of
the United States as of the date of the execution and delivery of the
purchaser's subscription agreement; (c) the purchaser was purchasing the
securities for its own account and not on behalf of any U.S. person; (d) the
sale had not been pre-arranged with a purchaser in the United States; (e) all
offers and resales of the securities would only be made in compliance with
the provisions of Regulation S; and (f) the sales transaction was made in
compliance with all of the laws of the country of domicile of the purchaser,
and of any political subdivision thereof, and the customary practices and
documentation of such jurisdictions. Except for an apparent oversight by the
transfer agent of the Company with regard to the
II-2
<PAGE>
certificate for shares issued pursuant to the July 10, 1996 transaction
listed above, the certificates representing the shares issued in such
transactions bear an appropriate restrictive legend, and the transfer agent
of the Company has been given stop transfer instructions with regard to
shares issued under any Regulation S exemption.
No commission or finders fees were paid on any of the referenced
transactions.
II-3
<PAGE>
Item 27. Exhibits
<TABLE>
<CAPTION>
<S> <C>
3.1 Restated Articles of Incorporation of the Company.
3.2 Amended and Restated Bylaws of the Company.
4.1 Specimen Common Stock Certificate (Incorporated by reference from the
Registration statement on Form 10 filed by the Company with the
Commission)
5.1 Opinion of Bruce L. Dibb P.C.
10.1 Convertible Debenture and Equity Line of Credit Agreement
(Incorporated by reference from Form 8-K (File No. 000-12806) filed by
the Company with the Commission on June 8, 1998).
10.2 Form of Convertible Debenture (Incorporated by reference from Form 8-K
(File No. 000-12806) filed by the Company with the Commission on
June 8, 1998).
10.3 Form of A Warrants (Incorporated by reference from Form 8-K
(File No. 000-12806) filed by the Company with the Commission on
June 8, 1998).
10.4 Form of B Warrants
10.5 Registration Rights Agreement
10.6 Escrow Agreement
11.1 Computation of Per Share Earnings for the Three Months Ended March 31,
1998; for the Three Months Ended March 31, 1997; for the Year Ended
December 31, 1997; and for the Year Ended December 31, 1996.
21.1 List of Subsidiaries of the Registrant (See, "Subsidiaries of the
Company" at page 18).
23.1 Consent of Bruce L. Dibb P.C. (included in its opinion filed as
Exhibit 5.1).
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Jones Jensen & Company.
27.1 Financial Data Schedule for three months ended March 31, 1998
</TABLE>
II-4
<PAGE>
Item 28. Undertakings.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Securities Act of 1933 and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes (1) that for purposes
of determining any liability under the Securities Act of 1933, the
information omitted from the form of prospectus filed as part of a
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424 (b) (1) or (4) or 497
(h) under the Securities Act of 1933 shall be deemed to be part of this
Registration Statement as of the time it was declared effective and (2) that
for the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
the registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements of filing on Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned,
hereunto duly authorized, in the City of Salt Lake, State of Utah, on June 26,
1998.
(Registrant): DYNATEC INTERNATIONAL, INC.
/s/ DON WOOD
By (Signature and Title): -----------------------------------------
Don Wood, CEO
In accordance with the requirements of the Securities Act of 1933,
this registration statement was signed by the following persons in the
capacities and on the dates stated.
/s/ DON WOOD
- ------------------------------ ---------------------------------
DON WOOD FREDERICK W. VOLCANSEK
CEO and Director Director
- --------------------------------- -----------------------------------------
(Title) (Title)
June 26, 1998
- --------------------------------- -----------------------------------------
(Date) (Date)
/s/ FREDRICK R. JACK /s/ JERRY R. ANDERSEN
- --------------------------------- -----------------------------------------
FREDRICK R. JACK JERRY R. ANDERSEN
President and Director Principal Financial Officer and Secretary
- --------------------------------- -----------------------------------------
(Title) (Title)
June 25, 1998 June 26, 1998
- --------------------------------- -----------------------------------------
(Date) (Date)
/s/ REED D. NEWBOLD
- ---------------------------------
REED D. NEWBOLD
Director
- ---------------------------------
(Title)
June 25, 1998
- ---------------------------------
(Date)
II-6
<PAGE>
EXHIBIT 3.1
RESTATED
ARTICLES OF INCORPORATION
OF
DYNATEC INTERNATIONAL, INC.
We, the undersigned officers of the corporation, under the Revised Utah
Business Corporations Act (hereinafter called the "Act") adopt the following
Restated Articles of Incorporation for such corporation pursuant to the action
of the Board of Directors as authorized under Section 16-10a-1002 of the Act.
ARTICLE I
NAME. The name of the corporation (hereinafter called the "Corporation")
is Dynatec International, Inc.
ARTICLE II
PERIOD OF DURATION. The period of duration of the Corporation is
perpetual.
ARTICLE III
PURPOSES AND POWERS. The purpose for which this Corporation is organized
is to invest in real and personal property, oil, gas and minerals properties and
interests, and to engage in any and all other lawful business.
ARTICLE IV
CAPITALIZATION. The total authorized number of shares of the Corporation is
One Hundred Million (100,000,000) shares of the par value of $.01 per share,
amounting in the aggregate to One Million Dollars ($100,000.000) authorized
stated capital.
ARTICLE V
DIRECTORS. The Corporation shall be governed by a Board of Directors
consisting of no less than three (3) and no more than nine (9) directors.
Directors need not be stockholders of the Corporation.
II-7
<PAGE>
ARTICLE VI
COMMENCEMENT OF BUSINESS. The corporation shall not commence business
until at least One Thousand Dollars ($1,000) has been received by the
Corporation as consideration for the issuance of its shares.
ARTICLE VII
PREEMPTIVE RIGHTS. There shall be no preemptive right to acquire unissued
and/or treasury shares of the stock of the Corporation.
ARTICLE VIII
VOTING OF SHARES. Each outstanding share of common stock of the
Corporation shall be entitled to one vote on each matter submitted to a vote at
the meeting of the stockholders. Each stockholder shall be entitled to vote his
or its shares in person or by proxy, executed in writing by such stockholder, or
by his duly authorized attorney-in-fact. At each election of Directors, every
stockholder entitled to vote in such election shall have the right to vote in
person or by proxy the number of shares owned by him or it for as many persons
as there are directors to be elected and for whose election he or it has the
right to vote, but the shareholder shall have no right to accumulate his or its
votes with regard to such election.
IN WITNESS WHEREOF, the CEO and Secretary of the corporation have executed
these Restated Articles of Incorporation of Dynatec International, Inc. and
certify to the truth of the facts herein stated this _____ day of June, 1998.
/s/
-------------------------------
Donald Wood, CEO
/s/
--------------------------------
Jerry Andersen, Secretary
II-8
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED BY-LAWS
OF
DYNATEC INTERNATIONAL, INC.
ARTICLE I. OFFICES
The principal office of the corporation in the State of Utah shall be
located in the City of Salt Lake, County of Salt Lake. The corporation may
have such other offices, either within or without the State of Utah, as the
Board of Directors may designate or as the business of the corporation may
require from time to time.
ARTICLE II. SHAREHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of the shareholders shall
be on the date and at the time established each year by the Board of
Directors, for the purpose of electing Directors and for the transaction of
such other business as may come before the meeting. If the day fixed for the
annual meeting shall be a legal holiday in the State of Utah, such meeting
shall be held on the next succeeding business day. If the election of
Directors shall not be held on the day designated herein for any annual
meeting of the shareholders, or at any adjournment thereof, the Board of
Directors shall cause the election to be held at a special meeting of the
shareholders as soon thereafter as conveniently may be.
SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders, for
any purpose or purposes, unless otherwise prescribed by statute, may be called
by the President or by the Board of Directors, and shall be called by the
President at the request of the holders of not less than ten percent (10%) of
all the outstanding shares of the corporation entitled to vote at the meeting.
SECTION 3. PLACE OF MEETING. The Board of Directors may designate any
place, either within or without the State of Utah unless otherwise
prescribed by statute, as the place of meeting for any annual meeting or for
any special meeting called by the Board of Directors. A waiver ofnotice
signed by all shareholders entitled to vote at a meeting may designate any
place either within or without the State of Utah, unless otherwise prescribed
by statute, as the place for the holding of such meeting. If no designation
is made, or if a special meeting be otherwise called, the place of meeting
shall be the principal office of the corporation in the State of Utah.
SECTION 4. NOTICE OF MEETING. Written notice stating the place, day and
hour of the meeting and, in case of special meeting, the purpose or purposes
for which the meeting is called, shall unless otherwise prescribed by
statute, be delivered not less than ten (10) nor more than fifty (50) days
before the date of the meeting, either personally or by mail, by or at the
direction of the President, or the Secretary, or the persons calling the
meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the
United States mail, addressed to the shareholder at his address as it appears
on the stock transfer books of the corporation, with postage thereon prepaid.
II-9
<PAGE>
SECTION 5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled
to receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors of the
corporation may provide that the stock transfer books shall be closed for a
stated period but not to exceed, in any case, fifty (50) days. If the stock
transfer books shall be closed for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of shareholders, such books
shall be closed for at least ten (10) days immediately proceeding such
meeting. In lieu of closing the stock transfer books, the Board of Directors
may fix in advance a date as the record date for any such determination of
shareholders, such date in any case to be not more than fifty (50) days and,
in case of a meeting of shareholders, not less then ten (10) days prior to
the date on which the particular action, requiring such determination of
shareholders, is to be taken. If the stock transfer books are not closed and
no record date is fixed for the determination of shareholders entitled to
notice of or a vote at a meeting of shareholders, or shareholders entitled to
receive payment of a dividend, the date on which notice of the meeting is
mailed or the date on which the resolution of the Board of Directors
declaring such dividend is adopted, as the case may be, shall be the record
date for such determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall apply to any adjournment
thereof.
SECTION 6. VOTING LISTS. The officer or agent having charge of the
stock transfer books for shares of the corporation shall make a complete list
of the shareholders entitled to vote at each meeting of shareholders or any
adjournment thereof, arranged in alphabetical order, with the address of and
the number of shares held by each. Such list shall be produced and kept open
at the time and place of the meeting and shall be subject to the inspection
of any shareholder during the whole time of the meeting for the purposes
thereof.
SECTION 7. QUORUM. A majority of the outstanding shares of the
corporation entitledto vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. If less than a majority of
the outstanding shares are represented at a meeting, a majority of the shares
so represented may adjourn the meeting from time to time without further
notice. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted
at the meeting as originally noticed. The shareholders present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
SECTION 8. PROXIES. At all meetings of shareholders, a shareholder may
vote in person or by proxy executed in writing by shareholder or by his duly
authorized attorney-in-fact. Such proxy shall be filed with the secretary of
the corporation before or at the time of the meeting. No proxy shall be valid
after twelve (12) months from the date of its execution, unless otherwise
provided in the proxy.
SECTION 9. VOTING OF SHARES. Each outstanding share entitled to vote
shall be entitled to one (1) vote upon each matter submitted to a vote at a
meeting of shareholders.
SECTION 10. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the
name of another corporation may be voted by such officer, agent or proxy as
the By-Laws of such corporation may prescribe, or, in the absence of such
provision, as the Board of Directors of such corporation may determine.
II-10
<PAGE>
Shares held by an administrator, executor, guardian or conservator may
be voted by him, either in person or by proxy, without a transfer of such
shares into his name. Shares standing in the name of a trustee may be voted
by him, either in person or by proxy, but no trustee shall be entitled to
vote shares held by him without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name, if authority so to do be
contained in an appropriate order of the court by which such receiver was
appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledges,
and thereafter the pledges shall be entitled to vote the shares so
transferred.
Shares of its own stock belonging to the corporation shall not be voted,
directly or indirectly, at any meeting, and shall not be counted in
determining the total number of outstanding shares at any given time.
SECTION 11. INFORMAL ACTION BY SHAREHOLDERS. Unless otherwise provided
by law, any action required to be taken at a meeting of the shareholders, or
any other action which may be taken at a meeting of the shareholders, may be
taken without a meeting, if a consent in writing, setting forth the action so
taken, shall be signed by all of the shareholders entitled to vote with
respect to the subject matter thereof.
ARTICLE I I I . BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the corporation
shall be managed by its Board of Directors.
SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The number of directors of
the corporation shall be five (5). Each director shall hold office until the
next annual meeting of shareholders and until his successor shall have been
elected and qualified.
SECTION 3. REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held without other notice than this By-Law immediately after, and
at the same place as, the annual meeting of shareholders. The Board of
Directors may provide, by resolution, the time and place for the holding of
additional regular meetings without other notice than such resolution.
SECTION 4. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the President or any two directors. The
person or persons authorized to call special meetings of the Board of
Directors may fix the place for holding any special meeting of the Board of
Directors called by them.
SECTION 5. NOTICE. Notice of any special meeting shall be given at least
five (5) days previously thereto by written notice delivered personally or
mailed to each director at his business address, or by telegram. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail
so addressed, with postage thereon prepaid. If notice be given by telegram, such
notice shall be deemed to be delivered when the telegram is delivered to the
telegraph company. Any director may waive notice of any meeting. The attendance
of a director at a meeting shall constitute a waiver of notice of such meeting,
except
II-11
<PAGE>
where a director attends a meeting for the express purpose of objecting to
the transaction of any business because the meeting is not lawfully called or
convened.
SECTION 6. QUORUM. A majority of the number of directors fixed by
Section 2 of this Article III shall constitute a quorum for the transaction
of business at any meeting of the Board of Directors but, if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time without further notice.
SECT10N 7. MANNER OF ACTING. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the
Board of Directors.
SECTION 8. ACTION WITHOUT A MEETING. Any action that may be taken by the
Board of Directors at a meeting may be taken without a meeting if a consent
in writing, setting forth the action so to be taken, shall be signed before
such action by all of the Directors.
SECTION 9. VACANCIES. Any vacancy occurring in the Board of Directors
may be filled by the affirmative vote of a majority of the remaining
directors though less than a quorum of the Board of Directors, unless
otherwise provided by law. A director elected to fill a vacancy shall be
elected for the unexpired term of his predecessor in office. Any directorship
to be filled by reason of an increase in the number of directors may be
filled by election by the Board of Directors for a term of office continuing
only until the next election of Directors by the shareholders.
SECTION 10. COMPENSATION. By resolution of the Board of Directors, each
Director may be paid his expenses, if any, of attendance at each meeting of
the Board of Directors, and may be paid a stated salary as director or a
fixed sum for attendance at each meeting of the Board of Directors or both.
No such payment shall preclude any director from serving the corporation in
any other capacity and receiving compensation therefore.
SECTION 11. PRESUMPTION OF ASSENT. A director of the corporation who is
present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be presumed to have assented to the action
taken unless his dissent shall be entered in the minutes of the meeting or
unless he shall file his written dissent to such action with the person
acting as the secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the Secretary of the
corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a Director who voted in favor of such action.
ARTICLE IV. OFFICERS
SECTION 1. NUMBER. The officers of the corporation shall be a President,
a Vice President, a Secretary and a Treasurer, each of whom shall be elected
by the Board of Directors. Such other officers and assistant officers as may
be deemed necessary may be elected or appointed by the Board of Directors.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the corporation to
be elected by the Board of Directors shall be elected annually by the Board of
Directors at the first meeting of the Board of Directors held after each annual
meeting of the shareholders. If the election of officers shall not be held at
such meeting, such election shall be held as soon thereafter as conveniently may
be. Each officer shall hold
II-12
<PAGE>
office until his successor shall have been duly elected and shall have
qualified or until his death or until he shall resign or shall have been
removed in the manner hereinafter provided.
SECTION 3. REMOVAL. Any officer or agent may be removed by the Board of
Directors whenever, in its judgment, the best interests of the corporation
will be served thereby, but such removal shall be without prejudice to the
contract rights, if any, of the person so removed. Election or appointment of
an officer or agent shall not of itself create contract rights.
SECTION 4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the
Board of Directors for the unexpired portion of the term.
SECTION 5. PRESIDENT. The President shall be the principal executive
officer of the corporation and, subject to the control of the Board of
Directors, shall in general supervise and control all of the business and
affairs of the corporation. He shall, when present, preside at all meetings
of the shareholders and of the Board of Directors. He may sign, with the
Secretary or any other proper officer of the corporation "hereunto authorized
by the Board of Directors, certificates for shares of the corporation, any
deeds, mortgages, bonds, contracts or other instruments which the Board of
Directors has authorized to be executed, except in cases where the signing
and execution thereof shall be expressly delegated by the Board of Directors
or by these By-Laws to some other officer or agent of the corporation, or
shall be required by law to be otherwise signed or executed; and in general
shall perform all duties incident to the office of President and such other
duties as may be prescribed by the Board of Directors from time to time.
SECTION 6. VICE PRESIDENT. In the absence of the President or in event
of his death, inability or refusal to act, the Vice President shall perform
the duties of the President, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the President. The Vice President
shall perform such other duties as from time to time may be assigned to him
by the President or by the Board of Directors.
SECTION 7. SECRETARY. The Secretary shall: (a) keep the minutes of the
proceedings of the shareholders and of the Board of Directors in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these By-Laws or as required by law; (c) be
custodian of the corporate records and of the seal of the corporation and see
that the seal of the corporation is affixed to all documents the execution of
which on behalf of the corporation under its seal is duly authorized; (d)
keep a register of the post office address of each shareholder which shall be
furnished to the Secretary by such shareholder; (3) sign with the President,
certificates for shares of the corporation, the issuance of which shall have
been authorized by resolution of the Board of Directors; (f) have general
charge of the stock transfer books of the corporation; and (g) in general
perform all duties incident to the office of Secretary and such other duties
as from time to time be assigned to him by the President or the Board of
Directors.
SECTION 8. TREASURER. The Treasurer shall: (a) have charge and custody
of and be responsible for all funds and securities of the corporation; (b)
receive and give receipts for monies due and payable to the corporation from
any source whatsoever, and deposit all such monies in the name of the
corporation in such banks, trust companies or other depositories as shall be
selected in accordance with the provisions of Article V of these By-Laws; and
(c) in general perform all of the duties incident to the office of Treasurer
and such other duties as from time to time may be assigned to him by the
President or by the Board of Directors. If required by the Board of
Directors, the Treasurer shall give a bond for the faithful discharge of his
duties in such sum and with such surety or sureties as the Board of Directors
shall determine.
II-13
<PAGE>
SECTION 9. SALARIES. The salaries of the officers shall be fixed from
time to time by the Board of Directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
corporation.
ARTICLE V. CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. The Board of Directors may authorize any officer
or officers, agent or agents, to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the corporation, and
such authority may be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name
unless authorized by a resolution of the Board of Directors. Such authority
may be general or confined to specific instances.
SECTION 3. CHECKS, DRAFTS ETC. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation, shall be signed by such officer or officers, agent
or agents of the corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
SECTION 4. DEPOSITS. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies or other depositories as the Board of Directors may
select.
ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of
the corporation shall be in such form as shall be determined by the Board of
Directors. Such certificates shall be signed by the President and by the
Secretary or by such other officers authorized by law and by the Board of
Directors so to do, and sealed with the corporate seal. All certificates for
shares shall be consecutively numbered or otherwise identified. The name and
address of the person to whom the shares represented thereby are issued, with
the number of shares and date of issue, shall be entered on the stock
transfer books of the corporation. All certificates surrendered to the
corporation for transfer shall be canceled and no new certificate shall be
issued until the former certificate for a like number of shares shall have
been surrendered and canceled, except that in case of a lost, destroyed or
mutilated certificate a new one may be issued therefore upon such terms and
indemnity to the corporation as the Board of Directors may prescribe.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of the corporation
shall be made only on the stock transfer books of the corporation by the
holder of record thereof or by his legal representative, who shall furnish
proper evidence of authority to transfer, or by his attorney hereunto
authorized by power of attorney duly executed and filed with the Secretary of
the corporation, and on surrender for cancellation of the certificate for
such shares. The person in whose name shares stand on the books of the
corporation shall be deemed by the corporation to be the owner thereof for
all purposes.
ARTICLE VII . FISCAL YEAR
The fiscal year of the corporation shall begin on the first day of
January and end on the last day of December in each year.
II-14
<PAGE>
ARTICLE VIII. DIVIDENDS
The Board of Directors may from time to time declare, and the
corporation may pay, dividends on its outstanding shares in the manner and
upon the terms and conditions provided by law and its Articles of
Incorporation.
ARTICLE IX. CORPORATE SEAL
The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the corporation
and the state of incorporation and the words "Corporate Seal."
ARTICLE X. INDEMNIFICATION
SECTION 1. INDEMNIFICATION. No officer or director shall be personally
liable for any obligations of the corporation or for any duties or obligation
arising out of any acts or conduct of said officer or director performed for
or on behalf of the corporation. The corporation shall and does hereby
indemnify and hold harmless each person and his heirs and administrators who
shall serve at any time hereafter as a director or officer of the corporation
from and against any and all claims, judgments, and liabilities to which such
persons shall become subject by reason of his having heretofore or hereafter
been a director or officer of the corporation, or by reason of any action
alleged to have been heretofore or hereafter taken or committed to have been
taken by him as such director or officer, and shall reimburse each such
person for all legal and other expenses reasonably incurred by him in
connection with any such claim or liability, including power to defend such
person from all suits or claims. Provided, however, that no such person shall
be indemnified against, or be reimbursed for, any expense incurred in
connection with any claim or liability arising out of his own negligence or
willful misconduct.
The rights accruing to any person under the foregoing provisions of this
section shall not exclude any other right to which he may lawfully be
entitled, nor shall anything herein contained restrict the right of the
corporation to indemnify or reimburse such person in any proper case, even
though not specifically herein provided for. The corporation, its directors,
officers, employees and agents shall be fully protected in taking any action
or making any payment, or in refusing so to do in reliance upon the advice of
counsel.
SECTION 2. OTHER INDEMNIFICATION. The indemnification herein provided
shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any By-Law, agreement, vote of
stockholders or disinterested directors, or otherwise, both as to action in
his official capacity and as to action in another capacity while holding such
office; and to continue as to any such person who has ceased to be a
director, officer, or employee, and to inure to the benefit of the heirs,
executors, and administrators of such person.
SECTION 3. INSURANCE. The corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer, or employee of the
corporation, or is or was serving at the request of corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against and incurred by
him in any such capacity, or arising out of his status as such, whether or not
the corporation would have the power to indemnify him against liability under
the provisions of Sections 1 and 2. The corporation may also purchase
II-15
<PAGE>
or participate in any other insurance program related to the health, life or
medical expenses of its directors, officers, or employees.
SECTION 4. SETTLEMENT BY CORPORATION. The right of any person to be
indemnified shall be subject always to the right of the corporation acting by
its Board of Directors, if lieu of such indemnity, to settle any such claim,
action, suit or proceeding at the expense of the corporation by the payment
of the amount of such settlement and the costs and expenses incurred in
connection therewith.
ARTICLE XI. WAIVER OF NOTICE
Unless otherwise provided by law, whenever any notice is required to be
given to any shareholder or director of the corporation under the provisions
of these by-Laws or under the Articles of Incorporation or under the
provisions of the Utah Business Corporation Act, a waiver thereof in writing,
signed by the person or persons entitled to such notice, whether before or
after the time stated therein, shall be deemed equivalent to the giving of
such notice.
ARTICLE XII. AMENDMENTS
These By-Laws may be altered, amended or repealed and new By-Laws may be
adopted by the Board of Directors at any regular or special meeting of the
Board of Directors.
II-16
<PAGE>
EXHIBIT 5.1
Opinion and Consent of Bruce L. Dibb P.C.
Bruce L. Dibb P.C.
311 South State St. Suite 380
Salt Lake City, Ut. 84111
June 18, 1998
Dynatec International, Inc.
3820 West Great Lakes Drive
Salt Lake City, Utah 84119
Gentlemen:
The undersigned has acted as counsel for Dynatec International, Inc.
(the "Company") in connection with a registration statement on Form SB-2 of
the Company (the "Registration Statement"), filed with the Securities and
Exchange Commission (the "Commission") pursuant to the Securities Act of
1933, as amended (the "Securities Act"), pertaining to the registration of
shares of common stock, par value $0.01 per share, of the Company (the
"Shares"), which are underlying the Convertible Debentures, the Warrants and
the Equity Line of Credit, as described in the Registration Statement.
In connection with this opinion, the undersigned has considered such
questions of law as the undersigned has deemed necessary as a basis for the
opinions set forth below, and has examined or otherwise is familiar with
originals or copies, certified or otherwise identified to my satisfaction, of
the following: (i) the Registration Statement; (ii) the Articles of
Incorporation and Bylaws, as amended, of the Company, as currently in effect;
(iii) certain resolutions of the Board of Directors of the Company relating
to the issuance of the shares and other transactions contemplated by the
Registration Statement; and (iv) such other documents as the undersigned has
deemed necessary or appropriate as a basis for the opinions set forth below.
In my examination, the undersigned has assumed the genuineness of all
signatures, the authenticity of all documents submitted to the undersigned as
originals, the conformity to original documents of all documents submitted to
the undersigned as certified or photostatic copies and the authenticity of
the originals of such copies. As to any facts material to this opinion that
the undersigned did not independently establish or verify, the undersigned
has relied upon statements and representations of officers and other
representatives of the Company and others.
Based upon the foregoing, the undersigned is of the opinion that the
Shares to be sold by the Company have been duly authorized for issuance and
that when sold, issued, paid for and delivered in the manner contemplated by
the registration Statement, the Shares will be validly issued, fully paid and
nonassessable.
The law covered by this opinion is limited to the law of the State of
Utah, without regard to the principles of conflicts of laws thereof, and
based upon and limited to the laws and regulations in effect as of the date
hereof. The undersigned assumes no obligation to update the opinions set
forth herein.
The undersigned hereby consents to the filing of this opinion with the
Commission as Exhibit 5 to the Registration Statement. In giving this consent,
the undersigned does not thereby admit that the
II-17
<PAGE>
undersigned is within the category of persons whose consent is required under
Section 7 of the Securities Act, or the Rules and Regulations of the
Commission thereunder.
Very truly yours,
/s/ Bruce L. Dibb P.C.
-----------------------
II-18
<PAGE>
EXHIBIT 10.4
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY OTHER APPLICABLE STATE SECURITIES
LAWS AND HAS BEEN ISSUED IN RELIANCE UPON REGULATION D PROMULGATED UNDER THE
SECURITIES ACT. THIS WARRANT SHALL NOT CONSTITUTE AN OFFER TO SELL NOR A
SOLICITATION OF AN OFFER TO BUY THE WARRANT IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL. THIS WARRANT MAY NOT BE SOLD,
PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES
LAWS, OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE
PROVISIONS OF THE SECURITIES ACT AND UNDER PROVISIONS OF APPLICABLE STATE
SECURITIES LAWS; AND IN THE CASE OF AN EXEMPTION, ONLY IF THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL THAT SUCH TRANSACTION DOES NOT REQUIRE
REGISTRATION OF THE WARRANT, WHICH OPINION AND WHICH COUNSEL SHALL BE
SATISFACTORY TO THE COMPANY IN ITS SOLE DISCRETION.
COMMON STOCK PURCHASE WARRANT B
No. __
To Purchase ______ Shares of Common Stock of
DYNATEC INTERNATIONAL, INC.
THIS CERTIFIES that, for value received, ___________________ (the
"Investor"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, at any time on or after the date hereof and on or
prior to April , 2001 (the "Termination Date") but not thereafter, to
subscribe for and purchase from DYNATEC INTERNATIONAL, INC., a Utah
corporation (the "Company"), ( ) shares
of Common Stock (the "Warrant Shares"). The purchase price of one share of
Common Stock (the "Exercise Price") under this Warrant shall be equal to one
hundred ten (110%) percent of the closing bid price of the Common Stock on
the NASDAQ Small Cap Stock Market on the Trading Day immediately preceding
the Closing Date for the $1,500,000 Convertible Debentures, as defined in the
Convertible Debenture and Private Equity Line of Credit Agreement (the
"Agreement") between the Company and Investor and is subject to its terms.
The Exercise Price and the number of shares for which the Warrant is
exercisable shall be subject to adjustment as provided herein. This Warrant
is being issued in connection with the Agreement. In the event of any
conflict between the terms of this Warrant and the Agreement, the Agreement
shall control.
1. TITLE OF WARRANT. Prior to the expiration hereof and subject to
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by the
holder hereof in person or by duly authorized attorney, upon surrender of this
Warrant together with the Assignment Form annexed hereto properly endorsed.
2. AUTHORIZATION OF SHARES. The Company covenants that all shares of
Common Stock which may be issued upon the exercise of rights represented
by this Warrant will, upon exercise of the rights represented
II-19
<PAGE>
by this Warrant, be duly authorized, validly issued, fully paid and
nonassessable and free from all taxes, liens and charges in respect of the
issue thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue).
3. EXERCISE OF WARRANT. Exercise of the purchase rights represented
by this Warrant may be made at any time or times, in whole, before the close
of business on the Termination Date, or such earlier date on which this
Warrant may terminate as provided in paragraph 11 below, by the surrender of
this Warrant and the Subscription Form annexed hereto duly executed, at the
office of the Company (or such other office or agency of the Company as it
may designate by notice in writing to the registered holder hereof at the
address of such holder appearing on the books of the Company) and upon
payment of the Exercise Price of the shares thereby purchased; whereupon the
holder of this Warrant shall be entitled to receive a certificate for the
number of shares of Common Stock so purchased. Certificates for shares
purchased hereunder shall be delivered to the holder hereof within five
business days after the date on which this Warrant shall have been exercised
as aforesaid. Payment of the Exercise Price of the shares may be by
certified check or cashier's check or by wire transfer to an account
designated by the Company in an amount equal to the Exercise Price multiplied
by the number of shares being purchased.
4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant.
5. CHARGES, TAXES AND EXPENSES. Issuance of certificates for shares
of Common Stock upon the exercise of this Warrant shall be made without
charge to the holder hereof for any issue or transfer tax or other incidental
expense in respect of the issuance of such certificate, all of which taxes
and expenses shall be paid by the Company, and such certificates shall be
issued in the name of the holder of this Warrant or in such name or names as
may be directed by the holder of this Warrant; PROVIDED, HOWEVER, that in the
event certificates for shares of Common Stock are to be issued in a name
other than the name of the holder of this Warrant, this Warrant when
surrendered for exercise shall be accompanied by the Assignment Form attached
hereto duly executed by the holder hereof; and PROVIDED FURTHER, that upon
any transfer involved in the issuance or delivery of any certificates for
shares of Common Stock, the Company may require, as a condition thereto, the
payment of a sum sufficient to reimburse it for any transfer tax incidental
thereto.
6. CLOSING OF BOOKS. The Company will at no time close its
shareholder books or records in any manner which interferes with the timely
exercise of this Warrant.
7. NO RIGHTS AS SHAREHOLDER UNTIL EXERCISE. This Warrant does not
entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company prior to the exercise thereof. If, however, at
the time of the surrender of this Warrant and purchase the holder hereof
shall be entitled to exercise this Warrant, the shares so purchased shall be
and be deemed to be issued to such holder as the record owner of such shares
as of the close of business on the date on which this Warrant shall have been
exercised.
8. ASSIGNMENT AND TRANSFER OF WARRANT. This Warrant may be assigned
by the surrender of this Warrant and the Assignment Form annexed hereto duly
executed at the office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the registered holder
hereof at the address of such holder appearing on the books of the Company);
PROVIDED, HOWEVER, that this Warrant may not be resold or otherwise
transferred except (i) in a transaction registered under the Securities Act,
or (ii) in a transaction pursuant to an exemption, if available, from such
registration and whereby, if requested by the Company, an opinion of counsel
reasonably satisfactory to the Company is obtained by the holder of this
Warrant to the effect that the transaction is so exempt.
9. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. The Company
represents and warrants that upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation
of any Warrant or stock certificate, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto,
and upon surrender and cancellation of such Warrant or stock certificate, if
mutilated, the Company will make and deliver a new Warrant or stock
certificate of like tenor and dated as of such cancellation, in lieu of this
Warrant or stock certificate.
II-20
<PAGE>
10. SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a legal
holiday.
11. EFFECT OF CERTAIN EVENTS.
(a) If at any time the Company proposes (i) to sell or otherwise
convey all or substantially all of its assets or (ii) to effect a transaction
(by merger or otherwise) in which more than 50% of the voting power of the
Company is disposed of (collectively, a "Sale or Merger Transaction"), in
which the consideration to be received by the Company or its shareholders
consists solely of cash, the Company shall give the holder of this Warrant
thirty (30) days' notice of the proposed effective date of the transaction
specifying that the Warrant shall terminate if the Warrant has not been
exercised by the effective date of the transaction.
(b) In case the Company shall at any time effect a Sale or Merger
Transaction in which the consideration to be received by the Company or its
shareholders consists in part of consideration other than cash, the holder of
this Warrant shall have the right thereafter to purchase, by exercise of this
Warrant and payment of the aggregate Exercise Price in effect immediately
prior to such action, the kind and amount of shares and other securities and
property which it would have owned or have been entitled to receive after the
happening of such transaction had this Warrant been exercised immediately
prior thereto.
(c) REGISTRATION RIGHTS. The holder of this Warrant shall be
granted registration rights for the Warrant Shares pursuant to a Registration
Rights Agreement dated May , 1998.
12. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The
number and kind of securities purchasable upon the exercise of this Warrant
and the Exercise Price shall be subject to adjustment from time to time upon
the happening of any of the following.
In case the Company shall (i) declare or pay a dividend in shares of
Common Stock or make a distribution in shares of Common Stock to holders of
its outstanding Common Stock, (ii) subdivide its outstanding shares of Common
Stock, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (iv) issue any shares of its capital
stock in a reclassification of the Common Stock, the number of Warrant Shares
purchasable upon exercise of this Warrant immediately prior thereto shall be
adjusted so that the holder of this Warrant shall be entitled to receive the
kind and number of Warrant Shares or other securities of the Company which he
would have owned or have been entitled to receive had such Warrant been
exercised in advance thereof. An adjustment made pursuant to this paragraph
shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
13. VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may, at any time
during the term of this Warrant, reduce the then current Exchange Price to
any amount and for any period of time deemed appropriate by the Board of
Directors of the Company.
14. NOTICE OF ADJUSTMENT. Whenever the number of Warrant shares or
number or kind of securities or other property purchasable upon the exercise
of this Warrant or the Exercise Price is adjusted, as herein provided, the
Company shall promptly mail by registered or certified mail, return receipt
requested, to the holder of this Warrant notice of such adjustment or
adjustments setting forth the number of Warrant Shares (and other securities
or property) purchasable upon the exercise of this Warrant and the Exercise
Price of such Warrant Shares after such adjustment, setting forth a brief
statement of the facts requiring such adjustment and setting forth
computation by which such adjustment was made. Such notice, in absence of
manifest error, shall be conclusive evidence of the correctness of such
adjustment.
15. AUTHORIZED SHARES. The Company covenants that during the period
the Warrant is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of
Common Stock upon the exercise of any purchase rights under this Warrant.
The Company further covenants that its issuance of this Warrant shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates
for shares of the Company's Common Stock upon the exercise of the purchase
rights under this Warrant.
II-21
<PAGE>
The Company will take all such reasonable action as may be necessary to
assure that such shares of Common Stock may be issued as provided herein
without violation of any applicable law or regulation, or of any requirements
of the NASDAQ Small Cap Stock Market or any domestic securities exchange upon
which the Common Stock may be listed.
16. MISCELLANEOUS.
(a) ISSUE DATE; JURISDICTION. The provisions of this Warrant
shall be construed and shall be given effect in all respects as if it had
been issued and delivered by the Company on the date hereof. This Warrant
shall be binding upon any successors or assigns of the Company. This Warrant
shall constitute a contract under the laws and jurisdictions of New York and
for all purposes shall be construed in accordance with and governed by the
laws of said state without regard to its conflict of law, principles or rules
and be subject to the arbitration provisions as set forth in the Agreement,
except for matters arising under the Act, without reference to principles of
conflicts of law. Each party consents to the jurisdiction of the U.S.
District Court sitting in the Southern District of the State of New York or
the state courts of the State of New York sitting in Manhattan in connection
with any dispute arising under this Agreement and hereby waives, to the
maximum extent permitted by law, any objection, including any objection based
on FORUM NON CONVENIENS, to the bringing of any such proceeding in such
jurisdictions. Each party hereby agrees that if another party to this
Warrant obtains a judgment against it in such a proceeding, the party which
obtained such judgment may enforce same by summary judgment in the courts of
any country having jurisdiction over the party against whom such judgment was
obtained, and each party hereby waives any defenses available to it under
local law and agrees to the enforcement of such a judgment. Each party to
this Warrant irrevocably consents to the service of process in any such
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to such party at its address set forth herein. Nothing
herein shall affect the right of any party to serve process in any other
manner permitted by law.
(b) RESTRICTIONS. The holder hereof acknowledges that the Common
Stock acquired upon the exercise of this Warrant, if not registered, may have
restrictions upon its resale imposed by state and federal securities laws.
(c) MODIFICATION AND WAIVER. This Warrant and any provisions
hereof may be changed, waived, discharged or terminated only by an instrument
in writing signed by the party against which enforcement of the same is
sought.
(d) NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the holders hereof of the Company shall
be delivered or shall be sent by certified or registered mail, postage
prepaid, to each such holder at its address as shown on the books of the
Company or to the Company at the address set forth in the Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant B to be executed
by its officers hereunto duly authorized.
Dated: May , 1998
DYNATEC INTERNATIONAL, INC.
By __________________________________
Name: Donald M. Wood
Title: Chief Executive Officer
II-22
<PAGE>
NOTICE OF EXERCISE
To: DYNATEC INTERNATIONAL, INC.
(1) The undersigned hereby elects to purchase ________ shares of Common
Stock of DYNATEC INTERNATIONAL, INC. pursuant to the terms of the attached
Warrant B, and tenders herewith payment of the purchase price in full,
together with all applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
_______________________________(Name)
_______________________________(Address)
_______________________________
Dated:
______________________________Signature
II-23
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
_______________________________________________ whose address is
_______________________________________________________________.
_______________________________________________________________
Dated: _______________
Holder's Signature: _____________________________
Holder's Address: _____________________________
_____________________________
Signature Guaranteed: ______________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
II-24
<PAGE>
EXHIBIT 10.5
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated the day of May, 1998, between
the entities listed on Schedule A attached hereto (referred to as a the
"Purchaser" or "Purchasers"), SETTONDOWN CAPITAL INTERNATIONAL LTD. (the
"Placement Agent" together with the Purchasers are also hereinafter referred to
as the "Holder" or "Holders") located at Charlotte House, Charlotte Street, P.O.
Box N. 9204, Nassau, Bahamas, a corporation organized under the laws of Bahamas,
and DYNATEC INTERNATIONAL, INC., a corporation incorporated under the laws of
the state of Utah, and having its principle place of business at 3820 West Great
Lakes Drive, Salt Lake City, Utah 84120 (the "Company").
WHEREAS, simultaneously with the execution and delivery of this Agreement,
the Purchasers are purchasing (and are agreeing to purchase upon the
satisfaction of each of the conditions as set forth in the Equity Line Agreement
(as defined below)) from the Company, pursuant to a Convertible Debenture and
Private Equity Line of Credit Agreement dated the date hereof (the "Equity Line
Agreement"), an aggregate of up to Ten Million ($10,000,000) Dollars principal
amount of shares of Common Stock, $0.01 par value per share, Two Million
($2,000,000) Dollars principal amount of Convertible Debentures (as defined in
the Equity Line Agreement) and Warrants to purchase an aggregate of 300,000
shares of the Company's Common Stock. All capitalized terms not hereinafter
defined shall have that meaning assigned to them in the Equity Line Agreement;
and
WHEREAS, the Company shall issue to the Placement Agent, in return for
services rendered (in addition to fees set forth in the Equity Line Agreement),
from time to time as provided herein, a Warrant A (as defined in the Equity Line
Agreement) to purchase 450,000 shares of Common Stock (as defined in the Equity
Line Agreement), and 80,000 shares of Common Stock; and
WHEREAS, the Company desires to grant to the Holders the registration
rights set forth herein with respect to the Put Shares, the shares of Common
Stock underlying the Convertible Debentures, the shares of Common Stock, and
Warrants (hereinafter referred to as the "Stock" or "Securities" of the
Company).
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. REGISTRABLE SECURITIES. As used herein the term "Registrable
Securities" means the Securities; provided, however, that with respect to any
particular Registrable Security, such security shall cease to be a Registrable
Security when, as of the date of determination, (i) it has been effectively
registered under the Securities Act of 1933, as amended (the "1933 Act") and
disposed of pursuant thereto, (ii) registration under the 1933 Act is no longer
required for the immediate public distribution of such security as a result of
the provisions of Rule 144 promulgated under the 1933 Act, or (iii) it has
ceased to be outstanding. The term "Registrable Securities" means any and/or
all of the securities falling within the foregoing definition of a "Registrable
Security." In the event of any merger, reorganization, consolidation,
recapitalization or other change in corporate structure affecting the Common
Stock, such adjustment shall be made in the definition of "Registrable Security"
as is appropriate in order to prevent any dilution or enlargement of the rights
granted pursuant to this Section 1.
Section 2. RESTRICTIONS ON TRANSFER. The Holders acknowledge and
understand that prior to the registration of the Securities as provided herein,
the Securities are "restricted securities" as defined in Rule 144 promulgated
under the Act. The Holders understand that no disposition or transfer of the
II-25
<PAGE>
Securities may be made by Holder in the absence of (i) an opinion of counsel to
the Holder that such transfer may be made without registration under the 1933
Act or (ii) such registration.
Section 3. REGISTRATION RIGHTS.
(a) The Company agrees that it will prepare and file with the
Securities and Exchange Commission ("Commission"), as soon as possible after the
Closing Date for the $1,500,000 Convertible Debentures, a registration statement
(on Form SB-2, or other appropriate registration statement) under the 1933 Act
(the "Registration Statement"), or in the event more than one Registration
Statement is required to be filed to include such items as newly authorized
shares of Common Stock, such further Registration Statement shall be filed
within thirty (30) days after the issuance of such newly authorized shares of
Common Stock or other event, as the case may be. In the event that such
Registration Statement is not effective within ninety (90) days after its
filing, and/or the Registration Statement is not filed within thirty (30) days
after the aforementioned Closing Date, the liquidated damages in Section 3(e)
shall apply. All Registration Statements required to be filed hereunder shall
be prepared and filed, at the sole expense of the Company (except as provided in
Section 3(c) hereof), in respect of all holders of Registrable Securities, so as
to permit a public offering and sale of the Registrable Securities under the
Act. The Company shall use its best efforts to cause the Registration Statement
to become effective within ninety (90) days from the Closing Date for the
$1,500,000 Convertible Debentures. The number of shares of Common Stock
designated in the Registration Statement to be registered shall be two hundred
(200%) percent of the number of Securities that would be required if all the
Registrable Securities were issued on the day before the filing of the
Registration Statement.
(b) The Company will maintain the Registration Statement or
post-effective amendment filed under this Section 3 hereof current under the
1933 Act until the earlier of (i) the date that all of the Registrable
Securities have been sold pursuant to the Registration Statement, (ii) the date
the holders thereof receive an opinion of counsel that the Registrable
Securities may be sold under the provisions of Rule 144, or (iii) three and
one half years after the Closing Date for the $1,500,000 Convertible
Debentures.
(c) All fees, disbursements and out-of-pocket expenses and costs
incurred by the Company in connection with the preparation and filing of the
Registration Statement under subparagraph 3(a) and in complying with applicable
securities and Blue Sky laws (including, without limitation, all attorneys'
fees) shall be borne by the Company. The Holder shall bear the cost of
underwriting discounts and commissions, if any, applicable to the Registrable
Securities being registered and the fees and expenses of its counsel. The
Company shall qualify any of the securities for sale in the states of Florida,
Connecticut, Delaware and New York, if requested by the Holder, and in such
additional states as such Holder reasonably designates and shall furnish
indemnification in the manner provided in Section 6 hereof. However, the
Company shall not be required to qualify in any state which will require
an escrow, merit requirements,registration by qualification, or other
restriction relating to the Company and/or the sellers. The Company at its
expense will supply the Holder with copies of the Registration Statement
and the prospectus or offering circular included therein and other related
documents in such quantities as may be reasonably requested by the Holder.
(d) The Company shall not be required by this Section 3 to include a
Holder's Registrable Securities in any Registration Statement which is to be
filed if, in the opinion of counsel for both the Holder and the Company (or,
should they not agree, in the opinion of another counsel experienced in
II-26
<PAGE>
securities law matters acceptable to counsel for the Holder and the Company) the
proposed offering or other transfer as to which such registration is requested
is exempt from applicable federal and state securities laws and would result in
all purchasers or transferees obtaining securities which are not "restricted
securities", as defined in Rule 144 under the 1933 Act.
(e) In the event the Registration Statement to be filed by the
Company pursuant to Section 3(a) above is not filed with the Commission within
thirty (30) days from the Closing Date for the $1,500,000 Convertible Debentures
and/or the Registration Statement is not declared effective by the Commission
within ninety (90) days from the Closing Date for the $1,500,000 Convertible
Debentures, then the Company will pay Holder (pro rated on a daily basis), as
liquidated damages for such failure and not as a penalty, two (2%) percent of
the Purchase Price of the then outstanding Securities for first thirty (30) day
period that the Registration Statement is not timely filed or timely declared
effective, and three (3%) percent of the Purchase Price of the then outstanding
Securities for each thirty (30) day period thereafter that the Registration
Statement is either not timely filed or not timely declared effective, which
liquidated damages shall continue to run until the Registration Statement has
been filed and/or declared effective. Such payment of the liquidated damages
shall be made to the Holder in cash, immediately upon demand, provided, however,
that the payment of such liquidated damages shall not relieve the Company from
its obligations to register the Securities pursuant to this Section.
If the Company does not remit the damages to the Holder as
set forth above,the Company will pay the Holder reasonable costs of collection,
including attorneys fees, in addition to the liquidated damages. The
registration of the Securities pursuant to this provision shall not affect or
limit Holder's other rights or remedies as set forth in this Agreement.
(f) No provision contained herein shall preclude the Company
from selling securities pursuant to any Registration Statement in which it is
required to include Registrable Securities pursuant to this Section 3.
Section 4. COOPERATION WITH COMPANY. Holder will cooperate with the
Company in all respects in connection with this Agreement, including timely
supplying all information reasonably requested by the Company and executing
and returning all documents reasonably requested in connection with the
registration and sale of the Registrable Securities.
Section 5. REGISTRATION PROCEDURES. If and whenever the Company is
required by any of the provisions of this Agreement to effect the registration
of any of the Registrable Securities under the Act, the Company shall (except as
otherwise provided in this Agreement), as expeditiously as possible:
(a) prepare and file with the Commission such amendments and
supplements to the Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective
and to comply with the provisions of the Act with respect to the sale or other
disposition of all securities covered by such registration statement whenever
the Holder of such securities shall desire to sell or otherwise dispose of the
same (including prospectus supplements with respect to the sales of securities
from time to time in connection with a registration statement pursuant to Rule
415 promulgated under the Act);
(b) furnish to each Holder such numbers of copies of a
summary prospectus or other prospectus, including a preliminary prospectus
or any amendment or supplement to any prospectus, in conformity with the
requirements of the Act, and such other documents, as such Holder may
II-27
<PAGE>
reasonably request in order to facilitate the public sale or other disposition
of the securities owned by such Holder;
(c) register and qualify the securities covered by the
Registration Statement under such other securities or blue sky laws of such
jurisdictions as the Holder shall reasonably request, and do any and all
other acts and things which may be necessary or advisable to enable each Holder
to consummate the public sale or other disposition in such jurisdiction of the
securities owned by such Holder, except that the Company shall not for any such
purpose be required to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified or to file therein any general
consent to service of process;
(d) list such securities on the NASDAQ Small Cap Stock Market
or other national securities exchange on which any securities of the Company
are then listed, if the listing of such securities is then permitted under the
rules of such exchange or NASDAQ;
(e) enter into and perform its obligations under an
underwriting agreement, if the offering is an underwritten offering, in usual
and customary form, with the managing underwriter or underwriters of such
underwritten offering;
(f) notify each Holder of Registrable Securities covered by the
Registration Statement, at any time when a prospectus relating thereto covered
by the Registration Statement is required to be delivered under the Act, of the
happening of any event of which it has knowledge as a result of which the
prospectus included in the Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
Section 6. INFORMATION BY HOLDER. Each Holder of Registrable Securities
included in any registration shall furnished to the Company such information
regarding such Holder and the distribution proposed by such Holder as the
Company may request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Section 6.
Section 7. ASSIGNMENT. The rights granted the Holders under this
Agreement shall not be assigned without the written consent of the Company,
which consent shall not be unreasonably withheld. This Agreement is binding
upon and inures to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns.
Section 8. TERMINATION OF REGISTRATION RIGHTS. The rights granted
pursuant to this Agreement shall terminate as to each Investor (and permitted
transferee under Section 7 above) upon the occurrence of any of the following:
(a) all such Holder's securities subject to this Agreement have
been registered;
(b) all of such Holder's securities subject to this Agreement may
be sold without such registration pursuant to Rule 144 promulgated by the SEC
pursuant to the Securities Act;
II-28
<PAGE>
(c) all of such Holder's securities subject to this Agreement
can be sold pursuant to Rule 144(k) without limitation; or
(d) three and one half years from the issuance of the
Registrable Securities.
Section 9. INDEMNIFICATION.
(a) In the event of the filing of any Registration Statement
with respect to Registrable Securities pursuant to Section 3 hereof, the
Company agrees to indemnify and hold harmless the Holder and each officer,
director of the Holder, and each person, if any, who controls the Holder within
the meaning of the Securities Act ("Distributing Holders") against any losses,
claims, damages or liabilities, joint or several (which shall, for all purposes
of this Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees), to which the Distributing Holders may
become subject, underthe Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in any such Registration Statement, or any related preliminary
prospectus, final prospectus, offering circular, notification or amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make thestatements therein not misleading; PROVIDED, HOWEVER,
that the Company will not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
such Registration Statement, preliminary prospectus, final prospectus, offering
circular, notification or amendment or supplement thereto in reliance upon, and
in conformity with, written information furnished to the Company by the
Distributing Holders, specifically for use in the preparation thereof.
This indemnity agreement will be in addition to any liability which the
Company may otherwise have.
(b) Each Distributing Holder agrees that it will indemnify and
hold harmless the Company, and each officer, director of the Company or person,
if any, who controls the Company within the meaning of the Securities Act,
against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of
defense and investigation and all attorneys' fees) to which the Company or
any such officer,director or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses claims, damages or
liabilities (or actions in respect thereof; arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in a Registration Statement requested by such Distributing Holder, or any
related preliminary prospectus, final prospectus, offering circular,
notification or amendment or supplement thereto, or arise out of or are
based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, but in each case only to the extent that such
untrue statement or alleged untrue statement or omission or alleged
omission was made in such Registration Statement, preliminary prospectus, final
prospectus, offering circular, notification or amendment or supplement thereto
in reliance upon, and in conformity with, written information furnished to the
Company by such Distributing Holder, specifically for use in the preparation
thereof and, provided further, that the indemnity agreement contained in this
Section 9(b) shall not inure to the benefit of the Company with respect to any
person asserting such loss, claim, damage or liability who purchased the
Registrable Securities which are the subject thereof if the Company failed to
send or give (in violation of the Securities Act or the rules and regulations
promulgated thereunder) a copy of the prospectus contained in such Registration
Statement to such person at or prior to the written confirmation to such person
of the sale of such Registrable Securities, where the Company was obligated to
do so under the Securities Act or the rules and regulations promulgated
thereunder. This indemnity agreement will be in addition to any liability which
the Distributing Holders may otherwise have.
11-29
<PAGE>
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve the indemnifying
party from any liability which it may have to any indemnified party otherwise
than as to the particular item as to which indemnification is then being sought
solely pursuant to this Section. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified, assume the defense thereof, subject to the provisions herein stated
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation, unless the
indemnifying party shall not pursue the action to its final conclusion. The
indemnified party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel reasonably
satisfactory to the indemnified party; provided that if the indemnified party is
the Distributing Holder, the fees and expenses of such counsel shall be at the
expense of the indemnifying party if (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party, or (ii) the named
parties to any such action (including any impleaded parties) include both the
Distributing Holder and the indemnifying party and the Distributing Holder shall
have been advised by such counsel that there may be one or more legal defenses
available to the indemnifying party different from or in conflict with any legal
defenses which may be available to the Distributing Holder (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the Distributing Holder, it being understood, however, that the
indemnifying party shall, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable only for the reasonable
fees and expenses of one separate firm of attorneys for the Distributing Holder,
which firm shall be designated in writing by the Distributing Holder). No
settlement of any action against an indemnified party shall be made without the
prior written consent of the indemnified party, which consent shall not be
unreasonably withheld.
Section 10. CONTRIBUTION. In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) the Distributing
Holder makes a claim for indemnification pursuant to Section 9 hereof but is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 9 hereof provide
for indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any Distributing Holder, then the Company and the
applicable Distributing Holder shall contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and all attorneys' fees), in either such case (after
contribution from others) on the basis of relative fault as well as any other
relevant equitable considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to
II-30
<PAGE>
information supplied by the Company on the one hand or the applicable
Distributing Holder, on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Distributing Holder agree that it
would not be just and equitable if contribution pursuant to this Section were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in this
Section. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this Section shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
Section 11. "PIGGY-BACK" REGISTRATION. The Holders shall have the right
to include all of the Registrable Securities as part of any registration of
securities filed by the Company (other than in connection with a transaction
contemplated by Rule 145(a) promulgated under the Act or pursuant to Form S-8)
and must be notified in writing of such filing; PROVIDED, HOWEVER, that the
Holders agree they shall not have any piggy-back registration rights pursuant
to this Section if the Registrable Securities may be sold in the United
States pursuant to the provisions of Rule 144. The Holders shall have five
(5) business days to notify the Company in writing as to whether the Company
is to include the Holder(s) or not include the Holder(s) as part of the
registration; PROVIDED, HOWEVER, that if any registration pursuant to this
Section shall be underwritten, in whole or in part, the Company may require
that the Registrable Securities requested for inclusion pursuant to this
Section be included in the underwriting on the same terms and conditions as
the securities otherwise being sold through the underwriters. If in the good
faith judgment of the underwriter evidenced in writing of such offering only
a limited number of Registrable Securities should be included in such
offering, or no such shares should be included, the Holder(s), and all other
selling stockholders, shall be limited to registering such proportion of
their respective shares as shall equal the proportion that the number of
shares of selling stockholders permitted to be registered by the underwriter
in such offering bears to the total number of all shares then held by all
selling stockholders desiring to participate in such offering. Those
Registrable Securities which are excluded from an underwritten offering
pursuant to the foregoing provisions of this Section (and all other
Registrable Securities held by the selling stockholders) shall be withheld
from the market by the holders thereof for a period, not to exceed one
hundred eighty (180) days, which the underwriter may reasonably determine is
necessary in order to effect such underwritten offering. The Company shall
have the right to terminate or withdraw any registration initiated by it
under this Section prior to the effectiveness of such registration whether or
not any Holder elected to include securities in such registration. All
registration expenses incurred by the Company in complying with this Section
shall be paid by the Company, exclusive of underwriting discounts,
commissions and legal fees and expenses for counsel to the Holders.
Section 12. NOTICES. All notices, demands, requests, consents,
APPROVALS, and other communications required or permitted hereunder shall be
in writing and, unless otherwise specified herein, shall be (i) personally
served, (ii) deposited in the mail, registered or certified, return receipt
requested, postage prepaid, (iii) delivered by reputable air courier service
with charges prepaid, or (iv) transmitted by hand delivery, telegram, or
facsimile, addressed as set forth below or to such other address as such
party shall have specified most recently by written notice. Any notice or
other communication required or permitted to be given hereunder shall be
deemed effective (a) upon hand delivery or delivery by facsimile, with
accurate confirmation generated by the transmitting facsimile machine, at the
address or number designated below (if delivered on a business day during
normal business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a business
day during normal business hours where such notice is to be received) or
(b) on the second business day following the date of
II-31
<PAGE>
mailing by reputable courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur.
The addresses for such communications shall be:
If to Dynatec International, Inc.:
Dynatec International, Inc.
3820 West Great Lakes Drive
Salt Lake City, Utah 84120
Attn: Donald M. Wood
Facsimile: (801) 972-2112
Telephone: (800) 722-7425
If to the Placement Agent:
Settondown Capital International Ltd.
Charlotte House, Charlotte Street
P.O. Box N. 9204
Nassau, Bahamas
Attn: Anthony L. M. Inder Riden
Telephone: (242) 325-1033
Facsimile: (242) 323-7918
If to the Purchasers, at the address listed on Schedule A.
Either party hereto may from time to time change its address or
facsimile number for notices under this Section by giving at least ten (10)
days' prior written notice of such changed address or facsimile number to the
other party hereto.
Section 13. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 14. HEADINGS. The headings in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation
of this Agreement.
Section 15. JURISDICTION/VENUE. This Agreement will be construed and
enforced in accordance with and governed by the laws of the State of New York,
except for matters arising under the Act, without reference to principles of
conflicts of law. Each of the parties consents to the jurisdiction of the
federal courts whose districts encompass any part of the State of New York or
the state courts of the State of New York in connection with any dispute
arising under this Agreement and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on FORUM NON
CONVENIENS, to the bringing of any such proceeding in such jurisdictions.
Each party hereby agrees that if another party to this Agreement obtains a
judgment against it in such a proceeding, the party which obtained such
judgment may enforce same by summary judgment in the courts of any country
having jurisdiction over the party against whom such judgment was obtained,
and each party hereby waives any defenses available to it under local law and
agrees to the enforcement of such a judgment. Each party to this Agreement
irrevocably consents to the service of process in any such proceeding by the
mailing of copies thereof by registered or certified mail, postage prepaid,
to such party at its address set forth herein. Nothing herein shall affect
the right of any party to serve process in any other manner permitted by law.
Each of the parties
II-32
<PAGE>
agrees that it hereby waives its right to a trial by jury with the litigation
of any dispute in connection with this Agreement and all Exhibits annexed
hereto.
Section 16. SEVERABILITY. If any provision of this Agreement shall for
any reason be held invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provision hereof and this
Agreement shall be construed as if such invalid or unenforceable provision
had never been contained herein.
[Remainder of Page Intentionally Left Blank]
[Signature Page Follows]
II-33
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed, on the day and year first above written.
DYNATEC INTERNATIONAL, INC.
By:
-----------------------------
Name: Don Wood
Title: CEO
SETTONDOWN CAPITAL INTER-
NATIONAL LTD.
By:
-----------------------------
Its:
ELLIS ENTERPRISES
By:
-----------------------------
Its:
TLG REALTY
By:
-----------------------------
Its:
BALMLORE FUNDS S.A.
By:
-----------------------------
Its:
AUSTOST ANSTALT SCHAAN
By:
-----------------------------
Its:
HEWLETTE FUND
By:
-----------------------------
Its:
EXHIBIT F
II-34
<PAGE>
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY OTHER APPLICABLE STATE SECURITIES
LAWS AND HAS BEEN ISSUED IN RELIANCE UPON REGULATION D PROMULGATED UNDER THE
SECURITIES ACT. THIS WARRANT SHALL NOT CONSTITUTE AN OFFER TO SELL NOR A
SOLICITATION OF AN OFFER TO BUY THE WARRANT IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL. THIS WARRANT MAY NOT BE SOLD,
PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES
LAWS, OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE
PROVISIONS OF THE SECURITIES ACT AND UNDER PROVISIONS OF APPLICABLE STATE
SECURITIES LAWS; AND IN THE CASE OF AN EXEMPTION, ONLY IF THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL THAT SUCH TRANSACTION DOES NOT REQUIRE
REGISTRATION OF THE WARRANT, WHICH OPINION AND WHICH COUNSEL SHALL BE
SATISFACTORY TO THE COMPANY IN ITS SOLE DISCRETION.
COMMON STOCK PURCHASE WARRANT B
No. __
To Purchase ______ Shares of Common Stock of
DYNATEC INTERNATIONAL, INC.
THIS CERTIFIES that, for value received, ___________________ (the
"Investor"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, at any time on or after the date hereof and on or
prior to April __, 2001 (the "Termination Date") but not thereafter, to
subscribe for and purchase from DYNATEC INTERNATIONAL, INC., a Utah
corporation (the "Company"), ___________________ ( ) shares of Common Stock
(the "Warrant Shares"). The purchase price of one share of Common Stock (the
"Exercise Price") under this Warrant shall be equal to one hundred ten (110%)
percent of the closing bid price of the Common Stock on the NASDAQ Small Cap
Stock Market on the Trading Day immediately preceding the Closing Date for
the $1,500,000 Convertible Debentures, as defined in the Convertible
Debenture and Private Equity Line of Credit Agreement (the "Agreement")
between the Company and Investor and is subject to its terms. The Exercise
Price and the number of shares for which the Warrant is exercisable shall be
subject to adjustment as provided herein. This Warrant is being issued in
connection with the Agreement. In the event of any conflict between the
terms of this Warrant and the Agreement, the Agreement shall control.
II-35
<PAGE>
1. TITLE OF WARRANT. Prior to the expiration hereof and subject to
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by
the holder hereof in person or by duly authorized attorney, upon surrender of
this Warrant together with the Assignment Form annexed hereto properly
endorsed.
2. AUTHORIZATION OF SHARES. The Company covenants that all shares of
Common Stock which may be issued upon the exercise of rights represented by
this Warrant will, upon exercise of the rights represented by this Warrant,
be duly authorized, validly issued, fully paid and nonassessable and free
from all taxes, liens and charges in respect of the issue thereof (other than
taxes in respect of any transfer occurring contemporaneously with such issue).
3. EXERCISE OF WARRANT. Exercise of the purchase rights represented by
this Warrant may be made at any time or times, in whole, before the close of
business on the Termination Date, or such earlier date on which this Warrant
may terminate as provided in paragraph 11 below, by the surrender of this
Warrant and the Subscription Form annexed hereto duly executed, at the office
of the Company (or such other office or agency of the Company as it may
designate by notice in writing to the registered holder hereof at the address
of such holder appearing on the books of the Company) and upon payment of the
Exercise Price of the shares thereby purchased; whereupon the holder of this
Warrant shall be entitled to receive a certificate for the number of shares
of Common Stock so purchased. Certificates for shares purchased hereunder
shall be delivered to the holder hereof within five business days after the
date on which this Warrant shall have been exercised as aforesaid. Payment
of the Exercise Price of the shares may be by certified check or cashier's
check or by wire transfer to an account designated by the Company in an
amount equal to the Exercise Price multiplied by the number of shares being
purchased.
4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant.
5. CHARGES, TAXES AND EXPENSES. Issuance of certificates for shares of
Common Stock upon the exercise of this Warrant shall be made without charge
to the holder hereof for any issue or transfer tax or other incidental
expense in respect of the issuance of such certificate, all of which taxes
and expenses shall be paid by the Company, and such certificates shall be
issued in the name of the holder of this Warrant or in such name or names as
may be directed by the holder of this Warrant; PROVIDED, HOWEVER, that in the
event certificates for shares of Common Stock are to be issued in a name
other than the name of the holder of this Warrant, this Warrant when
surrendered for exercise shall be accompanied by the Assignment Form attached
hereto duly executed by the holder hereof; and PROVIDED FURTHER, that upon
any transfer involved in the issuance or delivery of any certificates for
shares of Common Stock, the Company may require, as a condition thereto, the
payment of a sum sufficient to reimburse it for any transfer tax incidental
thereto.
6. CLOSING OF BOOKS. The Company will at no time close its shareholder
books or records in any manner which interferes with the timely exercise of
this Warrant.
7. NO RIGHTS AS SHAREHOLDER UNTIL EXERCISE. This Warrant does not
entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company prior to the exercise thereof. If, however, at
the time of the surrender of this Warrant and purchase the holder hereof
shall be entitled to exercise this Warrant, the shares so purchased shall be
and be deemed to be issued to such holder as the record owner of such shares
as of the close of business on the date on which this Warrant shall have been
exercised.
II-36
<PAGE>
8. ASSIGNMENT AND TRANSFER OF WARRANT. This Warrant may be assigned
by the surrender of this Warrant and the Assignment Form annexed hereto duly
executed at the office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the registered holder
hereof at the address of such holder appearing on the books of the Company);
PROVIDED, HOWEVER, that this Warrant may not be resold or otherwise
transferred except (i) in a transaction registered under the Securities Act,
or (ii) in a transaction pursuant to an exemption, if available, from such
registration and whereby, if requested by the Company, an opinion of counsel
reasonably satisfactory to the Company is obtained by the holder of this
Warrant to the effect that the transaction is so exempt.
9. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. The Company
represents and warrants that upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation
of any Warrant or stock certificate, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto,
and upon surrender and cancellation of such Warrant or stock certificate, if
mutilated, the Company will make and deliver a new Warrant or stock
certificate of like tenor and dated as of such cancellation, in lieu of this
Warrant or stock certificate.
10. SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or appointed day
for the taking of any action or the expiration of any right required or
granted herein shall be a Saturday, Sunday or a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding day
not a legal holiday.
11. EFFECT OF CERTAIN EVENTS.
(a) If at any time the Company proposes (i) to sell or otherwise
convey all or substantially all of its assets or (ii) to effect a transaction
(by merger or otherwise) in which more than 50% of the voting power of the
Company is disposed of (collectively, a "Sale or Merger Transaction"), in
which the consideration to be received by the Company or its shareholders
consists solely of cash, the Company shall give the holder of this Warrant
thirty (30) days' notice of the proposed effective date of the transaction
specifying that the Warrant shall terminate if the Warrant has not been
exercised by the effective date of the transaction.
(b) In case the Company shall at any time effect a Sale or Merger
Transaction in which the consideration to be received by the Company or its
shareholders consists in part of consideration other than cash, the holder of
this Warrant shall have the right thereafter to purchase, by exercise of this
Warrant and payment of the aggregate Exercise Price in effect immediately
prior to such action, the kind and amount of shares and other securities and
property which it would have owned or have been entitled to receive after the
happening of such transaction had this Warrant been exercised immediately
prior thereto.
(c) REGISTRATION RIGHTS. The holder of this Warrant shall be
granted registration rights for the Warrant Shares pursuant to a Registration
Rights Agreement dated May __, 1998.
12. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The
number and kind of securities purchasable upon the exercise of this Warrant
and the Exercise Price shall be subject to adjustment from time to time upon
the happening of any of the following.
In case the Company shall (i) declare or pay a dividend in shares of
Common Stock or make a distribution in shares of Common Stock to holders of
its outstanding Common Stock, (ii) subdivide its
II-37
<PAGE>
outstanding shares of Common Stock, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock or (iv) issue
any shares of its capital stock in a reclassification of the Common Stock,
the number of Warrant Shares purchasable upon exercise of this Warrant
immediately prior thereto shall be adjusted so that the holder of this
Warrant shall be entitled to receive the kind and number of Warrant Shares or
other securities of the Company which he would have owned or have been
entitled to receive had such Warrant been exercised in advance thereof. An
adjustment made pursuant to this paragraph shall become effective immediately
after the effective date of such event retroactive to the record date, if
any, for such event.
13. VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may, at any time
during the term of this Warrant, reduce the then current Exchange Price to
any amount and for any period of time deemed appropriate by the Board of
Directors of the Company.
14. NOTICE OF ADJUSTMENT. Whenever the number of Warrant shares or
number or kind of securities or other property purchasable upon the exercise
of this Warrant or the Exercise Price is adjusted, as herein provided, the
Company shall promptly mail by registered or certified mail, return receipt
requested, to the holder of this Warrant notice of such adjustment or
adjustments setting forth the number of Warrant Shares (and other securities
or property) purchasable upon the exercise of this Warrant and the Exercise
Price of such Warrant Shares after such adjustment, setting forth a brief
statement of the facts requiring such adjustment and setting forth
computation by which such adjustment was made. Such notice, in absence of
manifest error, shall be conclusive evidence of the correctness of such
adjustment.
15. AUTHORIZED SHARES. The Company covenants that during the period
the Warrant is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of
Common Stock upon the exercise of any purchase rights under this Warrant.
The Company further covenants that its issuance of this Warrant shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates
for shares of the Company's Common Stock upon the exercise of the purchase
rights under this Warrant. The Company will take all such reasonable action
as may be necessary to assure that such shares of Common Stock may be issued
as provided herein without violation of any applicable law or regulation, or
of any requirements of the NASDAQ Small Cap Stock Market or any domestic
securities exchange upon which the Common Stock may be listed.
16. MISCELLANEOUS.
(a) ISSUE DATE; JURISDICTION. The provisions of this Warrant
shall be construed and shall be given effect in all respects as if it had
been issued and delivered by the Company on the date hereof. This Warrant
shall be binding upon any successors or assigns of the Company. This Warrant
shall constitute a contract under the laws and jurisdictions of New York and
for all purposes shall be construed in accordance with and governed by the
laws of said state without regard to its conflict of law, principles or rules
and be subject to the arbitration provisions as set forth in the Agreement,
except for matters arising under the Act, without reference to principles of
conflicts of law. Each party consents to the jurisdiction of the U.S.
District Court sitting in the Southern District of the State of New York or
the state courts of the State of New York sitting in Manhattan in connection
with any dispute arising under this Agreement and hereby waives, to the
maximum extent permitted by law, any objection, including any objection based
on FORUM NON CONVENIENS, to the bringing of any such proceeding in such
jurisdictions. Each party hereby agrees that if another party to this
Warrant obtains a judgment against it in such a proceeding, the party which
obtained
II-38
<PAGE>
such judgment may enforce same by summary judgment in the courts of any
country having jurisdiction over the party against whom such judgment was
obtained, and each party hereby waives any defenses available to it under
local law and agrees to the enforcement of such a judgment. Each party to
this Warrant irrevocably consents to the service of process in any such
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to such party at its address set forth herein. Nothing
herein shall affect the right of any party to serve process in any other
manner permitted by law.
(b) RESTRICTIONS. The holder hereof acknowledges that the Common
Stock acquired upon the exercise of this Warrant, if not registered, may have
restrictions upon its resale imposed by state and federal securities laws.
(c) MODIFICATION AND WAIVER. This Warrant and any provisions
hereof may be changed, waived, discharged or terminated only by an instrument
in writing signed by the party against which enforcement of the same is
sought.
(d) NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the holders hereof of the Company shall
be delivered or shall be sent by certified or registered mail, postage
prepaid, to each such holder at its address as shown on the books of the
Company or to the Company at the address set forth in the Agreement.
II-39
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant B to be executed
by its officers hereunto duly authorized.
Dated: May __, 1998
DYNATEC INTERNATIONAL, INC.
By
--------------------------------------
Name: Donald M. Wood
Title: Chief Executive Officer
II-40
<PAGE>
NOTICE OF EXERCISE
To: DYNATEC INTERNATIONAL, INC.
(1) The undersigned hereby elects to purchase ________ shares of Common Stock
of DYNATEC INTERNATIONAL, INC. pursuant to the terms of the attached Warrant B,
and tenders herewith payment of the purchase price in full, together with all
applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
(Name)
-----------------------------
-----------------------------(Address)
-----------------------------
Dated:
Signature
- -----------------------------
II-41
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby
are hereby assigned to
_______________________________________________ whose address is
_______________________________________________________________.
_______________________________________________________________
Dated: _______________
Holder's Signature: ________________________________
Holder's Address: ________________________________
________________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as
it appears on the face of the Warrant, without alteration or enlargement or
any change whatsoever, and must be guaranteed by a bank or trust company.
Officers of corporations and those acting in an fiduciary or other
representative capacity should file proper evidence of authority to assign
the foregoing Warrant.
II-42
<PAGE>
EXHIBIT 10.6
ESCROW AGREEMENT
THIS AGREEMENT is made as of the day of May, 1998 by and among
DYNATEC INTERNATIONAL, INC., with its principal office at 3820 West Great
Lakes Drive, Salt Lake City, Utah 84120 (hereinafter the "Company"),
SETTONDOWN CAPITAL INTERNATIONAL LTD. (the "Placement Agent") located at
Charlotte House, Charlotte Street, P.O. Box N. 9204, Nassau, Bahamas, the
"Purchasers" specified on Schedule A attached hereto, with their respective
principal offices at the addresses set forth in Schedule A (hereinafter
together with the Placement Agent referred to as the "Investors"), and
GOLDSTEIN, GOLDSTEIN & REIS, LLP, 65 Broadway, 10th Fl., New York, NY 10006
(hereinafter the "Escrow Agent").
W I T N E S S E T H:
WHEREAS, the Purchasers will be purchasing $1,500,000 Convertible
Debentures, a $500,000 Convertible Debentures, and Warrants from the Company
at a purchase price as set forth in the $500,000 Convertible Debentures, the
$1,500,000 Convertible Debentures, and the Convertible Debenture and Private
Equity Line of Credit Agreement (the "Equity Line Agreement") dated May ,
1998, which will be issued as per the terms contained herein and in the
Equity Line Agreement executed by the Company and Investors; all capitalized
terms not defined herein shall have the definition as set forth in the
Agreement; and
WHEREAS, the Company shall issue to the Placement Agent pursuant to the
terms of the Equity Line Agreement, from time to time as provided herein, a
Warrant A to purchase 450,000 shares of Common Stock, and 80,000 shares of
Common Stock; and
WHEREAS, the parties hereby agree to establish an escrow account with
the Escrow Agent whereby the Escrow Agent shall hold the funds for the
purchase of the Convertible Debentures, and Put Shares (collectively referred
to as the "Securities"); and
WHEREAS, the Company shall have a Put for the remainder of the
Commitment Amount for up to $10,000,000 after the Purchase Price for the
Convertible Debentures has been paid to the Company, in accordance with the
terms and conditions in the Agreement; and
WHEREAS, it is intended that the purchase of the Securities be
consummated in accordance with the requirements set forth by Regulation D
promulgated under the Securities Act of 1933, as amended; and
WHEREAS, the Company has requested that the Escrow Agent hold the Purchase
Price for the Convertible Debentures, and the remainder of the Commitment Amount
in escrow until the Escrow Agent has received the Convertible Debentures, and
the Put Shares, as applicable. The Escrow Agent will then immediately wire
transfer or otherwise deliver at the Company's discretion immediately available
funds to the Company's account and arrange for delivery of the Convertible
Debentures and Put Shares to Investors as per the terms and conditions in the
Agreement.
II-43
<PAGE>
NOW, THEREFORE, in consideration of the covenants and mutual promises
contained herein and other good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged and intending to be
legally bound hereby, the parties agree as follows:
ARTICLE 1
TERMS OF THE ESCROW FOR THE
PURCHASE OF $1,500,000 CONVERTIBLE DEBENTURES
1.1 Upon Escrow Agent's receipt of the Purchase Price from the
Purchasers for the $1,500,000 Convertible Debentures, and Warrants to be
purchased pursuant to the terms set forth in the Equity Line Agreement, into
its attorney trustee account, it shall notify the Company, or the Company's
designated attorney or agent, of the amount of funds it has received into its
account.
1.2 The Company, upon receipt of said notice and acceptance of the
Equity Line Agreement by both parties, as evidenced by the Company's and the
Investor's execution thereof, shall deliver to the Escrow Agent the
$1,500,000 Convertible Debentures and Warrants being purchased by the
Purchasers, and those shares of Common Stock and Warrants being issued to the
Placement Agent. Escrow Agent shall then communicate with the Company to
confirm the validity of their issuance.
1.3 Once Escrow Agent confirms the validity of the issuance of the
Convertible Debentures and Warrants, he shall immediately wire that amount of
funds necessary to purchase an aggregate of $1,500,000 Convertible Debentures
and Warrants per the written instructions of the Company. The Company will
furnish Escrow Agent with a "Net Letter" directing payment of (i) Placement
Agent fees as per the terms of the Equity Line Agreement to the Placement
Agent; and (ii) legal, administrative, and escrow costs as per the terms of
the Equity Line Agreement to Goldstein, Goldstein & Reis, LLP. Such fees are
to be remitted in accordance with wire instructions that will be sent to
Escrow Agent from the Company, with the net balance payable to the Company.
Once the funds (as set forth above) have been received per the Company's
instructions, the Escrow Agent shall then arrange to have the Convertible
Debentures, Common Stock, and Warrants delivered as per instructions from the
Investors.
ARTICLE 2
TERMS OF THE ESCROW FOR THE PURCHASE
OF $500,000 CONVERTIBLE DEBENTURES WITHIN FIVE TRADING
DAYS AFTER THE EFFECTIVE DATE
2.1 Upon Escrow Agent's receipt from the Purchasers of the Purchase
Price for the $500,000 Convertible Debentures to be purchased within five
Trading Days after the Effective Date, into its attorney trustee account, it
shall notify the Company, or the Company's designated attorney or agent, of
the amount of funds it has received into its account.
II-44
<PAGE>
2.2 The Company, upon receipt of said notice and verification from the
Company that all of the conditions as stated in the Equity Line Agreement
have been satisfied, shall deliver to the Escrow Agent the $500,000
Convertible Debentures being purchased within five Trading Days after the
Effective Date. Escrow Agent shall then communicate with the Company to
confirm the validity of their issuance.
2.3 Once Escrow Agent confirms the validity of the issuance of the
$500,000 Convertible Debentures, he shall immediately wire that amount of
funds necessary to purchase the $500,000 Convertible Debentures per the
written instructions of the Company. The Company will furnish Escrow Agent
with a "Net Letter" directing payment of (i) Placement Agent fees as per the
terms of the Equity Line Agreement to the Placement Agent; and (ii) legal,
administrative, and escrow costs as per the terms of the Equity Line
Agreement to Goldstein, Goldstein & Reis, LLP. Such fees are to be remitted
in accordance with wire instructions that will be sent to Escrow Agent from
the Company, with the net balance payable to the Company. Once the funds (as
set forth above) have been received per the Company's instructions, the
Escrow Agent shall then arrange to have the Convertible Debentures delivered
as per instructions from the Purchasers.
ARTICLE 3
TERMS OF THE ESCROW FOR THE PUT SHARES
3.1 Upon Escrow Agent's receipt of confirmation in writing that the
Company has properly served a Put Notice in accordance with the Agreement,
and once it has received the Purchase Price from the Purchasers for the Put
Shares into its attorney trustee account, it shall notify the Company, or the
Company's designated attorney or agent, of the amount of funds it has
received into its account.
3.2 The Company, upon receipt of said notice and acceptance by the
Purchasers, as evidenced by written notice by the Purchasers, shall deliver
to the Escrow Agent the Put Shares being purchased. Escrow Agent shall then
communicate with the Company to confirm the validity of its issuance.
3.3 Once Escrow Agent confirms the validity of the issuance of the Put
Shares, he shall immediately wire that amount of funds necessary to purchase
the Put Shares per the written instructions of the Company. The Company will
furnish Escrow Agent with a "Net Letter" directing payment of (i) Placement
Agent fees as per the terms of the Agreement to the Placement Agent; and (ii)
legal, administrative, and escrow costs as per the terms of the Agreement to
Goldstein, Goldstein & Reis, LLP. Such fees are to be remitted in accordance
with wire instructions that will be sent to Escrow Agent from the Company,
with the net balance payable to the Company. Once the funds have been
received per the Company's instructions, the Escrow Agent shall then arrange
to have the Put Shares delivered as per instructions from the Purchasers.
ARTICLE 4
TERMS OF THE ESCROW FOR THE 60,000 SHARES OF
COMMON STOCK ISSUABLE TO THE PLACEMENT AGENT
4.1 The Company and the Placement Agent hereby agree to establish an
escrow account with the Escrow Agent whereby the Escrow Agent shall hold 60,000
shares of Common Stock ("Escrowed
II-45
<PAGE>
Shares") issued by the Company pursuant to the Equity Line Agreement. The
Escrowed Shares will be issued in the name of Placement Agent. In addition,
the Escrow Agent shall hold blank Stock Powers, duly executed, by the
Placement Agent.
4.2 These shares of Common Stock shall be issued to the Placement Agent
as follows, 6,000 shares of Common Stock per the Closing of every $1,000,000
of aggregate Put Investment Amount, upon the written certification from the
Company to the Escrow Agent on or before each Closing for Put Shares of the
completion of each of the following: (i) the conditions set forth in Article
3 above have been satisfied; (ii) that such issuance of Common Stock to the
Placement Agent does not trigger the requirement of shareholder approval
under the Nasdaq governance provisions applicable to the Company; and (iii)
the Company's independent auditors agree and give written confirmation of
same that the expenses reflected by the grants of Common Stock in this
Section can be reflected in the financial statements of the Company only
incrementally on a pro rata basis as the Puts are made. The Company shall
notify the Escrow Agent and the Transfer Agent in writing of the
aforementioned issuance and the number of shares of Common Stock to be issued
to the Placement Agent per each Closing for Put Shares referenced above, and
the number of shares, if any, to be returned to the Company or returned into
escrow. Upon receipt of such notice, the Escrow Agent shall send, by
overnight mail, the original certificates to the Company's transfer agent
(the "Transfer Agent"), along with the Stock Power, executed by the Placement
Agent and transfer instructions directing the Transfer Agent to deliver these
shares of Common Stock to the Placement Agent.
4.3 The Company shall notify the Transfer Agent and the Escrow Agent,
in writing, of the number of Escrowed Shares to be issued to the Placement
Agent and the number of Escrowed Shares to be returned to the Company or into
escrow, and Escrow Agent shall deliver the executed Stock Power to the
Transfer Agent.
ARTICLE 5
MISCELLANEOUS
5.1 This Agreement may be altered or amended only with the consent of
all of the parties hereto. Should the Company or Investors attempt to change
this Agreement in a manner which, in the Escrow Agent's discretion, shall be
undesirable, the Escrow Agent may resign as Escrow Agent by notifying the
Company and the Investor in writing. In the case of the Escrow Agent's
resignation or removal pursuant to the foregoing, its only duty, until
receipt of notice from the Company and the Investors or their agent that a
successor escrow agent shall have been appointed, shall be to hold and
preserve the funds. Upon receipt by the Escrow Agent of said notice from the
Company and the Investors of the appointment of a successor escrow agent, the
name of a successor escrow account and a direction to transfer the funds, the
Escrow Agent shall promptly thereafter transfer all of the funds held in
escrow to said successor escrow agent. Immediately after said transfer, the
Escrow Agent shall furnish the Company and the Investor with proof of such
transfer. The Escrow Agent is authorized to disregard any notices, requests,
instructions or demands received by it from the Company or the Investors
after notice of resignation or removal shall have been given, unless the same
shall be the aforementioned notice from the Company and the Investors to
transfer the funds to a successor escrow agent or to return same to the
respective parties.
II-46
<PAGE>
5.2 The Escrow Agent shall be reimbursed by the Company and the
Investors for any reasonable expenses incurred in the event there is a
conflict between the parties and the Escrow Agent shall deem it necessary to
retain counsel.
5.3 The Escrow Agent shall not be liable for any action taken or
omitted by it in good faith in accordance with the advice of the Escrow
Agent's counsel; and in no event shall the Escrow Agent be liable or
responsible except for the Escrow Agent's own gross negligence or willful
misconduct.
5.4 The Company and the Investors warrant to and agree with the Escrow
Agent that, unless otherwise expressly set forth in this Agreement:
(i) there is no security interest in the Securities or any part
thereof;
(ii) no financing statement under the Uniform Commercial Code is
on file in any jurisdiction claiming a security interest or in
describing (whether specifically or generally) the Securities or any
part thereof; and
(iii) the Escrow Agent shall have no responsibility at any time to
ascertain whether or not any security interest exists in the
Securities or any part thereof or to file any financing statement
under the Uniform Commercial Code with respect to the Securities or
any part thereof.
5.5 The Escrow Agent in its capacity as such has no liability hereunder
to either party other than to hold the funds and the Securities and to
deliver them under the terms hereof. Each party hereto agrees to indemnify
and hold harmless the Escrow Agent in its capacity as such from and with
respect to any suits, claims, actions or liabilities arising in any way out
of this transaction including the obligation to defend any legal action
brought which in any way arises out of or is related to this Escrow.
5.6 No waiver or any breach of any covenant or provision herein
contained shall be deemed a waiver of any preceding or succeeding breach
thereof, or of any other covenant or provision herein contained. No
extension of time for performance of any obligation or act shall be deemed
any extension of the time for performance of any other obligation or act.
5.7 All notices, demands, requests, consents, APPROVALS, and other
communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with
charges prepaid, or (iv) transmitted by hand delivery, telegram, or
facsimile, addressed as set forth below or to such other address as such
party shall have specified most recently by written notice. Any notice or
other communication required or permitted to be given hereunder shall be
deemed effective (a) upon hand delivery or delivery by facsimile, with
accurate confirmation generated by the transmitting facsimile machine, at the
address or number designated below (if delivered on a business day during
normal business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a business
day during normal business hours where such notice is to be received) or (b)
on the second business day following the date of mailing by
II-47
<PAGE>
reputable courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses
for such communications shall be:
II-48
<PAGE>
If to Dynatec International, Inc.:
Dynatec International, Inc.
3820 West Great Lakes Drive
Salt Lake City, Utah 84120
Attn: Donald M. Wood
Facsimile: (801) 972-2112
Telephone: (800) 722-7425
If to the Placement Agent:
Settondown Capital International Ltd.
Charlotte House, Charlotte Street
P.O. Box N. 9204
Nassau, Bahamas
Attn: Anthony L. M. Inder Riden
Telephone: (242) 325-1033
Facsimile: (242) 323-7918
If to the Purchasers, at the address listed on Schedule A.
If to Goldstein, Goldstein & Reis, LLP:
Goldstein, Goldstein & Reis, LLP
65 Broadway, 10th Fl.
New York, NY 10006
Attn: Sheldon E. Goldstein, Esq.
Telephone: (212) 809-4220
Facsimile (212) 809-4228
Either party hereto may from time to time change its address or
facsimile number for notices under this Section by giving prior written
notice of such changed address or facsimile number to the other party hereto.
5.8 This Agreement shall be binding upon and shall inure to the benefit
of the permitted successors and assigns of the parties hereto.
5.9 This Agreement is the final expression of, and contains the entire
Agreement between, the parties with respect to the subject matter hereof and
supersedes all prior understandings with respect thereto. This Agreement may
not be modified, changed, supplemented or terminated, nor may any obligations
hereunder be waived, except by written instrument signed by the parties to be
charged or by its agent duly authorized in writing or as otherwise expressly
permitted herein.
II-49
<PAGE>
5.10 Whenever required by the context of this Agreement, the singular
shall include the plural and masculine shall include the feminine. This
Agreement shall not be construed as if it had been prepared by one of the
parties, but rather as if both parties had prepared the same. Unless
otherwise indicated, all references to Articles are to this Agreement.
5.11 The Company acknowledges and confirms that it is not being represented
in a legal capacity by Goldstein, Goldstein & Reis, LLP and it has had the
opportunity to consult with its own legal advisors prior to the signing of this
Agreement.
5.12 This Agreement will be construed and enforced in accordance with
and governed by the laws of the State of New York, except for matters arising
under the Act, without reference to principles of conflicts of law. Each of
the parties consents to the jurisdiction of the U.S. District Court sitting
in the Southern District of the State of New York or the state courts of the
State of New York sitting in Manhattan in connection with any dispute arising
under this Agreement and hereby waives, to the maximum extent permitted by
law, any objection, including any objection based on FORUM NON CONVENIENS, to
the bringing of any such proceeding in such jurisdictions. Each party hereby
agrees that if another party to this Agreement obtains a judgment against it
in such a proceeding, the party which obtained such judgment may enforce same
by summary judgment in the courts of any country having jurisdiction over the
party against whom such judgment was obtained, and each party hereby waives
any defenses available to it under local law and agrees to the enforcement of
such a judgment. Each party to this Agreement irrevocably consents to the
service of process in any such proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to such party at its address
set forth herein. Nothing herein shall affect the right of any party to serve
process in any other manner permitted by law.
[Remainder of Page Intentionally Left Blank]
[Signature Page Follows]
II-50
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Escrow
Agreement as of the day of May, 1998.
DYNATEC INTERNATIONAL, INC. SETTONDOWN CAPITAL INTER-
NATIONAL LTD.
By______________________ By_____________________________
Its: CEO Its:
ELLIS ENTERPRISES
By_____________________________
Its:
TLG REALTY
By_____________________________
Its:
BALMLORE FUNDS S.A.
By_____________________________
Its:
AUSTOST ANSTALT SCHAAN
By_____________________________
Its:
GOLDSTEIN, GOLDSTEIN & REIS, LLP HEWLETTE FUND
Escrow Agent
By____________________________ By____________________________
Its:
II-51
<PAGE>
EXHIBIT 11.1
Computation of Per Share Earnings for the Three Months Ended March 31, 1998;
for the Three Months ended March 31, 1997;
for the year ended December 31, 1997; and
for the year ended December 31, 1996.
<TABLE>
<CAPTION>
Qtr-Ended Qtr-Ended Year-Ended Year-Ended
3/31/98 3/31/97 12/31/98 12/31/97
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
A NET INCOME FOR PERIOD $ 683,878 $ (511,864) $ (409,172) $(1,045,149)
B BASIC WEIGHTED AVG. # OF SHARES 2,779,882 2,047,982 2,290,847 1,463,877
WEIGHTED AVG. # OF COMMON STK. OPTIONS 584,090 N/A N/A N/A
---------- ---------- ---------- -----------
C DILUTED WEIGHTED AVG. # OF SHARES 3,363,972 N/A N/A N/A
A/B BASIC EARNINGS PER SHARE 0.25 (0.25) (0.18) (0.71)
A/C FULLY DILUTED EARNINGS PER SHARE 0.20 N/A N/A N/A
N/A = Anti-dilutive, therefore reported the same as basic
</TABLE>
II-52
<PAGE>
EXHIBIT 23.2
Consent of KPMG Peat Marwick, LLP, Independent Certified Public
Accountants
The Board of Directors
Dynatec International, Inc.
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the registrations statement.
/s/ KMPG Peat Marwick LLP
KPMG Peat Marwick LLP
Salt Lake City, Utah
June 23, 1998
II-54
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our audit report dated March 27, 1997, with respect
to the consolidated financial statements for the year ended December 31, 1996
of Dynatec International, Inc., included in and made part of the Dynatec
International, Inc.'s Form SB-2 Registration Statement, filed with the
Securities and Exchange Commission.
/s/ Jones, Jensen and Company
--------------------------------
Certified Public Accountants
Date: June 24, 1998
---------------------
II-55
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 679,647
<SECURITIES> 0
<RECEIVABLES> 2,148,401
<ALLOWANCES> 0
<INVENTORY> 2,987,446
<CURRENT-ASSETS> 6,691,797
<PP&E> 3,941,811
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,940,602
<CURRENT-LIABILITIES> 4,981,557
<BONDS> 1,899,259
0
0
<COMMON> 28,716
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 10,940,602
<SALES> 3,647,786
<TOTAL-REVENUES> 4,227,786
<CGS> 2,281,051
<TOTAL-COSTS> 3,419,233
<OTHER-EXPENSES> 124,675
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 107,009
<INCOME-PRETAX> 683,878
<INCOME-TAX> 0
<INCOME-CONTINUING> 683,878
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 683,878
<EPS-PRIMARY> .25
<EPS-DILUTED> .20
</TABLE>
