<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended: September 30, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the Transition Period from to
Commission File Number: 0-12806
DYNATEC INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
UTAH 87-0367267
- ----------------------- -------------------------------
(State or other jurisdiction of (IRS employer identification no.)
incorporation or organization)
3820 Great Lakes Drive
Salt Lake City, Utah 84120
- ------------------------------- -------------------------------
(Address of principal executive offices) (Zip Code)
(801) 973-9500
(Issuer's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
X yes no
The Company had 3,756,903 shares of common stock outstanding at November 5,
1999.
The aggregate market value of voting stock held by non-affiliates of the Company
at November 5, 1999 was $2,753,282.
Transitional small business disclosure format. Yes No X
<PAGE>
DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements (Unaudited)
<S> <C>
Condensed Consolidated Balance Sheets as of September 30, 1999 and December 31, 1998............3
Condensed Consolidated Statements of Operations for the three months ended
September 30, 1999 and 1998, respectively........................................................5
Condensed Consolidated Statements of Operations for the nine months ended
September 30, 1999 and 1998, respectively........................................................6
Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 1999 and 1998, respectively........................................................7
Notes to Condensed Consolidated Financial Statements.............................................9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...........16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...........................................................................24
Item 2(c). Recent Sales of Unregistered Securities.....................................................25
Item 6. Exhibits and Reports on Form 8-K............................................................25
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
(Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 141,680 $ 2,268
Trade accounts receivable, net of allowance for doubtful accounts of $30,846
and $30,190, respectively 2,228,560 2,229,157
Accounts receivable - other 970 110
Inventories (see Note 2) 3,640,877 4,857,241
Prepaid expenses and other 501,651 316,347
------------- -------------
Total current assets 6,513,738 7,405,123
------------- -------------
LAND, BUILDING AND EQUIPMENT, at cost:
Land 365,860 365,860
Building and improvements 2,226,988 2,214,144
Furniture, fixtures and equipment 3,550,823 3,554,045
------------- -------------
6,143,671 6,134,049
Less accumulated depreciation and amortization 2,486,456 2,336,427
------------- -------------
Net land, building and equipment 3,657,215 3,797,622
------------- -------------
TRADEMARKS AND OTHER INTANGIBLES, net of accumulated amortization of $431,651
and $382,170, respectively (see Note 3) 214,928 205,102
------------- -------------
DEFERRED LOAN COSTS, net of accumulated amortization of $34,065 and
$14,903, respectively 42,581 61,743
------------- -------------
OTHER ASSETS 71,024 69,337
------------- -------------
$ 10,499,486 $ 11,538,927
============= =============
</TABLE>
The accompanying notes to condensed
consolidated financial statements are an
integral part of these condensed consolidated
balance sheets.
3
<PAGE>
DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
(Unaudited)
CURRENT LIABILITIES:
<S> <C> <C>
Short-term note payable $ 2,503,277 $ 1,389,223
Convertible debentures 1,699,846 1,667,079
Current portion of long-term debt 153,554 246,855
Current portion of capital lease obligations 32,829 17,881
Accounts payable 1,383,798 1,518,316
Accounts payable - other - 9,000
Accounts payable-related party - 98,403
Accrued expenses 454,699 637,051
Accrued advertising 152,478 320,000
Accrued royalties payable 64,806 70,246
------------- -------------
Total current liabilities 6,445,287 5,974,054
LONG-TERM DEBT, net of current portion 1,850,311 2,006,518
DEPOSIT FOR STOCK ISSUANCE - 1,000,000
CAPITAL LEASE OBLIGATIONS, net of current portion 63,330 28,654
------------- -------------
Total liabilities 8,358,928 9,009,226
------------- -------------
STOCKHOLDERS' EQUITY (see Note 4):
Common stock, $.01 par value; 100,000,000 shares authorized and 3,574,373
and 2,891,627 shares outstanding, respectively 35,744 28,916
Treasury stock, at cost, 91,515 shares (915,150) (915,150)
Additional paid-in capital 8,253,543 7,041,690
Accumulated deficit (5,233,579) (3,625,755)
------------- -------------
Total stockholders' equity 2,140,558 2,529,701
------------- -------------
$ 10,499,486 $ 11,538,927
============= =============
</TABLE>
The accompanying notes to condensed
consolidated financial statements are an
integral part of these condensed consolidated
balance sheets.
4
<PAGE>
DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1999 September 30, 1998
(Unaudited) (Unaudited)
<S> <C> <C>
PRODUCT SALES $ 3,540,463 $ 4,382,334
COST OF SALES 2,081,965 2,788,193
------------- -------------
Gross Margin 1,458,498 1,594,141
------------- -------------
OPERATING COSTS AND EXPENSES:
Selling expenses 1,109,463 903,386
Research and development 36,818 12,045
General and administrative 834,353 693,086
------------- -------------
Total operating costs and expenses 1,980,634 1,608,517
------------- -------------
Loss from operations (522,136) (14,376)
------------- -------------
OTHER EXPENSE:
Interest expense (see Note 5) (155,474) (243,989)
Other income 1,525 -
Gain (loss) on sale of assets 1,580 (1,284)
------------- -------------
Total other expense, net (152,369) (245,273)
------------- -------------
Loss before income tax provision (674,505) (259,649)
INCOME TAX PROVISION - -
------------- -------------
Net loss $ (674,505) $ (259,649)
============= =============
BASIC NET LOSS PER SHARE $ (.20) $ (.09)
============= =============
DILUTED NET LOSS PER SHARE (see Note 2) $ (.20) $ (.09)
============= =============
WEIGHTED AVERAGE SHARES - BASIC AND DILUTED 3,303,371 2,820,802
============= =============
</TABLE>
The accompanying notes to condensed
consolidated financial statements are an
integral part of these condensed consolidated
statements.
5
<PAGE>
DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine months Ended Nine Months Ended
September 30, 1999 September 30, 1998
(Unaudited) (Unaudited)
<S> <C> <C>
PRODUCT SALES $ 10,874,236 $ 12,166,092
COST OF SALES 6,459,535 7,424,393
------------- -------------
Gross Margin 4,414,701 4,741,699
------------- -------------
OPERATING COSTS AND EXPENSES:
Selling expenses 2,773,528 2,586,079
Research and development 100,642 47,528
General and administrative 2,449,495 1,786,857
------------- -------------
Total operating costs and expenses 5,323,665 4,420,464
------------- -------------
Income (loss) from operations (908,964) 321,235
------------- -------------
OTHER INCOME (EXPENSE), net:
Interest expense (see Note 5) (701,321) (1,138,377)
Interest income - 3,340
Other income 4,581 -
Gain (loss) on sale of assets 881 (22,615)
------------- -------------
Total other expense, net (695,859) (1,157,652)
------------- -------------
Loss before income tax provision (1,604,823) (836,417)
INCOME TAX PROVISION 3,000 -
------------- -------------
Net loss $ (1,607,823) $ (836,417)
============= =============
BASIC NET LOSS PER SHARE $ (.49) $ (.30)
============= =============
DILUTED NET LOSS PER SHARE (see Note 2) $ (.49) $ (.30)
============= =============
WEIGHTED AVERAGE SHARES - BASIC AND DILUTED 3,303,371 2,820,802
============= =============
</TABLE>
The accompanying notes to condensed
consolidated financial statements are an
integral part of these condensed consolidated
statements.
6
<PAGE>
DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (1,607,823) $ (836,417)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 398,981 359,723
Amortization of deferred loan costs 19,161 53,071
Interest expense on convertible debentures 308,932 685,611
(Gain) loss on sale of assets (881) 22,616
Changes in assets and liabilities:
Trade accounts receivable 597 (708,311)
Accounts receivable - other (860) 426,131
Inventories 1,216,364 (2,267,986)
Prepaid expenses and other (186,991) 30,534
Trade accounts payable (134,518) (82,998)
Accounts payable - other (107,403) (21,375)
Accrued expenses (257,837) 19,555
Accrued advertising (167,522) (170,194)
Accrued royalties (5,440) 51,052
Income tax payable 18,000 -
------------- -------------
Net cash used in operating activities (507,240) (2,438,988)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of assets 26,124 48,006
Purchase of property and equipment (224,179) (376,195)
------------- -------------
Net cash used in investing activities (198,055) (328,189)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line of credit 1,114,054 616,261
Increase in debt issuance costs - (275,640)
Principal payments on long-term debt (249,508) (749,944)
Payments on capital lease obligations (19,839) (12,476)
Proceeds from capital addition - 580,000
Proceeds from convertible debenture offering - 1,500,000
Proceeds from deposit for stock issuance - 940,000
------------- -------------
Net cash provided by financing activities 844,707 2,598,201
------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 139,412 (168,976)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 2,268 332,894
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 141,680 $ 163,918
============= =============
</TABLE>
The accompanying notes to condensed
consolidated financial statements are an
integral part of these condensed consolidated
statements.
7
<PAGE>
DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998
(Unaudited) (Unaudited)
<S> <C> <C>
Cash paid for interest................................................ $ 414,612 $ 422,140
============= =============
Share certificate cancelled........................................... $ - $ 250,000
============= =============
Debt issuance cost attributable to warrants to placement agent........ $ - $ 426,000
============= =============
Convertible debt discount associated with warrants to investors....... $ - $ 426,000
============= =============
Conversion of Convertible Debentures and accrued interest for
Common stock....................................................... $ 218,680 $ -
============= =============
Issuance of 500,000 shares of restricted stock........................ $ 1,000,000 $ -
============= =============
</TABLE>
The accompanying notes to condensed
consolidated financial statements are an
integral part of these condensed consolidated
statements.
8
<PAGE>
DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
Dynatec International, Inc., a Utah corporation ("Dynatec" or the
"Company"), is a manufacturer and distributor of consumer products comprising
the following major product lines: telecommunication headsets and amplifiers and
telephone accessories, home storage and organization, flashlights and other
miscellaneous products sold to mass market merchandisers. Dynatec is located in
Salt Lake City, Utah. The Company conducts most of its operations through four
wholly owned subsidiaries: Softalk, Inc., Arnco Marketing, Inc., Nordic
Technologies, Inc. and SofTalk Communications, Inc. Unless specified to the
contrary herein, references to Dynatec or to the Company refer to the Company
and its subsidiaries on a consolidated basis.
The Company's business follows seasonal trends. As a result the Company
historically experiences its highest revenues in the fourth quarter. Because the
Company sells its products primarily to major retailers, the Company's sales
performance is significantly dependent on the performance of those retailers.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared by the Company in accordance with the rules and regulations
of the Securities and Exchange Commission for Form 10-QSB, and accordingly, do
not include all of the information and footnotes required by generally accepted
accounting principles. In the opinion of management, these unaudited condensed
consolidated financial statements reflect all adjustments, which consist only of
normal recurring adjustments, which are necessary to present fairly the
Company's financial position, results of operations and cash flows as of
September 30, 1999 and for the periods presented herein. These unaudited
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's annual report on Form 10-KSB for the year ended December 31, 1998.
The results of operations for the nine months ended September 30, 1999
are not necessarily indicative of the results that may be expected for the
remainder of the year ending December 31, 1999.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Inventories
Inventories, consisting principally of telecommunication headsets and
amplifiers and telephone accessories, home storage and organization,
flashlights, and other miscellaneous products sold to mass market merchandisers
as of September 30, 1999 and December 31, 1998, respectively, are summarized as
follows:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
----------------- -----------------
<S> <C> <C>
Raw materials............................ $ 932,959 $ 902,703
Work-in-Process.......................... 153,961 309,815
Finished Goods........................... 2,553,957 3,644,723
================= =================
$ 3,640,877 $ 4,857,241
================= =================
</TABLE>
9
<PAGE>
DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-(CONTINUED)
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 in the period that includes the enactment date.
The Company has recognized no tax benefit for the net operating losses
incurred during the three and nine-month periods ended September 30, 1999 due to
uncertainties about the Company's ability to generate future earnings to offset
such losses.
Basic and Diluted Net Loss Per Common Share
Basic net loss per common share is calculated based upon the weighted
average number of common shares outstanding during the periods presented.
In calculating net loss per share for the three and nine months ended
September 30, 1999 and 1998, there were warrants and options to purchase
1,556,000 and 1,687,500 potential common shares, respectively, that were not
included in the computation of diluted net loss per share as their effect would
have been anti-dilutive, thereby decreasing the net loss per common share.
Reclassifications
Certain reclassifications have been made in the prior period's
consolidated financial statements to conform with the current year presentation.
(3) TRADEMARKS AND OTHER INTANGIBLES
On July 15, 1999 the Company purchased the assets of Transworld
Products, Inc. ("Transworld) at a purchase price of $85,000. Transworld is a
manufacturer of telephone shoulder rests and was a main competitor of the
Company in that product line.In exchange for the purchase price payment, the
Company acquired certain assets of Transworld, including machinery and
equipment, inventory, and intangible assets that include a non-compete agreement
and trademarks. Additionally, $34,000 of the purchase price was allocated to
goodwill, which is being amortized over a 24-month period.
(4) STOCKHOLDERS' EQUITY
On February 4, 1999, the Company entered into a deposit payable
conversion agreement, whereby a $1,000,000 deposit received by the Company in
early 1998 and recorded as a liability in the accompanying balance sheet as of
December 31, 1998 was cancelled, and the Company issued 500,000 shares of
restricted common stock to the depositor.
(5) CONVERTIBLE DEBENTURES/EQUITY LINE-OF-CREDIT
On May 22, 1998, the Company closed a transaction that provided net
capital proceeds of $1,335,000. The transaction was accomplished pursuant to a
Convertible Debenture and Private Equity Line of Credit Agreement (the "Credit
Agreement") between the Company and a group of five unaffiliated investors.
These funds were raised pursuant to the sale by the Company of Convertible
Debentures (the "Convertible Debentures") in the aggregate
10
<PAGE>
DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(5) CONVERTIBLE DEBENTURES/EQUITY LINE-OF-CREDIT-(CONTINUED)
principal amount of $1,500,000 due May 22, 2001. The Convertible Debentures are
convertible into shares of the Company's common stock at the lesser of: (i) 75%
of the average of the three lowest closing bid prices of the Company's common
stock during the 22-trading-day period immediately preceding the conversion date
or (ii) $6.50, which was 100% of the closing bid price on the trading day
immediately preceding the closing date of the agreement.
As of November 5, 1999 the investors have converted the following amounts
of principal and interest accrued thereon in to the following amounts of common
stock :
<TABLE>
<CAPTION>
Date of Conversion Principal Number of Number of
Conversion Price/Share Amount Shares Interest Amount Shares
- ------------ ----------- ------ ---------- --------------- ------------
<S> <C> <C> <C> <C> <C>
6/10/99 $1.3438 $132,500 98,604 $11,180 8,320
7/10/99 $0.9891 $ 65,934 66,667 $ 9,066 9,157
10/8/99 $0.7500 $ 53,000 70,666 $ 8,904 11,872
</TABLE>
Accordingly, as of September 30, 1999, there was a total principal amount of
outstanding Convertible Debentures of $1,301,566. Assuming a hypothetical
conversion of this entire remaining principal amount of the Convertible
Debentures outstanding as of September 30, 1999, and all interest accrued
thereon at the rate of 12% per annum as of September 30, 1999, the Convertible
Debentures would be convertible into approximately 1,960,000 shares of the
Company's common stock. The Convertible Debentures are callable by the holders
thereof.
In addition to the sale of the Convertible Debentures, under the Credit
Agreement, the Company also obtained the right to use a "put" mechanism to
periodically draw down up to $10,000,000 of additional equity capital (the
"Equity Line"). Under the terms of the Credit Agreement, the Company was
obligated to draw down a minimum of $1,000,000 of the Equity Line, and all
amounts were to have been drawn in increments of not less than $50,000. In
return for the payment of additional capital under the Equity Line, the Company
would have been required to issue shares of its common stock at a per share
purchase price equal to 80% of the average of the three lowest closing bid
prices of the common stock during a six day valuation period commencing three
days before the draw date and ending two days after the draw date. The Equity
Line could not have been utilized, and the Company would have had no obligation
to exercise any portion of the put mechanism, until after the effective date of
the registration statement for the underlying stock of the Credit Agreement.
Additionally, upon registration of the underlying shares which may be issued
upon conversion of the Convertible Debentures, the Company was obligated to
issue an additional $500,000 of Convertible Debentures.
On June 25, 1999, the Company and the investors entered into a Modification
Agreement ("Modification Agreement"), under which the parties agreed to cancel
the Equity Line and all of the parties' respective obligations thereunder. The
parties to the Modification Agreement also agreed to cancel the investors'
obligation to purchase and the Company's obligation to sell the additional
$500,000 principal amount of Convertible Debentures upon the effectiveness of
the registration statement. Additionally, the Modification Agreement provides
for the modification and temporary abatement of the Company's obligation to pay
cash liquidated damages of $45,000 per month resulting from the Company's
obligation to have the registration statement declared effective on or before
August 28, 1998. Pursuant to the terms of the Credit Agreement, the Company paid
liquidated damages from September 23, 1998 through and including February 23,
1999 in the aggregate amount of $210,000, of which $135,000 was paid during the
nine-month period ended September 30, 1999. Under the Modification Agreement,
the Company is to accrue a total of $180,000 of liquidated damages for the
period from February 24, 1999 through and including June 23, 1999, which accrued
amount is payable at any time after October 1, 1999, upon request for payment
therefor by the Investors, in shares of the Company's common stock. The number
of shares of common stock issuable upon such payment shall be determined by
dividing the total amount of damages accrued by 100% of the average of the
closing bid prices of the Company's common stock during the five trading day
period immediately preceding the date of such payment. Additionally, under the
Modification Agreement, the Company's obligation to pay liquidated damages under
the Credit Agreement was abated from June 24, 1999 through September 23, 1999,
provided that the registration statement was declared effective on or before
October 31, 1999. Additional liquidated damages in the amount of $45,000 were to
have accrued for the period between September 24, 1999 and October 23, 1999 if
the Registration Statement is not declared effective before
11
<PAGE>
DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(5) CONVERTIBLE DEBENTURES/EQUITY LINE-OF-CREDIT-(CONTINUED)
October 31, 1999. If the registration statement was not declared effective on or
before October 31, 1999, the Modification Agreement's provisions providing for
the payment of liquidated damages in stock and the abatement of liquidated
damages from June 23, 1999 to September 23, 1999 and the provisions allowing the
Company to pay liquidateddamages in common stock rather than cash were subject
to rescission at the option of the Investors. Except to the extent specifically
modified by the Modification Agreement, the terms and conditions of the Credit
Agreement and the documents and instruments incorporated in the Credit Agreement
shall continue in force.
Although the Company filed an amendment to the registration statement on
July 2, 1999, the registration statement was not effective by the October 31,
1999 deadline set forth in the Modification Agreement. Moreover, because the
Company's pending preliminary proxy statement is being reviewed by the
Securities and Exchange Commission in tandem with the pending registration
statement, the Company was not able to hold its annual meeting of shareholders
by the October 31, 1999 deadline. On November 12, 1999, the Company and the
Investors executed an amendment to the Modification Agreement that substituted
February 15, 2000 for the October 31, 1999 deadline originally in the
Modification Agreement. Consequently, the accrual of liquidated damages will be
deferred from June 24, 1999 until February 15, 2000, provided that the
registration statement becomes effective and shareholder approval of the
transaction is obtained on or before that date. Liquidated damages from February
24, 1999 through June 23, 1999 have been accrued and continue to be payable by
the Company as specified in the Modification Agreement. The November 12, 1999,
agreement also amended the Convertible Debentures such that, even if the
Convertible Debentures are still outstanding at their maturity date, May 22,
2001, the Convertible Debentures will not be autormatically converted into
common stock unless the holders so elect.
Also in connection with the Credit Agreement, the investors and
placement agent were issued warrants. These warrants have been issued as Series
A and Series B as follows:
<TABLE>
<CAPTION>
Placement Exercise
Investors Agent Price
----------------- ---------------- ---------------
<S> <C> <C> <C>
Series A Warrants....................... 150,000 150,000 $6.50
Series B Warrants....................... 150,000 300,000 $7.15
</TABLE>
Under the Credit Agreement, the Company was obligated to issue 50,000
additional Series A warrants to both the placement agent and the investors,
collectively, upon the issuance of the additional $500,000 of Convertible
Debentures. Because the Modification Agreement cancelled irrevocably the
Company's obligations with respect to the additional $500,000 of Convertible
Debentures, the Company will not issue additional Series A warrants. Of the
warrants that were issued, one-sixth of the market value of the Series A and B
warrants was allocated to the Convertible Debenture and five-sixths was
allocated to the Equity Line. This allocation was based on the relative notional
amounts of the two elements of the Credit Agreement as of the date of the Credit
Agreement. The value of the warrants issued to the investors was written off in
1998 as a one-time, non-cash debt issuance cost, because the warrants were
immediately exercisable. The value of the warrants issued to the placement agent
and allocated to the Convertible Debentures, and $500,000, representing the
intrinsic value of the beneficial conversion premium, were written off as
non-cash expense in the fourth quarter of 1998, when the Convertible Debentures
became callable by the investors.
The Company also issued, as part of the transaction involving the
Credit Agreement, consideration of up to 80,000 shares of its common stock as a
fee to the placement agent. Of these shares, 20,000 were issued at the time of
the closing. The remaining 60,000 shares were deposited into escrow and were to
be released in 6,000 share increments as each $1,000,000 was drawn down under
the Equity Line established under the Credit Agreement. Because under the
Modification Agreement the Equity Line was cancelled, and therefore the
placement agent never would have been entitled to the 60,000 additional shares
of common stock deposited in escrow, the escrow was terminated, and the 60,000
shares of common stock were returned to the Company for cancellation.
(6) BUSINESS SEGMENT INFORMATION
Information as to the operations of the Company in different business
segments is set forth below based on the nature of the products and services
offered. Management evaluates performance based on several factors, of which the
primary financial measure is business segment operating income before interest,
taxes, depreciation and non-cash amortization of intangible assets ("EBITDA").
The accounting policies of the business segments are the same as those described
in the summary of significant accounting policies.
12
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- ---------------------------------
REVENUES: 1999 1998 1999 1998
- ----------------------------------------------------- --------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
Telecommunication Headsets and Amplifiers and
Telephone Accessories....................... $ 1,700,000 $ 1,855,000 $ 5,472,000 $ 5,977,000
Home Storage and Organization.................... 1,339,000 1,302,000 3,510,000 3,498,000
Flashlights...................................... 501,000 202,000 900,000 837,000
Miscellaneous/Mass Market........................ - 1,023,000 992,000 1,854,000
--------------- ------------- -------------- ---------------
Total..................................... $ 3,540,000 $ 4,382,000 $ 10,874,000 $ 12,166,000
=============== ============= ============== ===============
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- --------------------------------
OPERATING INCOME (LOSS): 1999 1998 1999 1998
- ----------------------------------------------------- --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Telecommunication Headsets and Amplifiers and
Telephone Accessories....................... $ (38,000) $ 180,000 $ (19,000) $558,000
Home Storage and Organization.................... (243,000) (33,000) (469,000) (54,000)
Flashlights...................................... (241,000) 4,000 (427,000) (72,000)
Miscellaneous/Mass Market........................ - (165,000) 6,000 (111,000)
-------------- ------------- ------------- --------------
Total..................................... $ (522,000) $ (14,000) $ (909,000) $ 321,000
============== ============ ============= ==============
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- --------------------------------
DEPRECIATION AND AMORTIZATION (1): 1999 1998 1999 1998
- ----------------------------------------------------- --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Telecommunication Headsets and Amplifiers and
Telephone Accessories....................... $ 77,000 $ 69,000 $ 220,000 $ 205,000
Home Storage and Organization.................... 60,000 49,000 141,000 123,000
Flashlights...................................... 23,000 8,000 38,000 32,000
-------------- ------------ ------------- --------------
Total..................................... $ 160,000 $ 126,000 $ 399,000 $ 360,000
============== ============ ============= ==============
</TABLE>
(1) Amortization includes all amortization relating to product license rights,
non-compete agreements, purchased patents, and goodwill.
Information as to the assets and capital expenditures of the Company is as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS: 1999 1998
- ---------------------------------------------------- -------------- ------------
<S> <C> <C>
Telecommunication Headsets and Amplifiers and
Telephone Accessories......................... $ 4,980,000 $ 4,794,000
Home Storage and Organization.................... 3,055,000 3,200,000
Flashlights...................................... 1,707,000 1,729,000
Miscellaneous/Mass Market........................ - 1,366,000
-------------- ------------
Total assets for reportable segments...... 9,742,000 11,089,000
Other Assets..................................... 715,000 388,000
Deferred Loan Costs And Other Assets Not
Allocated To Segments....................... 42,000 62,000
============== ============
Total..................................... $ 10,499,000 $ 11,539,000
============== ============
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- --------------------------------
CAPITAL EXPENDITURES: 1999 1998 1999 1998
- ----------------------------------------------------- --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Telecommunication Headsets and Amplifiers and
Telephone Accessories....................... $ 56,000 $ 11,000 $ 120,000 $ 221,000
Home Storage and Organization.................... 44,000 8,000 79,000 120,000
Flashlights...................................... 17,000 1,000 25,000 35,000
Miscellaneous/Mass Market........................ - - - -
-------------- ------------ ------------- --------------
Total..................................... $ 117,000 $ 20,000 $ 224,000 $ 376,000
============== ============ ============= ==============
</TABLE>
13
<PAGE>
DYNATEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(6) BUSINESS SEGMENT INFORMATION-(CONTINUED)
Information as to the Company's operations in different geographical areas is as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- ----------------------------------
REVENUES: 1999 1998 1999 1998
- ----------------------------------------------------- --------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
United States.................................... $ 3,475,000 $ 4,370,000 $ 10,734,000 $ 12,084,000
Other (1)........................................ 65,000 12,000 140,000 82,000
-------------- ------------ ------------- --------------
Total..................................... $ 3,540,000 $ 4,382,000 $ 10,874,000 $ 12,166,000
============== ============ ============= ==============
</TABLE>
(1) Includes Canada, Europe and other miscellaneous.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- --------------------------------
OPERATING INCOME (LOSS): 1999 1998 1999 1998
- ----------------------------------------------------- --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
United States.................................... (522,000) (14,000) (909,000) 321,000
============== ============ ============= ==============
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS: 1999 1998
- ----------------------------------------------------- -------------- ------------
<S> <C> <C>
United States.................................... $ 10,108,000 $ 11,089,000
Asia............................................. 391,000 450,000
-------------- ------------
Total..................................... $ 10,499,000 $ 11,539,000
============== ============
</TABLE>
(7) STOCK OPTIONS
The Company has established three stock option programs under which it
has granted both non-qualified and incentive stock options to employees, board
members, and certain related entities. Under the Company's 1996-1997
non-qualified stock option program (the "Non-Qualified Plan"), the Company
granted options to acquire 1,640,000 shares of common stock. The 1996 Incentive
Option Plan ("1996 Plan") provides for grants of qualified stock options to
acquire a maximum of 300,000 shares of common stock, of which 200,000 options
have been granted to date. The exercise price of options granted to employees
under either option program equals the market price on the date of grant, and as
a result no compensation expense has been recognized in the accompanying
financial statements.
In January 1999, the Company's former Chairman and CEO, and holder of
900,000 of the options granted in December 1996 (500,000 shares) and January
1997 (400,000 shares) under the Non-Qualified Plan, agreed to cancel those
options. In addition to the non-qualified options granted to employees to date,
the Company granted non-qualified options to purchase 537,500 shares of common
stock to Muito Bem Ltd., an entity controlled by a shareholder and former CEO of
the Company, at an exercise price of $2.50 per share in December 1996. The
shareholder and former executive officer of the Company who owns Muito Bem, Ltd.
agreed in January 1999 to cancel all stock options issued to Muito Bem, Ltd.
Additionally, in December 1996, the Company granted a total of 200,000
non-qualified stock options to WAC Research, Inc., an entity owned, in part, by
a shareholder and the former CEO of the Company, which options were granted in
exchange for the reduction of royalties payable by the Company to WAC on sales
of the Softalk products and for reimbursement to the Company of certain travel
expenses incurred by the Company's former CEO.
In May 1999, the Company's Board of Directors adopted the Company's
1999 Stock Option And Incentive Plan (the "1999 Plan"). Under the 1999 Plan, a
total of 640,000 shares were reserved for issuance in the form of non-qualified
stock options or qualifying Incentive Stock Options. During the nine months
ended September 30, 1999, the compensation committee of the Company's Board of
Directors has granted stock options under the 1999 Plan to purchase a total of
634,500 shares of common stock to various executives, employees and directors of
the Company. Such options were as non-qualified options having terms of 10 years
from the date of grant. All such options have an exercise price of between $1.00
and $1.750 per share, with a weighted average price of $1.057 per share. The
exercise price for the options were 100% of the fair market value on the grant
date.
(8) SUBSEQUENT EVENTS
On November 4, 1999, the Company sold its corporate headquarters
facility for $2,900,000. Simultaneously with the sale, the Company entered into
a 20-year leaseback agreement with the purchasing party. The net proceeds to the
Company were $831,000, after paying long-term debt secured by the building,
broker and legal fees, and other ancillary charges. The proceeds from the sale
will be used for working capital purposes. As an additional inducement to the
purchaser, the Company issued a total of 33,948 shares of its restricted common
stock to the purchaser having a market value of $35,000 based on the fair market
value of the restricted stock on the date of issue. The party that purchased the
building is not affiliated with or related to the Company or any of its officers
or directors, and the terms of the transaction were the result of arms-length
negotiations.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
The following table sets forth, for the periods indicated, certain
information relating to the operations of the Company expressed in dollars
(rounded) and percentage changes from period to period. Data in the table
reflects the consolidated results of the Company for the three and nine-month
periods ended September 30, 1999 and 1998, respectively. As supplemental
information, the table also segregates the Company's revenues by product line
type.
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
---------------------------------------- ---------------------------------------------
% OF % OF
CHG CHG
FROM FROM
SEPTEMBER SEPTEMBER 1998 TO SEPTEMBER SEPTEMBER 1998 TO
30, 1999 30, 1998 1999 30, 1999 30, 1998 1999
------------- ---------- ------- ----------- ------------ --------
Unaudited Statement of Operations Data:
<S> <C> <C> <C> <C> <C> <C>
Product sales................... $ 3,540,000 $4,382,000 (19.2)% $10,874,000 $ 12,166,000 (10.6)%
Cost of sales................... 2,082,000 2,788,000 (25.3) 6,460,000 7,424,000 (13.0)
------------- ---------- ----------- ------------
Gross margin............ 1,458,000 1,594,000 (8.5) 4,414,000 4,742,000 (6.9)
------------- ---------- ----------- ------------
Operating Costs and Expenses:
Selling expenses................ 1,110,000 903,000 22.9 2,774,000 2,586,000 7.3
Research and development........ 37,000 12,000 208.3 101,000 48,000 110.4
General and administrative...... 834,000 694,000 20.2 2,451,000 1,786,000 37.2
------------- ---------- ----------- ------------
Total operating costs and
Expenses 1,981,000 1,609,000 23.1 5,326,000 4,420,000 20.5
------------- ---------- ----------- ------------
Other Income (Expense), net:
Interest expense................ (155,000) (244,000) (36.5) (701,000) (1,138,000) (38.4)
------------- ---------- ----------- ------------
Interest income................. - - - - 3,000 -
------------- ---------- ----------- ------------
Other (expense)................. - (1,000) - - (23,000) -
------------- ---------- ----------- ------------
Other income.................... 3,000 - - 5,000 - -
------------- ---------- ----------- ------------
Net income (loss)............... $ (675,000) $ (260,000) (159.6)% $(1,608,000) $ (836,000) ( 92.3)%
============= ========== =========== ============
Unaudited Supplemental Information:
Revenue by product line type:
Telecommunication headsets and
amplifiers and telephone
accessories $ 1,700,000 $1,855,000 (8.4)% $ 5,472,000 $ 5,977,000 (8.4)%
Home storage and organization 1,339,000 1,302,000 2.8 3,510,000 3,498,000 0.3
Miscellaneous/Mass market - 1,023,000 - 992,000 1,854,000 (46.5)
Flashlights 501,000 202,000 148.0 900,000 837,000 7.5
------------- ---------- ----------- ------------
Total product sales $ 3,540,000 $4,382,000 (19.2)% $10,874,000 $ 12,166,000 (10.6)%
============= ========== =========== ============
</TABLE>
The following are explanations of significant period to period changes for the
three months ended September 30, 1999 and 1998:
Revenues
Total Product Sales. Total product sales decreased by $842,000, or
19.2%, from $4,382,000 to $3,540,000 for the three months ended September 30,
1999 compared to the three months ended September 30, 1998. Discussion of sales
in the various product lines follows.
Telecommunication Headsets and Amplifiers and Telephone Accessories.
Sales of telecommunication headsets and amplifiers and telephone accessories
decreased $155,000, or 8.4%, from $1,855,000 to $1,700,000 for the three months
ended September 30, 1999 compared to the three months ended September 30, 1998.
This decrease was primarily attributable to a $156,000 decrease in sales of
telephone shoulder rests as well as a decrease in sales of $25,000 in telephone
accessories. This decrease was partially offset by an increase in sales of
telephone headsets and amplifiers of $24,000. Overall gross margins in this
category increased to 55.1% for the three months ended September 30, 1999 from
54.8% for the three months ended June 30, 1999, as a result of the sales mix and
more efficient production processes.
Home Storage and Organization. Home storage and organization revenues
increased $37,000, or 2.8%, from $1,302,000 to $1,339,000 for the three months
ended September 30, 1999 compared to the three months ended September 30, 1998.
The increase is primarily attributable to an increase of $47,000 in the
"Expand-A-Shelf" product line, offset in part by a decrease of $10,000 in
several of the Company's other organizational products, namely the
"Expand-A-Drawer product line, shoe organizers and ironing boards. Overall gross
15
<PAGE>
margins for products in this category decreased from 36.4% to 32.3% for the
three months ended June 30, 1999.
Miscellaneous and Mass Market. Miscellaneous and mass market revenues
decreased $1,023,000, from $1,023,000 to -0- for the three months ended
September 30, 1999 compared to the three months ended September 30, 1998. This
decrease was the result of the Company's December 24, 1998 agreement with
Grandway China ("Grandway"), a Hong Kong enterprise. The agreement provided for
the transfer of inventory, distribution and sales rights of products that the
Company was then supplying to Dolgencorp. Upon execution, Grandway agreed to
purchase the approximately $1,800,000 of inventory earmarked for sale to
Dolgencorp. As of June 30, 1999, Grandway had purchased the entire remaining
inventory. Management does not presently anticipate future significant sales in
this product line.
Flashlights. Flashlight revenues increased $299,000, or 148.0%, from
$202,000 to $501,000 for the three months ended September 30, 1999 compared to
the three months ended September 30, 1998. This increase was primarily the
result of a successful increase in the Company's selling and marketing efforts
in this product line. Overall gross margins for products in this category
decreased from 30.2% to 17.6% for the three months ended June 30, 1999, as a
result of various changes made to certain flashlight products to increase the
quality of these products and increased air freight costs necessitated by
production difficulties resulting from an earthquake in Taiwan during the third
quarter. Management is addressing this decrease by working with its Asian
supplier to effectively source various components from more reliable
sub-assembly vendors and to address the difficulties encountered by the
Company's Asian suppliers as a result of the earthquake.
Operating Costs and Expenses
Selling Expenses. Selling expenses increased $207,000, or 22.9%, from
$903,000 to $1,110,000 for the three months ended September 30, 1999 compared to
the three months ended September 30, 1998. This increase is due in part to an
increase in advertising expense as the result of the Company securing additional
pages in certain office product catalogues, trade show expenditures due to the
Company participating in more regional trade shows , the hiring of two marketing
consultants to assist the company in it's campaign to upgrade its packaging of
products , and an increase in freight costs. The increase was offset in part by
a decrease in royalty and commission payments due to lower sales on
commissionable and royalty based products.
Research and Development. Research and development costs increased by
$25,000, or 208.3%, from $12,000 to $37,000 for the three months ended September
30, 1999 compared to the three months ended September 30, 1998. This increase
was primarily attributable to the addition of a full time Vice President of
Research and Development.
General and Administrative Expenses. General and administrative
expenses increased $140,000, or 20.2%, from $694,000 to $834,000 for the three
months ended September 30, 1999 compared to the three months ended September 30,
1998. The increase in general and administrative expenses was the result of
approximately $34,000 in insurance premiums paid for the company's health and
dental insurance, $38,000 in employee recruitment and relocation, and $21,000 in
consulting fees. Additionally, the Company incurred $49,000 in travel related
expenses for increased international travel associated with strengthening Asian
supplier relationships.
Total Operating Costs and Expenses. Total operating costs and expenses
increased by $372,000, or 23.1%, from $1,609,000 to $1,981,000 for the three
months ended September 30, 1999 compared to the three months ended September 30,
1998, for the reasons discussed above.
Interest Expense. Interest expense decreased $89,000, or 36.5%, from
$244,000 to $155,000 for the three months ended September 30, 1999 compared to
the three months ended September 30, 1998. This decrease was the result of debt
issuance costs in connection with the value of the warrants and beneficial
conversion premium allocated to the debt that were recognized in the three
months ended September 30, 1998, and not applicable in the three months ended
September 30, 1999.
Net Loss. The net loss increased by $415,000, or 159.6%, from $260,000
to $675,000 for the three months ended September 30,1999 compared to the three
months ended September 30, 1998 due to a combination of the factors described
above.
16
<PAGE>
The following are explanations of significant period to period changes for the
nine months ended September 30, 1999 and 1998:
Revenues
Total Product Sales. Total product sales decreased by $1,292,000,
or 10.6% from $12,166,000 to $10,874,000 for the nine months ended September 30,
1999 compared to the nine months ended September 30, 1998. Discussion of sales
in the various product lines follows.
Telecommunication Headsets and Amplifiers and Telephone Accessories.
Sales of telecommunication headsets and amplifiers and telephone accessories
decreased $505,000, or 8.4%, from $5,977,000 to $5,472,000 for the nine months
ended September 30, 1999 compared to the nine months ended September 30, 1998.
Of this decrease, $320,000 is attributable to the loss of a private label
customer for the Company's "Twisstop" product. Additionally, sales of the
Company's shoulder rest products decreased approximately $200,000. Sales of
telephone amplifiers and headsets decreased by $237,000. These decreases were
offset in part by increases in sales of the Cord Manager and other Twisstop
sales of $254,000. Overall gross margins for telephone accessories increased to
55.4% from 47.0% for the nine months ended September 30, 1999 compared to the
nine months ended September 30, 1998, as a result of the sales mix and more
efficient production processes.
Home Storage and Organization. Home storage and organization revenues
increased $12,000, or 0.3%, from $3,498,000 to $3,510,000 for the nine months
ended September 30, 1999 compared to the nine months ended September 30, 1998.
The increase is primarily attributable to an increase of $81,000 in the
"Expand-A-Drawer" product line and an increase of $40,000 in the
"Expand-A-Shelf" product line, offset in part by a decrease of $104,000 in
several of the Company's other miscellaneous organizational products, namely
shoe organizers, ironing boards and wire baskets.
Miscellaneous and Mass Market. Miscellaneous and mass market revenues
decreased $862,000, or 46.5%, from $1,854,000 to $992,000 for the nine months
ended September 30, 1999 compared to the nine months ended September 30, 1998.
This decrease was primarily the result of the Company's December 24, 1998
agreement with Grandway China ("Grandway"), a Hong Kong enterprise. The
agreement provided for the transfer of inventory, distribution and sales rights
of products that the Company was then supplying to Dolgencorp. Upon execution,
Grandway agreed to purchase the approximately $1,800,000 of inventory earmarked
for sale to Dolgencorp. As of September 30, 1999, Grandway had purchased the
entire remaining inventory. Overall gross margins for products in this category
decreased from 27.0% to 0.6% for the nine months ended September 30, 1999 as a
result of the "pass-through" effect. Management does not presently anticipate
future significant sales in this product line.
Flashlights. Flashlight revenues increased $63,000, or 7.5%, from
$837,000 to $900,000 for the nine months ended September 30, 1999 compared to
the nine months ended September 30, 1998. This increase was primarily the result
of a successful increase in the Company's selling and marketing efforts in this
product line. Overall gross margins for products in this category decreased from
36.5% to 19.9% for the nine months ended September 30, 1999, as a result of
various changes made to certain of its flashlight products to increase the
quality of these products and increased air freight costs necessitated by
production difficulties resulting from an earthquake in Taiwan during the third
quarter. Management is addressing this decrease by working with its Asian
supplier to effectively source various components from more reliable
sub-assembly vendors and to address the difficulties encountered by the
Company's Asian suppliers as a result of the earthquake.
Operating Costs and Expenses
Selling Expenses. Selling expenses increased $188,000, or 7.3%, from
$2,586,000 to $2,774,000 for the nine months ended September 30, 1999 compared
to the nine months ended September 30, 1998. This increase is due in part to an
increase in advertising expense as the result of the Company securing additional
pages in certain office product catalogues, trade show expenditures due to the
Company participating in more regional trade shows , the hiring of two marketing
consultants to assist the company in it's campaign to upgrade it's packaging of
products , and an increase in freight costs. This increase was offset in part by
a decrease in royalty and commission payments due to lower sales on
commissionable and royalty based products.
Research and Development. Research and development costs increased by
$53,000, or 110.4%, from $48,000 to $101,000 for the nine months ended September
30, 1999 compared to the nine months ended September 30, 1998. This increase was
attributable to the addition of a full time Vice President of Research and
Development.
General and Administrative Expenses. General and administrative
expenses increased $665,000, or 37.2%, from $1,786,000 to $2,451,000 for the
nine months ended September 30, 1999 compared to the nine months ended September
17
<PAGE>
30, 1998. The increase in general and administrative expenses was primarily the
result of payment in 1999 of approximately $120,000 in non-recurring legal
expense incurred as a result of the Company's internal investigation which
commenced in 1998 and concluded on January 14, 1999 as well as $85,000 in
additional legal expense related to various general corporate matters, as well
as payment of approximately $210,000 in combined severance paid to the Company's
former Chairman and CEO who resigned on January 14, 1999 and the former
President of the Company who resigned effective March 17, 1999. Additionally,
travel expenditures increased by approximately $93,000 resulting from increased
international travel associated with strengthening Asian supplier relationships.
Additional increases were $66,000 in insurance premiums paid for the company's
health and dental insurance program, $58,000 in employee recruitment and
relocation, and $31,000 in consulting fees.
Total Operating Costs and Expenses. Total operating costs and expenses
increased by $906,000, or 20.5%, from $4,420,000 to $5,326,000 for the nine
months ended September 30, 1999 compared to the nine months ended September 30,
1998, for the reasons discussed above.
Interest Expense. Interest expense decreased $437,000, or 38.4%, from
$1,138,000 to $701,000 for the nine months ended September 30, 1999 compared to
the nine months ended September 30, 1998. This decrease was primarily related to
the recognition of a one-time, non-cash charge for the fair value of common
stock warrants and a beneficial conversion premium totaling $137,000 and
$500,000, respectively, both associated with the issuance of $1,500,000 of
Convertible Debentures (the "Convertible Debentures") in May 1998. During the
nine months ended September 30, 1999, liquidated damages were assessed against
the Company in the amount of $258,000 due to the Company's failure to have
effective a registration statement covering the shares of common stock issuable
upon conversion of the Convertible Debentures with the time specified in a
registration rights agreement executed in connection with the sale of the
Convertible Debentures.
Interest Income. Interest income decreased $3,000, from $3,000 to $-0-
for the nine months ended September 30, 1999 compared to the nine months ended
September 30, 1998. This decrease was primarily the result of the Company
utilizing its revolving credit facility, under which "draws" are made by the
Company. After a draw is made a corresponding payable is established, when
collections of outstanding accounts receivable are received, collections are
swept, daily, and re-applied against outstanding draws. As a result the Company
does not keep excess cash on hand to invest.
Other Expense. Other expense decreased $23,000, from $23,000 to $-0-
for the nine months ended September 30, 1999 compared to the nine months ended
September 30, 1998. This decrease was primarily the result of a loss on the sale
of equipment sold by the Company in the nine months ended September 30, 1998
that did not occur in the nine months ended September 30, 1999.
Other Income. Other income increased $3,000, from $-0- to $3,000 for
the nine months ended September 30, 1999 compared to the nine months ended
September 30, 1998. This increase is due to gains on sales of equipment the
Company sold in the nine months ended September 30, 1999 that did not occur in
the nine months ended September 30, 1998.
Net Loss. The net loss increased by $772,000, or 92.3%, from $836,000
to $1,608,000 for the nine months ended September 30, 1999 compared to the nine
months ended September 30, 1998 due to a combination of the factors described
above.
Liquidity and Capital Resources
General
The Company's principal sources of liquidity are cash flows from
operations, cash on hand and borrowing under the Company's existing secured
revolving credit facilities. On May 27, 1998, the Company obtained a secured
revolving credit facility from a regional financing institution for up to
$5,000,000, bearing interest at a rate of prime plus one percent, with interest
payable monthly. The credit facility is secured by both the Company's accounts
receivable and inventories. The note underlying the revolving credit line is due
May 26, 2001. Under the terms of the loan agreement, the Company is required to
maintain financial covenants and ratios, including book net worth, net income
and debt service coverage. On June 30, 1999, the Company and its lending
institution entered into a Fourth Amendment to the Credit Agreement (the "Fourth
Amendment"). Pursuant to the Fourth Amendment, certain definitions have been
modified, as follows: (i) the maximum line decreased from $5,000,000 to
$3,000,000; (ii) the inventory advance rate decreases from 48% to 40% between
July 1, 1999 and October 1, 1999; (iii) the accounts receivable advance rate
decreased from 85% to 78%; and (iv) the volume rebate accrual increased from
$15,000 on June 1, 1999 to $300,000 at January 1, 2000. This accrual goes to
$-0- when the volume rebates are paid in February 2000, and will begin to accrue
18
<PAGE>
over the remainder of calendar year 2000 to the maximum $300,000 amount. On
September 23, 1999 the Company and its lending institution entered into a Fifth
(the "Fifth Amendment") to the Credit Agreement. The Fifth Amendment changed the
terms of certain of the financial covenants and ratios for the remainder of 1999
and the year 2000. At September 30, 1999, the Company was in default of certain
of these covenants, however, the Company presently is negotiating and
anticipates that it will be able to obtain a waiver from the lending
institution. The interest rate presently applicable to the revolving credit line
is prime plus three percent, with interest payable monthly. At September 30,
1999, the Company had $142,000 of cash and $497,000 of availability under its
credit facility.
On May 22, 1998, the Company closed a transaction that provided net
capital proceeds of $1,335,000. The transaction was accomplished pursuant to a
Convertible Debenture and Private Equity Line of Credit Agreement (the "Credit
Agreement") between the Company and a group of five unaffiliated investors.
These funds were raised pursuant to the sale by the Company of Convertible
Debentures in the aggregate principal amount of $1,500,000. The Convertible
Debentures are convertible into the Company's common stock at the lesser of: (i)
75% of the average of the three lowest closing bid prices of the common stock as
quoted on the Nasdaq SmallCap Market during the 22 trading-day period
immediately preceding the conversion date or (ii) $6.50, which was 100% of the
closing bid price on the trading day immediately preceding the closing date of
the Credit Agreement. In addition to the sale of the Convertible Debentures, the
Company also obtained the right to use a "put" mechanism to periodically draw
down up to $10,000,000 of additional equity capital the ("Equity Line"). Under
the terms of the Credit Agreement, the Company was obligated to draw down a
minimum of $1,000,000 under the Equity Line, and all amounts were to have been
drawn in increments of not less than $50,000. In return for the payment of
additional capital under the Equity Line, the Company would have been required
to issue shares of its common stock at a per share purchase price equal to 80%
of the average of the three lowest closing bid prices of the common stock during
a six day valuation period commencing three days before the draw date and ending
two days after the draw date. The Equity Line could not have been utilized, and
the Company had no obligation to exercise any portion of the put mechanism,
until after the effective date of the registration statement for the underlying
stock of the Credit Agreement. Additionally, upon registration of the underlying
shares which may be issued upon conversion of the Convertible Debentures, the
Company was obligated to issue an additional $500,000 of Convertible Debentures
(see Note 4 to the condensed consolidated financial statements). The Company
filed a registration statement on Form SB-2 as required by the Credit Agreement
and has filed two pre-effective amendments to that registration statement.
However, the registration statement is not effective as of the date of this
report, and there can be no assurance that the registration statement will be
declared effective.
On June 25, 1999, the Company and the investors entered into a
Modification Agreement ("Modification Agreement"), under which the parties
agreed to cancel the Equity Line and all of the parties' respective obligations
thereunder. The parties to the Modification Agreement also agreed to cancel the
investors' obligation to purchase and the Company's obligation to sell the
additional $500,000 principal amount of Convertible Debentures upon the
effectiveness of the registration statement. Additionally, the Modification
Agreement provides for the modification and temporary abatement of the Company's
obligation to pay cash liquidated damages of $45,000 per month resulting from
the Company's obligation to have the registration statement declared effective
on or before August 28, 1998. Pursuant to the terms of the Credit Agreement, the
Company paid liquidated damages from September 23, 1998 through and including
February 23, 1999 in the aggregate amount of $210,000, of which $135,000 was
paid in the six-month period ended June 30, 1999. Under the Modification
Agreement, the Company is to accrue a total of $180,000 of liquidated damages
for the period from February 24, 1999 through and including June 23, 1999, which
accrued amount is payable at any time after October 1, 1999, upon request for
payment therefore by the Investors, in shares of the Company's common stock. The
number of shares of common stock issuable upon such payment shall be determined
by dividing the total amount of damages accrued by 100% of the average of the
closing bid prices of the Company's common stock during the five trading day
period immediately preceding the date of such payment. Additionally, under the
Modification Agreement, the Company's obligation to pay liquidated damages under
the Credit Agreement was abated from June 24, 1999 through September 23, 1999,
provided that the registration statement was declared effective on or before
October 31, 1999. Additional liquidated damages in the amount of $45,000 were to
have accrued for the period between September 24, 1999 and October 23, 1999 if
the Registration Statement is not declared effective before October 31, 1999. If
the registration statement was not declared effective on or before October 31,
1999, the Modification Agreement's provisions providing for the payment of
liquidated damages in stock and the abatement of liquidated damages from June
23, 1999 to September 23, 1999 and the provisions allowing the Company to pay
liquidated damages in common stock rather than cash may be rescinded at the
option of the Investors. Except to the extent specifically modified by the
Modification Agreement, the terms and conditions of the Credit Agreement and the
documents and instruments incorporated in the Credit Agreement continued in
force.
Although the Company filed an amendment to the registration statement
on July 2, 1999, the registration statement was not effective by the October 31,
1999 deadline set forth in the Modification Agreement. Moreover, because the
Company's pending preliminary proxy statement is being reviewed by the
Securities and Exchange Commission in tandem with the pending registration
19
<PAGE>
statement, the Company was not able to hold its annual meeting of shareholders
by the October 31, 1999 deadline. On November 12, 1999, the Company and the
Investors executed an amendment to the Modification Agreement that substituted
February 15, 2000 for the October 31, 1999 deadline originally in the
Modification Agreement. Except for this modification, none of the terms of the
Credit Agreement or the Modification Agreement were changed in any way.
On November 4, 1999, the Company sold its corporate headquarters
facility for $2,900,000. Simultaneously with the sale, the Company entered into
a 20-year leaseback agreement with the purchasing party. The net proceeds to the
Company were $831,000, after paying long-term debt secured by the building,
broker and legal fees, and other ancillary charges. The proceeds from the sale
will be used for working capital purposes. The party that purchased the building
is not affiliated with or related to the Company or any of its officers or
directors.
The Company anticipates that its principal uses of cash will be to
provide working capital, finance capital expenditures, meet debt service
requirements and for other general corporate purposes. Based on current
operations and anticipated cost savings through operating efficiencies, the
Company believes that its sources of liquidity will be adequate to meet its
anticipated requirements for working capital, capital expenditures, scheduled
debt service requirements and other general corporate purposes during the next
twelve months.
September 30, 1999 Compared to December 31, 1998
As of September 30, 1999, the Company had liquid assets (cash and cash
equivalents and trade accounts receivable) of $2,370,000, an increase of 6.2%,
or $139,000, from December 31, 1998 when liquid assets were $2,231,000. Cash
increased $140,000, or 6,146.9%, to $142,000 at September 30, 1999 from $2,000
at December 31, 1998. This increase in cash was primarily the result of the
Company utilizing its revolving credit facility, under which the Company makes
"draws" to fund capital expenditures, purchase inventory and for general-purpose
use. After a draw is made a corresponding payable is setup, when collections of
outstanding accounts receivable are made the monies collected, are swept, the
next day, and re-applied against outstanding draws. The increase in cash
resulted from the fact that the amounts in the account as of September 30, 1999
were not yet swept and applied against outstanding draws. Trade accounts
receivable decreased $1,000, or 0.0%, to $2,228,000 at September 30, 1999 from
$2,229,000 at December 31, 1998.
Current assets decreased by $891,000, or 12.0%, to $6,514,000 at
September 30, 1999 from $7,405,000 at December 31, 1998. This decrease was
primarily the result of a decrease in inventory levels by $1,216,000 primarily
due to the Company's December 24, 1998 agreement with Grandway China
("Grandway"), a Hong Kong enterprise, whereby Grandway agreed to make guaranteed
minimum monthly inventory draws of $103,000 or cost plus three percent until the
remaining approximately $1,000,000 of inventory is purchased. As of September
30, 1999, Grandway had purchased the entire remaining inventory. The decrease in
current assets was offset in part by an increase in cash as discussed above.
Long-term assets decreased $148,000, or 3.6%, to $3,986,000 at
September 30, 1999 from $4,134,000 at December 31, 1998. This decrease was
primarily the result of recurring depreciation of building and equipment, and
amortization of deferred loan costs, and other intangibles. Offset in part by
fixed asset and intangible additions.
Current liabilities increased by $471,000, or 7.9%, to $6,445,000 at
September 30, 1999 from $5,974,000 at December 31, 1998. This increase was
primarily due to an increase of $1,114,999 in short-term notes payable as a
result of additional borrowings under the Company's revolving line of credit.
The increase was offset in part by a decrease in accrued advertising of
$168,000, trade accounts payable of $134,000, and accrued expenses of $182,000.
20
<PAGE>
The Company's working capital decreased by $1,363,000, or 95.2%, to
$68,000 at September 30, 1999 from $1,431,000 at December 31, 1998, for the
reasons described above.
The Company used net cash of $507,000 in operating activities during
the nine months ended September 30, 1999, primarily as a result of the net loss
incurred during the period, offset in part from decreased inventory levels.
The Company used net cash of $198,000 in investing activities during
the nine months ended September 30, 1999, primarily for the purhcase of
Transworld Products, Inc., a manufacturer of telephone shoulder rests and a main
competitor of the Company in that product line. The Company also incurred
additional expenditures for new computer equipment related to its Year 2000
preparations.
The Company provided net cash of $845,000 from financing activities
during the nine months ended September 30, 1999, primarily due to borrowings
under the Company's revolving line-of-credit, offset in part by payments made on
long-term debt during the period.
Inflation
Most of the Company's products are purchased in finished form and
packaged by the supplier or at the Company's headquarters. The Company uses a
premixed plastisol (a petroleum based raw material) to manufacture certain of
its telephone accessory products at its headquarters. The Company anticipates
usual inflationary increases in the price of its plastic products and does not
intend to pass these increases along to its customers, primarily as a result of
other operating efficiencies gained through changing the sourcing of certain of
its flashlight manufacturing from the United States to Asia. Significant
increases in the cost of plastisol in the future could materially affect the
Company's profitability if these costs cannot be passed on to customers. In
general, the Company does not believe that inflation has had a material effect
on its results of operations in recent years. However, there can be no assurance
that the Company's business will not be affected by inflation in the future.
Seasonality
The Company's business is seasonal. The Company typically experiences
its highest sales volume in the fourth quarter of each year as a result of the
retail environment in which most of its customers conduct business. Because the
Company sells its products primarily to major retailers, the Company's sales
performance is significantly dependent on the performance of those retailers.
Accordingly, the fourth quarter is a key determinate to overall profitability
for the year.
Year 2000 Compliance
The Year 2000 problem relates to the inability of many computer
programs and microchip-based products and equipment to operate properly on dates
approaching and following December 31, 1999. This inability to operate correctly
results from the use in many computer programs and embedded microchip code of a
two-digit rather than a four-digit date field. Thus, non Year 2000 compliant
software and firmware may misinterpret a date entry of "00" as 1900, rather than
2000, resulting in, among other things, a temporary inability to process
transactions, send invoices, or engage in similar business transactions.
The Company uses and is dependent upon computer systems and software
to conduct its business. In the fourth quarter of 1997, the Company began
implementing a new accounting and materials resource planning integrated
software system. The software system, Made2Manage, was purchased with the Year
2000 issue in mind, and is represented by its manufacturer to be Year 2000
compliant in all material respects. Consequently, the Company believes its core
enterprise resource planning and accounting systems will not be affected by the
Year 2000 problem. However, the Company uses many different software programs to
process and summarize business transactions. The Company has completed its Year
2000 evaluation and remediation of these various internal computer systems.
Based on its efforts to date, the Company presently believes that the Year 2000
problem will not materially affect the operation of its internal computer
systems, hardware, software or its internal operations that are dependent, in
material part, on embedded microchips or computer controllers, including the
HVAC, security and telephone systems located at the Company's headquarters.
There can be no assurance, however, that the Company's internal systems and
operations will not be adversely affected by the Year 2000 problem.
In its evaluation and remediation program, the Company utilized both
internal and external resources to reprogram or replace non-compliant software
for Year 2000 modifications. The total cost of the Year 2000 project to date is
approximately $193,000, which has been funded through operating cash flows and
the Company's existing $3,000,000 secured credit facility. Of this cost,
approximately $120,000 was attributable to the purchase of new software or
equipment that will be capitalized. The remaining $73,000 has been expensed as
21
<PAGE>
incurred. The Company does not anticipate incurring additional material expenses
related to its Year 2000 remediation efforts in respect of its internal systems
and operations.
The Company has initiated formal communications with all of its
significant suppliers and customers to determine the extent to which the Company
is vulnerable to those third parties' failure to remediate their own Year 2000
problems. Additionally, in March 1999, the Company, through its own information
technology personnel and its former Chief Financial Officer, conducted on-site
reviews of certain of its key Asian suppliers to ascertain, to the extent
possible, the Company's exposure to manufacturing delays or stoppages as a
result of those suppliers' failure to remediate their Year 2000 problems. Based
on those efforts, the Company does not presently anticipate that its operations
will be adversely affected as a result of the Year 2000 problem as it may affect
the Company's key suppliers' internal systems. However, there can be no
assurance that the systems of other companies on which the Company relies for
products and services will be timely assessed and, where appropriate remediated,
or that other companies' failure to become Year 2000 compliant would not have a
material adverse effect on the Company, its operations and financial condition.
The Company does not presently have a contingency plan in the event of material
disruption related to the Year 2000 problem.
Forward Looking Statements
The foregoing Management's Discussion and Analysis of Financial
Condition and Results of Operations 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 1934, 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.
22
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 6, 1999, the Company filed a lawsuit in Third District Court
for the State of Utah in Salt Lake City against Dale C. Gledhill, a former vice
president of the Company ("Gledhill"). The complaint alleged that, upon the
termination of his employment with the Company, Gledhill immediately and for the
benefit of himself or other parties unrelated to the Company, commenced using
information identifying the Company's sources of supply, vendors, manufacturer's
representatives, all of which information derived significant independent
economic value from not being generally known to, and not being readily
ascertainable by proper means by, other persons who could obtain economic value
from its disclosure or use and, as such is confidential and proprietary to the
Company. The complaint also alleged that Gledhill breached his fiduciary duty to
the Company and misappropriated corporate opportunities. The complaint asserted
claims for breach of fiduciary duty, misappropriation of trade secrets, breach
of contract, tortious interference, unfair competition, usurpation of corporate
opportunity, accounting, and defamation. The Company sought injunctive relief in
the form an a court order prohibiting Gledhill from engaging in unfair
competition and unauthorized use of the Company's trade secrets and money
damages in an unspecified amount. In November 1999, the Gledhill litigation was
settled on terms that do not materially affect the Company's operations or
financial condition.
On February 22, 1999, the Company received a demand letter from counsel
for Mag Instrument, Inc., a manufacturer and distributor of flashlights and one
of the Company's competitors ("Mag"). In the letter, Mag accused the Company of
infringing certain of Mag's patents and committing false advertising and unfair
competition. Attached to the demand letter was a copy of a complaint filed in
the U.S. District Court for the Central District of California on February 19,
1999. The complaint alleges that the Company has infringed three patents owned
by Mag, and seeks (i) an order enjoining the Company from infringing Mag's
patents, (ii) the delivery to the Court of all flashlights which infringe Mag's
patents, (iii) that the Company identify all entities who have purchased,
distributed or sold any infringing products, (iv) that the Company deliver to
the Court all documents reflecting or relating to the purchase, sale or
distribution of any flashlights which infringe Mag's patents, (v) money damages
sustained by Mag by reason of the alleged patent infringement, including
interest, costs, and attorney's fees. The demand letter specified that the
complaint was filed as a "precaution," and that Mag will refrain from serving
the complaint on the Company pending the receipt of certain assurances from the
Company. During the quarter ended June 30, 1999, Mag and the Company agreed to
pursue their efforts to settle the dispute and, pending such discussions, the
complaint would be dismissed without prejudice upon the joint stipulation of the
parties. The Company has expressly agreed with Mag, however, that if the pending
disputes are not settled, Mag may refile the complaint in the same court and
venue.
On August 6, 1999, the Company settled litigation with a Canadian
brokerage firm captioned as Canaccord Capital Corporation ("Canaccord") vs.
Dynatec International, Inc., Civil No. 2:98-cv-420C, that had been pending in
the United States District Court for the District of Utah. Canaccord initially
sued seeking injunctive relief and money damages stemming from the Company's
allegedly wrongful cancellation of 125,000 shares of the Company's common stock
in January 1998. Canaccord claimed that it suffered damage from a market
shortage and deficiency to various accounts which had previously been sold by
Canaccord as a result of the allegedly wrongful cancellation of shares. On July
17, 1998, the District Court entered a preliminary injunction requiring the
Company to reissue 125,000 shares in the name of CEDE & Company, as the market
clearing house, to replace the alleged market shortage. The court preserved
Canaccord's remaining claims for money damages and the return of an additional
block of shares alleged to have been wrongfully cancelled. The Company named
various third party defendants to whom it believes the shares may have been
improperly issued and is seeking either recovery of the shares or the recovery
of damages. Pursuant to the global settlement, the Company and the other parties
to the litigation stipulated to the dismissal of the lawsuit and the entry by
the court of an order making its preliminary injunction order permanent.
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 operations or financial condition.
Item 2(c). Recent Sales of Unregistered Securities
During the three month period ended September 30, 1999, the Company
sold the following equity securities that were not registered under the
Securities Act of 1933:
23
<PAGE>
Conversions of Convertible Debentures
As of November 5, 1999, the five investors who purchased a total of
$1,500,000 of the Company's convertible debentures in May 1998 have converted
the following amounts into shares of the Company's Common Stock:
<TABLE>
<CAPTION>
Date of Conversion Principal Number of Number of
Conversion Price/Share Amount Shares Interest Amount Shares
--------- ----------- ------ ---------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
6/10/99 $1.3438 $132,500 98,604 $11,180 8,320
7/10/99 $0.9891 $ 65,934 66,667 $ 9,066 9,157
10/8/99 $0.7500 $ 53,000 70,666 $ 8,904 11,872
</TABLE>
The Company issued such shares without registration under the
Securities Act of 1933 in reliance on Section 4(2) of the Securities Act, and
the rules and regulations promulgated under that section including Regulation D.
Such shares of common stock were issued as restricted securities and the
certificate representing such shares was stamped with a standard legend to
prevent any resale without registration under the Securities Act or pursuant to
an exemption, except for that portion of such shares as were subject to sales
under Rule 144 under the Securities Act.
Stock Options
On June 8, 1999, the compensation committee of the Company's Board of
Directors granted stock options to purchase a total of 634,500 shares of common
stock to various executives, employees and directors of the Company. Such
options were granted pursuant to the Company's 1999 Stock Option And Incentive
Plan, and were granted as non-qualified options having terms of 10 years from
the date of grant. All such options have an exercise price of between $1.00 and
$1.750 per share, with a weighted average price of $1.057 per share. The
exercise price for the options were 100% of the fair market value on the grant
date. Such options were granted without registration under the Securities Act,
although the Company intends to file a registration statement on Form S-8
covering the shares of common stock issuable upon the exercise of such options.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C> <C>
10.1 Convertible Debenture and 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(Incorporated by reference from Form 8-K (File No. 000-12806) filed by the Company with the
Commission on June 8, 1998)
10.5 Registration Rights Agreement(Incorporated by reference from Form 8-K (File No. 000-12806) filed by the Company
with the Commission on June 8, 1998)
10.6 Escrow Agreement(Incorporated by reference from Form 8-K (File No. 000-12806) filed by the Company with the
Commission on June 8, 1998)
10.7 Modification Agreement between the Company and the Investors, dated as of June 25, 1999
10.8 Employment Contract of Frederick W. Volcansek, incorporated by reference from the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1998
10.9 Employment Contract of Paul A. Boyer, incorporated by reference from the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1998
10.10 Employment Contract of Lloyd M. "Tag" Taggart
10.11 Employment Contract of Michael L. Whaley
10.12 Modification Agreement between the Company, the investors who acquired the Convertible Debentures, and the
placement agent, dated as of June 25, 1999, incorporated by reference from Amendment No. 2 to the
Company's Registration Statement on Form SB-2, filed July 2, 1999 (File No. 333-57921).
10.13 Amendment to Modification Agreement between the Company and the holders of the Convertible Debentures, dated
November 12, 1999
10.14 Lease between the Company and FRE III Corporation, a California corporation, dated as of November 4, 1999
24
<PAGE>
10.15 Commercial Real Estate Purchase Contract between the Company and Darwin Datwyler dated as of July
16, 1999, as amended through November 4, 1999
27 Financial data schedule (for SEC use only).
</TABLE>
(b) Forms 8-K
None
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DYNATEC INTERNATIONAL, INC.
/s/ Frederick W. Volcansek, Sr. November , 1999
- -------------------------------------- -----------------
Frederick W. Volcansek, Sr. Date
Chairman & Chief Executive Officer
/s/ Michael L. Whaley November , 1999
- -------------------------------------- ------------------
Michael L. Whaley Date
Senior Vice President &
Chief Financial Officer
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
effective as of June 22, 1999 (the "Effective Date"), by and between Dynatec
International, Inc., a Utah corporation (the "Company"), and Lloyd M. Taggart,
an individual (the "Employee"). The Company and the Employee are sometimes
referred to herein, collectively, as the "parties" and, individually, as a
"party."
RECITAL
The Company desires to establish its rights to the services of the
Employee, presently employed by the Company in the capacity of Senior Vice
President Sales, on the terms and conditions and subject to the rights of
termination hereinafter set forth, and the Employee is willing to accept such
employment on such terms and conditions.
AGREEMENT
NOW THEREFORE, in consideration of the mutual agreements, promises and
covenants described herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Employee and the
Company have agreed and do hereby agree as follows:
1. Employment. The Company hereby employs the Employee and the Employee hereby
accepts such employment, upon the terms and conditions set forth herein. The
Company shall furnish the Employee with an office and secretarial and other
facilities and services at the Company's headquarters in Salt Lake City, Utah as
are reasonably necessary and appropriate for the performance of the Employee's
duties and responsibilities hereunder and consistent with the Employee's
position as Senior Vice President Sales of the Company.
2. Duties. The Company does hereby employ and engage the Employee as Senior Vice
President Sales of the Company and each of its subsidiaries and divisions, or
such other title as the Company's Chief Executive Officer shall specify from
time to time, and the Employee does hereby accept and agree to such engagement
and employment. The Employee's duties shall be such executive and managerial
duties and responsibilities as the Chief Executive Officer shall specify from
time to time and as provided in the Bylaws of the Company, as the same may be
amended from time to time. The Employee shall diligently and faithfully execute
and perform such duties and responsibilities, subject to the general supervision
and control of the Company's Chief Executive Officer. The Employee shall be
responsible and report to the Company's Chief Executive Officer. The Company's
Chief Executive Officer shall determine the Employee's duties and
responsibilities and may assign or reassign the Employee to such executive and
managerial duties, responsibilities or positions as such officer deems in the
Company's best interest. The Employee shall devote his full-time attention,
energy and skill during normal business hours to the business and affairs of the
Company and shall not, during the Employment Term (as that term is defined
below), be actively engaged in any other business activity, except with the
prior written consent of the Company's Board of Directors; provided, however,
that in any event any such other business activity will not: (a) adversely
affect or materially interfere with the performance of the Employee's duties and
-1-
<PAGE>
responsibilities hereunder, (b) involve a conflict of interest with the Company
or (c) involve activities competitive with the business of the Company.
Notwithstanding the foregoing, the Employee shall be permitted to (i) engage in
charitable and community affairs and (ii) make investments of any character in
any business not in competition with the Company or any of its subsidiaries or
divisions and manage such investment (but not be involved in the day-to-day
operations of any such business), provided, however, no such business shall
place the Employee in a conflict of interest with the Company or interfere with
the performance of the Employee's duties and responsibilities under this
Agreement.
3. Compensation and Benefits. As the entire consideration for the services to be
performed by the Employee hereunder and the duties and responsibilities assigned
to and the obligations incurred by the Employee hereunder, and subject to the
terms and conditions hereof, during the Employment Term, the Employee shall be
entitled to the following:
3.1. Base Salary. Subject to Section 4 below, during the Employment Term the
Company shall pay the Employee an annual base salary of One Hundred Forty
Thousand Dollars ($140,000.00). The Company will pay the Employee said base
salary in equal semi-monthly installments or at more frequent intervals in
accordance with the Company's customary policies and pay schedule.
3.2. Additional Benefits. The Employee shall be entitled to participate, to the
extent of his eligibility, in any employee benefit plans made generally
available by the Company to its other senior management personnel during the
Employment Term, including, without limitation, such bonus plans, pension or
profit sharing plans, incentive stock option plans, retirement plans, and
health, life, hospitalization, dental, disability or other insurance plans or
programs as may be in effect from time to time, subject, however, to any
restrictions specified in such plans and to the discretion of the Company's
Board of Directors in making any specific grant under such plans. Such
participation shall be in accordance with the terms established from time to
time by the Company for individual participation in any such plans or programs.
3.3. Vacation, Sick Leave and Holidays. The Employee shall be entitled to such
amounts of paid vacation and other leave, up to three (3) weeks of paid vacation
per each twelve (12) month period of employment, as from time to time may be
generally allowed to the Company's senior management personnel, with such
vacation to be scheduled and taken in accordance with the Company's standard
vacation policies applicable to such personnel. In addition, the Employee shall
be entitled to such sick leave and holidays at full pay in accordance with the
Company's policies established and in effect from time to time for its senior
management personnel.
-2-
<PAGE>
3.4. Vehicle. The Employee shall be entitled to the use of one (1) Company owned
or leased vehicle and full reimbursement for all expenses associated with the
operation and maintenance of such vehicle, which vehicle shall be comparable to
the vehicles of the other senior management personnel and executives of the
Company. The Company will reimburse the Employee for such expenses in accordance
with the Company's normal accounting procedures upon the presentation of
vouchers and documentation for such operational and maintenance expenses.
3.5. Bonus. The Company's Board of Directors may at any time, but shall have no
obligation to do so, pay the Employee such bonuses and/or other supplemental or
special payments and benefits as the Board of Directors determines in its sole
and absolute discretion.
3.6. Stock Options. The Employee shall be granted options to purchase shares of
the Company's Common Stock in an amount and with terms and conditions to be
determined by the Board of Directors. All such options will be granted pursuant
to and governed by any executive stock option plan then in effect (or such other
similar plan as determined by the Board of Directors) and shall be evidenced by
a separate option grant agreement with the Employee.
3.7. No Other Benefits or Compensation. The Employee, as a result of his
employment by the Company as provided by this Agreement, shall only be entitled
to the compensation and benefits provided for in this Agreement, subject to the
terms as set forth herein, and to no other benefits or compensation, to the
extent that additional future benefits or compensation is provided to all other
senior officers or executives of the Company
3.8. Business Expenses. The Company shall promptly reimburse the Employee for
all reasonable out-of-pocket business expenses incurred in performing the
Employee's duties and responsibilities hereunder in accordance with the
Company's policies with respect thereto in effect from time to time, provided
that the Employee promptly furnishes to the Company adequate records and other
documentary evidence required by all federal and state statutes, rules and
regulations issued by the appropriate taxing authorities for the substantiation
of each such business expense as a deduction on the federal and state income tax
returns of the Company.
-3-
<PAGE>
4. Term and Termination.
4.1. Employment Term. Subject to earlier termination as provided hereinbelow
(and except for the provisions of this Agreement that, by their terms, continue
in force beyond the termination thereof), the term of this Agreement shall be
for a four (4) year period, commencing on the Effective Date and ending on June
22, 2003 (the "Employment Term"). Upon mutual written consent of the parties,
this Agreement may be extended or renewed for such successive term or terms
beyond the Employment Term as the parties agree. If the Employment Term is so
extended or renewed as provided in this Section 4.1, the term "Employment Term"
will be interpreted herein to include such successive extension or renewal term
or terms.
4.2. Voluntary Termination. The Company shall be able to voluntarily terminate
this Agreement without cause (as that term is defined below) only prior to the
expiration of the Employment Term as provided by Section 4.1 above. The Employee
may voluntarily terminate this Agreement and his employment hereunder at any
time during the Employment Term, in which event the conditions of Section 4.5.1
below shall apply.
4.3. Termination for Cause. This Agreement, and the Employee's employment
hereunder, shall automatically terminate upon the Employee's death and is
otherwise immediately terminable by the Company for cause at anytime (except as
otherwise set forth hereinbelow) upon written notice from the Company to the
Employee. As used in this Agreement, "cause" shall mean the following:
4.3.1. refusal by the Employee to implement or adhere to lawful
policies or directives of the Board of Directors;
4.3.2. habitual neglect of or deliberate or intentional refusal by the
Employee to perform his duties, responsibilities or obligations under this
Agreement;
4.3.3. the Employee's conviction of or entrance of a plea of nolo contendere to
(a) a felony, (b) any crime punishable by incarceration for a period of one (1)
year or longer, or (c) other conduct of a criminal nature that may have a
material adverse impact on the Company's reputation and standing in the
community;
4.3.4. breach of fiduciary duty, breach of the Employee's common law duty of
loyalty, deliberate breach of the Company's rules resulting in loss or damage to
the Company, or unauthorized disclosure of any of the Company's trade secrets,
confidential information or Proprietary Information (as that term is defined
below) by the Employee; or
4.3.5. theft, embezzlement or other criminal misappropriation of funds by the
Employee from the Company; provided, however, that cause pursuant to Sections
4.3.1 and 4.3.2 above shall not be deemed to exist unless the Company shall have
-4-
<PAGE>
first given the Employee a written notice thereof specifying in reasonable
detail the facts and circumstances alleged to constitute "cause," and thirty
(30) days after such notice such conduct has, or such circumstances have, as the
case may be, not entirely ceased or been entirely remedied. The determination of
whether the Employee's actions justify termination for cause and the date such
termination shall be effective shall be made by the Company's Board of Directors
or management, in good faith, in their sole and absolute discretion. If the
Company terminates the Employee's employment pursuant to this Section 4.3 but it
is ultimately determined that the Company lacked "cause," the provisions of
Section 4.5.2 below shall apply.
4.4 Termination for Disability. The Company's Board of Directors may
terminate this Agreement and the Employee's employment hereunder, upon written
notice to the Employee and certification of the Employee's "disability" (as that
term is defined below) by a Qualified Physician (as that term is defined below)
or a panel of Qualified Physicians, as set forth below, if the Employee becomes
disabled for either (a) one hundred-twenty (120) continuous days or (b) one
hundred-eighty (180) days during any continuous twenty-four (24) month period
during the Employment Term. The Company's Board of Directors shall initially
determine that the Employee's disability will prevent the Employee from
substantially performing the Employee's duties, responsibilities or obligations
hereunder. As used in this Agreement, "disability" shall be defined as (i) the
Employee's inability, by reason of physical or mental illness or other cause, to
substantially perform the Employee's duties, responsibilities or obligations
hereunder, or (ii) disability as defined in any disability insurance policy of
the Company in effect at the time in question. The Employee's disability, as
initially determined by the Board of Directors, shall then be certified by a
Qualified Physician or, if requested by the Employee, by a panel of three (3)
Qualified Physicians. If the Employee requests such a panel, the Employee and
the Company shall each select one (1) Qualified Physician who together shall
then select a third Qualified Physician. The determination of the individual
Qualified Physician or a majority of the panel of Qualified Physicians, as the
case may be, shall be binding and conclusive for all purposes. As used in this
Section 4.4, the term "Qualified Physician" shall mean any medical doctor who is
licensed to practice medicine in the State of Utah and who is reasonable
acceptable to the Employee and the Company. The Employee and the Company may, in
any instance, and in lieu of a determination by a Qualified Physician or a panel
of Qualified Physicians, agree between themselves that the Employee is disabled
for purposes of this Section 4.4, in which event the parties understand and
agree that any such determination shall only be applicable for purposes of this
Agreement. The Employee shall receive full compensation, benefits and
reimbursement of expenses pursuant to the terms of this Agreement from the date
disability begins until the date the Employee receives written notice that the
Qualified Physician or the panel of Qualified Physicians, as the case may be,
has certified the Employee's disability or until the Employee begins to receive
disability benefits pursuant to any disability insurance policy of the Company,
whichever occurs first.
-5-
<PAGE>
4.5 Effect of Termination.
4.5.1 Termination for Cause or Voluntary Termination by the Employee. In the
event this Agreement and the Employee's employment is terminated for cause
hereunder or the Employee voluntarily terminates this Agreement pursuant to
Section 4.2 above, all obligations of the Company and all duties,
responsibilities and obligations of the Employee shall cease except as provided
in Section 4.5.2 below. Upon such termination, the Employee or the Employee's
representative or estate shall be entitled to receive only the compensation,
benefits and reimbursement earned by or accrued to the Employee under the terms
of this Agreement prior to the date of termination, but shall not be entitled to
any further compensation, benefits or reimbursement after such date.
4.5.2 Voluntary Termination by the Company; Severance
Compensation. In the event the Company voluntarily terminates this Agreement and
the Employee's employment hereunder during the Employment Term other than for
cause (and other than as allowed pursuant to Section 4.2 above), the Employee
will be entitled to the following severance benefits: (a) two (2) years' base
salary (as the Employee's base salary is set forth in Section 3.1 above or as
subsequently increased by the Company), fifty percent (50%) of which shall be
paid in a lump sum on the date of the Employee's termination and the other fifty
percent (50%) of which shall be paid in three (3) equal quarterly installments
commencing on the date that is one-hundred eighty (180) days after the date of
the Employee's termination; and (b) two (2) years of Company-paid health,
hospitalization and dental coverage, which insurance coverage shall be
substantially on the same terms and conditions as was offered to the Employee
during the Employment Term. Other than the items set forth in clauses (a) and
(b) above in this Section 4.5.2, the Employee shall not be entitled to any
further compensation, benefits or reimbursement after the date of his
termination. In the event the Employee voluntarily terminates this Agreement and
his employment hereunder pursuant to Section 4.2 above, the Employee shall not
be entitled to any severance pay and shall not be entitled to any further
compensation, benefits or reimbursement after such termination date. Except for
the severance pay provided in this Section 4.5.2, and except as otherwise
provided herein, all obligations of the Company will cease upon the Company's
voluntary termination of this Agreement and the Employee's employment hereunder.
No severance compensation will be paid to the Employee in the event he is
terminated for cause.
4.6 Change of Control Transfer This Agreement shall not be terminated
by the voluntary or involuntary dissolution of the Company resulting from either
a merger or consolidation in which the Company is not the consolidated or
surviving company, or a transfer or all or substantially all of the assets of
the Company, or the sale of all or substantially all of the Company's equity
capital (a "change of control"). In the event of any such merger, consolidation,
sale or change of control, the Company's rights hereunder shall be assigned to
the surviving or resulting company, which company shall then honor this
Agreement with the Employee or purchase this Agreement from the Employee for an
-6-
<PAGE>
amount equal to four (4) years' base salary (as the Employee's base salary is
set forth in Section 3.1 above or as subsequently increased by the Company),
which amount shall be paid to the Employee in one (1) lump sum upon the closing
of such merger, consolidation, sale or change of control.
4.7.1 Survivability.
4.7.1 Upon the termination of this Agreement pursuant to Section 4.4 or Section
4.5.1 above and upon the expiration of the Employment Term, this Agreement shall
thereupon be and become void and of no further force or effect, except that (a)
the covenant not to compete set forth in Section 5 below and (b) the proprietary
information provision contained in Section 6 below shall survive any such
termination or expiration and shall continue to bind the Employee for the period
of time stated therein, and, in addition, the attorneys' fees provisions,
governing law and jurisdiction and venue provisions, and indemnification
provisions set forth in Sections 12, 13 and 15 below, respectively, shall
continue to govern any disputes arising under this Agreement.
4.7.2 Upon the termination of this Agreement pursuant to Section 4.5.2
above, this Agreement shall thereupon be and become void and of no further force
or effect, except that (a) the severance pay provisions of Section 4.5.2 above,
(b) the covenant not to compete set forth in Section 5 below and (c) the
proprietary information provision contained in Section 6 below shall survive any
such termination and shall continue to bind the Employee for the period of time
stated therein, and, in addition, the attorneys' fees provisions, governing law
and jurisdiction and venue provisions, and indemnification provisions set forth
in Sections 12, 13 and 15 below, respectively, shall continue to govern any
disputes arising under this Agreement.
4.8 Full Calendar Month. To the extent permitted by applicable law, the
calendar month in which the Employee's employment is terminated shall be counted
as a full month in determining all amounts hereunder and the vesting of any
benefits under any of the Company's benefit plans or programs.
5 Covenant Not to Compete.
5.1 Non-Compete Covenant. The Company and the Employee agree that the
Company's successful operation depends, in significant part, on the
Employee's special knowledge and expertise in Finance. Consequently,
during the Employment Term and for a period of six (6) months after
the date of termination of the Employee's employment with the Company
(for any reason whatsoever) or the expiration of this Agreement at
the expiration of the Employment Term, the Employee, in further
consideration of the Company's agreement to employ the Employee as
provided herein, agrees not (a) to engage, directly or indirectly,
personally or as an employee, agent, consultant, partner (whether
-7-
<PAGE>
general or limited), member, manager, officer, director, shareholder
or otherwise, in any business activities that are the same as those
in which the Company engages or proposes to engage (as indicated by
the Company's business plan on the date of the expiration of the
Employment Term) for or on behalf of himself or any other person,
firm, company, corporation or business organization or entity that
competes with the Company in the consumer products industry, (b) to
engage in such activities with any other person, firm, company,
partnership, corporation or business organization or entity engaged
in or about to become engaged in such activities for or on behalf of
such other person, firm, company, partnership, corporation or
business organization or entity, or (c) to entice, induce or
encourage any of the Company's other employees or any of its
officers, directors or consultants to engage in any activity that,
were it done by the Employee, would violate any provision of this
Section 5.1; provided, however, that notwithstanding the immediately
preceding restrictions set forth in clauses (a), (b) and (c) of this
Section 5.1, the Employee shall be allowed to own up to five percent
(5%) of the issued and outstanding voting stock or interests of any
company or mutual fund that competes directly or indirectly with the
Company if such stock or interests are traded on a national
securities market or on the NASDAQ Stock Market. The restrictions set
forth in this Section 5.1 shall only apply in the State of Utah. The
Employee expressly agrees and acknowledges that (i) this covenant not
to compete is reasonable as to time and geographic scope and area and
does not place any unreasonable burden on the Employee, (ii) the
general public will not be harmed as a result of the enforcement of
this covenant not to compete, (iii) the Employee has had an
opportunity to discuss the terms and conditions of this Agreement
generally and this Section 5 specifically with his personal legal
counsel, and (iv) the Employee understands and hereby agrees to each
and every term and condition of this covenant not to compete.
5.2 Violation of Covenants. The Employee expresses, agrees and acknowledges that
the covenant not to compete contained in this Section 5 is necessary for the
Company's protection because of the nature and scope of the Company's business
and the Employee's position with and the scope of the duties, responsibilities
and obligations delegated to the Employee by the Company. If any of the
covenants or agreements contained in this Section 5 are violated, the Employee
agrees and acknowledges that any such violation or threatened violation will
cause irreparable injury to the Company and that the remedy at law for any such
violation or threatened violation will be inadequate and that the Company will
be entitled to injunctive relief and other equitable remedies without the
necessity of proving actual damages. This non-competition period shall be
extended by any period of time during which the Employee is in breach or
violation of this covenant.
-8-
<PAGE>
6 Proprietary Information.
6.1 Return of Proprietary Information. Upon the termination of this Agreement
for any reason whatsoever or the expiration of the Employment Term, the Employee
shall immediately turn over to the Company any and all Proprietary Information
(as that term is defined below). The Employee shall have no right to retain any
copies of any material qualifying as Proprietary Information for any reason
whatsoever after the termination of his employment hereunder or the expiration
of the Employment Term, without the express written consent of the Company.
6.2 Non-Disclosure. The parties acknowledge and agree that, in the course of his
employment hereunder and through his prior activities for and on behalf of the
Company and the contemplated future activities for and on behalf of the Company
pursuant hereto, the Employee will receive, deal with and have access to, the
Company's Proprietary Information and that the Employee holds and will hold all
of the Company's Proprietary Information in trust and confidence for and on
behalf of the Company. The Employee agrees that he will not, during the
Employment Term or thereafter, in any fashion, form or manner, directly or
indirectly, retain, make copies of, divulge, disclose or communicate to any
person, firm company, partnership, corporation or business organization or
entity, in any manner whatsoever, except when necessary or required in the
normal course of the Employee's employment hereunder and for the benefit of the
Company or with the express prior written consent of the Company, any of the
Company's Proprietary Information or any information of any kind, nature or
description whatsoever concerning any matters affecting or relating to the
Company's business or affairs or any of its Proprietary Information.
6.3 Proprietary Information Defined. For purposes of this Agreement,
"Proprietary Information" shall include, but shall not be limited to, the
following: (a) identity of clients, customers, suppliers, retailers,
distributors, distribution channels or investors in, of or to the Company, or
potential clients, customers, suppliers, retailers, distributors, distribution
channels or investors in, of or to the Company; (b) any written, typed or
printed lists or other materials identifying the clients, customers, suppliers,
retailers, distributors or investors in, of or to the Company, or potential
clients, customers, suppliers, retailers, distributors or investors in, of or to
the Company; (c) any financial or other information supplied to the Company by
its clients, customers, suppliers, retailers, distributors or investors; (d) any
and all data or information involving the processes, security codes, flowcharts,
techniques, programs, marketing materials, personnel information, methods,
suppliers or contacts employed by the Company in the conduct of its business;
(e) any lists, documents, manuals, records, forms or other materials used by the
Company in the conduct of its business; (f) any descriptive materials describing
the processes, methods or procedures employed by the Company in the conduct of
its business; (g) any processes for or involving any of the Company's products
or contemplated or proposed products, processes or services or any in-process
patent applications or trade secrets relating to the Company's products,
processes or services; and (h) any other secret or confidential information or
material concerning the Company's business, affairs or products or services,
including, but not limited to, non-public financial information such as budgets
-9-
<PAGE>
and business plans. The terms "list," "document" or their equivalent, as used in
this Section 6.3, are not limited to a physical writing or compilation, but also
include any and all information whatsoever regarding the subject matter of the
"list" or "document" whether or not such compilation has been reduced to writing
and regardless of the medium in which the same exists (whether electronic,
digital, magnetic, optical or otherwise).
7 Termination of Prior Agreements. This Agreement terminates and supersedes
any and all prior negotiations, correspondence, agreements, proposals and
understandings between the parties hereto with respect to employment or
with respect to the compensation of the Employee by the Company, and all
such negotiations, correspondence, agreements, proposals and understandings
shall be deemed to be merged into this Agreement and, to the extent
inconsistent herewith, such negotiations, correspondence, agreements,
proposals and understandings shall be deemed to be of no force or effect.
There are no representations, warranties or agreements, whether express or
implied, oral or written, with respect to the subject matter hereof, except
as set forth herein.
8 Assignment. This Agreement is for the unique personal services of the
Employee and is not assignable or delegable, in whole or in part, by the
Employee without the prior written consent of the Company. This Agreement
may be assigned or delegated, in whole or in part, by the Company and, in
such case, shall be assumed by and become binding upon the person, firm,
company, corporation or business organization or entity to which this
Agreement is assigned.
9 Waiver or Modification. Any waiver, change, modification, extension,
discharge or amendment of any provision of this Agreement shall be
effective only if in writing in a document that specifically refers to this
Agreement and is signed by the party against whom enforcement of such
waiver, change, modification, extension, discharge or amendment is sought.
The waiver by either party of a breach of any provision of this Agreement
by the other party shall not operate or be construed as a waiver of any
other provision hereof or any subsequent breach of the same provision
hereof.
10 Severability; Interpretation. In the event that any term or portion,
including any part of a Section or subsection, of this Agreement is invalid
or unenforceable for any reason, the remaining terms or portions of this
Agreement, including the remaining Sections or subsections, if any, shall
be severable and shall remain in full force and effect. The parties to this
Agreement agree that the court making a determination that any term or
provision of this Agreement is unenforceable shall modify the scope,
duration, geographic area or application of the term or provision so that
the term or provision is enforceable to the maximum extent permitted by
applicable law. Notwithstanding any rule or maxim of construction to the
contrary, any ambiguity or uncertainty in this Agreement shall not be
-10-
<PAGE>
construed against either of the parties based upon authorship of any of the
provisions hereof. The above Recital is deemed to be incorporated herein by
reference.
11 Notices. Any notice required or permitted hereunder to be given by either
party shall be in writing and shall be delivered personally or sent by
certified or registered mail, postage prepaid, or by private courier, or by
telex, telegram or telecopy to the party to the address set forth below or
to such other address as either party may designate from time to time
according to the terms of this Section 11:
To the Employee at: Lloyd M. Taggart
64 West 1600 North
Centerville, Utah 84014
Fax: (801) 292-6776
To the Company at: Dynatec International, Inc.
3820 Great Lakes Drive
Salt Lake City, Utah 84120
Attention: Frederick W. Volcansek, Sr.
Chief Executive Officer
Fax: (801) 972-2112
A notice delivered personally shall be effective upon receipt. A notice sent by
telex, telegram or telecopy shall be effective twenty-four (24) hours after the
dispatch thereof. A notice delivered by private courier shall be effective on
the day delivered or if delivered by mail, the third (3rd) business day after
the day of mailing.
12 Attorneys' Fees. In the event of any action at law or in equity to enforce
or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, court costs and disbursements in
addition to any other relief to which such party may otherwise be entitled.
13 Governing Law; Jurisdiction and Venue. This Agreement shall be governed by
and construed in accordance with the laws of the State of Utah without
giving effect to any applicable conflicts of law provisions. The parties
consent to the exclusive jurisdiction and venue of the federal and state
courts residing in Salt Lake City, Salt Lake County, Utah for the
resolution of any disputes arising under or out of this Agreement.
14 Business Opportunities. During the Employment Term the Employee agrees to
bring to the attention of the Company's Board of Directors all written
business proposals that come to the Employee's attention and all business
or investment opportunities of whatever nature that are created or devised
-11-
<PAGE>
by the Employee and that relate to areas in which the Company conducts
business and might reasonably be expected to be of interest to the Company
or any of its subsidiaries or divisions.
15 Employee's Representations and Warranties. The Employee hereby represents
and warrants that he is not under any contractual obligation to any other
company, entity or individual that would prohibit or impede the Employee
from performing his duties and responsibilities under this Agreement and
that he is free to enter into and perform the duties and responsibilities
required by this Agreement. The Employee hereby agrees to indemnify and
hold the Company and its officers, directors, employees, shareholders and
agents harmless in connection with the representations and warranties made
by the Employee in this Section 15.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-12-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Employment Agreement
effective as of the Effective Date.
THE COMPANY: THE EMPLOYEE:
DYNATEC INTERNATIONAL, INC.,
a Utah corporation
/s/
----------------------------------------
By: /s/
-------------------------------------
Frederick W. Volcansek, Sr.
Its: Chief Executive Officer
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
effective as of October 29, 1999 (the "Effective Date"), by and between Dynatec
International, Inc., a Utah corporation (the "Company"), and Michael L. Whaley,
an individual (the "Employee"). The Company and the Employee are sometimes
referred to herein, collectively, as the "parties" and, individually, as a
"party."
RECITAL
The Company desires to establish its rights to the services of the
Employee in the capacity of Senior Vice President & Chief Financial Officer on
the terms and conditions and subject to the rights of termination hereinafter
set forth, and the Employee is willing to accept such employment on such terms
and conditions.
AGREEMENT
NOW THEREFORE, in consideration of the mutual agreements, promises and
covenants described herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Employee and the
Company have agreed and do hereby agree as follows:
1. Employment. The Company hereby employs the Employee and the Employee hereby
accepts such employment, upon the terms and conditions set forth herein. The
Company shall furnish the Employee with an office and administrative and other
facilities and services at the Company's headquarters in Salt Lake City, Utah as
are reasonably necessary and appropriate for the performance of the Employee's
duties and responsibilities hereunder and consistent with the Employee's
position as Senior Vice President & Chief Financial Officer of the Company.
2. Duties. The Company does hereby employ and engage the Employee as Senior Vice
President & Chief Financial Officer of the Company and each of its subsidiaries
and divisions, or such other title as the Company's Chief Executive Officer
shall specify from time to time, and the Employee does hereby accept and agree
to such engagement and employment. The Employee's duties shall be such executive
and managerial duties and responsibilities as the Chief Executive Officer shall
specify from time to time and as provided in the Bylaws of the Company, as the
same may be amended from time to time. The Employee shall diligently and
faithfully execute and perform such duties and responsibilities, subject to the
general supervision and control of the Company's Chief Executive Officer. The
Employee shall be responsible and report to the Company's Chief Executive
Officer. The Company's Chief Executive Officer shall determine the Employee's
duties and responsibilities and may assign or reassign the Employee to such
executive and managerial duties, responsibilities or positions as such officer
deems in the Company's best interest. The Employee shall devote his full-time
attention, energy and skill during normal business hours to the business and
affairs of the Company and shall not, during the Employment Term (as that term
is defined below), be actively engaged in any other business activity, except
with the prior written consent of the Company's Board of Directors; provided,
however, that in any event any such other business activity will not: (a)
-1-
<PAGE>
adversely affect or materially interfere with the performance of the Employee's
duties and responsibilities hereunder, (b) involve a conflict of interest with
the Company or (c) involve activities competitive with the business of the
Company. Notwithstanding the foregoing, the Employee shall be permitted to (i)
engage in charitable and community affairs and (ii) make investments of any
character in any business not in competition with the Company or any of its
subsidiaries or divisions and manage such investment (but not be involved in the
day-to-day operations of any such business), provided, however, no such business
shall place the Employee in a conflict of interest with the Company or interfere
with the performance of the Employee's duties and responsibilities under this
Agreement.
3. Compensation and Benefits. As the entire consideration for the services to be
performed by the Employee hereunder and the duties and responsibilities assigned
to and the obligations incurred by the Employee hereunder, and subject to the
terms and conditions hereof, during the Employment Term, the Employee shall be
entitled to the following:
3.1. Base Salary. Subject to Section 4 below, during the Employment Term the
Company shall pay the Employee an annual base salary of One Hundred Forty-five
Thousand Dollars ($145,000.00). The Company will pay the Employee said base
salary in equal semi-monthly installments or at more frequent intervals in
accordance with the Company's customary policies and pay schedule.
3.2. Additional Benefits. The Employee shall be entitled to participate, to the
extent of his eligibility, in any employee benefit plans made generally
available by the Company to its other senior management personnel during the
Employment Term, including, without limitation, such bonus plans, pension or
profit sharing plans, incentive stock option plans, retirement plans, and
health, life, hospitalization, dental, disability or other insurance plans or
programs as may be in effect from time to time, subject, however, to any
restrictions specified in such plans and to the discretion of the Company's
Board of Directors in making any specific grant under such plans. Such
participation shall be in accordance with the terms established from time to
time by the Company for individual participation in any such plans or programs.
3.3. Vacation, Sick Leave and Holidays. The Employee shall be entitled to such
amounts of paid vacation and other leave, up to three (3) weeks of paid vacation
per each twelve (12) month period of employment, as from time to time may be
generally allowed to the Company's senior management personnel, with such
vacation to be scheduled and taken in accordance with the Company's standard
vacation policies applicable to such personnel. In addition, the Employee shall
be entitled to such sick leave and holidays at full pay in accordance with the
Company's policies established and in effect from time to time for its senior
management personnel.
-2-
<PAGE>
3.4. Vehicle. The Employee shall be entitled to the use of one (1) Company owned
or leased vehicle and full reimbursement for all expenses associated with the
operation and maintenance of such vehicle, which vehicle shall be comparable to
the vehicles of the other senior management personnel and executives of the
Company. The Company will reimburse the Employee for such expenses in accordance
with the Company's normal accounting procedures upon the presentation of
vouchers and documentation for such operational and maintenance expenses,
provided that the total monthly expense to the Company under this Section 3.4
shall not exceed Eight Hundred Fifty Dollars ($850).
3.5. Bonus. The Company's Board of Directors may at any time, but shall have no
obligation to do so, pay the Employee such bonuses and/or other supplemental or
special payments and benefits as the Board of Directors determines in its sole
and absolute discretion.
3.6. Stock Options. The Employee shall be granted options to purchase shares of
the Company's Common Stock at such time, in an amount and with terms and
conditions to be determined by the Board of Directors. All such options will be
granted pursuant to and governed by any executive stock option plan then in
effect (or such other similar plan as determined by the Board of Directors) and
shall be evidenced by a separate option grant agreement with the Employee.
Notwithstanding, and without limiting, the generality of the foregoing, Employee
shall receive a grant under the Company's 1999 Stock Option and Incentive Plan
of options to purchase a total of 100,000 shares of the Company's common stock,
which options shall have a per share exercise price equal to One Hundred percent
(100%) of the fair market value of the common stock on the date of grant, which
date shall be within five (5) business days after the Effective Date. Such
options shall be subject to such additional terms and conditions as are
ordinarily and customarily part of the Company's stock option agreements,
provided that Employee acknowledges and agrees that this Section 3.6 shall not
constitute the actual grant of such options, and that no grant shall be made
until the Company delivers a definitive option agreement to Employee at the time
of grant.
3.7. No Other Benefits or Compensation. The Employee, as a result of his
employment by the Company as provided by this Agreement, shall only be entitled
to the compensation and benefits provided for in this Agreement, subject to the
terms as set forth herein, and to no other benefits or compensation, to the
extent that additional future benefits or compensation is provided to all other
senior officers or executives of the Company
3.8. Business Expenses. The Company shall promptly reimburse the Employee for
all reasonable out-of-pocket business expenses incurred in performing the
Employee's duties and responsibilities hereunder in accordance with the
Company's policies with respect thereto in effect from time to time, provided
that the Employee promptly furnishes to the Company adequate records and other
documentary evidence required by all federal and state statutes, rules and
-3-
<PAGE>
regulations issued by the appropriate taxing authorities for the substantiation
of each such business expense as a deduction on the federal and state income tax
returns of the Company.
4. Term and Termination.
4.1. Employment Term. Subject to earlier termination as provided hereinbelow
(and except for the provisions of this Agreement that, by their terms, continue
in force beyond the termination thereof), the term of this Agreement shall be
for a four (4) year period, commencing on the Effective Date and ending on
October 31, 2003 (the "Employment Term"). Upon mutual written consent of the
parties, this Agreement may be extended or renewed for such successive term or
terms beyond the Employment Term as the parties agree. If the Employment Term is
so extended or renewed as provided in this Section 4.1, the term "Employment
Term" will be interpreted herein to include such successive extension or renewal
term or terms.
4.2. Voluntary Termination. The Company shall be able to voluntarily terminate
this Agreement without cause (as that term is defined below) during the
Employment Term, in which case the provisions of Section 4.5.2 shall apply. The
Employee may voluntarily terminate this Agreement and his employment hereunder
at any time during the Employment Term, in which event the conditions of Section
4.5.1 below shall apply.
4.3. Termination for Cause. This Agreement, and the Employee's employment
hereunder, shall automatically terminate upon the Employee's death and is
otherwise immediately terminable by the Company for cause at anytime (except as
otherwise set forth in this Agreement) upon written notice from the Company to
the Employee. As used in this Agreement, "cause" shall mean the following:
4.3.1. refusal by the Employee to implement or adhere to lawful policies
or directives of the Board of Directors;
4.3.2. habitual neglect of or deliberate or intentional refusal by the
Employee to perform his duties, responsibilities or obligations under this
Agreement;
4.3.3. the Employee's conviction of or entrance of a plea of nolo contendere to
(a) a felony, (b) any crime punishable by incarceration for a period of one (1)
year or longer, or (c) other conduct of a criminal nature that may have a
material adverse impact on the Company's reputation and standing in the
community;
4.3.4. breach of fiduciary duty, breach of the Employee's common law duty of
loyalty, deliberate breach of the Company's rules resulting in loss or damage to
the Company, or unauthorized disclosure of any of the Company's trade secrets,
confidential information or Proprietary Information (as that term is defined
below) by the Employee; or
-4-
<PAGE>
4.3.5. theft, embezzlement or other criminal misappropriation of funds by the
Employee from the Company; provided, however, that cause pursuant to Sections
4.3.1 and 4.3.2 above shall not be deemed to exist unless the Company shall have
first given the Employee a written notice thereof specifying in reasonable
detail the facts and circumstances alleged to constitute "cause," and thirty
(30) days after such notice such conduct has, or such circumstances have, as the
case may be, not entirely ceased or been entirely remedied. The determination of
whether the Employee's actions justify termination for cause and the date such
termination shall be effective shall be made by the Company's Board of Directors
or management, in good faith, in their sole and absolute discretion. If the
Company terminates the Employee's employment pursuant to this Section 4.3 but it
is ultimately determined that the Company lacked "cause," the provisions of
Section 4.5.2 below shall apply.
4.4 Termination for Disability. The Company's Board of
Directors may terminate this Agreement and the Employee's employment hereunder,
upon written notice to the Employee and certification of the Employee's
"disability" (as that term is defined below) by a Qualified Physician (as that
term is defined below) or a panel of Qualified Physicians, as set forth below,
if the Employee becomes disabled for either (a) one hundred-twenty (120)
continuous days or (b) one hundred-eighty (180) days during any continuous
twenty-four (24) month period during the Employment Term. The Company's Board of
Directors shall initially determine that the Employee's disability will prevent
the Employee from substantially performing the Employee's duties,
responsibilities or obligations hereunder. As used in this Agreement,
"disability" shall be defined as (i) the Employee's inability, by reason of
physical or mental illness or other cause, to substantially perform the
Employee's duties, responsibilities or obligations hereunder, or (ii) disability
as defined in any disability insurance policy of the Company in effect at the
time in question. The Employee's disability, as initially determined by the
Board of Directors, shall then be certified by a Qualified Physician or, if
requested by the Employee, by a panel of three (3) Qualified Physicians. If the
Employee requests such a panel, the Employee and the Company shall each select
one (1) Qualified Physician who together shall then select a third Qualified
Physician. The determination of the individual Qualified Physician or a majority
of the panel of Qualified Physicians, as the case may be, shall be binding and
conclusive for all purposes. As used in this Section 4.4, the term "Qualified
Physician" shall mean any medical doctor who is licensed to practice medicine in
the State of Utah and who is reasonable acceptable to the Employee and the
Company. The Employee and the Company may, in any instance, and in lieu of a
determination by a Qualified Physician or a panel of Qualified Physicians, agree
between themselves that the Employee is disabled for purposes of this Section
4.4, in which event the parties understand and agree that any such determination
shall only be applicable for purposes of this Agreement. The Employee shall
receive full compensation, benefits and reimbursement of expenses pursuant to
the terms of this Agreement from the date disability begins until the date the
Employee receives written notice that the Qualified Physician or the panel of
Qualified Physicians, as the case may be, has certified the Employee's
-5-
<PAGE>
disability or until the Employee begins to receive disability benefits pursuant
to any disability insurance policy of the Company, whichever occurs first.
4.5 Effect of Termination.
4.5.1 Termination for Cause or Voluntary Termination by the Employee. In the
event this Agreement and the Employee's employment is terminated for cause
hereunder or the Employee voluntarily terminates this Agreement pursuant to
Section 4.2 above, all obligations of the Company and all duties,
responsibilities and obligations of the Employee shall cease except as provided
in Section 4.5.2 below. Upon such termination, the Employee or the Employee's
representative or estate shall be entitled to receive only the compensation,
benefits and reimbursement earned by or accrued to the Employee under the terms
of this Agreement prior to the date of termination, but shall not be entitled to
any further compensation, benefits or reimbursement after such date.
4.5.2 Voluntary Termination by the Company; Severance Compensation. In the event
the Company voluntarily terminates this Agreement and the Employee's employment
hereunder during the Employment Term other than for cause (and other than as
allowed pursuant to Section 4.2 above), the Employee will be entitled to the
following severance benefits: (a) two (2) years' base salary (as the Employee's
base salary is set forth in Section 3.1 above or as subsequently increased by
the Company), fifty percent (50%) of which shall be paid in a lump sum on the
date of the Employee's termination and the other fifty percent (50%) of which
shall be paid in three (3) equal quarterly installments commencing on the date
that is one-hundred eighty (180) days after the date of the Employee's
termination; and (b) two (2) years of Company-paid health, hospitalization and
dental coverage, which insurance coverage shall be substantially on the same
terms and conditions as was offered to the Employee during the Employment Term.
Other than the items set forth in clauses (a) and (b) above in this Section
4.5.2, the Employee shall not be entitled to any further compensation, benefits
or reimbursement after the date of his termination. In the event the Employee
voluntarily terminates this Agreement and his employment hereunder pursuant to
Section 4.2 above, the Employee shall not be entitled to any severance pay and
shall not be entitled to any further compensation, benefits or reimbursement
after such termination date. Except for the severance pay provided in this
Section 4.5.2, and except as otherwise provided herein, all obligations of the
Company will cease upon the Company's voluntary termination of this Agreement
and the Employee's employment hereunder. No severance compensation will be paid
to the Employee in the event he is terminated for cause.
4.6 Change of Control Transfer This Agreement shall not be
terminated by the voluntary or involuntary dissolution of the Company resulting
from either a merger or consolidation in which the Company is not the
consolidated or surviving company, or a transfer or all or substantially all of
the assets of the Company, or the sale of all or substantially all of the
Company's equity capital (a "change of control"). In the event of any such
merger, consolidation, sale or change of control, the Company's rights hereunder
-6-
<PAGE>
shall be assigned to the surviving or resulting company, which company shall
then honor this Agreement with the Employee or purchase this Agreement from the
Employee for an amount equal to three (3) years' base salary (as the Employee's
base salary is set forth in Section 3.1 above or as subsequently increased by
the Company), which amount shall be paid to the Employee in one (1) lump sum
upon the closing of such merger, consolidation, sale or change of control.
4.7 Survivability.
4.7.1 Upon the termination of this Agreement pursuant to Section 4.4 or Section
4.5.1 above and upon the expiration of the Employment Term, this Agreement shall
thereupon be and become void and of no further force or effect, except that (a)
the covenant not to compete set forth in Section 5 below and (b) the proprietary
information provision contained in Section 6 below shall survive any such
termination or expiration and shall continue to bind the Employee for the period
of time stated therein, and, in addition, the attorneys' fees provisions,
governing law and jurisdiction and venue provisions, and indemnification
provisions set forth in Sections 12, 13 and 15 below, respectively, shall
continue to govern any disputes arising under this Agreement.
4.7.2 Upon the termination of this Agreement pursuant to Section 4.5.2 above,
this Agreement shall thereupon be and become void and of no further force or
effect, except that (a) the severance pay provisions of Section 4.5.2 above, (b)
the covenant not to compete set forth in Section 5 below and (c) the proprietary
information provision contained in Section 6 below shall survive any such
termination and shall continue to bind the Employee for the period of time
stated therein, and, in addition, the attorneys' fees provisions, governing law
and jurisdiction and venue provisions, and indemnification provisions set forth
in Sections 12, 13 and 15 below, respectively, shall continue to govern any
disputes arising under this Agreement.
4.8 Full Calendar Month. To the extent permitted by
applicable law, the calendar month in which the Employee's employment is
terminated shall be counted as a full month in determining all amounts hereunder
and the vesting of any benefits under any of the Company's benefit plans or
programs.
5. Covenant Not to Compete.
5.1 Non-Compete Covenant. The Company and the Employee agree
that the Company's successful operation depends, in significant part, on the
Employee's special knowledge and expertise in Finance. Consequently, during the
Employment Term and for a period of two (2) years after the date of termination
of the Employee's employment with the Company (for any reason whatsoever) or the
expiration of this Agreement at the expiration of the Employment Term, the
-7-
<PAGE>
Employee, in further consideration of the Company's agreement to employ the
Employee as provided herein, agrees not (a) to engage, directly or indirectly,
personally or as an employee, agent, consultant, partner (whether general or
limited), member, manager, officer, director, shareholder or otherwise, in any
business activities that are the same as those in which the Company engages or
proposes to engage (as indicated by the Company's business plan on the date of
the expiration of the Employment Term) for or on behalf of himself or any other
person, firm, company, corporation or business organization or entity that
competes with the Company in the consumer products industry, (b) to engage in
such activities with any other person, firm, company, partnership, corporation
or business organization or entity engaged in or about to become engaged in such
activities for or on behalf of such other person, firm, company, partnership,
corporation or business organization or entity, or (c) to entice, induce or
encourage any of the Company's other employees or any of its officers, directors
or consultants to engage in any activity that, were it done by the Employee,
would violate any provision of this Section 5.1; provided, however, that
notwithstanding the immediately preceding restrictions set forth in clauses (a),
(b) and (c) of this Section 5.1, the Employee shall be allowed to own up to five
percent (5%) of the issued and outstanding voting stock or interests of any
company or mutual fund that competes directly or indirectly with the Company if
such stock or interests are traded on a national securities market or on the
NASDAQ Stock Market. The restrictions set forth in this Section 5.1 shall only
apply in the State of Utah. The Employee expressly agrees and acknowledges that
(i) this covenant not to compete is reasonable as to time and geographic scope
and area and does not place any unreasonable burden on the Employee, (ii) the
general public will not be harmed as a result of the enforcement of this
covenant not to compete, (iii) the Employee has had an opportunity to discuss
the terms and conditions of this Agreement generally and this Section 5
specifically with his personal legal counsel, and (iv) the Employee understands
and hereby agrees to each and every term and condition of this covenant not to
compete.
5.2 Violation of Covenants. The Employee expresses, agrees and
acknowledges that the covenant not to compete contained in this Section 5 is
necessary for the Company's protection because of the nature and scope of the
Company's business and the Employee's position with and the scope of the duties,
responsibilities and obligations delegated to the Employee by the Company. If
any of the covenants or agreements contained in this Section 5 are violated, the
Employee agrees and acknowledges that any such violation or threatened violation
will cause irreparable injury to the Company and that the remedy at law for any
such violation or threatened violation will be inadequate and that the Company
will be entitled to injunctive relief and other equitable remedies without the
necessity of proving actual damages. This non-competition period shall be
extended by any period of time during which the Employee is in breach or
violation of this covenant.
-8-
<PAGE>
6. Proprietary Information.
6.1 Return of Proprietary Information. Upon the termination of
this Agreement for any reason whatsoever or the expiration of the Employment
Term, the Employee shall immediately turn over to the Company any and all
Proprietary Information (as that term is defined below). The Employee shall have
no right to retain any copies of any material qualifying as Proprietary
Information for any reason whatsoever after the termination of his employment
hereunder or the expiration of the Employment Term, without the express written
consent of the Company.
6.2 Non-Disclosure. The parties acknowledge and agree that, in
the course of his employment hereunder and through his prior activities for and
on behalf of the Company and the contemplated future activities for and on
behalf of the Company pursuant hereto, the Employee will receive, deal with and
have access to, the Company's Proprietary Information and that the Employee
holds and will hold all of the Company's Proprietary Information in trust and
confidence for and on behalf of the Company. The Employee agrees that he will
not, during the Employment Term or thereafter, in any fashion, form or manner,
directly or indirectly, retain, make copies of, divulge, disclose or communicate
to any person, firm company, partnership, corporation or business organization
or entity, in any manner whatsoever, except when necessary or required in the
normal course of the Employee's employment hereunder and for the benefit of the
Company or with the express prior written consent of the Company, any of the
Company's Proprietary Information or any information of any kind, nature or
description whatsoever concerning any matters affecting or relating to the
Company's business or affairs or any of its Proprietary Information.
6.3 Proprietary Information Defined. For purposes of this
Agreement, "Proprietary Information" shall include, but shall not be limited to,
the following: (a) identity of clients, customers, suppliers, retailers,
distributors, distribution channels or investors in, of or to the Company, or
potential clients, customers, suppliers, retailers, distributors, distribution
channels or investors in, of or to the Company; (b) any written, typed or
printed lists or other materials identifying the clients, customers, suppliers,
retailers, distributors or investors in, of or to the Company, or potential
clients, customers, suppliers, retailers, distributors or investors in, of or to
the Company; (c) any financial or other information supplied to the Company by
its clients, customers, suppliers, retailers, distributors or investors; (d) any
and all data or information involving the processes, security codes, flowcharts,
techniques, programs, marketing materials, personnel information, methods,
suppliers or contacts employed by the Company in the conduct of its business;
(e) any lists, documents, manuals, records, forms or other materials used by the
Company in the conduct of its business; (f) any descriptive materials describing
the processes, methods or procedures employed by the Company in the conduct of
its business; (g) any processes for or involving any of the Company's products
or contemplated or proposed products, processes or services or any in-process
patent applications or trade secrets relating to the Company's products,
processes or services; and (h) any other secret or confidential information or
material concerning the Company's business, affairs or products or services,
-9-
<PAGE>
including, but not limited to, non-public financial information such as budgets
and business plans. The terms "list," "document" or their equivalent, as used in
this Section 6.3, are not limited to a physical writing or compilation, but also
include any and all information whatsoever regarding the subject matter of the
"list" or "document" whether or not such compilation has been reduced to writing
and regardless of the medium in which the same exists (whether electronic,
digital, magnetic, optical or otherwise).
7. Termination of Prior Agreements. This Agreement terminates and
supersedes any and all prior negotiations, correspondence, agreements, proposals
and understandings between the parties hereto with respect to employment or with
respect to the compensation of the Employee by the Company, and all such
negotiations, correspondence, agreements, proposals and understandings shall be
deemed to be merged into this Agreement and, to the extent inconsistent
herewith, such negotiations, correspondence, agreements, proposals and
understandings shall be deemed to be of no force or effect. There are no
representations, warranties or agreements, whether express or implied, oral or
written, with respect to the subject matter hereof, except as set forth herein.
8. Assignment. This Agreement is for the unique personal services of
the Employee and is not assignable or delegable, in whole or in part, by the
Employee without the prior written consent of the Company. This Agreement may be
assigned or delegated, in whole or in part, by the Company and, in such case,
shall be assumed by and become binding upon the person, firm, company,
corporation or business organization or entity to which this Agreement is
assigned.
9. Waiver or Modification. Any waiver, change, modification, extension,
discharge or amendment of any provision of this Agreement shall be effective
only if in writing in a document that specifically refers to this Agreement and
is signed by the party against whom enforcement of such waiver, change,
modification, extension, discharge or amendment is sought. The waiver by either
party of a breach of any provision of this Agreement by the other party shall
not operate or be construed as a waiver of any other provision hereof or any
subsequent breach of the same provision hereof.
10. Severability; Interpretation. In the event that any term or
portion, including any part of a Section or subsection, of this Agreement is
invalid or unenforceable for any reason, the remaining terms or portions of this
Agreement, including the remaining Sections or subsections, if any, shall be
severable and shall remain in full force and effect. The parties to this
Agreement agree that the court making a determination that any term or provision
of this Agreement is unenforceable shall modify the scope, duration, geographic
area or application of the term or provision so that the term or provision is
enforceable to the maximum extent permitted by applicable law. Notwithstanding
any rule or maxim of construction to the contrary, any ambiguity or uncertainty
-10-
<PAGE>
in this Agreement shall not be construed against either of the parties based
upon authorship of any of the provisions hereof. The above Recital is deemed to
be incorporated herein by reference.
11. Notices. Any notice required or permitted hereunder to be given by
either party shall be in writing and shall be delivered personally or sent by
certified or registered mail, postage prepaid, or by private courier, or by
telex, telegram or telecopy to the party to the address set forth below or to
such other address as either party may designate from time to time according to
the terms of this Section 11:
To the Employee at: Michael L. Whaley
98 East Harper Way
South Weber, UT 84405
Fax: (801) 475-1947
To the Company at: Dynatec International, Inc.
3820 Great Lakes Drive
Salt Lake City, Utah 84120
Attention: Frederick W. Volcansek, Sr.
Chief Executive Officer
Fax: (801) 972-2112
A notice delivered personally shall be effective upon receipt. A notice sent by
telex, telegram or telecopy shall be effective twenty-four (24) hours after the
dispatch thereof. A notice delivered by private courier shall be effective on
the day delivered or if delivered by mail, the third (3rd) business day after
the day of mailing.
12. Attorneys' Fees. In the event of any action at law or in equity to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, court costs and disbursements in
addition to any other relief to which such party may otherwise be entitled.
13. Governing Law; Jurisdiction and Venue. This Agreement shall be
governed by and construed in accordance with the laws of the State of Utah
without giving effect to any applicable conflicts of law provisions. The parties
consent to the exclusive jurisdiction and venue of the federal and state courts
residing in Salt Lake City, Salt Lake County, Utah for the resolution of any
disputes arising under or out of this Agreement.
14. Business Opportunities. During the Employment Term the Employee
agrees to bring to the attention of the Company's Board of Directors all written
business proposals that come to the Employee's attention and all business or
investment opportunities of whatever nature that are created or devised by the
-11-
<PAGE>
Employee and that relate to areas in which the Company conducts business and
might reasonably be expected to be of interest to the Company or any of its
subsidiaries or divisions.
15. Employee's Representations and Warranties. The Employee hereby
represents and warrants that he is not under any contractual obligation to any
other company, entity or individual that would prohibit or impede the Employee
from performing his duties and responsibilities under this Agreement and that he
is free to enter into and perform the duties and responsibilities required by
this Agreement. The Employee hereby agrees to indemnify and hold the Company and
its officers, directors, employees, shareholders and agents harmless in
connection with the representations and warranties made by the Employee in this
Section 15.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-12-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Employment Agreement
effective as of the Effective Date.
THE COMPANY: THE EMPLOYEE:
DYNATEC INTERNATIONAL, INC.,
a Utah corporation
/s/
----------------------------------------
Michael L. Whaley
By: /s/
-------------------------------------
Frederick W. Volcansek, Sr.
Its: Chief Executive Officer
AMENDMENT TO MODIFICATION AGREEMENT
AMENDMENT TO MODIFICATION AGREEMENT dated as of November 12, 1999
(the "Agreement"), among the entities listed on the signature page attached
hereto (collectively referred to as the "Investors" or individually as an
"Investor"), and DYNATEC INTERNATIONAL, INC., a corporation organized and
existing under the laws of the State of Utah (the "Company"), and trading on the
Nasdaq SmallCap Stock Market under the symbol "DYNX."
Recitals
WHEREAS, the parties to the Agreement previously have entered into a
Convertible Debenture and Private Equity Line of Credit Agreement dated as of
May 22, 1998 (the "Line of Credit Agreement"), a Registration Rights Agreement
dated as of May 15, 1998 (the "Registration Rights Agreement"), and an Escrow
Agreement dated as of May 15, 1998 (the "Escrow Agreement," and together with
the Line of Credit Agreement and the Registration Rights Agreement, the "Funding
Agreements"); and
WHEREAS, the Company, the Investors and Settondown Capital
International Ltd., entered into Modification Agreement dated as of June 25,
1999 (the "Modification Agreement"). Under the Modification Agreement, the
parties agreed to certain modifications to the Funding Agreements as set forth
therein; and
WHEREAS, the Company and the Investors desire to amend the terms and
conditions of the Modification Agreement as set forth below.
Agreement
NOW, THEREFORE, in consideration of the covenants and mutual promises
below and other good and valuable consideration, the receipt and legal
sufficiency of which the parties acknowledge by their signatures appearing
below, and intending to be legally bound hereby, the parties to this Agreement
hereby agree as follows:
1. Section 4 of the Modification Agreement is deleted and replaced with
the following language:
Section 4. Amendment to Obligation to Pay Liquidated Damages.
Pursuant to the Funding Agreements, including but not limited to
Section 3(e) of the Registration Rights Agreement, the Company is
obligated to pay liquidated damages to the Investors as a result of the
Company's failure to have the Registration Statement declared effective
by the SEC by the deadline set forth in the Funding Documents. Because
the Company has been unable to comply with this requirement, the
Company is presently obligated to pay the sum of Forty-five Thousand
Dollars ($45,000) per month to the Investors until such time as the
Registration Statement is effective, which amount was accrued and paid
by the Company for the period of September 23, 1998 through and
including February
1
<PAGE>
23, 1999. The Investors and the Company hereby agree that the Company
shall accrue amounts owed for liquidated damages for the period from
February 24, 1999 through and including June 23, 1999, which amount
shall be payable upon demand therefor by the Investors in cash or
stock, at the Company's option. The Investors may demand payment of
such accrued liquidated damages at any time after February 15, 2000. If
the Investors demand payment of such amount and the Company elects to
pay such amount in shares of its common stock, the number of shares
issuable upon such payment shall be determined by dividing the total
dollar amount of accrued liquidated damages to be paid in common stock
by the one hundred percent (100%) of the average of the closing bid
prices of the Company's common stock as quoted on the Nasdaq SmallCap
Market for the five (5) trading days immediately preceding the date
such payment demand is made by the Investors. The Company agrees that
it will cause such shares issued as payment for accrued liquidated
damages to be issued and delivered to the Investors within five (5)
business days after demand for payment is made by the Investors. No
liquidated damages shall accrue for the period from June 24, 1999 to
February 15, 2000 but liquidated damages shall accrue from and after
February 15, 2000 as described in the Funding Agreement, which
liquidated damages shall be payable in cash or common stock at the
Company's option as set forth above in this Section 4.
2. Section 6 of the Modification Agreement is deleted and replaced with
the following language:
Section 6. Amendment of Registration Rights Agreement.
Pursuant to the Registration Rights Agreement, the Company agreed to
prepare and file with the SEC the Registration Statement covering the
shares underlying the Convertible Debentures, the Placement Agent
Shares, the Additional Debentures, the shares issuable under the Equity
Line of Credit, and the shares underlying the Warrants. In light of the
cancellation of the Equity Line of Credit pursuant to Section 1 above,
the termination of the obligation of the Company to issue additional
Placement Agent Shares pursuant to Section 2 above, and the termination
of the obligation to issue or purchase the Additional Debentures
pursuant to Section 3 above, the parties to this Agreement, who are
also the parties to the Registration Rights Agreement hereby agree that
the Registration Rights Agreement shall mean and be enforceable as
follows:
(a) The term "Convertible Debentures," as used in the
Registration Rights Agreement, shall mean the One Million Five
Hundred Thousand ($1,500,000) principal amount of Convertible
Debentures, but shall exclude the Additional Debentures.
(b) The terms "Stock" or "Securities" of the Company,
as used in the Registration Rights Agreement, shall mean the
shares of common stock underlying the principal amount of the
Convertible Debentures and the shares of common stock
underlying
2
<PAGE>
the Warrants issued and outstanding as of the date of this
Agreement (together with the shares of common stock underlying
the Warrants issued to the Placement Agent).
(c) The parties to this Agreement intend that this
Section 6 amend and supersede any conflicting terms in the
Registration Rights Agreement.
3. Section 7(a) of the Modification Agreement is deleted and replaced
with the following language:
(a) No Mandatory Conversion. Notwithstanding
anything to the contrary in the Funding Agreements or in the
Convertible Debentures, the Convertible Debentures shall not
automatically be converted into shares of the Company's common
stock at the Maturity Date.
4. Section 13 of the Modification Agreement is deleted and replaced
with the following language:
Section 13. Rescission. At the option of the Investors,
Section 4 of this Agreement may be rescinded if (i) the Registration
Statement is not declared effective on or before February 15, 2000, or
(ii) if the Company fails to obtain the approval of the transactions
contemplated by the Funding Agreements as contemplated by Section 6.13
of the Line of Credit Agreement or otherwise before February 15, 2000;
or (iii) if the Company does not timely deliver cash or common stock
pursuant to Section 4 of this Agreement. In the event of rescission of
Section 4 of this Agreement pursuant to this Section 13, all liquidated
damages otherwise payable under the Funding Agreements shall be deemed
to have accrued at all times during the term of this Agreement and
shall be due and payable in accordance with the terms of the Funding
Agreements, assuming the parties had never executed and delivered this
Agreement.
5. Registration Rights. The Company covenants that it will prepare and
file with the Securities and Exchange Commission (the "Commission") a
registration statement on an appropriate form, determined by the Company in
consultation with its securities counsel, covering resales of the shares of
common stock issuable by the Company for interest accrued and, to the extent
possible, accruing with respect to the principal amount of the Convertible
Debentures, and covering resales of the shares of common stock issuable by the
Company as liquidated damages under the Modification Agreement, as amended
hereby. The Company further covenants that it will file the registration
statement referred to in the preceding sentence within thirty (30) days after
the effective date of the registration statement filed pursuant to the Funding
Agreements, and to use its best efforts to cause such registration statement to
be declared effective by the Commission as soon as possible thereafter and to
keep such registration statement effective for a period of six (6) months from
the effective date of such registration statement.
3
<PAGE>
6. 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. A facsimile copy of an original signature shall
have the same effect as an original signature.
7. 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.
8. 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 were not contained
herein.
9. Entire Agreement. 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. The
parties to this Agreement expressly intend to amend certain terms of the
Modification Agreement and the other documents and instruments modified thereby,
including the Line of Credit Agreement and the Registration Rights Agreement,
and intend that the terms of this Agreement shall control in the event of any
disagreement between the terms of this Agreement and the Modification Agreement,
the Line of Credit Agreement or the Registration Rights Agreement.
10. Definitions. Capitalized terms used in this Agreement but not
specifically defined in this Agreement shall have the meanings set forth in the
Funding Agreements.
11. Limited Effect of Amendment. Except to the extent specifically
modified or amended by this Agreement, the terms and conditions of the Funding
Agreements, as modified by the Modification Agreement, shall not be amended,
modified, superceded or affected in any way and shall continue to have full
force and effect on the parties thereto.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Modification
Agreement as of the 12th day of November, 1999.
DYNATEC INTERNATIONAL, INC. ELLIS ENTERPRISES
By: /s/ By: /s/
--------------------------------- -------------------------------------
Its: Chief Executive Officer Its: Director
By: /s/
---------------------------------
Its: Chief Financial Officer TLG REALTY
By: /s/
-------------------------------------
Its: President
------------------------------------
BALMORE FUNDS, S.A.
By: /s/
-------------------------------------
Its:
------------------------------------
AUSTOST ANSTALT SCHAAN
By: /s/
-------------------------------------
Its:
------------------------------------
HEWLETT FUND
By: /s/
-------------------------------------
Its:
------------------------------------
5
COMMERCIAL LEASE
This Lease is made and entered into this 1st day of November, 1999 by and
between FRE CORPORATION III, a California corporation, as Lessor and Dynatec
International, Inc. a Utah corporation, as Lessee.
WHEREAS, this Lease is made and entered into with regard to the acres of real
property located at approximately 3820 Great Lakes Dr., West Valley City, State
of Utah, more particularly described on the attached legal entitled Exhibit "A"
which is incorporated herein by reference (hereinafter referred to as the "Real
Property" or as the "Premises").
WHEREAS, there is attached hereto and marked Exhibit "B" a site plan for the
Real Property. The site plan discloses the location of the approximately 50,123
square foot building (the "Building") and other improvements which are to be let
by Lessor pursuant to the terms of this Lease. Said site plan is incorporated
herein by reference.
WHEREAS, Lessor is desirous of leasing the Real Property to Lessee, and Lessee
is desirous of leasing the same from Lessor upon the terms and conditions
hereafter set forth.
THEREFORE, in consideration of the foregoing promises and each and all of the
mutual and reciprocal covenants, terms, provisions, conditions and agreements
hereinafter set forth, Lessor does hereby lease, let and demise unto Lessee and
Lessee does hereby accept, take and hire from Lessor, upon the terms and
conditions set forth herein the Real Property together with the improvements
thereon.
I. COMMENCEMENT DATE
1. Deleted.
1.2 Deleted.
1.3 Deleted.
1.4 Occupancy by Lessee shall be deemed to be that of a Lessee under all of
the terms, covenants and conditions of this Lease and Lessee's
liability for rent, taxes, insurance and maintenance obligations shall
commence and become payable on the date this lease is executed by
Lessor and Lessee (hereinafter the "Commencement Date"). Should that
date occur on any day other than the first day of a calendar month,
rent, taxes, insurance, and maintenance charges for the month shall be
prorated and the Commencement Date shall be deemed to be on the first
day of the month following the date of execution of this Lease .
1
<PAGE>
1.5 Deleted.
1.6 Deleted.
1.7 Deleted.
II. TERM
2. The term of this Lease shall be for a period of twenty (20) years to
commence on the Commencement Date.
2.1 Providing that Lessee is not in default under the terms of this Lease,
Lessee shall have the option to extend the lease term for two(2)
additional periods of five (5) years each beyond the original twenty
(20) year lease term. Said options must be exercised by Lessee in
writing no sooner than twelve (12) months and no later than six (6)
months prior to the expiration of the then current lease term. If
Lessee is in default on the date of giving the option notice, the
option notice shall be totally ineffective. If Lessee is in default on
the date the applicable option period is to commence, the option period
shall not commence and this Lease shall expire at the end of the
initial term. During each of the five (5) year option periods, all
terms, conditions, and provisions of this Lease shall remain in full
force and effect with all time periods extended accordingly.
III. RENT
3. Lessee shall pay Lessor an annual minimum base rent of $330,000.00, in
equal monthly installments of $27,500.00 each due on the first day of
the month during the term hereof. The first monthly rent installment
shall be due the first day of the month following the day of lease
execution. If any installment of rent, additional rent, or any other
sum due from Lessee shall not be received by Lessor within fifteen
(15) days after said amount is due, then Lessee shall also pay to
Lessor a late charge equal to six percent (6%) of any such overdue
amount. The parties agree that this late charge represents a fair and
reasonable estimate of the costs that Lessor will incur by reason of
late payment by Lessee. Rent not paid when due shall bear interest
from the date due until paid at ten percent (10%) per annum. All rent
shall be paid monthly on the first day of each month.
3.1 The annual base rent previously provided for herein shall be subject to
adjustment every five years during the initial twenty (20) year term
and the two additional option periods hereof according to the following
schedule:
2
<PAGE>
Period Annual Base Rent
Months 1-60 $330,000.00
Months 61-120 $364,346.67
Months 121-180 $402,268.16
Months 181-240 $444,136.55
The rent for each option period shall be the fair rental value of the
Premises at the commencement of said option period as determined by
Lessor, but not less than the rent for the last year of the prior term.
If Lessee disagrees as to the fair rental value determined by Lessor,
Lessee may obtain an appraisal of the fair rental value of the Premises
at its sole cost and expense. If Lessor disagrees with Lessee's
appraisal, Lessor and Lessee shall obtain and divide the cost of a
second appraiser, whose opinion of the fair rental value shall be
binding on both Lessor and Lessee. To select the second appraiser,
Lessor shall provide Lessee three choices, and Lessee shall select the
appraiser from among these three choices. During the period of time
prior to the final determination of the rent during the Extended Term,
Lessee shall pay rent at a rate of one hundred ten percent ( 110%) of
the rent then in effect. If the fair rental value is determined to be
greater or less than such amount, Lessee shall pay Lessor or Lessor
shall refund to Lessee, as the case may be, within thirty (30) days
after written request therefore, the difference between the amount
required by such determination of the fair rental rate and the amount
of rent theretofore paid by Lessee.
All rent shall be paid monthly on the first day of each month. The
first month's rent in the amount of $27,500.00 shall be paid to Lessor
upon the full execution hereof.
3.2 Deleted.
3.3 Deleted.
3.4 Lessee shall deposit with Lessor upon execution hereof the sum of
$27,500.00 as security for Lessee's faithful performance of Lessee's
obligations hereunder. If Lessee fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this
Lease, Lessor may use, apply or retain all or any portion of said
deposit for the payment of any rent or other charge in default or for
the payment of any other sum to which Lessor may become obligated by
reason of Lessee's default, or to compensate Lessor for any loss or
damage which Lessor may suffer thereby. If Lessor so uses or applies
all or any portion of said deposit, Lessee shall within ten (10) days
after written demand therefor, deposit cash with Lessor in an amount
sufficient to restore said deposit to the full amount hereinabove
stated and Lessee's failure to do so shall be a breach of this Lease,
and Lessor may at its option terminate this lease. Lessor shall not be
required to keep said deposit separate from its general accounts. If
Lessee performs all of Lessee's obligations hereunder, said deposit or
so much thereof as had not theretofore been applied by Lessor, shall be
returned without payment of interest or other increment for its use, to
Lessee (or, at Lessor's option, to the last assignee, if any, of
3
<PAGE>
Lessee's interest hereunder) within fifteen (15) days after the
expiration of the term thereof, or after Lessee has vacated the
premises, whichever is later.
IV. USE
4. Lessee shall use and occupy the premises for light manufacturing and
distribution with associated sales, all uses incidental thereto, and
any other reasonable business purpose approved in writing by Lessor,
which approval shall not be unreasonably withheld.
4.1 Lessee shall restrict its use to such purposes, and shall not use the
premises for any other purpose without the written consent of Lessor
which consent shall not be unreasonably withheld. Lessee shall, at its
own cost and expense, obtain any and all licenses and permits necessary
for such use. Notwithstanding the foregoing, the premises shall not be
used for any purpose which would violate federal, state or local law or
declarations or covenants affecting the premises. No use shall be made
or permitted to be made which will increase the existing rate of fire
insurance on the Premises or cause the cancellation of any insurance
policy covering the Premises or any part thereof.
4.2 Lessee's use of the premises shall at all times be in compliance with
all covenants, restrictions and maintenance agreements that have been
recorded in the office of the Salt Lake County Recorder affecting the
Real Property, if any.
V. TAXES
5. Lessee agrees to pay, as additional rent and before they become
delinquent, all real property and personal property taxes (both
general and special), water and sewage rents, assessments and/or
governmental charges (hereinafter collectively referred to as "taxes")
lawfully levied or assessed against the Premises or any part thereof
that accrue during the term of this Lease; provided, however, Lessee
may, at its sole cost and expense, dispute and contest the same, and
in such case, such disputed items need not be paid (unless required by
law to be paid) until finally adjudged to be valid so long as the
validity or the amount thereof is contested by Lessee in good faith
and in accordance with Utah state law. At the conclusion of such
contest, Lessee shall pay the items contested to the extent that they
are held valid, together with all liens, court costs, interest and
penalties relating thereto. Proration of said payments by Lessee shall
be made when necessary for the first and last years of the lease term
or any extensions thereof. This covenant shall survive the expiration
of this Lease.
5.1 Lessor shall provide Lessee copies of the "property valuation and tax
notice" covering the premises each year as they are issued by the Salt
Lake County Treasurer and/or Assessor and of any other tax notices
immediately upon their receipt by Lessor. Lessee shall notify Lessor of
any proposed contest by Lessee of the valuation, amount of the tax or
legality thereof prior to the deadline for filing the necessary
protest, appeal, or petition. Any such contest by Lessee must be timely
4
<PAGE>
made and may be made in the name of Lessor or Lessee, or both, but if
the name of Lessor is used herein, Lessor shall be notified thereof at
least five (5) days prior to the commencement of the proceeding. If
requested by Lessee, Lessor shall actively participate in any such
contest, but Lessee shall be entitled to any refund of any tax, or
penalty, or interest thereon which may have been paid by Lessee or by
Lessor, and reimbursed by Lessee to Lessor.
5.2 Lessee shall be liable for all taxes levied against Lessee's personal
property and trade fixtures on or about the Premises including, but
without prejudice to the generality of the foregoing, shelves,
counters, vaults, vault doors, partitions, fixtures, machinery, and if
any such taxes on Lessee's property or trade fixtures are levied
against Lessor, and if Lessor pays the same, Lessee, upon demand, shall
repay to Lessor the taxes so levied against Lessor.
5.3 Nothing herein contained shall be construed as requiring Lessee to pay
any franchise, excise, corporate, estate, inheritance, successorship,
capital levy or transfer tax of Lessor growing out of, or connected
with, this Lease, or Lessor's rights in the building, or any income,
excess profits, or revenue tax upon the income of Lessor, provided,
however, that in any case where a tax (other than an income tax) may be
levied, assessed or imposed upon Lessor for the privilege of renting or
leasing the Premises or which is based upon the rental revenue derived
therefrom, Lessee, within ten (10) days of receiving written notice
from Lessor, shall pay to Lessor as additional rent hereunder the
amount of said tax, but in no event shall Lessee be obligated to pay an
amount greater than that which would be payable if the Premises were
the only asset of Lessor.
VI. MAINTENANCE AND REPAIR
6. Any and all improvements which may be existing as of the Commencement
Date, erected or placed on the Real Property at any time during the
term of this Lease shall be kept and maintained in good order and
repair and replaced where necessary or appropriate by Lessee at its
sole cost and expense. Lessee's maintenance obligation shall include,
but not be limited to, the structural parts of the Building,
sidewalks, driveways, landscaping, parking areas, HVAC systems,
plumbing and electrical systems, windows, glass, doors, interior and
exterior walls, roof, finish work, floors, floor coverings and
fixtures. Lessee shall also comply at its sole cost and expense with
all laws, ordinances, orders, regulations, rules and requirements of
every kind and nature whether they relate to ordinary or
extraordinary, structural or nonstructural additions, changes, repairs
or alterations to the premises made necessary by Lessee's use. Lessee
shall also comply at its sole cost and expense with the terms,
conditions, and provisions of all of the restrictive covenants,
restrictions and maintenance agreements that may have been recorded in
the office of the Salt Lake County Recorder affecting the Real
Property.
5
<PAGE>
6.1 Lessor and its agents shall have the right to enter into and upon the
Real Property or any part thereof, on reasonable notice to Lessee, at
all reasonable hours for the purpose of examining the same or making
such repairs or alterations therein as may be necessary for the safety
and preservation thereof. In case of the neglect or default of Lessee
in making the same, Lessor may do so after reasonable notice to Lessee
(except that no notice shall be required in case of emergencies) during
said term or after its expiration and all the costs and expenses
incurred thereon, together with interest shall be repaid by Lessee to
Lessor according to the provisions of Section XVIII.
6.2 Deleted
6.3 Lessee shall enter into and keep in force a maintenance/service
contract with a manufacturer licensed maintenance contractor for
regularly scheduled preventative maintenance and for servicing all
heating and air-conditioning systems and equipment within the Premises.
The service contract must include all services suggested by the
equipment manufacturer in its operation and/or maintenance manual and
must become effective within thirty (30) days of the date Lessee takes
possession of the premises.
6.4 Lessor's Maintenance and Repair Obligations. Lessor shall have no
obligation to maintain, make capital improvements to or repair the Real
Property. The Real Property and Premises are leased to Lessee in an "As
Is" condition with no warranties expressed or implied.
6.5 ADA Compliance. Lessee shall insure that all aspects of the original
construction of the Building (including, without limitation, demising
walls, exterior doors, entry points or other access to the Premises)
fully comport with the requirements of the Americans With Disabilities
Act, 42 U.S.C. ss.ss. 12101 et seq. (the "ADA"). Similarly, Lessee
shall insure that all aspects of any improvements or alterations to the
Premises subsequently undertaken by Lessee fully comport with the
requirements of the ADA. Lessee shall be responsible for all future
compliance with the ADA that results from changes in the ADA
regulations or from changes in Lessee's use of the Premises. Lessee
shall indemnify and hold Lessor harmless from and against any and all
losses, damages, actions and proceedings attributable to the failure of
Lessee to fully comply with its obligations under this section 6.5 If
either party is required to repair, alter, remove, reconstruct, or
improve any part of the Premises or of the Building for whatever reason
(including compliance with the ADA), the same shall be made by that
party with reasonable dispatch and with a minimum of interference with
Lessee's business on the Premises.
VII. NET LEASE; NO ABATEMENT
7. This Lease is intended, and is hereby declared, to be an "absolute net"
lease, it being the intention of the parties hereto that Lessor shall
have and enjoy the rent herein reserved to it without deduction
therefrom.
6
<PAGE>
7.1 No abatement, diminution, or reduction of the fixed rental or other
charges payable by Lessee under this Lease shall be claimed by or
allowed to Lessee for any inconvenience, interruption, cessation, or
loss of business, or otherwise caused directly or indirectly by any
present or future laws, rules, requirements, orders, directions,
ordinances, or regulations of the United States of America or of the
State, County, or City government or any other municipal, government,
or lawful authority whatsoever or by priorities, rationing, or
curtailment of labor or materials or by war or any matter or things
resulting therefrom or by any other cause or causes; except if
otherwise specifically provided in this Lease. It is understood that
Lessor is not entitled to retain rent by Lessee and also to retain the
proceeds of any rent insurance that it might receive where both cover
the same periods of time.
VIII. UTILITIES
8. Lessee shall make all arrangements for and pay before delinquency for
all water, gas, heat, light, power, telephone and other utilities and
services supplied to the property together with taxes thereon and all
deposits related thereto. Throughout the term of this Lease, Lessee
shall, at its own cost and expense hire and provide for its own trash
removal. The arrangements made shall comply with local ordinances for
refuse pick-up as to frequency and time, and shall not result in any
violation of environmental standards.
IX. INDEMNIFICATION; HAZARDOUS WASTES
9. Lessee shall indemnify, defend and hold harmless Lessor against any and
all claims of liability for any injury or damage to any person or
property whatsoever occurring in, on or about the Premises or any part
thereof, and from and against all costs, attorneys' fees, expenses and
liabilities incurred in the defense of any such claim, action or
proceeding brought thereon, except to the extent such injury or damage
is caused by the negligence or intentional acts of Lessor or Lessor's
agents or employees, and Lessor agrees to indemnify Lessee and hold it
harmless from any and all loss, expense or claims, including reasonable
attorney's fees arising out of such damage or injury caused by Lessor
or Lessor's agents or employees.
9.1 Hazardous Wastes or Substances. The following provisions shall govern
the parties' respective rights and obligations regarding any hazardous
wastes or substances now or hereafter located on the Premises:
a. Definitions. For purposes of this Lease, the terms "disposal",
"release", "threatened release", and "hazardous wastes" shall
mean and include any hazardous, toxic or dangerous waste,
substance or material, or any disposal, discharge or release,
or threatened release, or any defined as such in (or for the
7
<PAGE>
purposes of) the Federal Comprehensive Environmental Response,
Compensation and Liability Act, or any other federal, state or
local statute, law, ordinance, code, rule, regulation, order
or decree, relating to any hazardous, toxic or dangerous
wastes, substances or materials, as now or at the time
hereafter in effect (the "Environmental Laws").
b. No Hazardous Materials During Lease Term. Lessee hereby
represents, warrants and certifies that, during the entire
period of Lessee's occupancy of the Premises, there will be no
disposal, release or threatened release of hazardous
substances or hazardous wastes on, from or under the Premises
attributable to the neglect or affirmative act of Lessee or
its employees, agents, contractors, licensees or invitees.
c. Environmental Inquiries. From and after the date of this
Lease, Lessee shall immediately notify Lessor of the
occurrence of any inquiries, on-site inspections, or the like
by any federal or state governmental agency or entity relating
to Lessee's or the Premises' compliance with the applicable
Environmental Laws. If any such inspection or inquiry results
in a notice of violation of one or more of the Environmental
Laws or the like, Lessee shall promptly notify Lessor of such
violations (including providing to Lessor a photocopy of any
written findings, notice, order, or the like), and Lessee
shall immediately undertake all actions necessary to remedy
and cure any such violations attributable to a breach of
Lessee's obligations under section 9.1(b) above.
d. Indemnification. Lessee shall indemnify, defend and hold
harmless Lessor (and any successors to Lessor's interest in
the chain of title to the Premises) from and against (a) any
and all claims, damages and liabilities arising from or in
any way in connection with the presence, use, storage,
disposal, or transfer of any hazardous materials on, under,
from or about the Premises, including, without limitation,
all foreseeable and unforeseeable consequential damages,
directly or indirectly arising out of the use, generation,
storage or disposal of hazardous materials by Lessee or any
person taking an interest in the Premises by, through, or
under Lessee, and (b) all costs of any required or necessary
repair, cleanup, or detoxification, whether such action is
required or necessary prior to or following the termination
or earlier expiration of this Lease, except to the full
extent that such action is attributable, directly or
indirectly, to the presence or use, generation, storage or
release, threatened release or disposal of hazardous
materials onto the Premises by Lessor or Lessor's agents or
employees. The parties' respective rights and obligations
pursuant to the foregoing indemnifications shall survive the
expiration or earlier termination of this Lease.
8
<PAGE>
X. INSURANCE
10. At all times during the term of this Lease, Lessee, at its sole cost and
expense, and as additional rent shall:
a. Fire, Earthquake, and Flood Insurance: Keep all buildings and
improvements and equipment on, in or appurtenant to the
property including all alterations and additions, insured
against loss or damage by fire, earthquake, or flood and all
extended coverage casualties for the full, fair insurable
value thereof. The policies for such insurance shall be made
and taken in the name of Lessor as an additional insured party
with loss thereunder payable to Lessor and/or the Mortgagee.
Such policy or policies shall be deemed to be and remain in
the possession of Lessor or Mortgagee.
b. Public Liability Insurance: Provide and keep in force in
such form as Lessor shall direct, public liability insurance
policies protecting Lessor and Lessee against all insurable
risks in the amounts of not less than Two Million Dollars
($2,000,000.00) in respect to any one accident or disaster
and in the amount of not less than One Million Dollars
($1,000,000.00) in respect to injuries to any one person,
and in an amount of not less than One Hundred Thousand
Dollars ($100,000.00), in respect to property damage,
provided that from and after the Sixty-first (61st) month of
the term of this Lease, the public liability insurance
policies required by this Section 10(b) shall be in amounts
of not less than Five Million Dollars ($5,000,000.00) in
respect to any one accident or disaster and in the amount of
not less than Two Million Dollars ($2,000,000.00), and in an
amount of not less than Two Hundred Thousand Dollars
($200,000.00), in respect to property damage
c. Rent Insurance: Provide and keep in force rent or use and
occupancy insurance at all times during the term hereof
against loss or damage resulting from hazards specified in
clause 10(a) in an amount equal to monthly payments of net
rent for six (6) months, plus taxes and insurance premiums for
six (6) months.
d. Premiums to be Paid by Lessee: All premiums and charges
for all of said policies shall be paid when due by Lessee.
If Lessee fails to make such payments and/or to carry any
such policy, Lessor may, but shall not be obligated to, make
such payment or carry such policy, and the amounts paid by
Lessor, with interest thereon, shall be repaid to Lessor by
Lessee on demand, and all such amounts so repayable together
with such interest, shall be considered as additional rent
payable hereunder, for the collection of which Lessor shall
have all of the remedies in Section XXV herein or by law
provided for the collection of rent. Payment by Lessor of
any such premium or carrying by Lessor of any such policy
shall not be deemed to waive or release the default of
Lessee with respect thereto.
9
<PAGE>
e. Renewal of Insurance: Thirty (30) days prior to the expiration
of each such policy, Lessee shall deliver a binder renewing
each such policy which binder shall provide that at least
thirty (30) days' written notice of any change in or
cancellation thereof shall be given by the insurance company
to Lessor and Mortgagee. Lessee shall promptly pay the
premiums for renewal and deliver to Lessor each original
policy and a duplicate receipt evidencing each payment
thereof.
f. Compliance with Insurance Company Requirements: Lessee shall
not violate or permit to be violated any of the conditions or
provisions of any such policy, and Lessee shall so perform and
satisfy the requirements of the companies writing such
policies that at all times insurance companies of recognized
responsibility and licensed to do business in the State of
Utah shall be willing to write and/or continue such insurance.
g. Collection of Insurance Monies: Lessee and Lessor shall
cooperate with each other in the collection of any insurance
monies that may be due in the event of loss, and Lessee shall
execute and deliver to Lessor such proofs of loss and other
instruments which may be required for the purpose of obtaining
the recovery of any such insurance monies.
h. Liability Policies - Coverage: Liability policies specified in
subdivision b. of this Section shall cover the entire building
and premises as well as the sidewalks, driveways and parking
areas in front of or adjacent thereto. A liability policy or
policies insuring Lessor and Lessee as their interests may
appear, but otherwise in the form hereinbefore provided, shall
be deemed to satisfy this requirement.
i. Waiver of Subrogation: Lessee shall, at all times during
the term hereof and at its cost and expense, maintain
insurance on the merchandise and other personal property
from, in, on, or upon the premises in an amount equal to
their full replacement value, providing protection against
any peril included within the classification "Fire and
Extended Coverage". Lessor shall not be liable to Lessee for
any damage to any such property from any cause, unless (i)
such damage is due to Lessor's negligence, and (ii) such
damage is caused by an occurrence which is not an insurable
hazard under the standard fire and broad form coverage
insurance which is available for insuring such property of
Lessee at the time of the loss; it being understood that it
is not the intention of the parties that Lessor be relieved
from liability to Lessee for negligence contrary to any
statute of public policy of the State of Utah, but rather
that Lessee avail itself of available insurance coverage
without subjecting Lessor to liability for losses that could
have been insured, and without subjecting Lessor to
subrogation claims of any insurer.
j. All insurance described in this paragraph shall be policies
issued by insurers licensed to do business in the State of
Utah and having a current Bests' policy holders' rating of at
10
<PAGE>
least B+ (or better if so required by the holder of any first
mortgage against the Premises). No insurance may be subject to
cancellation or material change without thirty (30) days'
prior written notice to Lessor.
XI. ALTERATIONS
11. Lessee shall have the right, within the premises, at its own cost and
expense and in a good and workmanlike manner, to make improvements to
the Premises, provided (i) such acts do not affect the structure of
the building, (ii) that upon termination of the Lease, Lessee restores
the premises to their prior condition (reasonable wear and tear
excepted), (iii) that Lessee shall submit reasonably detailed final
plans and specifications and working drawings of the proposed
alterations and the name of Lessee's contractor at least thirty (30)
days before the date Lessee intends to commence the alternations, (iv)
that the alterations shall not be commenced until five (5) days after
Lessor has received notice from Lessee stating the date the
installation of the alterations is to commence so that Lessor can post
and record an appropriate notice of non-responsibility, and (v) Lessee
complies with all applicable building codes, laws and governmental
rules and regulations.
11.1 Notwithstanding anything to the contrary in this Lease, (i) Lessee is
not required to remove any fixtures or other items installed by Lessor
on Lessee's behalf (at the termination or expiration of the Lease or
any other time), and (ii) Lessee shall have the right, unless in
default under the provisions of the Lease (at the termination or
expiration of the Lease or at any other time) to remove any fixtures or
other items installed by Lessee (including any flat wire cable and
carpet tile), provided Lessee restores the premises to their condition
prior to such installation, reasonable wear and tear excepted.
XII. INSPECTION
12. Lessor shall have the right to enter and inspect the premises at any
time, on reasonable notice to Lessee, during normal business hours.
During the period that is six (6) months prior to the end of the then
current term hereof, Lessor and Lessor's agents and representatives
shall have the right to enter the premises at any time during
reasonable business hours on reasonable notice to Lessee for the
purpose of showing the premises to prospective purchasers or lessees.
At all times during such six month period, Lessor shall be entitled to
place on the Premises any usual or ordinary "For Sale" signs or for any
other purpose incidental to the rights of Lessor.
XIII. ASSIGNMENT & SUBLETTING
13. Lessee shall not have the right to assign this Lease or to sublet the
whole or any part of the Premises without the prior written consent of
Lessor, which consent shall not be unreasonably withheld, provided,
11
<PAGE>
however, that Lessee shall pay to Lessor Thirty-three percent (33%) of
the net economic benefit which Lessee receives from any such assignment
or subletting. In the event Lessee shall assign or sublet the Premises
or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes
to do, then Lessee shall pay Lessor's reasonable attorneys' fees
incurred in connection therewith provided that Lessee's obligation to
pay Lessor's costs under this Section 13 shall be limited to One
Thousand Dollars ($1,000) per event.
13.1 Notwithstanding any permitted assignment or subletting, Lessee shall at
all times remain fully responsible and liable for the payment of the
rent and additional rent specified herein and for compliance with all
of its other obligations under the terms, provisions and covenants of
this Lease. Upon the occurrence of an "event of default" as hereinafter
defined, if the Premises or any part thereof are then assigned or
sublet, Lessor, in addition to any other remedies herein provided, or
provided by law, may, at its option, collect directly from such
assignee or subtenant all rents becoming due to Lessee under such
assignment or sublease and apply such rent against any sums due to it
by Lessee hereunder, and no such collection shall be construed to
constitute a novation or release of Lessee from the further performance
of its obligations hereunder.
XIV. FIRE AND CASUALTY DAMAGE
14. If the Premises should be destroyed or damaged by fire, tornado or
other casualty, Lessee shall give immediate written notice thereof to
Lessor.
14.1 If the premises should be totally destroyed by fire, tornado or other
casualty, or if they should be so damaged that rebuilding or repairs
cannot be completed within one hundred eighty (180) days after the date
upon which Lessor is notified by Lessee of such damage, this Lease
shall terminate and the rent shall be abated during the unexpired
portion of this Lease, effective upon the date of the occurrence of
such damage. The determination as to whether or not the Premises can be
reconstructed within one hundred eighty (180) days of the date of the
notice of the casualty to Lessor shall be made by an architect selected
by Lessor who shall certify to the parties within thirty (30) days of
the casualty whether or not the premises can be repaired within one
hundred eighty (180) days of the date of notice of such casualty to
Lessor. If total destruction occurs within one (1) year of the
expiration of the then current term, reconstruction shall commence only
upon mutual consent of both Lessor and Lessee.
14.2 If the Premises should be damaged by fire, tornado or other casualty,
but only to such extent that rebuilding or repairs can be completed
within one hundred eighty (180) days after the date upon which Lessor
is notified by Lessee of such damage, this Lease shall not terminate,
but Lessor shall proceed with reasonable diligence to rebuild and
repair the building and improvements to substantially the condition in
which they existed prior to such damage, except that Lessor shall not
be required to rebuild, repair or replace any part of the partitions,
fixtures and other improvements which may have been placed in the
building by Lessee. During the reconstruction period, there shall be no
12
<PAGE>
abatement of rent or additional rent due Lessor even if the Premises
are totally untenantable. Additional time for completion of said
repairs shall be added equal to any delays in the repairs caused by
acts of God, inclement weather, strikes, boycotts or any other causes
beyond the control of Lessor and not due to any act or omission on its
part. In the event that Lessor should fail to complete such repairs and
rebuilding within one hundred eighty (180) days after the date upon
which Lessor is notified by Lessee of such damage (plus any additional
time due to delays caused by acts of God, etc.) Lessee may, at its
option, terminate this Lease by giving Lessor no less than thirty (30)
days' written notice of such termination.
14.3 In all cases of destruction or damage of the improvements by fire, the
elements or other causes, the net monies collected on the policies of
casualty insurance required by Section 10 herein shall be payable to
Lessor and/or its Mortgagee as their interests may appear. Lessor's
obligation to re-construct the Premises shall at all times be
conditioned upon there being sufficient insurance proceeds available to
complete said re-construction. Lessee agrees to execute and deliver
such forms of application, claim, demand, proof of loss, assignment or
authorization as may be necessary for collection of the insurance
proceeds; provided, however, nothing herein shall be deemed to give
Lessor any interest in or require Lessee to assign to Lessor any
compensation paid to Lessee for damage to personal property or fixtures
belonging to Lessee and removable by Lessee upon termination of this
Lease, for interruption of or damage to Lessee's business, or Lessee's
related expenses.
XV. CONDEMNATION
15. Definition. As used in this Article, the term "Condemnation
Proceedings" includes any action or proceeding in which any interest in
the Premises is taken for any purpose by any lawful authority through
exercise of the power of eminent domain, right of condemnation, right
of purchase or other proceeding in lieu of the foregoing. A sale by
Lessor of the Premises to any authority having the power of eminent
domain, either under threat of condemnation or for which Condemnation
Proceedings are pending, shall be deemed a taking under the power of
eminent domain for all purposes.
15.1 Termination and Rent Abatement. If the whole of the Premises is taken
through Condemnation Proceedings, this Lease shall automatically
terminate as of the date of taking. If any part of the Building or if
more than fifteen percent (15%) of the parking spaces on the Premises
are taken through Condemnation Proceedings and if the taking thereof
would be reasonably considered a material and substantial hindrance to
Lessee's normal business operation, then either party shall have the
right to terminate this Lease by giving the other party written notice
of such election at any time within sixty (60) days after the date of
taking.
13
<PAGE>
In all other cases, or if neither party exercises its right to so
terminate, this Lease shall remain in effect and the base rent that is
payable under this Lease (but no other sums) shall, if applicable, be
proportionately reduced from and after the date of the taking on (a)
the basis of the area of the Premises that is capable of occupancy
after the taking compared to the area of the Premises that was capable
of occupancy prior to the taking; or (b) such other basis as shall be
equitable under the then circumstances (such as, for example, if the
parking of the Premises is reduced but the Building is not affected by
such Condemnation Proceedings).
In the event of any termination of this Lease or any rental reduction
as provided for in this Section 15.1, there shall be a proration of the
rent payable under this Lease for any fractional month up to the date
of taking and Lessor shall refund to Lessee any excess rent theretofore
paid by Lessee.
15.2 Condemnation Proceeds. Whether or not this Lease is terminated as a
consequence of Condemnation Proceedings, all damages or compensation
awarded for a partial or total taking of the Premises, shall be the
sole and exclusive property of Lessor. Notwithstanding the foregoing,
if an amount is separately awarded with the intent to compensate Lessee
for (a) costs connected with a relocation by it to a new facility, (b)
losses or damages relating to Lessee's personal property or trade
fixtures on, or other improvements by Lessee to, the Premises, (c) loss
of business incurred by Lessee, and/or (d) diminution in the value of
or deprivation of its leasehold estate, such amount(s) shall be the
property of Lessee.
15.3 Construction. If this Lease is not so terminated, then Lessor shall, as
soon as practical after the taking, restore the Premises to a complete
unit as similar under the circumstances as possible to the design,
character and quality of the Premises as existed prior to the taking.
Lessor shall commence restoration of the Premises within ninety (90)
days after the date of the taking, and shall complete the same as
expeditiously as possible, with due regard being had to prevailing
conditions. During the period of any such reconstruction, the rent due
hereunder shall be abated in an equitable fashion. Lessor's obligation
to re-construct the Premises shall at all times be conditioned upon
there being sufficient condemnation proceeds available to complete said
re-construction.
XVI. HOLDING OVER
16. Should Lessee, or any of its successors in interest, hold over the
premises or any part thereof, after the expiration of the term of the
Lease, unless otherwise agreed in writing, such holding over shall
constitute and be construed as tenancy from month to month only, at a
rental equal to the rental payable for the last month of the term of
this Lease. The inclusion of the preceding sentence shall not be
construed as Lessor's permission for Lessee to hold over.
14
<PAGE>
XVII. QUIET ENJOYMENT
17. Lessor covenants that it shall have good title to the land. Lessor
represents and warrants that it has full right and authority to enter
into this Lease and that Lessee, upon paying the rental herein set
forth and performing its other covenants and agreements herein set
forth, shall reasonably and quietly have, hold and enjoy the premises
for the term hereof without hindrance or molestation.
XVIII. LESSOR'S OPTION TO PERFORM OBLIGATIONS OF LESSEE
18. In any case where Lessor shall pay or be compelled to pay any sum
of money or do any act which shall require the expenditure or payment
of any sum by reason of the failure of Lessee to perform any one or
more of the terms, covenants, conditions or agreements herein
contained, Lessee shall immediately repay the same to Lessor upon
demand, and in default thereof then the sums so paid by Lessor,
together with all interest, costs and damages, shall or may be added
as additional rent to the next installment of rent becoming due on the
next rent day, or on any subsequent rent day fixed by the Lease, and
shall for all purposes whatsoever be deemed to be rent due and payable
on such rent day, or on any subsequent rent day, as said Lessor may at
Lessor's option elect, and shall be payable as such, but it is
expressly covenanted and agreed hereby that payment by Lessor of any
such sums of money or the doing of any such acts shall not be deemed
to waive or release the default in the payment or doing thereof by
Lessee or the rights of Lessor by reason of Lessee's default with
respect to any such payment or act.
XIX. LESSOR'S LIEN
19. In the event of a default under this Lease, Lessor shall have, in
addition to any other remedies herein or by law, all rights and
remedies available under applicable Utah law. Any statutory lien for
rent is not hereby waived. Provided that Lessee is not in default under
any of the provisions of this Lease, Lessor shall, at the request of a
secured creditor of Lessee, issue a written subordination that
subordinates any statutory lien for rent or any lien for rent created
by the terms hereof covering Lessee's trade fixtures, personal property
or equipment to the lien of said secured creditor.
19.1 Provided that Lessee is not then in default under any provision of this
Lease, Lessor agrees, upon written notice by Lessee from time to time,
to subordinate its Lessor's Liens to any third party lender providing
financing to Lessee in connection with the acquisition or refinancing
of Lessee's furniture, fixtures, equipment and inventory.
15
<PAGE>
XX. MORTGAGES
20. If the Real Property is subject to any mortgage prior to the
commencement date, then Lessor shall procure a nondisturbance
agreement from the mortgagee in standard form which provides that so
long as Lessee is not in default hereunder, its possession shall not
be disturbed by mortgagee and the mortgagee shall not name Lessee as a
defendant in a foreclosure suit. Lessee shall at any time after the
commencement date execute an instrument required by any mortgagee for
the purpose of subordinating this Lease to the lien of a mortgage in
consideration for a non-disturbance agreement from the mortgagee in
standard form which provides that so long as Lessee is not in default
hereunder, its possession will not be disturbed by the mortgagee and
the mortgagee will not name Lessee as a defendant in a foreclosure
suit. For the purposes of this paragraph the word mortgage and/or
mortgagee shall include any other equivalent designation including,
but not limited to, Deed of Trust, Trustee, etc. Upon written request,
Lessee will execute an estoppel certificate and subordination
agreement within ten (10) days of Lessee's receipt of written notice.
XXI. MECHANIC'S LIENS
21. Lessee shall have no authority, express or implied, to create or
place any lien or encumbrance of any kind or nature whatsoever upon,
or in any manner to bind, the interest of Lessor in the premises or to
charge the rentals payable hereunder for any claim in favor of any
person dealing with Lessee, including those who may furnish materials
or performs labor for any construction or repairs, and each such claim
shall affect and each such lien shall attach, if at all, only to the
leasehold interest granted to Lessee by this instrument. Lessee
covenants and agrees that it will pay or cause to be paid all sums
legally due and payable by it on account of any labor performed or
materials furnished in connection with any work performed on the
Premises, on which any lien is or can be validly and legally asserted
against its leasehold interest in the Premises or the improvements
thereon and that it will save and hold Lessor harmless from any and
all loss, cost or expense based on or arising out of asserted claims
or liens against the leasehold estate or against the rights, title and
interest of Lessor in the Premises or under the terms of this Lease
based upon Lessee's failure to pay such sums. If Lessee disputes an
amount charged by such a lien, but admits that it authorized the work
to be done, Lessee may dispute the claim provided that it posts the
requisite bond necessary to remove the lien.
XXII. NOTICES
22. Each provision of this instrument or of any applicable governmental
law, ordinance regulation and other requirements with reference to the
sending, mailing or delivery of any notice of the making of any payment
16
<PAGE>
by Lessor to Lessee or with reference to the sending, mailing or
delivery of any notice or the making of any payment by Lessee to Lessor
shall be deemed to be complied with, when and if the following steps
are taken:
a. All rent and other payments required to be made by Lessee to
Lessor hereunder shall be payable to Lessor at the address
hereinbelow set forth or at such other address as Lessor may
specify from time to time by written notice delivered in
accordance herewith.
b. Any notice or document required or permitted to be delivered
hereunder shall be deemed to be delivered upon facsimile
transmission or, whether actually received or not, two days
following its deposit in the United States Mail, postage
prepaid, Certified or Registered Mail, Return Receipt
Requested, addressed to the parties hereto at the respective
addresses set out opposite their names below or at such other
address as they have theretofore specified by written notice
delivered in accordance herewith:
Lessor: FRE CORPORATION III
Attn. Elaine A. Westby
C/o First Guaranty Exchange Company
Suite 460
1737 North First Street
San Jose, California 95112
(408) 451-7955
With a copy to: Richard A. Goodman, Esq.
Goodman & Levine
1040 Marina Village Parkway
Alameda, CA 94501
Fax: (510) 814-1034
Lessee: Dynatec International Inc.
3820 Great Lakes Drive
West Valley City, Utah 84120
Fax: (801) 972-2112
With copy to: N. Todd Leishman
Durham Jones & Pinegar
50 South Main, Suite 850
Salt Lake City, Utah 84144
Fax: (801) 538-2425
17
<PAGE>
22.1 If and when included within the term "Lessor", as used in this
instrument, there are more than one person, firm or corporation, all
shall jointly arrange among themselves for their joint execution of
such a notice specifying some individual at some specific address for
the receipt of notices and payments to Lessor. All parties included
within the term "Lessor" shall be bound by notices given in accordance
with the provisions of this paragraph to the same effect as if each had
received such notice.
XXIII. SURRENDER OF PREMISES
23. Lessee shall, on or before the last day of the Lease term hereof or
upon the sooner termination of such term, peaceable and quietly leave,
surrender and yield up unto Lessor the land and improvements in good
order, condition and state of repair, reasonable wear and tear
excepted, together with all alternations, additions and improvements,
including air-conditioning equipment, machinery and ducts which may
have been made upon the Premises, except movable furniture, movable
personally property or movable trade fixtures, at the expense of
Lessee. All property removable pursuant to the provisions of this
Section shall be removed by Lessee on or before the date hereinabove
in this Section indicated and all property not so removed shall be
deemed abandoned by Lessee to Lessor. Where any personal property is
removed, any damage to the Premises will be repaired by Lessee.
23.1 All buildings, additions, improvements, equipment and appurtenances on
or in the Premises at the date hereof and which may be erected on or in
the Premises during the term hereof including all alterations, changes,
additions, and improvements at any time placed upon the Premises by
Lessee, as well as all fixtures and articles of personal property
attached to or used in connection with the Premises, are and shall be
deemed to be and become part of the realty and the sole and absolute
property of Lessor at the end or other termination of this Lease and
shall be surrendered to Lessor; provided, however, that movable
furniture, movable equipment, movable personal property and movable
trade fixtures on or in the Premises as of the date of this Lease or
installed at the expense of Lessee or any sub-tenant during the term of
this Lease, which pursuant to the provisions of this Section may be
removed by Lessee, shall not be deemed to be attached to the leasehold
nor the property of, nor surrendered to, Lessor. Upon removal of such
items, Lessee shall repair any damage to the premises at Lessee's sole
cost and expense.
XXIV. EVENTS OF DEFAULT
24. The following events shall be deemed to be events of default by Lessee
under this Lease:
a. Lessee shall fail to pay any installment of rent or
additional rent within fifteen (15) days after said
installment is due.
18
<PAGE>
b. Lessee shall become insolvent, or shall make a transfer in
fraud of creditors, or shall make an assignment for the
benefit of creditors.
c. Lessee shall file a petition under any section or chapter of
the Federal Bankruptcy Code, as amended, or under any similar
law or statute of the United States or any State thereof, or
Lessee shall be adjudged bankrupt or insolvent in proceedings
filed against Lessee thereunder.
d. A receiver or trustee shall be appointed for all or
substantially all of the assets of Lessee.
e. Lessee shall desert or vacate the premises; provided, however,
desertion or vacation of the premises shall not be deemed to
be an event of default if Lessee is not in arrears in the
payment of rent nor in default of any other provision of this
Lease.
f. Except for nonpayment of rent and additional rent, Lessee
shall fail to comply with any term, provision or covenant of
this Lease, and shall not cure such failure within twenty (20)
days after written notice thereof to Lessee.
24.1 With respect to curing any non-monetary default listed in this Section
or elsewhere herein, it is understood that if a cure cannot be
completed within the time period for cure referred to herein, despite
best efforts of Lessee, using all possible speed, then it will be
deemed sufficient if Lessee has begun to cure within said time period;
provided, however, that Lessee shall continue to use its best efforts
and all possible speed to cure such default and does, in fact, effect a
cure with a reasonable period of time.
24.2 Lessor shall be in default hereunder if it fails to fulfill any of the
covenants and conditions as herein provided by or performed by Lessor
within thirty (30) days of Lessee's written notice of the default to
Lessor, or such longer period of time as may be reasonable necessary to
cure the default if it is impossible or impracticable to cure the same
within thirty (30) days; provided, however, that if the nature of the
problem presents a serious hazard or emergency, Lessor shall perform
its obligations as immediately as possible under the then
circumstances.
XXV. REMEDIES
25. Upon the occurrence of any such events of default described in Section
24 hereof and following the twenty (20) days' written notice to Lessee
to cure said events of default, Lessor shall have the option but not
the obligation to pursue any one or more of the following remedies
without any notice or demand whatsoever:
a. Terminate this Lease, in which event Lessee shall immediately
surrender the Premises to Lessor, and if Lessee fails so to
19
<PAGE>
do, Lessor may, without prejudice to any other remedy which it
may have for possession or arrearage in rent, enter upon and
take possession of the Premises and expel or remove Lessee and
any other person who may be occupying such Premises or any
part thereof; and Lessee agrees to pay to Lessor on demand the
amount of all loss and damage which Lessor may suffer by
reason of such termination, whether through inability to relet
the Premises on satisfactory terms or otherwise.
b. Enter upon and take possession of the Premises and expel or
remove Lessee and any other who may be occupying such Premises
or any part thereof, and relet the premises and receive the
rents therefor; and Lessee agrees to pay to Lessor on demand
any deficiency and reasonable expenses that may arise by
reason of such reletting.
c. Enter upon the Premises and do whatever Lessee is obligated to
do under the terms of this Lease, and Lessee agrees to
reimburse Lessor on demand for any expenses which Lessor may
incur in this effecting compliance with Lessee's obligations
under the Lease.
d. In case suit shall be brought for recovery of possession of
the Premises, for the recovery of rent or any other amount due
under the provisions of this Lease, or because of the breach
of any other covenant herein contained on the part of Lessee
or Lessor to be performed, and a breach shall be established,
the party in default shall pay to the other party all other
expenses incurred therefor, including a reasonable attorney's
fee and costs of court.
Pursuit of any of the foregoing remedies shall not preclude pursuit of
any of the other remedies herein provided or any other remedies
provided by law, nor shall pursuit of any remedy herein provided
constitute a forfeiture or waiver of any rent due to Lessor or of any
damages accruing to Lessor by reason of the violation of any of the
terms, provisions and covenants herein contained. No waiver by Lessor
of any violation or breach of any of the terms, provisions and
covenants herein contained shall be deemed or construed to constitute a
waiver of any other violation or breach of any of the terms, provisions
and covenants herein contained. Lessor's acceptance of the payment of
rental or other payments hereunder after the occurrence of an event of
default shall not be construed as a waiver of such default. Forbearance
by Lessor to enforce one or more of the remedies herein provided upon
an event of default shall not be deemed or construed to constitute a
waiver of such default.
25.1. If Lessor defaults hereunder and such default is not cured as provided
above, then, in addition to any other rights and remedies available to
Lessee under applicable law, Lessee shall be entitled to (a) perform
the obligations and be immediately reimbursed by Lessor for the sum it
actually expends in the performance of Lessor's obligations, or (b)
terminate this Lease upon sixty (60) days' prior written notice to
Lessor.
20
<PAGE>
XXVI. GOVERNING LAW
26. This Lease shall be governed by and construed in accordance with the
laws of the State of Utah.
XXVII. BROKERAGE
27. ANA Development, L.C. represents Lessor and Lessee. Each party hereto
represents that ANA Development, L.C. negotiated or arranged for this
Lease, and that apart from commissions due to them, no fees or
commissions are due any other person, firm or corporation for the
procurement hereof, and each party agrees to indemnify and hold the
other harmless from and against any other expenses which the party so
indemnified may incur by reason of claims of any other person, firm or
corporation claiming any brokerage commission, finder's fee or similar
compensation based upon any alleged negotiations or dealings with such
indemnifying party, contrary to the foregoing representations. Lessor
shall be responsible to pay all commissions.
XXVIII. RECORDING
28. The parties undertake, within ten days of the receipt of a written
request from the other, to execute a memorandum of this Lease in
recordable form. If either party shall record this Lease or a
memorandum of this Lease, the party so recording shall be liable for
the entire cost thereof.
XXIX. MISCELLANEOUS
29. Words of any gender used in this Lease shall be held and construed to
include any other gender, and words in the singular number shall be
held to include the plural, unless the context otherwise requires.
29.1 The terms, provisions and covenants and conditions contained in this
Lease shall apply to the benefit of, and be binding upon, the parties
hereto and upon their respective heirs, legal representatives,
successors and permitted assigns, except as otherwise herein expressly
provided.
29.2 The captions are inserted in this Lease for convenience only and in no
way to define, limit, or describe the scope or intent of this Lease, or
any provision hereof, nor in any way affect the interpretation of this
Lease.
21
<PAGE>
29.3 Whenever this Lease refers to the prior consent or approval (written or
oral) by Lessor or Lessee, Lessor and Lessee, respectively, agree that
such consent or approval shall not be unreasonably withheld or delayed.
29.4 This Lease may not be altered, changed or amended except by an
instrument in writing signed by Lessor and Lessee.
29.5 If this Lease is terminated for any reason other than default of
Lessee, all liabilities of the parties shall be adjusted as of the
effective date of the termination. Any termination hereof by reason of
a default of Lessee shall not affect any obligation or liability of
Lessee under this Lease which accrued prior or subsequent to the
effective date of termination, and all such obligations and liabilities
of Lessee shall survive such termination.
29.6 The terms and conditions contained herein are not independent
covenants, but are mutually dependent upon each other.
29.7 If any of the terms of this Lease, or the application thereof to any
person or circumstances shall, to any extent, be invalid or
unenforceable, the remainder of this Lease, or the application of such
term to persons or circumstances other than those as to which it is
invalid or unenforceable, shall not be affected thereby and each term
of this Lease shall be valid and enforceable to the fullest extent
permitted by law.
29.8 In the event of litigation between Lessor and Lessee relative to
rights, obligations and duties of either party under this Lease,
attorneys' fees and costs shall be paid by the non-prevailing party.
29.9 The failure of a party to insist in one or more instances upon a strict
performance of any of the other's obligations under this Lease or to
exercise any option or right given to a party hereunder shall not be
construed as a waiver or relinquishment of any rights, remedy or option
under this Lease. If a party does waive any breach of any term,
covenant or condition contained in this Lease, such waiver shall not be
deemed to be a waiver of any subsequent breach of the same term,
covenant or condition or of any other term, covenant or condition
contained in this Lease. The acceptance of rent under this Lease by
Lessor shall not be deemed to be waiver of any preceding breach by
Lessee of any term, covenant or condition of this Lease, other than the
failure of Lessee to pay the particular rent so accepted, regardless of
Lessor's knowledge of such preceding breach at the time of acceptance
of such rent. No covenant, term of condition of this Lease shall be
deemed to have been waived by a party unless such waiver is in writing
signed by that party.
29.10 This Lease and the exhibits and/or addenda hereto and forming a part
hereof set forth all the covenants, agreements, conditions and
understanding between Lessor and Lessee concerning the Premises and
there are no covenants, agreements, conditions of understanding, either
oral or written, between Lessor and lessee other than those that are
herein set forth. Except as otherwise provided herein, no subsequent
22
<PAGE>
alteration, amendment, change or addition to this Lease shall be
binding upon the parties unless reduced to writing and signed by them.
29.11 Time is the essence of this Lease.
29.12 Either party to this Lease shall be excused for the period of any delay
in the performance of any obligations that are required hereunder,
other than an obligation to pay rent or other monies, when prevented
from doing so by cause or causes beyond its control, including labor
disputes, civil commotion, war, governmental regulations or controls,
fire or other casualty, weather, inability to obtain any material
services or act of God.
29.13 All exhibits and/or addenda attached hereto shall be considered to be
fully integrated into and made a part of this Lease as if such exhibits
and/or addenda were fully and completely set forth herein.
29.14 Each individual executing this Lease does thereby represent and warrant
to each other person(s) so signing (and to each other entity for which
another person may be signing) that he has been duly authorized to
execute and deliver this Lease in the capacity and for the entity
indicated.
29.15 The parties do not by this Lease, in any way or for any purpose, become
partners or joint venturers with each other.
29.16 There are no third party beneficiaries, actual or intended, of this
Lease.
29.17 This Lease may be executed in any number of counterpart originals, each
of which shall be deemed an original instrument for all purposes, but
all of which shall comprise but one and the same instrument.
29.18 All covenants and warranties set forth herein shall survive the
expiration of this Lease.
29.19 At any time and from time to time, within thirty (30) days after notice
of request by either party, the other party shall execute, acknowledge
and deliver to the requesting party, or to such other recipient as the
notice shall direct, a statement certifying that this Lease is
unmodified and in full force and effect or, if there have been
modifications, that it is in full force and effect as modified in the
manner specified in the statement. The statement shall also state the
dates to which the rent and any other charges have been paid in
advance. The statement shall be such that it can be relied on by any
auditor, creditor, commercial banker and investment banker of either
party and by any prospective purchaser or encumbrancer of the Premises
or improvements or both or of all or any part or parts of the Premises
or improvements or both or of all or any part or parts of Lessee's or
Lessor's interests under this Lease.
23
<PAGE>
Lessee's failure to execute, acknowledge and deliver, on request, the
certified statement described above within the specified time shall
constitute acknowledgment by Lessee to all persons entitled to rely on
the statement that this Lease is unmodified and in full force and
effect and that the rent and other charges have been duly and fully
paid to and including the respective due dates immediately preceding
the date of the notice of request and shall constitute a waiver, with
respect to all persons entitled to rely on the statement, of any
defaults that may exist before the date of the notice.
29.20 If Lessor sells or transfers all or a portion of the Premises, Lessor,
on consummation of the sale or transfer, shall be released from any
liability thereafter accruing under this Lease. If any security deposit
or prepaid rent has been paid by Lessee, Lessor can transfer the
security deposit or prepaid rent to Lessor's successor, and on such
transfer and receipt by Lessee of a written statement from Lessor's
successor acknowledging and accepting such transfer, Lessor shall be
discharged from any further liability with reference to the security
deposit or prepaid rent. This Lease shall not be affected by any such
sale, and Lessee agrees to attorn to the purchaser or assignee.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS IMMEDIATELY]
24
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have respectively signed and sealed this
Lease on the dates set forth below.
LESSOR: FRE CORPORATION III, a California corporation
By: /s/
----------------------------------------------------
Elaine A. Westby, President
Date:
--------------------------------------------------
LESSEE: Dynatec International, Inc.
a Utah corporation
By: /s/
----------------------------------------------------
Frederick W. Volcansek, Sr.,
Chief Executive Officer
Date:
--------------------------------------------------
[GRAPHIC OMITTED]
COMMERCIAL - INDUSTRIAL - INVESTMENT
REAL ESTATE PURCHASE CONTRACT
This is a legally binding Contract. It has been prepared for the use of COLLIERS
CRG in transactions involving agents' clients or customers. As such the Contract
is intended to represent a reasonable effort to balance the interests of Buyer
and Seller. Nonetheless, the Buyer and the Seller may legally agree in writing
to alter or delete provisions of this form. Seek legal or tax advice from your
attorney or tax advisor before entering into a binding contract.
- --------------------------------------------------------------------------------
EARNEST MONEY RECEIPT
The Buyer Darwin Datwyler offers to purchase the Property described below and
delivers as Earnest Money Deposit $ 5,000.00 in the form of a check to be
deposited within three business days after Acceptance of this offer to purchase
by all parties to: |_| the Brokerage |X| the Title/Escrow Company identified
below.
Brokerage or Title/Escrow Company: First American Title Company,
Attn: Branden Faber
Address _2825 East Cottonwood Parkway,
Suite 400, Salt Lake, UT 84121
Received by on (date) Phone Number
--------------------- ------------- --------------
(if Title/Escrow Company) for deposit no later than (date) 3 days following
full execution hereto.
----------------------------------------------
| |
-----------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OFFER TO PURCHASE
1. PROPERTY: Dynatech International Building 50,123
Address: 3820 West Great Lakes Dr.
City: West Valley County: Salt Lake State: UT
For legal description, see: | | attached Addendum #
------------
|X| preliminary title report when available as provided below.
1.1 Included Items. Unless excluded herein, this sale shall include all
fixtures presently attached to the Property. The following personal property
shall also be included in this sale and conveyed under separate Bill of Sale
with warranties as to title: All personal property on site owned by Seller used
in conjunction with property operations and maintenance. .
1.2 Excluded Items. These items are excluded from this sale: None.
--------
2. PURCHASE PRICE AND FINANCING. Buyer agrees to pay for the Property as
follows:
$ 5,000.00 Earnest Money Deposit
$ Loan Proceeds:
--------------- | |Representing the liability to be assumed by Buyer under an
existing assumable loan | | with | | without Seller being
released of liability. Any net differences between the
approximate balance of the loan shown above and the actual
balance at Closing shall be then adjusted in cash.
| |From new institutional financing on terms no less favorable
to the Buyer than the following: __________ (interest rate for
first period prior to adjustment, if any); __________
(amortization period); __________ (term). Other than these,
the loan terms shall be the best obtainable under the loan for
which the Buyer applies below.
| |From seller-held financing, as described in the attached
Seller Financing Addendum.
| | Other
---------------------------------------------------
$ Other:
--------------- -------------------------------------------------------
$ 3,095,000.00 Balance of purchase price in cash at closing
$ 3,100,000.00 TOTAL PURCHASE PRICE
3. CLOSING. This transaction shall be closed the thirty first day from the end
of the Due diligence period as specified in 7.3a. Closing shall occur when: (a)
Buyer and Seller have signed and delivered to each other (or to the escrow/title
company), all documents required by this Contract, by the Lender, by written
escrow instructions signed by the Buyer and the Seller, and by applicable law;
(b) the monies required to be paid under these documents have been delivered to
the escrow/title company in the form of collected or cleared funds; and (c) the
deed which the Seller has agreed to deliver under Section 6 has been recorded.
Seller and Buyer shall each pay one-half of the escrow Closing fee, unless
otherwise agreed by the parties in writing. Taxes and assessments for the
current year, rents, and interest on assumed obligations shall be prorated as
set forth in this Section. All deposits on tenancies shall be transferred to
Buyer at Closing. Prorations set forth in this Section shall be made as of |_|
date of Closing; |X| date of possession; | | other .
-------------------------
4. POSSESSION. Seller shall deliver possession to Buyer within five (5) hours
after Closing.
<PAGE>
5. CONFIRMATION OF AGENCY DISCLOSURE. At the signing of this Contract the
listing agent Dell Nichols/ANA Development represents |X| Seller | | Buyer,
and the selling agent Tom Kirk/ANA Development represents | |Seller |X| Buyer.
Buyer and Seller confirm that prior to signing this Contract written disclosure
of the agency relationship was provided to him/her.
( DRD ) Buyer's initials ( ) Seller's initials
6. TITLE TO PROPERTY AND TITLE INSURANCE. (a) Seller has, or shall have at
Closing, fee title to the Property and agrees to convey such title to Buyer by
|X| general | | special warranty deed, free of financial encumbrances as
warranted under Section 10.6; (b) Seller agrees to pay for, and furnish Buyer at
Closing with, a current standard form owner's policy of title insurance in the
amount of the TOTAL PURCHASE PRICE; (c) the title policy shall conform with
Seller's obligations under subsections (a) and (b). Unless otherwise agreed
under subsection 8.4, the commitment shall conform with the title insurance
commitment provided under Section 7.1.
|X| The Buyer may elect to obtain a full-coverage extended ALTA policy
of title insurance under (b). The costs of this coverage above
that of a standard owner's policy shall be paid for by the
| | Buyer |X| Seller. Also the cost of a full-coverage ALTA survey
shall be paid for by the | | Buyer |X| Seller. See also 7.3 (c).
7. SPECIFIC UNDERTAKINGS OF SELLER AND BUYER.
7.1 SELLER DISCLOSURES. The Seller will deliver to the Buyer the
following Seller Disclosures no later than the number of calendar days indicated
below which shall be after Acceptance:
|X| (a) a Seller property condition disclosure for the Property, (days)
signed and dated by Seller: 10
|X| (b) a commitment for the policy of title insurance required
under Section 6, to be issued by the title insurance company,
including copies of all documents listed as Exceptions on
the Commitment; 10
| | (c) a copy of all loan documents relating to any loan now
existing which will encumber the Property after Closing;
|X| (d) a copy of all leases and rental agreements now in effect
with regard to the Property together with a current rent roll; 10
|X| (e) operating statements of the Property for its last 3 full
fiscal years of operation plus the current fiscal year through
June 30, certified by the Seller or by an independent auditor; 10
| | (f) tenant estoppel agreements. See 7.3 (b) below.
| | (g) a copy of the most recent survey of the Property which
the Seller possesses, if any.
Seller agrees to pay any charge for cancellation of the title commitment
provided under subsection (b).
If Seller does not provide any of the Seller Disclosures within the
time periods agreed above, the Buyer may either waive the particular Seller
Disclosure requirement by taking no timely action or the Buyer may notify the
Seller in writing within __30___ calendar days after the expiration of the
particular disclosure time period that the Seller is in Default under this
Contract and that the remedies under Section 16 are at the Buyer's disposal. The
holder of the Earnest Money Deposit shall, upon receipt of a copy of Buyer's
written notice, return to the Buyer the Earnest Money Deposit without the
requirement of further written authorization from the Seller.
7.3 ADDITIONAL DUE DILIGENCE.
(a) Notwithstanding any provision elsewhere in this Contract to the
contrary, the Buyer has _90_ days after the Offer Acceptance Date within which
to conduct economic, architectural and engineering studies; obtain environmental
audits and government permits; and perform other tests and studies as the Buyer
wishes. If within this time period the Buyer in its sole discretion wishes to
void this Contract, the Buyer may do so by providing the Seller with written
notice to that effect within the same time period. Whereupon, the Seller shall
release, or authorize the release of, any Earnest Money deposited by the Buyer
and the parties shall be released of all further obligation under this Contract.
(b) The time period for the Seller's providing and the Buyer's
reviewing tenant estoppels is fifteen calendar days, respectively, befor
closing.
(c) If the Seller has agreed to provide a survey under paragraph 6
above, the Buyer must receive it no later than 15 calendar days before the
expiration of the time period stated in 7.3 (a) above. If the Seller has not
agreed to provide a survey under paragraph 6 above, the Buyer may obtain a
survey and approve it within the time period stated in 7.3 (a) above.
Seller agrees to cooperate fully with Buyer's completing these due diligence
matters and to make the Property available as is reasonable and necessary for
the same.
<PAGE>
8. CONTINGENCIES. This offer is subject to the Buyer's approving in its sole
discretion the Seller Disclosures, the Buyer Undertakings and Additional Due
Diligence matters in Section 7. However, the Buyer's discretion in approving the
terms of the loan under section 7.2(b) is subject to Buyer's covenant with
regard to minimally acceptable financing terms under Section 2.
8.1 Buyer shall have 30 calendar days after the times specified in
Section 7.1 and 7.2 (except for tenant estoppels) to review the content of the
Seller Disclosures and the outcome of the Buyer Undertakings. The times stated
in 7.3 (a) and (b) apply to the diligence items which those paragraphs address.
8.2 If Buyer does not deliver a written objection to Seller regarding a
Seller Disclosure, Buyer Undertaking or Due Diligence matter within the times
provided, those items will be deemed approved by Buyer and the Buyer shall have
no right to cancel with regard to those items beyond the applicable dates.
8.3 If Buyer objects, Buyer and Seller shall have _10_ calendar days
after receipt of the objections to resolve Buyer's objections. Seller may, but
shall not be required to resolve Buyer's objections. Likewise, the Buyer is
under no obligation to accept any resolution proposed by the Seller. If Buyer's
objections are not resolved within the stated time, Buyer may void this Contract
by providing written notice to Seller within the same stated time.
8.4 The holder of the Earnest Money Deposit shall, upon receipt of a
copy of Buyer's written notice, return to Buyer the Earnest Money Deposit
without the requirement of any further written authorization from Seller. If
this Contract is not voided by Buyer, Buyer's objection is deemed to have been
waived. However, this waiver does not affect warranties under Section 10.
8.5 Resolution of Buyer's objections under Section 8.3 shall be in
writing and shall become part of this Contract. After the latest of the dates
which apply under this Section 8, the Buyer's EARNEST MONEY DEPOSIT SHALL BE
NONREFUNDABLE EXCEPT IN THE CASE OF DEFAULT BY THE SELLER AS ADDRESSED IN
PARAGRAPH 16 BELOW.
9. SPECIAL CONTINGENCIES. This offer is made subject to the terms of attached
Addendum # 1 which is incorporated into this Contract by this reference.
10. SELLER'S LIMITED WARRANTIES. Seller's warranties to Buyer regarding the
Property are limited to the following:
10.2 Seller will deliver possession of the Property to Buyer with the
plumbing, plumbed fixtures, heating, cooling, ventilating, electrical
and sprinkler (indoor and outdoor) systems, appliances and fireplaces
in working order;
10.3 Seller will deliver possession of the Property to Buyer with the
roof and foundation free of leaks known to Seller;
10.6 At Closing, Seller will bring current all financial
obligations encumbering the Property which are assumed in
writing by Buyer and will discharge all such obligations which
Buyer has not so assumed;
10.7 As of Closing, Seller has no knowledge of any claim or notice of
an environmental, building or zoning code violation regarding the
Property which has not been resolved.
11. VERIFICATION OF WARRANTED AND INCLUDED ITEMS. After all contingencies have
been removed and before Closing, the Buyer may conduct a "walk-through"
inspection of the Property to determine whether or not items warranted by Seller
in Section , 10.2, 10.3 and are in the warranted condition and to verify that
items included in Section 1.1 are presently on the Property. If any item is not
in the warranted condition, Seller will correct, repair or replace it as
necessary or, with the consent of Buyer and (if required) Lender, escrow an
amount at Closing to provide for such repair or replacement. The Buyer's failure
to conduct a "walk-through" inspection or to claim during the "walk-through"
inspection that the Property does not include all items referenced in Section
1.1 or is not in the condition warranted in Section 10, shall constitute a
waiver of Buyer's rights under Section 1.1 and of the warranties contained in
Section 10.
12. CHANGES DURING TRANSACTION. Seller agrees that no changes in any existing
leases shall be made, no new leases entered into, and no substantial alterations
or improvements to the Property shall be undertaken without the written consent
of the Buyer.
13. AUTHORITY OF SIGNERS. If Buyer or Seller is a corporation, partnership,
trust, estate or other entity, the person signing this Contract on its behalf
warrants his or her authority to do so and to bind Buyer or Seller and the heirs
or successors in interest to Buyer or Seller. If the Seller is not the vested
owner of the Property but has control over the vested owner's disposition of the
Property, the Seller agrees to exercise this control and deliver title under
this Contract as if it had been signed by the vested owner.
14. COMPLETE CONTRACT. This instrument (together with its addenda, any attached
exhibits, and Seller Disclosures) constitutes the entire Contract between the
parties and supersedes all prior dealings between the parties. This Contract
cannot be changed except by written agreement of the parties.
15. DISPUTE RESOLUTION. The parties agree that any dispute or claim relating to
this Contract, including but not limited to the disposition of the Earnest Money
Deposit and the breach or termination of this Contract, shall first be submitted
to mediation in accordance with the Utah Real Estate Buyer/Seller Mediation
Rules of the American Arbitration Association. Each party agrees to bear its own
costs of mediation. Any agreement signed by the parties pursuant to the
mediation shall be binding. If mediation fails, the procedures applicable and
remedies available under this Contract shall apply. Nothing in this Section
shall prohibit the Buyer from seeking specific performance by the Seller by
filing a complaint with the court, serving it on the Seller by means of summons
or as otherwise permitted by law, and recording a lis pendens with regard to the
action; provided that the Buyer permits the Seller to refrain from answering the
complaint pending mediation. Also the parties may agree in writing to waive
mediation.
16. DEFAULT. If Buyer defaults, Seller may elect to either retain the Earnest
Money Deposit as liquidated damages or to return the Earnest Money Deposit and
sue Buyer to enforce Seller's rights. If Seller defaults, in addition to return
of the Earnest Money Deposit, Buyer may elect to either accept from Seller as
liquidated damages a sum equal to the Earnest Money Deposit or sue Seller for
specific performance and/or damages. If Buyer elects to accept the liquidated
damages, Seller agrees to pay the liquidated damages to Buyer upon demand. Where
a Section of this Contract provides a specific remedy, the parties intend that
the remedy shall be exclusive regardless of rights which might otherwise be
available under common law.
17. ATTORNEY'S FEES. In any action arising out of this Contract, the prevailing
party shall be entitled to costs and reasonable attorney's fees.
<PAGE>
18. DISPOSITION OF EARNEST MONEY. The Earnest Money Deposit shall not be
released unless it is authorized by: (a) Sections 7.1, 7.2, 7.3 and 8.3; (b)
separate written agreement of the parties including an agreement under Section
15 if (a) does not apply; or (c) court order.
19. ABROGATION. Except for Sections 10, 13, 15, 17 and 19 of this Contract, the
provisions of this Contract shall not apply after Closing.
20. RISK OF LOSS. All risk of loss or damage to the Property shall be borne by
Seller until Closing.
21. TIME IS OF THE ESSENCE. Time is of the essence regarding the dates set forth
in this transaction. Extensions must be agreed to in writing by all parties.
Performance under each Section of this Contract which references a date shall be
required absolutely by 5:00 P.M., Mountain Time on the stated date.
22. COUNTERPARTS AND FACSIMILE (FAX) DOCUMENTS. This Contract may be signed in
counterparts, and each counterpart bearing an original signature. Also facsimile
transmission of any signed original document and retransmission of any signed
facsimile transmission shall be the same as delivery of an original.
23. ACCEPTANCE. Acceptance occurs when Seller or Buyer, responding to an offer
or counteroffer of the other: (a) signs the offer or counteroffer where noted to
indicate acceptance; and (b) communicates to the other party or the other
party's agent that the offer or counteroffer has been signed as required.
24. OFFER AND TIME FOR ACCEPTANCE. Buyer offers to purchase the Property on the
above terms and conditions. If Seller does not accept this offer by 5:00 | | AM
|X|PM Mountain Time, July 21, 1999 this offer shall lapse; and the holder
of the Earnest Money Deposit shall return it to the Buyer.
July 16, 1999
(Offer Reference Date)
(IF COMPANY BUYER) (IF INDIVIDUAL BUYER)
Company name: /s/
----------------------------- ------------------------------------
(Buyer's Signature)
By: Darwin Datwyler
--------------------------------------- ------------------------------------
(Print Buyer's Name)
Its:
--------------------------------------
Address:
---------------------------------- ------------------------------------
(Buyer's Signature)
----------------------------------
------------------------------------
Phone: (Print Buyer's Name)
------------------------------------
- --------------------------------------------------------------------------------
ACCEPTANCE / REJECTION / COUNTER OFFER
| | Acceptance of Offer to Purchase: Seller Accepts the foregoing offer on the
terms and conditions specified above.
(IF COMPANY SELLER) (IF INDIVIDUAL SELLER)
Company name: /s/
----------------------------- ------------------------------------
(Seller's Signature)
By:
--------------------------------------- ------------------------------------
(Print Seller's Name)
Its:
--------------------------------------
Address:
---------------------------------- ------------------------------------
(Seller's Signature)
----------------------------------
------------------------------------
Phone: (Print Seller's Name)
------------------------------------
<PAGE>
|X| Rejection: Seller Rejects the foregoing offer.
PAB 7-19-99 8:55 AM
- ------------------- -------------------- -------------------
(Seller's Initials) (Date) (Time)
| | Counteroffer: Seller presents for Buyer's Acceptance the terms of Buyer's
offer subject to the exceptions or modifications as specified in the attached
Counter Offer # 1.
PAB (1) 3,250,000 purchase price.
PAB (2) Closing shall be no later than 60 days from Inl date of counteroffer.
- --------------------------------------------------------------------------------
DOCUMENT RECEIPT
| | I acknowledge receipt of a final copy of this Real Estate Purchase Contract
dated bearing all signatures, between
(buyer) and (seller).
- ------------------------------ -----------------------------
SELLER BUYER
- ------------------------------------- --------------------------------------
Authorized Signature for Seller Authorized Signature for Buyer
- ------------------------------------- --------------------------------------
Print Name Print Name
| | I personally caused a final copy of this Real Estate Purchase Contract
dated bearing all signatures, between
(buyer) and (seller),
- ------------------------------ -----------------------------
to be mailed on (date) by certified United States Mail,
return receipt attached, to | | Buyer | | Seller.
Sent by:
<PAGE>
ADDENDUM # 1
REAL ESTATE PURCHASE CONTRACT
This is an ADDENDUM/ to that REAL ESTATE PURCHASE CONTRACT (the "REPC")
with an Offer Referenced Date of July 16 ,1999 , including addenda and counter
offers between Darwin Datwyler or assigns, as Buyer, and Dynatech
International, as Seller on the property located at 3820 West Great
Lakes Dr.
The following terms are hereby incorporated as part of the REPC, and to the
extent these terms modify or conflict with any provisions of the REPC, these
terms shall control. All other terms of the REPC not modified shall remain the
same.
1. Seller shall provide a Phase I environmental report at its cost and expense
certified to Buyer which report must be acceptable to Buyer.
2. Seller shall provide Buyer with all documentation, plans and specs, or
other information pertaining to the subject property which it may have
in it's possession.
3. Buyer's obligation to close is specifically contingent upon the
execution by Seller & by Buyer of an absolute net Lease for Seller's
continued occupation of the property at a base rent figure of $0.515
psf/mo for a period of 20 years and other terms and conditions
acceptable to Buyer.
4. It is understood and agreed between the parties hereto that Buyer may
elect to facilitate a tax-deferred exchange pursuant to Section 1031 of
the Internal Revenue Code regarding the purchase and/or sale of the
Subject Property. The parties, hereto, agree to fully cooperate, one
with the other, in executing whatever additional documents or
amendments may be required to property effect said tax-deferred
exchange, provided that Seller shall incur no liability or cost
therefrom.
5. In the event Buyer has not satisfied all the conditions within the
ninety (90) days provided, and Buyer has so advised the Seller, then
the Buyer shall have two options to extend the due diligence period for
thirty (30) days periods by written notice from Buyer to Seller per
each thirty (30) day period.
|X| Seller o Buyer shall have until 5:00 | | A.M. |X| P.M. Mountain Time,
July 19, 1999, to accept these terms in accordance with Section 23
of the REPC. Unless so accepted, this offer shall lapse.
(IF COMPANY SELLER/BUYER) (IF INDIVIDUAL SELLER/BUYER)
Company name: /s/
----------------------------- ------------------------------------
(Seller's/Buyer's Signature)
By:
--------------------------------------- ------------------------------------
(Print Seller's/Buyer's Name)
Its:
--------------------------------------
Address:
---------------------------------- ------------------------------------
(Seller's/Buyer's Signature)
----------------------------------
------------------------------------
Phone: (Print Seller's/Buyer's Name)
------------------------------------
- --------------------------------------------------------------------------------
ACCEPTANCE/REJECTION/COUNTER OFFER
CHECK ONE: | | Acceptance: | | Seller | | Buyer hereby accepts these terms.
(IF COMPANY SELLER/BUYER) (IF INDIVIDUAL SELLER/BUYER)
Company name: /s/
----------------------------- ------------------------------------
(Seller's/Buyer's Signature)
By:
--------------------------------------- ------------------------------------
(Print Seller's/Buyer's Name)
Its:
--------------------------------------
Address:
---------------------------------- ------------------------------------
(Seller's/Buyer's Signature)
----------------------------------
------------------------------------
Phone: (Print Seller's/Buyer's Name)
------------------------------------
<PAGE>
|X| Rejection: |X| Seller | | Buyer rejects these terms.
PAB 7-19-99 8:35 AM
Seller's Initials Date Time
|X| Counter Offer: |X| Seller | | Buyer presents as a counter offer the terms
set forth on the attached Counter Offer # 1.
PAB (1) 3,250,000 purchase price
PAB (2) Closing shall be no later than 60 day from the date of counteroffer.
- --------------------------------------------------------------------------------
DOCUMENT RECEIPT
| | I acknowledge receipt of a final copy of this Real Estate Purchase Contract
dated bearing all signatures, between
(buyer) and (seller).
- ------------------------------ -----------------------------
SELLER BUYER
- ------------------------------------- --------------------------------------
Authorized Signature for Seller Authorized Signature for Buyer
- ------------------------------------- --------------------------------------
Print Name Print Name
| | I personally caused a final copy of this Real Estate Purchase Contract
dated bearing all signatures, between
(buyer) and (seller),
- ------------------------------ -----------------------------
to be mailed on (date) by certified United States Mail,
return receipt attached, to | | Buyer | | Seller.
Sent by:
<PAGE>
ADDENDUM #______/COUNTER OFFER # 2
REAL ESTATE PURCHASE CONTRACT
This is an ADDENDUM/COUNTER OFFER to that REAL ESTATE PURCHASE CONTRACT
(the "REPC") with an Offer Referenced Date of July 16 ,1999 , including addenda
and counter offers between Darwin Datwyler, as Buyer, and Dynatec
International, Inc., as Seller on the property located at 3820 Great Lakes Dr.,
Salt Lake City, Utah 84120.
The following terms are hereby incorporated as part of the REPC, and to
the extent these terms modify or conflict with any provisions of the REPC, these
terms shall control. All other terms of the REPC not modified shall remain the
same.
1. The purchase price shall be $3,200,000.00.
2. Buyer's obligation to close is specifically contingent upon
the execution by Seller and Buyer of an absolute net lease for
Seller's continued occupation of the property of a base rent
figure of $0.532 per square foot/month for period of 20 years
and other terms and condition acceptable to Buyer.
3. The due diligence period shall be 75 days from offer
acceptance and closing shall occur no later than 90 days from
offer acceptance.
| | Seller | | Buyer shall have until | | A.M. | | P.M. Mountain
Time, , 19 , to accept these terms in accordance with Section
23 of the REPC. Unless so accepted, this offer shall lapse.
(IF COMPANY SELLER/BUYER) (IF INDIVIDUAL SELLER/BUYER)
Company name: Dynatec International /s/
----------------------------- ------------------------------------
(Seller's/Buyer's Signature)
By: Paul A. Boyer Darwin Datwyler
--------------------------------------- ------------------------------------
(Print Seller's/Buyer's Name)
Its: SVP & CFO
--------------------------------------
Address:
---------------------------------- ------------------------------------
(Seller's/Buyer's Signature)
----------------------------------
------------------------------------
Phone: (Print Seller's/Buyer's Name)
------------------------------------
ACCEPTANCE/REJECTION/COUNTER OFFER
CHECK ONE: |X| Acceptance: | |Seller | | Buyer hereby accepts these terms.
(IF COMPANY SELLER/BUYER) (IF INDIVIDUAL SELLER/BUYER)
Company name: DYNATEC INT'L /s/
----------------------------- ------------------------------------
(Seller's/Buyer's Signature)
By: PAUL A. BOYER
--------------------------------------- ------------------------------------
(Print Seller's/Buyer's Name)
Its:
SVP & CFO---------------------------------
Address:
---------------------------------- ------------------------------------
(Seller's/Buyer's Signature)
----------------------------------
------------------------------------
Phone: (Print Seller's/Buyer's Name)
------------------------------------
| | Rejection: | |Seller | |Buyer rejects these terms.
- ------------------------- ------------ ------------
Initials Date Time
| | Counter Offer: | | Seller | | Buyer presents as a counter offer the terms
set forth on the attached Counter Offer # .
<PAGE>
- --------------------------------------------------------------------------------
DOCUMENT RECEIPT
| | I acknowledge receipt of a final copy of this Real Estate Purchase Contract
dated bearing all signatures, between
(buyer) and (seller).
- ------------------------------ -----------------------------
SELLER BUYER
- ------------------------------------- --------------------------------------
Authorized Signature for Seller Authorized Signature for Buyer
- ------------------------------------- --------------------------------------
Print Name Print Name
| | I personally caused a final copy of this Real Estate Purchase Contract
dated bearing all signatures, between
(buyer) and (seller),
- ------------------------------ -----------------------------
to be mailed on (date) by certified United States Mail,
return receipt attached, to | | Buyer | | Seller.
Sent by:
<PAGE>
ADDENDUM #______/COUNTER OFFER #___3___
REAL ESTATE PURCHASE CONTRACT
This is an ADDENDUM/COUNTER OFFER to that REAL ESTATE PURCHASE CONTRACT
(the "REPC") with an Offer Referenced Date of July 22 ,1999 , including addenda
and counter offers between Darwin Datwyler, as Buyer, and Dynatec International,
Inc., as Seller on the property located at 3280 Great Lakes Dr., Salt Lake
City, Utah 84120.
The following terms are hereby incorporated as part of the REPC, and to the
extent these terms modify or conflict with any provisions of the REPC, these
terms shall control. All other terms of the REPC not modified shall remain the
same.
1. The purchase price shall be $2,900,000.00.
2. The annual absolute net rents shall be $330,000.00.
3. Closing shall take place no later than ten days following the receipt
of an appraisal that is acceptable to the Lender.
4. At closing, the Seller shall issue to the Buyer $25,000.00 in
unrestricted shares of stock with the NASDAQ symbol DYNX.
5. Upon execution of a lease agreement and loan commitment the Buyer
shall deposit an additional $95,000.00 of earnest money. The entire
earnest money, totaling $100,000.00 shall become non-refundable to
Buyer except in the case of a Seller default.
6. Buyer must obtain a loan of no less than 2 million dollars & not more
than 9 1/4%, repayable anytime during the term of the loan, in part or
in full.
|_| Seller |_| Buyer shall have until | | A.M. | | P.M. Mountain Time,
, 19 , to accept these terms in accordance with Section 23 of
the REPC. Unless so accepted, this offer shall lapse.
(IF COMPANY SELLER/BUYER) (IF INDIVIDUAL SELLER/BUYER)
Company name: DYNATEC INT'L /s/
----------------------------- ------------------------------------
(Seller's/Buyer's Signature)
By: Frederick Volcansek, Sr. Darwin R. Datwyler
--------------------------------------- ------------------------------------
(Print Seller's/Buyer's Name)
Its: CEO
---------------------------------
Address: 3280 W. Great Lakes Dr.
---------------------------------- ------------------------------------
Salt Lake City, Utah 84120 (Seller's/Buyer's Signature)
----------------------------------
------------------------------------
Phone: 801-973-9500 (Print Seller's/Buyer's Name)
------------------------------------
- --------------------------------------------------------------------------------
ACCEPTANCE/REJECTION/COUNTER OFFER
CHECK ONE: Acceptance: Seller Buyer hereby accepts these terms.
(IF COMPANY SELLER/BUYER) (IF INDIVIDUAL SELLER/BUYER)
Company name: DYNATEC INT'L
----------------------------- ------------------------------------
(Seller's/Buyer's Signature)
By:
--------------------------------------- ------------------------------------
(Print Seller's/Buyer's Name)
Its:
---------------------------------
Address: 3280 W. Great Lakes Dr.
---------------------------------- ------------------------------------
Salt Lake City, Utah 84120 (Seller's/Buyer's Signature)
----------------------------------
------------------------------------
Phone: 801-973-9500 (Print Seller's/Buyer's Name)
------------------------------------
Rejection: Seller Buyer rejects these terms.
- -------------------------- -------------- ----------------
Initials Date Time
Counter Offer: Seller Buyer presents as a counter offer the terms set
forth on the attached Counter Offer # .
- --------------------------------------------------------------------------------
DOCUMENT RECEIPT
| | I acknowledge receipt of a final copy of this Real Estate Purchase Contract
dated bearing all signatures, between
(buyer) and (seller).
- ------------------------------ -----------------------------
SELLER BUYER
- ------------------------------------- --------------------------------------
Authorized Signature for Seller Authorized Signature for Buyer
- ------------------------------------- --------------------------------------
Print Name Print Name
| | I personally caused a final copy of this Real Estate Purchase Contract
dated bearing all signatures, between
(buyer) and (seller),
- ------------------------------ -----------------------------
to be mailed on (date) by certified United States Mail,
return receipt attached, to | | Buyer | | Seller.
Sent by:
<PAGE>
RESTRICTED STOCK PURCHASE AGREEMENT
November 4, 1999
DYNATEC INTERNATIONAL, INC.
Attn. Frederick W. Volcansek, Sr.,
Chairman and Chief Executive Officer
3820 Great Lakes Drive
Salt Lake City, Utah 84020
Gentlemen:
The undersigned, FRE CORPORATION III, a California corporation
("Purchaser"), is the assignee of the rights and obligations of the undersigned,
Darwin Datwyler ("Datwyler"), in and to that certain Real Estate Purchase
Contract ("REPC") by and between Datwyler and Dynatec International, Inc., a
Utah corporation ("Seller"), dated as of July 16, 1999, as supplemented by
Addenda nos. 1, 2 and 3 to the REPC (unless more specifically stated, as used in
this Agreement, the term REPC shall refer to the REPC together with each and all
of the addenda thereto). Purchaser has acquired Datwyler's interests in the REPC
solely for purposes of effectuating a tax-deferred exchange pursuant to Section
1031 of the U.S. Internal Revenue Code of 1986, as amended. Capitalized terms
used but not specifically defined in this Agreement shall have the meanings set
forth in the REPC.
Paragraph 3 of Addendum No. 3 to the REPC provides that, as a material
inducement to Datwyler for executing and delivering the REPC and performing
thereunder, Seller is required, at closing, to "issue to [Datwyler] $25,000 in
unrestricted shares of stock with the NASDAQ symbol DYNX."
This letter is to amend the REPC to the extent that, in lieu of such
$25,000 of unrestricted common stock of Seller, Datwyler and Purchaser will
accept, in full satisfaction of such obligation, a total of Thirty-three
Thousand Nine Hundred Forty-eight (33,948) shares of the restricted, newly
issued shares of common stock of Seller (the "Shares"). Except to the extent
specifically modified by this Agreement, the REPC shall not be affected and
shall remain in full force and effect.
Seller, Purchaser and Datwyler agree that the issuance of the Shares
shall be subject to the following additional terms and conditions:
1. The Shares will be issued, and physical certificates representing
the Shares shall be delivered to Purchaser within four (4) business days after
the closing of the purchase and sale of the Property, which is to take place on
or about November 4, 1999, which Shares, upon issuance shall be fully paid and
non-assessable. The issuance of the Shares, therefore, shall not be a condition
to the closing of the purchase and sale of the Property, and the disbursement to
<PAGE>
Seller of the proceeds therefor, after appropriate adjustment as set forth in
the Seller's Final Closing Statement.
2. In connection with the acquisition of the Shares by Datwyler (or by
Purchaser solely as a facilitator to Datwyler of a Section 1031 exchange) of the
Shares, Datwyler and/or Purchaser, as the case may be, hereby represent as
follows:
a. Datwyler is the ultimate beneficial owner of the Shares,
and is acquiring the Shares for his own account and not with a view to,
or for resale in connection with, any distribution of such Shares.
b. Purchaser and Datwyler understand and agree that the Shares
have not been and will not be registered under the Securities Act of
1933, as amended (the "Act"), or applicable state statutes, by reason
of a specific exemption under the provisions of the Act which depends
upon the representations in this Section 2.
c. Datwyler understands the merits, nature and financial risks
of an investment in the Shares and is able to bear the financial risks
thereof.
d. Datwyler has been accorded access (including the
opportunity to ask questions of representatives of Seller and receive
answers thereto) to information regarding Seller's business operations
and financial condition and has been furnished with all financial and
other information regarding Seller which he has requested and deemed
necessary; he has examined the same or caused the same to be examined
by his representatives; and he does not desire any further information
or data concerning Seller.
e. Purchaser and Datwyler understand and agree that the Shares
are "restricted securities" within the meaning of Rule 144 promulgated
under the Act, and that any future sale or disposition of the Shares by
Purchase or Datwyler may be subject to the terms of, reporting
requirements and holding periods (which Seller represents is presently
one year under Rule 144(d), although Seller makes no representation
about any successor rule or regulation) set out in Rule 144 or other
requirements of the Act (including registration of such securities) and
the rules and regulations promulgated thereunder; consequently,
Purchaser and Datwyler understand that they must bear the economic risk
of owning the Shares for an indefinite period of time because the stock
has not been registered under the Act and, therefore, cannot be sold
unless it is subsequently registered under the Act (and any applicable
state statutes) or an exemption from such registration is available.
f. Purchaser and Datwyler agree that Seller not permit the
transfer of the Shares unless any request for transfer is accompanied
by evidence satisfactory to Seller and its securities counsel that
neither the sale nor the proposed transfer of the Shares will result in
<PAGE>
a violation of any applicable law, rule or regulation, federal or
state, and they agree that they will not sell, transfer or otherwise
dispose of the Shares without registration under the Act or exemption
therefrom. Purchaser and Datwyler, for themselves and their heirs,
personal representatives, successors and assigns, consent to the taking
of any action or the imposition of any requirement reasonably intended
by Seller or its securities counsel to prevent the disposition of any
interest in the Shares that would appear to them to be inconsistent
with any of my foregoing statements, to include without limitation the
affixing to any certificates representing the Shares an appropriate
restrictive legend and the issuance of "stop transfer" instructions to
Seller's transfer agent and similar notations on its records.
g. In deciding to acquire the Shares, Datwyler has not relied
on any representations, promises, or information, written or verbal, by
any person. Datwyler has had access to reports filed by Seller with the
Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended, including without limitation Seller's Annual Report
on Form 10-KSB for the year ended December 31, 1998, and the quarterly
report on Form 10-QSB of Seller for the six months ended June 30, 1999.
h. Purchaser and Datwyler acknowledge that neither Seller nor
any person acting on its behalf offered to sell the Shares by means of
any form of general advertising.
3. This Agreement shall be governed by and construed in accordance with
the laws of the State of Utah, without regard to choice of law principles. This
Agreement may be executed in two or more counterparts, each of which when so
executed shall be deemed to be an original instrument that shall be enforceable
against the parties actually executing such instrument. In lieu of the original
documents, a facsimile transmission or copy of the original documents shall be
as effective and enforceable as the original. This Agreement may be amended only
by a writing executed by all parties. This Agreement sets forth the entire
agreement and understanding of the parties relating to the subject matter hereof
and supersedes all prior and contemporaneous agreements, negotiations and
understandings between the parties, both oral and written relating to the
subject matter hereof.
Very truly yours,
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS IMMEDIATELY]
<PAGE>
FRE CORPORATION III,
a California corporation
Date: By: /s/
--------------------- -------------------------------------
Elaine A. Westby, President
Date: /s/
--------------------- -------------------------------------
Darwin Datwyler
Acknowledged and Agreed:
DYNATEC INTERNATIONAL, INC.
By: /s/
-------------------------------------
Frederick W. Volcansek, Sr.,
Chairman and Chief Executive Officer
Date:
-----------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000752208
<NAME> DYNATEC INTERNATIONAL, INC.
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 141,680
<SECURITIES> 0
<RECEIVABLES> 2,259,406
<ALLOWANCES> (30,846)
<INVENTORY> 3,640,877
<CURRENT-ASSETS> 6,513,738
<PP&E> 6,143,671
<DEPRECIATION> 2,486,456
<TOTAL-ASSETS> 10,499,486
<CURRENT-LIABILITIES> 6,445,287
<BONDS> 0
0
0
<COMMON> 35,744
<OTHER-SE> 2,104,814
<TOTAL-LIABILITY-AND-EQUITY> 10,499,486
<SALES> 3,540,463
<TOTAL-REVENUES> 3,540,463
<CGS> 2,081,965
<TOTAL-COSTS> 4,062,599
<OTHER-EXPENSES> 152,369
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 155,474
<INCOME-PRETAX> (674,505)
<INCOME-TAX> 0
<INCOME-CONTINUING> (674,505)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (674,505)
<EPS-BASIC> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
