SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 Commission File Number 0-12977
PEGASUS INDUSTRIES, INC.
--------------------------------------------------
(Exact name of registrant as specified in charter)
Nevada 95-3599648
- ------------------------- ------------------------
(State or other jurisdiction) (I.R.S. Employer
Identification Number)
400 N. St. Paul, Suite 950, Dallas, TX 75201
--------------------------------------------
(Address of principal executive offices)
(214) 520-8300
-------------------------------
(Registrant's telephone number)
Title of each class Name of each exchange on which
to be so registered each class is to be registered
- ------------------- ------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock Par Value $0.01
----------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes ____ No X
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of registrants knowledge [in definitive proxy or information statements
incorporated by reference in Part III this form 10-K or any amendment to this
Form 10-K. [ X ]
Page 1
<PAGE>
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court.
Yes X No ____
The number of shares of Common Stock outstanding as of December 31, 1996 was
14,343,091 shares, $0.01 par value.
Page 2
<PAGE>
PEGASUS INDUSTRIES, INC.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Introduction
- ------------
Pegasus Industries, Inc., formerly known as Pathfinder Corporation, a Nevada
corporation (the "Company") is a holding company that, prior to February 1995
had no operating activities. As discussed below, the Company made a series of
acquisitions prior to 1995 which were later rescinded, or alternatively are
inactive and carried at no value on the Company's financial statements. In
February 1995 the Company acquired Zearl T. Young, Incorporated ("ZTY") and
experienced a change in both management and ownership control in connection with
the acquisition. (See "Acquisition of ZTY" below).
The Company was originally incorporated as a Nevada corporation on November 1968
under the name Helistructures Corporation as a wholly owned subsidiary of
American International, Inc. (formerly American Mining and Development Company).
In January 1974, the Company changedits name from Helistructures Corporation to
Midas International and in 1982 the name was changed from Midas International,
Inc. to MII, Inc.
In December 1985 the Company filed for bankruptcy protection under Chapter 11 of
the U.S. Bankruptcy Code in the Central District of California. In December
1990, pursuant to the Plan of Reorganization of the Company approved by the
Bankruptcy Court, the Company issued 19,454,000 shares of common stock to
unsecured creditors for cancellation of $1,018,000 in debt. In August
1990 the Company changed its name from MII, Inc. to Pathfinder Corporation. In
1990 the Company initiated a reverse stock split whereby all outstanding shares
were reversed by a factor of 1 for 100 with the stipulation that no shareholder
be reduced to less than 10 post-split shares. In connection with this
stipulation, the Company issued 48,576 pre-split common shares. From 1973 to
1991 the Company's activities consisted primarily of the management of its
interests in various uranium mining claims.
On March 13, 1995 the Company changed its name from Pathfinder Corporation to
Pegasus Industries, Inc. in connection with the acquisition of ZTY and the
resulting change of control. Additionally, the Company's executive offices were
moved to Dallas, Texas as a result of the change in control.
Acquisition and Disposition of Oil and Gas Interest
- ---------------------------------------------------
In September 1992 the Company acquired certain oil and gas producing properties
for 699,997 shares of its common stock. In 1994 the Company rescinded the
acquisition and cancelled the
Page 3
<PAGE>
699,997 shares of stock it issued due to difficulties the Company encountered in
obtaining clear title to the oil and gas properties.
In January 1994, the Company authorized the purchase of an office building
valued at $700,000 for 700,000 shares of common stock of the Company from
certain officers and directors of the Company. In February 1994 the Company
rescinded the transaction and cancelled all 700,000 shares of stock issued
related to the purchase.
Acquisition of Zearl T. Young, Incorporated and Change of Control
- -----------------------------------------------------------------
Effective February 28, 1995, the Company acquired 100% of the outstanding common
stock of Zearl T. Young, Incorporated ("ZTY") from Pegasus Ventures, Inc.
("Ventures"), a privately held Texas corporation, pursuant to a Stock Exchange
Agreement in exchange for the issuance of 11,500,000 shares of the Company's
common stock. ZTY currently operates a nine store retail and consumer finance
concern in Hobbs, New Mexico. ZTY has assets of over $11 million and generated
revenues in fiscal 1994 in excess of $9 million. Ventures is a wholly owned
subsidiary of Boudreau & Associates, Inc. ("BAI") formed in 1992 by John R.
Boudreau and Robert W. Schleizer to acquire undermanaged and undervalued
companies.
In connection with the transaction, Mr. Boudreau and Mr. Schleizer were elected
to fill two of the three seats on the Company's board of directors. Kevin
Chisholm, a certified public accountant in private practice, was elected to fill
the remaining seat. The Company's prior directors, James M. Richards, Allen C.
Stout and Kenneth Mock resigned. Mr. Boudreau was subsequently elected by the
Company's board to fill the positions of Chairman of the Board, President and
Secretary of the Company. Mr. Schleizer was elected Chief Financial Offficer
and Treasurer of the Company. Mr. Boudreau resigned his position as director
effective the same date. Mr. Chisholm also resigned as director December 31,
1995.
Business of Zearl T. Young, Incorporated
- ----------------------------------------
ZTY was founded in 1955 as a single location Western Auto store in Hobbs, New
Mexico and was incorporated as a New Mexico corporation in 1958.
ZTY is engaged in the retail sale at its five locations of a diverse range of
products including: (1) furniture; (2) home electronics; (3) household
appliances; (4) hardware; (5) home improvement supplies; (6) household and
commercial floor coverings and installation thereof; (7) sporting goods
and recreational equipment; (8) automotive parts, supplies and accessories;
(9) automotive repair services; and (10) toys. ZTY's stores include a Western
Auto affiliated store and a True Value Hardware store.
Page 4
<PAGE>
ZTY operates its business from five retail locations in Hobbs, New Mexico. The
Company was operating five stores at December 1996 compared to nine the prior
year. The diversified retail concern draws customers from southeastern New
Mexico and western Texas. The company generates 72% of its revenues from sales
of retail merchandise. In October 1996, the Company sold off $2.8 of its then
$7.5 million finance contracts to Norwest Financial Services, Inc., an affiliate
of its primary secured lender, Norwest Bank Minnesota, N.A. The sale was
completed as part of a restructuring of the Company's $10 million line of credit
that was in default. The Company netted $2.3 million or 81.4% of the gross
finance contracts sold, resulting in a $90,000 loss to the Company. The entire
proceeds were applied to the line of credit.
Approximately 28% of ZTY's revenues are derived from the financing of consumer
purchases.
Competition
- -----------
The retail merchandise trade in which ZTY is engaged is highly competitive.
There are several discount retailers in Hobbs, New Mexico including Kmart and
Walmart which affect the gross margins ZTY can achieve on its retail sales. In
addition, during 1996, six new small loan companies have opened offices in
Hobbs, directly competing with ZTY for higher risk credit consumers. The
combination of both factors resulting in ZTY closing four stores in 1996.
Employees
- ---------
As of December 31, 1996, ZTY employed 54 people in New Mexico, 36 of which
engaged in operating the retail operation, 15 operating the consumer finance
business and 3 in administrative support positions. The Company currently has
three employees in Dallas, Texas in administrative and executive capacities.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's headquarters are at 400 N. St. Paul, Suite 950, Dallas, Texas
75201.
ZTY, its wholly owned subsidiary, has 180,000 square feet of retail space
available under a master lease agreement. ZTY also leases 50,000 square feet of
warehouse space under the master lease. The master lease expires in November
2012. The master lease was negotiated on an arm's length basis with a company
owned by some of ZTY's preferred shareholders. As of
Page 5
<PAGE>
December 31, 1996, the Company occupied only 43,000 square feet of retail space
and 21,000 square feet of warehouse space. Rent payments were in arrears
totalling $120,000 at December 31, 1996.
ZTY owns a 5,500 square foot office building in Hobbs, New Mexico that serves as
its administrative office.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending litigation or other legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fiscal year covered by this report to a
vote of security holders, through solicitation of proxies or otherwise.
Page 6
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The Company's Common Stock, $.01 par value ("Common Stock") is traded on an
interdealer basis under the symbol PIND (formerly "PTHF"). The following table
set forth the high and low bid price of the Common Stock for the period
indicated as quoted from the NASDAQ Bulletin Board Listing.
<TABLE>
<CAPTION>
Fiscal 1996 Low Bid High Bid
<S> <C> <C>
1st Quarter .12 .56
2nd Quarter .06 .06
3rd Quarter .06 .06
4th Quarter .07 .08
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1995 Low Bid High Bid
<S> <C> <C>
1st Quarter .15 1.00
2nd Quarter .44 .75
3rd Quarter .25 .87
4th Quarter .50 1.00
</TABLE>
There is an absence of an established public trading market, therefore the
market for the Common Stock is limited, sporadic and highly volatile.
Though no dividend restrictions exist relative to the Company's paying cash
dividends, the Company has never paid cash dividends on its stock and does not
anticipate doing so in the foreseeable future. Rather,the Company has determined
to utilize any earnings in the operation of its business. Such policy is
subject to change based on current industry and market conditions, as well as
other factors beyond the control of the Company.
Page 7
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of significant factors
which have affected the registrant's financial position and operations during
the year ended December 31, 1996 as compared to December 31, 1995.
Results of Operations
- ---------------------
The Company's Consolidated Statement of Operations for the years ended December
31, 1996 and December 31, 1995 consist of the Company and ZTY, its wholly owned
subsidiary. Sales decreased from $5,621,587 for the year ended December 31,
1995 to $4,531,905 for the current year, a 19% decrease. The decrease is due to
the closing of four additional stores in 1996. Gross profits declined 18% or
$735,801 for the same period. Reduced sales and difficulty obtaining current
inventory due to insufficient working capital caused the decline.
Financing income decreased from $2,000,153 to $1,720,282 for the year ended
December 31, 1996 as compared to the year ended December 31, 1995, a 14%
decrease.
The Company reported a net loss of $2,314,859 for the year ended December 31,
1996 as compared to a net loss of $1,455,466 for 1995. The losses and the
Company's inability to raise sufficient working capital resulted in the Company
entering into an agreement in May 1997 to liquidate ZTY.
Liquidity and Capital Resources
- -------------------------------
Current liabilities as of December 31, 1996 of $7,637,789 exceeded currrent
assets by $3,876,750. The Company experienced significant working capital
shortages resulting in the inability to purchase sufficient inventory to
maintain sales.
The Company was in default on certain financial covenants of its senior loan
agreement including shareholder equity, collateral base and profitability
provisions. Management entered into a Liquidation Agreement in May 1997 to
close the operation of ZTY and sell its assets.
ITEM 7. FINANCIAL STATEMENTS AND SELECTED FINANCIAL DATA
The following selected financial data of the Company for fiscal years 1996, 1995
and 1994 should be read in conjunction with the financial statements and related
notes included in Item 8 of this Form 10-K. (See "Financial Statements and
Notes Thereto").
Page 8
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Income Statement Data:
Revenues 4,531,905 7,622,010 -0-
Net Income (Loss) (2,314,859) (1,455,460) -0-
Net Income (Loss) per share (.16) (.09) -0-
Dividends per share - - -
Weighted average shares
outstanding 14,352,151 14,352,151 2,781,151
Balance Sheet Data:
Total Assets 5,271,801 8,874,210 -0-
Long Term Debt - 286,828 -0-
Stockholder's Equity (3,568,358) (1,253,499) -0-
</TABLE>
See Management's Discussion and Analysis of Financial Condition and Results of
Operations for ZTY financial data for comparable periods.
Page 9
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTABILITY AND FINANCIAL DISCLOSURE
Duane V. Midgley, the Company's former accountant, and Johnson, Miller & Co,
the auditors for Zearl T. Young, Inc., were dismissed by the Company on March
16, 1996. This event was reported in detail on a Form 8-K filed prior to this
filing.
ITEM 9. DIRECTORS AND OFFICERS OF THE REGISTRANT
On December 31, 1995, John R. Boudreau resigned as president and Director and
Kevin Chisholm resigned as Director. Robert W. Schleizer assumed the role of
President and remained as the sole Director of the Corporation. Following are
the officers and directors as of December 31, 1996:
<TABLE>
<CAPTION>
Name Age Position Term
<S> <C> <C> <C>
Robert W. Schleizer 42 President, Treasurer and 1/95 - Present
and Sole Director
David Donahue 32 Chief Financial Officer 7/96 - Present
</TABLE>
Compliance with Section 16(a)
- -----------------------------
Section 16(a) of the Securities Exchange Act of 1934 ("Exchange Act") requires
the Company's directors, officers and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Directors, officers and greater than ten percent beneficial owners are required
by applicable regulations to furnish the Company with copies of all forms they
file with the Commission pursuant to Section 16(a). The Company is not aware of
any beneficial owner of more than ten percent of its registered Common Stock for
purposes of Section 16(a).
Based solely upon a review of the copies of the forms furnished to the Company,
the Company believes that during 1996 all filing requirements applicable to its
directors and executive officers were satisfied.
Page 10
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
Executives received compensation from the Company during 1996 as follows:
<TABLE>
<CAPTION>
Summary Compensation Table
---------------------------
Annual Compensation Long Term Compensation All other
------------------- --------------------------- Compensation
Awards Payouts ------------
Name and Other Restricted
Principal Annual Stock Options/LTIP
Position Year Salary($) Bonus($) Comp($) Award(s)(1) SARs(#) Payouts($)
- ---------- ----- --------- ------- ------- ----------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert W.
Schleizer,
President 1996 $100,000 -0- -0- -0- -0- -0-
David
Donahue
Chief Financial
Officer 1996 $31,500 -0- -0- -0- -0- -0-
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
As of December 31, 1996 there were 14,343,091 common shares of the Company, the
Company's only class of voting securities. The Company has no knowledge of any
arrangements which could affect the Company.
The following table will identify as of December 31, 1996, the number and
percentage of outstanding shares of common stock owned by (i) each person known
to the Company who owns more than five percent of the outstanding common stock,
(ii) each officer and director of the Company, and (iii) officers and directors
of the Company as a group:
<TABLE>
<CAPTION>
Name of Beneficial Owner Amount of Ownership Percent of Class
<S> <C> <C>
Pegasus Ventures, Inc.* 6,495,000 45%
David Donahue -0- 0%
John R. Boudreau Separate
Property Living Trust* 1,995,840 14%
The Schleizer Family Trust* 1,995,840 14%
All Executive Officers/
Directors as a Group
(3 persons) 10,486,680 73%
</TABLE>
*Mssrs. Boudreau and Schleizer each beneficially own 50% of the common stock of
Pegasus Ventures which owns the 45% interest in the Company per the above table.
In March 1996, Pegasus Ventures distributed 1,995,840 shares of the Company
stock to the John R. Boudreau Separate Family Trust and 1,995,840 to The
Schleizer Family Trust.
Page 11
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases substantially all of its buildings from Young's Investment
Corporation ("YIC") an affiliated entity. Zearl T. Young and family own 100% of
the stock of YIC and also own 100% of the series A preferred stock of ZTY, a
wholly owned subsidiary of the Company.
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES & REPORTS
ON FORM 8-K
Documents filed as part of this report:
(a) Financial Statements
Statement Name Page No.
Pegasus Industries, Inc.
Report of Independent Certified Public Accountants................ F-1
Balance Sheet..................................................... F-2
Statement of Operations........................................... F-3
Statement of Stockholders' Equity................................. F-5
Statement of Cash Flows........................................... F-6
Notes to Financial Statements..................................... F-8
(b) Reports on Form 8K
A report on Form 8K dated March 12, 1996 was filed changing Registrants
certifying accountant and reporting a transfer of shares owned by
Pegasus Ventures, Inc.
(c) Exhibits
Exhibit A: Stock Exchange Agreement
Page 12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on April 8, 1998.
PEGASUS INDUSTRIES, INC.
By: /s/ Robert W. Schleizer
------------------------------
Robert W. Schleizer, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in capacities and on the dates indicated.
/s/ Robert W. Schleizer
- ----------------------------------
Robert W. Schleizer, President (1)
March 20, 1998
(1) Principal executive officer
Page 13
<PAGE>
26th Place
2601 E. Thomas Rd. PH: (602)266-2646
CLANCY AND CO., P.L.L.C. Suite 110 FAX: (602)224-9496
CERTIFIED PUBLIC ACCOUNTANTS Phoenix, AZ 85016 EMAIL: [email protected]
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
Board of Directors
Pegasus Industries, Inc.
Dallas, Texas 75201
We have audited the accompanying consolidated balance sheet of Pegasus
Industries, Inc., as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit of the financial statements provides a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pegasus Industries, Inc., as of
December 31, 1996 and 1995, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has suffered recurring losses from operatins and has a
net capital deficiency that raises doubt about the Company's ability to continue
as a going concern. Management's plan in regard to these matters is also
described in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Clancy and Co., P.L.L.C.
Phoenix, Arizona
March 3, 1998
Page 14 F-1
<PAGE>
PEGASUS INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
December 31, 1996 and 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Current Assets
Cash $ 132,162 $ 73,782
Receivables (Note 3) 2,966,990 4,456,621
Inventories (Note 2) 624,141 1,026,491
Investment in Cooperative Securities (Note 4) 23,931 16,550
Prepaid Expenses 11,809 219,645
---------- ----------
Total Current Assets 3,781,033 5,793,089
Property and Equipment (Note 5) 274,363 350,869
Deferred Tax Benefit (Note 7) 0 60,152
Other Assets
Noncurrent Portion of Financing Receivable
(Note 6) 1,102,395 2,625,230
Cash Value of Life Insurance, Net of Policy
Loans of $1,027,894 in 1996, and $915,894
in 1995 (Face Value of Approximately
$7,600,000) (Note 9) 60,010 44,870
---------- ---------
Total Other Assets 1,162,405 2,670,100
---------- ---------
Total Assets $5,217,801 $8,874,210
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 15 F-2
<PAGE>
PEGASUS INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
December 31, 1996 and 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Current Liabilities
Trade Accounts Payable (Note 8) $ 557,418 $ 795,324
Other Liabilities 133,105 99,221
Note Payable and Current Portion of
Long-Term Debt (Note 9) 6,584,128 7,678,870
Accrued Expenses 383,138 139,096
----------- -----------
Total Current Liabilities 7,657,789 8,712,511
Long-Term Debt, Noncurrent Portion (Note 9) 0 286,828
----------- -----------
Total Liabilities 7,657,789 8,999,339
Preferred Stockholders' Equity in
Subsidiary (Note 9) 1,128,370 1,128,370
Stockholders' Equity
Common Stock, Par Value $.01, Authorized
50,000,000 Shares, Issued and Outstanding,
14,343,091 Shares at December 31, 1996 and
14,352,151 at December 31, 1995 143,431 143,521
Additional Paid-In Capital 58,536 58,446
Retained Earnings - A Deficit (3,770,325) (1,455,466)
----------- -----------
Total Stockholders' Equity (3,568,358) (1,253,499)
----------- -----------
Total Liabilities and Stockholders' Equity $ 5,217,801 $ 8,874,210
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 16 F-3
<PAGE>
PEGASUS INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Sales $ 4,531,905 $ 5,621,857
Cost of Sales 3,336,214 4,071,915
--------- ---------
Gross Profit 1,195,691 1,549,942
Financing Income 1,720,282 2,000,153
Cost of Financing
Interest Expense 767,534 875,892
Amortization of loan costs 211,730 156,680
----------- ----------
979,264 1,032,572
----------- ----------
Net Financing Income 741,018 967,581
----------- ----------
Total Gross Income 1,936,709 2,517,523
Expenses
General and Administrative 1,061,416 1,418,933
Selling 3,096,170 2,687,602
----------- ----------
Total Expenses 4,157,586 4,106,535
----------- ----------
Operating Loss (2,220,877) (1,589,012)
Other Income and Expenses
Gain on Sale of Equipment (46,282) 6,521
Receipt from Bankruptcy Court in Connection With
Reorganization 0 108,631
Other Income 12,452 18,394
------------ ---------
Total Other Income and Expense (33,830) 133,546
------------ ---------
Net Loss Before Taxes (2,254,707) (1,455,466)
Tax Benefit Cancelled (60,152) 0
------------ ----------
Net Loss $(2,314,859) $(1,455,466)
============ ============
Net Loss Per Share $ (0.16) $ (0.10)
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 17 F-4
<PAGE>
PEGASUS INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For The Year Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Common Stock Additional Retained
Shares Amount Paid-In Earnings-
Capital A Deficit Total
<S> <C> <C> <C> <C> <C>
Balance - December
31, 1994 2,852,151 $ 28,521 3,522,602 $(3,551,123) 0
Issuance of Shares
in Connection with
acquisition of
100% of the
outstanding common
shares of Zearl T.
Young, Inc. and
Recording of
Quazi-Reorganization
Effective February
28, 1995 11,500,000 115,000 (3,464,156) 3,551,123 201,967
Net Loss Year
Ended December
31, 1995 (1,455,466) (1,455,466)
---------- -------- ---------- ----------- -----------
Balance, December
31, 1995 14,352,151 143,521 58,446 $(1,455,466) (1,253,499)
Shares Cancelled (9,060) (90) 90 0 0
Net Loss Year Ended
December 31, 1996 0 0 0 (2,314,859) (2,314,859)
----------- -------- --------- ----------- -----------
Balance, December
31, 1996 14,343,091 $143,431 $ 58,536 $(3,770,325) $(3,568,358)
=========== ======== ========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 18 F-5
<PAGE>
PEGASUS INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended December 31,1996 and 1995
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
<S> <C> <C>
Cash Flows From Operating Activities
Net Income (or Loss) $ (2,314,859) $ (1,455,466)
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating
Activities
Depreciation 79,077 96,766
Changes in Operating Assets and
Liabilities
Receivables 2,990,466 (7,081,851)
Inventories at Cost 402,350 (1,026,491)
Investment in Cooperative
Securities (7,381) (16,550)
Prepaid Expenses 207,836 (219,645)
Cash Value of Life Insurance (15,140) (44,870)
Deferred Tax Benefit 60,152 (60,152)
Trade Accounts Payable (237,907) 795,324
Other Liabilities 33,884 99,221
Accrued Expenses 244,042 139,096
----------- -----------
Total Adjustments 3,757,379 (7,319,152)
----------- -----------
Net Cash Flows Provided By (Used In)
Operating Activities 1,442,520 (8,774,618)
Cash Flows From Investing Activities
Capital Expenditures (2,571) (447,635)
Cash Flows From Financing Activities
Cash Received from Borrowings 63,436 7,965,698
Repayments on Long Term Debt (1,445,005)
Preferred Stockholders' Equity
In Subsidiary 1,128,370
Common Stock 0 201,967
----------- ----------
Net Cash Flows Provided By (Used In)
Financing Activities (1,381,569) 9,296,035
Increase in Cash 58,380 73,782
Cash, Beginning of Year 73,782 0
------------ ----------
Cash, End of Year $ 132,162 $ 73,782
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 19 F-6
<PAGE>
PEGASUS INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
<S> <C> <C>
Supplemental Information
Interest Expense Paid $ 725,937 $ 604,444
========= ===========
Income Taxes Paid $ 0 $ 0
========= ===========
Noncash Investing and Financing Activites
Acquisition of 100% Interest in Subsidiary
In Exchange for Issuance of Common Stock $ 0 $ 115,000
========= ===========
A Quasi-Reorganization Reduced Beginning
Retained Earnings - A Deficit to Zero With
a Charge to Additional Paid-in Capital $ 0 $ 3,551,123
========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 20 F-7
<PAGE>
PEGASUS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 1 - ORGANIZATION
------------
Pegasus Industries, Inc. (The Company) was incorporated under the name
Helistructures Corporation on November 25, 1968 under the laws of the State of
Nevada with an authorized capital of 2,500 shares of common stock with no par
value. On January 12, 1973, the Company filed restated Articles of
Incorporation changing its name to Midas International, Inc. and increasing its
authorized capital to 125,000 shares of common stock with a par value of $0.20.
The restated articles supersede the original Articles of Incorporation and all
amendments heretofore made thereto prior to this date.
On December 14, 1982, the Company amended its Articles of Incorporation changing
its name to MII and increasing its authorized capital to 20,000,000 shares of
common stock with a par value of $0.01.
In December 1985, the Company applied for and was allowed protection under
Chapter 11 of the Bankruptcy Court in the Central District of California. On
December 19, 1989, the Bankruptcy Court accepted the Order of Confirmation of
the Trustee's second amended Chapter 11 Plan of Reorganization, which in effect
returned all assets of the Company to creditors for cancellation of all debt.
The Company issued a total of 19,454,500 shares of common stock to the unsecured
creditors for cancellation of $1,018,000 of debt.
On January 19, 1990, the Company amended its Articles of Incorporation,
increasing its authorized capital to 50,000,000 shares of common stock with a
par value of $0.01.
On August 7, 1990, the Company amended its Articles of Incorporation, changing
its name to Pathfinder Corporation and authorizing a reverse split of 100 to 1
with the stipulation that no shareholders be reduced to less than 10 shares.
Due to the stipulation that no shareholder be reduced to less than 10 shares,
the Company issued an additional 48,576 shares to maintain the 10 share minimum.
On September 30, 1992, the Company acquired oil and gas-producing properties for
699,997 shares of common stock. On September 12, 1994, the purchase agreement
was rescinded and the shares of common stock were returned and canceled.
On March 30, 1995, the Company amended its Articles of Incorporation, changing
its name to Pegasus Industries, Inc.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The Company has suffered recurring losses
from operations, has a net capital deficiency and is in default on several loan
agreement items, which raises doubt about the Company's ability to continue as
a going concern.
Page 21 F-8
<PAGE>
PEGASUS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 1 - ORGANIZATION (CONTINUED)
------------------------
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
The Company's principal subsidiary ceased operations on September 6, 1997.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
A. Basis of Financial Statement Presentation
-----------------------------------------
The records of the Company (A Corporation) are maintained using the accrual
method of accounting.
B. Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, Zearl T. Young, Inc. Intercompany
transactions have been eliminated in consolidation.
C. Company's Activities and Operating Cycle
----------------------------------------
The Company's business consists of the sale of retain consumer products,
primarily consumer durable goods such as furniture, appliances, carpets and
electronics and the related financing of those purchases with consumer finance
contracts. The Company experiences the normal cyclical fluctuations of most
retailers with operations during the fourth quarter (October through December)
comprising a disproportionate portion of its annual revenues and gross profits.
D. Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid debt instruments with a maturity of
three months or less to be cash and cash equivalents.
E. Inventories
-----------
The Company determines its inventory using the lower of cost (first-in,
first-out) or market.
Page 22 F-9
<PAGE>
PEGASUS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
-------------------------------------------
F. Depreciation
------------
The cost of property and equipment is depreciated over the useful lives of the
related assets. The straight line method is utilized for substantially all
assets for financial reporting, but accelerated methods are used for income tax
reporting. The estimated lives used in determining depreciation are:
Buildings and Improvements 30 years
Furniture, Fixtures and Equipment 5-15 years
Automobiles and Trucks 3-5 years
G. Investment in Life Insurance
----------------------------
The Company's investment in corporate owned life insurance policies is reported
net of policy loans. The net life insurance expense, including interest
expense, is included in General and Administrative Expense in the Statement of
Operations.
H. Earnings or (Loss) Per Share
----------------------------
Earnings or (loss) per share is computed using the weighted average number of
shares of common stock outstanding.
NOTE 3 -- RECEIVABLES
-----------
The Company's revenue and receivables are from retail sales to customers in the
Lea County, New Mexico trade area through several retail outlets selling a
variety of merchandise and services.
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Receivables consist of:
Open Trade Accounts $ 25,947 $ 108,963
Employees' Accounts 134,466 60,875
Less Allowance for Doubtful Receivables (11,302) (6,586)
------------ ------------
149,111 163,252
Current Portion of Financing
Contracts Receivable 3,097,684 4,425,091
Less Allowance for Doubtful Collections (257,805) (131,722)
------------ ------------
2,839,879 4,293,369
------------ ------------
$2,988,990 $4,456,621
============ ============
</TABLE>
Page 23 F-10
<PAGE>
PEGASUS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
The following is an aging of receivables at December 31, 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Current $3,258,097 $2,820,811
1-30 days 626,831 889,083
31-60 259,697 323,301
61-90 102,818 128,529
91 and over 212,582 433,205
---------- ----------
Total 4,460,025 4,594,929
Less Allowance for Doubtful Accounts (368,640) (138,308)
---------- ----------
$4,091,385 $4,456,621
========== ==========
</TABLE>
NOTE 4 -- INVESTMENT IN COOPERATIVE SECURITIES
------------------------------------
The Company does business with a supplier which operates as a cooperative.
Under the cooperative structure, purchasers receive restricted stock and notes.
The stock and notes are recorded at cost by the Company. The stock is subject
to certain buy-sell restrictions. The notes have maturities dated December 31,
1999. The balance is as follows at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Notes $ 3,480 $ 4,640
Stock 20,451 11,910
--------- --------
Total $ 23,931 $ 16,550
========= ========
</TABLE>
NOTE 5 -- PROPERTY AND EQUIPMENT
----------------------
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Buildings $ 50,000 $ 50,000
Leasehold Improvements 176,767 176,767
Equipment 501,376 501,376
Furniture and Fixtures 302,578 300,007
Automobiles and Trucks 241,191 241,191
----------- ----------
1,271,912 1,269,341
Less Accumulated Depreciation 997,549 918,472
----------- ----------
Net Book Value $ 274,363 $ 350,869
=========== ==========
</TABLE>
Depreciation expense charged to operations in 1996 and 1995 was $79,077 and
$96,766 respectively.
Page 24 F-11
<PAGE>
PEGASUS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 5 -- PROPERTY AND EQUIPMENT (CONTINUED)
----------------------------------
Expenditures for repairs and maintenance and minor renewal and betterments are
charged to operations in the year incurred. Major renewals and betterments are
capitalized.
NOTE 6 -- FINANCING CONTRACTS RECEIVABLE
------------------------------
The Company finances customer purchases on various terms not exceeding 36
months. Interest charged varies and currently is 21%. There were 9,699
customer contracts outstanding at December 31, 1996 and 6,795 at December 31,
1995. The contracts are secured by furniture, appliances or other consumer
products purchased. The balance consist of:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Financing Contracts $ 5,435,629 $ 8,407,283
Less Unearned Finance and Insurance Charges (975,604) (1,285,734)
------------ ------------
4,460,025 7,121,549
Less Allowance for Doubtful Accounts (368,640) (212,950)
------------ ------------
$ 4,091,385 $ 6,908,599
============ ============
Current Portion $ 2,988,990 $ 4,456,621
Noncurrent Portion 1,102,395 (2,625,230)
----------- ------------
$ 4,091,385 $ 6,908,599
=========== ============
</TABLE>
NOTE 7 -- INCOME TAXES
------------
As of December 31, 1996 and 1995, the Company has net operating losses of
approximately $6,127,977 and $3,813,117 which will expire in the years 2010 and
2011, if not utilized. The estimated deferred income tax benefit net of a
valuation allowance for doubtful realization consists of:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Benefit $ 772,000 $ 772,000
Valuation Allowance (772,000) (771,848)
----------- -----------
$ 0 $ 60,152
=========== ===========
</TABLE>
Page 25 F-12
<PAGE>
PEGASUS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 8 -- ACCOUNTS PAYABLE
----------------
The following is an aging of accounts payable at December 31, 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Current $111,365 $327,602
31-60 (4,661) 74,009
61-90 22,681 3,267
91 and Over 428,033 390,446
--------- --------
Total $557,418 $795,324
========= ========
</TABLE>
NOTE 9 -- LONG-TERM DEBT
--------------
<TABLE>
<CAPTION>
<S> <C> <C>
Revolving note of $10,000,000 with a financial
institution, secured by substantially all assets
of the Company's principal subsidiary, bearing
interest at the institution's base rate plus
2.5% or 10.75% currently, the available loan
amount varies on a formula based upon the amount
of eligible contracts receivable, and the amount
of inventory on hand; interest is payable
monthly with the principal due February 7, 1997.
The loand agreement provides for acceleration of
the maturity date of the note and certain other
remedies upon occurence as of an Event of Default.
Certain potential Events of Default as that term
is used in the loan agreement have occurred as of
and subsequent to December 31, 1996. The Company's
subsidiary negotiated an amendment to the loan
agreement in October, 1996, when it sold
approximately 1/3 of its finance contracts to an
affiliate of its lender. As of December 31, 1996,
the Company's subsidiary has breached the amended
loan covenants. The lender notified the Company's
subsidiary of the default in January 1997. A
series of short term amendments were negotiated
through March 1997. On May 5, 1997, the
Company's subsidiary entered into a liquidation
agreement with its lender. $ 6,136,079 $ 7,403,085
</TABLE>
Page 26 F-13
<PAGE>
PEGASUS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 9 -- LONG-TERM DEBT (CONTINUED)
--------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Various unsecured notes payable to pre-petition
creditors, bearing interest at 6.21% or 2.5%, due
in quarterly and annual payments of principal and
interest of varying amounts beginning March 15,
1994, with varying balloon payouts due December
15, 1998. The death benefit of a $446,000 face
life insurance policy on the life of the majority
preferred stockholder in the subsidiary is pledged
to pay these notes payable. These notes are
currently in arrears in payment. 186,985 260,871
Note payable, secured by real estate, bearing interest
at 6%, due in monthly payments of principal and
interest of $500 through August, 2004. 37,409 41,046
Note payable, secured by equipment, bearing interest
at 7.9%, due in monthly payments of principal and
interest of $540 through September 1995. 0 540
Note payable, secured by equipment, bearing interest
at 7.9%, due in monthly payments of principal and
interest of $461 through December 1995. 0 1,303
Note payable, secured by equipment, bearing interest
at 9.95%, due in monthly payments of principal and
interest of $268.25 beginning August 15, 1995 through
August 15, 1998. 5,903 8,853
Note payable, estimated of Jerry Lewis, bearing
interest at 6.12% per annum, due in quarterly payments
of $1,680.70 44,949 0
</TABLE>
Page 27 F-14
<PAGE>
PEGASUS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 9 -- LONG-TERM DEBT (CONTINUED)
--------------------------
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Note payable, secured by credit insurance
commissions, dated August 4, 1995 bearing
interest at 10.75% with payments due
quarterly, and principal payments of $12,500
due monthly. Note is due September 4, 1996. 172,803 250,000
---------- ----------
Total 6,584,128 7,965,698
Less Current Portion 6,584,128 7,678,870
--------- -----------
$ 0 $ 286,828
========== ===========
</TABLE>
At December 31, 1996, the Company had available for future use a standby letter
of credit in the amount of $50,000. The maturity date on the standby letter of
credit is January 31, 1997.
At December 31, 1995, there were two letters of credit outstanding with a
financial institution in the amount of $100,000 each, maturing June 1, 1996.
The annual maturities for the five years ended December 31, 2001, and in the
aggregate are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $6,487,604
1998 37,766
1999 13,240
2000 14,200
2001 15,160
Thereafter 16,159
----------
$6,584,128
==========
</TABLE>
NOTE 10 -- PREFERRED STOCKHOLDERS' EQUITY IN SUBSIDIARY
--------------------------------------------
As a part of the bankruptcy (chapter 11) plan and quasi-reorganization of the
Company's subsidiary, all common shares of the then-existing shareholders' of
the subsidiary were canceled, with the existing shareholders accepting preferred
shares in the subsidiary and allowing the subsidiary to issue new common stock
to the new shareholders who purchased the subsidiary as of December 31, 1995,
all prior to the merger with the Company.
Page 28 F-15
<PAGE>
PEGASUS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 11 -- TRANSACTIONS WITH RELATED PARTIES
---------------------------------
The Company rents all but one of its buildings from Young's Investment
Corporation. Young's Investment Corporation is 100% owned by Zearl T. Young,
who owns 50% of the Series A Preferred Stock of Zearl T. Young, Inc., a wholly
owned subsidiary of the Company. The amount of rent was $240,000 for the year
ended December 31, 1995. The Company was in arrears in rent payments, as of
December 31, 1996 and 1995, in the amount of $120,000 and $31,500. The Company
pays certain expenses related to the buildings such as property taxes,
insurance, and repairs and maintenance.
The Company also pays management and director fees to companies that are related
through common ownership. These amounts totaled $48,000 in 1996 and $72,000 in
1995.
NOTE 12 -- SUBSEQUENT EVENTS
-----------------
On March 6, 1996, the Board of Directors adopted a resolution to issue a new
clsas of preferred stock, with the rights, privileges and preferenes to be
determined at a future date.
On September 6, 1996, the Company's principal subsidiary ceased operations and
sold all of its assets.
<PAGE>
EXHIBIT A:
STOCK EXCHANGE AGREEMENT
THIS STOCK EXCHANGE AGREEMENT (hereinafter referred to as this
"Agreement"), is entered into as of February 28, 1995 between and among:
PATHFINDER CORPORATION, a Nevada Corporation ("Pathfinder")
PEGASUS VENTURES, INC., a Texas Corporation ("Pegasus")
ZEARL T. YOUNG, INC., a New Mexico Corporation ("ZTY")
Pegasus and ZTY being collectively referred to herein as the "Exchange
Group".
Based on the following:
PREMISES
This Agreement provides for the exchange of the shares of common stock of
ZTY (no par value) and Pathfinder Corporation which represents 100% of the
issued and outstanding shares of common stock of ZTY (the "ZTY Control Shares")
in exchange for eleven million five hundred thousand (11,500,000) shares of
common stock of Pathfinder (par value: $.01) (the "Pathfinder Stock")
representing approximately 80.1 % of the Common Stock of Pathfinder to be issued
and outstanding immediately after consummation of the transactions contemplated
hereby, plus certain options and other benefits, all as hereinafter described.
It is the parties' intent that the Exchange will qualify for treatment as a tax-
free exchange under the Internal Revenue Code of 1986, as amended, and the
parties will undertake all actions necessary both before and after the
consummation of the Exchange to effect such treatment.
AGREEMENT
NOW, THEREFORE, on the stated premises and for and in consideration of
the mutual covenants and agreements hereinafter set forth and the mutual
benefits to the parties to be derived here from, it is hereby agreed as follows:
<PAGE>
ARTICLE I
REPRESENTATIONS, COVENANTS, AND WARRANTIES OF
PATHFINDER
Pathfinder represents and warrants as follows:
Section 1.01 ORGANIZATION. Pathfinder is a corporation duly organized,
validly existing, and in good standing under the laws of the state of Nevada and
has the corporate power and is duly authorized, qualified, franchised, and
licensed tinder all applicable laws, regulations, ordinances, and orders of
public authorities to own all of its properties and assets and to carry on its
business in all material respects as it is now being conducted, including
qualification to do business as a foreign corporation in the states in which the
character and location of the assets owned by it or the nature of the business
transacted by it requires qualification. Included in the Pathfinder Schedules
(as hereinafter defined) are complete and correct copies of the articles of
incorporation and bylaws of Pathfinder as in effect on the date hereof. The
execution and delivery of this Agreement does not, and the consummation of the
transactions contemplated by this Agreement in accordance with the terms hereof
will not, violate any provision of Pathfinder's articles of incorporation or
bylaws. Pathfinder has taken all action required by law, its articles of
incorporation, its bylaws, or otherwise to authorize the execution and delivery
of this Agreement. Pathfinder has full power, authority, and legal right and has
taken all action required by law, its articles of incorporation, bylaws and
otherwise to consummate the transactions herein contemplated.
Section 1.02 CAPITALIZATION. The authorized capitalization of Pathfinder
consists of 50,000,000 shares of common stock, $.01 par value, of which
2,852,151 shares are currently issued and outstanding, and 5,000,000 shares of
preferred stock, none of which are issued and outstanding. All issued and
outstanding shares are legally issued, fully paid, and nonassessable and not
issued in violation of the pre-emptive or other rights of any person.
Section 1.03 SUBSIDIARIES AND PREDECESSOR CORPORATIONS. Pathfinder does
not have any subsidiaries and does not own, beneficially or of record, any
shares of any other corporation.
Section 1.04 FINANCIAL STATEMENTS.
(a) Included in the Pathfinder Schedules are the audited balance sheets of
Pathfinder as of 12/31/94, and the related statements of operations, changes in
financial positions, and stockholders' equity for the three years then ended
together with the notes to such statements and the unqualified opinions of Duane
Midgley, Certified Public Accountant, with respect thereto.
Stock Exchange Agreement - Page 2
<PAGE>
(b) All such financial statements have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved. The Pathfinder balance sheets present fairly as of their
respective dates the financial condition of Pathfinder. Pathfinder did not have,
as of the date of any such Pathfinder balance sheet, except as and to the
extent reflected or reserved against therein, any liabilities or obligations
(absolute or contingent) which should be reflected in a balance or the notes the
eto prepared in accordance with generally accepted accounting principles, and
all assets reflected therein are properly reported and present fairly the value
of the assets of Pathfinder, in accordance with generally accepted accounting
principles. The statements of operations, stockholders' equity, and changes in
financial position reflect fairly the information required to be set forth
therein by generally accepted accounting principles.
(c) Except as set forth in the Pathfinder Schedules, Pathfinder has no
liabilities with respect to the payment of any federal, state, county, local or
other taxes (including any deficiencies, interest, or penalties), except for
taxes accrued but not yet due and payable.
(d) Except as set forth in the Pathfinder Schedules, Pathfinder has filed
all federal, state and other tax returns and reports required to be filed for
all periods on or before the due dates thereof (as extended by any valid
extensions of time) and has paid all taxes shown to be due by such returns. Such
returns reflect all taxes due and payable with respect to the periods covered
thereby and there are no liabilities, claims, interest or penalties pending,
assessed, asserted or threatened against Pathfinder in connection with any such
taxes and any basis therefor. The reserves for taxes (federal, state and local)
reflected in the balance sheet is adequate to cover any and all taxes, including
deferred taxes, and any interest and penalties in connection therewith that may
be assessed with respect to the properties, business and operations of
Pathfinder up to the date of the balance sheet, and all prior periods. The
federal income tax, state income tax and state franchise tax returns of
Pathfinder have not been audited during the past five years. Pathfinder has not
given nor been requested to give waivers of any statutes of limitations relating
to the payment of taxes for any taxable period. Furthermore, no facts exist
which would constitute grounds for assessment of any further tax liability.
(e) The books and records, financial and others, of Pathfinder are in all
material respects complete and correct and have been maintained in accordance
with good business and accounting practices.
(f) Except as and to the extent disclosed in the most recent Pathfinder
balance sheet, Pathfinder has no material contingent liabilities, direct or
indirect, matured or unmatured.
Stock Exchange Agreement - Page 3
<PAGE>
Section 1.05 INFORMATION. The information concerning Pathfinder set forth
in this Agreement and in the Pathfinder Schedules is complete and accurate in
all material respects and does not contain any untrue statement of a material
fact or omit to state a material fact required to make the statements made, in
light of the circumstances under which they were made, not misleading.
Section 1.06 OPTIONS OR WARRANTS. There are no existing options, warrants,
calls, reservations or commitments of any character relating to the authorized,
but unissued Pathfinder common stock, except options, warrants, calls, or
commitments, if any, to which Pathfinder is not a party and by which it is not
bound.
Section 1.07 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
this Agreement or the Pathfinder Schedules, since the date of the Pathfinder
balance sheet;
(a) there has not been nor is there reasonably predictable (i) any
material adverse change in the business, operations, properties, assets, or
condition of Pathfinder; nor (ii) any damage, destruction, or loss to Pathfinder
(whether or not covered by insurance) materially and adversely affecting the
business, operations, properties, assets, or condition of Pathfinder;
(b) Pathfinder has not (i) amended its articles of incorporation or
bylaws; (ii) declared or made, or agreed to declare or make, any payment of
dividends or distributions of any assets of any kind whatsoever to stockholders
or purchased or redeemed, or agreed to purchase or redeem, any of its capital
stock; (iii) waived any rights of value which in the aggregate are extraordinary
or material considering the business of Pathfinder; (iv) made any material
change in its method of management, operation, or accounting; (v) entered into
any other material transaction; (vi) made any accrual or arrangement for or
payment of bonuses or special compensation of any kind or any severance or
termination pay to any present or former officer or employee; (vii) increased
the rate of compensation payable or to become payable by it to any of its
officers or directors or any of its employees whose monthly compensation exceeds
$ 10,000; of (viii) made any increase in any profit sharing, bonus, deferred
compensation, insurance, pension, retirement, or other employee benefit plan,
payment, or arrangement made to, for, or with its officers, directors, or
employees;
(c) Pathfinder has not (i) granted or agreed to grant any options,
warrants, or other rights for its stocks, bonds, or other corporate securities
calling for the issuance thereof; (ii) borrowed or agreed to borrow any funds or
incurred, or become subject to, any material obligation or liability (absolute
or contingent) except liabilities incurred in the ordinary course of business;
(iii) paid any material obligation or liability (absolute or contingent) other
than current liabilities reflected in or shown on the most recent Pathfinder
balance sheet, and current liabilities incurred since that date in the ordinary
course of business; (iv) sold or transferred, or agreed to sell or transfer,
any of its assets, properties, or rights (except assets, properties, or rights
not used or useful in its business
Stock Exchange Agreement - Page 4
<PAGE>
which, in the aggregate have a value of less than $50,000), or canceled, or
agreed to cancel, any debts or claims (except debts or claims which in the
aggregate are of a value of less than $50,000); (v) made or permitted any
amendment or termination of any contract, agreement, or license to which it is a
party if such amendment or termination is material, considering to business of
Pathfinder; or (vi) issued, delivered, or agreed to issue or deliver any stock,
bonds, or other corporate securities including debentures (whether authorized
and unissued or held as treasury stock); and
(d) to the best knowledge of Pathfinder, it is not subject to any law or
regulation which materially and adversely affects the business, operations,
properties, assets, or condition of Pathfinder.
Section 1.08 TITLE AND RELATED MATTERS. Pathfinder has good marketable
title to all of its assets which are reflected in the Pathfinder balance sheet
or acquired after that date (except properties, interests in properties, and
assets sold or otherwise disposed of since such date in the ordinary course of
business), free and clear of all liens, claims, pledges, charges, taxes or
encumbrances of any kind except (a) statutory liens or claims not yet
delinquent; (b) such imperfections of title and easements as do not and will not
materially detract from or interfere with the present or proposed use of the
properties subject thereto or affected thereby or otherwise materially impair
present business operations on such properties; and (c) as described in the
Pathfinder Schedules. Pathfinder owns, free and clear of any liens, claims,
pledges, charges or encumbrances of any kind, or other restrictions or
limitations of any nature whatsoever, any and all patents, procedures, software
techniques, business plans, methods of management, or other information utilized
in connection with Pathfinder's business. To the best knowledge of Pathfinder,
the products it has previously manufactured and/or marketed and its plans of
business do not infringe on the patents, copyrights, trade secrets, or other
proprietary rights of any third person.
Section 1.09 LITIGATION AND PROCEEDINGS. Except as set forth in the
Pathfinder Schedules, there are no actions, suits, or proceedings pending or, to
the knowledge of Pathfinder threatened by or against Pathfinder, or affecting
Pathfinder or its properties, at law or in equity, before any court or other
governmental agency or instrumentality, domestic or foreign, or before any
arbitrator of any kind. Pathfinder does not have any knowledge of any default on
its part with respect to any judgment, order, writ, injunction, decree, award,
rule, or regulation of any court, arbitrator, or governmental agency or
instrumentality.
Section 1.10 CONTRACTS.
(a) Except as disclosed in the Pathfinder Schedules, there are no
contracts, agreements, franchises, license agreements, and other commitments to
which Pathfinder is a party or by which its properties are bound, which are
material to the operations of Pathfinder taken as whole;
Stock Exchange Agreement - Page 5
<PAGE>
(b) Pathfinder is not a party to or bound by, and the properties of
Pathfinder are not subject to, any contract, agreement, other commitment or
instrument; any charter or other corporate restriction; or any judgment, order,
writ, injunction, decree, or award which materially and adversely affects the
business, operations, properties, assets, or condition of Pathfinder; and
(c) Except as disclosed in the Pathfinder Schedules, Pathfinder is not a
party to any oral or written (i) contract for the employment of any officer or
employee which is not terminable on 30 days (or less) notice; (ii) profit
sharing, bonus, deferred compensation, stock option, severance pay, pension
benefit or retirement plan, agreement, or arrangement covered by Title IV of the
Employee Retirement Income Security Act, as amended; (iii) agreement, contract,
or indenture relating to the borrowing of money; (iv) guaranty of any obligation
other than one on which Pathfinder is a primary obligor, for the borrowing of
money or otherwise, excluding endorsements made for collection and other
guaranties of obligations, which, in the aggregate do not exceed $50,000; (v)
consulting or other similar contracts with an unexpired term of more than one
year or providing for payments in excess of $50,000 in the aggregate; (vi)
collective bargaining agreement; (vii) agreement with any present or former
officer or director of Pathfinder; or (viii) contract, agreement, or other
commitment involving payments by it of more than $25,000 in the aggregate.
(d) Except as disclosed in the Pathfinder Schedules, Pathfinder has no
debts, obligations, contracts (written or oral) commitments, liabilities or
agreements to perform or not perform any act of any type of nature whatsoever.
Section 1.11 MATERIAL CONTRACT DEFAULTS. Pathfinder is not in default under
the terms of any outstanding contract, agreement, lease, or other commitment and
there is no event of default or other event which, with notice or lapse of time
or both, would constitute a default in any respect under any such contract,
agreement, lease, or other commitment in respect of which Pathfinder has not
taken adequate steps to prevent such a default from occurring.
Section 1.12 NO CONFLICT WITH OTHER INSTRUMENTS. The execution of this
Agreement and the consummation of the transactions contemplated by this
Agreement will not result in the breach of any term or provision of, or
constitute an event of default under, any indenture, mortgage, deed of trust,
statement of fact, or the restrictions or covenants set forth in the
registration statements filed with Securities' and Exchange Commission, or other
contract, agreement, or instrument to which Pathfinder is a party or to which
any of its properties or operations are subject.
Section 1.13 GOVERNMENTAL AUTHORIZATIONS. Except as set forth in the
Pathfinder Schedules, no licenses, franchises, permits, or other governmental
authorizations are legally required to enable Pathfinder to conduct its business
in all respects as conducted on the date hereof. Except for compliance with
federal and state securities and corporation laws, as
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hereinafter provided, no authorization, approval, consent, or order of, or
registration, declaration, or filing with, any court or other governmental body
is required in connection with the execution and delivery by Pathfinder of this
Agreement and the consummation by Pathfinder of the transactions contemplated
hereby.
Section 1.14 COMPLIANCE WITH LAWS AND REGULATIONS. Pathfinder has complied
with all applicable statutes and regulations of any federal, state, or other
governmental entity or agency thereof, except to the extent that noncompliance
would not affect the business, operations, properties, assets, & condition of
Pathfinder or except to the extent that noncompliance would not result in the
incurrence of any liability for Pathfinder.
Section 1.15 INSURANCE. All of the insurable properties of Pathfinder are
insured for Pathfinder's benefit in the full amount of their replacement value
against risks customarily insured against by persons owning and/or operating
similar properties in the localities where such properties are located and under
valid and enforceable policies issued by insurers of recognized responsibility.
Such policy or policies containing substantially equivalent coverage will be
outstanding and in full force at the Closing Date, as hereinafter defined.
Section 1.16 APPROVAL OF AGREEMENT. The board of directors of Pathfinder
has authorized the execution and delivery of this Agreement by Pathfinder, has
approved the transactions contemplated hereby, and approved the submission of
this Agreement and the transactions contemplated hereby to the shareholders of
Pathfinder for their approval with the recommendation that the reorganization be
accepted.
Section 1.17 MATERIAL TRANSACTIONS OR AFFILIATIONS. Set forth in the
Pathfinder Schedules is a description of every contract, agreement, or
arrangement between Pathfinder and any predecessor and any person or entity
who was at the time of such contract, agreement, or arrangement was an officer,
director, or person owning of record, or known by Pathfinder to own
beneficially, 10% or more of the issued and outstanding common stock of
Pathfinder and which is to be performed in whole or in part after the date
hereof. In all of such transactions, the amount paid or received, whether in
cash, in services, or in kind, has been during the full term thereof, and is
required to be during the unexpired portion of the term thereof, no less
favorable to Pathfinder than terms available from otherwise unrelated parties in
arm's length transactions. Except as disclosed in the Pathfinder Schedules or
otherwise disclosed herein, no officer, director, or 10% shareholder of
Pathfinder has, or has had since inception of Pathfinder, any interest, direct
or indirect, in any material transaction with Pathfinder. There are no
commitments by Pathfinder, whether written or oral, to lend any funds to, borrow
any money from, or enter into any other material transaction with, any such
affiliated person.
Section 1.18 Labor Relations. Pathfinder has never had a work stoppage
resulting from labor problems. To the best knowledge of Pathfinder, no union or
other collective bargaining organization is organizing or attempting to organize
any employee of Pathfinder.
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Section 1.19 PREVIOUS SALES OF SECURITIES. Since inception, Pathfinder has
sold shares of its restricted common stock to investors in reliance upon
applicable exemptions from the registration requirements tinder federal and
state securities laws. All such sales were made to a limited number of investors
in reliance on and in conformity with the exemptions from registration under the
Securities Act of 1933, as amended (the "Securities Act"), and in reliance on
and in conformity with exemptions from registration in all states where offers
and/or sales occurred. Pathfinder represents that all such sales were made in
compliance with such federal and state exemptions from registration and that the
purchasers of such shares are not entitled to any rights of rescission or other
rights with respect to their purchases of such securities.
Section 1.20 SCHEDULES. Pathfinder has delivered to the Exchange Group the
following schedules, which are collectively referred to as the "Pathfinder
Schedules" and which consist of separate schedules dated as of the date of
execution of this Agreement and instruments and data as of such date, all
certified by the chief executive officer of as complete, true, and correct, and
all incorporated into this Agreement by reference.
(a) a schedule containing complete and correct copies of the certificate
of incorporation, bylaws, and all minutes of shareholders' and directors'
meetings of Pathfinder as of the date of this Agreement;
(b) a schedule including the financial statements of Pathfinder
identified in paragraph 1.04(a);
(c) a schedule containing a list indicating the name and address of each
shareholder of Pathfinder, together with the number of shares owned by him or
her;
(d) copies of all licenses, permits, and other governmental
authorizations, requests, or applications therefor pursuant to which Pathfinder
carries on or proposes to carry on its business;
(e) a schedule containing a list of every debt, mortgage, security
interest, pledge, lien, encumbrance, or claim of any nature whatsoever in excess
of $25,000;
(f) a list of all executive' employees of Pathfinder, including current
compensation, with notation as to job description and whether or not such
employee is subject to a written contract;
(g) a schedule containing a description of all assets owned by
Pathfinder, together with a description of every mortgage, deed of trust,
pledge, lien, agreement, encumbrance, claim, or equity interest of any nature
whatsoever in such assets;
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(h) a schedule containing true and correct copies of all contracts,
leases, agreements, or other instruments to which Pathfinder is a party or by
which it or its properties are bound, specifically including all contracts,
agreements, or arrangements referred to in section 1.17 and the documents
evidencing the line of credit referred to in section 4.03;
(i) a schedule listing the accounts receivable and notes and other
obligations receivable of Pathfinder as of the date of the balance sheet, and
those that arose thereafter other than in the ordinary course of business,
indicating the debtor and amount, and classifying the accounts to show in
reasonable detail the length of time if any, overdue, and stating the nature and
amount of any refunds, set offs, reimbursements, discounts, or other adjustments
which are in the aggregate material and due to or claimed by such creditor;
(j) a schedule showing the name, account number and location of each bank
or other institution with which Pathfinder has an account or safety deposit box
and the names of all persons authorized to draw thereon or having access
thereto;
(k) a schedule listing the insurance policies of Pathfinder referred to
in section 1. 15 along with copies of the policies;
(1) a schedule listing the accounts payable and notes and other
obligations payable of Pathfinder as of the date of the balance sheet, and those
that arose thereafter other than in the ordinary course of the business of
Pathfinder, indicating the creditor and amount, classifying the accounts to show
in reasonable detail the length of time, if any, overdue, and stating the nature
and amount of any refunds, set-offs, reimbursements, discounts, or other
adjustments, which in the aggregate are material, due or payable to Pathfinder
respecting such obligations;
(m) a schedule setting forth a description of any material adverse change
in the business, operations, property, inventory, assets, or condition of
Pathfinder since the most recent Pathfinder balance sheet required to be
provided pursuant to section 1.07 hereof, and
(n) a schedule setting forth any other information, together with any
required copies of documents, required to be disclosed in the Pathfinder
Schedules by sections 1.01 through 1.19.
Pathfinder shall cause the Schedules and the instruments and data delivered
to THE EXCHANGE GROUP hereunder to be updated after the date hereof up to and
including the Closing Date.
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ARTICLE II
REPRESENTATIONS, COVENANTS, AND WARRANTIES
OF PEGASUS AND ZTY
Pegasus and ZTY represents and warrants as follows:
Section 2.01 ORGANIZATION. ZTY is a corporation duly organized, validly
existing, and in good standing under the laws of the state of New Mexico and
has the corporate power and is duly authorized, qualified, franchised, and
licensed under all applicable laws, regulations, ordinances, and orders of
public authorities to own all of its properties and assets and to carry on its
business in all material respects as it is now being conducted, and there is no
jurisdiction in which it is not qualified in which the character and location of
the assets owned by it or the nature of the business transacted by it requires
qualification. Included in the ZTY Schedule (hereinafter defined) are complete
and correct copies of the certificate of incorporation and bylaws of ZTY as in
effect on the date hereof. The execution and delivery of this Agreement does
not, and the consummation of the transactions contemplated hereby will not,
violate any provision of ZTY's articles of incorporation of bylaws. Pegasus ZTY
have taken all action required by law, its articles of incorporation, its
bylaws, or otherwise to authorize the execution and delivery of this Agreement.
Pegasus and ZTY have full power, authority, and legal right and has taken all
action required by law, its certificate of incorporation, bylaws, or otherwise
to consummate the transactions herein contemplated.
Section 2.02 CAPITALIZATION. ZTY's authorized capitalization consists of
5,000 shares of common stock, (no par value), 1,000,000 shares of Series A
Preferred Stock (no par value) and 300,000 shares of Series B Preferred Stock
($5.00 par value). As of the date hereof, there are 2,000 shares of common
stock, 1,000,000 shares of Series A Preferred Stock and 227,171 shares of
Series B Preferred Stock issued and outstanding. All issued and outstanding
shares are legally issued, fully paid, and nonassessable.
Section 2.03 SUBSIDIARIES. Young's Rent to Own, Inc. is a wholly owned
subsidiary of ZTY. ZTY does not have any other subsidiaries and does not own,
beneficially or of record, shares of any other corporation.
Section 2.04 FINANCIAL STATEMENTS.
(a) Included in the ZTY Schedules are the audited balance sheets of ZTY as
of December 31,1993, and the related statements of operations, changes in
financial position, and stockholders' equity for the three years then ended
together with the notes to such statements and the opinions of Johnson, Miller
& Co., certified public accountants, with respect thereto.
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(b) All such financial statements have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved. The ZTY balance sheets present fairly, as of their respective
dates the financial condition of ZTY. ZTY did not have, as of the date of any
such ZTY balance sheet, except as and to the extent reflected or reserved
against therein, any liabilities or obligations (absolute or contingent) which
should be reflected in a balance or the notes thereto prepared in accordance
with generally accepted accounting principles, and all assets reflected therein
are properly reported and present fairly the value of the assets of 7TY, in
accordance with the generally accepted accounting principles. The statements
of operations, stockholders' equity, and changes in financial position reflect
fairly the information required to be set forth therein by generally accepted
accounting principles.
(c) Except as set forth in the ZTY Schedules, ZTY has no liabilities with
respect to the payment of any federal, state, county, local or other taxes
(including any deficiencies, interest, or penalties), except for taxes accrued
but not yet due and payable.
(d) ZTY has filed all federal, state and other tax returns and reports
required to be filed for all periods except for 1993 on or before the due dates
thereof (as extended by any valid extensions of time) and has paid all taxes
shown to be due by such returns. Such returns reflect all taxes due and payable
with respect to the periods covered thereby and there are no liabilities,
claims, interest or penalties pending, assessed, asserted or threatened against
ZTY in connection with any such taxes and any basis therefor. The reserves for
taxes (federal, state and local) reflected in the balance sheet is adequate to
cover any and all taxes, including deferred taxes, and any interest and
penalties in connection therewith that may be assessed with respect to the
properties, business and operations of ZTY up to the date of the balance sheet,
and all prior periods. The federal income tax, state income tax and state
franchise tax returns of ZTY have not been audited during the past five years.
ZTY has not given nor been requested to give waivers of any statutes of
limitations relating to the payment of taxes for any taxable period.
Furthermore, no facts exist which would constitute grounds for assessment of any
further tax liability.
(e) The books and records, financial and others, of ZTY are in all
material respects complete and correct and have been maintained in accordance
with good business and accounting practices.
(f) Except as and to the extent disclosed in the most recent ZTY balance
sheet, ZTY has no material contingent liabilities, direct or indirect, matured
or unmatured.
(g) Included in the ZTY Schedules are its unaudited financial statements
as of November 30, 1994. Such statements have been prepared in accordance with
generally accepted accounting practices on a consistent basis, contain all
normal recurring accruals and fairly present its financial condition as of their
date and the results of its operations
Stock Exchange Agreement - Page 11
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for the eleven months then ended, subject only to customary fiscal year-end
adjustments, which are not expected (individually or in the aggregate) to be
material to the financial condition of its business.
Section 2.05 INFORMATION. The information concerning ZTY set forth in this
Agreement and in the ZTY Schedules is complete and accurate in all material
respects and does not contain any untrue statement of a material fact or omit to
state a material fact required to make the statements made, in light of the
circumstances under which they were made, not misleading.
Section 2.06 OPTIONS OR WARRANTS. Except as disclosed in the ZTY Schedules,
there are no existing options, warrants, calls, or commitments of any character
relating to the authorized, but unissued stock of ZTY, except as set forth in
the ZTY balance sheet and the notes thereto and the ZTY Schedules.
Section 2.07 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as described
herein or in the ZTY Schedules, since the date of the ZTY balance sheet;
(a) there has not been (i) any material adverse change in the business,
operations, properties, assets, or condition of ZTY or its subsidiaries (whether
or not covered by insurance) materially and adversely affecting the business
operations, properties, assets, or condition of ZTY;
(b) ZTY has not (i) amended its articles of incorporation or bylaws; (ii)
declared or made, or agreed to declare or make, any payment of dividends or
distributions of any assets of any kind whatsoever to stockholders or purchased
or redeemed, or agreed to purchase or redeem, any of its capital stock; (iii)
waived any rights of value which in the aggregate are extraordinary or material
considering the business of ZTY; (iv) made any material change in its method of
management, operation, or accounting; (v) entered into any other material
transaction; (vi) increased the rate of compensation payable or to become
payable by it to any of its officers or directors or any of its employees; or
(vii) made any increase in any profit sharing, bonus, deferred compensation,
insurance, pension, retirement, or other employee benefit plan, payment, or
arrangement made to, for, or with its officers, directors, or employees;
(c) ZTY has not (i) granted or agreed to grant any options, warrants, or
other rights for its stocks, bonds, or other corporate securities calling for
the issuance thereof; (ii) borrowed or agreed to borrow any funds or incurred,
or become subject to, any material obligation or liability (absolute or
contingent) except liabilities incurred in the ordinary course of business;
(iii) paid any material obligation or liability (absolute or contingent) other
than current liabilities reflected in or shown on the most recent ZTY balance
sheet, and current liabilities incurred since that date in the ordinary course
of business; (iv) sold or transferred, or agreed to sell or transfer, any of
its assets, properties, or rights (except assets, properties, or rights not used
or useful in its business which, in the aggregate have a value of less than
$50,000), or canceled, or agreed to
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cancel, any debts or claims (except debts or claims which in the aggregate are
of a value of less than $50,000); (v) made or permitted any amendment or
termination of any contract, agreement, or license to which it is a party if
such amendment or termination is material, considering to business of ZTY; or
(vi) issued, delivered, or agreed to issue or deliver any stock, bonds, or other
corporate securities including debentures (whether authorized and unissued or
held as treasury stock); and
(d) to the best knowledge of ZTY, it is not subject to any law or
regulation which materially and adversely affects the business, operations,
properties, assets, or condition of ZTY.
Section 2.08 TITLE AND RELATED MATTERS. ZTY has good marketable title to
all of its properties, inventory, interests in properties, and assets, real and
personal, which are reflected in the ZTY balance sheet or acquired after that
date (except properties, interests in properties, and assets sold or otherwise
disposed of since such date in the ordinary course of business), free and clear
of all liens, claims, pledges, charges, taxes or encumbrances of any kind except
(a) statutory liens or claims not yet delinquent; (b) such imperfections of
title and easements as do not and will not materially detract from or interfere
with the present or proposed use of the properties subject thereto or affected
thereby or otherwise materially impair present business operations on such
properties; and (c) as described in the ZTY Schedules. ZTY owns, free and clear
of any liens, claims, pledges, charges or encumbrances of any kind, or other
restrictions or limitations of any nature whatsoever, any and all patents,
procedures, software techniques, business plans, methods of management, or
other information utilized in connection with ZTY's business. To the best
knowledge of ZTY, the products it has previously manufactured and/or marketed
and its plans of business do not infringe on the patents, copyrights, trade
secrets, or other proprietary rights of any third person.
Section 2.09 LITIGATION AND PROCEEDINGS. Except as set forth in the ZTY
Balance Sheet, the notes thereto and the ZTY Schedules, there are no actions,
suits, or proceedings pending or, to the knowledge of ZTY threatened by or
against ZTY, or affecting ZTY or its properties, at law or in equity, before any
court or other governmental agency or instrumentality, domestic or foreign, or
before any arbitrator of any kind. ZTY does not have any knowledge of any
default on its part with respect to any judgment, order, writ, injunction,
decree, award, rule, or regulation of any court, arbitrator,or governmental
agency or instrumentality.
Section 2.10 CONTRACTS.
(a) There are no material contracts, agreements, franchises, license
agreements, and other commitments to which ZTY is a party or by which it or any
of its properties are bound;
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(b) ZTY is not a party to any contract, agreement, commitment or
instrument or subject to any charter or other corporate restriction or any
judgment, order, writ, injunction, decree, or award which materially and
adversely affects the business, operations, properties, assets, or condition of
ZTY; and
(c) ZTY is not a party to any material oral or written (i) contract for
the employment of any officer or employee; (ii) profit sharing, bonus, deferred
compensation, stock option, severance pay, pension benefit or retirement plan,
agreement, or arrangement covered by Title IV of the Employee Retirement Income
Security Act, as amended; (iii) agreement, contract, or indenture relating to
the borrowing of money; (iv) guaranty of any obligation other than one on which
ZTY is a primary obligor, for the borrowing of money or otherwise, excluding
endorsements made for collection and other guaranties of obligations, which, in
the aggregate do not exceed $50,000; (v) consulting or other similar contract;
(vi) collective bargaining agreement; (vii) agreement with any present of former
officer or director of ZTY; or (viii) contract, agreement, or other commitment
involving payments by it of more than $25,000 in the aggregate.
Section 2.11 MATERIAL CONTRACT DEFAULTS. ZTY is not in default in any
material respect under the terms of any outstanding contract, agreement, lease,
or other commitment that is material to the business, operations, properties,
assets, or condition of ZTY, and there is no event of default or other event
which, with notice or lapse of time or both, would constitute a default in any
material respect under any such contract, agreement, lease, or other commitment
in respect of which ZTY has not taken adequate steps to prevent such a default
from occurring.
Section 2.12 NO CONFLICT WITH OTHER INSTRUMENTS. Except as disclosed in the
ZTY Schedules, the consummation of the transactions contemplated by this
Agreement will not result in the breach of any term or provision of, or
constitute a default under, any indenture, mortgage, or deed of trust or the
restrictions or covenants set forth in the registration statements filed with
the Securities and Exchange Commission, or other material agreement or
instrument to which ZTY is a party or to which any of its assets or operations
are subject.
Section 2.13 GOVERNMENTAL AUTHORIZATIONS. ZTY has all licenses, franchises,
permits, and other governmental authorizations that are legally required to
enable it to conduct its business operations in all material respects as
conducted on the date hereof. Except for compliance with federal and state
securities or corporation laws, no authorization, approval, consent or order
of, or registration, declaration, or filing with, any court or other
governmental body is required in connection with the execution and delivery by
ZTY of this Agreement and the consummation by ZTY of the transactions
contemplated hereby.
Section 2.14 COMPLIANCE WITH LAWS AND REGULATIONS. ZTY has conducted its
operations in compliance with all applicable statutes and regulations of any
federal, state, or other applicable governmental entity or agency thereof,
except to the extent that noncompliance would
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not materially and adversely affect (lie bitsiness, operations, properties,
assets, or condition of ZTY or except to the extent that noncompliance would
not result in the incurrence of any material liability to ZTY.
Section 2.15 INSURANCE. All of the insurable properties of ZTY are insured
for ZTY's benefit in the full amount of their replacement value against risks
customarily insured against by persons owning and/or operating similar
properties in the localities where such properties are located and under valid
and enforceable policies issued by insurers of recognized responsibility. Such
policy or policies containing substantially equivalent coverage will be
outstanding and in full force at the Closing Date, as hereinafter defined.
Section 2.16 APPROVAL OF AGREEMENT. The board of directors or ZTY has
authorized the execution and delivery of this Agreement by ZTY and has approved
this Agreement and the transactions hereby.
Section 2.17 MATERIAL TRANSACTIONS OR AFFILIATIONS. Except as disclosed
herein and in the ZTY Schedules, there exists no material contract, agreement,
or arrangement between ZTY and any person who was at the time of such contract,
agreement, or arrangement an officer, director, or person owning of record or
known by ZTY to own beneficially, 10% or more of the issued and outstanding
common stock of ZTY and which is to be performed in whole or in part after the
date hereof or was entered into not more than three years prior to the date
hereof. Neither any officer, director, or 10% shareholder of ZTY has, or has
had during the last preceding full fiscal year, any known interest in any
material transaction with ZTY which was material to the business of ZTY. ZTY has
no commitment, whether written or oral, to lend any funds to, borrow any money
from, or enter into any other material transaction with any such affiliated
person.
Section 2.18 SCHEDULES. ZTY has delivered to Pathfinder the following
schedules, which are collectively referred to as (the "Schedules" and which
consist of separate schedules dated as of the date of execution of this
Agreement and instruments and data as of such date, all certified by the chief
executive officer of as complete, true, and correct.
(a) a schedule containing complete and correct copies of the certificate
of incorporation, bylaws, and all minutes of shareholders; and directors'
meetings of ZTY as of the date of this Agreement;
(b) a schedule including the financial statements of ZTY identified in
paragraph 2.04(a);
(c) a schedule containing a list indicating the name and address of each
shareholder of ZTY, together with the number of shares owned by him or her;
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(m) a schedule setting forth a description of any material adverse change
in the business, operations, property, inventory, assets, or condition of ZTY
since the most recent ZTY balance sheet required to be provided pursuant to
section 2.07 hereof; and
(n) a schedule setting forth any other information, together with any
required copies of documents, required to be disclosed in the ZTY Schedules by
sections 2.01 through 2.19.
Pegasus shall cause the ZTY Schedules and instruments delivered hereunder
to be updated after the date hereof tip to and including the Closing Date.
Section 2.19 LABOR RELATIONS. ZTY has never had a work stoppage resulting
from labor problems.
Section 2.20 TITLE TO ZTY CONTROLLING SHARES. Pegasus has good and
marketable title to the respective ZTY Control Shares owned by it. Pegasus will
deliver good title to Pathfinder on the date of closing of this Agreement
subject to existing liens and encumbrances.
ARTICLE III
EXCHANGE OF ZTY AND PATHFINDER STOCK
Section 3.01 EXCHANGE WITH ZTY STOCK BY PEGASUS. At the closing of this
Agreement Pegasus will transfer to Pathfinder all of its ZTY Control Shares in
exchange for 11,500,000 share of Pathfinder Common Stock and Preferred Class A
Stock, all to be issued by Pathfinder, at closing.
Section 3.02 CLOSING. The closing ("Closing") of the exchange with the
Pegasus shall be on a date and at such time as the parties may agree ("Closing
Date"), but not later than 30 days from the date of this Agreement. Such Closing
shall take place at a mutually agreeable time and place.
Section 3.03 CLOSING EVENTS. At the Closing, each of the respective parties
hereto shall execute, acknowledge, and deliver (or shall cause to be executed,
acknowledged, and delivered) any and all certificates, opinions, financial
statements, schedules, agreements, resolutions, rulings, or other instruments
required by this Agreement to be so delivered at or prior to the Closing,
together with such other items as may be reasonably requested by the parties
hereto and their respective legal counsel in order to effectuate or evidence the
transactions contemplated hereby. The date on which the Closing occurs is
hereinafter referred to as the "Closing Date."
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Section 3.04 TERMINATION.
(a) This Agreement may be terminated at any time prior to the Closing
Date by action of the board of directors of Pegasus if (i) Pathfinder shall fail
to comply in any material respect with any of its covenants or agreements
contained in this Agreement or (ii) if any of the representations or warranties
of Pathfinder contained herein shall be inaccurate in any material respect, or
if (iii) there shall have been any change after the dates of the latest balance
sheets of Pathfinder in the assets, properties, business, or financial condition
of Pathfinder which could have a materially adverse effect on the value of the
business of Pathfinder, except any changes initially disclosed in the Pathfinder
Schedules. If this Agreement is terminated pursuant to this paragraph (b) of
section 3.04, this Agreement shall be of no further force or effect, and no
obligation, right or liability shall arise hereunder.
(b) This Agreement may be terminated at any time prior to the Closing
Date by action of the board of directors of Pathfinder if (i) Pegasus shall fail
to comply in any material respect with any of its covenants or agreements
contained in this Agreement or (ii) if any of the representations or warranties
of Pegasus contained herein shall be inaccurate in any material respect; or if
(iii) there shall have been any change after the dates of the latest balance
sheets of ZTY in the assets, properties, business, or financial condition of ZTY
which could have a materially adverse effect on the value of the business of
ZTY, except any changes initially disclosed in the ZTY Schedules. If this
Agreement is terminated pursuant to this paragraph (b) of section 3.04, this
Agreement shall be of no further force or effect, and no obligation, right or
liability shall arise hereunder.
In the event of termination pursuant to this paragraph (a) of section 3.04,
no obligation, right, or liability shall arise hereunder, and each party shall
bear all of the expenses incurred by it or him in connection with the
negotiation, drafting, and execution of this Agreement and the transactions
herein contemplated.
ARTICLE IV
SPECIAL COVENANTS
Section 4.01 ACCESS TO PROPERTIES AND RECORDS. Pathfinder will afford to
the officers and authorized representatives of (lie others full access to their
respective properties, books, and records in order that each may have a full
opportunity to make such reasonable investigation as it shall desire to make of
the affairs of the others, and each will furnish the others with such additional
financial and operating data and other information as to their respective
businesses and properties as the others shall from time to time reasonably
request.
Stock Exchange Agreement - Page 18
<PAGE>
Section 4.02 INFORMATION FOR REPORT ON FORM 8-K. Pathfinder represents that
following consummation of the exchange with the Pegasus Group, it will cause to
be prepared and timely filed a current report on form 8-K pursuant to the
Securities Exchange Act of 1,034, as amended (the "Exchange Act"), to report the
consummation of this Agreement. Such current report shall contain all
information of Pathfinder, financial and otherwise, rquired to be included
therein, and The Exchange Group represent to Pathfinder, that such information,
including the financial statements described in section 2.04, shall be true and
correct in all material respects without omission of any material fact required
to make the information stated not misleading.
Section 4.03 SPECIAL COVENANTS AND REPRESENTATIONS REGARDING THE
EXCHANGED STOCK. The consummation of the exchanges between Pathfinder, Pegasus
and ZTY constitutes the offer and sale of securities tinder the Securities Act
of 1933, as amended as well as applicable state statutes. Such transactions
shall be consummated in reliance on exemptions from the registration and
prospectus delivery requirements of such statutes which depend, INTER ALIA,
upon the circumstances tinder which Pegasus acquires Pathfinder securities.
Section 4.04 THIRD PARTY CONSENTS. Pathfinder and the Exchange Group agree
to cooperate with each other in order to obtain any required third party
consents to this Agreement and the transactions herein contemplated.
Section 4.05 ACTIONS PRIOR TO CLOSING.
(a) From and after the date of this Agreement until the Closing Date and
except as set forth in the Pathfinder, ZTY or Pegasus Schedules, or as permitted
or contemplated by this Agrement, Pathfinder, ZTY and Pegasus respectively, will
each:
(i) carry on its business in substantially the same manner as it has
heretofore;
(ii) maintain and keep its properties in states of good repair and
condition as at present, except for depreciation due to ordinary wear and tear
and damage due to casualty;
(iii) maintain in full force and effect insurance comparable in amount
and scope of coverage to that now maintained by it;
(iv) perform in all material respects all of its obligations under
material contracts, leases, and instruments relating to or affecting its assets,
properties, and business;
(v) use its best efforts to maintain and preserve its business
organization intact, to retain its key employees, and to maintain its
relationship with its material suppliers and customers; and
Stock Exchange Agreement - Page 19
<PAGE>
(vi) fully comply with and perform in all material respects all
obligations and duties imposed on it by all federal and state laws and all
rules, regulations, and order imposed by federal or state governmental
authorities.
(b) From and after the date of this Agreement until the Closing Date,
neither Pathfinder, nor any of the Exchange Group, on the other, will:
(i) make any change in articles of incorporation or bylaws;
(ii) take any action described in section 1.07 in the case of
Pathfinder, or in section 2.07, in the case of ZTY (all except as permitted
therein or as disclosed in the applicable party's Schedules);
(iii) enter into or amend any contract, agreement, or other
instrument of any of the types described in such party's Schedules, except that
a party may enter into or amend any contract, agreement, or other instrument in
the ordinary course of business involving the sale of goods or services; or
(iv) in the case of Pegasus, transfer, sell, pledge or encumbet any
of their ZTY Shares except as referred to in the ZTY Schedules.
ARTICLE V
CONDITIONS PRECEDENT TO OBLIGATIONS OF PATHFINDER
The obligations of Pathfinder under this Agreement are subject to the
satisfaction, at or before the Closing Date. of the following conditions:
Section 5.01 ACCURACY OF REPRESENTATIONS OF THE EXCHANGE GROUP. The
representations and warranties made by Pegasus and ZTY in this Agreement were
true when made and shall be true at the Closing Date with the same force and
effect as if such representations and warranties were made at and as of the
Closing Date (except for changes therein permitted by this Agreement), and the
Exchange Group shall have performed or complied with by them prior to or at
the Closing. Pathfinder shall be furnished with a certificate, signed by duly
authorized officers of ZTY and Pegasus and dated the Closing Date, to the
foregoing effect.
Section 5.02 OFFICER'S CERTIFICATE. Pathfinder shall have been furnished
with a certificate dated the Closing Date and signed by a duly authorized
officer of ZTY and attested by Pegasus to the effect that no litigation,
proceeding, investigation, or inquiry is pending or, to the best knowledge of
any of them, is threatened, which might result in an action to enjoin or prevent
the consummation of the transactions contemplated by this Agreement.
Stock Exchange Agreement - Page 20
<PAGE>
Section 5.03 NO MATERIAL ADVERSE CHANGE. Prior to the Closing Date, there
shall not have occurred any amterial adverse change in the financial condition,
business, or operations of ZTY, nor shall any event have occurred which, with
the lapse of time or the giving of notice, may cause or create any material
adverse change in the financial condition, business, or operations of ZTY.
Section 5.04 GOOD STANDING. Pathfinder shall have received oral
confirmation, and within 30 days after Closing shall receive a certificate of
good standing, frorn the appropriate Secretaries of State'or other appropriate
office to the effect that ZTY is in good standing as a corporation in the
respective states and have filed all tax returns required to have been filed by
them to date and have paid all taxes reported as due thereon.
Section 5.05 OTHER ITEMS. The Exchange Group shall have taken or performed
any and all actions to be taken by it pursuant to the provisions of Article Vlll
herein, and Pathfinder shall have received such further documents, certificates,
or instruments relating to the transactions contemplated hereby as it may
reasonably request.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF
THE EXCHANGE GROUP
The obligations of the Exchange Group under this Agreement are subject to
the satisfaction, at or before the Closing Date, of the following conditions:
Section 6.01 ACCURACY OF REPRESENTATIONS. The representations and
warranties made by Pathfinder in this Agreement were true when made and shall be
true as of the Closing Date (except for changes therein permitted by this
Agreement) with the same force and effect as if such representations and
warranties were made at and as of the Closing Date, and Pathfinder shall have
performed and complied wifli all covenants and conditions required by this
Agreement to be performed or complied with by it prior to or at the Closing. The
Exchange Group shall have been furnished with a certificate, signed by a duly
authorized executive officer of Pathfinder and dated the Closing Date, to the
foregoing effect.
Section 6.02 OFFICER'S CERTIFICATE. The Exchange Group shall been furnished
with a certificate dated (lie Closing Date and signed by a duly authorized
executive officer of Pathfinder to the effect that no litigation, proceeding,
investigation, or inquiry is pending or, to the best knowledge of Pathfinder,
threatened, which might result in an action to enjoin or prevent the
consummation of the transactions contemplated by this Agreement.
Stock Exchange Agreement - Page 21
<PAGE>
Section 6.03 NO MATERIAL ADVERSE CHANGE. Prior to the Closing Date, there
shall not have occurred any material adverse change in the financial condition,
business, or operations of Pathfinder, taken as a whole.
Section 6.04 GOOD STANDING. The Exchange Group shall have received oral
confirmation and within 30 days after Closing shall receive a certificate of
good standing, from the Nevada Secretary of State or other appropriate ofice to
the effect that Pathfinder is in good standing as a corporation in the state of
Nevada.
ARTICLE VII
MISCELLANEOUS
Section 7.01 Governing Law. This Agreement shall be governed by, enforced,
and construed under and in accordance with the laws of the United States of
America and, with respect to matters of state law, with the laws of Texas. The
state and federal courts of the state of Texas shall have exclusive jurisdiction
in any litigation arising under or relating to this Agreement or the
transactions contemplated hereby.
Section 7.02 NOTICES. Any notices or other communications required or
permitted hereunder shall be sufficiently givn if personally delivered to it or
sent by registered mail or certified mail, postage prepaid, or by prepaid
telegram addressed as follows:
If to Pathfinder, to: Pathfinder Corporation
1400 Fifth Avenue, Suite 200
San Diego, CA 92101
Attention: Allen Stout
If to Pegasus, to: Pegasus Ventures, Inc.
1600 Pacific Avenue, Suite 3100
Dallas, Texas 75201
Attention: Robert W. Schleizer
With copies to: Creel & Atwood, P.C.
1525 Elm Street, Suite 3100
Dallas, Texas 75201
Attention: L.E. Creel, III
or other such addresses as shall be furnished in writing by any party in the
manner for giving notices hereunder, and any such notice or communication shall
be deemed to have been given as of the date so deliver, mailed, or telegraphed.
Stock Exchange Agreement - Page 22
<PAGE>
Section 7.04 ATTORNEYS' FEES. In the event that any party institutes any
action or suit to enforce this Agreement or to secure relief from any default
hereunder or breach hereof, the breaching party or parties shall reimburse the
non-breaching party or parties for all costs, including reasonable attorneys'
fees, incurred in connection therewith and in enforcing or collecting any
judgment rendered therein.
Section 7.05 CONFIDENTIALITY. Each party hereto agrees with the other
parties that, unless and until the merger contemplated by this Agreement has
been consummated, they and their representatives will hold in strict confidence
all data and information obtained with respect to another party or any
subsidiary thereof from any representative, officer, director, or employee, or
from any books or records from personal inspection, of such other party, and
shall not use such data or information or disclose the same to others, except
(i) to the extent such data or information is published, is a matter of public
knowledge, or is required by law to be published; and (ii) to the extent that
such data or information must be used or disclosed in order to consummate the
transactions contemplated by this Agreement.
Section 7.06 SCHEDULES: KNOWLEDGE. Each party is presumed to have full
knowledge of all information set forth in the other party's schedules delivered
pursuant to this Agreement. Whenever any negative representation is made to the
"knowledge" of any party, it shall be deemed to be a representation that no
officer or director of such party, after reasonable investigation, has any
knowledge of such matters.
Section 7.07 THIRD PARTY BENEFICIARIES. This contract is solely between
Pathfinder, ZTY and Pegasus and, except as specifically provided, no director,
officer, stockholder, employee, agent, independent contractor, or any other
person or entity shall be deemed to be a third party beneficiary of this
Agreement.
Section 7.08 Entire Agreement. This Agreement represents the entire
agreement between the parties relating to the subject matter hereof. This
Agreement alone fully and completely expresses the agreement of the parties
relating to the subject matter hereof. There are no other courses of dealing,
understandings, agreements, representations, or warranties, written or oral,
except as set forth herein. This Agreement may not be amended or modified,
except by a written agreement signed by all parties hereto.
Section 7.09 SURVIVAL: TERMINATION. The representations, warranties, and
covenants of the respective parties shall survive the Closing Date of the merger
and the consummation of the transactions herein contemplated.
Section 7.10 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which taken
together shall be but a single instrument.
Stock Exchange Agreement - Page 23
<PAGE>
Section 7.11 AMENDMENT OR WAIVER. Every right and remedy provided herein
shall be cumulative with every other right and remedy, whether conferred herein,
at law, or in equity, and may be enforced concurrently herewith, and no waiver
by any party of the performance of any obligation by the other shall be
construed as a waiver of the same or any other default then, theretofore, or
thereafter occurring or existing. At any time prior to the Closing Date, this
Agreement may be amended by a writing signed by all parties hereto, with respect
to any of the terms contained herein, and any term or condition of this
Agreement may be waived or the time for performance hereof may be extended by a
writing signed by the party or parties for whose benefit the provision is
intended.
This Agreement is subject to approval by the shareholders in accordance
with the Company's Articles of Incorporation and by its bylaws and in accordance
with the laws of the State of Nevada.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed personally or by their respective officers, hereunto duly authorized,
as of the date first above written.
PATHFINDER CORPORATION
ATTEST:
/s/ Allen C. Stout By /s/ James M. Richards
- ------------------- ----------------------
Secretary or Assistant Secretary President
PEGASUS VENTURES, INC.
ATTEST:
/s/ John R. Boudreau By /s/ Robert W. Schleizer
- -------------------- -----------------------
Secretary or Assistant Secretary Robert W. Schleizer, President
ZEARL T. YOUNG, INCORPORATED
ATTEST:
By /s/ Robert W. Schleizer
- --------------------- ---------------------
Secretary or Assistant Secretary Robert W. Schleizer, President
Stock Exchange Agreement - Page 24
<PAGE>
RESCISSION AGREEMENT
This Rescission Agreement ("Agreement") is dated as of the ___ day of
March 1995, by and among Pathfinder Corporation, a Nevada corporation
("Pathfinder"), Pegasus Ventures, Inc., a Texas corporation ("Pegasus") and
Zearl T. Young, a New Mexico corporation ("ZTY").
WHEREAS, Pathfinder, Pegasus and ZTY have entered into a certain Stock
Exchange Agreement, dated as of February 28, 1995 (the "Exchange Agreement";
capitalized terms used herein and otherwise undefined shall have the meanings
given to such terms in the Exchange Agreement); and
WHERAS, Pathfinder, Pegasus and ZTY mutually desire to provide for the
rescission of the Exchange Agreement in the event that certain circumstances
occur as set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, Pathfinder, Pegasus and ZTY hereby agree as
follows:
1. In the event that Pegasus reasonably determines that (i) Pathfinder
did not have the full power and authority to enter into the Exchange Agreement,
(ii) the execution and delivery of the Exchange Agreement by Pathfinder and the
consummation of the transactions contemplated therein were not duly authorized
by all necessary corporate action on the part of Pathfinder or (iii) the
Exchange Agreement is otherwise unlawful or unenforceable, the Exchange
Agreement and the transactions contemplated thereby shall be rescinded and shall
be of no further force or effect. In the event of such rescission, Pathfinder
shall transfer the ZTY Control Shares, free of any liens or encumbrances, to
Pegasus and Pegasus shall transfer the Pathfinder Stock, free of any liens or
encumbrances, to Pathfinder.
2. This Agreement shall be governed by and construed in accordance with
the laws of the State of Texas.
3. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first written above.
PATHFINDER CORPORATION
By: /s/ James M. Richards
-------------------------
James M. Richards, President
<PAGE>
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