<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Act of 1934,
as amended
Filed by the Registrant [X]
Filed by other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec 240.14a-11(c) or Sec. 240.14a-12
UNICO, INC.
(Name of Registrant)
- ------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box)
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
2. Aggregate number of securities to which transaction applies:
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount
on which the filing fee is calculated and state how it was
determined):
4. Proposed maximum aggregate value of transaction:
5. Total fee paid:
[ ] Fee Paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
2. Form, Schedule or Registration Statement No.:
3. Filing Party:
4. Date Filed:
1
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UNICO, INC.
SCHEDULE 14A
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Statement as to expected date distribution of proxy
materials to shareholders 4
Preliminary Notice of Annual Meeting of Shareholders 5
Preliminary Proxy Statement 7
Voting Securities 8
Security Ownership of Principal Shareholders 8
Security Ownership of Management 10
Historical Background of the Company 11
Material Aspects of the Novation Agreement 13
Changes In Control 14
Description of Business 14
Description of Property 18
Legal Proceedings 19
Unico's Securities 19
Annual Audited Financial Statements 20
Interim Unaudited Financial Statements - December 31, 1998 37
Management Discussion and Analysis or Plan of Operation - Unico 50
Changes in and Disagreement with Accountants on Accounting
and Financial Disclosure 58
Item for Vote - Election of Directors 59
Executive Officers 61
Certain Relationships and Related Transactions 63
Section 16 Compliance 64
Item for Vote - Approval and Selection of Independent Accountants 64
Ratification and Approval of Stock Option and Incentive Plans 64
Item for Vote - Approval of the Incentive Equity Plan 64
Prior History of Employee Stock Option Plans 65
Purpose of Incentive Equity Plan 65
Description of Incentive Plan 65
2
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UNICO, INC.
SCHEDULE 14A
TABLE OF CONTENTS (CONT'D)
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Item for Vote - Approval of Stock Option Plan for Non-Employee Directors 72
Prior History of Directors' Stock Options 72
Description of the Directors' Plan 72
Item for Vote - Approval of a Change in Company Name 75
Item for Vote - Authorization to Adopt, Amend and Restate Articles
of Incorporation 75
Item for Vote - Authorization to Acquire the Shares of Multiwave 76
About Multiwave 76
The Acquisition 77
Management Discussion and Analysis - Multiwave 80
About Unico (Description of Business) 87
Unico Selected Financial Data 88
Unaudited Pro Forma Selected Financial Data 89
Comparative Per Share Data 90
Federal and State Regulatory Requirements and Approvals 91
Valuation of the Company's Restricted Common Stock 91
Pro Forma Financial Information (Unaudited) 92
Past Material Relationships Between the Company and Multiwave 96
Company's Share Prices Prior to Ltr. of Intent and Definitive Agmt.96
Shareholder Proposals for Next Annual Meeting 97
Item for Vote - Other Business 97
Preliminary Form of Proxy 99
Appendices
A. Statement as to expected date of registration of shares to be issued in 101
Conjunction with the Stock Option Plan and the Incentive Equity Plan
B. Incentive Equity Plan 102
C. Stock Option Plan for Non-Employee Directors 123
D. Financial Statements of Unico, Inc. 136
E. Restated Articles of Incorporation of the Company 146
F. Audited Financial Statements of Multiwave Innovation Pte. Ltd. 152
G. Report by Cronkite and Kissell, Inc. on Valuation of Restricted Stock 175
H. Stock Purchase Agreement for the Acquisition of Multiwave Shares 181
I. Audited Financial Statements of Old Unico (February 28, 1998) 205
</TABLE>
3
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UNICO, INC.
STATEMENT AS TO EXPECTED DATE
OF
PROVIDING DEFINITIVE PROXY MATERIALS
TO SHAREHOLDERS
In conjunction with the solicitation of proxies by the Registrant for
the Annual Meeting of shareholders to be held on May 3, 1999, it is
anticipated that definitive proxy statements, along with all other materials
to be provided with the proxy statements, will be mailed to shareholders on
April 19, 1999.
Unico, Inc.
By: Henry Tang, Secretary
4
<PAGE>
PRELIMINARY DRAFT
UNICO, INC.
2925 Bayview Drive
Fremont, California 94538
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 3, 1999
To the Shareholders of
Unico, Inc.:
The Annual Meeting of Shareholders of Unico, Inc. will be held at the
Company's corporate offices at 2925 Bayview Drive, Fremont, CA on Friday,
May 3, 1999 at 10:00 A.M. PST for the purpose of considering and acting
upon the following matters:
(1) To elect a Board of 5 directors; and
(2) To authorize the Company and to ratify its actions in
implementing a stock option plan for non-employee directors;
and
(3) To authorize the Company and to ratify its actions in
implementing an incentive equity plan for the benefit of
executives and other employees; and
(4) To ratify the appointment of the accounting firm of Weinbaum
& Yalamanchi as the Company's independent auditors; and
(5) To authorize the Company to change its name to Paradise
Innovations Technology Corporation; and
(6) To authorize and approve the recommendation of the Board of
Directors that the Company adopt, amend and restate its
Articles of Incorporation; and
(7) To authorize the Company and to ratify its actions, with
respect to closing and consummating the purchase of the
stock of Multiwave Innovation Pte. Ltd., a Singapore
corporation; and
(8) To transact such other business as may properly come before
the meeting or any adjournment of the meeting.
5
<PAGE>
The Board of Directors has fixed April 19, 1999 as the Record Date
for the Annual Meeting, and only shareholders of record at the close of
business on that date are entitled to notice of and to vote at the Annual
meeting or any adjournment or postponement thereof.
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING
IN PERSON. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO
COMPLETE, SIGN, AND DATE THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED SELF ADDRESSED, POSTAGE PAID ENVELOPE WHICH REQUIRES NO POSTAGE IF
MAILED WITHIN THE UNITED STATES. YOUR PROXY WILL NOT BE USED IF YOU ARE
PRESENT AT THE ANNUAL MEETING AND DESIRE TO VOTE YOUR SHARES PERSONALLY.
BY ORDER OF
THE BOARD OF DIRECTORS
Henry Tang
Secretary
April 19, 1999
Fremont, California
Unico, Inc.
6
<PAGE>
PRELIMINARY DRAFT
UNICO, INC.
2925 Bayview Drive
Fremont, California 94538
ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 3, 1999
PROXY STATEMENT
This Proxy Statement and accompanying Proxy are being furnished in
connection with the solicitation by the Board of Directors of Unico, Inc.
("Unico" or the "Company") of proxies to be voted at the Annual Meeting of
Shareholders of the Company to be held on May 3, 1999 at 10:00 A.M. PST at
the Company's corporate offices located at 2925 Bayview Drive, Fremont, CA,
and at any adjournment or postponement thereof (the "Annual Meeting"), for
purposes set forth in the Proxy Statement and the accompanying Notice of
Annual Meeting. This Proxy Statement and accompanying Proxy are being mailed
to the shareholders of the Company on or about April 19, 1999.
SHAREHOLDERS ARE URGED, WHETHER OR NOT THEY EXPECT TO ATTEND THE
ANNUAL MEETING, TO COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY IN
THE ENCLOSED ENVELOPE.
Your executed proxy may be revoked at any time before it is exercised
by filing with the Secretary of the Company, at the Company's principal
executive office, a written notice of revocation or a duly executed Proxy
bearing a later date. The execution of the enclosed Proxy will not affect your
right to vote in person, should you find it convenient to attend the Annual
Meeting and desire to vote in person. Attendance at the Annual Meeting will
not in and of itself constitute the revocation of a Proxy. Abstentions are
included in the determination of the number of shares present at the meeting
for quorum purposes. An abstention will have the same effect as a negative
vote.
Broker non-votes are included in the determination of the number of
shares present at the Meeting for quorum purposes. Broker non-votes are not
counted in the tabulations of the votes cast on proposals presented to
shareholders because shares held by a broker are not considered to be
entitled to vote on matters as to which broker authority is withheld. A
broker non-vote occurs when a nominee holding shares for a beneficial owner
does not vote on a particular proposal because the nominee does not have
discretionary voting power with respect to that item and has not received
instructions from the beneficial owner.
The principal executive office of the Company is located at 2925
Bayview Drive, Fremont, California 94538.
The purpose of the Annual Meeting is to elect 5 directors to serve
one-year terms until the next Annual Meeting and until their respective
successors shall be elected and qualified. Unless otherwise directed in the
accompanying Proxy, the proxyholders will vote FOR the election of the 5
management nominees listed under "Election of Directors." The shareholders are
also requested to vote on the proposal presented by the Company to approve and
ratify the selection of Independent Auditors. The shareholders are also
7
<PAGE>
requested to vote on the proposal presented by the Company to implement a
stock option plan for the benefit of non-employee directors and an incentive
equity plan for the benefit of executive officers and other employees. In
addition, the shareholders are also requested to vote on a proposal by the
Company to change the name of the Company to "Paradise Innovations Technology
Corporation". In addition, the shareholders are also requested to vote on the
recommendation by the Company to adopt and restate its Articles of
Incorporation. In addition, the shareholders are also requested to authorize
the Company to close and consummate the transaction with Multiwave Innovation
Pte. Ltd. As to any other such business which may properly come before the
Annual Meeting, the proxyholders will vote in accordance with their best
judgment. Management of the Company does not presently know of any other such
business.
The Company intends to solicit proxies principally by the use of the
mails and will bear all expenses in connection with such solicitations. In
addition, some of the directors, officers and regular employees of the Company
may, without extra compensation, solicit proxies by telephone, facsimile and
personal interview. Arrangements have been made with banks, brokerage houses
and other custodians and nominees to forward copies of the Proxy Statement to
persons for whom they hold stock of the Company and to request authority for
the execution of proxies. The Company will reimburse the foregoing persons for
their reasonable expenses, upon request.
VOTING SECURITIES
On April 19, 1999, the Record Date for the determination of
shareholders entitled to notice of and to vote at the Annual Meeting of
shareholders, 7,229,428 shares of the Company's common stock ("common stock")
were issued and outstanding. Shareholders of common stock are entitled to one
vote per share on all matters to be considered at the meeting including one
vote for each Director to be elected. Cumulative voting is not permitted. On
the Record Date, 5,474 shares of the Company's convertible preferred stock
("preferred stock") were outstanding. Shareholders of preferred stock are
entitled to one vote per share on all matters to be considered at the meeting
including one vote for each Director to be elected. Cumulative voting is not
permitted.
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS
The following table sets forth the specified information, as of
March 15, 1999, with respect to persons or groups of beneficially owning
more than 5% of the common stock, to the extent it is known to the Company,
either from Securities Exchange Act filings, Company records or information
supplied by the persons named in the table.
8
<PAGE>
<TABLE>
<CAPTION>
Name and Address Of Amount and Nature of Percent of Class
Beneficial Owner Beneficial Ownership (1)
- -------------------------- --------------------------- -----------------
<S> <C> <C>
William N. Hagler 560,397 shares common 9.14%
603 Merino Kraal 111,125 warrants
Farmington, NM 87401 of record and beneficially(2)
John Hwang 697,500 shares common 9.80%
2925 Bayview Drive 710 shares preferred 12.97%
Fremont, CA 94538 60,000 options
of record and beneficially(3)
Kelvin Li 697,500 shares common 9.65%
1803 Napa Court 710 shares preferred 12.97%
Fremont, CA 94539 of record and beneficially(4)
Maurer Trust & Carol Maurer 1,065,240 shares common 14.74%
264 S. La Cienega Blvd. 1,120 shares preferred 20.46%
Beverly Hills, CA 90221 of record and beneficially(5)
Starlicon Group, Inc. 560,000 shares common 7.06%
1601 N. Sepulveda Blvd. 1,000 shares preferred 18.27%
Suite 243 of record and beneficially(6)
Manhattan Beach, CA 90266
Ike Suri 1,245,119 shares common 17.22%
2925 Bayview Drive 710 shares preferred 12.97%
Fremont, CA 94538 of record and beneficially(7)
</TABLE>
(1) Percentage of ownership based on voting rights associated with
7,229,428 (excluding 3,699 shares held by the Company for resale)
common shares and 5,474 Series A Preferred shares issued and
outstanding.
(2) Mr. Hagler's holdings include warrants to purchase 111,125 shares of
common stock at an exercise price of $1.40 per share of which, 11,125
are exercisable at any time before December 31, 1999 and 100,000 are
exercisable at any time before December 31, 2006. The warrants are
assumed to have been exercised for calculation of the ownership
percentage shown in this table. The Company is negotiating with Mr.
Hagler for termination of 100,000 of the warrants.
(3) Includes 97,500 common shares and 130 preferred shares that may
be distributed to Mr. Hwang as a shareholder of Starlicon Group, Inc.
from its holdings of the Company's securities (6). On January 27,
1999, Mr. Hwang was granted options to purchase 60,000 shares over
4 years under an equity incentive program adopted by the Board of
Directors pending approval by shareholders. 12,000 shares are
included in the calculation of percent of class as they were vested
upon grant.
9
<PAGE>
(4) Includes 97,500 common shares and 130 preferred shares that may
be distributed to Mr. Li as a shareholder of Starlicon Group, Inc.
from its holdings of the Company's securities (6).
(5) Holdings attributed to the Maurer Trust and Ms. Carol Maurer include
315,240 common shares and 340 Series A Preferred shares issued to Ms.
Maurer directly and 600,000 common shares and 580 Series A Preferred
shares issued to the Maurer Trust, of which Ms. Maurer is the
trustee. Includes a combined total of up to 150,000 common shares and
200 preferred shares that may be distributed to Ms. Maurer and the
Maurer Trust as shareholders of Starlicon Group, Inc. from its
holdings of the Company's securities (6).
(6) Starlicon Group, Inc. (SGI) currently holds 560,000 shares of common
stock and 1,000 shares of Series A preferred which are voted at the
discretion of Mr. Ike Suri (7), its sole director. SGI, may, at some
future date, elect to distribute to its shareholders (in accordance
with their respective holdings of SGI) some or all of the shares of
the Company's securities (3)(4)(5)(7).
(7) Holdings attributed to Mr. Suri consist of shares issued to two
companies of which Mr. Suri is the owner or holds a controlling
interest. Shares issued include 600,000 common shares and 580 Series
A Preferred shares issued to Corinthian Partners, and 547,619 common
shares issued to Azemuth, Inc. Both companies list the same address
as that shown for Mr. Suri. Includes 97,500 common shares and
130 preferred shares that may be distributed to Corinthian Partners
as shareholders of Starlicon Group, Inc. from its holdings of the
Company's securities (6).
SECURITY OWNERSHIP OF MANAGEMENT
The following table lists the beneficial ownership, as of March 15,
1999, of the Company's securities with respect to all directors and officers.
<TABLE>
<CAPTION>
Name and Address Of Beneficial Amount and Nature of Percent of Class
Owner Beneficial Ownership (1)
- ------------------------------ --------------------------- ----------------
<S> <C> <C>
Ike Suri, Chairman and CEO 1,245,829 shares common 17.22%
2925 Bayview Drive 710 shares preferred
Fremont, CA 94538 of record and beneficially (4)
John Hwang, President 697,500 shares common 9.80%
2925 Bayview Drive 710 shares preferred
Fremont, CA 94538 of record and beneficially (3)
William N. Hagler, Pres. IRC 560,397 shares common 9.14%
603 Merino Kraal 111,125 warrants
Farmington, NM 87401 of record and beneficially (2)
All directors and officers as 2,509,920 shares common 37.88%
a group, including the persons 1,420 shares preferred
named above (5 Persons) 161,125 warrants, 76,157 options
of record and beneficially
</TABLE>
10
<PAGE>
(1) Percentage of ownership based on voting rights associated with
7,229,428 (excluding 3,699 shares held by the Company for resale)
common shares and 5,474 Series A Preferred shares issued and
outstanding.
(2) Mr. Hagler was President and a director of Unico until June 1998. Mr.
Hagler holds warrants to purchase 111,125 shares of common stock at
an exercise price of $1.40 per share of which, 11,125 are exercisable
at any time before December 31, 1999 and 100,000 are exercisable at
any time before December 1, 2006. The warrants are assumed to be
exercised for purposes of the ownership percentage shown in this
table. The Company is negotiating with Mr. Hagler for termination of
100,000 of the warrants.
(3) Includes 97,500 common shares and 130 preferred shares that may
be distributed to Mr. Hwang as a shareholder of Starlicon Group, Inc.
from its holdings of the Company's securities (5).
(4) Includes 97,500 common shares and 130 preferred shares that may be
distributed to Mr. Suri as a shareholder of Starlicon Group, Inc.
from its holdings of the Company's securities (5).
(5) Starlicon Group, Inc. ("SGI") presently holds 750,000 common shares
and 1,000 Series A Preferred shares, representing 10.24% of the
outstanding voting shares of Unico. SGI, may, in the future,
distribute to its shareholders (in accordance with their respective
holdings of SGI) all or a portion of the shares of the Company's
securities. Except for Mr. Hwang (3), no present officer or director
of Unico would receive any future distribution of shares held by SGI.
HISTORICAL BACKGROUND OF THE COMPANY
The Company has two wholly owned subsidiaries: Paradise Innovations,
Inc. (Paradise), formerly known as Starlicon International Corporation
(Starlicon), its technology operating arm as well as its core focus, and
Intermountain Refining Co., Inc. (IRC), which holds its energy related assets.
Since October 31, 1998, Multiwave Innovation Pte. Ltd. (Multiwave)
has been operating as Paradise Innovations (Asia), Pte. Ltd. Once the
Company's shareholders approve of and the its acquisition closes, Multiwave
will be a third wholly owned subsidiary of the Company.
Starlicon was incorporated under the laws of the State of California
on October 3, 1996 and began operations as a business primarily involved in
the marketing and distribution of computer peripherals, such as video graphic
cards, CPU and memory chips, and modems. As a first step to implement its
long-term strategy of bringing innovative products quickly to market,
Starlicon signed many distribution agreements with major distributors such as
Ingram Micro, D&H, Almo Distributing, Tech Data, and SED. Some of these
agreements are for worldwide distribution of its products. These agreements
provided Starlicon with the ability to distribute its products quickly in the
large distribution channels of the computer industry. These agreements
assisted in building Starlicon sales. For its first nine months of business
ended June 30, 1997, Starlicon achieved sales of $15 million and net income of
$4,000.
11
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Dated as of July 31, 1997, Starlicon purchased certain assets from
Relialogic Technology Corporation (RTC), a subsidiary of Osicom Technologies,
Inc. (Osicom). The purchased assets are as follows:
(Dollars in thousands)
Cash $ 42
Inventory 351
Prepaid expenses 19
Hwang note 109
Other assets 58
Property and equipment 43
Trademark 130
-------
752
Less: Accounts payable (452)
Deferred revenues (145)
-------
$ 155
=======
In November 1997, Starlicon initiated the reverse acquisition of
Unico, a company in the energy industry with three employees and no operating
revenues. As a first step towards the acquisition, Starlicon became a wholly-
owned subsidiary of Starlicon Group International (SGI), a company
incorporated under the laws of the State of Nevada.
As of June 30, 1998, Unico, Inc. (Unico), a publicly traded company
incorporated under the laws of the State of New Mexico, acquired Starlicon by
issuing 5,476,200 shares of its common stock and 5,474 shares of its Series A
preferred stock to SGI and its shareholders. As a result of this acquisition,
Starlicon became a wholly-owned subsidiary of the Company and the shareholders
of SGI collectively became the majority shareholders of the Company.
The assets of Old Unico (Unico prior to the formal June 30, 1998
acquisition), were transferred to IRC as a contribution to capital and as
settlement of debts. The Board of Directors and the executive management of
Old Unico resigned. Messrs. William Hagler and Rick Hurt, former CEO and
Controller, respectively, and Directors of Old Unico, formed IRC's Board and
executive management. These actions were taken to fulfill the contractual
terms of the Novation Agreement (see Material Aspects of the Novation
Agreement, below).
On July 1, 1998, Mr. John Hwang, a significant shareholder of the
Company, joined its management as President and Director. He was previously
an officer of RTC.
On August 4, 1998, Starlicon changed its name to Paradise
Innovations, Inc. in order to achieve more immediate association with its
products and brand. Historically, Paradise was the name of a company which
was a leading manufacturer of video graphic cards in the mid 1980s. It was
sold to Western Digital. After investing in the advertising and promotion of
the name, Western Digital sold certain assets, including the Paradise
trademarked name to Philips Semiconductor, the Dutch company, which continued
to invest and promote the name on a global basis. At present, the brand is
trademarked in the U.S., Canada, France, Germany, Belgium, Netherlands,
Luxembourg, Italy, Ireland, Sweden, the United Kingdom, Australia, New
Zealand, Hong Kong, Mexico and Paraguay.
12
<PAGE>
On October 26th, 1998, the Company signed a definitive stock purchase
agreement to acquire all issued and outstanding shares of Multiwave, an
engineering and R&D firm based in Singapore, from NatSteel Electronics, Ltd.
(NatSteel), Uraco Holdings, Ltd. (Uraco), and other minority individual
shareholders. Both NatSeel and Uraco are publicly traded on the Singapore
Stock Exchange. NatSteel is a worldwide custom manufacturer of computers and
peripherals, with customers such as Apple, IBM and Hewlett-Packard. Uraco is
a precision manufacturer. Since October 31, 1998, Multiwave has been
operating as Paradise Innovations (Asia), Pte. Ltd. and upon shareholder
approval and closing, will be a wholly owned subsidiary of the Company. This
transaction is more fully disclosed elsewhere herein.
On February 1, 1999, Mr. Ike Suri, a significant shareholder of the
Company, joined its management as Chairman of the Board and Chief Executive
Officer. He is also an officer and Director of SGI.
The Company intends to change its name to Paradise Innovations
Technology Corporation and to spin-off IRC in order to sharpen its focus on
its technology business, in accordance with the Novation Agreement. Both
measures will provide customers, shareholders and investors with easier
identification of the company and association with its business. Both
measures are more fully disclosed elsewhere herein.
At present, the Company is not affiliated with any other company
other than its subsidiaries. It has no affiliation with RTC nor Osicom. SGI
is a significant shareholder of The Company. No other affiliation with other
companies exists, with the exception of ordinary trade, business, and board
membership relationships.
MATERIAL ASPECTS OF THE NOVATION AGREEMENT
Old Unico, Paradise (then known as Starlicon International
Corporation), and Starlicon Group, Inc. (SGI, then the parent company of
Paradise) entered into a stock purchase agreement on November 30, 1997 where
Old Unico would issue shares of its common and preferred stock to the
shareholders of Paradise in exchange for all outstanding shares of Paradise.
On June 26, 1998, the stock purchase agreement was modified by a Novation
Agreement. References to the Novation Agreement or to the Agreement in this
document will refer collectively to the stock purchase agreement as modified
by the Novation Agreement.
Under the Novation Agreement, the assets of Old Unico were
transferred to Intermountain Refining Company (IRC) as contribution to capital
and settlement of intercompany debts. As a result, the Company has two
subsidiaries, Paradise and IRC (prior to the Multiwave acquisition, which adds
a third). The Novation Agreement required that members of Old Unico's board
resign in favor of new Directors appointed by the new shareholders.
The Novation Agreement required that shareholders who gained shares
as a result of the acquisition provide proxies to IRC's attorney in order to
vote in favor of a spin-off of IRC. These proxies became revocable on April
1, 1999. It also required that proxies to vote the shares of IRC held by the
Company be granted IRC's attorney.
While the Stock Purchase Agreement was signed with the intention of
forming a diversified company under unified management, the Novation Agreement
was signed recognizing that the industry orientations of Old Unico (energy)
13
<PAGE>
and New Unico (technology) were sufficiently different without benefits of a
strategic fit. The Novation Agreement was signed with the intent of spinning-
off the Old Unico assets permitting the Company to focus on its operating
business in the high technology industry.
At present, IRC and the Company are negotiating a second amendment to
the Novation Agreement in order to more clearly identify conditions and
responsibilities in the spin-off of IRC.
CHANGES IN CONTROL
Effective as of June 30, 1998 in accordance with the Stock Purchase
Agreement dated November 30, 1997 and as amended by the Novation Agreement
dated June 26, 1998, Unico acquired all of the outstanding stock of Paradise,
from SGI which resulted in a change in control of Unico. In connection with
the Acquisition, the Company issued 5,476,200 shares of common stock and 5,474
shares of Series A convertible preferred shares to SGI. SGI subsequently
distributed 4,726,200 of the common shares, and 4,474 of the preferred shares,
to its shareholders. Under the Novation Agreement, the directors and officers
of Unico at the time of that acquisition resigned upon the appointment of new
directors and officers as designated by SGI.
The operating assets and investments held by Unico prior to the
acquisition of Paradise were transferred to Intermountain Refining Co., Inc.
("IRC"), a wholly owned subsidiary of Unico. Pursuant to the Novation
Agreement, the management and control of all assets and operations now held by
IRC is at the sole discretion of William N. Hagler, the President of IRC and a
significant shareholder of Unico.
DESCRIPTION OF BUSINESS
Profile
Unico, Inc. has its principal executive offices at 2925 Bayview
Drive, Fremont, California 94538. Its telephone number is 510/580-2606.
On June 30, 1998, the Company completed the acquisition of all
outstanding shares of Paradise Innovations, Inc. (formerly known as
Starlicon International corporation) by issuing 5,476,200 new shares of
common stock and 5,474 new shares of convertible preferred stock. The Company
believes it is exempt for issuing this restricted stock in connection with the
acquisition under Section 4(2) of the Securities Act of 1933.
The Company accounted for this acquisition as a reverse acquisition.
The new shares are owned by Paradise Innovations, Inc.'s (Paradise) former
shareholders. The terms "Old Unico" will be used to refer to Unico, Inc.
prior to the June 30, 1998 acquisition.
Starlicon International Corporation (Starlicon) was incorporated
under the laws of the State of California and started doing business on
October 3, 1996. Starlicon was conceived as a first step towards building a
technology company that would grow internally and through acquisition. On
July 31, 1997, Starlicon acquired certain assets, including the Paradise
trademark, owned by the Relialogic Technologies Corporation, a subsidiary of
Osicom Technologies, Inc. On August 4, 1998, Starlicon changed its name to
Paradise Innovations, Inc. in order to obtain better brand recognition and to
14
<PAGE>
facilitate future product and company acquisitions. Throughout this document,
the Company's Starlicon subsidiary will be referred to as Paradise.
On November 30, 1998, Old Unico entered into a Stock Purchase
Agreement with Starlicon Group, Inc. (SGI) to acquire 100% of the outstanding
stock of privately-held Paradise. The acquisition was ultimately completed
pursuant to a Novation Agreement (see Form 8-K filed on July 14, 1998). Under
the terms of the Novation Agreement, the Company issued 5,476,200 shares of
$0.20 par value restricted Common Stock and 5,474 shares of Series A
Convertible Preferred Stock to the shareholders of SGI in exchange for 100% of
the outstanding stock of Paradise. Material aspects of the Novation Agreement
are disclosed below, under the section Material Aspects of the Novation
Agreement.
As part of the Novation Agreement, all of Old Unico's assets not
owned by Intermountain Refining Co., Inc. (IRC) were transferred to IRC in
satisfaction of certain inter-company obligations and as a contribution to
IRC's capital. IRC is operated and managed at the sole discretion of IRC's
management with a nominee holding Old Unico's proxy to vote IRC's shares.
Under the Stock Purchase Agreement, as modified by the Novation
Agreement, the acquisition closed on June 26, 1998. There was a change in
control as described in the section Change in Control, above.
As a result of the acquisition, the Company has two operating
entities in unrelated industries, Paradise and IRC. IRC was incorporated as a
New Mexico corporation in July 1985. It conducts three categories of
business: petroleum product refining and processing, electrical energy
production and natural gas production.
Through its wholly-owned subsidiary Paradise, the Company markets
modems, Internet set-top boxes and computer peripherals under the
Paradise trademarked brand name. The products marketed include Internet
communication products, multimedia products, video adapter cards and
communication products including modems. Paradise's customer base includes
private label computer manufacturers and major technology distributors, such
as Tech Data, Ingram Micro, D&H Distributing, Almo Distributing, Comark and
SED.
Paradise sources from suppliers in Asia and the U.S. for raw material
components and outsources manufacturing. The Company distributes the
manufactured products to value added resellers, original equipment
manufacturers (OEMs) and retailers. The Company sources a substantial amount
of its chip sets, which it uses to manufacture modems and other products, from
Lucent Technologies. Should any one supplier, including Lucent, be unable to
conduct business with the Company, it could source from other suppliers.
For the fiscal year ended June 30, 1998, the Company's largest
customers were:
------------------------------------------------------------------------
Customer Sales % of Sales
------------------------------------------------------------------------
Liuski $7,313 29.7%
Amax 2,402 9.8
SED 2,167 8.8
Lucky Electronics 1,688 6.9
------------------------------------------------------------------------
15
<PAGE>
The largest customers are distributors. As of June 30, 1998, the Company did
not have significant sales through the retail channel nor directly to original
equipment manufacturers (OEMs). It is currently building these channels.
As of June 30, 1998, the Company was moving away from the chip and
computer peripherals businesses, where competition is intense. In the chip
business, where products are bought and sold as in brokerage businesses, there
is no product differentiation and limited service differentiation.
Competition is essentially on price and availability. In the computer
peripherals business, there is product differentiation and brand awareness.
Competition is on product performance and brand recognition. Over the fiscal
year ended June 30, 1998, there has been significant erosion of margins due to
competition. Without the Paradise brand and without the ability to introduce
products with high technology content, the Company's competitive position was
that of one player among many.
The ability to use the Paradise brand and the acquisition of
Multiwave (see Authorization to Acquire the Shares of Multiwave, below) are
intended to improve the Company's competitive position. The Paradise brand
will permit the Company to price above other, less recognized brands. The
acquisition of Multiwave will provide the Company with the ability to design
proprietary technology products. The Company currently ceased to be in the
chip (CPU and memory) business and is moving to the Internet communications
products.
At the Fall 1998 COMDEX trade show of high technology products, held
in Las Vegas, Nevada, the Company announced the launch of its Internet set-top
box, the WEB EZ. This product is currently in market test phase, with the
Company signing up OEMs, Internet service providers and cable providers as
partners. Multiwave, a Singapore-based company that the Company is acquiring
(see Authorization to Acquire the Shares of Multiwave Innovation Pte. Ltd.,
below), was instrumental in the design and development of this product.
Paradise employs 21 people on a full-time basis. IRC employs 3
people on a full-time basis. Prior to the acquisition of Multiwave (see
Authorization to Acquire the Shares of Multiwave Innovation Pte. Ltd., below),
Paradise did not engage in research and development. Multiwave employs 59
people of which about two thirds are in engineering and R&D.
The Company, through its Paradise subsidiary, acquired the rights to
the Paradise brand. The trademarks for the brand are registered in several
countries in Europe and Asia with various expiration dates. The registrations
are renewable for differing periods. The Company is changing the registration
to its name. The Company has no other licenses, patents, franchises, etc.
The Company does not require government approval to conduct any
aspect of its business, with the exception of normal federal, state and city
regulation. It does not incur nor foresee incurring material costs to comply
with any environmental laws. The Company believes it is adequately covered by
insurance for its employees, assets (including inventory), cargo, etc.
The Company has reviewed the potential impact of Year 2000 issues and
believes that the cost to replace and or modify equipment, computer hardware,
and computer software will not be material and that Year 2000 issues will not
have a material impact on the Company's ability to operate into the next
century.
16
<PAGE>
Strategy
As of the year ended June 30, 1998, the Company shifted its focus to
its newly acquired hi-tech subsidiary, Paradise. Paradise then had two
primary business segments: marketing and sales of proprietary computer
components and peripherals, and chip distribution. It is currently moving
into the Internet communication product.
As of June 30, 1998, the Company was not designing its own products.
It sourced products designed and manufactured by other parties. The
acquisition of Multiwave provides the Company with the capabilities for
designing and engineering its own products. Third parties, primarily
subsidiaries of Uraco Holdings, a principal former shareholder of Multiwave,
manufacture the Company's products.
In the marketing and sales of proprietary computer components, the
Company is re-orienting its focus to new products such as Internet
communications products and consumer electronic products. This is part of on-
going efforts to create, identify and bring new products to market. As is
typical in distribution businesses, new products offer the highest margins and
returns on investor equity.
The Company is establishing worldwide distribution and partnerships
with global manufacturing companies, either through acquisitions or through
internal efforts, to bring exciting new products to market in the very short
time frames required by the hi-tech industry. The Company is contemplating
acquisitions that fit its strategy of identifying and creating products that
can be distributed in high volume around the world.
The Company's primary efforts in chip distribution are improving
operating margins. The Company is improving internal and external management
information. Improved internal management information systems (MIS) will
permit better pricing and inventory management of the chips, critical
capabilities in a market where prices fluctuate rapidly. External MIS
improvements will facilitate the sales process, using the Internet initially
for pricing and eventually for sales.
The Company considers acquisitions an integral component of its
growth strategy. Opportunities that fit the Company's strategy will be
considered for acquisition, acquisition or alliance.
Sales and Customer Support
To implement its strategy of increasing sales volume and rebuilding
the Paradise brand name, the Company is augmenting its sales force and its
customer support staff. The increase in sales force has the primary purpose
of better leveraging the Company's distribution network. Management is
confident that the increased sales force can use the distribution network to
rapidly increase sales. The sales force increased by five people, at a cost
of about $250,000 per year.
The Company is increasing its technical support staff and improving
its capabilities. It believes that quality technical support is a critical
component in re-building its Paradise brand image. The costs of increasing
technical support staff is about $60,000.
17
<PAGE>
The costs of increasing both the sales and technical support staffs
will be from operating funds, reducing profitability (or increasing losses) in
the short term. Part of the costs will be offset by shifting the areas of
focus; for example, shifting sales staff or their attention away from chips
and onto Internet communications products.
Year 2000
The Company has reviewed the potential impact of Year 2000 issues and
replaced and modified equipment, computer hardware, and computer software to
operate into the next century. The worst case scenario will be to lose the
ability to do business partially or entirely for a week or two while systems
are updated at the Company or at customers or suppliers. As the Company
believes it is already Year 2000 compliant, it has not developed contingency
plans. The Company has verbally inquired of its major suppliers and customers
whether they are or will be Year 2000 compliant and answers were affirmative.
DESCRIPTION OF PROPERTY
The Company's Fremont headquarters consists of leased warehouse and
office space. These are also the operating offices of Paradise. The lease
expires July 31, 2003 and has escalating provision for rental expenses.
Minimum rent payments due under the lease are $131,000 for year ending June
30, 1999, $146,000 for 2000, $150,000 for 2001, $154,000 for 2002, $159,000
for 2003, and $13,000 for 2004. Management deems the space to be adequate for
the Company's operations. Should it become necessary, it will seek additional
space for expansion.
On September 21, 1998, the Company leased a Lucent Definity telephone
system from Fidelity Leasing. Under the terms of this lease agreement, the
Company will pay $9,000 per year for three years for the installed system. At
the end of the lease term, the Company has a purchase option of one dollar.
The telephone system has the features and capacity to accommodate any growth
envisioned by the Company.
Paradise has no investments in securities or properties that are not
used in conducting its business. All properties used by IRC in the conduct of
its business are owned in fee. There are no outstanding mortgages on any of
the properties owned by IRC.
IRC owns an interest in and operates 19 producing natural gas wells
located in Southwestern Kansas. Developed proven reserves are estimated at
2,839 MMCF gross and 2,121 MMCF net to IRC's interest as of June 30, 1998. No
reserve estimates have been filed with any Federal authorities or agencies.
IRC owns a 7,000 square foot office building in Farmington, New
Mexico. Approximately 33 percent of the office building is utilized by IRC
for its corporate office, tenants are leasing another 55 percent, while the
rest is currently vacant and offered for lease to others.
IRC owns a petroleum refinery located on approximately 21 acres of
fee-owned land in Fredonia, Arizona. Facilities include: a 4,000 barrel per
day crude and vacuum distillation unit, a 3,000 kilowatt co-generation plant,
boilers, cooling towers, offices, shops, control and electrical buildings,
loading racks, storage tanks and associated ancillary facilities. In
addition, the plant contains a reforming unit which is not currently employed
in the refining operation.
18
<PAGE>
LEGAL PROCEEDINGS
Other than collection actions or other actions arising in the
ordinary course of the Company's business, no other material legal proceedings
to which the Company is a party or of which any of its property is subject are
pending or known to be contemplated, and the Company knows of no legal
proceedings pending or threatened, or judgment against any director or officer
of the Company in his or her capacity as such.
UNICO'S SECURITIES
- ------------------------------------------------------------------------
Calendar High Low
Quarter Ended Price Price
- ------------------------------------------------------------------------
Mar 97 2 1/2 1 3/4
Jun 97 2 15/16 1 3/4
Sep 97 2 1/8 1 1/2
Dec 97 1 1/2 1
Mar 98 3 1/4 1 7/32
Jun 98 3 1
Sep 98 3 1 1/4
Dec 98 2 3/16 0 1/2
- ------------------------------------------------------------------------
Sources: Nasdaq Online and America On Line
The Company's common stock is traded on the OTC Bulletin Board under
the symbol "UNRC". There are 7,229,428 shares of the Company's common stock
issued and outstanding, excluding 3,699 shares held in treasury. The Company
has authorized 50 million shares of common stock with a par value of $0.20.
The Company's present policy is to retain its earnings to finance
future growth. The Company has no intention to declare or pay cash dividends.
At March 3, 1999, the Company estimates that there were approximately 634
shareholders, 346 of record and the balance in street name. There were
approximately 374 round lot (100 or more shares) shareholders.
Prior to December 3, 1998, the Company's common stock was listed on
the Nasdaq SmallCap Market. The Company was advised by Nasdaq on September
30, 1998 that in the opinion of Nasdaq staff, based on the staff's review of
the Company's public filings, the Company did not fit the criteria for listing
of its common stock on the Nasdaq SmallCap Market. Upon further discussions
with Nasdaq staff, the Company decided to voluntarily remove its stock from
listing rather than pursue a hearing to which it was entitled. The Company
intends to apply for listing on a globally recognized U.S. based stock
exchange.
There are 5,474 shares of the Company's Series A preferred stock,
which has a par value of $0.01, issued and outstanding. The Company has
authorized 8 million shares of preferred stock, which provides non-
cumulative dividends, if such are declared by the Company's Board of
Directors. The Series A preferred stock has both dividend and liquidation
preference over the company's common stock. Each share of preferred is
convertible into 1,000 shares of common stock, in accordance to a schedule of
the Novation Agreement:
19
<PAGE>
January 1, 1999 - May 31, 1999 1,825 may be converted
June 1, 1999 - August 31, 1999 3,650 in total may be converted
After September 1, 1999 5,474 in total may be converted
As discussed above, in the section Material Aspects of the Novation
Agreement, the Company intends to spin-off IRC to shareholders of record on a
record date to be established. All shareholders, except those as a result of
the June 30, 1998 acquisition, would be entitled to benefits of the spin-off.
ANNUAL AUDITED FINANCIAL STATEMENTS
UNICO, INC.
FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1998
TABLE OF CONTENTS
Independent Accountants' Report 21
Balance Sheets 22-23
Statements of Operations 24
Statements of Stockholders' Equity 25
Statements of Cash Flows 26
Notes to Financial Statements 27-36
20
<PAGE>
Independent Accountants' Report
Weinbaum & Yalamanchi
The Stockholders
Unico, Inc.
We audited the accompanying balance sheets of Unico, Inc. (Unico) as of
June 30, 1997 and 1998 and the related statements of operations and
stockholders' equity and cash flows for the nine months and year then ended.
These financial statements are the responsibility of Unico's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance that the financial statements are free of
material misstatement. An audit also 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 our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present
fairly in all material respects, Unico's financial position as of June 30,
1997 and 1998 and the results of its operations and cash flows for the nine
months and year then ended in conformity with generally accepted accounting
principles.
/s/ Weinbaum & Yalamanchi
Weinbaum & Yalamanchi
Los Angeles, California
September 9, 1998 (Except for Note 11 for which the date is October 8, 1998.)
21
<PAGE>
UNICO, INC.
Balance Sheets
June 30, 1997 and 1998
ASSETS
(Dollars In Thousands)
1997 1998
Current Assets
Cash $ $ 30
Accounts receivable, less $30 and $84
allowances for doubtful accounts and
returns, allowances and discounts in 1998 721 1,034
Inventories (Note 12) 13 434
Prepaid expenses 9 4
------- --------
Total current assets 743 1,502
------- --------
Property and Equipment
Furniture and equipment 10 38
Leasehold improvements 9 25
------- --------
19 63
Accumulated depreciation 1 11
------- --------
18 52
------- --------
Trademark, less $24
accumulated amortization 106
Due from Luna 14
Due from Hwang 17
Hwang note (Note 6) 116
Old Unico Investment 3,163
------- --------
3,416
------- --------
$ 761 $ 4,970
======= ========
The accompanying notes are an integral
part of these financial statements.
22
<PAGE>
UNICO, INC.
Balance Sheets
June 30, 1997 and 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
(Dollars In Thousands)
1997 1998
Current Liabilities
Bank overdrafts $ 48 $ 211
Accounts payable 109 433
Deferred revenues (Note 5) 210
Due RTC (Note 5) 32
Due Yin (Note 13) 100
Accrued payroll 25
--------- --------
Total current liabilities 157 1,011
--------- --------
Commitments and contingencies
(Notes 5, 8, 10, 11 and 18)
Stockholders' Equity (Notes 6, 7, 9 and 10) 604 3,959
--------- -------
$ 761 $ 4,970
========= =======
The accompanying notes are an integral
part of these financial statements.
23
<PAGE>
UNICO, INC.
Statements of Operations
Nine Months Ended June 30, 1997 and Year Ended June 30, 1998
(Dollars In Thousands)
1997 1998
Net sales (Note 4) $ 15,058 $ 24,638
Cost of goods sold (Note 12) 14,844 24,229
--------- ----------
Gross profit 214 409
--------- ----------
Salaries and wages 128 498
Rent 17 50
Trademark amortization (Note 5) 24
Other expenses 67 381
--------- ----------
212 953
--------- ----------
Operating income (loss) 2 (544)
Interest income (Note 6) 2 8
--------- ----------
Net income (loss) (Note 16) $ 4 $ (536)
========= ==========
Basic earnings (loss) per share $ 0.0004 ($ 0.0489)
========= ==========
Average shares used in computation 10,950,200 10,950,200
The accompanying notes are an integral
part of these financial statements.
24
<PAGE>
UNICO. INC.
Statements of Stockholders' Equity (continued)
Nine Months Ended June 30, 1997 and Year Ended June 30, 1998
(Dollars In Thousands)
Total
Dollar Amounts New Old Add'l Opera- Stock-
-------------- Common Common Paid-In ting holders'
Par Par Capital Result Equity
--------------------------------------------------
Balance October 3, 1996 $ 0 $ 0 $ 0 $ 0 $ 0
Common stock issued 1,095 (495) 600
Net income 4 4
--------------------------------------------------
Balance June 30, 1997 1,095 0 (495) 4 604
--------------------------------------------------
SGI capital contribution 588 588
Luna payable contribution 100 100
Stockholder contribution 40 40
Net loss (536) (536)
--------------------------------------------------
Balance June 30, 1998 1,095 0 233 (532) 796
--------------------------------------------------
Old common outstanding 225 1,744 1,969
New common issued 110 848 958
Warrants issued 236 236
--------------------------------------------------
Balance June 30, 1998 $1,205 $225 $3,061 $(532) $3,959
==================================================
Share Amounts
------------- New Old
Common Common Preferred
--------------------------------------------------
Balance October 3, 1996 0 0 0
Stock Issued 5,476,200 5,474(1)
Old Common Outstanding 1,125,609
--------------------------------------------------
Balance June 30, 1997 5,476,200 1,125,609 5,474
Stock Issued 547,619 0 0
--------------------------------------------------
Balance June 30, 1998 6,023,819 1,125,609 5,474
==================================================
Unico has 8 million shares of $0.01 par value preferred stock authorized and
50 million shares of $0.20 par value common stock authorized. Old common
stock is net of 3,699 shares of Treasury stock.
(1) The impact on the Company's equity of the par value from the issuance of
the $0.01 preferred stock is not material.
The accompanying notes are an integral
part of these financial statements.
25
<PAGE>
UNICO, INC.
Statements of Cash Flows
Nine Months Ended June 30, 1997 and Year Ended June 30, 1998
(Dollars In Thousands)
1997 1998
Operating cash flows (Notes 5 and 9)
Net income (loss) $ 4 $ (536)
Depreciation and amortization 1 30
Receivables change (721) (313)
Inventory change (13) (70)
Prepaid expenses change (9) 66
Accounts payable change 109 (28)
Deferred revenues change 65
Accrued payroll change 25
---------- ----------
Cash used by operations (629) (761)
---------- ----------
Investing cash flows (Notes 5, 9 and 10)
Property acquisitions 19 1
Luna advance 14
Other assets 4
Paradise cash acquired (42)
---------- ----------
Cash used (provided) by investing activities 19 (23)
---------- ----------
Financing cash flows (Notes 5, 6, 7, 9 and 10)
Common stock issued 600 0
RTC receivables collected 588
Yin advance 100
Shareholders' capital contribution 40
Reduction in due RTC (123)
Bank overdrafts 48 163
---------- ----------
Cash provided by financing activities 648 768
---------- ----------
Change in cash Nil 30
Cash - beginning of period Nil Nil
---------- ----------
Cash - end of period $ Nil $ 30
========== ==========
The accompanying notes are an integral
part of these financial statements.
26
<PAGE>
UNICO, INC.
Notes To Financial Statements
June 30, 1997 and 1998
NOTE 1. Accounting Policies and Operations
Basis of Presentation - The financial statements include the assets and
liabilities of Paradise Innovations, Inc. (Paradise), a California
Corporation. Paradise was incorporated on October 3, 1996. These financial
statements also include Old Paradise's assets, liabilities and operations
(Note 5) from August 1, 1997. All dollar amounts are in thousands. Unico's
old operations, held by Intermountain Refining Corp. (IRC) are included in
the investment in Old Unico. The Company accounts for this
investment at cost as it cannot use IRC's assets for corporate purposes, has
no control over IRC's operations nor board of directors.
Business Description - Paradise markets computer memory chips, central
processing units and other basic computer components. The Company also
markets a proprietary line of computer peripherals under the Paradise brand
name. Some of the products marketed include PC video conferencing products,
video adapter cards, multimedia products and modems. Paradise's customer
base includes private label computer manufacturers and major technology
distributors, such as Tech Data, Ingram Micro, D&H, Almo, Comark and SED.
IRC, incorporated under the laws of the State of New Mexico in July 1985, is
wholly-owned by Unico. In conjunction with Unico's acquisition of Starlicon
during 1998, Unico transferred all of its operating resources to IRC. IRC is
managed by previous officers and directors of Unico. IRC's resources are
segmented into three categories of business: petroleum product refining and
processing, electrical energy production and natural gas production.
Additionally, until August 31, 1997, Intermountain Chemical, Inc., a now
dissolved subsidiary of Unico, managed and operated a methanol production
facility, owned by others, in Commerce City, Colorado. The facility was sold
as of September 1, 1997 and its associated operations were classified as
discontinued operations in the financial statements of Old Unico.
Refining - IRC's refinery is capable of processing low-cost, heavy crude oil
and other low gravity refined products into diesel fuel, fuel oils, and
asphalt that have traditionally been marketed on a wholesale basis in the
intermountain region. Approximately 6 years ago, IRC experienced a sharp
reduction in the availability of crude oil from it's traditional sources and
has not operated the refinery for several years. IRC is presently exploring
alternative sources of raw materials and is hopeful that a long term solution
to the supply shortage can be resolved. IRC periodically provides certain
asphalt terminalling services wherein IRC receives fees and reimbursement of
certain operating expenses directly related to the service provided.
Co-Generation - IRC's co-generation plant is capable of producing up to 3,000
kilowatts of electrical energy that has been sold to electric companies in
the local area. When in operation, the plant produces all electricity and a
portion of the steam used in the refining process thereby contributing some
savings in refinery operating costs. The generators are not presently in
operation but are available for use if needed for operation of the refinery
or if an electrical energy market is developed in the area.
27
<PAGE>
UNICO, INC.
Notes To Financial Statements (Continued)
June 30, 1997 and 1998
NOTE 1. Accounting Policies and Operations (continued)
Natural Gas Production - IRC owns an interest in and operates 19 natural gas
wells located in the Hugoton basin in Southwestern Kansas. Natural gas and
helium produced is sold, under exclusive contract, to K.N. Energy, of
Lakewood, Colorado.
Property and Equipment - Paradise's property and equipment are recorded at
cost. Depreciation and amortization are recorded by the straight-line method
over the related assets' estimated useful lives. Capitalized costs carrying
value is reviewed annually.
Accounts Receivable - Paradise records an allowance for doubtful accounts to
reduce receivables to net realizable value. Paradise does not require
collateral from its customers. Paradise's customers include wholesalers and
value added retailers. Paradise's four largest June 30, 1998 customer
receivables and July and August 1998 cash collections were:
Customer Balance Collections
July August
A $395 $395 $0
B 239 163 76
C 173 142 22
D 105 29 1
Revenue Recognition - Revenue is recognized when products are shipped.
Paradise records an allowance for returns, allowances and discounts when
sales are recorded.
Inventories - Inventories are valued at the lower of cost, first-in, first-
out method, or market.
Trademark - The trademark is amortized over five years by the straight-line
method. Its carrying value is reviewed annually.
Advertising - Paradise expenses advertising as incurred.
Accounting Estimates - Preparing financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
financial statement date and the reported amounts of revenue and expense
during the reported periods. Actual results could differ from those
estimates.
28
<PAGE>
UNICO, INC.
Notes To Financial Statements (Continued)
June 30, 1997 and 1998
NOTE 1. Accounting Policies and Operations (continued)
Fair Value of Financial Instruments - Accounts receivable, cash, accounts
payable and accrued expenses carrying value approximates fair value because
of the short-term maturity of those instruments. The Hwang note (Note 6) is
believed to be at fair value. Unico's investment in IRC is carried
at cost which may differ from market value.
Income Taxes - Paradise will file a consolidated tax return for 1998 with
Starlicon Group, Inc. (SGI), Paradise's holding company (Note 9). The 1998
tax disclosures were computed as if Paradise filed a separate company tax
return.
Cash - Cash includes short-term instruments with original maturities of 90
days or less.
Service Contracts - Service contracts are amortized by the straight-line
method over the related contract term.
Earnings per Share - Earnings (loss) per common share is computed as if Unico
had issued 5,476,200 of its 6,023,819 common shares issued to acquire Old
Unico on October 3, 1996 and they had been continuously outstanding. The
5,474 shares of Unico preferred were converted to 5,474,000 shares of Unico
common for purposes of this calculation and were also treated as if they had
been continuously outstanding from October 3, 1996. No operations of Old
Unico are included in the calculation as Old Unico is carried at cost.
NOTE 2. Relialogic Technology Inc.(RTC) Advance
On June 9, 1997 RTC advanced Paradise $50, which Paradise repaid on June 18.
NOTE 3. Supplemental Cash Flow Disclosures
Interest paid and received and taxes paid were not material for the periods.
The statement of cash flows excludes the effects of Unico's acquisition of
Old Paradise (Note 5) and Old Unico.
NOTE 4. Sales and Expenses
Sales and expenses included these amounts by period:
1997 1998
Sales to customer A $ 2,479 $ 7,313
Sales to customer B 1,262 2,402
Sales to customer C 1,258 1,688
Sales to customer D 1,196 2,167
Sales to Old Paradise 393
Purchases from Luna International, Inc. (Luna) 323
29
<PAGE>
UNICO, INC.
Notes To Financial Statements (Continued)
June 30, 1997 and 1998
NOTE 5. Old Paradise Acquisition
On July 31, 1997 Paradise purchased the business and certain assets
comprising the Paradise Multimedia operations of RTC, a subsidiary of Osicom
Technologies, Inc. (Osicom). John Hwang (Hwang), a Paradise stockholder and
officer resigned his position as an RTC officer on June 30, 1998. The assets
acquired and related liabilities assumed were:
Cash $ 42
Inventory 351
Prepaid expenses 19
Hwang note (Note 6) 109
Other assets 58
Property and equipment 43
Trademark 130
-------
752
Less: Accounts payable (452)
Deferred revenues (145)
-------
$ 155
=======
The $155 sale price was paid to RTC as follows: $100 on February 23, 1998,
and $25 on April 3, 1998. The balance will be paid at $20 per month.
Paradise believes RTC improperly computed its deferred revenues and that it
owes RTC $70 less than RTC currently believes it is owed. Following the
acquisition, Paradise collected $588 of RTC's July 31, 1997 receivables (Note
9).
NOTE 6. Hwang Note and Shareholders' Capital Contribution
This amount is Hwang's $100 demand note to RTC dated February 29, 1996 plus
interest at 8%. Paradise recorded $7 in interest income from this note in
1998. On March 30, 1998 Hwang and other shareholders contributed $40 to
Paradise's capital.
NOTE 7. Stockholders' Equity
Paradise issued 1,000 shares of its stock for $600. In November 1997 Luna, a
company controlled by Hwang, contributed $100 of Paradise's accounts payable
to Paradise's equity. As this transaction neither provided nor used cash it
was excluded from the statement of cash flows.
NOTE 8. Operating Leases
Paradise leased its facilities on a month-to-month basis from Meret
Communications, Inc., an Osicom subsidiary. At June 30, 1998, Paradise's
operating lease commitments were $10 through June 30, 1999, for a vehicle.
30
<PAGE>
UNICO, INC.
Notes To Financial Statements (Continued)
June 30, 1997 and 1998
NOTE 9. Starlicon Group Inc. (SGI)
In November 1997, Paradise's stockholders formed SGI as a holding company for
Paradise's common stock. SGI assumed $588 of Paradise's RTC debt as a
capital contribution to Paradise. Since the transaction neither provided nor
used cash it was excluded from the statement of cash flows.
NOTE 10. Purchase of Paradise
On June 30, 1998 Unico, Inc. (Unico) purchased Paradise from SGI for
5,476,200 shares of Unico common stock and 5,474 shares of Unico convertible
preferred stock, convertible into 5,476,000 shares of Unico common stock.
Unico also issued warrants to two of its shareholders to purchase a total of
150,000 shares of Unico common at $1.40 per share expiring on December 1,
2006. Before the acquisition, 1,125,609 shares of Unico common stock were
outstanding.
Since Paradise's shareholders own the majority of Unico's shares, this
transaction is accounted for as if Paradise purchased Unico, or by reverse
acquisition accounting. Despite the transaction being a stock for stock swap
it will be recorded using purchase accounting since Paradise was not an
autonomous entity within two years before combination.
On June 30, 1998, Unico dismissed an action brought in May 1998 against SGI
and Paradise. Paradise's recorded cost for Unico's purchase was $3,163 which
consisted of $1,969 for 1,125,609 shares of Unico common issued to old Unico
shareholders valued at $1.75 per share, $958 for 547,169 shares issued to a
Paradise shareholder, plus $236 which was the estimated value of the warrants
issued assuming a risk-free interest rate of 5.5%, 0% dividend, 100%
volatility and an 8-year, 5-month life.
NOTE 11. Subsequent Events
On August 1, 1998 Unico leased premises which Paradise moved into. The lease
expires July 31, 2003 and has escalation provisions for operating expenses.
Minimum payments due under the lease are as follows by year ending June 30:
1999 $ 131
2000 146
2001 150
2002 154
2003 159
2004 13
-------
$ 753
=======
31
<PAGE>
UNICO, INC.
Notes To Financial Statements (Continued)
June 30, 1997 and 1998
NOTE 11. Subsequent Events (Continued)
On September 4, 1998, Unico signed an agreement with Silicon Valley Bank
(SVB) wherein Unico would sell, from time-to-time, at its and SVB's
discretion, selected invoices from its accounts receivables to SVB. Terms of
the sales are 1.5% per month for receivables from OEM/End Users, and 1.25%
per month for receivables from Distributor/Resellers, plus 0.5% per month
service fee for either type of receivables during the period the receivables
are purchased and outstanding. The term of the agreement is for one year and
then from year-to-year unless terminated by either the Company or SVB at any
time.
On September 14, 1998, the Company issued and registered 390,000 shares of
common stock in payment for consulting services to three individuals.
130,000 shares were issued to a major shareholder and 130,000 were to the
Company's President. The Company is currently reviewing whether this
transaction was appropriate.
On September 21, 1998, the Company leased a telephone system for $9 per year
for a period of three years. At the conclusion of the lease, the Company has
an option to purchase the system for one dollar.
On October 2, 1998, Osicom notified Paradise it owes $109 for various
expenses Paradise supposedly incurred while occupying Osicom's premises.
Management disputes this bill and denies any liability for the amount
claimed.
On October 8, 1998, Luna International paid the Company $14 liquidating its
debt to the Company as shown in its financial statements of June 30, 1998.
NOTE 12. Inventory
On June 30, 1998 Paradise recorded a $15 reserve for certain items it
acquired in the Old Paradise (Note 5) acquisition to reduce their carrying
value to current market value. It carries 75,000 integrated circuits
acquired in the Old Paradise acquisition at $179 which it believes it will
use in the normal course of business. On June 30, 1998 Paradise recorded a
$16 inventory valuation reserve for other items.
NOTE 13. Chan Pui Yin (Yin) Advance
On June 30, 1998 Yin advanced Paradise $100 intending to buy Paradise stock.
Paradise repaid the $100 on July 9, 1998 after deciding not to consummate the
transaction.
32
<PAGE>
UNICO, INC.
Notes To Financial Statements (Continued)
June 30, 1997 and 1998
NOTE 14. Name Change
On August 4, 1998 Starlicon International Corporation changed its name to
Paradise Innovations, Inc.
NOTE 15. Segment Information
During fiscal 1997 Paradise engaged in one business segment, distributing
computer hardware. Effective August 1, 1997 with the Old Paradise
acquisition (Note 5), Paradise began distributing proprietary products and
operating in two segments. Paradise is organized by product. At June 30,
1998 $207 of Paradise's inventory was located in Asia.
All of Unico's oil and gas related operations are held by IRC.
Segment assets were as follows:
Proprietary Old
Distribution Products Unico Eliminations Total
- ------------ ----------- ------ ------------ -------
$1,018 $893 $3,163 $104 $4,970
Segment operating results were as follows:
Distri- Proprietary Elimi- Total
bution Products nations
------- ----------- ------ --------
Revenues $23,310 $ 1,356 $ 28 $24,638
Interest income 1 7 8
Depreciation 2 4 6
Amortization 0 24 24
Operating loss (94) (450) (544)
NOTE 16. Income Taxes
A reconciliation of Paradise's 1998 tax provision to that which would have
been recorded at the applicable federal rate is:
Loss as recorded $ 536
Applicable rate 35 %
---------
Computed tax benefit 188
Tax benefit not recorded (188)
---------
Tax provision $ Nil
=========
33
<PAGE>
UNICO, INC.
Notes To Financial Statements (Continued)
June 30, 1997 and 1998
NOTE 16. Income Taxes (Continued)
At June 30, 1998 Paradise had a net operating loss carryover (NOL) of $501
expiring 2013, the $190 benefits of which were not recorded in the financial
statements due to uncertainty as to their realizability. The only material
item giving rise to differences between the book and tax basis of Paradise's
assets is the inventory valuation reserve.
NOTE 17. Pro Forma Financial Information (Unaudited)
The following pro forma financial information presents the effects of the Old
Paradise acquisition as if it occurred on June 30, 1997. The pro forma
financial information is not necessarily indicative of the results of
operations and financial position which will be attained in the future. The
pro forma information should be read in conjunction with the historical
financial statements of Paradise as reported on Form 8-K for nine months and
the year ended June 30, 1997 and 1998.
34
<PAGE>
UNICO, INC.
Notes To Financial Statements (Continued)
June 30, 1997 and 1998
NOTE 17. Pro Forma Financial Information (Unaudited, Continued)
Unico, Inc.
Pro Forma Condensed Balance Sheet
June 30, 1997
Paradise
Before Old
Assets acquisition Paradise Pro forma
----------- --------- ---------
Cash $ 42 $ 42
Accounts receivable $ 721 721
Inventories 13 351 364
Property and equipment
-net 18 43 61
Trademark 130 130
Hwang note 109 109
Other assets 9 77 86
---------------------------------------------
$ 761 $ 752 $ 1,513
=============================================
Liabilities and
Stockholders' equity
Bank overdrafts $ 48 $ $ 48
Accounts payable 109 452 561
Acquisition liability 155 155
Deferred revenues 145 145
---------------------------------------------
Total liabilities 157 752 909
---------------------------------------------
Common stock 600 600
Retained earnings 4 4
---------------------------------------------
Total stockholders'
equity 604 604
---------------------------------------------
$ 761 $ 752 $ 1,513
=============================================
35
<PAGE>
UNICO, INC.
Notes To Financial Statements (Continued)
June 30, 1997 and 1998
NOTE 17. Pro Forma Financial Information (Unaudited, continued)
These pro forma statements of operations presents the effects of the Paradise
acquisition as if it occurred on October 3, 1996.
Paradise
Before Old Pro forma
Acquisition Paradise adjustments Consolidated
----------- ---------- ----------- ------------
Revenues $ 15,058 $ 2,841 $ $ 17,899
Cost of sales 14,844 2,368 17,212
----------- ---------- ----------- ------------
Gross profit 214 473 687
Operating expenses 212 742 (267)(a) 687
----------- ---------- ----------- ------------
Operating income
(loss) 2 (269) 267 0
Other income
(charges) 2 (19)(b) (17)
----------- ---------- ----------- ------------
Net income (loss) $ 4 $ (269) $ 248 $ (17)
=========== ========== =========== ============
Basic earnings
(loss)per share $ 0.0004 ($0.0246) $0.0226 ($0.0016)
=========== ========== =========== ============
Weighted average shares outstanding 10,952,190
(a) To reverse goodwill balance on RTC's books for a previous acquisition.
(b) To record interest on acquisition indebtedness at 11%.
36
<PAGE>
INTERIM UNAUDITED FINANCIAL STATEMENTS - DECEMBER 31, 1998
Financial Statements
Balance Sheets as of December 31, 1998 and June 30, 1998 38
Statements of Operations for the three months ended
December 31, 1998 and December 31, 1997 39
Statements of Operations for the six months ended
December 31, 1998 and December 31, 1997 40
Statements of Cash Flows for the six months ended
December 31, 1998 and December 31, 1997 41
Notes to Financial Statements 42-50
The interim financial statements included herein were prepared by the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles were condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures made are adequate to make the information presented not
misleading. It is suggested that the interim financial statements be read in
conjunction with the financial statements and the notes thereto included in
the Company Annual Report on Form 10-KSB for the year ended June 30, 1998, and
the Quarterly Report on Form 10-QSB for the three months ended September 30,
1998.
The accompanying interim financial statements were prepared, in all
material respects, in conformity with the standards of accounting measurements
set forth in Accounting Principles board Opinion No. 28 and reflect, in the
opinion of management, all adjustments, which are of a normal recurring
nature, necessary to summarize fairly the financial position and results of
operations for such periods. The results of operations for such interim
periods are not necessarily indicative of the results to be expected for the
full year.
37
<PAGE>
FINANCIAL STATEMENTS
UNICO, INC.
Balance Sheets
(Dollars In Thousands) December 31, June 30,
1998 1998
ASSETS (unaudited) (audited)
Current Assets
Cash $ 1,707 $ 30
Accounts receivable, less $107 and $84
allowance for doubtful accounts and
returns, allowances and discounts 4,379 1,034
Inventories 4,756 434
Prepaid expenses & other current assets 489 4
------- --------
Total current assets 11,331 1,502
------- --------
Property and Equipment
Furniture and equipment 333 38
Leasehold improvements 8 25
------- --------
341 63
Accumulated depreciation 34 11
------- --------
307 52
------- --------
Trademark, less $37 and $24
accumulated amortization 93 106
Goodwill, less $34 accumulated amortization 1,003 0
Due from Luna 0 14
Due from Hwang and Hwang Note 137 133
Other 90 0
Old Unico Investment 3,163 3,163
------- --------
4,486 3,416
------- --------
$ 16,124 $ 4,970
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank overdrafts $ 0 $ 211
Accounts payable 9,689 433
Deferred revenues 150 210
Due RTC 0 32
Due Yin 0 100
Accrued payroll & other current liabilities 910 25
--------- --------
Total Current Liabilities 10,749 1,011
--------- --------
Long-Term Liabilities 175 0
--------- --------
Commitments and contingencies
Stockholders' Equity 5,200 3,959
--------- --------
$ 16,124 $ 4,970
========= ========
The accompanying notes are an integral
part of these financial statements.
38
<PAGE>
UNICO, INC.
Statements of Operations
(Dollars In Thousands)
Three months ended
December 31,
1998 1997
(unaudited) (unaudited)
Net sales $ 5,960 $ 7,413
Cost of goods sold 5,300 7,087
--------- ----------
Gross profit 660 326
--------- ----------
Salaries and wages 530 144
Rent 71 11
Research and development 117
Amortization 41 3
Other expenses 752 89
--------- ----------
1,511 247
--------- ----------
Operating income (loss) (851) 79
Interest income, net 2 0
Other income (expense), net 186 0
--------- ----------
Net income (loss) $ (663) $ 79
========= ==========
Basic earnings (loss) per share ($ 0.0464) $ 0.0072
========== ==========
Shares used in computation 14,295,796 10,950,200
The accompanying notes are an integral
part of these financial statements.
39
<PAGE>
UNICO, INC.
Statements of Operations
(Dollars In Thousands)
Six months ended
December 31,
1998 1997
(unaudited) (unaudited)
Net sales $ 11,035 $ 13,616
Cost of goods sold 10,094 13,182
--------- ----------
Gross profit 941 434
--------- ----------
Salaries and wages 684 258
Rent 94 24
Research and development 117
Amortization 47 8
Other expenses 973 131
--------- ----------
1,915 421
--------- ----------
Operating income (loss) (974) 13
Interest income, net 4 1
Other income (expense), net 186 0
--------- ----------
Net income (loss) $ (784) $ 14
========= ==========
Basic earnings (loss) per share ($ 0.0582) $ 0.0013
========== ==========
Shares used in computation 13,459,612 10,950,200
The accompanying notes are an integral
part of these financial statements.
40
<PAGE>
UNICO, INC.
Statements of Cash Flows
(Dollars In Thousands)
Six months ended
December 31,
1998 1997
(unaudited) (unaudited)
Operating cash flows
Net loss $ (784) $ 14
Depreciation and amortization 71 31
Services rendered for stock 42 0
Receivables change (217) (558)
Inventory change 753 (137)
Prepaid expenses change 93 (44)
Accounts payable change 989 245
Due from others 0 (133)
Other current liabilities change (40) 7
Deferred revenues change (60) 19
---------- ----------
Cash provided by (used for) operations 847 (556)
---------- ----------
Investing cash flows
Property acquisitions (56) (71)
Other assets (113) 63
Multiwave cash acquired 1,360 42
Long-term liabilities 175 0
---------- ----------
Cash provided by
investing activities 1,366 34
---------- ----------
Financing cash flows
RTC receivables collected 0 588
Yin advance (100) 0
Reduction in due RTC (32) 0
Bank overdrafts (404) (48)
Other equity transactions, net 0 0
---------- ----------
Cash provided by (used for)
financing activities (536) 540
---------- ----------
Change in cash 1,677 18
Cash - beginning of period 30 0
---------- ----------
Cash - end of period $ 1,707 $ 18
========== ==========
The accompanying notes are an integral
part of these financial statements.
41
<PAGE>
UNICO, INC.
Notes To Financial Statements
December 31, 1998
1. Basis of Presentation
The financial statements include the assets and liabilities of Paradise
Innovations, Inc. (Paradise). The Statements of Operations for the period
ended December 31, 1997 include activity for three and six months for "Old
Paradise" acquired on July 31, 1997. The Statements of Operations for the
three months ended December 31, 1998 include Multiwave's operations from
November 1, 1998. Following the legal closing of the acquisition, Uraco
Holdings, one of Multiwave's former parents along with some other Multiwave
shareholders, will convert US$ 2 million of Multiwave's debt to equity as a
capital contribution. The capital contribution is treated as if it occurred
on October 31, 1998. All dollar amounts in the tables are in thousands.
Unico's old operations, held by Intermountain Refining Corp. (IRC) are
included in the investment in Old Unico. The Company accounts for this
investment at cost as it cannot use IRC's assets for corporate purposes, has
no control over IRC's operations.
2. Earnings Per Share
Earnings (loss) per common share is computed as if Unico had issued 5,476,200
of its 6,023,819 common shares issued to acquire Old Unico on October 3, 1996
and they were continuously outstanding. The 5,474 shares of Unico preferred
were converted to 5,474,000 shares of Unico common for purposes of this
calculation and were also treated as if they had been continuously outstanding
from October 3, 1996. The 2,388,792 shares issued to effect the Multiwave
acquisition were treated as if outstanding from October 31, 1998. No
operations of Old Unico are included in the calculation as Old Unico is
carried at cost. After July 1, 1998 earnings per share were calculated
including 1,125,609 shares of Unico common held by Old Unico's shareholders.
3. Inventories
Inventories are stated at the lower of cost (on a first-in, first-out basis)
or market value (net realized value).
December 31, 1998
(unaudited)
Raw Materials $ 386
Work in Process 2,216
Finished Goods 2,154
-------
$4,756
=======
Inventory of $434 at June 30, 1998 was all finished goods.
42
<PAGE>
4. The Company Profile
On June 30, 1998, the Company completed the acquisition of all outstanding
shares of Paradise Innovations, Inc. (formerly known as Starlicon
International Corporation) by issuing 5,476,200 new shares of common stock and
5,474 new shares of convertible preferred stock. The Company accounted for
this acquisition as a reverse acquisition. The term "Old Unico" is used to
refer to Unico, Inc. before the June 30, 1998 acquisition.
Starlicon International Corporation (Starlicon) was incorporated under the
laws of the State of California on October 3, 1996. On July 31, 1997,
Starlicon acquired certain assets, including the Paradise trademark, owned by
Relialogic Technology Corporation (RTC). On August 4, 1998, Starlicon changed
its name to Paradise Innovations, Inc. in order to obtain better brand
recognition and to facilitate future product and company acquisitions.
Throughout this Form 10-QSB/A, the Company's Starlicon subsidiary will be
referred to as Paradise.
On February 21, 1998, Old Unico entered into a Stock Purchase Agreement (the
Agreement) with Starlicon Group, Inc. (SGI) to acquire 100% of the outstanding
stock of privately-held Paradise. The acquisition was ultimately completed
pursuant to a Novation Agreement (see Form 8-K filed on July 14, 1998). Under
the terms of the Novation Agreement, the Company issued 5,476,200 shares of
$0.20 par value restricted Common Stock and 5,474 shares of Series A
Convertible Preferred Stock to the shareholders of SGI in exchange for 100% of
the outstanding stock of Paradise.
As part of the Novation Agreement, all of Old Unico's assets not owned by
Intermountain Refining Co., Inc. (IRC) were transferred to IRC in satisfaction
of certain inter-company obligations and as a contribution to IRC's capital.
IRC is operated and managed at the sole discretion of IRC's management with a
nominee holding Old Unico's proxy to vote IRC's shares.
As a result of the Paradise acquisition, the Company has two operating
entities in unrelated industries, Paradise and IRC. IRC was incorporated as a
New Mexico corporation in July 1985. It conducts three categories of
business: petroleum product refining and processing, electrical energy
production and natural gas production.
Through its wholly-owned subsidiary Paradise, the Company markets computer
peripherals, including video and sound cards, modems, multimedia products and
Internet set-top boxes, a proprietary line of computer peripherals under the
Paradise trademarked brand name. Paradise's customer base includes private
label computer manufacturers and major technology distributors, such as Tech
Data, Ingram Micro, D&H Distributing, Almo Distributing, Comark and SED.
The Company intends to focus on its core competence, which is the design,
manufacture, marketing and distribution of computer peripherals and Internet
communication products. Subject to approval by its shareholders, it has
acquired Multiwave Innovation Pte. Ltd., a Singapore-based design and
engineering firm which will enhance the Company's ability to bring innovative
products to market quickly and extend its distribution capabilities in Europe
and Asia. The Company is also negotiating with IRC management to spin off its
energy related assets currently held by IRC to its shareholders of record as
of a record date to be established.
43
<PAGE>
At its next annual shareholders' meeting scheduled for May 3, 1999, the
Company is requesting that its shareholders grant its Board of Directors the
authority to negotiate with IRC's management and to consummate a spin-off of
IRC, as IRC's business lies outside the Company's high-tech industry focus.
It is also requesting approval and ratification of the Multiwave acquisition.
On December 3, 1998, the Company waived its request for a hearing and
voluntarily removed its common shares from listing on the Nasdaq SmallCap
Market. The shares are now traded on the Over The Counter (OTC) electronic
Bulletin Board. The action was taken following discussions with Nasdaq staff
on various issues facing the Company, including the staff's September 30,
1998, notification that its shares would be removed from listing on its
SmallCap Market. The Company plans to apply for a listing on a globally
recognized U.S. stock exchange.
The Company has reviewed the potential impact of Year 2000 issues and believes
that the cost to replace and or modify equipment, computer hardware, and
computer software will not be material and that Year 2000 issues will not have
a material impact on the Company's ability to operate into the next century.
5. Segments
The Company is engaged in two primary business industries: computer-related
products and oil and gas. Through its wholly-owned subsidiary Paradise, it
designs and markets computer peripherals. Through its wholly-owned subsidiary
IRC, it engages in energy exploration and generation business.
During fiscal 1997 Paradise, the Company's operating subsidiary, engaged in
one business segment, distributing computer chips, both memory and central
processing units. Effective August 1, 1997 with the asset acquisition
previously discussed, Paradise began distributing proprietary products and
operating in two segments. Paradise is organized by product segments: chips
and proprietary products.
All of the Company's oil and gas related operations are held by IRC and
disclosed in Note 6.
Segment assets at December 31, 1998 were as follows:
Proprietary Old Elimi-
Distribution Products Unico nations Total
------------ ----------- ------ -------- ---------
$522 $14,720 $3,163 ($ 2,281) $ 16,124
Segment operating results for the three months ended December 31, 1998 were as
follows:
Distri- Proprietary Elimi-
bution Products nations Total
------- ----------- -------- --------
Revenues $ 380 $ 9,285 ($ 3,705) $ 5,960
Interest income 0 2 0 2
Depreciation 0 23 0 23
Amortization 0 7 34 41
Operating loss (32) (749) (70) (851)
44
<PAGE>
Segment operating results for the six months ended December 31, 1998 were as
follows:
Distri- Proprietary Elimi-
bution Products nations Total
------- ----------- -------- --------
Revenues $ 4,519 $ 10,227 ($ 3,711) $ 11,035
Interest income 0 4 0 4
Depreciation 0 24 0 24
Amortization 0 13 34 47
Operating loss (148) (756) (70) (974)
6. The Company Strategy
The Company shifted its focus to its newly acquired hi-tech subsidiary,
Paradise Innovations, Inc. (Paradise) with the June 30, 1998 acquisition of
Paradise (formerly known as Starlicon International Corporation). Paradise
currently has two primary business segments: designing, manufacturing,
marketing and sales of proprietary computer peripherals, multimedia products,
and Internet related communications products; and chip distribution.
Consistent with the new focus, on October 27, 1998, the Company signed a
definitive agreement to acquire all issued and outstanding shares of Multiwave
Innovation Pte. Ltd. (Multiwave), a Singapore-based engineering company with a
focus on research and development of high performance multimedia and Internet
communications products. Multiwave was formerly owned primarily by NatSteel
Electronics, Ltd., one of the world's top custom manufacturer of high-tech
products with clients such as Apple Computers, IBM and Hewlett-Packard, and by
Uraco Holdings Ltd., a precision manufacturer. Both NatSteel and Uraco are
publicly traded on the Singapore stock exchange. Multiwave has been operating
as Paradise Innovations (Asia) Pte. Ltd. (Paradise Asia), a wholly owned
subsidiary of the Company, since October 31, 1998.
With the Multiwave acquisition, the Company is establishing worldwide
distribution and partnerships with global manufacturing companies to bring
exciting new products to market quickly as demanded by the hi-tech industry.
The Company continues to contemplate acquisitions of products and companies
that fit its strategy of identifying and creating products that can be
distributed in high volume by its worldwide distribution partners.
At the 1998 Fall COMDEX, the high-tech trade show held in Las Vegas, the
Company announced the product launch of Internet set-top boxes, which is
currently in the evaluation phase by major cable companies, ISPs and top
branded consumer electronic manufacturers. The Company expects that sales
volume and margins will increase when this product reaches the market in the
very near future. In addition, the Company continues to research and develop
future products to be launched.
The Internet set-top boxes will comprise a substantial part of the Company's
future sales in the remaining quarters of fiscal 1999 and beyond. They will
command higher unit prices, raising the sales run rate in the remaining
quarters of the fiscal year and beyond.
45
<PAGE>
7. Old Unico
Old Unico's consolidated balance sheets are summarized as of June 30, 1998 and
December 31, 1998, and its consolidated statement of operations for the three
months ended December 31, 1998, as follows:
OLD UNICO
Consolidated Condensed Balance Sheets
(Dollars In Thousands)
December 31, June 30,
1998 1998
----------- ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,116 $ 1,134
Other current assets 156 82
Notes receivable from related
Parties - 84
------------ --------
TOTAL CURRENT ASSETS 1,272 1,300
------------ --------
PROPERTY, PLANT AND EQUIPMENT, at cost
Land, buildings and improvements 434 434
Equipment 165 165
Crude oil refining equipment 1,183 1,183
Co-generation facilities 290 290
Oil and gas properties,
(successful efforts method) 895 895
------------ --------
2,967 2,967
Less accumulated depletion
and depreciation (2,073) (2,005)
------------ --------
894 962
------------ --------
OTHER ASSETS
Investment in Chatfield Dean 175 301
Other assets & deferred charges 168 176
------------ --------
343 477
------------ --------
$ 2,509 $ 2,739
============ ========
46
<PAGE>
OLD UNICO
Consolidated Condensed Balance Sheets,
(Continued)
(Dollars In Thousands)
December 31, June 30,
1998 1998
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 163 $ 49
Taxes other than income taxes 3 3
------------ -------------
TOTAL CURRENT LIABILITIES 166 52
------------ -------------
DEFERRED TAXES - 52
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value,
authorized 8,000,000 shares, none
outstanding
Common stock, $0.20 par value,
authorized 50,000,000 shares,
issued and outstanding 1,129,308
shares 226 226
Additional paid in capital 2,214 2,214
Less: Treasury stock 3,699 shares (9) (9)
Retained earnings (accumulated deficit) (88) 204
------------ ------------
2,343 2,635
------------ ------------
$ 2,509 $ 2,739
============ ============
47
<PAGE>
OLD UNICO
Consolidated Condensed Statements Of Operations
(Dollars In Thousands)
For Periods Ended
December 31, 1998
Three Months Six Months
------------ ------------
REVENUES
Natural gas sales $ 94 $ 169
------------ ------------
COSTS AND EXPENSES
Cost of sales 14 38
General and administrative 439 550
Gain on realization of investment (125) (125)
Depletion, depreciation
and amortization 34 69
Interest, net (11) (25)
Bad debt expense 8 8
------------ ------------
359 515
------------ ------------
LOSS BEFORE INCOME TAXES (265) (346)
Current Benefit for income taxes 50 54
------------ ------------
NET LOSS $ (215) $ (292)
============ ============
8. Multiwave Acquisition
On October 31, 1998, the Company purchased Multiwave for 2,388,792 shares of
common stock valued at $2,000,000 and incurred $123,000 in expenses to effect
the acquisition. The non-cash effects of the acquisition were excluded from
the Statements of Cash Flows. The assets acquired and liabilities assumed
were:
Cash $ 1,360
Receivables 3,128
Inventory 5,075
Prepaid expenses 128
Other assets 540
Property and equipment 222
---------
10,453
Less: Accounts payable (8,267)
Bank overdrafts (193)
Other liabilities (907)
---------
$ 1,086
=========
48
<PAGE>
9. Pro Forma Statements of Operations (Unaudited)
This pro forma Statement of Operations presents the effects of the
Multiwave acquisition as if it occurred on June 30, 1998. The pro forma
statement of operations is not necessarily indicative of the results of
operations and financial position which will be attained in the future.
Unico
Before Pro Forma Pro Forma
Acquisition Multiwave adjustments Consolidated
----------- ---------- ----------- ------------
Revenues $ 11,035 $ 9,153 $(381)(b) $ 19,807
Cost of sales 10,094 8,156 (381)(b) 17,869
----------- ---------- ----------- ------------
Gross profit 941 997 1,938
Operating expenses 1,915 1,175 68 (a) 3,158
----------- ---------- ----------- ------------
Operating income
(loss) (974) (178) (68) (1,220)
Other income
(charges) 190 492 682
=========== ========== =========== =============
Net income (loss) $ (784) $ 314 $ (68) $ (538)
=========== ========== =========== =============
Basic earnings
(loss)per share $(0.0582) $0.1972 $(0.0357)
=========== ========== =============
Weighted average shares
outstanding 13,459,612 1,592,512 15,052,124
(a) To record goodwill amortization.
(b) To eliminate intercompany sales.
49
<PAGE>
10. Pro Forma Statements of Operations (Unaudited)
This pro-forma consolidated statement of operations present the effects of the
Multiwave acquisition as if it occurred on June 30, 1997.
Six Months Ended December 31, 1997 (US$ 000)
Unico
Before Pro Forma Pro Forma
Acquisition Multiwave Adjustments Consolidated
----------- --------- ----------- ------------
Revenues $13,616 $ 2,789 $ $ 16,405
Cost of sales 13,182 2,477 15,659
----------- --------- ----------- ------------
Gross profit 434 312 746
Operating expenses 421 1,275 1,696
----------- --------- ----------- ------------
Operating income (loss) 13 (963) (950)
Other income (charges) 1 (91)(a) (90)
----------- --------- ----------- ------------
Net income (loss) $ 14 $ (963) $(91) $ (1,040)
=========== ========= =========== ============
Basic earnings (loss)
per share $ 0.0013 $(0.4031) $(0.7767)
=========== ========= ============
Average shares
outstanding 10,950,200 2,388,792 13,338,992
NOTE: (a) To amortize goodwill over five years.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - UNICO
For the Fiscal Year Ended June 30, 1998
Disclaimer
The discussion and analysis below contains trend analysis and other
forward-looking statements within the meaning of Section 27A of the Securities
Exchange Act of 1934 and Section 21E of the Securities Exchange Act of 1934.
Actual results could differ materially from those projected in the forward
looking statements as a result of the risk factors set forth under "Certain
Factors That May Affect Future Performance" and elsewhere in this report.
Net Sales and Gross Margins.
Paradise's net sales for the year ended June 30, 1998 were $24.6
million yielding a gross margin of $409,000 or 1.7%. The low margin is in
part a result of the market segment focus. Prior to June 30, 1998, 92% of
sales were of chips (memory and CPU) where the Company has traditionally
obtained gross margins of around 2%. Since June 30, 1998, the sales mix has
been closer to 50% in chips and 50% in branded components, where gross
margins, net of co-op advertisement and other discounts are about 8%.
50
<PAGE>
Efforts are underway to improve gross margins for both chips and
components. A management process is being launched where gross margins are
reviewed weekly.
Sales volume in July, August and September, 1998 increased
significantly for two reasons. First, sales through the Company's
distribution network increased. Management believes that the Company's
distribution network has a far greater capacity than is currently being
utilized. The augmented sales force discussed above will be able to more
effectively use this capacity.
Second, the Company identified product lines with good market
acceptance. For example, the Company introduced the new V.90 Lucent 56K
b.p.s. modem which was responsible for a significant portion of sales volume.
Management has identified other products, in the market segments of Internet
communications, it plans to introduce to its customers at the COMDEX trade
show to be marketed beginning in the next fiscal year.
Operating Results
Sales increased $9,580,000 from the nine months ended June 30, 1997
to the twelve months ended June 30, 1998 or by 63.6%. Annualizing 1997's
sales accounts for $5,019,000 of this increase. $1,356,000 of the increase is
due to including Old Paradise's (Paradise before it merged operations with
Starlicon which changed its name to Paradise) sales for the 11 months ending
June 30, 1998. The remaining $3,205,000 increase is a result of increased
monthly sales, representing a 16.0% increase over 1997's annualized sales.
Gross margins as a percentage of sales did not vary significantly
from 1997 to 1998. Operating expenses increased by $741,000 or 349.5% from
1997 to 1998. $289,000 of this increase was due to Paradise's increased
expenses and $452,000 to Old Paradise's expenses from August 1, 1997.
Annualizing Paradise's 1997 expenses accounts for $71,000 of the increase.
$126,000 of the increase is due to increased headcount at Paradise from 9 to
14 from 1997 to 1998. Rent expenses increased by $33,000 due to higher
occupancy charges at the same premises. Paradise had $24,000 in trademark
amortization in 1998 which it did not have in 1997 which is included in the
$452,000. There were no other individually significant items which increased
from 1997 to 1998.
Cost of sales consists of the actual cost of the goods, wages and
salary of the warehouse personnel, inbound freight expenses, and, if not borne
by the customer, outbound freight expenses. Typically, the customer pays for
the outbound freight expenses.
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<PAGE>
The table below compares the Company's operating results from 1997 to
1998:
Nine Months Twelve Months
(dollars in thousands) Ended Ended
June 30, 1997 June 30, 1998
----------------- -----------------
Net sales $ 15,058 100.0% $ 24,638 100.0%
Cost of goods sold 14,844 98.6 24,229 98.3
--------- ------ --------- ------
Gross profit 214 1.4 409 1.7
--------- ------ --------- ------
Salaries and wages 128 0.9 498 2.0
Rent 17 0.1 50 0.2
Trademark amortization 24 0.1
Other expenses 67 0.4 381 1.6
--------- ------ --------- ------
212 1.4 953 3.9
--------- ------ --------- ------
Operating income (loss) 2 0.0 (544) (2.2)
Interest income 2 0.0 8 0.0
--------- ------ --------- ------
Net income (loss) $ 4 0.0% $ (536) (2.2%)
========= ====== ========= ======
Financial Position
Accounts receivable increased by $313,000 or 43.4% from 1997 to 1998.
$145,000 of this increase is due to Paradise's sales, $168,000 from Old
Paradise's sales. Days sales in receivables went from 13 to 15 from 1997 to
1998, all of which increase was due to including Old Paradise's sales which
have a slower turnover rate. Inventories increased by $421,000 or 3,238%
from 1997 to 1998. $417,000 of this increase is due to the inclusion of Old
Paradise's inventories in 1998.
Working Capital, Liquidity and Capital Resources
At June 30, 1998, net working capital was 10% of total assets. While
the Company's business is working capital intensive, management is attempting
to reduce working capital requirements and the Company's financing costs. A
program to review accounts receivable and payable terms was launched. The
Company expects that the results of this effort will show in the second
fiscal quarter. This effort is critical to enable the high growth that
management envisions for the Company in the current fiscal year.
In September, the Company signed an agreement with Silicon Valley
Bank (SVB) to sell its accounts receivable from time-to-time to SVB. The
terms of these sales are 1.5% per month for receivables from OEM/End User
customers and 1.25% for receivables from Distributor/Reseller customers, plus
a 0.5% service fee.
The amount of receivables sold is limited to $800,000 in receivables
sold and outstanding at any time. The Company believes that this agreement
will provide liquidity while it reviews its accounts receivable and payable
terms. The Company is planning a privately placement to obtain equity
capitalization in its second fiscal quarter. The Company has initiated
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<PAGE>
conversations with financial institutions to assist in this transaction. The
funds raised, if any, will be used for working capital, capital improvements,
and to increase its capital resources for possible future acquisitions.
The Company has approached banks to obtain asset-based lines of
credit. It anticipates that the growth in operations targeted by the Company
will require financing above normal operating requirements. The Company is
attempting to ensure that this financing will be available for the growth
envisioned.
The Company believes that its cash balances and available credit are
sufficient to meet anticipated operating requirements for the foreseeable
future (12 months). There can be no assurance that additional capital beyond
the amounts currently forecasted by the Company will not be required nor that
any such required additional capital will be available on reasonable terms, if
at all.
The Multiwave Acquisition
The Company signed a letter of intent to acquire all outstanding
shares of Multiwave Innovation Pte, Ltd. (Multiwave), a Singapore company.
Multiwave is an engineering company with a focus on research and development
with operations in Singapore, China, and the U.S. The acquisition will
provide the Company's distribution subsidiary, Paradise, with rapid access to
new and exciting products. Multiwave is a pioneer in the design, development,
production, and marketing of high performance multimedia and Internet related
products for brand name sales or OEM contracts. Its products are modem
cards, sound cards, and various other multimedia upgrade kits and
accessories. It markets products on a transcontinental scale with sales in
Japan, Australia, Malaysia, Korea, Hong Kong, and Europe, North America and
Latin America.
Multiwave's largest shareholders are NatSteel Electronics Ltd.
(NatSteel), a publicly listed company on the Singapore Stock Exchange with
contract manufacturing operations in Singapore, Malaysia, Indonesia, Hungary,
China and Mexico, and Uraco Holdings Ltd. (Uraco), a publicly listed company
on the Singapore Stock Exchange that is a precision manufacturer of disk
drives and semiconductor equipment components. NatSteel and Uraco will become
significant owners of the Company's common shares following the completion of
the acquisition.
The acquisition would enable the Company to design its own products
and have them manufactured at the location closest to the market. This
ability would reduce the time to market for new products, a key requirement
imposed by the markets for hi-tech products.
Should the acquisition take place, the Company's reach will be
extended worldwide for both sourcing and marketing. The potential acquisition
will open lower cost sources for component parts in Asia and give the Company
a worldwide reach for its Paradise branded products. This will be a
significant capability for the Company as the Paradise brand is recognized
worldwide. The Company's management expects an improvement in margins as a
result of both improved sourcing and marketing. If and when completed, the
acquisition with Multiwave will add about 70 employees to the Company's
staff, about 50 of whom will be located in the Singapore subsidiary of the
Company.
53
<PAGE>
A fuller discussion of the acquisition can be found below in the
section "Authorization to Acquire the Shares of Multiwave".
Certain Factors That May Affect Future Performance
The Company's future performance may be affected by a number of
factors described below and in other parts of this Form 10-KSB, which should
be considered in evaluating the Company and its business.
The Company's future operating results may vary significantly from
period to period as a result of these factors. The Company's revenues depend
on products sold, customer satisfaction and support, timing of sales, timing
of new product introductions by the Company and by its competitors, product
cycle maturation, price competition and decline, availability of components,
design of new products, changes in product or distribution channel mix, the
level of inventory carried by the Company and its distributors and retail
customers, product returns, co-op advertising programs and price protection
agreements with its customers.
Gross margins depend on the same factors as revenues, as well as some
other factors: the availability and cost of components, component price
change, end-of-life inventory write downs and distribution channel mix.
Technology content is also a major factor influencing gross margins. Margins
typically are higher for products with high technology content than products
with lower technology. Thus, design and new product introduction are critical
factors impacting the Company's gross margins.
Perhaps most importantly, the Company's revenues and gross margins
are highly impacted by product life cycles, where margins are higher for newer
products and decline with increased competition and diminishing market
excitement.
The Company's hi-tech market is characterized by frequent new product
introductions and rapid product obsolescence. The Company depends on new
product introduction in short time frames. Despite its strategy to enable a
short time frame to market, there is no assurance that the Company will be
successful in its execution nor that successful execution will assure high
margins.
Management and staff impact the success of the Company's performance,
in the present and the future. The Company is located in the heart of Silicon
Valley, in the San Jose, California region where many hi-tech companies are
located. Competition for key personnel is intense, particularly in this
area. There is no assurance that the Company will be successful in attracting
and retaining such key personnel, despite the Employee Benefit Plan its
management is implementing.
Many factors are beyond the Company's control. Price levels and unit
volume are often determined by competition, consumer preferences and general
economic conditions. In the hi-tech industry, frequently a new technology is
introduced which causes existing technologies, perhaps those on which the
Company is dependent, to become obsolete.
The Company's stock price has been subject to wide fluctuations to
date and may be subject to even wider fluctuations in the future. All the
factors discussed in this section and elsewhere in this Form 10-KSB will
influence the Company's stock price. Moreover, the stock market, particularly
54
<PAGE>
the technology sector, has been subject to very high levels of volatility in
1998's third calendar quarter.
The Company does not endorse nor accept responsibility for estimates
and recommendations made by stock analysts.
Accounting Treatment of the June 30, 1998 Acquisition
On September 24, 1998, the Company's board of directors changed its
fiscal year to end on June 30. (See Form 8-K filed October 6, 1998.) The
Company believes the June 30, 1998 acquisition should be recorded as a reverse
merger. It considers the company resulting from the acquisition a new
company,
beginning July 1, 1998 (following the end of its previous fiscal year).
Continuity in the reporting of its financial statements is provided
by Old Unico's Form 10-K for the year ending February 28, 1998, its Form 10-Q
for the quarter ending May 31, 1998, and this Form 10-KSB. Old Unico is
discussed in Note 18 to the Financial Statements, below. The four-month
period from March 1 to June 30, 1998 is covered, providing financial
statement continuity.
For the Interim Period - Quarter Ended December 31, 1998
The discussion and analysis below contains trend analysis and other
forward-looking statements within the meaning of Sections 27A and 21E of the
Securities Exchange Act of 1934.
Operating Results
Although comparing fiscal 1998 and 1999 Results of Operations for
three months ended December 31, 1998 shows a 20% sales decrease, gross margin
increased significantly, by 102%. This is due to management's efforts to
change
product mix to focus on selling products with higher margins. Revenues
derived
from low margin chip sales accounted for 89% of total revenues in the second
fiscal quarter of 1998. In contrast, branded peripherals with higher margins
comprised 94% of revenues in the second quarter of 1999.
There are two reasons for the increase in sales of branded
peripherals in the second fiscal quarter of 1999. First, sales through the
Company's distribution network increased as a result of targeted sales
efforts.
Second, and more importantly, the acquisition of Multiwave augmented the sales
of these branded items, particularly in Europe and Asia.
Operating expenses as a percentage of sales for the fiscal second
quarter increased from 3% in fiscal 1998 to 25% in fiscal 1999. Salaries
and wages increased significantly, due to the Multiwave acquisition. This
anticipated increase is a result of the added engineering and R&D capabilities
which enable the Company to more fully utilize its distribution network with
newly developed products. For the second fiscal quarter 1999 compared to
1998, rent expenses increased due to the newly acquired Singapore operations.
Approximately $34,000 of the reported amortization in the second
quarter of 1999 is a result of goodwill. Approximately 36% of the increase in
the category other expenses of the Statement of Operations is attributed to
the acquisition. The category other expenses in the current quarter also
includes over $350,000 for the 1998 COMDEX, the high technology trade show in
Las Vegas, Nevada, and $36,000 for advertising expenses.
55
<PAGE>
Other income in the current three month period is attributed to
reimbursement of out-of-period expenses made to the Singapore office from the
previous parent company.
The Results of Operations for the six month periods ending December
31, 1997 and 1998 reflect a 19% decrease in sales with a 117% increase in
margin. Operating expenses as a percentage of sales for the periods increased
from 3% in fiscal 1998 to 17% in fiscal 1999.
In order to compare the Paradise operations last year with the same
operations this year, the impacts of the Multiwave acquisition were excluded
in the following analyses. Chip sales decreased from $6.6 million in the
second quarter of fiscal 1998 to $380,000 in the current quarter. These sales
resulted in $22,000 in gross margin in the quarter ending December 31, 1998.
Branded peripherals sales increased from $826,000 in this same period last
fiscal year to $3.5 million in the current quarter. These sales generated
approximately $123,000 in margin in the quarter ending December 31, 1998. The
lower than expected margin is due to approximately $90,000 in credits issued
for price protection and customer advertising, $80,000 in freight expenses and
$27,000 in customs duties and fees. Paradise USA's main supplier is Paradise
Singapore, which explains the increases in freight, duties and fees. The
Company is working closely with it's newly acquired Singapore office to reduce
these expenses going forward.
Excluding the impact of the Multiwave acquisition, operating expenses
as a percentage of sales for the most current three month period increased
from 3% in fiscal 1998 to 18% in fiscal 1999. Salaries and wages increased
due to the addition of a seasoned sales force. The Company also built staff
in marketing and administration, in anticipation of growth through internal
efforts and acquisitions, such as Multiwave. With the Company's new Fremont
facility, rent and associated expenses increased as a result of the move. The
category of other expenses includes $180,000 of the over $350,000 total
expenses (Multiwave carried about $180,000) for COMDEX, $42,000 for investment
banking advise and $36,000 in advertising.
Excluding the impact of the Multiwave acquisition, chip sales for the
six month period ending December 31, 1998 decreased from $12.5 million to $4.5
million, or 65% and branded peripherals increased from $1.2 million to $4.4
million, or 290%, in comparison to the six month period ending December 31,
1997. Operating expenses as a percentage of sales for this same period (again
excluding Multiwave expenses) increased from 3% in fiscal 1998 to 12% in
fiscal 1999.
Financial Position
Accounts receivable, inventories and prepaid expenses increased by
$3,345,000, $4,322,000 and $485,000, respectively, from June 1998 to December
1998. The increases are attributable to the Multiwave acquisition. The
balance sheet category prepaid expenses and other current assets include other
receivables of approximately $306,000, prepaid Director's and Officer's
insurance in the amount of $61,000, and prepaid inventory of $22,000. The
other receivables are from Singapore tax authorities as a result of chipset
purchases. Furniture and equipment at the end of the current quarter
increased by $278,000 which resulted from the acquisition. Accounts payable
increased by $9,256,000 during the six months ended December 1998, also as a
result of the acquisition.
56
<PAGE>
Working Capital, Liquidity and Capital Resources
At December 31, 1998, net working capital was 3.6% of total assets.
While the Company's business is working capital intensive, management is
reducing working capital requirements and the Company's financing costs. A
program to review accounts receivable and payable terms reduced the day sales
outstanding (DSO) in the U.S. to less than thirty days. With the acquisition,
the Company intends to undergo a similar review of its Singapore operation.
In September, the Company signed an agreement with Silicon Valley
Bank (SVB) to sell its accounts receivable from time-to-time to SVB. The
terms of these sales are 1.5% per month for receivables from OEM/End User
customers and 1.25% for receivables from distributor/reseller customers, plus
a 0.5% service fee. The amount of receivables sold and outstanding at any
time is limited to $800,000. The Company believes that this agreement will
provide working capital liquidity while it continues to review its accounts
receivable and payable terms.
The Company has approached banks to obtain asset-based lines of
credit. It anticipates that the growth in operations targeted by the Company
will require financing above its current operating requirements. The funds
raised, if any, will be used for working capital, capital improvements,
marketing and to fund growth.
The Company is planning a private placement to obtain equity
capitalization and resources for potential acquisitions. It worked diligently
in that direction during the second fiscal quarter and is hopeful for closure
in the near future, although there is no certainty of any outcome.
The Company believes that its cash balances and available credit are
sufficient to meet anticipated operating requirements for the foreseeable
future (12 months). There can be no assurance that additional capital beyond
the amounts
currently forecasted by the Company will not be required nor that any such
required additional capital will be available on reasonable terms, if at all.
Current Developments
On September 24, 1998, the Company's Board of Directors: 1) appointed
Mr. Henry Tang as Secretary of the corporation, 2) accepted Ms. Fynna
Bernardez's resignation as the former Secretary and 3) determined to change
the fiscal year of the Company from February 28 to June 30.
On September 30, 1998, the Company was advised by Nasdaq that its
securities should be removed from listing on the Nasdaq SmallCap Market based
on its staff's review of the Company's public filings. The Company waived its
rights to a hearing with Nasdaq and voluntarily placed its common stock for
listing on Over the Counter electronic Bulletin Board. The Company plans to
apply for listing on a globally recognized national stock exchange.
On October 5, 1998, the Company issued 50,000 shares of common stock,
restricted under Rule 144, to the investment firm of Chatfield Dean & Co. as
remuneration for investment banking advice.
In October, the Company rescinded 260,000 shares of common it issued
on September 14, 1998 to Mr. John Hwang, the President of the Company and Mr.
Ike Suri, a significant shareholder at that time. The Company values the
57
<PAGE>
services of these individuals and wishes to continue to benefit from their
services. The Company will enter into compensation agreements with them for
past and future services. The Company concluded it is prudent to rescind the
service contract to an unrelated third party which resulted in the issuance of
another 130,000 shares, also on September 14, 1998. The Company has placed a
hold on 100,000 shares and continues to negotiate with the third party on the
return of the remaining 30,000 shares. The Company also acknowledges that it
should compensate the party for past services.
On October 27, 1998, the Company signed a definitive agreement to
acquire 100% of the outstanding stock of privately held Multiwave Innovation
Pte. Ltd. This transaction is disclosed more fully below, under Authorization
to Acquire the Shares of Multiwave.
On January 8, 1999, the Company retained the New Mexico law firm of
Sutin, Thayer & Browne to be its corporate counsel. The firm is presently
engaged in assisting the Company with negotiations with IRC management for the
spin-off, in preparations for the annual shareholder meeting, acquisitions,
and other legal matters.
On February 1, 1999, Mr. Ike Suri, one of the Company's largest
shareholders and a director of Starlicon Group, Inc., Paradise's former parent
company, was appointed Chairman of the Board and Chief Executive
Officer of the Company.
CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
On August 24, 1998, the Company's Board of Directors voted to engage
Weinbaum & Yalamanchi of Los Angeles, California, to act as the Company's
independent certified public accountants. In view of the stock transaction
dated June 30, 1998 which in effect represented a change in control of the
Company, its management determined it best to conform its accountants to its
own accountants with whom it has an ongoing relationship. As a result, the
Company dismissed and replaced Atkinson & Co. Ltd., the former independent
certified public accountant. The former accountant's reports for the Company's
last two fiscal years did not contain any adverse opinion, nor disclaimer of
opinion, nor were any such reports modified as to uncertainty, audit scope or
accounting principles. There were no disagreements between the Company and the
former accountants with regard to any matters which would have caused such
accountants to make reference to the subject matter thereof with their report.
The former accountants did not advise the Company regarding any of
the following: the inadequacy of internal controls, the unreliability of
management representations, and the need to expand the scope of audits, the
fairness or reliability of previous audits. The Company, nor anyone on its
behalf, consulted Weinbaum & Yalamanchi regarding its views on the application
of accounting principles to a specified transaction before it was retained.
The management of IRC has indicated that it intends to engage
Atkinson & Co., Ltd., to perform the audit of IRC's financial statements for
its current year ending February 28, 1999.
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<PAGE>
ELECTION OF DIRECTORS
The Board of Directors proposes the election of 5 directors, each to
hold office for a term of one year until the next Annual Meeting and until
their respective successors are elected and qualified. Although it is not
anticipated that any of the nominees will decline or be unable to serve, if
that should occur, the proxyholders may, in their discretion, vote for
substitute nominees.
The following table sets forth the name, principal occupation, age
and the year in which the individual first became a director for each nominee,
and all persons nominated or chosen to become directors, together with all
positions and the office with the Company held by each such person and term or
period during which each has served, for election as a director at the annual
meeting of shareholders.
<TABLE>
<CAPTION>
Served as a
Name and Principal Occupation Age Director Since
<S> <C> <C>
John Hwang (1) 37 1998
Rodger Sykes (2) 42 1998
James Cunningham Sargent (3) 82 --
Ike Suri (4) 30 1999
Henry Tang (5) 49 1998
</TABLE>
(1) Mr. John Hwang was employed by Samsung America Inc. as a manager and
Vice President of Sales and Marketing for its computer and monitor
products from 1984 to 1991. Mr. Hwang served as Vice President of
Sales and Marketing for Relialogic Technology Corporation (RTC). In
1995, Mr. Hwang also served as the Vice President of Sales and
Marketing of Builders Warehouse Association, Inc. ("Builders"), as a
result of its acquisition of RTC. When Builders merged with Osicom
Technologies, he was appointed an officer of RTC and the executive-
in-charge of the Commercial and International Sales divisions. Mr.
Hwang was appointed President and to Unico's board of directors in
June 1998.
(2) Dr. Rodger W. Sykes received his BSEE and Ph.D. in Device Physics
from Durham University. He is currently Marketing and Business
Development Director for the Windows Systems IC (Integrated Circuits)
business unit of Philips Semiconductors in Mountain View, California.
He joined Philips Semiconductors in 1994 initially as Strategic
Product Marketing Director for the standard IC division, and later as
General Manager of the Paradise Multimedia business unit. Prior to
joining Philips, Dr. Sykes was worldwide ASIC (Application Specific
Integrated Circuits) business manager at Texas Instruments Ltd. in
Dallas, Texas. Dr. Sykes was appointed to Unico's board of directors
and to its Audit Committee in June 1998.
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<PAGE>
(3) James Cunningham Sargent received a B.A. degree in 1938 and an L.L.B.
degree in 1940 from the University of Virginia. Mr. Sargent was
admitted to the bar in both New York State in 1940 and the District
of Columbia in 1961. From 1955 to 1956, he was the Regional
Administrator of the Securities and Exchange Commission's New York
office. From 1956 to 1960, on appointment of President Eisenhower,
with the advice and consent of the United States Senate, he served as
a Commissioner of the Securities and Exchange Commission. Throughout
Mr. Sargent's career, he has held positions in legal firms, such as
with Spence and Hotchkiss (1954-1955), a New York law firm; in
government, such as assistant attorney general for the State of
New York (1948); and in corporations, such as associate general
counsel for CIT Finance Corp. (1960-1964). From 1970 to 1994, he was
a partner with Whitman & Ransom, a New York law firm. He was also a
guest lecturer at many law schools throughout the country. Mr.
Sargent served in the armed forces as Captain in the United States
Air Force (1942-1946). He is currently on the faculty at the
Practicing Law Institute and of counsel to Opton, Handler, Gottlieb,
Feiler & Katz in New York City.
(4) Mr. Ike Suri is a Director of Starlicon Group, Inc., the former
parent of Paradise Innovations, Inc., an operating subsidiary of the
Company. Mr. Suri is also the Director of Azemuth, Inc., a firm
engaged in private and public investments and consulting, and of
Corinthian Partners Capital, Inc. From 1994 to 1996, he was a
Director of Pacific Rim Entertainment, Inc. then a publicly traded
company in the film animation industry. From 1996 to 1999, through
Azemuth and Corinthian, he provided management consulting services as
Azemuth, assisting primarily high technology companies to achieve
their strategic goals. Mr. Suri joined the Company on February 1,
1999 as Chairman of the Board and Chief Executive Officer.
(5) Mr. Henry Tang received an A.B. degree in Economics and Political
Science from the University of California at Berkeley in 1972 and a
MBA in finance from the Stern School of Business at New York
University in 1982. From 1984 to 1991, he worked for Citibank, in New
York and Los Angeles, in both treasury management consulting and in
Capital Markets, where he originated auction preferred stock. From
1991 to 1996, he advised firms such as Levi Strauss, the apparel
company and York Foods, a packaged goods company, on financial and
strategic issues, and was the CFO of a startup managed health care
company, Preferred Health Care of California. Most recently, from
1996 to 1998, he was Senior Strategic Planner for Visa International,
the credit card management association. He joined the Company in
August of 1998 and was appointed Corporate Secretary on September 24,
1999. He is also the Vice President of Finance and Operations, and
Chief Financial Officer of the Company.
Vote Required
Election of Directors requires the affirmative vote of the holders of
a majority of the shares entitled to vote. In accordance with New Mexico law,
abstentions of entitled shares are not counted as affirmative votes and
therefore function as a vote against election. Broker non-votes are not
tabulated.
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Meetings of the Board of Directors and Standing Committees
Attendance at Board Meetings. The present Board of Directors has met,
via teleconference, on various occasions since their appointments in June
1998. The previous Board of Directors, which resigned as of June 30, 1998 in
conjunction with the Acquisition, met 3 times during the last fiscal year.
Attendance at such meetings of the Board was 100%. During the last fiscal
year, each director attended 100% of (a) all meetings of the Board; and (b)
all meetings of the committees of the Board on which such director served.
Standing Committees. The Company has certain standing committees,
each of which is described below.
The Audit Committee presently consists of Messrs. Tang and
Sargent and Dr. Sykes. Mr. Tang serves as the Chairman of the
Committee. The Committee is responsible for reviewing the results of
independent audits, the accounting policies of management, and
recommends to the Board the appointment of the Company's outside
auditors. The Committee held one meeting during the last fiscal year.
The previous Audit Committee consisted of Messrs. Hagler, and Hickey.
The previous Committee held one meeting during the last fiscal year.
The Compensation Committee consists of Messrs. Hwang,
Sargent, and Dr. Sykes. The Committee reviews and makes
recommendations to the Board of Directors regarding compensation for
the Company's officers and employees. In addition to compensation
matters, the Committee determines, develops, and makes
recommendations to the Board regarding employee benefits packages,
and special stock option and stock bonus plans. This Committee held
one meeting since its formation in June 1998. The previous
Compensation Committee consisted of Messrs. Hagler, Watson and
Hickey. The previous Committee did not meet during the last fiscal
year.
EXECUTIVE OFFICERS
The executive officers of Unico, together with the years in which
such officers were named to their present offices, are as follows:
<TABLE>
<CAPTION>
Present Position
Name Position with Company Held Since
- ------------------- ----------------------------------- -----------------
<S> <C> <C>
Ike Suri Chairman of Board, Chief Executive Feb 1999
Officer & Director
John S. Hwang President & Director Jun 1998
Henry Tang Vice President Finance & Operations, Aug 1998
Chief Financial Officer,
Corporate Secretary & Director
</TABLE>
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Summary Compensation Tables - Management Compensation
The following table contains information concerning the most highly
compensated current and former executive officers of the Company, for the
three fiscal years ended June 30, 1998, whose cash compensation, on an annual
basis, exceeded $100,000.
<TABLE>
<CAPTION>
Name and Principal Position Year Salary Bonus Other
---- -------- -------- ----------
<S> <C> <C> <C> <C>
Ike Suri, Chairman of the Board 1998 $ 0 $ 0 $ 0(1)
1997 0 0 0(1)
1996 0 0 0(1)
John Hwang, President 1998 $ 0 $ 0 $ 0(2)
1997 0 0 0(2)
1996 0 0 0(2)
William N. Hagler, President IRC 1998 $101,163 $ 0 $ 0
1997 99,827 0 0
1996 96,740 0 1,441(3)
</TABLE>
(1) Mr. Suri joined the Company as Chairman of the Board and Chief
Executive Officer on February 1, 1999 and therefore did not receive
any compensation from the Company during the periods required to be
reported under this caption. His annual compensation for the
remainder of the 1999 fiscal year is $144,000, exclusive of any
bonuses and options yet to be determined.
(2) Mr. Hwang joined the Company as President on July 1, 1998 and
therefore did not receive any compensation from the Company during
the periods required to be reported under this caption. Mr. Hwang's
base salary, exclusive of any bonus and other compensation yet to be
determined, has been established at $102,000 for the 1999 fiscal
year. On January 27th, 1999, he was granted options to buy 60,000
shares at $1 1/8, to be vested 20% immediately and 20% at each
anniversary date of the granting of the options.
(3) Includes discretionary employer 401(k) contributions totaling $2,222
for all officers including $1,441 for Mr. Hagler during 1996. There
were no 401(k) contributions during 1997 and 1998.
Compensation of Directors
Non-employee Directors of the Company were awarded options to
purchase 10,000 the Company's common stock at $1 1/8 on January 27th, 1999,
vesting 20% immediately and 20% at each anniversary date of the granting of
the options. New Directors will be granted options on an identical vesting
schedule with strike prices as of the closing on the day they join the Board.
For each year of service, additional awards will be made. The term of the
options is for ten years.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has been involved in various related party transactions
with certain Directors, Officers of the Company, beneficial owners of 10% or
more of the outstanding stock of the Company, and/or entities controlled or
affiliated with such individuals. The following sets forth the relationship,
through the ownership of securities, between Unico or its subsidiaries and the
following individuals and entities involved in transactions exceeding $60,000
during the last two fiscal years:
(1) In July 1997, Paradise acquired the business and certain assets of
Paradise Multimedia from Relialogic Technologies Corporation ("RTC"),
a subsidiary of Osicom Technologies, Inc. ("Osicom"). John Hwang was
an officer of RTC prior to his appointment as President and director
of Unico in June 1998. For a period of approximately nine months
prior to the acquisition, Paradise sold approximately $393,000 of
products to RTC.
(2) During the nine months ended July 1997, Paradise purchased
approximately $323,000 of products from Luna International, Inc.
("Luna"), a company with which John Hwang had an agreement for
representation.
(3) In conjunction with the acquisition of Paradise Multimedia in June
1997, Paradise assumed a $100,000 note payable by John Hwang to RTC.
In November 1997, Luna contributed $100,000 to the Paradise's
capital.
(4) In November 1997, Starlicon Group Inc. assumed $588,000 of debt owed
to RTC by Paradise as a contribution of capital to Paradise.
(5) In February 1998, William N. Hagler, President and a Director of IRC,
offered to convert $178,000 face value 10.5% convertible subordinated
debentures into common stock of Unico at a conversion price of $1.40
per share. In addition, Mr. Hagler requested that accrued interest on
the debentures be paid to him by the issuance of common stock priced
at $1.40 per share and that warrants to purchase 11,125 shares of
common stock, which were attached to the debentures, be amended to
reflect an exercise price of $1.40 per share and the expiration date
extended to December 31, 1999. Unico accepted Mr. Hagler's offer and
on February 28, 1998 issued 142,718 shares of common stock to Mr.
Hagler in exchange for cancellation of the $178,000 face value
debentures and accrued interest of $21,805.
(6) On November 1, 1996 IRC, a wholly owned subsidiary of Unico, issued
an 8% $325,000 revolving line of credit to Red Hills Manufacturing,
Inc. ("RHMCO"), a New Mexico Corporation, which is collectively
controlled by William N. Hagler and Rick L. Hurt who are both
previous officers and directors of Unico and are presently officers
and directors of IRC. The line of credit was issued to RHMCO for the
purpose of purchasing certain equipment and for start-up working
capital requirements of RHMCO. During calendar 1997, the maximum
balance under the credit line was $433,000 and the balance due to IRC
as of June 30, 1998 was $84,000. The note is secured by cash,
accounts receivable, inventories and equipment owned by RHMCO. To
date, neither Mr. Hagler nor Mr. Hurt has received any payments in
the form of compensation or dividends from RHMCO.
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(7) In conjunction with the acquisition of Paradise by Unico in June
1998, Unico issued 547,169 shares of common stock to Azemuth Inc., a
company owned by Mr. Ike Suri who is major shareholder of Paradise,
in connection with consulting services performed in conjunction with
the acquisition.
(8) In conjunction with the acquisition of Paradise by Unico in June
1998, Unico issued 100,000 and 50,000 warrants to purchase Unico
common stock to Mr. William N. Hagler and Mr. Rick L. Hurt,
respectively. The exercise price of the warrants is $1.40 per share
and the warrants are exercisable at any time until December 1, 2006.
SECTION 16 COMPLIANCE
Based upon a review of the original and amended Forms 3 and 4
furnished to the Company during its last fiscal year and the original and
amended Forms 5 furnished to the Company with regard to its last fiscal year,
the Company does not know of any person who failed to file on a timely basis
any reports required by Section 16(a) of the Securities Exchange Act of 1934,
as amended.
APPROVAL AND SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed the firm of Weinbaum &
Yalamanchi, independent auditors, as the Company's auditors for the fiscal
year ending June 30, 1999, subject to approval of and ratification by the
shareholders. Weinbaum & Yalamanchi, located in Los Angeles, California, has
had an ongoing relationship with Paradise and is knowledgeable of the business
affairs of the Company.
The Company expects one or more representative of Weinbaum &
Yalamanchi to attend the Annual Meeting in order to respond to any appropriate
questions.
The Board of Directors recommends a vote "For" the approval and
ratification of the appointment of Weinbaum & Yalamanchi.
Vote Required
Approval of the appointment of Weinbaum & Yalamanchi as the Company
auditors requires the affirmative vote of the holders of a majority of the
shares entitled to vote. In accordance with New Mexico law, abstentions and
of entitled shares are not counted as affirmative votes and therefore function
as a vote against approval. Broker non-votes are not tabulated.
RATIFICATION AND APPROVAL OF STOCK OPTION AND INCENTIVE PLANS
The Board of Directors has approved the implementation of the Stock
Option Plan for Non-Employee Directors and the Incentive Equity Plan for the
benefit of executive officers and other employees and seeks the ratification
and approval of the plans by shareholders.
APPROVAL OF THE INCENTIVE EQUITY PLAN
The Board of Directors adopted the Incentive Equity Plan of the
Company (the "Incentive Plan") on December 18, 1998, subject to approval by
the shareholders of the Company at the Annual Meeting.
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PRIOR HISTORY OF EMPLOYEE STOCK OPTION PLANS
The Company has never provided a stock option plan for the benefit of
any of its employees. In 1989, the Company implemented the Unico, Inc.
Employee Stock Ownership Plan and Trust ("ESOP"), for the benefit of all of
its full time employees, including its own corporate officers and officers and
employees of wholly owned subsidiaries. Contributions of Company stock were
made to the ESOP from time to time at the discretion of the Company. Due to a
declining employee base and escalating costs associated with administration of
the ESOP, the Company elected to terminate the ESOP in February 1998. All of
the shares previously held by the ESOP have been distributed to the
beneficiaries.
PURPOSE OF THE INCENTIVE PLAN
The purpose of the Incentive Plan is to enable the Company to attract
officers and other employees and consultants and to provide them with
appropriate incentives and rewards for superior performance. The Incentive
Plan affords the Company the ability to respond to changes in the competitive
and legal environments by providing the Company with greater flexibility in
employee and executive compensation. This plan is designed to be an omnibus
plan allowing the Company to grant a wide range of compensatory awards
including stock options, stock appreciation rights, restricted stock, deferred
stock and performance shares or units. The Incentive Plan is intended to
encourage stock ownership by recipients by providing for or increasing their
proprietary interests in the Company, thereby encouraging them to remain in
the Company's employment. The Incentive Plan has been prepared to comply with
all applicable tax and securities laws, including Section 16(b) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and state
and federal tax laws.
DESCRIPTION OF THE INCENTIVE PLAN
General
The following general description of material features of the
Incentive Plan is qualified in its entirety by reference to the Incentive
Plan. Subject to adjustment as provided in the Incentive Plan, the number of
shares of Common Stock that may be issued or transferred, plus the amount of
shares of Common Stock covered by outstanding awards granted under the
Incentive Plan, shall not in the aggregate exceed 500,000 shares. The number
of Performance Units granted under the Incentive Plan shall not in the
aggregate exceed 100,000 units. The number of shares of Common Stock granted
under the Incentive Plan to any individual in any calendar year shall not in
the aggregate exceed 100,000 shares.
Eligibility
Officers, including officers who are members of the Board of
Directors, and other employees of and consultants to the Company may be
selected by the Committee (as defined below) to receive benefits under the
Incentive Plan. Currently there are 21 employees of which 3 are officers. The
Company is finalizing the acquisition of Multiwave Innovation Pte. Ltd. Upon
closing, an additional 59 employees will become eligible under the Incentive
Equity Plan.
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Terms of Options and Other Possible Awards
The Incentive Plan authorizes the granting of options to purchase
shares of Common Stock ("Option Rights"), stock appreciation rights
("Appreciation Rights"), restricted shares ("Restricted Shares"), deferred
shares ("Deferred Shares"), performance shares ("Performance Shares") and
performance units ("Performance Units"). The terms applicable to these various
types of awards, including those terms that may be established by the
Committee when making or administering particular awards, are set forth in
detail in the Incentive Plan.
Option Rights. The Committee may grant Option Rights that entitle the
optionee to purchase shares of Common Stock at a price less than, equal to or
greater than market value on the date of grant. The option price is payable at
the time of exercise (i) in cash or cash equivalent, (ii) by the transfer to
the Company of shares of Common Stock that are already owned by the optionee
and have a value at the time of exercise equal to the option price, (iii) with
any other legal consideration the Committee may deem appropriate or (iv) by
any combination of the foregoing methods of payment. Any grant may provide for
deferred payment of the option price from the proceeds of sale through a
broker on the date of exercise of some or all of the shares of Common Stock to
which the exercise relates. The Committee has the authority to specify at any
time that Restricted Shares or other shares of Common Stock which are subject
to risk of forfeiture or restrictions on transfer will be accepted for part or
all of the option price. In such event, the Committee may provide that the
shares of Common Stock received upon exercise of the stock option will not be
subject to the same risks of forfeiture or restrictions on transfer which
applied to the shares used as payment for the option price. The Committee may
also provide that additional Option Rights will automatically be granted to an
optionee upon the exercise of Option Rights.
Option Rights granted under the Incentive Plan may be Option Rights
that are intended to qualify as incentive stock options ("ISOs") within the
meaning of Section 422 of the Internal Revenue Code of 1986 ("Code") or Option
Rights that are not intended to so qualify. The Incentive Plan permits the
granting of incentive stock options or non-qualified stock options at the
discretion of the Committee. The exercise price for nonqualified stock options
granted may not be less than 85% of the fair market value per share of Common
Stock on the date of grant. The exercise price for ISOs may not be less than
the fair market value per share of Common Stock on the date of grant, and ISOs
granted to persons owning more than 10% of the Company's voting stock must
have an exercise price of not less than 110% of the fair market value per
share of Common Stock on the date of grant. All options granted must be
exercised within ten years of grant, except that ISOs granted to 10% or more
shareholders must be exercised within five years of grant. The aggregate
market value (as determined as of the date of grant) of the Common Stock for
which any optionee may be awarded ISOs which are first exercisable by such
optionee during any calendar year may not exceed $100,000. At or after the
date of grant of any non-qualified Option Rights, the Committee may provide
for the payment of dividend equivalents to the optionee on a current, deferred
or contingent basis or may provide that dividend equivalents be credited
against the option price.
Each grant must specify the conditions, including as and to the
extent determined by the Committee, the period or periods of continuous
employment or continuous engagement of consulting services of the optionee by
the Company or any subsidiary, or the achievement of Management Objectives (as
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<PAGE>
defined in the Incentive Plan), that are necessary before the Option Rights
will become exercisable, and may provide for the earlier exercise of the
Option Rights, including, without limitation, in the event of a change in
control of the Company or other similar transaction or event. Successive
grants may be made to the same optionee regardless of whether Option Rights
previously granted to him or her remain unexercised.
Appreciation Rights. Appreciation Rights granted under the Incentive
Plan may be either free-standing or granted in tandem with Option Rights. An
Appreciation Right represents the right to receive from the Company the
difference ("Spread"), or a percentage thereof not in excess of 100 percent,
between the base price per share of Common Stock in the case of a
free-standing Appreciation Right, or the option price of the related Option
Right in the case of a tandem Appreciation Right, and the market value of the
Common Stock on the date of exercise of the Appreciation Right. Tandem
Appreciation Rights may only be exercised at a time when the related Option
Right is exercisable and the Spread is positive, and the exercise of a tandem
Appreciation Right requires the surrender of the related Option Right for
cancellation.
A free-standing Appreciation Right must have a base price that is at
least equal to the fair market value of a share of Common Stock on the date of
grant, must specify the conditions, including as and to the extent determined
by the Committee, the period of continuous employment or continuous engagement
of consulting services, or the achievement of Management Objectives, that are
necessary before the Appreciation Right becomes exercisable (except that it
may provide for its earlier exercise, including, without limitation, in the
event of a change in control of the Company or other similar transaction or
event) and may not be exercised more than 10 years from the date of grant. Any
grant of Appreciation Rights may specify that the amount payable by the
Company upon exercise may be paid in cash, shares of Common Stock or a
combination thereof, and the Committee may either reserve or grant to the
recipient the right to elect among those alternatives. The Committee may
provide with respect to any grant of Appreciation Rights for the payment of
dividend equivalents thereon in cash or Common Stock on a current, deferred or
contingent basis.
Restricted Shares. An award of Restricted Shares involves the
immediate transfer by the Company to a participant of ownership of a specific
number of shares of restricted or legended Common Stock in consideration of
the performance of services or, as and to the extent determined by the
Committee, the achievement of Management Objectives. The participant is
entitled immediately to voting, dividend and other ownership rights in the
shares. The transfer may be made without additional consideration from the
participant or in consideration of a payment by the participant that is less
than the market value of the shares on the date of grant, as the Committee may
determine.
Restricted Shares must be subject to a "substantial risk of
forfeiture" within the meaning of Section 83 of the Code for a period to be
determined by the Committee. An example would be a provision that the
Restricted Shares would be forfeited if the participant ceased to serve the
Company as an officer or consultant or other employee during a specified
period of years. In order to enforce these forfeiture provisions, the
transferability of Restricted Shares will be prohibited or restricted in a
manner and to the extent prescribed by the Committee for the period during
which the forfeiture provisions are to continue. The Committee may provide for
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a shorter period during which the forfeiture provisions are to apply,
including, without limitation, in the event of a change in control of the
Company or other similar transaction or event.
Deferred Shares. An award of Deferred Shares constitutes an agreement
by the Company to deliver shares of Common Stock to the participant in the
future in consideration of the performance of services, subject to the
fulfillment of such conditions during the Deferral Period (as defined in the
Incentive Plan) as the Committee may specify. During the Deferral Period, the
participant has no right to transfer any rights under the award and no right
to vote the shares covered by the award. On or after the date of any grant of
Deferred Shares, the Committee may authorize the payment of dividend
equivalents thereon on a current, deferred or contingent basis in either cash
or additional shares of Common Stock. Grants of Deferred Shares may be made
without additional consideration from the participant or for consideration in
an amount that is less than the market value of the shares on the date of
grant. Deferred Shares must be subject to a Deferral Period, as determined by
the Committee on the date of grant, except that the Committee may provide for
a shorter Deferral Period, including, without limitation, in the event of a
change in control of the Company or other similar transaction or event.
Performance Shares and Performance Units. A Performance Share is the
equivalent of one share of Common Stock, and a Performance Unit is the
equivalent of $1.00. A participant may be granted any number of Performance
Shares or Performance Units. The participant will be given one or more
Management Objectives to meet within a specified period ("Performance Period")
which may be subject to earlier termination, including, without limitation, in
the event of a change in control of the Company or other similar transaction
or event. A minimum level of acceptable achievement will also be established
by the Committee. If by the end of the Performance Period the participant has
achieved the specified Management Objectives, he or she will be deemed to have
fully earned the Performance Shares or Performance Units, as the case may be.
If the participant has not achieved the Management Objectives but has attained
or exceeded the predetermined minimum level of acceptable achievement, he or
she will be deemed to have partly earned the Performance Shares or Performance
Units, as the case may be, in accordance with a predetermined formula. To the
extent earned, the Performance Shares or Performance Units, as the case may
be, will be paid to the participant at the time and in the manner determined
by the committee in cash, shares of Common Stock or any combination thereof,
and the Committee may either grant to the recipient or retain the right to
elect among these alternatives. At or after the date of grant of any
Performance Shares, the Committee may provide for the payment of dividend
equivalents to the optionee on a current, deferred or contingent basis.
Management Objectives
Management Objectives mean the achievement of performance objectives
established pursuant to the Incentive Plan. The Committee may adjust
Management Objectives and related minimum acceptable levels of achievement if
events or transactions have occurred after the date an award was granted that
are unrelated to the performance of the participant and result in distortion
of the Management Objectives or the related minimum levels. Management
Objectives may be described in terms of either Company-wide objectives or
objectives that are related to the performance of the individual participant
or the division, subsidiary, department or function within the Company or
within a subsidiary in which the participant is employed or with respect to
which the participant provides consulting services.
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Transferability
No Option Right, or other "derivative security" within the meaning of
Rule 16b-3 under the Exchange Act, is transferable by a participant except by
will or the laws of descent and distribution. Option Rights and Appreciation
Rights may not be exercised during a participant's lifetime except by the
participant or, in the event of his or her incapacity, by his or her guardian
or legal representative acting in a fiduciary capacity on behalf of the
participant under state law and under court supervision.
Adjustments
The maximum number of shares of Common Stock that may be issued or
transferred under the Incentive Plan, the number of shares covered by
outstanding awards and the option prices or base prices per share applicable
thereto, are subject to adjustment in the event of stock dividends, stock
splits, combinations of shares, recapitalizations, mergers, consolidations,
spin-offs, reorganizations, liquidations, issuances of rights or warrants, and
similar transactions or events. In the event of any such transaction or event,
the Committee may in its discretion provide in substitution for any or all
outstanding awards under the Incentive Plan such alternative consideration as
it may in good faith determine to be equitable in the circumstances and may
require the surrender of all awards so replaced.
Administration and Amendments
The Incentive Plan is to be administered by a committee ("Committee")
of the Board of Directors which shall consist of not less than two directors,
each of whom is a "non-employee director" within the meaning of Rule 16b-3
under the Exchange Act. In connection with its administration of the Incentive
Plan, the Committee is authorized to interpret the Incentive Plan and related
agreements and other related documents. The Committee may make grants to
participants under any or under a combination of all of the various categories
of awards that are authorized under the Incentive Plan. The Committee may with
the concurrence of the affected participant cancel any agreement evidencing an
award granted under the Incentive Plan. In the event of any such cancellation,
the Committee may authorize the granting of a new award under the Incentive
Plan in such manner, at such price and subject to such other terms, conditions
and discretion as would have been applicable under the Incentive Plan had the
canceled award not been granted. The Committee may also grant any award or
combination of awards authorized under the Incentive Plan, including without
limitation, an award that as granted prior to the adoption of the Incentive
Plan, and any such award or combination of awards so granted under the
Incentive Plan may or may not cover the same number of shares of Common Stock
as had been covered by the canceled award and will be subject to such other
terms, conditions and discretion as would have been permitted under the
Incentive Plan had the canceled award not been granted.
The Incentive Plan may be amended from time to time by the Committee,
and without further approval by the Shareholders of the Company but no such
amendment (unless expressly allowed pursuant to the adjustment provisions
described above) may (i) increase the aggregate number of shares that may be
issued or transferred plus the amount of shares covered by outstanding awards,
or increase the aggregate number of Performance Units that may be granted
thereunder or (ii) otherwise cause the provisions under Rule 16b-3 under the
Exchange Act to cease to be applicable to the Incentive Plan.
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Federal Income Tax Consequences to Participants in Plan
The following is a brief summary of the material federal income tax
consequences of certain transactions under the Incentive Plan. This summary is
not intended to be exhaustive and does not describe state or local tax
consequences.
Non-qualified Option Rights. In general: (i) no income will be
recognized by an optionee at the time a non-qualified Option Right is granted;
(ii) at the time of exercise of a non-qualified Option Right, ordinary income
will be recognized by the optionee in an amount equal to the difference
between the option price paid for the shares and the fair market value of the
shares if such shares are nonrestricted on the date of exercise; and (iii) at
the time of sale of shares acquired pursuant to the exercise of a nonqualified
Option Right, any appreciation (or depreciation) in the value of the shares
after the date of exercise will be treated as either short-term or long-term
capital gain (or loss), depending on how long the shares have been held.
Incentive Stock Options. No income generally will be recognized by an
optionee upon the grant or exercise of an incentive stock option. If shares of
Common Stock are issued to an optionee pursuant to the exercise of an
incentive stock option and no disqualifying disposition of the shares is made
by the optionee within two years after the date of grant or within one year
after the transfer of the shares to the optionee, then upon the sale of the
shares any amount realized in excess of the option price will be taxed to the
optionee as long-term capital gain and any loss sustained will be a long-term
capital loss.
If shares of Common Stock acquired upon the exercise of an incentive
stock option are disposed of prior to the expiration of either the holding
period described above, the optionee generally will recognize ordinary income
in the year of disposition in an amount equal to any excess of the fair market
value of the shares at the time of exercise (or, if less, the amount realized
on the disposition of the shares in a sale or exchange) over the option price
paid for the shares. Any further gain (or loss) realized by the optionee
generally will be taxed as short-term or long-term capital gain (or loss)
depending on the holding period.
Appreciation Rights. No income will be recognized by a participant in
connection with the grant of an Appreciation Right. When the Appreciation
Right is exercised, the participant normally will be required to include as
taxable ordinary income in the year of exercise an amount of cash, and the
fair market value of any nonrestricted shares of Common Stock, received
pursuant to the exercise. In limited circumstances, however, the Internal
Revenue Service ("IRS") may contend that the holder of a free-standing
appreciation right is in constructive receipt of ordinary income before the
Appreciation Right is actually exercised if (i) a maximum limitation on the
amount payable upon exercise of the Appreciation Right at a time when the
Appreciation Right is imposed and (ii) the maximum limitation is reached prior
to the exercise of the Appreciation Right at a time when the Appreciation
Right is exercisable.
Restricted Shares. A recipient of Restricted Shares generally will be
subject to tax at ordinary income rates on the fair market value of the
Restricted Shares reduced by any amount paid by the recipient at such time as
the shares are no longer subject to a risk of forfeiture or restrictions on
transfer for purposes of Section 83 of the Internal Revenue Code ("the Code").
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However, a recipient who so elects under Section 83(b) of the Code within 30
days of the date of transfer of the shares will have taxable ordinary income
on the date of transfer of the shares equal to the excess of the fair market
value of the share (determined without regard to the risk of forfeiture or
restrictions on transfer) over any purchase price paid for the shares. If a
Section 83(b) election has not been made, any non-restricted dividends
received with respect to Restricted Shares that are subject at that time to a
risk of forfeiture or restrictions on transfer generally will be treated as
compensation that is taxable as ordinary income to the recipient.
Deferred Shares. No income generally will be recognized upon the
grant of Deferred Shares. The recipient of a grant of Deferred Shares
generally will be subject to tax at ordinary income rates on the fair market
value of nonrestricted shares of Common Stock on the date that the Deferred
Shares are transferred to the recipient, reduced by any amount paid by the
recipient, and the capital gain or loss holding periods for the Deferred
Shares will also commence on that date.
Performance Shares and Performance Units. No income generally will be
recognized upon the grant of Performance Shares or Performances Units. Upon
payment in respect of the earn-out of Performance Shares or Performance Units,
the recipient generally will be required to include as taxable ordinary income
in the year of receipt an amount equal to the amount of cash received and the
fair market value of any nonrestricted shares of Common Stock received.
Special Rules Applicable to Officers and Directors
In limited circumstances where the sale of stock that is received as
the result of a grant of an award could subject an officer or director to suit
under Section 16(b) of the Exchange Act, the tax consequences to the officer
or director may differ from the tax consequences described above. In these
circumstances, unless a special election has been made, the principal
difference usually will be to postpone valuation and taxation of the stock
received so long as the sale of stock received could subject the officer or
director to suit under Section 16(b) of the Exchange Act, but no longer than
for six months.
Tax Consequences to the Company
To the extent that a participant recognizes ordinary income in the
circumstance described above, the Company will be entitled to a corresponding
deduction provided that, among other things, (i) the income meets the test of
reasonableness, is an ordinary and necessary business expense, is not subject
to the annual compensation limitation set forth in Section 162(m) of the Code
and is not an "excess parachute payment" within the meaning of Section 280G of
the Code and (ii) any applicable withholding obligations are satisfied.
Vote Required
If this plan is adopted, employee Directors Ike Suri, John Hwang, and
Henry Tang may receive additional shares of common stock. The Company's Board
of Directors recommends a vote FOR approval and ratification of the Incentive
Equity Plan. Approval and ratification of the Incentive Equity Plan requires
the affirmative vote of the holders of a majority of the shares entitled to
vote. In accordance with New Mexico law, abstentions of entitled shares are
not counted as affirmative votes and therefore function as a vote against
approval. Broker non-votes are not tabulated.
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APPROVAL OF THE STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
The Board of Directors adopted the Stock Option Plan for Non-Employee
Directors of the Company (the "Directors Plan") on December 18, 1998, subject
to approval by the shareholders of the Company at the Annual Meeting.
PRIOR HISTORY OF DIRECTORS STOCK OPTION PLANS
The Company, in the past, has never provided a Stock Option Plan or
Plan of Compensation for non-employee directors.
DESCRIPTION OF THE DIRECTORS PLAN
General
The following general description of material features of the
Directors Plan is qualified in its entirety by reference to the Directors
Plan. The Directors Plan is intended to encourage outside Directors of the
Company to own shares of the Company's stock and thereby to align their
interests more closely with the interests of the other shareholders of the
Company, to encourage the highest level of outside Director performance by
providing such Directors with a direct interest in the Company's attainment of
its financial goals, and to provide financial incentives that will help
attract and retain the most qualified outside Directors.
Administration and Eligibility
The Directors Plan will be administered by a committee ("Committee")
of the Board of Directors, consisting of not less than two members of the
Board. Only members of the Board of Directors who are not employees of the
Company (each a "Director") will be eligible to participate in the Directors
Plan. For purposes of the Directors Plan, an "employee" is a person whose
compensation from the Company is subject to withholding under the Internal
Revenue Code ("the Code"). Currently, of the five Directors and nominees for
Director, only Dr. Sykes and Mr. Sargent would qualify for the issuance of
options under the Directors Plan.
Maximum Shares
Subject to adjustment as described below, the number of shares issued
or transferred, plus the number of shares covered by outstanding options under
the Directors Plan shall not exceed 250,000 shares of Common Stock. Shares of
Common Stock covered by an option, which option is canceled or terminated,
will again be available to be issued or to be the subject of a stock option
granted under the Directors Plan.
Initial Options
Each nonemployee Director of the Company, who is a Director on the
effective date of the Directors Plan is granted an immediate option to
purchase 10,000 shares of Common Stock, and will also receive automatic grants
of additional options to purchase 10,000 shares of Common Stock on the first
day after each succeeding Annual Meeting thereafter for so long as he or she
continues to serve as a Director. Individuals becoming Directors after the
effective date of the Directors Plan receive an immediate option to purchase
10,000 shares of Common Stock, and will also receive automatic grants of
additional options to purchase 10,000 shares of Common Stock on the first day
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following the next Shareholders' Annual Meeting thereafter, for so long as he
or she continues to serve as a Director, provided that he or she has served as
a Director for at least six months prior thereto.
The exercise price of the options granted is equal to the fair market
value per share of Common Stock on the date of grant. Options granted under
the Directors Plan shall become exercisable to the extent of 20% of the Common
Shares subject thereto on the Date of Grant and to the extent of an additional
20% of the Common Shares subject thereto after each of the first four
anniversaries of such date, for so long as the Optionee Director continues to
serve as a member of the Board. To the extent exercisable, each Nonqualified
Option, as defined below, shall be exercisable in whole or in part from time
to time.
In the event a grantee ceases to be a Director of the Company, vested
options granted to nonemployee Directors must be exercised within three months
after the Director's termination (in the event that termination was due to
other than death or disability), or one year after termination (in the event
that termination was due to death or disability), or by the tenth anniversary
of the date of grant, whichever occurs first. All awards under the Directors
Plan may be only non-qualified stock options.
Purchase Price
The purchase price of stock options granted under the Directors Plan
may be paid in cash, shares of Common Stock held by the optionee for at least
six months, or a combination thereof. Shares of Common Stock issued pursuant
to the Directors Plan may be authorized but unissued shares or treasury
shares. Fractional shares will not be issued in connection with the exercise
of a stock option, and cash in lieu thereof will be paid by the Company.
Change in Control
Upon a Change in Control, all Option Rights that would become
exercisable through the Company's next Annual Shareholders' Meeting following
a Change in Control will become immediately exercisable in full. If any event
or series of events constituting a Change in Control is abandoned, the effect
thereof will be null and the exercisability of Option Rights will be governed
by the provisions of the Directors Plan described above. The Directors Plan
defines a Change in Control as the occurrence of any of the following events:
(i) execution by the Company of an agreement for the merger, consolidation or
reorganization into or with another corporation or other legal person, unless
as a result of such transaction not less than a majority of the combined
voting power of the then-outstanding securities of such corporation or person
immediately after such transaction are held in the aggregate by holders of
securities entitled to vote generally in the election of Directors of the
Company ("Voting Securities") immediately prior to such transaction; (ii)
execution by the Company of an agreement for the sale or other transfer of all
or substantially all of its assets to another corporation or legal person,
unless as a result of such transaction not less than a majority of the
combined voting power of the then-outstanding securities of such corporation
or legal person immediately after such transaction is held in the aggregate by
the holders of Voting Securities of the Company immediately prior to such
transaction; (iii) a report is filed on Schedule 13D or Schedule 14D-1
disclosing that any person (other than a person who holds more than 10% of the
Common Stock on the date of consummation of the Offering) has or intends to
become the beneficial owner of a majority or more of the combined voting power
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of the then-outstanding Voting Securities; (iv) during any period of two
consecutive years, individuals who at the beginning of any such period
constitute at least a majority thereof (each Director first elected or first
nominated for election by a vote of at least two-thirds of the Directors then
in office who were Directors of the Company at the beginning of any such
period being deemed to have been a Director of the Company at the beginning of
such period); or (v) the Company adopts a plan for the liquidation or
dissolution of the Company other than pursuant to a merger, consolidation or
reorganization which would not constitute a Change in Control, as described in
clause (i) above.
Adjustment
The Committee will make or provide for adjustments to the maximum
number of shares issuable pursuant to the Directors Plan, the number and kind
of shares of Common Stock or other securities that are covered by outstanding
options, and the option price applicable to outstanding options as the
Committee will in good faith determine to be equitably required to prevent
dilution or expansion of the rights of optionees which would otherwise result
from any stock dividend, stock split, combination of shares, recapitalization
or other change in the capital structure of the Company, any merger,
consolidation, spin-off, split-off, spin-out, split-up, reorganization,
partial or complete liquidation or other distribution of assets, issuance of
warrants or other rights to purchase securities or any other corporate
transaction or event having an effect similar to any of the foregoing.
Amendment or Termination
The Board of Directors may at any time amend or terminate the
Directors Plan. Notwithstanding the foregoing, (i) except for the adjustments
described above, without the approval of the shareholders of the Company, no
such amendment will increase the maximum number of shares covered by the
Directors Plan, materially modify the requirements as to eligibility for
participation in the Directors Plan, or otherwise cause the Director Plan or
any grant, award or election made pursuant thereto to cease to satisfy any
applicable condition of Rule 16b-3 promulgated under the Exchange Act, (ii) no
such amendment will cause any Director to fail to qualify as a "non-employee
director" within the meaning of Rule 16b-3, (iii) provisions relating to the
amount and price of securities to be awarded ant the timing of awards under
the Director Plan will not be amended more than once every six months, other
than to comport with changes in the Code, the Employment Retirement Income
Security Act, or the rules promulgated thereunder and (iv) no amendment or
termination will adversely affect any outstanding award without the consent of
the Director holding such award.
Other Provisions
No Option Rights may be granted under the Directors Plan more than
ten years after the date of approval of the Directors Plan by the Company's
shareholders.
Federal Income Tax Consequences
A Director who receives Initial Options should be taxed under the
rules described below. In general (i) no income will be recognized by an
optionee at the time an Option Right is granted and (ii) at the time of
exercise of an Option Right, ordinary income will be recognized by the
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<PAGE>
optionee in an amount equal to the difference between the option price paid
for the shares and the fair market value of the shares on the date of
exercise. The IRS has indicated that it may take the position that, where an
option's exercise price is set at an amount less than fair market value on the
date of grant, the optionee should recognize income at an earlier date than
indicated above.
Tax Consequences to the Company
To the extent that an optionee recognizes ordinary income in the
circumstance described above, the Company will be entitled to a corresponding
deduction provided that, among other things, the income meets the test of
reasonableness, is an ordinary and necessary business expense and is not an
"excess parachute payment" within the meaning of Section 280G of the Code.
Vote Required
If the Plan is adopted, non-employee directors will be awarded
options to purchase common stock of the Company. The Board of Directors
recommends a vote FOR approval and ratification of the Stock Option Plan for
Non-Employee Directors, which requires the affirmative vote of the holders of
a majority of the shares entitled to vote. In accordance with New Mexico law,
abstentions of entitled shares are not counted as affirmative votes and
therefore function as a vote against approval. Broker non-votes are not
tabulated.
APPROVAL OF A CHANGE IN COMPANY NAME
The Board of Directors of the Company believes that the current name
of the Company does not clearly reflect the association of its present
business operations with the computer technology industry. Accordingly, the
Board of Directors proposes a change in the name of the Company to PARADISE
INNOVATIONS TECHNOLOGY CORPORATION to provide enhanced name recognition and
association with the industry.
Vote Required
The Board of Directors recommends a vote FOR approval of a change in
the name of the Company, which requires the affirmative vote of the holders of
a majority of the issued and outstanding voting shares of the Company entitled
to vote. In accordance with New Mexico law, abstentions of entitled shares are
not counted as affirmative votes and therefore function as a vote against
approval. Broker non-votes are not tabulated.
AUTHORIZATION TO ADOPT, AMEND AND RESTATE ARTICLES OF INCORPORATION
The Articles of Incorporation for the Company were originally filed
on May 3, 1979. The Articles were subject to amendment on December 3, 1981;
August 1, 1983; April 3, 1985; August 12, 1994; and July 6, 1998.
Contemporaneously with the proposed name change of the Company, the Board of
Directors determined that adoption, amendment and restatement of the Articles
of Incorporation into one document is appropriate to simplify reference to the
Articles of Incorporation. The proposed amendment and restatement is attached
to this Proxy Statement as Appendix E. No material changes to the rights of
shareholders are intended by the amendment and restatement.
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Vote Required
The Board of Directors recommends a vote "For" the approval and
ratification of the adoption, amendment and restatement of the Articles of
Incorporation. Approval of these changes requires the affirmative vote of the
holders of a majority of the voting shares entitled to vote. In accordance
with New Mexico law, abstentions of entitled shares are not counted as
affirmative votes and therefore function as a vote against approval. Broker
non-votes are not tabulated.
AUTHORIZATION TO ACQUIRE THE SHARES OF
MULTIWAVE INNOVATION PTE. LTD.
ABOUT MULTIWAVE
Multiwave Innovation Pte. Ltd. is headquartered at 25 Serangoon North
Ave 5, 6th Floor, Uraco Building, Singapore, 554914. Telephone: 65/481-2633.
Multiwave is a design and engineering firm based in Singapore with
sales offices in Europe and China. It sells Internet based communication
products, such as Internet set-top boxes; computer components, such as audio
and video cards, and modems; and retail electronics. It sells primarily to
value added resellers (VARS), systems integrators (computer manufacturers),
and to original equipment manufacturers (OEMs, who place their own brand name
on the product).
Examples of Multiwave's designing retail electronics are: (1) a
miniaturized personal digital assistant which is the size of a credit card and
stores addresses, agenda items, etc., and (2) a home burglar alarm with the
capability to automatically dial a pager number.
Multiwave out-sources its manufacturing to custom manufacturers, such
as Uraco Holdings, Ltd., a precision manufacturer which is also a principal
shareholder of Multiwave. It provides the design, acquires and drop-ships the
component parts and receives manufactured goods.
The directors of Multiwave prior to the acquisition are as follows:
---------------------------------------------------------------------------
Name of Director Representing
---------------- ------------
James Tan Meng Dong Individually
Chu Hiu Tung NatSteel
Philip Tan Uraco Holdings Ltd.
Chay Yee Meng NatSteel
---------------------------------------------------------------------------
Under the laws and regulations of Singapore, there is not a formal
officer designation. Key members of Multiwave management are as follows:
- ---------------------------------------------------------------------------
Name Title
---------------- ------------
James Tan Meng Dong General Manager
Dr. Soo Jia Sen Deputy General Manager
Patrick Roman Financial Controller
Paul Tan Assistant Director of Operations
Lim Tiong Chuan Corporate Secretary
---------------------------------------------------------------------------
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THE ACQUISITION
On October 27th, 1998, the Company signed a definitive agreement to
purchase all outstanding common shares of Multiwave for 2,388,792 shares of
the Company's "restricted" common stock as that term is defined in Rule 144
and Regulation S promulgated under the Securities Act of 1933. The number of
shares was calculated by dividing US$ 5 million by the weighted average of
the bid and offer prices of the Company's common shares as listed on NASDAQ
from the date of the signing of the Letter of Intent (July 7, 1998) until the
date immediately preceding the signing of the definitive agreement (October
26th, 1998).
The Multiwave acquisition was negotiated on behalf of the Company by
Ike Suri, prior to his joining the Company as Chairman of the Board and by Mr.
John Hwang, as President of the Company. The purchase price of $5 million in
market values of the restricted shares of common stock of the Company was
arrived at by consent of all the parties to the Stock Purchase Agreement. All
parties were informed that the shares of the Company's common stock were
restricted shares and would subsequently be appraised. The appraisal was
conducted by Cronkite and Kissell, Inc. (CKI), an independent third party of
accredited senior appraisers of the American Society of Appraisers (see
"Valuation of the Company's Restricted Common Shares" below). CKI concluded
the shares paid to the former shareholders of Multiwave were worth $2 million.
The material terms of the stock purchase agreement (see Appendix H)
are:
- stock exchange, no cash was involved in this transaction
- tax free transaction for both acquiring and acquired companies and their
shareholders
- number of shares of buyer to be paid is calculated using stock closing
price for the period between signing of the letter of intent and the
execution of the Stock Purchase Agreement
- Uraco and NatSteel may buy, in equal amounts and until the closing,
warrants to purchase additional shares of the Company's common stock at a
price to be determined by negotiation. To date, they have not elected to
do so
- Multiwave will have a minimum tangible net equity of $1 million. At or
immediately following the closing, Uraco Holdings, a parent of Multiwave,
will convert $2 million of Multiwave's debt into equity and contribute that
equity to Multiwave's capital
- the acquisition may be terminated by mutual consent of the buyer and
seller, or if any representation made by one party to another party to the
Stock Purchase Agreement proves not to be true, or if legal action renders
the acquisition unadvisable to either party, or if buyer fails to obtain
shareholder approval.
The Company's management believes the acquisition to be in the best
interest of both Multiwave and the Company's shareholders, from financial and
business perspectives. For the purposes of this document, the focus will be
on the benefits to the Company's shareholders and will ignore the benefits to
Multiwave shareholders. The transaction was a source of cash. Not only was
the acquisition strictly an exchange of stock, the acquired company provided a
$1.6 million cash infusion to the Company. Moreover, the acquisition provided
over $1 million in net tangible equity to the Company.
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<PAGE>
From a business perspective, the acquisition benefits the Company's
shareholders because it provides substantial engineering and R&D capabilities
to their Company. In addition, although prior to the acquisition, the Company
had agreements covering global distribution, the acquisition provided enhanced
access to local distribution in Asia and Europe, where Multiwave had
established networks. Finally, the Company will benefit from improved sales
by Multiwave, using the Paradise brand. As Multiwave did not have access to a
recognized brand, its products suffered from lower name recognition and from
weaker protection against margin erosion. With the greater desirability for
the branded product, Multiwave will be able to negotiate better terms as
measured against price declines. In conclusion, management believes that the
acquisition is fair to and in the best interests of the Company's current
shareholders, predicated on its own analyses and that of its professional
advisors.
Accounting Treatment and Impact on Shareholders
The transaction will be accounted for as a purchase. Because of prior
acquisitions, the Company is precluded from using pooling of interest
accounting
until July 1999 at the earliest. Since the purchase price exceeds the
adjusted
book value of Multiwave, the Company will record goodwill as an asset.
All pro-forma financial information developed for this proxy
statement
treats the $2 million debt to equity conversion (see material terms of the
stock
purchase agreement, above) as if it occurred on October 31, 1998, the date the
combination of the two companies occurred for accounting purposes.
The Company, based on financial and legal advice, believes that the
transaction will not result in Federal tax liabilities to the Company, to
Multiwave, or to either company's shareholders.
As a result of the acquisition, all the Company's shareholders will
suffer dilution of their shares equally. Immediately prior to the acquisition,
there were 7,233,127 shares of common stock issued and outstanding (including
3,699 shares held in treasury), and 5,474 shares of Series A preferred stock,
each of which can be converted to 1,000 shares of common stock. After the
acquisition, assuming, for the purposes of this calculation, that all the
Series A preferred stock is converted to common shares, a total of 15,092,220
shares will be outstanding. The dilution will be 1 : 1.1877 or 16%. This
dilution will be suffered equally by all existing shareholders of the Company.
Thus, the rights of each present shareholder relative to each other
will not be impacted. The former shareholders of Multiwave will acquire
rights to the Company by virtue of their owning Unico shares. The table below
shows the ownership of the shares issued to acquire Multiwave, based on the
Company's common and preferred shares issued and outstanding.
- ---------------------------------------------------------------------------
Multiwave Number of Unico
Name of Seller Ownership Unico Shares Ownership
-------------- ------------- ------------ -----------
Uraco Holdings Ltd. 67.27% 1,606,940 16.70%
NatSteel Electronics Ltd. 27.27 651,424 6.77
James Tan Meng Dong 3.33 79,547 0.83
Dr. Soo Jia Sian 2.13 50,881 0.53
-------------- ------------- ------------ ------------
TOTAL 100.00% 2,388,792 24.82%
---------------------------------------------------------------------------
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The Company does not believe that there are any material changes in
the rights of its security holders, other than the dilution, as a result of
the acquisition. Neither the Company nor Multiwave is in default nor in
arrears as to dividend payments, principal or interest. The Company does not
believe the acquisition will have any impact on its current and future
payments, if any, of principal, interest or dividends of its securities.
Other Items
The stock purchase agreement executed between the Company and the
former shareholders of Multiwave permits Uraco and NatSteel, until the day of
the closing, to purchase up to $1 million in warrants to purchase the
Company's shares of common at or before the closing, in equal amounts, at a
price to be determined. Uraco and NatSteel have not yet decided to purchase
these warrants. If they decide to do so, the warrants would represent
additional voting power, the amount of which depends on the price to which the
parties will agree.
Multiwave's U.S. operations were absorbed by the Company on October
31, 1998. For accounting purposes, the transaction was considered effective as
of that date, the month end closest to the signing of the stock purchase
agreement. This is in accordance to APB 16, paragraph 93 "Acquisition Date".
The Company used the purchase method to account for the acquisition.
The Company's management is in favor of the acquisition as it
believes, based on all information available to it and analyses it and its
advisors conducted, that the acquisition is fair and in the best interest of
its shareholders.
Benefits of the Acquisition
Both the Company and Multiwave believe that the acquisition advances
their respective strategic aims and intents. The Company believes that the
acquisition provides it with the abilities to design in-house and manufacture
new products through established relationships with its former parent Uraco.
This will accelerate the timeframe, reducing the time between product concept,
manufacture of the products and market sales. Margins in the high tech
industry tend to be higher for newer products and for products with higher
technological content. The Company's strategic intent is to bring innovative
products to the market more quickly than does its competition. Multiwave's
strategic intent is to obtain higher margins by use of a recognized brand and
to expand its distribution opportunities with the Company's distribution
agreements.
Both are players in the same high tech industry with complementary
strengths. The Company can benefit from Multiwave's design and engineering
strengths in order to bring proprietary, branded products to market more
rapidly, such as its new line of 56K modems, Internet set-top boxes and
miniaturized personal digital assistants. In the highly competitive market of
high tech products, speed to market provides significant advantages in market
share and profit margins.
Multiwave can benefit from the Company's strength of a globally
recognized Paradise brand with its lifetime limited guarantee (see below). In
the highly price competitive Asian high tech market, a recognized brand can
provide protection against margin erosion by commanding a premium price.
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The Paradise brand originated with Paradise Systems which became the
leading seller of video cards in the 1980s. The company was sold to Western
Digital for an amount in the low hundreds of millions of dollars. Western
Digital, in turn, sold it to Philips Semiconductors, the Dutch company. Both
companies invested amounts in the tens of millions of dollars in advertising
the Paradise brand. At present, the brand is trademarked in the U.S., Canada,
France, Germany, Belgium, Netherlands, Luxembourg, Italy, Ireland, Sweden, the
United Kingdom, Australia, New Zealand, Hong Kong, Mexico and Paraguay.
The Company's limited lifetime guarantee offers its products a
competitive advantage. Most of competition offers a guarantee of three years.
The higher end of the competition offers a guarantee of five years. The
Company is not aware of any other company that offers a guarantee for the
lifetime of the product. The guarantee offers a diagnostic by the Company's
technical support followed by either repair or replacement of the product.
In terms of distribution channels, the Company has global
distribution agreements with companies such as Ingram Micro, Tech
Data, Almo Distributing, Comark, SED and D&H Distributing, which are among the
top ten in sales volume and name recognition within the industry. With the
acquisition, Multiwave could benefit from these distribution agreements as
well as enter into new agreements of its own with the strength of the Paradise
brand.
MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS - MULTIWAVE
Disclaimer
The discussion and analysis in this section applies only to Multiwave
before the acquisition. The historical and current information concern
Multiwave alone. Actual results could differ materially from those projected
in the forward looking statements as a result of the risk factors set forth
under " Certain Factors Than May Affect Future Performance" and elsewhere in
this report.
Discussion
Multiwave's net sales for the four months ended October 31, 1998 were
$9.2 million yielding a gross margin of $997,000 or 10.9%. This represents a
significant growth over the previous 12 months ended June 30, 1998 of $8.6
million with a gross margin of 8.5%. This significant growth is due to
Multiwave gradually and consciously focusing its activities on higher margin
and greater volume generating products. Multiwave has since moved away from
the lower margin audio business into and focused its resources into the higher
value and volume communications sector, i.e. modems.
Multiwave has over the years built strategic relationships with key
technology partners like Lucent, PCTel and Rockwell. It was among the first to
develop a product using Lucent's chipset. On October 13, 1998 Lucent issued a
press release that cited Paradise Innovations as one of four initial
manufacturers which would ship products with a new chipset Lucent was
promoting:
"With PC turned on or off, Lucent's modem chip set enables telephone,
fax, and answering machine functions; Multi-Tech Systems, Hayes,
Kortex International, and Paradise Innovations initial customers.
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FOR RELEASE: TUESDAY, OCTOBER 13, 1998
ALLENTOWN, Pa. - Lucent Technologies Microelectronics Group today
announced shipments of a modem chip set solution that offers small
office/home office (SOHO) PC users high-end telephone, digital
telephone answering machine, and fax functions - even while a PC is
turned off. Modem manufacturers who will use this solution include
Multi-Tech Systems, Hayes Corporation, Kortex International, and
Paradise Innovations. ..."
Chipset manufacturers typically select a few companies which have the
requisite design, manufacturing and marketing capabilities to develop a
product that uses the capabilities of the chip in full and to sell them in
cost-effective volume. Multiwave was among the few companies to be invited
to design products based on Lucent's new platforms. Being one of the first to
offer a product with Lucent's new chipset permitted Multiwave to secure higher
margins for a period of time before competition intensified and eroded
margins.
It is estimated that about $1.6 million (70%) of Multiwave's revenues
per month is derived from Lucent products. It is difficult to identify
precisely what portion of the Lucent products sold are a direct result of the
partnership, but it may be concluded that the portion is substantial.
Multiwave has designed the following active or future products,
listed by partner:
Lucent - 56K v.90 data fax modem, 132 Mbits/sec data transfer rate
- 3 in 1 digital answering machine, fax machine and modem, with the
capability of storing voice mails and faxes while computer is
turned off
- cable modem
Rockwell - 56K v.90 soft modem with 32 bit audio card
- 56K modem
- combination modem and audio on one board
PCTel - 56K v.90 16 bit pcmcia fax modem for notebook computers
- 56K v.90 softmodem, 32 bit PCI high speed modem
- 56K ISA 16 bit low cost fax modem
ESS - 56K ISA low cost modems
- sound card
Intel - Internet set-top box
- wireless home network card
AMD - wireless home network card
Planet Web - Internet set-top box
Terralogic - Internet set-top box
Aureal - 3 models of digital sound cards
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Of the above designs, the following items are generating revenues at
present:
- Lucent data fax and the 3 in one modems
- Rockwell soft modem and combination modem and sound card
- PCTel pcmcia notebook modem and 16 bit low cost modem
Currently, efforts are underway to promote the Paradise brand in Asia
and in Europe through which Multiwave expects to reap higher margins. As part
of the Paradise strategy, it is believed that the Paradise brand will generate
greater interest from customers and permit Multiwave to negotiate better
prices and margins. This has been partially confirmed by Multiwave's ability
to sign up new distributors in Asia and Europe. Following the acquisition, on
November 11, 1998, the Company issued a press release announcing it had signed
up three new distributors in Europe, seven in Asia and one in the Middle East.
Multiwave's management believes that the initial increase in interest is
highest when Multiwave's ability to sell Paradise products is new (within a
couple of months). The increased interest will continue over time, although
at a lower level compared to the initial interest.
Multiwave has developed several unique product lines among which are
the Internet set-top box, a modem cum answering machine cum fax machine and a
unique personal digital assistant. Theses products were exhibited at the Fall
98 COMDEX, the major high technology trade show held in Las Vegas, Nevada, and
were well received by the industry. The attendance at the Paradise booth and
the requests for information, which may develop into leads, were well above
the average for the trade show. This is notable as the Company had a booth
that was smaller than the average.
Multiwave, with the Company's assistance, is also discussing with the
local government bodies to obtain grants for certain of its R&D projects.
Multiwave is working with the Economic Development Board (EDB) of Singapore to
obtain grants for its R&D efforts under the Innovation Development Scheme
(IDS). EDB is the lead government agency responsible for the formulation and
implementation of economic and industrial development strategies for
Singapore, specifically for the manufacturing, manufacturing services and
exportable services sectors.
The EDB and five other government agencies jointly administer the IDS
to support innovation by Singapore-based companies. In 1997, 234 innovation
development projects with a total development budget of S$693 (about US$408)
million were awarded IDS grants. Innovation is recognized by the government
as an important differentiating factor in Singapore's competitiveness. The
government, through its grant programs, is attempting to identify and promote
innovation projects, to introduce innovation systems and practices in
companies, to expand the innovation infrastructure, and to heighten innovation
awareness. Multiwave is applying for grants totaling US$1 million.
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Operating Results
The table below compares Multiwave's operating results for the 12
months ended 30 June 1998 against the 4 months ended October 31st 1998.
-----------------------------------------------------------------------------
Four Months Year Nine Months
Ended Ended Ended
Oct 31, 98 Jun 30, 98 Jun 30, 97
$000 $000 $000
-----------------------------------------------------------------------------
Net sales $9,153 100.0% $8,571 100.0% $7,497 100.0%
Cost of sales (8,156) -89.1 (7,842) -91.5 (7,066) 94.3
-----------------------------------------------------------------------------
Gross profit 997 10.9 729 5.7 431 5.7
-----------------------------------------------------------------------------
R&D expenses (117) -1.3 (312) -3.6 (273) -3.6
Selling, general (1,058) -11.6 (2,094) -24.4 (2,924) -39.0
& admin expenses
-----------------------------------------------------------------------------
Total operating (1,175) -12.8 (2,406) -28.1 (3,197) -42.6
Expenses
-----------------------------------------------------------------------------
Operating loss (178) -1.9 (1,677) -19.6 (2,766) -36.9
-----------------------------------------------------------------------------
Other income/exp 492 5.9 (352) -4.1 (231) -3.1
-----------------------------------------------------------------------------
Net income (loss) 314 3.4 (2,029) -23.7 (2,997) -40.0
=============================================================================
On an annualized basis sales has increased almost $19 million (= 12/4 x $9.2 -
$8.6) or by 220%. The bulk of this amount is due to the successful launch of
Multiwave's Lucent based communication products. Gross margins as a percentage
of sales increased by 5.2%. This was mainly due to the quick time to market of
the Multiwave's products in this period. As a result of being one of the first
to develop a modem using Lucent chip, Multiwave was able to secure supply
commitments for a significant volume and, through its manufacturing
arrangements with Uraco, it was able to bring the product line to market
before its competition. As a result, it enjoyed a period with higher
margins before competition was able to enter the market and cut prices and
margins.
Sales of modems increased over the three periods discussed. For the
four months ended October 31, 1998, it accounted for 96% of Multiwave's sales.
For the year ended June 30, 1998, it accounted for 80%, and for the year ended
June 30, 1997 it accounted for 75%. As described elsewhere herein, Multiwave
is launching new products with which it intends to diversify the source of its
revenues.
Research and development expenses increased by $39,000 or by 13% on
an annualized basis, due to added staff. Multiwave makes conscious efforts to
constantly monitor and assess its R&D spending. Through such measures,
Multiwave has managed to maintain its R&D cost while growing its revenue base.
83
<PAGE>
Selling, general & admin. expenses have increased by 52% on an
annualized basis to reflect the additional cost involved in supporting the
growth in sales. Additional headcount was added to the Product and Marketing
functions to support the Paradise brand.
The major element in the other income/expense category is the
exchange gain or loss. During the current period Multiwave encountered
exchange rate fluctuations greater than typical (which is not material, see
discussion below) in some of the Asian economies. The figures being reported
in US$ has led to this exchange gain. This exchange rate fluctuation has since
subsided somewhat.
-----------------------------------------------------------------------------
Percent in Four Months Year Nine Months
Foreign Currency Ended Ended Ended
(non-US dollar) Oct 31, 98 Jun 30, 98 Jun 30, 97
-----------------------------------------------------------------------------
Sales 4% 6% 7%
Expenses 13% 18% 18%
-----------------------------------------------------------------------------
Multiwave's sales and expenses are predominantly denominated in US
dollars. Sales to customers in the US, Asia and Europe are denominated in US
dollars, partially to offset expenses denominated in US dollars. The most
expensive component in Multiwave's modems are chipsets, which are sold in US
dollars. The only significant non-US dollar denominated transactions are
overhead expenses in Singapore which are denominated in Singapore dollars.
Multiwave does not consider the amount of exchange gain/loss to be
material, when compared to total sales and expenses, in the periods reported.
The gains and losses arise when there is a difference between the book rate
and the actual transaction rate. The book rate is revised monthly and set
based on the average of the bid and ask foreign exchange rates as published in
business media. The monthly revisions maintain the differences between book
and actual rates within a fairly narrow band, under normal circumstances, and
therefore contain the foreign exchange gains and losses.
Exchange rate gains and losses are hedged by off-setting receivable
and payable balances. This mechanism is believed to be adequate since there
are only two major currencies of transactions: the US and the Singapore
dollars. Multiwave is exploring other financial hedging mechanisms in
anticipation of future international business.
There were no other individually significant items, which increased
from 1997 to 1998.
Working Capital, Liquidity and Capital Resources
Multiwave maintains strong working relationships with its current
suppliers who provide the bulk of Multiwave's working capital. Multiwave has
commitments from them for continued support in its growth. In keeping with
local business practices, these commitments are oral, rather than written.
Over the ten years or so that Multiwave has been operating in Asia, it has
managed to obtain the commitment of vendors. In most cases, the terms granted
vary from 60 to 180 days and the limits from $100 to $500 thousand.
Occasionally, the terms and the limits exceed these ranges.
84
<PAGE>
At present, Multiwave has a bank overdraft facility of approximately
$240,000 secured against fixed deposits. The average interest rate payable on
the facility was 8.0%, as of October 31, 1998. In addition, Multiwave has a
letter of credit and a trust receipt facility whose combined total is about
$420,000.
Multiwave has approached several banks to obtain additional credit
facilities either asset based or contract based. With the significant growth
in business volume and with the higher value added products being developed,
Multiwave anticipates it will require financing above normal operating
requirements. Multiwave is taking steps to ensure that this financing will be
available for the growth envisioned.
The audited balance sheet (see Appendix F) shows a working capital
deficit of $1.12 million. However, the balance sheet does not take into
consideration a $2 million debt to equity conversion that is part of the
agreements for acquisition. On or immediately following closing, $2 million
of Multiwave debt to Uraco will be converted into equity and contributed to
capital. Once this transaction is reflected in the financial statements,
Multiwave will show a positive working capital position of $880,000.
Based on the current sales and product mix, and sales targets over
the next twelve months, Multiwave anticipates it will need a balance of about
$1.5 to $2.0 million in working capital. The working capital will be used to
provide for increased sales and to pay vendors.
Multiwave believes that its cash balances, available and anticipated
credit facilities are sufficient to meet anticipated operating requirements
for the foreseeable future (12 months). There can be no assurance that
additional capital beyond the amounts currently forecasted by Multiwave would
not be required or that any such required additional capital will be available
on reasonable terms, if at all.
Certain Factors That May Affect Future Performance
Multiwave's future performance may be affected by a number of factors
described below which should be considered in evaluating Multiwave and its
business.
Multiwave's future operating results may vary significantly from
period to period as a result of these factors. Multiwave 's revenues depend on
products sold, customer satisfaction and support, timing of sales, timing of
new product introductions by Multiwave and by its competitors, product cycle
maturation, price competition and decline, availability of components, design
of new products, changes in product or distribution channel mix, the level of
inventory carried by Multiwave and its distributors and retail customers,
product returns, co-op advertising programs and price protection agreements
with its customers.
Gross margins depend on the same factors as revenues, as well as some
other factors: the availability and cost of components, component price
change, end-of-life inventory write-downs and distribution channel mix.
Technology content is also a major factor influencing gross margins. Margins
typically are higher for products with high technology content than products
with lower technology. Thus, design and new product introduction are critical
factors impacting Multiwave's gross margins.
85
<PAGE>
Perhaps most importantly, Multiwave's revenues and gross margins are
highly impacted by product life cycles, where margins are higher for newer
products and decline with increased competition, diminishing market excitement
and changes in technology.
Frequent new product introductions and rapid product obsolescence
characterize Multiwave's hi-tech market. Multiwave depends on new product
introduction in short time frames. Despite its strategy to enable a short time
frame to market, there is no assurance that Multiwave will be successful in
its execution or that successful execution will assure high margins.
Related Party Transactions - Multiwave
Multiwave leases office premises from a subsidiary of a corporate
shareholder (Uraco) at a monthly rental charge of $19,000. The lease expired
on November 30, 1998. Subsequent to expiration, Multiwave has continued to
rent the office premises at a rental charge of $19,000 a month, though no
formal lease arrangements have been made. Total rental expenses associated
with this lease for the nine-month period ended June 30, 1997, the year ended
June 30, 1998 and the four-month period ended October 31, 1998 amounted to
$52,000, $278,000 and $77,000 respectively.
Multiwave has no manufacturing facilities and a significant portion
of
the manufacturing of Multiwave's products is subcontracted to NatSteel
Electronics Limited, a corporate shareholder of Multiwave, and Acura
Manufacturing Pte Ltd and Pantera Electronics Pte Ltd, subsidiaries of Uraco
Holdings Limited, a corporate shareholder of Multiwave.
Multiwave had the following significant transactions with related
parties and affiliates:
Nine
Four months Year months
ended ended ended
October 31, June 30, June 30,
1998 1998 1997
$'000 $'000 $'000
----------------------------------------------------------------------------
Corporate Shareholder
Sales - 368 215
Purchases - - 2,163
Other Affiliate Companies
Sales 2 26 16
Purchases 645 2,102 2,439
Rental expenses 77 278 52
----------------------------------------------------------------------------
86
<PAGE>
As of October 31, 1998, June 30, 1998 and June 30, 1997, there were
the following amounts owing by (to) affiliated companies:
<TABLE>
<CAPTION>
October 31, June 30, June 30,
1998 1998 1997
$'000 $'000 $'000
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Corporate Shareholders
Trade receivables 201 42 -
Trade accounts payable - - (34)
Loans to Company (62) (59) (70)
Advances to Company - - (350)
Other Affiliate Companies
Other receivables - - 1
Trade payables (1,970) (1,814) (403)
Other payables (265) (259) (28)
-----------------------------------------------------------------------------
</TABLE>
Multiwave Selected Financial Data
The following table sets forth certain financial data relating to
Multiwave prepared in accordance with U.S. GAAP and stated in U.S. dollars.
The financial data should be read in conjunction with (i) the Multiwave
financial statements, attached, (ii) the unaudited Pro Forma Condensed
Consolidated Financial Statements which are included elsewhere in this Proxy
Statement.
(In U.S. Dollars)
(Tabular dollar amounts are in thousands, except per share amounts)
(Prepared in accordance with U.S. GAAP)
Summary Statements of Operations and Comprehensive Operations
<TABLE>
<CAPTION>
Four Months Year Nine Months
Ended Ended Ended
October 98 June 98 June 97
---------- ------- -------
<S> <C> <C> <C>
Revenues 9,153 8,571 7,497
Net income (loss) 314 (2,029) (2,997)
</TABLE>
87
<PAGE>
Summary Statements of Operations and Comprehensive Operations (Continued)
<TABLE>
<CAPTION>
Four Months Year Nine Months
Ended Ended Ended
October 98 June 98 June 97
---------- ------- -------
<S> <C> <C> <C>
Foreign currency adjustments (39) (26) 91
Comprehensive income (loss) 275 (2,055) (2,906)
Net income (loss) per share $0.1314 ($0.8494) ($1.2546)
------- -------- --------
</TABLE>
Summary Balance Sheets
<TABLE>
<CAPTION>
October 31 June 30 June 30
1998 1998 1997
------- ------- --------
<S> <C> <C> <C>
ASSETS
Current Assets 10,231 4,494 3,271
Property, plant and equip., net 222 211 210
TOTAL ASSETS 10,453 4,705 3,481
------- ------- -------
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities 11,351 5,876 2,615
Long Term Liabilities 16 18
TOTAL LIABILITIES 11,367 5,894 2,615
SHAREHOLDERS' EQUITY (DEFICIENCY) (914) (1,189) 866
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT) 10,453 4,705 3,481
------- ------- -------
</TABLE>
UNICO SELECTED FINANCIAL DATA
The following table sets forth certain financial data relating to
Unico. The financial data should be read in conjunction with (i) the Unico
financial statements (Appendix D), (ii) the unaudited pro forma condensed
consolidated financial statements which are included elsewhere in this Proxy
Statement. The data for the four months ended October 31, 1998 is derived from
unaudited data.
88
<PAGE>
(In U.S. Dollars)
(Tabular dollar amounts are in thousands, except per share amounts)
(Prepared in accordance with U.S. GAAP)
Summary Statements of Operations
<TABLE>
<CAPTION>
Four Months Year Nine Months
Ended Ended Ended
October 98 June 98 June 97
----------- ------- -----------
<S> <C> <C> <C>
Revenues 5,468 24,638 15,058
Net income (loss) (225) (536) 4
Net income (loss) per share ($0.0178) ($0.0489) $0.0004
-------- -------- ---------
</TABLE>
Summary Balance Sheets
<TABLE>
<CAPTION>
October 31 June 30 June 30
1998 1998 1997
---------- ------- -------
<S> <C> <C> <C>
ASSETS
Current assets 1,323 1,502 743
Property, plant and equip., net 68 52 18
Other assets 325 253 -
Old Unico Investment 3,163 3,163 -
TOTAL ASSETS 4,879 4,970 761
----- ----- ---
LIABILITIES & SHAREHOLDERS' EQUITY
TOTAL LIABILITIES 1,162 1,011 157
SHAREHOLDERS' EQUITY 3,717 3,959 604
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY 4,879 4,970 761
----- ----- ---
</TABLE>
UNAUDITED PRO FORMA SELECTED FINANCIAL DATA
(Tabular dollar amounts are in thousands of US dollars,
except per share amounts)
(Prepared in accordance with U.S. GAAP)
This table presents Unico's unaudited pro forma selected financial
data giving effect to the acquisition of Multiwave and accounting for it as a
purchase. The pro forma financial data do not purport to represent what the
combined financial position or results of operations would actually have been
if the acquisition had occurred at the beginning of the periods or to project
the combined financial position or results of operations for any future date
or period.
89
<PAGE>
The information below should be read in conjunction with (i) the
Multiwave Financial Statements (Appendix F) and the Unico Consolidated
Financial Statements (Appendix D), including the notes thereto, (ii) the
Unaudited Pro Forma Condensed Consolidated Financial Statements (Appendix D).
($000, except per share data)
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
December 31, 1998 June 30, 1998
------------------ -------------
<S> <C> <C>
Revenues $ 11,035 $ 33,209
Net (loss) (784) (2,748)
Basic income (loss) per share ($0.0582) ($0.2060)
-------- --------
</TABLE>
($000)
<TABLE>
<CAPTION>
As of
December 31, 1998
------------------
<S> <C>
Total assets $16,124
Shareholders' equity 5,200
-------
</TABLE>
COMPARATIVE PER SHARE DATA
This table presents Unico's and Multiwave's historical per share data
and Unico's pro forma per share data for the six months ended December 31,
1998 and for the year ended June 30, 1998. The pro forma data gives effect to
the acquisition and accounts for it as a purchase, based upon the Multiwave
Financial Statements, the Unico Consolidated Financial Statements and the
Unaudited Pro Forma Condensed Consolidated Financial Statements.
The information presented below should be read in conjunction with
(i) the Multiwave Financial Statements, including the notes thereto, attached
hereto, (ii) the Unico Consolidated Financial Statements, including the notes
thereto, attached hereto, and (iii) the Unaudited Pro Forma Condensed
Consolidated Financial Statements, elsewhere herein.
90
<PAGE>
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
Per Share Unico Common Stock Dec 31, 1998 June 30, 1998
- -------------------------------------------------------------------------
<S> <C> <C>
Historical:
Book value (1) $0.3445 $0.3136
Cash dividends Nil Nil
Basic (loss) per share ($0.0582) ($0.0489)
Pro Forma:
Book value (1) $0.3445 $0.3969
Cash dividends Nil Nil
Basic (loss) per share ($0.0357) ($0.2060)
</TABLE>
NOTE: (1) Book value per share is shareholders' equity divided by
common shares outstanding assuming all preferred shares
were converted at December 31, 1998 and June 30, 1998.
FEDERAL AND STATE REGULATORY REQUIREMENTS AND APPROVALS
With respect to federal and state regulatory requirements and
approvals in connection with the acquisition of Multiwave, the Company intends
to seek the approval of its shareholders prior to consummating the
acquisition. It does not believe there are other requirements it must satisfy
or approvals it must obtain.
VALUATION OF THE COMPANY'S RESTRICTED COMMON SHARES
The Company retained Cronkite & Kissell, Inc. (CKI), an unrelated Los
Angeles based firm, to appraise the fair market value of the restricted stock
the Company issued to the former shareholders of Multiwave to consummate the
acquisition. CKI is a financial advisory services firm specializing in the
valuation of businesses and business interests. The principals of the firm are
accredited senior appraisers of the American Society of Appraisers and each
has more than ten years of experience in the valuation consulting profession.
CKI was selected after conversations were held with it and with one
other investment banking firm. Based on the conversations, the qualifications
of both firms were evaluated and considered to be excellent. The selection of
CKI was based in part on the Company's previous relationship with it. Members
of the firm had assisted the Company with a previous transaction which did not
materialize and for which no remuneration was paid.
As the previous transaction was not consummated, no material
consideration was paid. For this appraisal, the Company paid CKI $7,500. The
fee negotiated was not dependent on any of the results of the appraisal. No
future material relationship between the Company and CKI is contemplated.
However, given the professionalism with which the services were delivered, the
Company may well engage CKI for future engagements.
91
<PAGE>
CKI was engaged after the signing of the Stock Purchase Agreement and
therefore had no input into the determination of the consideration paid to the
shareholders of Multiwave for the acquisition. The instructions given by the
Company to CKI were limited to (a) a description of the purpose of the
valuation; i.e., the valuation would be used for purposes of disclosure in a
Proxy Statement and a Form 8-K and for other legal or regulatory purposes that
may arise, and (b) to a specified time frame within which the results had to
be made available. No limitation was set as to the scope of the analyses nor
as to the result. No suggestion as to the methodology was made.
As described in its report, attached as Appendix G, the methodology
employed by CKI included:
- interviews with the Company's management,
- analysis of the Company's future prospects,
- review of the Multiwave acquisition materials,
- review of the Novation Agreement, a contract signed by the Company
in June 1998,
- review of empirical studies which quantify the lack of control
discounts,
- review of empirical studies which quantify the lack of marketability
discounts, and
- conducting such other studies, analyses and inquiries as it deemed
appropriate.
CKI obtained a complete understanding of the history, business and
trading history of the Company, the restrictions to its shares, the volume of
trading in its shares, lack of profitability and dividend capacity and de-
listing from Nasdaq SmallCap Market. Low revenue volume, lack of
profitability, thin and erratic trading history and the size of the block of
shares were factors evaluated as to their impact on the share value. CKI then
reviewed the Novation Agreement (see above) and evaluated the contractual
restrictions and their impact on the stock. Finally CKI evaluated the impacts
of the lack of marketability of the Company's common stock due to restrictions
such as those in Rule 144. CKI applied discounts to the market value of the
Company's stock following the guidelines promulgated by the Internal Revenue
Service in its Revenue Ruling 77-287. These guidelines called for a discount
based on the risk that the underlying value of a security will change in a way
that would have prompted a decision to sell but for such restrictions, and on
the risk that the means of legally disposing of the security may not be
available.
CKI concluded that a discount of 60% to market was appropriate for
the Company's shares of common stock, after reviewing all the relevant facts
and assessing the risks. The value of the 2,388,792 common shares delivered
to the shareholders of Multiwave as the purchase price was appraised at $2
million.
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following pro forma balance sheet presents the effects of the
Multiwave acquisition as if it occurred on September 30, 1998. This was the
last quarter end preceding the combination, for accounting purposes, of
Multiwave and the Company. The pro forma Balance sheet is not necessarily
indicative of the financial position which will be attained in the future. The
92
<PAGE>
pro forma information should be read in conjunction with the historical
financial statements of Unico as reported on Form 10-KSB for the years ended
June 30, 1997 and 1998 and on Form 10-QSB for the three months ended September
30, 1998.
Unico, Inc.
Pro Forma Condensed Consolidated Balance Sheet
September 30, 1998(US$ 000)
<TABLE>
<CAPTION>
Unico
Before Pro Forma Pro Forma
Assets Acquisition Multiwave Adjustments Consolidated
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash $ 30 $ 1,360 $ $ 1,390
Accounts Receivable 805 3,128 (320)(d) 3,613
Inventories 348 5,075 5,423
Prepaid Expenses 91 128 219
Property and equip. - net 69 222 291
Goodwill (1,086)(c)
2,000 (a) 914
Hwang note 135 135
Old Unico investment 3,163 3,163
Other Assets 173 540 713
-----------------------------------------------------------------------------
$ 4,814 $ 10,453 $ 594 $ 15,861
=============================================================================
LIABILITIES AND
STOCKHOLDERS' EQUITY
Bank overdrafts $ 58 $ 193 $ $ 251
Accounts Payable 738 8,267 (320)(d) 8,685
Due Affiliates 2,235 (2,000)(b) 235
Other Liabilities 672 672
Deferred revenues 180 180
-----------------------------------------------------------------------------
Total liabilities 976 11,367 (2,000) 10,343
-----------------------------------------------------------------------------
2,000 (b)
2,000 (a)
Stockholders' Equity 3,838 (914) (1,086)(c)
(Deficiency)
-----------------------------------------------------------------------------
$ 4,814 $ 10,453 $ 594 $ 15,861
=============================================================================
</TABLE>
NOTES: (a) To reflect fair market value of stock issued to effect
Acquisition as valued by financial advisors (see Valuation of the
Company's Restricted Common Shares, above).
(b) To record capital contribution by Uraco Holdings to Multiwave (see
paragraph on material aspects of the stock purchase agreement
under the section The Acquisition, above).
(c) To eliminate investment in Multiwave (see Note 8 to Interim
Unaudited Financial Statements - December 31, 1998, above).
(d) To eliminate inter-company payable and receivable.
93
<PAGE>
Unico, Inc.
Pro Forma Statement of Operations (Unaudited)
These pro-forma consolidated statements of operations present the
effects of the Multiwave acquisition as if it occurred on July 1,
1997.
Year Ended June 30, 1998 (US$ 000)
<TABLE>
<CAPTION>
Unico
Before Pro Forma Pro Forma
Acquisition Multiwave Adjustments Consolidated
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $24,638 $8,571 $ $33,209
Cost of sales 24,229 7,842 32,071
-----------------------------------------------------------------------------
Gross profit 409 729 1,138
Operating expenses 953 2,406 3,359
-----------------------------------------------------------------------------
Operating (loss) (544) (1,677) (2,221)
Other income (charges) 8 (352) (183)(a) (527)
-----------------------------------------------------------------------------
Net (loss) $(536) $(2,029) $(183) $(2,748)
=============================================================================
Basic (loss) per share $(0.0489) $(0.8494) $(0.2060)
=============================================================================
Weighted average
shares outstanding 10,950,200 2,388,792 13,338,992
</TABLE>
NOTE: (a) To amortize goodwill over five years.
94
<PAGE>
Unico, Inc.
Pro Forma Statement of Operations (Unaudited, continued)
This pro forma Statement of Operations presents the effects of the
Multiwave acquisition as if it occurred on June 30, 1998. The pro forma
statement of operations is not necessarily indicative of the results of
operations and financial position which will be attained in the future.
Six Months Ended December 31, 1998 (US$ 000)
<TABLE>
<CAPTION>
Unico
Before Pro Forma Pro Forma
Acquisition Multiwave adjustments Consolidated
----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues $ 11,035 $ 9,153 $(381)(b) $ 19,807
Cost of sales 10,094 8,156 (381)(b) 17,869
----------- ---------- ----------- ------------
Gross profit 941 997 1,938
Operating expenses 1,915 1,175 68 (a) 3,158
----------- ---------- ----------- ------------
Operating income
(loss) (974) (178) (68) (1,220)
Other income
(charges) 190 492 682
----------- ---------- ----------- -------------
Net income (loss) $ (784) $ 314 $ (68) $ (538)
=========== ========== =========== =============
Basic earnings
(loss)per share $(0.0582) $0.1972 $(0.0357)
=========== ========== =============
Weighted average shares
outstanding 13,459,612 1,592,512 15,052,124
</TABLE>
(a) To record goodwill amortization over 5 years.
(b) To eliminate intercompany sales.
95
<PAGE>
This pro-forma consolidated statement of operations present the effects of the
Multiwave acquisition as if it occurred on June 30, 1997.
Six Months Ended December 31, 1997 (US$ 000)
<TABLE>
<CAPTION>
Unico
Before Pro Forma Pro Forma
Acquisition Multiwave Adjustments Consolidated
----------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues $13,616 $ 2,789 $ $ 16,405
Cost of sales 13,182 2,477 15,659
----------- --------- ----------- ------------
Gross profit 434 312 746
Operating expenses 421 1,275 1,696
----------- --------- ----------- ------------
Operating income (loss) 13 (963) (950)
Other income (charges) 1 (91)(a) (90)
----------- --------- ----------- ------------
Net income (loss) $ 14 $ (963) $(91) $ (1,040)
=========== ========= =========== ============
Basic earnings (loss)
per share $ 0.0013 $(0.4031) $(0.7767)
=========== ========= ============
Average shares
outstanding 10,950,200 2,388,792 13,338,992
NOTE: (a) To record goodwill amortization over five years.
</TABLE>
PAST MATERIAL RELATIONSHIPS BETWEEN THE COMPANY AND MULTIWAVE
Prior to the acquisition, the Company purchased goods from Multiwave
for sale to its customers. Such purchases were based on purchase orders
issued. No contracts covering such transactions existed. On July 7th, 1998, a
Letter of Intent between the Company and Unico was signed, indicating their
interest in the acquisition.
COMPANY'S SHARE PRICES PRIOR TO LETTER OF INTENT AND DEFINITIVE AGREEMENT
The high and the low prices of the Company's shares on the date
preceding the announcement of the Letter of Intent and on the date preceding
the announcement of the definitive agreement are shown below. As of both
dates, the Company's common shares were traded on the Nasdaq SmallCap Market.
Since then, on December 3, 1998, trading of the Company's common stock has
moved to the OTC Bulletin Board.
96
<PAGE>
<TABLE>
<CAPTION>
Date Preceding: High Price Low Price
- --------------- ---------- ---------
<S> <C> <C>
Letter of Intent 2 1/4 2 1/4
Definitive Agreement 1 3/4 1 5/8
</TABLE>
Vote Required
The Board of Directors recommends a vote FOR approval of acquisition
of Multiwave, which requires the affirmative vote of the holders of a majority
of the issued and outstanding shares of the Company entitled to vote. In
accordance with New Mexico law, abstentions of entitled shares are not counted
as affirmative votes and therefore function as a vote against approval.
Broker non-votes are not tabulated.
SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
From time to time the shareholders of the Company submit proposals
which they believe should be voted upon by the shareholders. The Securities
and Exchange Commission has adopted regulations that govern the inclusion of
such proposals in the Company's annual proxy materials. All such proposals
must be submitted to the Corporate Secretary not later than July 31, 1999, in
order to be considered for inclusion in the Company's proxy materials for its
next Annual Meeting.
OTHER BUSINESS
The Company does not intend to present any other business for action
at the Annual Meeting and does not know of any other business intended to be
presented by others. Should any other matter come before the meeting, the
Proxies will be voted by the persons authorized therein, or their substitutes,
in accordance with their best judgment on such matters.
ANNUAL REPORT ON FORM 10-KSB AND
QUARTERLY REPORT ON FORM 10-QSB
The Company's Annual Report on Form 10-KSB, for the fiscal year ended
June 30, 1998, and the Quarterly Report on Form 10-QSB, for the fiscal quarter
ended December 31, 1998, as filed with the Securities and Exchange
Commission, are being mailed concurrently with the mailing of this Proxy
Statement to shareholders of record on or about April 19, 1998. The cost of
furnishing such Reports on Form 10-KSB and 10-QSB, and of making this proxy
97
<PAGE>
solicitation will be borne by the Company. Copies of exhibits to the Annual
Report on Form 10-KSB, the Incentive Equity Plan and the Stock Option Plan for
Non-employee Directors are available, but a reasonable handling fee will be
charged to the requesting shareholder. Each written request must set forth a
good faith representation that, as of the record date, the person making the
request is a beneficial owner of the Company's Common or Preferred Stock and
is entitled to vote at the Annual Meeting. Shareholders should direct their
written request to the Company, Attention: Corporate Secretary, 2925 Bayview
Drive, Fremont, CA 94538.
BY ORDER OF THE BOARD OF DIRECTORS
-----------------------------------
Henry Tang, Secretary
98
<PAGE>
UNICO, INC.
PRELIMINARY FORM OF PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS,
UNICO, INC.
2925 Bayview Drive
Fremont, California 94538
PROXY
The undersigned hereby appoints ______________________ as Proxies, each with
the power to appoint his or her substitute, and hereby authorizes them to
represent and to vote, as designated below, all of the shares of common stock
of Unico, Inc. held of record by the undersigned on April 19, 1999, at the
Annual Meeting of shareholders to be held on May 3, 1999 or any adjournment
thereof.
1. Election of Directors
_______FOR all nominees listed below
_______WITHHOLD AUTHORITY
(except as marked to the contrary below)
to vote for all nominees listed below
(INSTRUCTION: To withhold authority to vote for any individual nominee mark
the line next to the nominees name below.)
_______John Hwang
_______Rodger Sykes
_______James Cunningham Sargent
_______Ike Suri
_______Henry Tang
2. PROPOSAL TO APPROVE THE APPOINTMENT OF WEINBAUM & YALAMANCHI as the
independent public accountants of the corporation
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. PROPOSAL TO APPROVE AND RATIFY THE INCENTIVE EQUITY PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. PROPOSAL TO APPROVE AND RATIFY THE STOCK OPTION PLAN FOR NON-EMPLOYEE
DIRECTORS
[ ] FOR [ ] AGAINST [ ] ABSTAIN
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5. PROPOSAL TO APPROVE THE CHANGE IN COMPANY NAME TO PARADISE
INNOVATIONS TECHNOLOGY CORPORATION
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. PROPOSAL TO AUTHORIZE AND APPROVE THE RECOMMENDATION OF THE BOARD OF
DIRECTORS TO ADOPT, AMEND AND RESTATE THE ARTICLES OF INCORPORATION
[ ] FOR [ ] AGAINST [ ] ABSTAIN
7. PROPOSAL TO AUTHORIZE THE COMPANY AND TO RATIFY ITS ACTIONS WITH
RESPECT TO CLOSING AND CONSUMMATING THE PURCHASE OF STOCK OF
MULTIWAVE INNOVATION PTE. LTD., A SINGAPORE COMPANY
[ ] FOR [ ] AGAINST [ ] ABSTAIN
8. At their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting. This proxy
when properly executed will be voted in the manner directed herein by
the undersigned shareholder.
If no direction is made, this proxy will be voted for Proposals 1, 2,
3, 4, 5, 6, 7, and 8. Please sign exactly as name appears below. When
shares are held by joint tenants, both should sign. When signing as attorney,
as executor, administrator, trustee or guardian, please give full title as
such. If a corporation , please sign in full corporate name by President or
other authorized officer. If a partnership, please sign in partnership name by
authorized person.
DATED: _______________________________, 1999
________________________________________
Signature
PLEASE MARK, SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE
________________________________________
Signature if held jointly
100
<PAGE>
UNICO, INC.
SCHEDULE 14A
APPENDIX A
STATEMENT AS TO EXPECTED DATE
OF
REGISTRATION OF SECURITIES TO BE ISSUED
IN CONJUNCTION WITH
THE INCENTIVE EQUITY PLAN
AND
THE STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
Incentive Equity Plan
The Company anticipates filing a Registration Statement for the
Shares underlying the options in the Incentive Equity Plan within the next
calendar year, if the Incentive Equity Plan is approved by the Company's
shareholders. Additionally, the Company plans to rely on exemption from
registration, if available, for some of the grants under the Plan.
Stock Option Plan for Non-Employee Directors
The Company anticipates filing a Registration Statement for the
Shares underlying the options in the Director's Plan within the next calendar
year, if the Director's Plan is approved by the Company's shareholders.
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UNICO, INC.
SCHEDULE 14A
APPENDIX B
INCENTIVE EQUITY PLAN
UNICO, INC.
INCENTIVE EQUITY PLAN
Table of Contents
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. Purpose.........................................................103
2. Definitions.....................................................103
3. Shares and Performance Units Available under the Plan...........105
4. Option Rights...................................................106
5. Appreciation Rights.............................................108
6. Restricted Shares...............................................109
7. Deferred Shares.................................................110
8. Performance Shares and Performance Units........................111
9. Transferability.................................................112
10. Adjustments.....................................................112
11. Fractional Shares...............................................113
12. Withholding Taxes...............................................113
13. Certain Terminations of Employment or Consulting
Services, Hardship and Approved Leaves of Absence...............113
14. Administration of the Plan......................................113
15. Amendments and Other Matters....................................113
16. Termination of the Plan.........................................114
17. Effective Date..................................................114
18. Nontransferability..............................................115
</TABLE>
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UNICO, INC.
INCENTIVE EQUITY PLAN
1. Purpose. The purpose this Plan is to attract and retain officers
and other employees of and consultants to UNICO, INC. (the "Corporation") and
its Subsidiaries and to provide such persons with incentives and rewards for
superior performance.
2. Definitions. As used in this Plan,
"APPRECIATION RIGHT" means a right granted Pursuant to Section 5 of
this Plan, including a Free-standing Appreciation Right and a Tandem
Appreciation Right.
"BASE PRICE" means the price to be used as the basis for determining
the Spread upon the exercise of a Free-standing Appreciation Right.
"BOARD" means the Board of Directors of the Corporation.
"CODE" means the Internal Revenue Code of 1986, as amended from time
to time.
"COMMITTEE" means the committee described in Section 14(a) of this
Plan.
"COMMON SHARES" means (i) shares of the Common Stock, no par value,
of the Corporation and (ii) any security into which Common Shares may be
converted by reason of any transaction or event of the type referred to in
Section 10 of this Plan.
"DATE OF GRANT" means the date specified by the Committee on which a
grant of Option Rights, Appreciation Rights, Performance Shares or Performance
Units or a grant or sale of Restricted Shares or Deferred Shares shall become
effective, which shall not be earlier than the date on which the Committee
takes action with respect thereto.
"DEFERRAL PERIOD" means the period of time during which Deferred
Shares are subject to deferral limitations under Section 7 of this Plan.
"DEFERRED SHARES" means an award pursuant to Section 7 of this Plan
of the right to receive Common Shares at the end of a specified Deferral
Period.
"EFFECTIVE DATE" shall have the meaning set forth in Section 17.
"FREE-STANDING APPRECIATION RIGHT" means an Appreciation Right
granted pursuant to Section 5 of this Plan that is not granted in tandem with
an Option Right or similar right.
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"INCENTIVE STOCK OPTION" means an Option Right that is intended to
qualify as an "incentive stock option" under Section 422 of the Code or any
successor provision thereto. "Management Objectives" means the achievement of
performance objectives established pursuant to this Plan, which may be
described in terms of Corporation-wide objectives or objectives that are
related to the performance of the individual Participant, or the Subsidiary,
division, department or function within the corporation or Subsidiary in which
the Participant is employed or with respect to which the Participant provides
consulting services. The Committee may adjust Management Objectives and the
related minimum acceptable level of achievement if, in the sole judgment of
the Committee, events or transactions have occurred after the Date of Grant
that are unrelated to the performance of the Participant and result in
distortion of the Management Objectives or the related minimum acceptable
level of achievement.
"MARKET VALUE PER SHARE" means the fair market value of the Common
Shares as determined by the Committee from time to time.
"NONQUALIFIED OPTION" means an Option Right that is not intended to
qualify as an Incentive Stock Option.
"OPTIONEE" means the person so designated in an agreement evidencing
an outstanding Option Right or the Successor of an Optionee, as the context so
requires.
"OPTION PRICE" means the purchase price payable upon the exercise of
an Option Right.
"OPTION RIGHT" means the right to purchase Common Shares from the
Corporation upon the exercise of a Nonqualified Option or an Incentive Stock
Option granted pursuant to Section 4 of this Plan.
"PARTICIPANT" means a person who is selected by the Committee to
receive benefits under this Plan and (i) is at that time an officer, including
without limitation an officer who may also be a member of the Board, or other
employee of or a consultant to the Corporation or any Subsidiary or (ii) has
agreed to commence serving in any such capacity, or the Successor of a
Participant, as the context requires.
"PERFORMANCE PERIOD" means, in respect of a Performance Share or
Performance Unit, a period of time established pursuant to Section 8 of this
Plan within which the Management Objectives relating thereto are to be
achieved.
"PERFORMANCE SHARE" means a bookkeeping entry that records the
equivalent of one Common Share awarded pursuant to Section 8 of this Plan.
"PERFORMANCE UNIT" means a bookkeeping entry that records a unit
equivalent to $1.00 awarded pursuant to Section 8 of this Plan.
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"RELOAD OPTION RIGHTS" means additional Option Rights automatically
granted to an Optionee upon the exercise of Option Rights pursuant to Section
4(f) of this Plan.
"RESTRICTED SHARES" means Common Shares granted or sold pursuant to
Section 6 of this Plan as to which neither the substantial risk of forfeiture
nor the restrictions on transfer referred to in Section 6 hereof has expired.
"RULE 16B-3" means Rule 16b-3, as promulgated and amended from time
to time by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended, or any successor rule to the same effect.
"SPREAD" means, in the case of a Free-standing Appreciation Right,
the amount by which the Market Value per Share on the date when the
Appreciation Right is exercised exceeds the Base Price specified therein or,
in the case of a Tandem Appreciation Right, the amount by which the Market
Value per Share on the date when the Appreciation Right is exercised exceeds
the Option Price specified in the related Option Right.
"SUBSIDIARY" means any corporation in which the Corporation owns or
controls directly or indirectly more than 50 percent of the total combined
voting power represented by all classes of stock issued by such corporation at
the time of the grant.
"SUCCESSOR" of a Participant means the legal representative of the
estate of a deceased Participant or the person or persons who shall acquire
the right to exercise an award hereunder by bequest or inheritance or by
reason of death of the Participant.
"TANDEM APPRECIATION RIGHT" means an Appreciation Right granted
pursuant to Section 5 of this Plan that is granted in tandem with an Option
Right or any similar right granted under any other plan of the Corporation.
3. Shares and Performance Units Available under the Plan. (a) Subject
to adjustment as provided in Section 10 of this Plan, the number of Common
Shares issued or transferred, plus the number of Common Shares covered by
outstanding awards granted under this Plan, shall not in the aggregate exceed
500,000 Shares, which may be Common Shares of original issuance or Common
Shares held in treasury or a combination thereof. For the purposes of this
Section 3(a):
(1) Upon payment in cash of the benefit provided by any award
granted under this Plan, any Common Shares that were covered
by that award shall again be available for issuance or
transfer hereunder.
(ii) Common Shares covered by any award granted under this Plan
shall be deemed to have been issued or transferred, and
shall cease to be available for future issuance or transfer
in respect of any other award granted hereunder, at the
earlier of the time when they are actually issued or
transferred or the time when dividends or dividend
equivalents are paid thereon; provided, however, that
Restricted Shares shall be deemed to have been issued or
transferred at the earlier of the time when
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<PAGE>
they cease to be subject to a substantial risk of forfeiture
or the time when dividends are paid thereon.
(b) The number of Performance Units that may be granted under this
Plan shall not in the aggregate exceed 100,000. Performance Units that are
granted under this Plan, but are paid in Common Shares or are not earned by
the Participant at the end of the Performance Period, shall be available for
future grants of Performance Units hereunder.
4. Option Rights. The Committee may from time to time authorize
grants to Participants of options to purchase Common Shares upon such terms
and conditions as the Committee may determine in accordance with the following
provisions:
(a) Each grant shall specify the number of Common Shares to
which it pertains; provided, however, that no participant shall be granted
Option Rights for more than 100,000 Common Shares in any one fiscal year of
the Corporation, subject to adjustment as provided in Section 10 of this Plan.
(b) Each grant shall specify an Option Price per Common
Share, which may be less than, equal to or greater than the Market Value per
Share on the Date of Grant; provided, however, (i) the Option Price shall
equal at least 85% of the Market Value per Share on the Date of Grant, or (ii)
the Option Price with respect to each Incentive Stock Option shall not be less
than 100% (or 110%, in the case of an individual described in Section
422(b)(6) of the Code (relating to certain 10% owners)) of the Market Value
per Share on the Date of Grant.
(c) Each grant shall specify the form of consideration to be
paid in satisfaction of the Option Price and the manner of payment of such
consideration, which may include (i) cash in the form of currency or check or
other cash equivalents acceptable to the Committee, (ii) subject to Section
4(d), nonforfeitable, unrestricted Common Shares, which are already owned by
the Optionee and have a value at the time of exercise that is equal to the
Option Price, (iii) any other legal consideration that the Committee may deem
appropriate, including without limitation any form of consideration authorized
under Section 4(d) below, on such basis as the Committee may determine in
accordance with this Plan and (iv) any combination of the foregoing.
(d) On or after the Date of Grant of any Nonqualified
Option, the Committee may determine that payment of the Option Price may also
be made in whole or in part in the form of Restricted Shares or other Common
Shares that are subject to risk of forfeiture or restrictions on transfer.
Unless otherwise determined by the Committee on or after the Date of Grant,
whenever any Option Price is paid in whole or in part by means of any of the
forms of consideration specified in this Section 4(d), the Common Shares
received by the Optionee upon the exercise of the Nonqualified Option shall be
subject to the same risks of forfeiture or restrictions on transfer as those
that applied to the consideration surrendered by the Optionee; provided,
however, that such risks of forfeiture and restrictions on transfer shall
apply only to the same number of Common Shares received by the Optionee as
applied to the forfeitable or restricted Common Shares surrendered by the
Optionee.
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<PAGE>
(e) Any grant may provide for deferred payment of the Option
Price from the proceeds of sale through a broker on the date of exercise of
some or all of the Common Shares to which the exercise relates.
(f) On or after the Date of Grant of any Option Rights, the
Committee may provide for the automatic grant to the Optionee of Reload Option
Rights upon the exercise of Option Rights, including Reload Option Rights for
Common Shares or any other noncash consideration authorized under Sections
4(c) and (d) above.
(g) Successive grants may be made to the same Participant
regardless of whether any Option Rights previously granted to the Participant
remain unexercised.
(h) Each grant shall specify the conditions, including as
and to the extent determined by the Committee, the period or periods of
continuous employment, or continuous engagement of the consulting services, of
the Optionee by the Corporation or any Subsidiary, or the achievement of
Management Objectives, that are necessary before the Option Rights or
installments thereof shall become exercisable, and any grant may provide for
the earlier exercise of the Option Rights, including, without limitation, in
the event of a change in control of the Corporation or other similar
transaction or event.
(i) Option Rights granted pursuant to this Section 4 may be
Nonqualified Options or Incentive Stock Options or combinations thereof, as
set forth in the award agreement.
(j) On or after the Date of Grant of any Nonqualified
Option, the Committee may provide for the payment to the Optionee of dividend
equivalents thereon in cash or Common Shares on a current, deferred or
contingent basis, or the Committee may provide that any dividend equivalents
shall be credited against the Option Price.
(k) No Option Right granted pursuant to this Section 4 may
be exercised more than 10 years from the Date of Grant (except that, in the
case of an individual described in Section 422(b)(6) of the Code (relating to
certain 10% owners) who is granted an Incentive Stock Option, the term of such
Option Right shall be no more than five years from the Date of Grant).
(l) Each grant shall be evidenced by an agreement, which
shall be executed on behalf of the Corporation by any officer thereof and
delivered to and accepted by the Optionee and shall contain such terms and
provisions as the Committee may determine consistent with this Plan.
(m) The aggregate Market Value per Share, determined as of
the Date of Grant, of the Common Shares for which any Optionee may be awarded
Incentive Stock Options which are first exercisable by the Optionee during any
calendar year under this Plan (or any other stock option plan required to be
taken into account under Section 422(d) of the Code) shall not exceed
$100,000.
(n) If and to the extent otherwise advisable herein or under
the applicable option agreement, upon and after the death of an Optionee, such
Optionee's Option Rights, to the extent exercisable after death may be
exercised by the Successors of the Optionee. An Option
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Right may be exercised, and payment in full of the aggregate Option Price
made, by the Successors of an Optionee only by written notice (in the form
prescribed by the Committee) to the Corporation specifying the number of
Common Shares to be purchased. Such notice shall state that the aggregate
Option Price will be paid in full, or that the Option Right will be exercised
as otherwise provided hereunder, in the discretion of the Corporation or the
Committee, if and as applicable.
5. Appreciation Rights. The Committee may also authorize grants to
Participants of Appreciation Rights. An Appreciation Right shall be a right of
the Participant to receive from the Corporation an amount, which shall be
determined by the Committee and shall be expressed an a percentage (not
exceeding 100 percent) of the Spread at the time of the exercise of an
Appreciation Right. Any grant of Appreciation Rights under this Plan shall be
upon such terms and conditions as the Committee may determine in accordance
with the following provisions:
(a) Any grant may specify that the amount payable upon the
exercise of an Appreciation Right may be paid by the Corporation in cash,
Common Shares or any combination thereof and may (i) either grant to the
Participant or reserve to the Committee the right to elect among those
alternatives or (ii) preclude the right of the Participant to receive and the
Corporation to issue Common Shares or other equity securities in lieu of cash;
provided, however, that no form of consideration or manner of payment that
would cause Rule 16b-3 to cease to apply to this Plan shall be permitted.
(b) Any grant may specify that the amount payable upon the
exercise of an Appreciation Right shall not exceed a maximum specified by the
Committee on the Date of Grant.
(c) Any grant may specify (i) a waiting period or periods
before Appreciation Rights shall become exercisable and (ii) permissible dates
or periods an or during which Appreciation Rights shall be exercisable.
(d) Any grant may specify that an Appreciation Right may be
exercised only in the event of a change in control of the Corporation or other
similar transaction or event.
(e) On or after the Date of Grant of any Appreciation
Rights, the Committee may provide for the payment to the Participant of
dividend equivalents thereon in cash or Common Shares on a current, deferred
or contingent basis.
(f) Each grant shall be evidenced by an agreement, which
shall be executed an behalf of the Corporation by any officer thereof and
delivered to and accepted by the Optionee and shall contain such other terms
and provisions an the Committee may determine consistent with this Plan.
(g) Regarding Tandem Appreciation Rights only: Each grant
shall provide that a Tandem Appreciation Right may be exercised only (i) at a
time when the related Option Right (or any similar right granted under any
other plan of the Corporation) is also exercisable and the Spread is positive
and (ii) by surrender of the related Option Right (or such other right) for
cancellation.
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(h) Regarding Free-standing Appreciation Rights only:
(i) Each grant shall specify in respect of
each Free-standing Appreciation Right a
Base Price per Common Share, which shall
be equal to or greater than the Market
Value per Share on the Date of Grant;
(ii) Successive grants may be made to the same
Participant regardless of whether any
Free-standing Appreciation Rights
previously granted to the Participant
remain unexercised; provided, however,
that no participant shall be granted more
than 100,000 Freestanding Appreciation
Rights in any one fiscal year of the
Corporation, subject to adjustment as
provided in Section 10 of this Plan;
(iii) Each grant shall specify the conditions,
including as and to the extent determined
by the Committee, the period or periods of
continuous employment, or continuous
engagement of the consulting services, of
the Participant by the Corporation or any
Subsidiary, or the achievement of
Management Objectives, that are necessary
before the Free-standing Appreciation
Rights or installments thereof shall
become exercisable, and any grant may
provide for the earlier exercise of the
Free-standing Appreciation Rights,
including, without limitation, in the
event of a change in control of the
Corporation or other similar transaction
or event; and
(iv) No Free-standing Appreciation Right
granted under this Plan may be exercised
more than 10 years from the Date of Grant.
6. Restricted Shares. The Committee may also authorize grants or
sales to Participants of Restricted Shares upon such terms and conditions as
the Committee may determine in accordance with the following provisions:
(a) Each grant or sale shall constitute an immediate
transfer of the ownership of Common Shares to the Participant in consideration
of the performance of services, or as and to the extent determined by the
Committee, the achievement of Management Objectives, entitling such
Participant to dividend, voting and other ownership rights, subject to the
substantial risk of forfeiture and restrictions on transfer hereinafter
referred to.
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(b) Each grant or sale may be made without additional
consideration from the Participant or in consideration of a payment by the
Participant that is less than the Market Value per Share on the Date of Grant.
(c) Each grant or sale shall provide that the Restricted
Shares covered thereby shall be subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Code for a period to be determined by
the Committee on the Date of Grant, and any grant or sale may provide for the
earlier termination of such period, including without limitation, in the event
of a change in control of the Corporation or other similar transaction or
event.
(d) Each grant or sale shall provide that, during the period
for which such substantial risk of forfeiture is to continue, the
transferability of the Restricted Shares shall be prohibited or restricted in
the manner and to the extent prescribed by the Committee on the Date of Grant.
Such restrictions may include, without limitation, rights of repurchase or
first refusal in the Corporation or provisions subjecting the Restricted
Shares to a continuing substantial risk of forfeiture in the hands of any
transferee.
(e) Any grant or sale may require that any or all dividends
or other distributions paid on the Restricted Shares during the period of such
restrictions be automatically sequestered and reinvested on an immediate or
deferred basis in additional Common Shares, which may be subject to the same
restrictions as the underlying award or such other restrictions as the
Committee may determine.
(f) Each grant or sale shall be evidenced by an agreement,
which shall be executed an behalf of the Corporation by any officer thereof
and delivered to and accepted by the Participant and shall contain such terms
and provisions as the Committee may determine consistent with this Plan.
Unless otherwise directed by the Committee, all certificates representing
Restricted Shares, together with a stock power that shall be endorsed in blank
by the Participant with respect to the Restricted Shares, shall be held in
custody by the Corporation until all restrictions thereon lapse.
7. Deferred Shares. The Committee may also authorize grants or sales
of Deferred Shares to Participants upon such terms and conditions as the
Committee may determine in accordance with the following provisions:
(a) Each grant or sale shall constitute the agreement by the
Corporation to issue or transfer Common Shares to the Participant in the
future in consideration of the performance of services rendered, subject to
the fulfillment during the Deferral Period of such conditions as the Committee
may specify.
(b) Each grant or sale may be made without additional
consideration from the Participant or in consideration of a payment by the
Participant that is less than the Market value per Share on the Date of Grant.
(c) Each grant or sale shall provide that the Deferred
Shares covered thereby shall be subject to a Deferral Period, which shall be
fixed by the Committee on the Date of Grant, and any grant or sale may provide
for the earlier termination of the Deferral Period, including without
limitation, in the event of a change in control of the Corporation or other
similar transaction or event.
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(d) During the Deferral Period, the Participant shall not
have any right to transfer any rights under the subject award, shall not have
any rights of ownership in the Deferred Shares and shall not have any right to
vote the Deferred Shares, but the Committee may on or after the Date of Grant
authorize the payment of dividend equivalents on the Deferred Shares in cash
or additional Common Shares on a current, deferred or contingent basis.
(e) Each grant or sale shall be evidenced by an agreement,
which shall be executed an behalf of the Corporation by any officer thereof
and delivered to and accepted by the Participant and shall contain such terms
and provisions as the Committee may determine consistent with this Plan.
8. Performance Shares and Performance Units. The Committee may also
authorize grants of Performance Shares and Performance Units, which shall
become payable to the Participant upon the achievement of specified Management
Objectives, upon such terms and conditions as the Committee may determine in
accordance with the following provisions:
(a) Each grant shall specify the number of Performance
Shares or Performance Units to which it pertains, which may be subject to
adjustment to reflect changes in compensation or other factors.
(b) The Performance Period with respect to each Performance
Share or Performance Unit shall be determined by the Committee on the Date of
Grant and may be subject to earlier termination, including, without
limitation, in the event of a change in control of the Corporation or other
similar transaction or event.
(c) Each grant shall specify the Management Objectives that
are to be achieved by the Participant.
(d) Each grant shall specify in respect of the specified
Management Objectives a minimum acceptable level of achievement below which no
payment will be made and shall set forth a formula for determining the amount
of any payment to be made if performance is at or above the minimum acceptable
level but falls short of full achievement of the specified Management
Objectives.
(e) Each grant shall specify the time and manner of payment
of Performance Shares or Performance units that shall have been earned, and
any grant may specify that any such amount may be paid by the Corporation in
cash, Common Shares or any combination thereof and may either grant to the
Participant or reserve to the Committee the right to elect among those
alternatives; provided, however, that no form of consideration or manner of
payment that would cause Rule 16b-3 to cease to apply to this Plan shall be
permitted.
(f) Any grant of Performance Shares may specify that the
amount payable with respect thereto may not exceed a maximum specified by the
Committee on the Date of Grant. Any grant of Performance Units may specify
that the amount payable, or the number of Common Shares issued, with respect
thereto may not exceed maximums specified by the Committee on the Date of
Grant.
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(g) On or after the Date of Grant of Performance Shares, the
Committee may provide for the payment to the Participant of dividend
equivalents thereon in cash or additional Common Shares on a current, deferred
or contingent basis.
(h) Each grant shall be evidenced by an agreement, which
shall be executed on behalf of the Corporation by any officer thereof and
delivered to and accepted by the Participant and shall contain such terms and
provisions as the Committee may determine consistent with this Plan.
9. Transferability. (a) No Option Right or other derivative security
(as that term is used in Rule 16b-3) granted under this Plan may be
transferred by a Participant except by will or the laws of descent and
distribution. Option Rights and Appreciation Rights granted under this Plan
may not be exercised during a Participant's lifetime except by the Participant
or, in the event of the Participant's legal incapacity, by his guardian or
legal representative acting in a fiduciary capacity on behalf of the
Participant under state law and court supervision.
(b) Any grant made under this Plan may provide that all or
any part of the Common Shares that are to be issued or transferred by the
Corporation upon the exercise of Option Rights or Appreciation Rights or upon
the termination of the Deferral Period applicable to Deferred Shares or in
payment of Performance Shares or Performance Units, or are no longer subject
to the substantial risk of forfeiture and restrictions on transfer referred to
in Section 6 of this Plan, shall be subject to further restrictions upon
transfer.
10. Adjustments. The Committee may make or provide for such
adjustments in the number of Common Shares covered by outstanding awards
granted hereunder, the Option Prices per Common Share or Base Prices per
Common Share applicable to any such awards, and the kind of shares (including
shares of another issuer) covered thereby, as the Committee may in good faith
determine to be equitably required in order to prevent dilution or expansion
of the rights of Participants that otherwise would result from (a) any stock
dividend, stock split, combination of shares, recapitalization or other change
in the capital structure of the Corporation or (b) any merger, consolidation,
spin-off, spin-out, split-off, split-up, reorganization, partial or complete
liquidation or other distribution of assets, issuance of warrants or other
rights to purchase securities or any other corporate transaction or event
having an effect similar to any of the foregoing. In the event of any such
transaction or event, the Committee may provide in substitution for any or all
outstanding awards under this Plan such alternative consideration as it may in
good faith determine to be equitable under the circumstances and may require
in connection therewith the surrender of all awards so replaced. Moreover, the
Committee may on or after the Date of Grant provide in the agreement
evidencing any award under this Plan that the holder of the award may elect to
receive an equivalent award in respect of securities of the surviving entity
of any merger, consolidation or other transaction or event having a similar
effect, or the Committee may provide that the holder will automatically be
entitled to receive such an equivalent award. The Committee may also make or
provide for such adjustments in the maximum number of Common Shares specified
in Section 3(a) of this Plan, the maximum number of Performance Units
specified in Section 3(b), and the maximum number of Common Shares and
Free-standing Appreciation Rights specified in Sections 4(a) and 5(h)(ii) of
this Plan as the Committee may in good faith determine to be appropriate in
order to reflect any transaction or event described in this Section 10.
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11. Fractional Shares. The Corporation shall not be required to issue
any fractional Common Shares pursuant to this Plan. The Committee may provide
for the elimination of fractions or for the settlement thereof in cash.
12. Withholding Taxes. To the extent that the Corporation is required
to withhold federal, state, local or foreign taxes in connection with any
payment made or benefit realized by a Participant or other person under this
Plan, and the amounts available to the Corporation for the withholding are
insufficient, it shall be a condition to the receipt of any such payment or
the realization of any such benefit that the Participant or such other person
make arrangements satisfactory to the Corporation for payment of the balance
of any taxes required to be withheld. At the discretion of the Committee and
subject to the provisions of Rule 16b-3, any such arrangements may include
relinquishment of a portion of any such payment or benefit. The Corporation
and any Participant or such other person may also make similar arrangements
with respect to the payment of any taxes with respect to which withholding is
not required.
13. Certain Terminations of Employment or Consulting Services,
Hardship and Approved Leaves of Absence. Notwithstanding any other provision
of this Plan to the contrary, in the event of termination of employment or
consulting services by reason of death, disability, normal retirement, early
retirement, with the consent of the Corporation, termination of employment or
consulting services to enter public service with the consent of the
Corporation or leave of absence approved by the Corporation, or in the event
of hardship or other special circumstances, of a Participant who holds an
Option Right or Appreciation Right that is not immediately and fully
exercisable, any Restricted Shares as to which the substantial risk of
forfeiture or the prohibition or restriction on transfer has not lapsed, any
Deferred Shares as to which the Deferral Period is not complete, any
Performance Shares or Performance Units that have not been fully earned, or
any Common Shares that are subject to any transfer restriction pursuant to
Section 9(b) of this Plan, the Committee may take any action that it deems to
be equitable under the circumstances or in the best interests of the
Corporation, including without limitation, waiving or modifying any limitation
or requirement with respect to any award under this Plan.
14. Administration of the Plan. (a) This Plan shall be administered
by a Committee of the Board, which shall be composed of not less than two
members of the Board, each of whom shall be a " non-employee director" within
the meaning of Rule 16b-3.
(b) The interpretation and construction by the Committee of
any provision of this Plan or any agreement, notification or document
evidencing the grant of Option Rights, Appreciation Rights, Restricted Shares,
Deferred Shares, Performance Shares or Performance Units, and any
determination by the Committee pursuant to any provision of this Plan or any
such agreement, notification or document, shall be final and conclusive. No
member of the Committee shall be liable for any such action taken or
determination made in good faith.
15. Amendments and Other Matters. (a) This Plan may be amended from
time to time by the Committee; provided, however, that except as expressly
authorized by this Plan, no such amendment shall increase the number of Common
Shares specified in Section 3(a) hereof, increase the number of Performance
Units specified in Section 3(b) hereof, extend the time for granting awards
under paragraph 16, or otherwise cause this Plan to cease to satisfy any
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applicable condition of Rule 16b-3, without further approval of the
shareholders of the Corporation.
(b) With the concurrence of the affected Participant, the
Committee may cancel any agreement evidencing Option Rights or any other award
granted under this Plan. In the event of any such cancellation, the Committee
may authorize the granting of new Option Rights or other awards hereunder,
which may or may not cover the same number of Common Shares or Performance
Units as had been covered by the cancelled Option Rights or other award, at
such Option Price, in such manner and subject to such other terms, conditions
and discretion as would have been permitted under this Plan had the cancelled
Option Rights or other award not been granted.
(c) The Committee may grant under this Plan any award or
combination of awards authorized under this Plan in exchange for the
cancellation of an award that was not granted under this Plan, including
without limitation any award that was granted prior to the adoption of this
Plan by the Board, and any such award or combination of awards so granted
under this Plan may or may not cover the same number of Common Shares as had
been covered by the cancelled award and shall be subject to such other terms,
conditions and discretion as would have been permitted under this Plan had the
cancelled award not been granted.
(d) This Plan shall not confer upon any Participant any
right with respect to continuance of employment or other service with the
Corporation or any Subsidiary and shall not interfere in any way with any
right that the Corporation or any Subsidiary would otherwise have to terminate
any Participant's employment or other service at any time.
(5) (i) To the extent that any provision of this Plan
would prevent any Option Right that was intended to
quality as an Incentive Stock Option from so
qualifying, any such provision shall be null and
void with respect to any such Option Right:
provided, however, that any such provision shall
remain in effect with respect to other Option
Rights, and there shall be no further effect on any
provision of this Plan.
(ii) Any award that may be made pursuant to an
amendment to this Plan that shall have been adopted
without the approval of the shareholders of the
Corporation shall be null and void if it is
subsequently determined that such approval was
required in order for this Plan to continue to
satisfy the applicable conditions of Rule 16b-3.
16. Termination of the Plan. No further awards shall be granted under
this Plan after the passage of 10 years from the date on which this Plan is
first approved by the shareholders of the Corporation.
17. Effective Date. The effective date of this Plan (the Effective
Date") shall be December 18, 1998, provided, however, that this Plan and each
award granted hereunder shall be void and of no force or effect until and
unless this Plan shall have been approved by a vote of the holders of the
majority of the Corporation present, or represented, and entitled to vote at a
meeting duly held in accordance with New Mexico law.
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18. Nontransferability. Each award granted under this Plan shall by
its terms be nontransferable by the Participant except by will or the laws of
decent and distribution of the state wherein the Participant is domiciled at
the time of his death; provided, however, that the Committee may (but need
not) permit other transfers, to the extent consistent with Rule 16b-3; where
the Committee concludes that such transferability does not result in
accelerated taxation and is otherwise appropriate and desirable.
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UNICO, INC.
INCENTIVE EQUITY PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
NONQUALIFIED STOCK OPTION AGREEMENT, dated as of __________,
1999 (the "Agreement"), between _________________________________ (the
"Optionee") and Unico, Inc. a New Mexico corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Optionee is an employee of the Company;
WHEREAS, the execution of a Nonqualified Stock Option
Agreement in the form hereof has been duly authorized by a resolution of the
Committee administering the Unico, Inc. Incentive Equity Plan (the "Plan"),
which Plan was approved by a resolution of the Board of Directors of the
Company duly adopted on December 18, 1998 and is incorporated herein as an
appendix; and
WHEREAS, the option granted hereby is intended as a
nonqualified stock option and shall not be treated as an "incentive stock
option" within the meaning of that term under Section 422 of the Internal
Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the foregoing and the
mutual agreements herein contained, the parties hereto hereby agree as
follows:
1. Option.
(a) Pursuant to the Plan, the Company hereby grants to the
Optionee an option (the "Option") to purchase_________ shares (the "Option
Shares") of Common Stock, $0.20 par value, of the Company (the "Common Stock")
at a purchase price per share of $_____ (the "Option Price") which is the fair
market value of the Option Shares as of the date hereof, and agrees to cause
certificates for any shares purchased hereunder to be delivered to the
Optionee upon payment of the Option Price in full, all subject, however, to
the terms and conditions hereinafter set forth.
(b) Subject to Section 3(a) hereof, this Option (until
terminated as hereinafter provided) shall be exercisable only to the extent of
20% of the shares of Common Stock specified above before_________________
[insert date of agreement] and to the extent of an additional 20% of the
shares specified above after each of the first four anniversaries of such
date, for so long as the Optionee continues to be in the employ of the Company
or any Subsidiary. For purposes of this Agreement, the employment of the
Optionee with the Company with the Company or a Subsidiary shall not be deemed
interrupted, and the Optionee shall not be deemed to have ceased to be an
employee of the Company or any Subsidiary by reason of the transfer of his
employment among or between the Company or its Subsidiaries. For the purpose
of this paragraph, leaves of absence approved by the Board of Directors of the
Company, or any
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committee thereof, for illness, military or government service, or other
cause, shall be considered as employment.
(c) To the extent exercisable, the Option may be exercised
in whole, or in part from time to time, until expiration
as provided in Section 1(d).
(d) This Option shall terminate on the earliest of the
following dates:
(I) On the date on which the Optionee ceases to be an
employee of the Company or a Subsidiary unless he ceases to
be such an employee in a manner described in (ii) or (iii)
below.
(ii) 60 days after the Optionee ceases to be an employee of
the Company or any Subsidiary if (I) Optionee retires from
employment with the Company or any Subsidiary after reaching
the age of 65 years, or (ii) Optionee's employment is
terminated under circumstances determined by the Committee
to be for the convenience of the Company.
(iii) 90 days after the date on which Optionee's employment
is terminated as a result of the Optionee's death or
Disability (as hereinafter defined).
(iv) Ten years from the date of this Agreement.
In the event the Optionee shall intentionally commit an act
materially inimical to the interests of the Company or a Subsidiary, and the
Committee shall so find, the Option shall terminate at the time of such act,
notwithstanding any other provision of this Agreement.
Nothing in this Section 1(d) shall be construed to modify or
enlarge the rights of the Optionee and the conditions of exercising this
Option as set forth in Section 1(b) hereof, and at no time shall any right to
exercise this Option accrue to the Optionee unless and to the extent that the
conditions set forth in Section 1(b) shall have been satisfied.
(e) Nothing contained in this Agreement shall limit whatever
right the Company or any Subsidiary might otherwise have to terminate the
employment of the Optionee.
2. Exercise; Payment for Shares
(a) This Option shall be exercised by Optionee by delivery
to the Company of (i) an Exercise Notice in the form attached to this
Agreement as Annex A, appropriately completed and duly executed and dated by
the Optionee, (ii) payment in full of the Option Price for the number of
shares which the Optionee is purchasing hereunder as required by Section 2(b),
and (iii) payment in full to the Company of any amounts required to be paid
pursuant to Section 2(c).
(b) The Option Price shall be payable (i) in cash or by
check (certified, personal or bank check) acceptable to the Company, (ii)
nonforfeitable unrestricted shares of Common Stock which are already owned by
the optionee and have a value at the time of exercise
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that is equal to the Option Price, or (iii) a combination of the foregoing.
The requirement of payment in cash shall be deemed satisfied if the Optionee
shall have made arrangements satisfactory to the Company with a broker who is
a member of the National Association of Securities Dealers, Inc. to sell on
the exercise date a sufficient number of the shares being purchased so that
the net proceeds of the sale transaction will at least equal the option
exercise price and pursuant to which the broker undertakes to deliver the full
option exercise price to the Company not later than the date on which the sale
transaction will settle in t he ordinary course of business.
(c) If the Company shall be required to withhold any
federal, state, local or foreign tax in connection with exercise of the
Option, it shall be a condition to such exercise that the Optionee pay or make
provision satisfactory to the Company for payment of all such taxes.
3. Change in Control, Adjustments.
(a) Upon a Change in Control (as hereinafter defined), the
Option shall, notwithstanding Section 1(b), become immediately exercisable in
full. If any event or series of events constituting a Change in Control shall
be abandoned, the effect thereof shall be null and of no further force and
effect and the provisions of Section 1(b) shall be reinstated but without
prejudice to any exercise of the Option that may have occurred prior to such
nullification.
(b) Notwithstanding the provisions of Section 3(a), to the
extent necessary for the Option, its exercise or the sale of Common Stock
acquired thereunder to be exempt from Section 16(b) of the Exchange Act of
1934, as amended, (i) except in the case of death or Disability, the Optionee
shall not be entitled to exercise the Option if granted within six months
prior to the occurrence of a Change in Control until the expiration of the
six-month period following the date of this Agreement, or (ii) at least six
months shall elapse from the date of this Agreement to the date of disposition
of the Option Shares acquired upon exercise of the Option.
(c) (I) The Committee may make or provide for such good
faith adjustments- in the number and kind of shares
of the Company's Common Stock covered by the Option
and in the Option Price, as the Committee may in
good faith determine to be equitably required in
order to prevent dilution or expansion of the
rights of the Optionee that otherwise would result
from (a) any stock dividend, stock split,
combination of shares, recapitalization or other
change in the capital structure of the Company, or
(b) any merger, consolidation, spinoff, spin-out,
split-off, split-up, reorganization, partial or
complete liquidation or other distribution of
assets, issuance of warrants or other rights to
purchase securities or any other corporate
transaction or event having an effect similar to
the foregoing.
(ii) In the event of any such transaction or event, the
Committee may provide in substitution for the
Option such alternative consideration as it may in
good faith determine to be equitable under the
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circumstances and may require in connection
therewith the surrender of this Option.
4. No Transfer Of Option.
The Option may not be transferred by the Optionee except by
will or the laws of descent and distribution. The Option may not be exercised
during the Optionee's lifetime except by the Optionee or, in the event of the
Optionee's legal incapacity, by his guardian or legal representative acting in
a fiduciary capacity on behalf of the Optionee under state law and court
supervision.
5. Limitations on Exercise of the Option.
The Option shall not be exercisable if such exercise would
involve a violation of any applicable federal or state securities law and
unless under such laws at the time of exercise the shares purchasable upon
exercise are exempt, are the subject matter of an exempt transaction, are
registered by description or by qualification, or at such time are the subject
matter of a transaction which has been registered by description.
6. Rights as Shareholder.
The holder of this Option shall not be, nor have any of the
rights or privileges of, a holder of the Company's Common Stock in respect of
any shares purchasable upon the exercise of any part of the Option unless and
until certificates representing such shares shall have been issued by the
Company to such holder.
7. Defined Terms. As used in this Agreement,
(a) "Change in Control" means the occurrence of any of the
following events:
(i) The execution by the Company of an agreement for
the merger, consolidation or reorganization into or
with another corporation or other legal person;
provided, however, that no such merger,
consolidation or reorganization shall constitute a
Change in Control if as a result of such merger,
consolidation or reorganization not less than a
majority of the combined voting power of the
then-outstanding securities of such corporation or
person immediately after such transaction are held
in the aggregate by the holders of securities
entitled to vote generally in the election of
directors of the Company ("Voting Stock")
immediately prior to such transaction;
(ii) The execution by the Company of an agreement for
the sale or other transfer of all or substantially
all of its assets to another corporation or other
legal person; provided, however, that no such sale
or other transfer shall constitute a Change in
Control if as a result of such sale or transfer not
less than a majority of the combined voting power
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of the then outstanding securities of such
corporation or person immediately after such sale
or transfer is held in the aggregate by the holders
of Voting Stock of the Company immediately prior to
such sale or transfer;
(iii) There is a report filed on Schedule 13D or Schedule
14D-1 (or any successor schedule, form or report),
each as promulgated pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange
Act") disclosing that any person (as the term
"person" is used in Section 13(d)(3) or Section
14(d)(2) of the Exchange Act) (other than any
person (or any of their affiliates) that owns
beneficially or of record more than ten percent of
the Common Stock on 1996) has or intends to become
the beneficial owner (as the term "beneficial
owner" is defined under Rule 13d-3 or any
successor rule or regulation promulgated under the
Exchange Act) of securities representing a majority
or more of the combined voting power of the
then-outstanding Voting Stock, including, without
limitation, pursuant to a tender offer or exchange
offer;
(iv) If, during any period of two consecutive years,
individuals who at the beginning of any such period
constitute the directors of the Company cease for
any reason to constitute at least a majority
thereof; provided, however , that for purposes of
this subsection (iv) each director who is first
elected, or first nominated for election by the
Company's shareholders, by a vote of at least
two-thirds of the directors of the Company (or a
committee thereof) then still in office who were
directors of the Company at the beginning of any
such period shall be deemed to have been a director
of the Company at the beginning of such period; or
(v) except pursuant to a transaction described in the
proviso to subsection (i) of this definition, the
Company adopts a plan for the liquidation or
dissolution of the Company.
(b) "Disability" means, as of any date, the permanent
disability of the Optionee in accordance with the then applicable provisions
of the disability benefit program of the Company generally available to
employees of the Company or any Subsidiary.
8. Terms of Plan. This Agreement shall be subject to all of the terms
and conditions of the Plan which is incorporated herein by reference. All
capitalized terms used herein and not defined herein are used as defined in
the Plan.
EXECUTED at __________________, California this________ day
of__________________ 19___.
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UNICO, INC.
By:__________________________________
Name:________________________________
Title:_______________________________
ACCEPTED AND AGREED
By:__________________________
Name:________________________
Optionee
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ANNEX A
to
Nonqualified Stock Option Agreement
Form of Exercise Notice
Pursuant to the Nonqualified Stock Option Agreement dated as of
____________________, 199__ between the undersigned and Unico, Inc. (the
"Company"), the undersigned hereby elects to exercise his option as follows:
(a) Number of shares purchased:_______________________
(b) Total purchase price ((a) x Option Exercise Price): $___________
Please issue a single certificate for the shares being purchased in
the name of the undersigned. The registered address on such certificate should
be:
____________________________________________
____________________________________________
____________________________________________
The undersigned's social security number is:______________________
Date_____________________ __________________________
Optionee
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UNICO, INC.
SCHEDULE 14A
APPENDIX C
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
Table of Contents
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Purposes .................................................................124
Definitions ..............................................................124
Shares Available under the Plan...........................................125
Automatic Grants of Nonqualified Options to Nonemployee Directors ........126
Adjustments ..............................................................127
Fractional Shares ........................................................128
Administration of the Plan ...............................................128
Amendments and Other Matters..............................................128
No Additional Rights .....................................................128
Securities Law Matters....................................................129
Change in Control ........................................................129
Termination of the Plan ..................................................130
Effective Date ...........................................................130
Nontransferability .......................................................131
</TABLE>
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UNICO, INC.
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
Purposes. The purposes of this Plan are to encourage outside Directors of
Unico, Inc. (the "Corporation") to own shares of the Corporation's
stock and thereby to align their interests more closely with the
interests of the other shareholders of the Corporation, to encourage
the highest level of Director performance by providing the Directors
with a direct interest in the Corporation's attainment of its
financial goals, and to provide financial incentives that will help
attract and retain the most qualified Directors.
Definitions. As used in this Plan:
"Board" means the Board of Directors of the Corporation.
"Change in Control" has the meaning set forth in Section 11.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Committee described in Section 7 of this Plan.
"Common Shares" means (I) shares of the Common Stock, ______ par value, of the
Corporation and (ii) any security into which Common Shares may be converted by
reason of any transaction or event of the type referred to in Section 5 of
this Plan.
"Date of Grant" means the date on which a grant of Nonqualified Options shall
become effective as provided in Section 4(a).
"Director" means a member of the Board who is not an employee of the
Corporation. For purposes of this Plan, an employee is an individual whose
wages are subject to the withholding of federal income tax under Section 3401
and 3402 of the Code. A Director who becomes an employee (within the meaning
of this Section) shall not forfeit any Option Right granted hereunder solely
by reason of assuming employee status.
"Disability" means the inability to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment which
can be expected to result in death or which has lasted or can be expected to
last for a continuous period of not less than 12 months. A Director shall not
be considered to be subject to a Disability until he furnishes a certification
from a practicing physician in good standing to the effect that such Director
meets the criteria described in this Section.
"Effective Date" has the meaning set forth in Section 13.
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"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Market Value" as of a given date means (a) the closing sale price of the
Common Shares on the principal securities exchange on which such Common Shares
are then trading on such date, or (b) if the Common Shares are not listed on a
securities exchange, the closing sale price of the Common Shares as reported
on the National Association of Securities Dealers Automated Quotation System
("NASDAQ") on such date. If there are no Common Share transactions on such
date, the Market Value per Common Share shall be determined as of the
immediately preceding date on which there were Common Share transactions.
"Nonqualified Option" means an option to purchase shares of Common Stock that
is not intended to qualify as an incentive stock option under Section 422 of
the Code.
"Optionee" means the Director so designated in an agreement evidencing an
outstanding Option Right, or the Successor of an Optionee, as the context so
requires.
"Option Price" means the purchase price payable upon the exercise of an Option
Right.
"Option Right" means the right to purchase Common Shares from the Corporation
upon the exercise of a Nonqualified Option granted pursuant to this Plan.
Option Rights shall be evidenced by written agreements containing terms and
conditions not inconsistent with this Plan.
"Plan" means the Unico, Inc. Stock Option Plan for Non Employee Directors, as
the same may be amended from time to time.
"Rule 16b-3" means Rule 16b-3, as promulgated and amended from time to time by
the Securities and Exchange Commission under the Exchange Act.
"Successor" of an Optionee means the legal representative of the estate of a
deceased Optionee or the person or persons who shall acquire the right to
exercise a Nonqualified Option by bequest or inheritance or by reason of the
death of the Optionee.
"Termination of Service" means the time at which the Optionee ceases to serve
as a member of the Board for any reason, with or without cause, which includes
termination by resignation, removal, death or retirement.
"Voting Stock" has the meaning set forth in Section 11(a).
3. Shares Available under the Plan.
(a) Subject to Sections 3(b) and 5 of this Plan, the number of Common
Shares issued or transferred, plus the number of Common Shares covered by
outstanding awards granted under this Plan, shall not in the aggregate exceed
250,000 Common Shares, which may be Common Shares of original issuance or
Common Shares held in treasury or a combination thereof.
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(b) For the purposes of this Section 3, any Common Shares subject to
an Option Right that has been canceled or terminated shall again be available
for the grant of Option Rights under this Plan.
4. Automatic Grants of Nonqualified Options to Nonemployee Directors.
(a) The following Nonqualified Options shall be granted under this
Plan:
(i) As of the Effective Date, a Nonqualified Option to
purchase 10,000 Common Shares is granted to each person who on such date is an
incumbent Director, and a Nonqualified Option to purchase 10,000 Common Shares
shall be automatically granted to each such person on the day following the
annual shareholders' meeting of each year thereafter for so long as he or she
continues to serve as a Director.
(ii) With respect to each person who first becomes a
Director of the Corporation after the Effective Date of this Plan, an option
to purchase 10,000 Common Shares shall be automatically granted as of the date
such person first becomes a Director, and a Nonqualified Option to purchase
10,000 Common Shares shall be automatically granted to each such person on the
day following the annual shareholders' meeting of each year thereafter for so
long as he or she continues to serve as a Director and provided that he or she
has served as a Director for at least six months prior thereto.
(b) The Option Price per share of each Nonqualified Option shall be
the Market Value per Common Share as of the Date of Grant.
(c) (i) Subject to subsection (ii) of this Section 4(c) and Section
11 of this Plan, each Nonqualified Options, until terminated as provided in
Section 4(d), shall become exercisable to the extent of 20% of the Common
Shares subject thereto on the Date of Grant and to the extent of an additional
20% of the Common Shares subject thereto after each of the first four
anniversaries of such date, for so long as the Optionee continues to serve as
a member of the Board. To the extent exercisable, each Nonqualified Option
shall be exercisable in whole or in part from time to time.
(ii) If an Optionee ceases to be a Director by reason of
death or Disability, all Nonqualified Options held by such Optionee that would
have otherwise become exercisable had such Director continuously served as a
Director through the date of the Corporation's Annual Meeting of shareholders
immediately following such death or Disability shall, notwithstanding
subsection (I) of this Section 4(c), become immediately exercisable in full.
(d) Each Nonqualified Option shall terminate on the earliest of the
following dates:
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(i) Three (3) months following the effective date of the
Optionee's Termination of Service, if such Termination of Service results
other than from Optionee's death or Disability;
(ii) One (1) year following the effective date of the
Optionee's Termination of Service, if such Termination of Service results from
Optionee's death or Disability; or
(iii) Ten (10) years from the Date of Grant.
(e) The Option Price shall be payable (I) in cash or by check
acceptable to the Corporation, (ii) by transfer to the Corporation of Common
Shares which have been owned by the Optionee for more than six months prior to
the date of exercise and which have a Market Value on the date of exercise
equal to the Option Price, or (iii) by a combination of such methods of
payment. The requirement of payment in cash shall be deemed satisfied if the
Optionee shall have made arrangements satisfactory to the Corporation with a
broker who is a member of the National Association of Securities Dealers, Inc.
to sell on the exercise date a sufficient number of the shares being purchased
so that the net proceeds of the sale transaction will at least equal the
option exercise price and pursuant to which the broker undertakes to deliver
the full option exercise price to the Corporation not later than the date on
which the sale transaction will settle in the ordinary course of business.
(f) Nonqualified Options granted pursuant to this Section 4 shall be
options that are not intended to qualify under any particular provision of the
Code.
(g) If and to the extent otherwise advisable herein or under the
applicable option agreement, upon and after the death of an Optionee, such
Optionee's Nonqualified Options, to the extent exercisable after death may be
exercised by the Successors of the Optionee. A Nonqualified Option may be
exercised, and payment in full of the aggregate Option Price made, by the
Successors of an Optionee only by written notice (in the form prescribed by
the Committee) to the Corporation specifying the number of Common Shares to be
purchased. Such notice shall state that the aggregate Option Price will be
paid in full, or that the Nonqualified Option will be exercised as otherwise
provided hereunder, in the discretion of the Corporation or the Committee, if
and as applicable.
5. Adjustments. The Committee shall make or provide for such
adjustments in the number of Common Shares covered by awards made hereunder,
the Option Prices per Common Share applicable to any such awards, and the kind
of shares (including shares of another issuer) covered thereby, as the
Committee shall in good faith determine to be equitably required in order to
prevent dilution or expansion of the rights of Optionees that otherwise would
result from (a) any stock dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of the Corporation,
or (b) any merger, consolidation, spin-off, spin-out, split-off, split-up,
reorganization, partial or complete liquidation or other distribution of
assets, issuance of warrants or other rights to purchase securities or any
other corporate transaction or event having an effect similar to any of the
foregoing. The Committee shall also make or provide for such adjustments in
the maximum number of Common Shares specified in
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Section 3(a) of this Plan as the Committee may in good faith determine to be
appropriate in order to reflect any transaction or event described in this
Section 5.
6. Fractional Shares. The Corporation shall not be required to issue
any fractional Common Shares pursuant to this Plan. Whenever under the terms
of this Plan a fractional Common Share would otherwise be required to be
issued, an amount in lieu thereof shall be paid in cash based upon the Market
Value of such fractional Common Share.
7. Administration of the Plan. This Plan shall be administered by a
committee of the Board, which shall be composed of not less than two members
of the Board ("Committee"). Notwithstanding the foregoing, grants of Option
Rights under this Plan shall be automatic as described in Section 4, and the
Committee shall have no authority, discretion or power to determine the terms
of the Option Rights to be granted pursuant to this Plan, the number of Common
Shares to be issued thereunder or the time at which such Option Rights are to
be granted, or establish the duration and nature of Option Rights, except in
the sense of administering the Plan subject to the provisions of this Plan.
8. Amendments and other Matters.
(a) This Plan may be terminated, and from time to time
amended, by the Board; provided, however, that except as expressly authorized
by this Plan, no such amendment shall (i) increase the number of Common Shares
specified in Section 3(a) hereof, materially modify the requirements as to
eligibility for participation in this Plan, or otherwise cause this Plan or
any grant, award or election made pursuant to this Plan to cease to satisfy
any applicable condition of Rule 16b-3, without further approval of the
shareholders of the Corporation, or (ii) cause any Optionee to fail to qualify
as a "non-employee director" within the meaning of Rule 16b-3; provided,
further, that Plan provisions relating to the amount and price of securities
to be awarded and the timing of awards under the Plan shall not be amended
more than once every six months, other than to comport with changes in the
Code, the Employees Retirement Income Security Act, as amended, or the rules
promulgated thereunder. No amendment or termination of this Plan shall
adversely affect any outstanding award theretofore granted under the Plan
without the consent of the Director holding such award.
(b) Any grant, award or election that may be made pursuant
to an amendment to this Plan shall be null and void if it is subsequently
determined that (i) shareholder approval of such amendment was required in
order for this Plan to continue to satisfy the applicable conditions of Rule
16b-3, or (ii) such grant, award, election or amendment disqualified any
optionee as a "non-employee director" within the meaning of Rule 16b-3.
9. No Additional Rights. Nothing contained in this Plan or in any
award granted under this Plan shall interfere with or limit in any way the
right of the shareholders of the Corporation to remove any Director from the
Board pursuant to state law or the Bylaws or Articles of Incorporation of the
Corporation, nor confer upon any Director any right to continue in the service
of the Corporation.
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10. Securities Law Matters.
(a) The Corporation may require any Optionee, as a condition of
receiving Option Rights, to give written assurances in substance and form
satisfactory to the Corporation and its counsel to the effect that such person
is acquiring the Common Shares subject to the Option Rights for his own
account for investment and not with any present intention of selling or
otherwise distributing the same, and to such other effects as the Corporation
deems necessary or appropriate in order to comply with federal and applicable
state securities laws.
(b) Each award of Option Rights shall be subject to the requirement
that, if at any time counsel to the Corporation shall determine that the
listing, registration or qualification of the Common Shares subject to such
Option Rights upon any securities exchange or under any state or federal law,
or the consent or approval of any governmental or regulatory body, is
necessary as a condition of, or in connection with, the issuance of shares
thereunder, such award of Option Rights may not be accepted or exercised in
whole or in part unless such listing, registration, qualification, consent or
approval shall have been effected or obtained on conditions acceptable to such
counsel. Nothing herein shall be deemed to require the Corporation to apply
for or to obtain such listing, registration or qualification.
(c) To the extent necessary for an Option Right, its exercise or the
sale of Common Shares acquired thereunder to be exempt from Section 16(b) of
the Exchange Act, such Option Right shall be held six months from the Date of
Grant, or at least six months shall elapse from the Date of Grant to the date
of disposition of the Common Shares acquired upon exercise of such Option
Right.
11. Change in Control. Upon a Change in Control (as hereinafter
defined), all Nonqualified Options held by an Optionee that would become
exercisable with respect to such Optionee's service as a Director through the
date of the Corporation's Annual Meeting of shareholders immediately following
such Change in Control shall, notwithstanding Section 4(c) of this Plan,
become immediately exercisable in full, If any event or series of events
constituting a Change in Control shall be abandoned, the effect thereof shall
be null and of no further force and effect and the provisions of section 4(c)
shall be reinstated but without prejudice to any exercise of any Option Right
that may have occurred prior to such nullification. For purposes of this Plan,
"Change in Control" means the occurrence of any of the following events:
(a) The execution by the Corporation of an agreement for the merger,
consolidation or reorganization into or with another corporation or other
legal person; provided, however, that no such merger, consolidation or
reorganization shall constitute a Change in Control if as a result of such
merger, consolidation or reorganization not less than a majority of the
combined voting power of the then-outstanding securities of such corporation
or person immediately after such transaction are held in the aggregate by the
holders of securities entitled to vote generally in the election of directors
of the Corporation ("Voting Stock") immediately prior to such transaction;
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<PAGE>
(b) The execution by the Corporation of an agreement for the sale or
other transfer of all or substantially all of its assets to another
corporation or other legal person; provided, however, that no such sale or
other transfer shall constitute a Change in Control if as a result of such
sale or transfer not less than a majority of the combined voting power of the
then outstanding securities of such corporation or person immediately after
such sale or transfer is held in the aggregate by the holders of Voting Stock
of the Corporation immediately prior to such sale or transfer.
(c) There is a report filed on Schedule 13D or Schedule 14D-1 (or any
successor schedule, form or report), each as promulgated pursuant to the
Exchange Act disclosing that any person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) (other than any
person (or any of their affiliates) that owns beneficially or of record more
than ten percent of the Common Shares on the Effective Date) has or intends to
become the beneficial owner (as the term "beneficial owner" is defined under
Rule 13d-3 or any successor rule or regulation promulgated under the Exchange
Act) of securities representing a majority or more of the combined voting
power of the then-outstanding Voting Stock, including, without limitation,
pursuant to a tender offer or exchange offer;
(d) If, during any period of two consecutive years, individuals who
at the beginning of any such period constitute the directors of the
Corporation cease for any reason to constitute at least a majority thereof;
provided, however, that for purposes of this subsection (d) each director who
is first elected, or first nominated for election by the Corporation's
shareholders, by a vote of at least two-thirds of the directors of the
Corporation (or a committee thereof) then still in office who were directors
of the Corporation at the beginning of any such period shall be deemed to have
been a director of the Corporation at the beginning of such period; or
(e) except pursuant to a transaction described in the proviso to
subsection (a) of this Section 11, the Corporation adopts a plan for the
liquidation or dissolution of the Corporation.
Notwithstanding the foregoing, to the extent necessary for an Option
Right, its exercise or the sale of Common Shares acquired thereunder to be
exempt from Section 16(b) of the Exchange Act (I) except in the case of death
or Disability, an Optionee shall not be entitled to exercise any Option Rights
granted within six months prior to the occurrence of a Change in Control until
the expiration of the six-month period following the Date of Grant of such
Option Rights, or (ii) at least six months shall elapse from the Date of Grant
of such Option Rights to the date of disposition of the Common Shares acquired
upon exercise of such Option Rights.
12. Termination of the Plan. No further awards shall be granted under
this Plan after the passage of ten years from the date on which this Plan is
first approved by the shareholders of the Corporation.
13. Effective Date. The effective date of this Plan (the "Effective
Date") shall be December 18, 1998, provided, however, that this Plan and each
award granted hereunder shall
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<PAGE>
be void and of no force or effect until and unless this Plan shall have been
approved by a vote of the holders of the majority of the Corporation present,
or represented, and entitled to vote at a meeting duly held in accordance with
New Mexico law.
14. Nontransferability. Each Option granted under this Plan shall by
its terms be nontransferable by the Optionee except by will or the laws of
decent and distribution of the state wherein the Optionee is domiciled at the
time of his death; provided, however, that the committee may (but need not)
permit other transfers, to the extent consistent with Rule 16b-3, where the
Committee concludes that such transferability does not result in accelerated
taxation and is otherwise appropriate and desirable.
* * *
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UNICO, INC.
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
NONQUALIFIED STOCK OPTION AGREEMENT
WHEREAS, __________________ (the "Optionee") is a Director
(as defined in the UNICO, INC. Stock Option Plan for Non-Employee Directors
(the "Plan")) of UNICO, INC., a New Mexico corporation (the "Corporation");
and
WHEREAS, the execution of an Agreement in the form hereof
has been duly authorized by a resolution of the Board of Directors of the
Corporation duly adopted on December 18, 1998.
NOW, THEREFORE, the Corporation hereby grants to the
Optionee a nonqualified option pursuant to the Plan to purchase _____ shares
of the Corporation's Common Stock, _____ par value per share ("Common Stock"),
at the price of $0.20 per share and agrees to cause certificates for any
shares purchased hereunder to be delivered to the Optionee upon payment of the
purchase price in full, all subject, however, to the terms and conditions
hereinafter set forth. Unless otherwise defined, capitalized terms used herein
shall have the meanings set forth in the Plan.
1 . This option (until terminated as hereafter provided) shall become
exercisable to the extent of 20% of the shares of Common Stock specified above
after [insert date of grant/effective date of Plan] and to the extent of an
additional 20% of the shares specified above after each of the first four
anniversaries of such date, for so long as the Optionee continues to serve as
a member of the Board of Directors. To the extent exercisable, the option
shall be exercisable in whole' or in part from time to time.
Notwithstanding the first sentence of this paragraph 1, if the
Optionee ceases to be a Director by reason of death or Disability (as defined
in Section 5 hereof), the option granted hereby shall become immediately
exercisable to the extent such option would have otherwise become exercisable
had the Optionee continuously served as a Director through the date of the
Corporation's Annual Meeting of shareholders immediately following such death
or Disability.
Upon a Change in Control (as hereinafter defined), the
option granted hereby shall, notwithstanding the first sentence of this
paragraph 1, become immediately exercisable to the extent the option would
have become exercisable with respect to the Optionee's service as a Director
through the date of the Corporation's Annual Meeting of shareholders
immediately following such Change in Control. If any event or series of events
constituting a Change in Control shall be abandoned, the effect thereof shall
be null and of no further force and effect and the provisions of the first
sentence of this paragraph 1 shall be reinstated but without prejudice to
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<PAGE>
any exercise of this option that may have occurred prior to such
nullification. For purposes of this Agreement, "Change in Control" means the
occurrence of any of the following events:
(a) The execution by the Corporation of an agreement of the
merger, consolidation or reorganization into or with another corporation or
other legal person; provided, however, that no such merger, consolidation or
reorganization will constitute a Change in Control if as a result of such
merger, consolidation or reorganization not less than a majority of the
combined voting power of the then-outstanding securities of such Corporation
or person immediately after such transaction are held in the aggregate by the
holders of securities entitled to vote generally in the election of directors
of the Corporation ("Voting Stock") immediately prior to such transaction;
(b) The execution by the Corporation of an agreement for the
sale or other transfer of all or substantially all of its assets to another
corporation or other legal person; provided, however, that no such merger,
consolidation or reorganization will constitute a Change in Control if as a
result of such sale or transfer not less than a majority of the combined
voting power of the then-outstanding securities of such corporation or person
immediately after such sale or transfer is held in the aggregate by the
holders of Voting Stock of the Corporation immediately prior to such sale or
transfer;
(c) There is a report filed on Schedule 13D or Schedule
14D-1 (or any successor schedule, form or report), each as promulgated
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), disclosing that any person (as the term "person" is used Section
13(d)(3) or Section 14(d)(2) of the Exchange Act) (other than any person (or
any of their affiliates) that owns beneficially or of record more than ten
percent of the Common Stock on [insert effective date of plan] has or intends
to become the beneficial owner (as the term "beneficial owner" is defined
under Rule 13d-3 or any successor rule or regulation promulgated under the
Exchange Act) of securities representing a majority or more of the combined
voting power of the then outstanding Voting Stock, including, without
limitation, pursuant to a tender offer or exchange offer;
(d) If, during any period of two consecutive years,
individuals who at the beginning of any such period constitute the directors
of the Corporation cease for any reason to constitute at least a majority
thereof; provided, however, that for purposes of this subsection (d) each
director who is first elected, or first nominated for election by the
Corporation's shareholders, by a vote of at least two-thirds of the directors
of the Corporation (or a committee thereof) then still in office who were
directors of the Corporation at the beginning of any such period will be
deemed to have been a director of the Corporation at the beginning of such
period; or
(e) except pursuant to a transaction described in the
proviso to clause (a) of this paragraph 1, the Corporation adopts a plan for
the liquidation or dissolution of the Corporation.
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<PAGE>
Notwithstanding the foregoing, to the extent necessary for
the grant of this option, its exercise or the sale of the Common Stock
acquired hereunder to be exempt from Section 16(b) of the Exchange Act, (i)
except in the case of death or Disability, the Optionee shall not be entitled
to exercise the option granted hereby if granted within six months prior to
the occurrence of a Change in Control until the expiration of the six-month
period following the Date of Grant of this option, or (ii) at least six months
shall elapse from the Date of Grant of this Option to the date of disposition
of the shares of Common Stock acquired upon exercise of this option.
2. The option price shall be payable (a) in cash or by check
acceptable to the Corporation, (b) by transfer to the Corporation of shares of
Common Stock which have been owned by the Optionee for more than six months
prior to the date of exercise and which have a fair market value on the date
of exercise equal to the option price, or (c) by a combination of such methods
of payment. The requirement of payment in cash shall be deemed satisfied if
the Optionee shall have made arrangements satisfactory to the Corporation with
a broker who is a member of the National Association of Securities Dealers,
Inc. to sell on the exercise date a sufficient number of the shares being
purchased so that the net proceeds of the sale transaction will at least equal
the option exercise price and pursuant to which the broker undertakes to
deliver the full option exercise price to the Corporation not later than the
date on which the sale transaction will settle in the ordinary course of
business.
3. This Option shall terminate on the earliest of the following
dates:
(a) Three months following the effective date of the
Optionee's Termination of Service (as defined in Section 5 hereof), if such
Termination of Service results other than from Optionee's death or Disability;
(b) One year following the effective date of the Optionee's
Termination of Service, if such Termination of Service results from Optionee's
death or Disability; and
(c) Ten years from the date of this Agreement.
4. This Agreement shall be subject to all of the terms and conditions
of the Plan, which is incorporated herein by reference.
5. As used in this Agreement:
"Director" means a member of the Board of Directors of the
Corporation who is not an employee of the Corporation. For purposes of this
Agreement, an employee is an individual whose wages are subject to the
withholding of federal income tax under Sections 3401 and 3402 of the Internal
Revenue Code of 1986, as amended from time to time. A Director who becomes an
employee (within the meaning of this Section) shall not forfeit the option
granted by this Agreement solely by reason of assuming employee status.
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"Disability" means the inability to engage in any
substantial gainful activity by reason of any medically determinable physical
or mental impairment which can be expected to result in death or which has
lasted or can be expected to last for a continuous period of not less than 12
months. A Director shall not be considered to be subject to a Disability until
he furnishes a certification from a practicing physician in good standing to
the effect that such Director meets the criteria described in this definition.
"Termination of Service" means the time at which the
Optionee ceases to serve as a member of the Board of Directors of the
Corporation for any reason, with or without cause, which includes termination
by resignation, removal, death or retirement.
EXECUTED at ______________, California, as of ___________, 1998.
UNICO, INC.
By:____________________________
Name:__________________________
Title:_________________________
ACCEPTED AND AGREED
By:_______________________
Name:_____________________
Optionee
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UNICO, INC.
SCHEDULE 14A
APPENDIX D
INTERIM FINANCIAL STATEMENTS
FOR THREE MONTHS ENDED
SEPTEMBER 30, 1998
Financial Statements
Balance Sheets as of September 30, 1998 and June 30, 1998 137
Statements of Operations for the three months ended
September 30, 1998 and September 30, 1997 138
Statements of Cash Flows for the three months ended
September 30, 1998 and September 30, 1997 139
Notes to Financial Statements 140-145
FINANCIAL INFORMATION
The interim financial statements included herein were prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles were condensed or omitted pursuant to such
rules and regulations, although the Company believes that the disclosures made
are adequate to make the information presented not misleading. It is
suggested that the interim financial statements be read in conjunction with
the financial statements and the notes thereto included in the Company Annual
Report on Form 10-KSB for the year ended June 30, 1998.
The accompanying interim financial statements were prepared, in all material
respects, in conformity with the standards of accounting measurements set
forth in Accounting Principles board Opinion No. 28 and reflect, in the
opinion of management, all adjustments, which are of a normal recurring
nature, necessary to summarize fairly the financial position and results of
operations for such periods. The results of operations for such interim
periods are not necessarily indicative of the results to be expected for the
full year.
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ITEM 1. FINANCIAL STATEMENTS
UNICO, INC.
Balance Sheets
(Dollars In Thousands) September 30, June 30,
1998 1998
ASSETS (unaudited) (audited)
Current Assets
Cash $ 30 $ 30
Accounts receivable, less $114 and $84
allowance for doubtful accounts and
returns, allowances and discounts 805 1,034
Inventories 348 434
Prepaid expenses 91 4
------- --------
Total current assets 1,274 1,502
------- --------
Property and Equipment
Furniture and equipment 73 38
Leasehold improvements 8 25
------- --------
81 63
Accumulated depreciation 12 11
------- --------
69 52
------- --------
Trademark, less $30 and $24
accumulated amortization 100 106
Due from Luna 14 14
Due from Hwang and Hwang Note 135 133
Other 59 0
Old Unico Investment 3,163 3,163
------- --------
3,471 3,416
------- --------
$4,814 $ 4,970
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank overdrafts $ 58 $ 211
Accounts payable 738 433
Deferred revenues 180 210
Due RTC 0 32
Due Yin 0 100
Accrued payroll 0 25
--------- --------
Total current liabilities 976 1,011
--------- --------
Commitments and contingencies
Stockholders' Equity 3,838 3,959
--------- -------
$ 4,814 $ 4,970
========= =======
The accompanying notes are an integral
part of these financial statements.
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UNICO, INC.
Statements of Operations
(Dollars In Thousands)
Three months ended
September 30,
1998 1997
(unaudited) (unaudited)
Net sales $ 5,075 $ 6,204
Cost of goods sold 4,795 6,096
--------- ----------
Gross profit 280 108
--------- ----------
Salaries and wages 154 114
Rent 22 13
Trademark amortization 7 5
Other expenses 220 42
--------- ----------
403 174
--------- ----------
Operating loss (123) (66)
Interest income 2 1
--------- ----------
Net loss $ (121) $ (65)
========= ==========
Basic earnings (loss) per share ($ 0.010) ($ 0.006)
========= ==========
Average shares used in computation 12,077,809 10,952,200
The accompanying notes are an integral
part of these financial statements.
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UNICO, INC.
Statements of Cash Flows
(Dollars In Thousands)
Three months ended
September 30,
1998 1997
(unaudited) (unaudited)
Operating cash flows
Net loss $ (121) $ (65)
Depreciation and amortization 7 6
Receivables change 229 (418)
Inventory change 86 (49)
Prepaid expenses change (87) (2)
Accounts payable change 305 9
Accrued payroll change (25) 0
Deferred revenues change (30) (20)
---------- ----------
Cash provided by (used for) operations 364 (539)
---------- ----------
Investing cash flows
Property acquisitions (18) (1)
Other assets (61) 54
Paradise cash acquired 0 42
---------- ----------
Cash provided by (used in) investing activities (79) 95
---------- ----------
Financing cash flows
RTC receivables collected 0 588
Yin advance (100) 0
Reduction in due RTC (32) 0
Bank overdrafts (153) (48)
---------- ----------
Cash provided by (used for) financing activities (285) 540
---------- ----------
Change in cash Nil 96
Cash - beginning of period 30 Nil
---------- ----------
Cash - end of period $ 30 $ 96
========== ==========
The accompanying notes are an integral
part of these financial statements.
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UNICO, INC.
Notes To Financial Statements
September 30, 1998
1. Basis of Presentation
The financial statements include the assets and liabilities of Paradise
Innovations, Inc. (Paradise). The Statements of Operations for the period
ended September 30, 1997 includes activity for two months for "Old Paradise"
acquired on July 31, 1997. All dollar amounts in the tables are in thousands.
Unico's old operations, held by Intermountain Refining Corp. (IRC) are
included in the investment in Old Unico. The Company accounts for this
investment at cost as it cannot use IRC's assets for corporate purposes, has
no control over IRC's operations nor its Board of Directors.
2. Earnings per Share
Earnings (loss) per common share is computed as if Unico had issued 5,476,200
of its 6,023,829 common shares issued to acquire Old Unico on October 3, 1996
and they were continuously outstanding. The 5,474 shares of Unico preferred
were converted to 5,474,000 shares of Unico common for purposes of this
calculation and were also treated as if they had been continuously outstanding
from October 3, 1996. No operations of Old Unico are included in the
calculation as Old Unico is carried at cost. After July 1, 1998 earnings per
share were calculated including 1,125,609 shares of Unico common held by Old
Unico's shareholders.
3. The Company Profile
On June 30, 1998, the Company completed the acquisition of all outstanding
shares of Paradise Innovations, Inc. (formerly known as Starlicon
International Corporation) by issuing 5,476,200 new shares of common stock and
5,474 new shares of convertible preferred stock. The Company accounted for
this acquisition as a reverse acquisition. The new shares are owned by
Paradise Innovations, Inc.'s (Paradise) former stockholders. The term "Old
Unico" is used to refer to Unico, Inc. prior to the June 30, 1998 acquisition.
Starlicon International Corporation (Starlicon) was incorporated under the
laws of the State of California on October 3, 1996. On July 31, 1997,
Starlicon acquired certain assets, including the Paradise trademark, owned by
Relialogic Technology Corporation, a subsidiary of Osicom Technologies, Inc.
On August 4, 1998, Starlicon changed its name to Paradise Innovations, Inc. in
order to obtain better brand recognition and to facilitate future
acquisitions. Throughout this Form 10-QSB, the Company's Starlicon subsidiary
will be referred to as Paradise.
On February 21, 1998, Old Unico entered into a Stock Purchase Agreement (the
Agreement) with Starlicon Group, Inc. (SGI) to acquire 100% of the outstanding
stock of privately-held Paradise. The acquisition was ultimately completed
pursuant to a Novation Agreement (see Form 8-K filed on July 14, 1998). Under
the terms of the Novation Agreement, the Company issued 5,476,200 shares of
$0.20 par value restricted Common Stock and 5,474 shares of Series A
Convertible Preferred Stock to the shareholders of SGI in exchange for 100% of
the outstanding stock of Paradise.
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As part of the Novation Agreement, all of Old Unico's assets not owned by
Intermountain Refining Co., Inc. (IRC) were transferred to IRC in satisfaction
of certain inter-company obligations and as a contribution to IRC's capital.
IRC is operated and managed at the sole discretion of IRC's management with a
nominee holding Old Unico's proxy to vote IRC's shares.
As a result of the acquisition, the Company has two operating entities in
unrelated industries, Paradise and IRC. IRC was incorporated as a New Mexico
corporation in July 1985. It conducts three categories of business: petroleum
product refining and processing, electrical energy production and natural gas
production.
Through its wholly-owned subsidiary Paradise, the Company markets computer
components, including video and sound cards, modems, multimedia products and
Internet set-top boxes, a proprietary line of computer peripherals under the
Paradise trademarked brand name. Paradise's customer base includes private
label computer manufacturers and major technology distributors, such as Tech
Data, Ingram Micro, D&H Distributing, Almo Distributing, Comark and SED.
Until the middle of September, 1998, a substantial portion of the Company's
sales were of chips, both memory and central processing units. The Company is
changing the mix by increasing sales of the higher margin proprietary
component segment and reducing the sales of the lower margin generic memory
segment.
The Company has reviewed the potential impact of Year 2000 issues and believes
that the cost to replace and or modify equipment, computer hardware, and
computer software will not be material and that Year 2000 issues will not have
a material impact on the Company's ability to operate into the next century.
4. Segments
The Company is engaged in two primary business segments: computer-related
products and oil and gas. Through its wholly-owned subsidiary Paradise, it
designs and markets computer components. Through its wholly-owned subsidiary
IRC, it engages in energy exploration and generation business.
During fiscal 1997 Paradise engaged in one business segment, distributing
computer chips, both memory and central processing units. Effective August 1,
1997 with the asset acquisition previously discussed, Paradise began
distributing proprietary products and operating in two departments. Paradise
is organized by product: chips and components.
All of the Company's oil and gas related operations are held by IRC and
disclosed in Note 6.
Segment assets at September 30, 1998 were as follows:
Proprietary Old
Distribution Products Unico Eliminations Total
------------ ----------- ------ ------------ -------
$677 $1,246 $3,163 $272 $4,814
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Segment operating results for the three months ended September 30, 1998
were as follows:
Distri- Proprietary Elimi- Total
bution Products nations
------- ----------- ------ --------
Revenues $ 4,139 $ 942 $ 6 $ 5,075
Interest income 0 2 2
Depreciation 0 1 1
Amortization 0 6 6
Operating loss (116) (7) (123)
5. The Company Strategy
With the June 30, 1998 acquisition, the Company shifted its focus to its newly
acquired hi-tech subsidiary, Paradise. Paradise currently has two primary
business departments: marketing and sales of proprietary computer components
and peripherals, and chip distribution.
In the marketing and sales of proprietary computer components, the Company is
re-orienting its focus to new products such as Internet and consumer
electronic products. This is part of on-going efforts to create, identify and
bring new products to market. As is typical in distribution businesses, new
products offer the highest margins and returns on investor equity.
The Company is establishing worldwide distribution and partnerships with
global manufacturing companies, either through acquisitions or through
internal efforts, to bring exciting new products to market in the very short
time frames required by the hi-tech industry. The Company is contemplating
acquisitions that fit its strategy of identifying and creating products that
can be distributed in high volume around the world.
The Company's efforts in chip distribution is improving overall operating
margins. As of September 1998, it reduced sales of chips for the present.
The Company is evaluating marketing a proprietary line of chips, which it
believes will command improved margins. It is improving internal and external
management information. Improved internal management information systems
(MIS) will permit better pricing and inventory management of the chips,
critical capabilities in a market where prices fluctuate rapidly. External
MIS improvements will facilitate the sales process, using the Internet
initially for pricing and eventually for sales.
The Company considers acquisitions an integral component of its growth
strategy. Opportunities that fit the Company's strategy will be considered
for acquisition or alliance.
To implement its strategy of increasing sales volume and rebuilding the
Paradise brand name, the Company is augmenting its sales force and its
customer support staff. The increase in sales force has the primary purpose
of better leveraging the Company's distribution network. Management is
confident that the increased sales force can use the distribution network to
rapidly increase sales.
The Company is increasing its technical support staff and improving its
capabilities. It believes that quality technical support is a critical
component in re-building its Paradise brand image.
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6. Old Unico
Old Unico's assets, liabilities and operations are summarized as follows as of
June 30, 1998 and September 30, 1998 and for the three months ended September
30, 1998.
OLD UNICO
Consolidated Condensed Balance Sheets
(Dollars In Thousands)
September 30, June 30,
1998 1998
----------- ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,153 $ 1,134
Other current assets 110 82
Notes receivable from related
Parties 7 84
------------ --------
TOTAL CURRENT ASSETS 1,270 1,300
------------ --------
PROPERTY, PLANT AND EQUIPMENT, at cost
Land, buildings and improvements 434 434
Equipment 165 165
Crude oil refining equipment 1,183 1,183
Co-generation facilities 290 290
Oil and gas properties,
(successful efforts method) 895 895
------------ --------
2,967 2,967
Less accumulated depletion
and depreciation (2,040) (2,005)
------------ --------
927 962
------------ --------
OTHER ASSETS
Investment in Chatfield Dean 301 301
Other assets & deferred charges 167 176
------------ --------
468 477
------------ --------
$ 2,665 $ 2,739
============ ========
143
<PAGE>
OLD UNICO
Consolidated Condensed Balance Sheets, (Continued)
(Dollars In Thousands)
September 30, June 30,
1998 1998
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 54 $ 49
Taxes other than income taxes 3 3
------------ -------------
TOTAL CURRENT LIABILITIES 57 52
------------ -------------
DEFERRED TAXES 50 52
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value,
authorized 8,000,000 shares, none
outstanding
Common stock, $0.20 par value,
authorized 50,000,000 shares,
issued and outstanding 1,129,308
shares 226 226
Additional paid in capital 2,214 2,214
Less: Treasury stock 3,699 shares (9) (9)
Retained earnings 127 204
------------ ------------
2,558 2,635
------------ ------------
$ 2,665 $ 2,739
============ ============
144
<PAGE>
OLD UNICO
Consolidated Condensed Statements Of Operations
(Dollars In Thousands)
Three months ended
September 30, 1998
------------
REVENUES
Natural gas sales $ 75
------------
COSTS AND EXPENSES
Cost of sales 24
General and administrative 111
Depletion, depreciation
and amortization 35
Interest, net (14)
------------
156
------------
LOSS BEFORE INCOME TAXES (81)
Current Benefit for income taxes 4
------------
NET LOSS $ (77)
============
145
<PAGE>
UNICO, INC.
SCHEDULE 14A
APPENDIX E
RESTATED
ARTICLES OF INCORPORATION
Unico, Inc. adopts the following Restated Articles of Incorporation
under the New Mexico Business Corporation Act:
ARTICLE I.
Its corporate name will be Paradise Innovations Technology
Corporation.
ARTICLE II.
It is organized to engage in the business of design and marketing of
computer and Internet products, and for every other purpose permitted by the
Business Corporation Act.
ARTICLE III.
A. Authorized Shares. The aggregate number of shares which the
Corporation will have the authority to issue is 58,000,000 shares. Of such
shares, 50,000,000 shares will be designated as Common Stock and will have a
par value of $.20 per share, and 8,000,000 shares will be designated as
Preferred Stock and will have a par value of $.01 per share. Subject to the
provisions of this Article, authority is vested in the Board of Directors of
the Corporation to establish by resolution the preferences, limitations and
rights of the Preferred Stock. Any unissued shares of this Corporation may be
used, allotted and sold from time to time in such amounts and for such
consideration as may be lawfully determined by the Board of Directors.
B. Common Stock.
1. Voting Power. Each share of Common Stock will have one
vote, and except as may be provided herein and by the laws of the State of New
Mexico, the exclusive voting power for all purposes will be vested in the
holders of the Common Stock.
2. Dividends. Subject to the provisions of law and the
preferences of the Preferred Stock, dividends may be paid on the Common Stock
of the Corporation at such times and in such amounts as the Board of Directors
may deem advisable.
3. Liquidation. In the event of any liquidation, dissolution
or winding-up of the Corporation, whether voluntary or involuntary, the
holders of the Common Stock will be entitled, after payment or provision for
payment of the debts and other liabilities of the Corporation and the amount
to which the holders of the Preferred Stock will be entitled, to share ratably
in the remaining net assets of the Corporation.
146
<PAGE>
4. Transfer Restrictions. The Corporation will have the
right by appropriate action to impose restrictions upon the transfer of any
shares of its Common Stock or any interest therein, from time to time issued,
provided that such restrictions as may from time to time be so imposed or
notice of the substance thereof will be set forth upon the face or back of the
certificates representing such shares of Common Stock.
C. Preferred Stock.
1. Authority of Directors to Issued Preferred Stock in
Series. The Preferred Stock may be issued from time to time by the Board of
Directors in one or more series, each of which will be so designated as to
distinguish the shares thereof from the shares of all other series and
classes. The Board of Directors may provide for variations between different
series of Preferred Stock in any and all of the following:
(a) The rate of dividend;
(b) Whether shares may be redeemed, and, if so, the
redemption price and term and conditions of
redemption;
(c) The amounts payable upon shares in the event of
voluntary or involuntary liquidation;
(d) Sinking fund provisions, if any, for the
redemption or purchase of shares;
(e) The terms and conditions, if any, on which
shares may be converted into any other class;
(f) Voting rights, if any; and
(g) Such other preferences, privileges,
restrictions and qualifications as the Board of
Directors may determine.
2. Procedure to Establish a Series. In order for the Board
of Directors to establish a series of Preferred Stock, the Board of Directors
will adopt a resolution setting forth the designation of the series and fixing
and determining the number of shares in the series and the relative rights and
preferences thereof pursuant to Paragraph 1 of this Section C; and upon the
filing of the statement required by the laws of the State of New Mexico with
the Corporation Commission thereof, the resolution establishing and
designating the series and determining the number of shares in the series and
the relative rights and preferences thereof will become effective and will
constitute an amendment to the Article of Incorporation.
D. General.
1. Corporation's Purchase of Stock of the Corporation. The
Corporation, from time to time, may purchase any of its stock outstanding (so
far as may be permitted by law or by any provision of the Articles of
Incorporation or any resolution of the Board of Directors pursuant to the
authority vested in it by provisions of the Certificate of Incorporation) at
such price as may be fixed by the Board of Directors and accepted by the
holders of the stock purchased and may resell any stock so purchased at such
147
<PAGE>
price as may be fixed by the Board of Directors but in case the stock
purchased is subject to redemption at the time of purchase the price paid
therefor will not exceed the price at which such stock is redeemable. Specific
authority is hereby conferred to make such purchases of any class of its stock
to the extent such authority is in conformity with Section 53-11-44 N.M.S.A.
(1978).
2. Abrogation of Pre-emptive Rights. No holder of any class
of shares of the Corporation will be entitled of the right to purchase or
subscribe for any unissued or treasury shares of any class or any additional
shares of any class to be issued by reason of any increase of the authorized
shares of the Corporation of any class or any bonds, certificate of
indebtedness, debenture or other securities, rights, warrants or options
convertible into shares of the Corporation or carrying any right to purchase
shares of any class, but any unissued or treasury shares of class, or any such
additional authorized issue of new stock or of securities convertible into
stock, may be issued and disposed of by the Board of Directors to such
persons, firms, corporations or associations for such consideration and upon
such terms and in such a manner as the Board of Directors may in their
discretion determine, consistent with the provisions of Section C hereof and
the New Mexico Business Corporation Act, without offering any thereof on the
same terms or on any terms to the holders of any class of stock of the
Corporation then of record.
3. Stock Book. The Corporation will be entitled to treat the
person in whose name any share, right or option is registered as the owner
thereof, for any purposes, and will not be bound to recognize any equitable or
other claim to, or interest in such share, right or option on the part of any
other persons, whether or not the Corporation will have notice except as may
be expressly provided by the laws of the State of New Mexico.
4. Cumulative Voting. The cumulative system of voting for
Directors or for any other purpose will not be allowed.
ARTICLE IV.
In addition to any other powers provided by law or by these Articles
of Incorporation,
A. The Corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other that an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expense (including
attorneys' fees), judgment, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
if he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendre or its
equivalent, will not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or
opposed to the best interests of the Corporation, and, with respect to any
148
<PAGE>
criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
B. The Corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him
in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation and except that no
indemnification will be made in respect of any claim, issue or matter as to
which such person will have been adjudged to be liable for negligence or
misconduct in the performance of his duties to the Corporation unless and only
to the extent that the court in which such action or suit was brought will
determine upon application that, despite and adjudication of liability but in
view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court will deem proper.
C. To the extent that a director, employee or agent of a corporation
has been successful on the merits or otherwise in defense of any action, suit
or proceeding referred to in subparagraph (a) or (b), or in defense of any
claim, issue or matter therein, he may be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
D. Any indemnification under subparagraphs (a) or (b) (unless order
by a court) may be made by the Corporation only as authorized in the specific
case upon a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subparagraphs (a) or (b). Such
determination will be made (1) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable
a quorum of disinterested directors so directs, by independent legal counsel
in a written opinion, or (3) by the shareholders.
E. Expenses (including attorneys' fees) incurred in defending a civil
or criminal action, suit or proceeding may be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding as
authorized in the manner provided in subparagraph (d) upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to
repay such amount unless it will ultimately be determined that he is entitled
to be indemnified by the Corporation as authorized in this subparagraph.
F. The indemnification provided by this subparagraph will not be
deemed exclusive of any other rights to which those indemnified may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and will continue as to
a person who has ceased to be a director, officer, employee or agent and will
inure to the benefit of the heirs, executors and administrators of such a
person.
149
<PAGE>
G. The Corporation will have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against him and incurred by him in any such capacity or arising out of his
status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of this section.
ARTICLE V
The corporation may enter into contracts or transact business with
any one or more of its directors, officers, or shareholders, or with any
corporation, association, trust company, organization or other concern in
which any one or more of its directors, officers, or shareholders are
directors, officers, or shareholders are directors, officers, trustees,
beneficiaries, or shareholders, or otherwise interested in other contracts or
transactions in which any one or more of its directors, officers, or
shareholders is in any way interested; and, in the absence of fraud, no such
contract or transaction will be invalidated or in any wise affected by the
fact that such directors, officers or shareholders of the corporation have, or
may have, interests which are, or might be adverse to, the interests of the
corporation, even though the vote or action of directors, officers, or
shareholders having such adverse interests may have been necessary to obligate
the corporation upon such contract or transaction. At any meeting of the board
of directors of the corporation (or any duly authorized committee thereof)
which will authorize or ratify any such contract or transaction, any such
director or directors may vote or act thereat with like force and effect as if
he had not such interests, provided in such case the nature of such interests
(though not necessarily the extent or details thereof) will be disclosed or
will have been known to the directors or a majority thereof. A general notice
that a director or officer is interested in any corporation or other concern
of any kind above referred to will be sufficient disclosure as to such
director or officer with respect to all contracts and transactions with such
corporation or other concern. No director will be disqualified from holding
office as a director or officer of the corporation by reason of any such
adverse interests. In the absence of fraud, no director, officer, or
shareholder having such adverse interest will be liable to the corporation or
to any shareholder or creditor thereof, or to any other person for any loss
incurred by it under or by reason of such contract or transaction, nor will
any such director, officer or shareholder be accountable for any gains or
profits realized thereon. Notwithstanding anything contained herein to the
contrary, any contract or transaction referred to above will be fair and
reasonable to the Corporation.
ARTICLE VI
The officers, directors and other members of management of this
corporation will be subject to the doctrine of corporate opportunities only
insofar as it applies to business opportunities in which this corporation has
expressed an interest as determined from time to time by the corporation's
Board of Directors as evidenced by resolutions appearing in the corporation's
minutes.
150
<PAGE>
Once such areas of interest are delineated, all such business
opportunities within such areas of interest which come to the attention of the
officers, directors and other members of management of this Company will be
disclosed promptly to this corporation and made available to it. The Board of
Directors may reject any business opportunity presented to it and, thereafter,
any officer, director or other member of management may avail himself of such
opportunity. Until such time as this corporation, through its Board of
Directors, has designated an area of interest, the officers, directors and
other members of management of this corporation will be free to engage in such
areas of interest on their own and this doctrine will not limit the rights of
any officer, director, or other member of management of this corporation to
continue a business existing prior to the time that such area of interest is
designated by the corporation. This provision will not be construed to release
any employee of the corporation (other than an officer, director or member of
management) from any duties which he may have to the corporation.
ARTICLE VII
The provisions of the 1983 Amendments to the New Mexico Business
Corporation Act (Sections 53-11-1 to 53-18-2 N.M.S.A. (1978)) lowering voting
requirements from a two-thirds majority to a simple majority will apply to
this Corporation, effective April 3, 1985.
DATED:____________________________.
ACCEPTANCE OF APPOINTMENT
AS REGISTERED AGENT
The undersigned, being duly sworn, accepts appointment as Registered
Agent pursuant to the Business Corporation Act for Paradise Innovations
Technology Corporation, a New Mexico corporation.
JAY D. ROSENBLUM
STATE OF NEW MEXICO
COUNTY OF BERNALILLO
Signed and sworn to before me on _____________________, 1999,
by Jay D. Rosenblum.
_____________________________________
Notary Public
My commission expires:
___________________
151
<PAGE>
UNICO, INC.
SCHEDULE 14A
APPENDIX F
AUDITED FINANCIAL STATEMENTS OF
MULTIWAVE INNOVATION PTE. LTD.
Multiwave Innovation Pte Ltd
Financial Statements
(In United States Dollars)
October 31 , 1998, June 30, 1998
and June 30, 1997
With Independent Auditors' Report
Thereon
152
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Multiwave Innovation Pte Ltd
We have audited the accompanying balance sheets of Multiwave Innovation
Pte Ltd as of October 31, 1998, June 30, 1998 and June 30, 1997, and the
related statements of operations and comprehensive operations,
shareholders' equity (deficit) and cash flows for the four-month period
ended October 31, 1998, the year ended June 30, 1998 and the nine-month
period ended June 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Singapore, that are substantially equivalent to auditing
standards generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Multiwave
Innovation Pte Ltd as of October 31, 1998, June 30, 1998 and June 30,
1997, and the results of its operations and cash flows for the four-
month period ended October 31, 1998, the year ended June 30, 1998 and
the nine-month period ended June 30, 1997, in conformity with generally
accepted accounting principles in the United States.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to
the financial statements, the Company has suffered recurring losses from
operations and has a net capital deficiency that raise substantial doubt
about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ KPMG
KPMG
Certified Public Accountants
SINGAPORE
21 January 1999
153
<PAGE>
Multiwave Innovation Pte Ltd - Balance Sheets
As of October 31, 1998, June 30, 1998 and June 30, 1997
(In United States Dollars in thousands)
-----------------------------------------------------------------------------
Note Oct 31,98 Jun 30,98 Jun 30,97
-----------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents 3 1,360 953 803
Trade receivables 4 3,128 1,174 803
Other receivables and deposits 5 339 142 15
Prepaid expenses 128 18 4
Due from related parties 18 201 42 -
Due from affiliates 18 - - 1
Inventories 6 5,075 2,165 1,645
-----------------------------------------------------------------------------
Total Current Assets 10,231 4,494 3,271
Property, plant and equipment, net 7 222 211 210
-----------------------------------------------------------------------------
Total Assets 10,453 4,705 3,481
-----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Bank overdrafts 8 193 149 194
Trust receipts 134 206 -
Current portion of obligations under
capital leases 15 7 7 -
Due to related parties 18 - - 34
Due to affiliates 18 2,235 2,073 431
Loans and advances from related
Parties 9 62 59 420
Trade accounts payables 8,267 3,023 1,159
Accrued operating expenses 10 142 144 178
Other payables 11 311 215 199
-----------------------------------------------------------------------------
Total Current Liabilities 11,351 5,876 2,615
Long-term Liabilities
Obligations under capital leases,
less current portion 15 16 18 -
-----------------------------------------------------------------------------
Total Liabilities 11,367 5,894 2,615
-----------------------------------------------------------------------------
Shareholders' Equity
Ordinary shares: Par value - S$1;
Authorized: 14,000,000 ordinary shares;
Issued and outstanding: 9,900,000
ordinary shares 16 6,821 6,821 6,821
Share Premium Account 16 1,372 1,372 1,372
Other Paid-in Capital 16 2,451 2,451 2,451
Retained Deficit (11,446) (11,760) (9,731)
Cumulative Translation Adjustments (112) (73) (47)
- -----------------------------------------------------------------------------
Total Shareholders' Equity (Deficit) (914) (1,189) 866
- -----------------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity (Deficit) 10,453 4,705 3,481
- -----------------------------------------------------------------------------
See accompanying notes to the Financial Statements.
<PAGE>
Multiwave Innovation Pte Ltd
Statements of Operations and Comprehensive Operations
For four months ended October 31, 1998,
Year ended June 30, 1998 and nine months ended June 30, 1997
(In United States Dollars)
- -----------------------------------------------------------------------------
Nine
Four months Year months
ended ended ended
Note October 31, June 30, June 30,
1998 1998 1997
$'000 $'000 $'000
- -----------------------------------------------------------------------------
Net sales 9,153 8,571 7,497
Cost of sales (8,156) (7,842) (7,066)
- -----------------------------------------------------------------------------
Gross profit 997 729 431
- -----------------------------------------------------------------------------
Research and development costs (117) (312) (273)
Selling, general and
administrative expenses (1,058) (2,094) (2,924)
- -----------------------------------------------------------------------------
Total operating expenses (1,175) (2,406) (3,197)
- -----------------------------------------------------------------------------
Operating loss (178) (1,677) (2,766)
Interest income 8 11 8
Interest expense (10) (16) (33)
Other non-operating
income (expense) - net 12 494 (347) (206)
- -----------------------------------------------------------------------------
Income (loss) before income taxes 314 (2,029) (2,997)
Income taxes 13 - - -
- -----------------------------------------------------------------------------
Net income (loss) 314 (2,029) (2,997)
Foreign currency translation adjustments (39) (26) 91
- -----------------------------------------------------------------------------
Comprehensive income (loss) 275 (2,055) (2,906)
- -----------------------------------------------------------------------------
See accompanying notes to the Financial Statements.
155
<PAGE>
Multiwave Innovation Pte Ltd - Statements of Cash Flows
For four months ended October 31, 1998,
Year ended June 30, 1998 and nine months ended June 30, 1997
(In United States Dollars in thousands)
- -----------------------------------------------------------------------------
Four months Year Nine months
ended ended ended
Oct 31,98 Jun 30,98 Jun 30,97
- -----------------------------------------------------------------------------
Cash flows from operating activities
Net income (loss) 314 (2,029) (2,997)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Grant income (11) (62) -
Depreciation 45 108 73
Loss on sale of property,
plant and equipment 1 9 1
Exchange (gain) loss of foreign
currency balances (6) (73) (4)
Changes in current assets and liabilities:-
Inventories (2,692) (822) (644)
Trade receivables (1,820) (525) 432
Other receivables, deposits
and prepaid expenses (276) (90) 89
Due from affiliates and related parties (150) (44) 6
Trade accounts payables 4,887 2,163 915
Accrued operating expenses
and other payables 74 43 114
Due to affiliates and related parties 66 1,777 (1,173)
- -----------------------------------------------------------------------------
Net cash provided by (used in)
operating activities 432 455 (3,188)
- -----------------------------------------------------------------------------
Cash flows from investing activities
Capital expenditures (47) (122) (129)
- -----------------------------------------------------------------------------
Net cash used in investing activities (47) (122) (129)
- -----------------------------------------------------------------------------
Cash flows from financing activities
Bank overdrafts 35 (15) (320)
Trust receipts (77) 218 (250)
Loans and advances from related parties - (312) 422
Proceeds from issuance of shares - - 3,651
Capital lease payments (3) (4) -
- -----------------------------------------------------------------------------
Net cash (used in) provided by
financing activities (45) (113) 3,503
- -----------------------------------------------------------------------------
Net increase in cash and cash equivalents
for the period 340 220 186
Cash and cash equivalents at beginning
of the period 953 803 572
Effect of exchange rate changes on cash balances
held in foreign currencies 67 (70) 45
- -----------------------------------------------------------------------------
Cash and cash equivalents at end of the period 1,360 953 803
- -----------------------------------------------------------------------------
See accompanying notes to the Financial Statements.
<PAGE>
Multiwave Innovation Pte Ltd
Statements of Changes in Shareholders' Equity (Deficit)
For four months ended October 31, 1998,
Year ended June 30, 1998 and nine months ended June 30, 1997
(In United States Dollars in thousands)
- -----------------------------------------------------------------------------
Total
Share-
Other Cum. holders'
Ordinary Ordinary Share paid-in Retained Transl. Equity
Shares Shares Premium Capital Deficit Adj (Deficit)
- -----------------------------------------------------------------------------
Balances at
October 1,
1996 762,472 475 - - (6,734) (138) (6,397)
Shares
Issuance 9,137,528 6,346 1,372 2,451 - - 10,169
Net loss - - - - (2,997) - (2,997)
Translation
Adjustment - - - - - 91 91
- -----------------------------------------------------------------------------
Balances at
June 30,
1997 9,900,000 6,821 1,372 2,451 (9,731) (47) 866
Net loss - - - - (2,029) - (2,029)
Translation
Adjustment - - - - - (26) (26)
- -----------------------------------------------------------------------------
Balances at
June 30,
1998 9,900,000 6,821 1,372 2,451 (11,760) (73) (1,189)
Net income - - - - 314 - 314
Translation
adjustment - - - - - (39) (39)
- -----------------------------------------------------------------------------
Balances at
October 31,
1998 9,900,000 6,821 1,372 2,451 (11,446) (112) (914)
- -----------------------------------------------------------------------------
See accompanying notes to the Financial Statements.
157
<PAGE>
Multiwave Innovation Pte Ltd
Notes to the Financial Statements
(In United States Dollars in thousands)
- -----------------------------------------------------------------------------
1. Business and Liquidity
Multiwave Innovation Pte Ltd ("the "Company") designs, develops and markets
high
performance multimedia and Internet related products such as modem cards,
sound
cards and web - TV products. The Company operates in Singapore and its
principal markets are in the United States of America, Europe and Asia.
The Company was incorporated in 1988. As at September 30, 1996, the Company's
shareholders were:-
Percentage
Shareholder Ownership
%
NatSteel Electronics Limited 54.60
James Tan Meng Dong 40.50
Dr Soo Jia Sian 4.90
--------
100.00
========
In April 1997, as a result of the issue of further ordinary shares by the
Company, the percentage ownership of the issued and outstanding shares of the
Company became:-
Shareholder Ownership
%
Uraco Holdings Limited 45.50
NatSteel Electronics Limited 45.50
James Tan Meng Dong 5.50
Dr Soo Jia Sian 3.50
--------
100.00
========
The Company's financial statements for the year ended June 30, 1998 and for
the
four-month period ended October 31, 1998 have been prepared on a going
concern
basis which contemplates the realization of assets and the settlement of
liabilities and commitments in the normal course of business. At October 31,
1998, the Company had an accumulated deficit of $914,000, and had a
working capital deficit of $1,120,000. The Company's working capital at
October
31, 1998 plus its revenue from product sales may not be sufficient to meet its
outstanding obligations.
Management's plans include consideration of raising additional capital through
the conversion of existing debt of an affiliate and the sale of the Company.
On
October 27, 1998, the above shareholders and Unico, Inc. ("Unico"), a United
States corporation, entered into a Stock Purchase Agreement under which
Unico agreed to purchase all the issued and outstanding shares of the Company
held by the current shareholders. This transaction is conditional, inter
alia,
upon the approval of the existing shareholders of Unico. Management believes
that it is likely that the acquisition will be approved by such shareholders.
158
<PAGE>
Multiwave Innovation Pte Ltd
Notes to the Financial Statements
(In United States Dollars in thousands)
- -----------------------------------------------------------------------------
Also, on October 27, 1998, Uraco Holdings Limited entered into two separate
sale
and purchase agreements with James Tan Meng Dong and Ivan Lek Eng Meng under
which, inter alia, the Company will issue 3,300,000 additional ordinary shares
of S$1 each by way of conversion of amounts payable to subsidiaries of Uraco
Holdings Limited amounting to $2,000,000. This debt to equity conversion is
intended as a capital contribution. The completion of the conversion of the
amounts payable is conditional on the successful completion of the Stock
Purchase Agreement referred to above.
Management expects that the transactions contemplated in the preceding
paragraph
will be successfully concluded and will enable the Company to satisfy its
outstanding obligations. However, no certainty can be given that the Company
will be successful in completing the sale of the Company to Unico and the
conditional conversion of amounts payable to ordinary shares outlined above.
Further, there can be no certainty, assuming the Company successfully
completes
these transactions, that the Company will achieve profitability or positive
cash
flow or that Unico will be able to provide adequate additional financing. If
the Company is unable to complete the transactions as contemplated or obtain
adequate additional financing, management may be required to seek other
alternatives.
2. Summary of Significant Accounting Policies
(a) Basis of Financial Statements Preparation
The financial statements have been prepared on the historical cost basis.
(b) Use of Estimates in the Financial Statements
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the balance sheet date of
the
financial statements and the reported revenues and expenses during the
reporting
period. Actual results could differ from these estimates.
(c) Cash and Cash Equivalents
Cash and cash equivalents are represented by highly liquid investments that
are
readily convertible to known amounts of cash and have original maturities of
three month or less.
159
<PAGE>
Multiwave Innovation Pte Ltd
Notes to the Financial Statements
(In United States Dollars in thousands)
- -----------------------------------------------------------------------------
(d) Inventories
Inventories are valued at the lower of cost and net realizable value. Cost is
based on the first-in first-out principle. Finished goods and
work-in-progress
include cost of materials and sub-contract manufacturing cost.
(e) Property, Plant and Equipment
Fixed assets are stated at cost less accumulated depreciation. Depreciation
is
calculated on the straight line method so as to write off the cost of fixed
assets over their estimated useful lives of three years.
The cost of maintenance and repairs is charged to income as incurred;
significant renewals and betterments are capitalized. When assets are
retired
or otherwise disposed of, the carrying value and the related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
reflected for the period.
(f) Property, Plant and Equipment Under Lease
Property, plant and equipment under lease is accounted for as a capital lease
where the lease transfers ownership to the lessees at the end of the lease
term
or the lease contains a bargain purchase option. Additionally, property,
plant
and equipment under lease is accounted for as a capital lease where the lease
term is equal to or greater than 75% of the estimated economic life of the
leased assets, or where the present value of rental and other lease payments
exceeds 90% of the fair value of the leased assets. Leased assets which
meet these conditions are recorded at cost and depreciated using the straight-
line method over the terms of the leases.
(g) Operating Leases
Rental payments under operating leases are charged to the profit and loss
account on the straight-line basis over the periods of the respective leases.
(h) Taxation
The Company accounts for income tax in accordance with SFAS No. 109,
"Accounting
for Income Taxes". Under the asset and liability method of SFAS No. 109,
deferred tax assets and liabilities are recognized for the estimated future
tax
effects of differences between the financial statement carrying amounts of
existing assets and liabilities and their
160
<PAGE>
Multiwave Innovation Pte Ltd
Notes to the Financial Statements
(In United States Dollars in thousands)
- -----------------------------------------------------------------------------
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates in effect for the years in which those temporary differences
are expected to be recovered or settled. Under SFAS No. 109, the effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period the rate change is enacted.
Where a deferred tax asset has been recognized, an appropriate allowance must
be
established if, based upon the weight of available evidence, it is more likely
than not that some or all of it will not be realized.
(i) Reserve Accounts
Where proceeds received from the issuance of shares exceed the par value of
the
shares issued, the excess is recorded in a Share Premium Account in accordance
with statutory requirements and accepted practice in Singapore. See Note 16
for additional information including restrictions on the reduction of the
Share
Premium Account.
(j) Research and Development Costs
Research and development costs are written off against income as and when they
are incurred.
(k) Revenue Recognition
Sales represent the invoiced value of goods supplied, excluding goods and
services tax, net of goods returned, trade discounts and allowances. Sales
are
recognized upon shipment of goods or when the goods are accepted by the
customer.
(l) Translation of Foreign Currencies
The Company maintains its accounting records in Singapore dollars. Monetary
assets and liabilities which are denominated in currencies other than
Singapore
dollars are translated into Singapore dollars at the rates of exchange
prevailing at the balance sheet date. Transactions in foreign currencies are
translated at rates ruling on transaction dates. Translation differences are
included in the profit and loss account.
For the purposes of preparation of these financial statements, which are
presented in US dollars, assets and liabilities are translated from Singapore
dollars to US dollars at rates of exchange closely approximate to those ruling
at the balance sheet dates. Profit and loss items are translated at the
161
<PAGE>
Multiwave Innovation Pte Ltd
Notes to the Financial Statements
(In United States Dollars in thousands)
- -----------------------------------------------------------------------------
average rates of the respective periods. Shareholders' equity, share premium
account, other paid-in capital and the retained deficit brought forward are
translated at historical rates. Translation differences arising are taken to
cumulative translation adjustments.
(m) Year 2000
In 1998, the Company developed a plan to deal with the Year 2000 problem and
began converting its computer systems to be Year 2000 compliant. The plan
provides for the conversion efforts to be completed by April 1999. The year
2000 problem is the result of computer programs being written using two digits
rather than four to define the applicable year. The Company is expensing all
costs associated with these systems changes as the costs are incurred. As of
October 31, 1998, $1,000 had been expensed.
(n) Concentration of Credit Risks
The Company is a provider of multi-media hardware and software systems. The
five largest customers of the Company accounted for 46%, 32% and 46% of total
sales in the nine-month period ended June 30, 1997, year ended June 30, 1998
and
four-month period ended October 31, 1998, respectively. (see Note 17). The
Company believes that the concentration of its credit risk in trade
receivables
is mitigated substantially by its credit evaluation process, credit policies
and
credit control and collection procedures.
(o) Advertising costs
Advertising costs are expensed as incurred. Advertising expenses for the
nine-
month period ended June 30, 1997, year ended June 30, 1998 and the four-month
period ended October 31, 1998 amounted to $99,000, $72,000 and $48,000
respectively.
(p) Comprehensive Income
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income", was adopted as of January 1, 1998. This Statement
requires reporting of changes in share owners' equity that do not result
directly from transactions with share owners.
162
<PAGE>
Multiwave Innovation Pte Ltd
Notes to the Financial Statements
(In United States Dollars in thousands)
- -----------------------------------------------------------------------------
3. Cash and Cash Equivalents
Cash and cash equivalents at October 31, 1998, June 30, 1998 and
June 30, 1997 consist of:-
October 31, June 30, June 30,
1998 1998 1997
Fixed deposits at banks 268 256 280
Cash at banks and in hand 1,092 697 523
- -----------------------------------------------------------------------------
1,360 953 803
- -----------------------------------------------------------------------------
4. Trade Receivables
Trade receivables at October 31, 1998, June 30, 1998 and June 30,
1997 consist of:-
October 31, June 30, June 30,
1998 1998 1997
Accounts receivable 3,356 1,392 1,050
Allowance for doubtful accounts:
Balance brought forward 218 248 177
Provision made during the period - 10 74
Translation loss (gain) for the period 10 (40) (4)
- -----------------------------------------------------------------------------
228 218 247
- -----------------------------------------------------------------------------
Total trade receivables 3,128 1,174 803
- -----------------------------------------------------------------------------
5. Other Receivables and Deposits
Other receivables and deposits at October 31, 1998, June 30, 1998
and June 30, 1997 consist of:-
October 31, June 30, June 30,
1998 1998 1997
Deposits 12 13 15
Grant receivable 73 59 -
Goods and services tax recoverable 211 64 -
Other 43 6 -
- -----------------------------------------------------------------------------
Total other receivables and deposits 339 142 15
- -----------------------------------------------------------------------------
163
<PAGE>
Multiwave Innovation Pte Ltd
Notes to the Financial Statements
(In United States Dollars in thousands)
- -----------------------------------------------------------------------------
6. Inventories
Inventories at October 31, 1998, June 30, 1998 and June 30, 1997
consist of:-
October 31, June 30, June 30,
1998 1998 1997
Raw materials 521 149 431
Work-in-progress 2,977 1,231 618
Finished goods 1,960 1,152 1,297
- -----------------------------------------------------------------------------
5,458 2,532 2,346
Allowance for inventory obsolescence:
Balance brought forward 367 701 818
Provision made during the period - 461 121
Amount written off during the period - (698) (227)
Translation loss (gain) for the period 16 (97) (11)
- -----------------------------------------------------------------------------
383 367 701
- -----------------------------------------------------------------------------
Total inventories 5,075 2,165 1,645
- -----------------------------------------------------------------------------
7. Property, Plant and Equipment
Property, plant and equipment at October 31, 1998, June 30, 1998
and June 30, 1997 consist of:-
October 31, June 30, June 30,
1998 1998 1997
Cost:
Testing equipment 50 33 25
Tooling 28 17 -
Office furniture and equipment 181 171 173
Computer equipment 259 228 250
Motor vehicles 43 42 28
- -----------------------------------------------------------------------------
Total cost 561 491 476
- -----------------------------------------------------------------------------
Less:
Accumulated depreciation
Testing equipment 23 19 16
Tooling 4 1 -
Office furniture and equipment 136 121 112
Computer equipment 164 133 110
Motor vehicles 12 6 28
- -----------------------------------------------------------------------------
Total accumulated depreciation 339 280 266
- -----------------------------------------------------------------------------
Total property, plant and equipment 222 211 210
- -----------------------------------------------------------------------------
164
<PAGE>
Multiwave Innovation Pte Ltd
Notes to the Financial Statements
(In United States Dollars in thousands)
- -----------------------------------------------------------------------------
7. Property, Plant and Equipment (Cont'd)
Depreciation expense charged to operations for the nine-month period ended
June
30, 1997, the year ended June 30, 1998 and the four-month period ended October
31, 1998 for property, plant and equipment amounted to $73,000, $108,000 and
$45,000, respectively.
The Company is obligated under various capital leases for certain office
equipment and motor vehicles that expire at various dates during the next four
years. The gross amount of property, plant and equipment and related
ccumulated
depreciation recorded under capital leases were as follows:-
October 31, June 30, June 30,
1998 1998 1997
Motor equipment 17 17 -
Motor vehicles 18 18 -
- -----------------------------------------------------------------------------
Total cost 35 35 -
Less: Accumulated depreciation (10) (7) -
- -----------------------------------------------------------------------------
Net book value 26 28 -
- -----------------------------------------------------------------------------
Depreciation expense charged to operations for the nine-month period ended
June
30, 1997, the year ended June 30, 1998 and the four-month period ended October
31, 1998 for property, plant and equipment under capital leases amounted to
$Nil, $7,000 and $3,000 respectively.
8. Bank Overdrafts
Bank overdrafts at October 31, 1998, June 30, 1998 and June 30, 1997 consist
of:-
October 31, June 30, June 30,
1998 1998 1997
Repayable in US Dollars 39 - -
Repayable in Singapore Dollars 154 149 194
- -----------------------------------------------------------------------------
Total bank overdrafts 193 149 194
- -----------------------------------------------------------------------------
The weighted average rate of interest payable on the bank overdrafts was 8.0%,
8.5% and 7% as of October 31, 1998, June 30, 1998 and June 30, 1997,
respectively.
The Company's overdraft facilities are secured against the fixed deposits
which
are pledged to the bank providing the facilities.
165
<PAGE>
Multiwave Innovation Pte Ltd
Notes to the Financial Statements
(In United States Dollars in thousands)
- -----------------------------------------------------------------------------
9. Loans and Advances from Related Parties
Loans and advances from related parties at October 31, 1998, June
30, 1998 and June 30, 1997 consist of:-
October 31, June 30, June 30,
1998 1998 1997
Loan from corporate shareholder 62 59 70
Advance from corporate shareholder - - 350
- -----------------------------------------------------------------------------
Total loans and advances
from related parties 62 59 420
- -----------------------------------------------------------------------------
The loan from the corporate shareholder is unsecured and interest-
free, and has no fixed terms of repayment. The advance from the
corporate shareholder was unsecured and interest-free, and had no
fixed terms of repayment.
10. Accrued Operating Expenses
Accrued operating expenses at October 31, 1998, June 30, 1998 and
June 30, 1997 consist of:-
October 31, June 30, June 30,
1998 1998 1997
Accrual for staff costs 86 48 52
Others 56 96 126
- -----------------------------------------------------------------------------
Total accrued operating expenses 142 144 178
- -----------------------------------------------------------------------------
11. Other Payables
Other payables at October 31, 1998, June 30, 1998 and June 30, 1997
consist of:-
October 31, June 30, June 30,
1998 1998 1997
Staff costs 39 34 101
Others 272 181 98
- -----------------------------------------------------------------------------
Total other payables 311 215 199
- -----------------------------------------------------------------------------
166
<PAGE>
Multiwave Innovation Pte Ltd
Notes to the Financial Statements
(In United States Dollars in thousands)
- -----------------------------------------------------------------------------
12. Other Non-operating Income/Expenses
Other non-operating income (expenses) consist of :-
Nine
Four months Year months
ended ended ended
October 31, June 30, June 30,
1998 1998 1997
- -----------------------------------------------------------------------------
Government grant income 11 62 -
Loss on disposal of fixed assets (1) (9) (1)
Gain (loss) on exchange 484 (400) (202)
Other - - (3)
- -----------------------------------------------------------------------------
Total other non-operating income (expenses) 494 (347) (206)
- -----------------------------------------------------------------------------
13. Income Taxes
A reconciliation of the expected tax payable at the statutory rate
of tax to the tax expense is as follows:-
Nine
Four months Year months
ended ended ended
October 31, June 30, June 30,
1998 1998 1997
- -----------------------------------------------------------------------------
Income tax expense (benefit)
computed at Singapore statutory
rate of 26% 82 (527) (779)
Expenses not deductible for income tax 7 8 4
Loss of net operating losses due to change
in control - - 645
Change in the beginning of period balance
of the valuation allowance for deferred
tax assets (89) 519 130
- -----------------------------------------------------------------------------
Income tax expense - - -
- -----------------------------------------------------------------------------
167
<PAGE>
Multiwave Innovation Pte Ltd
Notes to the Financial Statements
(In United States Dollars in thousands)
- -----------------------------------------------------------------------------
14. Deferred Taxation
The significant components of deferred income tax expense (benefit)
attributable to income (loss) from continuing operations is as
follows:
Nine
Four months Year months
ended ended ended
October 31, June 30, June 30,
1998 1998 1997
- -----------------------------------------------------------------------------
Deferred tax expense (benefit) 89 (519) (130)
Increase (decrease) in beginning
of period balance of the valuation
allowance for deferred tax assets (89) 519 130
- -----------------------------------------------------------------------------
Deferred income tax - - -
- -----------------------------------------------------------------------------
The tax effects of temporary differences that give rise to
significant portions of deferred tax assets are presented below:-
1998 1998 1997
- -----------------------------------------------------------------------------
Deferred tax assets
Unrealized exchange (gains) losses (132) 98 69
Property, plant and equipment differences
between net book values and tax written
down values 93 82 83
Unutilized capital allowances 2 2 1
Net operating losses 634 479 49
Less: valuation allowances:
Balance brought forward 661 202 72
Increase (decrease) in balance in period (89) 519 130
Translation loss (gain) 25 (60) -
- -----------------------------------------------------------------------------
597 661 202
- -----------------------------------------------------------------------------
- - -
- -----------------------------------------------------------------------------
Under Singapore income tax legislation, unutilized capital
allowances and net operating losses are available to carry forward
to be offset against future taxable profits of the Company without
time restriction, provided there is no substantial change in the
ultimate shareholders of the Company and their respective
shareholdings. In this context, a substantial change is considered
to have occurred if there has been a change in excess of 50% of the
ultimate shareholding in the Company.
168
<PAGE>
Multiwave Innovation Pte Ltd
Notes to the Financial Statements
(In United States Dollars in thousands)
- -----------------------------------------------------------------------------
At October 31, 1998, the Company had net operating losses of $2,438,000, and
unutilized capital allowances of $9,000. Due to its historical net operating
losses, the Company has provided a valuation allowance to reduce its net
deferred tax assets to zero for each of the periods ended October 31, 1998,
June
30, 1998 and June 30, 1997.
15. Leases
The Company leases certain office equipment and motor vehicles, as presented
in
note 7, under various non-cancelable capital leases. These leases contain
either a bargain purchase option on the leased assets at the end of the lease
or
transfer of leased asset ownership at the lease maturity. No other assets
have
been pledged as security for the capital lease obligations.
The Company also has several non-cancelable operating leases. Rental expenses
for operating leases for the nine-month period ended June 30, 1997, the year
ended June 30, 1998 and the four-month period ended October 31, 1998 amounted
to
$138,000, $320,000 and $93,000, respectively.
Future minimum capital lease payments and future minimum lease payments under
non-cancelable operating leases (with initial or remaining lease terms in
excess
of one year) as of October 31, 1998 are:-
Capital Operating
Leases Leases
$'000 $'000
Year ending October 31,
1999 9 46
2000 9 21
2001 9 -
2002 2 -
-------- --------
Total minimum lease 29 67
========
Less:
Amount representing interest 6
--------
Present value of net minimum
capital lease payments 23
Less:
Current portion of obligations
under capital leases 7
--------
Obligations under capital leases,
less current portion 16
=========
169
<PAGE>
Multiwave Innovation Pte Ltd
Notes to the Financial Statements
(In United States Dollars in thousands)
- -----------------------------------------------------------------------------
The Company leases office premises from a subsidiary of a corporate
shareholder at a monthly rental charge of $19,000. The lease
expired on November 30, 1998. Subsequent to expiry, the Company
has continued to rent the office premises at a rental charge of
$19,000 a month, though no formal lease arrangements have been
made. Total rental expenses associated with this lease for the
nine-month period ended June 30, 1997, the year ended June 30, 1998
and the four-month period ended October 31, 1998 amounted to
$52,000, $278,000 and $77,000 respectively.
16. Share Capital, Share Premium Account and Other Paid-in Capital
In April 1997, the Company issued an additional 9,137,528 ordinary
shares of $1 each par value at a premium of $1,372,000. The
premium has been taken to the share premium account which is
described further below.
Of the total increase to capital of $7,718,000, an amount of
$3,651,000 was received in cash, the remaining $4,067,000 being
satisfied by way of capitalization of debts owing by the Company
from a corporate shareholder.
As part of the share subscription arrangement, a further amount of
$2,451,000 owing by the Company to a corporate shareholder was
forgiven. This debt forgiveness is considered to be an integral
part of the share issue transaction and has been treated as a
contribution of other paid-in capital.
The share premium account consists of the excess of proceeds
received from issues of share capital, over the par value of shares
issued. The application of the share premium account is restricted
under Singapore corporate law. The share premium may only be
applied in paying up unissued shares to be issued to shareholders,
paying up in whole or in part any balance unpaid on shares in
issue, in writing off preliminary expenses and share and debenture
issue expenses and by provision for premium payable on the
redemption of redeemable preferred shares, if any. The Company has
not utilized the share premium account for the above-mentioned
purposes.
170
<PAGE>
Multiwave Innovation Pte Ltd
Notes to the Financial Statements
(In United States Dollars in thousands)
- -----------------------------------------------------------------------------
17. Business Segment Data and Major Customers
Sales to customers by geographical areas were:-
Nine
Four months Year months
ended ended ended
October 31, June 30, June 30,
1998 1998 1997
$'000 $'000 $'000
- -----------------------------------------------------------------------------
United States 6,561 4,416 5,899
Europe 742 2,284 1,039
Asia 1,850 1,871 559
- -----------------------------------------------------------------------------
Total 9,153 8,571 7,497
- -----------------------------------------------------------------------------
Sales to major customers, as a percentage of total sales were as
follows:
Nine
Four months Year months
ended ended ended
October 31, June 30, June 30,
1998 1998 1997
% % %
- -----------------------------------------------------------------------------
Customer A 27 16 -
Customer B - 4 19
- -----------------------------------------------------------------------------
18. Significant Related Party Transactions
The Company has no manufacturing facilities and a significant
portion of the manufacturing of the Company's products is
subcontracted to NatSteel Electronics Limited, a corporate
shareholder of the Company, and Acura Manufacturing Pte Ltd and
Pantera Electronics Pte Ltd, subsidiaries of Uraco Holdings
Limited, a corporate shareholder of the Company.
171
<PAGE>
Multiwave Innovation Pte Ltd
Notes to the Financial Statements
(In United States Dollars in thousands)
- -----------------------------------------------------------------------------
The Company had the following significant transactions with related
parties and affiliates:-
Nine
Four months Year months
ended ended ended
October 31, June 30, June 30,
1998 1998 1997
- -----------------------------------------------------------------------------
Corporate Shareholder
Sales - 368 215
Purchases - - 2,163
Other Affiliate Companies
Sales 2 26 16
Purchases 645 2,102 2,439
Rental expenses 77 278 52
- -----------------------------------------------------------------------------
As of October 31, 1998, June 30, 1998 and June 30, 1997, there were
the following amounts owing by (to) affiliated companies:-
October 31, June 30, June 30,
1998 1998 1997
- -----------------------------------------------------------------------------
Corporate Shareholders
Trade receivables 201 42 -
Trade accounts payable - - (34)
Loans to Company (62) (59) (70)
Advances to Company - - (350)
Other Affiliate Companies
Other receivables - - 1
Trade payables (1,970) (1,814) (403)
Other payables (265) (259) (28)
- -----------------------------------------------------------------------------
172
<PAGE>
Multiwave Innovation Pte Ltd
Notes to the Financial Statements
(In United States Dollars in thousands)
- -----------------------------------------------------------------------------
19. Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments
approximate their fair value due to the relatively short period of
maturity of these instruments as summarized in the following
table:-
Carrying Amount
October 31, June 30, June 30,
1998 1998 1997
- -----------------------------------------------------------------------------
Financial Assets:
Cash and cash equivalents 1,360 953 803
Financial Liabilities:
Bank overdrafts 193 149 194
Trust receipts 134 206 -
Loans and advances from corporate
shareholder 62 59 420
- -----------------------------------------------------------------------------
Estimated Fair Value
October 31, June 30, June 30,
1998 1998 1997
- -----------------------------------------------------------------------------
Financial Assets:
Cash and cash equivalents 1,360 953 803
Financial Liabilities:
Bank overdrafts 193 149 194
Trust receipts 134 206 -
Loans and advances from corporate
Shareholder 62 59 420
- -----------------------------------------------------------------------------
20. Cash Flow Supplemental Disclosures
Significant non-cash transactions are as follows:-
Nine
Four months Year months
ended ended ended
October 31, June 30, June 30,
1998 1998 1997
- -----------------------------------------------------------------------------
Acquisition of equipment through
capital lease - 35 -
Issuance of shares through capitalization
of debt - - 4,067
Debt forgiveness by corporate shareholder - - 2,451
- -----------------------------------------------------------------------------
173
<PAGE>
Multiwave Innovation Pte Ltd
Notes to the Financial Statements
(In United States Dollars in thousands)
- -----------------------------------------------------------------------------
21. New US GAAP Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). This
Statement establishes accounting and reporting standards for
derivative instruments and for hedging activities. This Statement
is effective for fiscal years beginning after June 15, 1999.
Therefore, management is in the process of determining the impact
that this statement will have on the Company.
In February 1998, the FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits"
("SFAS 132"). This Statement standardizes the disclosure
requirements for defined benefit plans and recommends a parallel
format for presenting information about pensions and other
postretirement benefits. This Statement is effective for fiscal
years beginning after December 15, 1997. Since the Company has no
defined benefit plans, it has determined that this Statement will
have no significant impact.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131").
SFAS 131 establishes standards for the way that public enterprises
report information about operating segments in annual financial
statements and requires that selected information about those
operating segments be reported in interim financial statements.
This statements supersedes SFAS 14 "Financial Reporting for
Segments of a Business Enterprise". SFAS No. 131 requires that all
public enterprises report financial and descriptive information
about its reportable operating segments. Operating segments are
defined as components regularly evaluated by the chief operating
decision-maker in deciding how to allocate resources and in
assessing performance. This statement is effective for fiscal
years beginning after December 15, 1997. In the initial year of
application, comparative information for earlier years should be
restated. Management is in the process of determining the impact,
if any, this statement will have on the Company.
174
<PAGE>
UNICO, INC.
SCHEDULE 14A
APPENDIX G
RESTRICTED STOCK DISCOUNT ANALYSIS
AS OF OCTOBER 27, 1998
BY CRONKITE & KISSELL
FINANCIAL ADVISORY SERVICES
UNICO, INC.
175
<PAGE>
February 3, 1999
Mr. Henry Tang
Vice President
Unico, Inc.
2925 Bayview Drive
Fremont, CA 94538
Dear Mr. Tang:
In accordance with your request, we conducted an analysis of the October
27, 1998 acquisition of Multiwave Innovation Pte, Ltd. ("Multiwave")
made by Unico, Inc. ("Unico" or the "Company") and submit this report on
our findings.
The purpose of this analysis was to express an opinion (the "Opinion")
on the fair market value, as of October 27, 1998, of the Multiwave
common equity acquired for financial reporting purposes. Based on our
review of the available information, we determined that an analysis of
the consideration paid in the form of "restricted" Unico shares
represented the better indication of value changing hands in the subject
transaction.
The term "fair market value," as used herein, is defined as the amount
at which the Unico shares would change hands between a willing buyer and
a willing seller, each having reasonable knowledge of all relevant
facts, neither being under any compulsion to act, with equity to both.
It is the understanding of Cronkite & Kissell upon which it is relying,
that the management of Unico and any other recipient of the Opinion will
consult with and rely solely upon their own legal counsel with respect
to said definitions. No representation is made herein, or directly or
indirectly by the Opinion, as to any legal matter or as to the
sufficiency of said definitions for any purpose other than setting forth
the scope of Cronkite & Kissell's Opinion hereunder.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the transaction and do not
assume any responsibility with respect to it. Similarly, we have not
independently verified the accuracy and completeness of the information
supplied to us with respect to the parties to the transaction.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the
circumstances. Among other things, we have:
1. reviewed documentation relating to the Multiwave acquisition and
financial statements of the parties on each side of the transaction;
2. held discussions with management of Unico;
3. reviewed empirical studies which quantify lack of marketability
discounts; and
4. conducted such other studies, analyses and inquiries as we have
deemed appropriate.
176
<PAGE>
Description of Unico Operations
Upon effecting the June 30, 1998 acquisition of Paradise Innovations,
Inc., Unico shifted its focus to the marketing and sales of computer
components and peripherals as well as chip distribution. The products
marketed include Internet products, multimedia products, video adapter
cards and communication products such as modems. The customer base
includes private label computer manufacturers and major technology
distributors, such as Tech Data, Ingram Micro and Almo Distributing.
Description of Transaction
On October 27, 1998, Unico entered into a Stock Purchase Agreement
pursuant to which Unico agreed to acquire 100% of the outstanding shares
of Multiwave in exchange for 2,388,792 shares of Unico common equity.
The number of shares issued was a product of the total consideration of
$5,000,000 agreed to between the parties and a weighted average share
price of approximately $2.09. The shares issued are "restricted" as
such term is defined in Rule 144 promulgated under the Securities Act of
1933.
Multiwave is a design, development and marketing company specializing in
multimedia and communication peripherals.
Market For Unico Common Stock
Unico's common stock is traded on the Nasdaq SmallCap Market under the
symbol "UNRC". The market price over the twelve months preceding the
date of the Multiwave acquisition ranged from a low of 1 to a high of 3
1/8. It has 7,229,428 common shares issued and outstanding and 5,474
shares of preferred stock.
Discount for Lack of Marketability
Interests in closely held companies that lack the inherent liquidity of
publicly traded securities are less attractive investments. Accordingly,
it is an accepted valuation practice to discount the value of illiquid
interests to reflect this disparity.
A discount for lack of marketability captures the diminution in value
attributable to a nonmarketable security relative to its value on a
fully marketable basis. In its Revenue Ruling 77-287 ("77-287"), the
Internal Revenue Service provides guidelines for the valuation of
securities restricted under federal securities laws, focusing primarily
on the issue of marketability discounts. The difference in investment
attractiveness between a nonmarketable security and a marketable
security may, as 77-287 suggests, be attributed to:
- The risk that the underlying value of the security will change in a
way that, absent the restrictive provisions, would have prompted a
decision to sell; and
- The risk that the contemplated means of legally disposing of the
security may not materialize.
Accordingly, it is accepted valuation practice to price a nonmarketable
security at a discount to the price at which the same security would
177
<PAGE>
trade in a liquid market. The factors considered in arriving at our
conclusion were as follows:
- Relatively low revenue volume;
- Lack of profitability and dividend capacity;
- The potential for delisting from Nasdaq;
- Historical trading volume; and
- The aggregate market value of Unico.
In addition to our review of the relevant attributes of Unico which tend
to influence marketability, we took special notice of an agreement dated
June 26, 1998 between Unico and Intermountain Refining Co., Inc., on the
one hand, and Starlicon Group, Inc. and Starlicon International, on the
other hand. This agreement termed the "Novation Agreement" in effect
creates a priority claim on $3,000,000 of Unico assets in favor of
Unico's subsidiary, Intermountain Refining Co., Inc. It is our
understanding that those Unico shareholders who received such shares in
exchange for Multiwave shares shall be specifically excluded from
participation in the proceeds generated from the sale or liquidation of
such encumbered assets.
Proponents of the efficient market hypothesis might argue that such
information should already be reflected in the share price of Unico. We
are not looking to dispute the efficient market theory. We are,
however, looking to examine each and every factor which potentially
impacts the value of "restricted" shares. Low revenue volume, lack of
profitability, thin and erratic trading history and the size of the
block of shares are factors which tend to influence the size of
marketability discounts. The Novation Agreement creates a significant
priority claim and therefore must be viewed as a significant factor.
Concluded Discount for Lack of Marketability
As a result of our consideration of the issues relating to non-
marketability which the restricted shares of Unico are subject, combined
with the various empirical studies speaking to the issue of lack of
marketability, we concluded that a 60% discount from the otherwise
indicated share price is appropriate.
Based upon the investigation, premises, provisos, and analyses outlined
above, it is our opinion that, as of October 27, 1998, the fair market
value of 2,388,792 restricted shares of Unico, Inc. common stock is
reasonably stated in the amount of TWO MILLION DOLLARS ($2,000,000).
In accordance with recognized professional ethics, our fees for this
service are not contingent upon the opinion expressed herein, and
neither Cronkite & Kissell nor any of its employees have a present or
intended financial interest in Unico.
This analysis is to be used only for the purposes stated herein. With
the exception of Unico's contemplated use of this Opinion in its public
filings, neither this letter nor its contents may be referred to or
quoted in any registration statement, prospectus, offering memorandum,
loan agreement, or other agreement or document given to third parties
without the prior written authorization of Cronkite & Kissell.
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We are pleased to provide our valuation services to you, and we look
forward to working with you in the future. If you have any questions or
comments, please contact Clint Cronkite or Dave Kissell at (310) 450-
7372.
Very truly yours,
/s/ Cronkite & Kissell
Cronkite & Kissell
STATEMENT OF LIMITING CONDITIONS
1. Nothing has come to our attention to cause us to believe that the facts
and data set forth in this report are not correct.
2. Neither Cronkite & Kissell nor any of its employees have a financial
interest in the Company.
3. The fee for this valuation analysis is not contingent upon values
reported.
4. No investigation of the title to the Company or its assets has been
made, and the owners' claim to the Company is assumed to be valid. No
consideration has been given to liens or encumbrances which may be
against the Company and its assets except as specifically stated in this
letter.
5. No responsibility is assumed for information furnished by others,
including management, and such information is believed to be reliable.
6. No responsibility is assumed for matters of a legal nature.
7. This report is intended for the purpose stated and may not be used for
any other purpose nor by other parties.
8. Neither all nor part of the contents of this report shall be
disseminated through advertising, public relations, news, sales,
Securities and Exchange Commission disclosure documents, or any other
public or private media without the prior written approval of Cronkite &
Kissell.
9. In the course of our analysis, we were provided with both written and
oral information relating to the structure and operation of the Company.
We relied upon this information and did not independently verify its
accuracy.
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10. The Company has represented to us that there is no pending litigation or
contingencies involving the Company as of the date of valuation.
11. Testimony or attendance in court by reason of this appraisal shall not
be required unless prior arrangements are established in written form.
12. The value recommendation contained herein is not intended to represent
the value of the Company's equity interest at any time other than the
date of valuation. Changes in market conditions could result in
subsequent value indications substantially different than those
presented at the stated date of valuation. We assume no responsibility
for changes in market conditions or for the inability of the owner to
locate a purchaser of the Company's equity interest at the values stated
herein.
13. Certain historical financial data and other data used in our valuation
engagement have been provided by the Company and are unaudited. We have
not independently verified the accuracy or completeness of the data
provided and do not express an opinion or other form of assurance
regarding its accuracy or completeness.
14. In this assignment, the existence of potentially hazardous material or
substances used in the construction or maintenance of the Company's
assets, such as the presence of formaldehyde foam insulation, the
existence of toxic waste, and / or the existence of asbestos insulation,
any of which may be present on or about the Company's property, has not
been considered in arriving at the opinion of value stated. The
appraiser is not qualified to detect such substances or ascertain the
risks associated with them. It is recommended that appropriate experts
be retained to investigate and determine to what extent, if any, such
substances are present and what risks, if any, are involved.
15. The market value of any business, or any property, is a matter of
informed judgment. The purchase / selling price is set by the parties
involved, based on each party's respective evaluation of all relevant
factors. Such factors include, but are not limited to: (i) the
particular assumptions underlying the appraisal of the subject Company;
(ii) the degree of urgency attached to the sale or acquisition of the
subject Company; (iii) any significant tax benefits or liabilities; and
(iv) any potential synergies unique to the proposed transaction. No
responsibility is assumed for the subject Company's inability to obtain
a purchaser at the value reported.
16. This valuation report contains historical and prospective information.
Regarding prospective information, differences between anticipated and
actual results occur since events and circumstances frequently do not
occur as expected, and those differences may be material.
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UNICO, INC.
SCHEDULE 14A
APPENDIX H
STOCK PURCHASE AGREEMENT
MULTIWAVE INNOVATION PTE. LTD.
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made this 27th day of October,
1998 among Unico, Inc. ("Buyer"), a New Mexico corporation, Uraco Holdings,
Ltd. ("Uraco"), a Singapore corporation, NatSteel Electronics, Ltd. ("NEL"), a
Singapore corporation, Dr. Soo Jia Sian ("Dr. Soo") and Tan Meng Dong James
("James"). (Uraco, NEL, Dr. Soo and James will be collectively referred to as
"Seller").
RECITALS
A. Seller collectively owns all of the issued and outstanding share capital
stock of Multiwave Innovation Pte, Ltd. ("Multiwave"), a Singapore
corporation.
B. Buyer desires to purchase from Seller, and Seller desires to sell to
Buyer, all of the issued and outstanding share capital stock of Multiwave on
the terms and conditions set forth in this Agreement.
ARTICLE 1
PURCHASE AND SALE OF SHARES
1.1 Purchase and Sale. Subject to the terms and conditions of this
Agreement, and in reliance upon the representations and warranties set forth
in Article 3, below, on the Closing Date (defined in Section 8.1, below)
Seller will sell, transfer and deliver to Buyer, and Buyer will purchase from
Seller, 100% of the issued and outstanding shares in the share capital of
Multiwave ("the Shares"), free and clear of all liens, pledges, encumbrances,
charges, and claims thereon.
1.2 Base Purchase Price. The Base Purchase Price for the Shares shall be
$5,000,000 U.S.
1.3 Payment of Purchase Price. The Base Purchase Price shall be paid by
Buyer to Seller through the issuance by Buyer to Seller of Buyer's
"restricted" common stock as that term is defined in Rule 144 and Regulation S
promulgated under the Securities Act of 1933. The number of shares issued to
Seller (rounded upwards to the nearest whole number) shall be derived by
dividing the Base Purchase Price by the "Weighted Average Price" of Buyer's
stock. As used in this Agreement, "Weighted Average Price" shall be the
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weighted average of the bid and offer prices of Buyer's stock on NASDAQ from
the date of the signing of the Letter of Intent to the date immediately
preceding the execution of this Agreement, provided that such Weighted Average
Price shall not: (i) exceed 130% of the weighted average of the bid and offer
prices of Buyer 's stock on the 7th day of July, 1998 (the "Weighted Reference
Price"); or (ii) be less than 70% of the Weighted Reference Price. No
fractional Shares shall be issued.
1.4 Allocation of Purchase Price. The shares of Buyer's stock paid as the
Base Purchase Price shall be allocated in accordance with Exhibit 1.4 attached
hereto.
ARTICLE 2
ADDITIONAL TRANSACTIONS
2.1 Option. At the Closing, Buyer shall grant an irrevocable option to
Uraco and NEL to purchase common stock of Buyer in an aggregate amount of not
more than $1,000,000 U.S. The terms of the option shall be set forth in an
agreement acceptable to counsel for Buyer, Uraco and NEL.
2.2 Confidentiality and Non-Competition Agreement. At the Closing, Seller,
and each of them, will enter into an agreement with Buyer agreeing not to
disclose to any third party (other than their attorneys, accountants and
advisers) any confidential information relating to Multiwave or its business,
except as required to be disclosed by law, and agreeing not to compete with
the business of Multiwave which relates to Multiwave products set out in
Exhibit 2.2 for a period of one year following the Closing Date. Such
agreement shall provide that NEL and its subsidiaries may enter into any, or
continue any existing business relating to the marketing, sale and
distribution of computer, hardware, software and peripherals. Such agreement
shall be in form and substance reasonably satisfactory to Seller and Buyer.
2.3 Constitution of the Board of Directors. At the Closing the current
Board of Directors of Multiwave will, subject to compliance with the laws of
Singapore, resign after appointing Directors satisfactory to Buyer.
2.4 Employee Stock Options. At the Closing or as soon thereafter as
practicable, Buyer shall create an Employee Stock Option Program in a form
acceptable to counsel for both Seller and Buyer.
2.5 Nasdaq Listing. Buyer will use its best efforts to maintain its
current Nasdaq listing and should Buyer lose that Nasdaq listing due to
failure to qualify pursuant to Nasdaq listing requirements, Buyer will use its
best efforts to meet Nasdaq's listing requirements and thereafter reapply for
Nasdaq listing. This covenant shall survive Closing.
2.6 Restrictive Stock Legends. After the expiration of any holding period
required by Rule 144 promulgated pursuant to the Securities Act of 1933,
Buyer will assist Seller to cause any restrictive legends on Seller's stock to
be removed such that the stock can be sold, pursuant to Rule 144, as
unrestricted stock. This covenant shall survive Closing.
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2.7 Payment of Rent. Buyer undertakes to promise the payment by Multiwave
of the aggregate of I) the sum of $200,000 U.S. referred to in Section 3.15
and ii) the amounts due and payable to Uraco Precision Group for rent in
respect to the period commencing on July 1, 1998 and ending on the Closing
Date in six equal monthly installments, the first such installment to be made
thirty (30) days after Closing.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER AND MULTIWAVE
Each of Uraco, NEL, Dr. Soo, and James, and to the extent applicable
Multiwave, severally make the following representations and warranties to
Buyer, each of which shall be deemed material, and Buyer, in executing,
delivering and consummating this Agreement, has relied and will rely upon the
correctness and completeness, in all material respects, of each
representation and warranty provided always that any representation or
warranty made by either Uraco or NEL hereunder shall be limited and confined
solely to the period during which Uraco and NEL owned shares in the capital of
Multiwave respectively and any damages and/or losses claimed by Buyer will be
limited to the proportion of the share capital of Multiwave owned by NEL or
Uraco to the total shareholding of Multiwave as at the date of this Agreement.
3.1 Valid Corporate Existence; Qualifications. Multiwave is a corporation
duly organized and validly existing under the laws of Singapore. Multiwave
has the corporate power to carry on its business as now conducted and to own
its assets. Multiwave is duly qualified to conduct its business and is in
good standing, as a foreign corporation, in those jurisdictions in which it
conducts business as set forth in Exhibit 3.1, which are the only
jurisdictions in which Multiwave is required to qualify in order to own its
assets or properties or to carry on its business as now conducted, and there
has not been any claim by any other jurisdiction to the effect that Multiwave
is required to qualify or otherwise be authorized to do business as a foreign
corporation therein which could reasonably be expected to have a materially
adverse effect upon the business of Multiwave. The copies of Multiwave's
Articles of Incorporation (certified by the corporation's secretary), as
amended to date, which will be delivered to Buyer , are true and complete
copies of those documents as now in effect. The minute book of Multiwave
contains accurate records of all material meetings of its Board of Directors,
Executive Committee of the Board, if any, and shareholders since its
incorporation, and accurately reflects all transactions authorized therein.
3.2 Capitalization. All of the presently authorized, issued and outstanding
shares in the share capital of Multiwave are owned by Seller and there are no
outstanding subscriptions, options, warrants, calls, contracts, demands,
commitments, convertible securities or other agreements or arrangements of any
character or nature whatever under which Multiwave or Seller is or may become
obligated to issue, assign or transfer any shares in the share capital of
Multiwave, save that, prior to Closing, Uraco will receive ordinary shares in
Multiwave in consideration for the capitalization of receivables owed by
Multiwave to its subsidiaries. The authorized share capital of Multiwave
consists of 10,000,000 ordinary shares of common stock, S$1.00 (Singapore
Dollar) par value, of which 9,900,000 ordinary shares are issued and
outstanding as at the date of this Agreement. There are no other ordinary
shares either authorized or issued.
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3.3 Subsidiaries. Except as set forth in Exhibit 3.3, Multiwave has no
subsidiaries and there are no corporations, partnerships and other business
entities controlled by Multiwave. As used herein, "controlled by" means: (i)
the ownership of not less than 15% of the voting securities or other interests
of a corporation, partnership or other business entity; or (ii) the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a corporation, partnership or
other business entity, whether through the ownership of voting shares, by
contract or otherwise. Additionally, except as set forth in Exhibit 3.3,
Multiwave has no commitment to purchase any interest, direct or indirect, in
any other corporation or in any partnership, joint venture or other business
enterprise or entity. The business carried on by Multiwave has not been
conducted through any other direct or indirect subsidiary or affiliate of
Seller, or any of them.
3.4 Consents. All requisite consents of governmental and other regulatory
agencies, foreign or domestic, and of other parties required to be received by
or on the part of Seller and Multiwave to enable them to enter into and carry
out this Agreement in all material respects have been, or prior to the Closing
will have been obtained.
3.5 Corporate Authority; Binding Nature of Agreement; Title to Shares.
Uraco, NEL and Multiwave have the corporate power to enter into this Agreement
and to carry out their respective obligations hereunder. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by their Boards of Directors and
no other corporate proceedings on the part of Multiwave, Uraco or NEL are
necessary to authorize the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby. This Agreement
constitutes Seller's valid and binding obligation and is enforceable in
accordance with its terms. At the Closing, each of Uraco and NEL will be the
sole record and beneficial owner of the Shares recorded in their respective
names, free and clear of all manner of liens, charges, encumbrances, and
claims, will have good and marketable title to the Shares, and will have, the
absolute and unqualified right to sell, transfer and deliver such Shares to
Buyer . The delivery of the Shares to Buyer at the Closing pursuant to the
provisions of this Agreement will transfer valid title thereto, free and clear
of all manner of liens, charges, encumbrances and claims.
3.6 Financial Statements. The books of accounts of Multiwave, taken as a
whole, fairly reflect its income, expenses, assets and liabilities in all
material respects. At the Closing, Seller shall deliver to Buyer audited
financial statements of Multiwave as of December 31, 1997, and March 31, 1998,
which will fairly present the financial position of Multiwave as of those
dates in conformity with generally accepted accounting principles in
Singapore, and the unaudited management accounts of Multiwave as of June 30,
1998, which will fairly present the financial position of Multiwave as of that
date (and will be subject to a limited review by KPMG Peat Marwick Singapore.)
At the Closing, Seller (other than NEL) shall also deliver to Buyer an
unaudited management account of the company as of five days immediately before
the date of the Closing (subject to a limited review by KPMG Peat Marwick
Singapore) (which reflect a net asset value of Multiwave of not less than
$1,000,000 U.S.) Within sixty (60) days of execution of this Agreement, at
Buyer's expense, the audited financial statement of March 31, 1998, and the
unaudited management accounts as of June 30, 1998, will also be prepared and
audited in accordance with generally accepted accounting principles of the
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United States. Seller (other than NEL) and Multiwave represent and warrant
that such audited financials, when delivered, will reflect a net asset value
of Multiwave of not less than One Million Dollars ($1,000,000)(U.S.) if less,
buyer has right to waive it.
3.7 Liabilities. Except as set forth in Exhibit 3.7, as of June 30, 1998
(the "Balance Sheet Date"), Multiwave had no material debts, liabilities or
obligations, contingent or absolute, other than those debts, liabilities and
obligations reflected or reserved against on Multiwave's balance sheet as at
June 30, 1998 (the "Balance Sheet Date") or in the footnotes thereto or in the
exhibits to this Agreement.
3.8 Absence of Change Since Balance Sheet Date. Except as otherwise
expressly provided or set forth in, or required by this Agreement, since June
30, 1998, Multiwave has not (and will not have as of the Closing Date): (i)
issued or sold, or agreed to issue or sell any of its share capital, options,
warrants, rights or calls to purchase such share, any securities convertible
or exchangeable into such share capital or other corporate securities, or
effected any subdivision or other recapitalization affecting its share capital
other than in connection with the issue of ordinary shares to Uraco in
consideration for the capitalization of the receivables owed by Multiwave to
Uraco's subsidiaries; (ii) incurred any material obligation or liability,
absolute or contingent, except those arising in the ordinary and usual course
of its business; (iii) discharged or satisfied any lien or encumbrances,
except in the ordinary and usual course of business, or paid or satisfied any
liability, absolute or contingent, other than liabilities as of June 30, 1998,
and current liabilities incurred since June 30, 1998, in the ordinary and
usual course of business; (iv) made any wage or salary increases or granted
any bonuses other than wage and salary increases and bonuses granted in
accordance with its normal salary increase and bonus policies; (v) mortgaged,
pledged or subjected to any lien or other encumbrance any of its properties or
assets, or permitted any of its property or assets to be subjected to any
liens or other encumbrance, except in the ordinary and usual course of
business; (vi) sold, assigned or transferred any of its properties or assets,
except in the ordinary and usual course of business; (vii) entered into any
transaction except in the ordinary and usual course of business; (viii) waived
any rights of substantial value, or canceled, modified or waived any
indebtedness for borrowed money held by it, except in the ordinary and usual
course of business; (ix) declared, paid or set aside any dividends or other
distributions or payments on its capital stock, or redeemed or repurchased, or
agreed to redeem or repurchase, any Shares of its capital stock; (x) made any
loans or advances to any person, or assumed, guaranteed, endorsed or otherwise
became responsible for the obligations of any person; or (xi) incurred any
indebtedness for borrowed money (except for endorsement, for collection or
deposit of negotiable instruments received in the ordinary and usual course of
business).
3.9 Absence of Undisclosed Liabilities. Except as and to the extent set
forth on Exhibit 3.9, as of the date of Closing, the assets of Seller are, or
will be unencumbered and subject to no debts, liabilities or obligations
(whether absolute, accrued, contingent or otherwise) of any nature whatsoever,
including, but not limited to, any domestic or foreign tax liabilities or
deferred tax liabilities or any other debts, liabilities or obligations
relating to or arising out of any act, omission, transaction, circumstance,
sale of goods or services, state of facts or other condition which occurred or
existed on or before the date of the Closing, whether or not then known, due
or payable.
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3.10 Taxes. Except as set forth in Exhibit 3.10 specifically provided in the
balance sheet as of June 30, 1998, all taxes affecting the business and assets
of Multiwave, including, without limitation, income, property, sales, use,
franchise, excise, added value, employee's income, withholding, social
security and unemployment taxes imposed by the government of Singapore or by
any other foreign country or by any state, municipality, subdivision or
instrumentality of Singapore or of any foreign country, or by any other taxing
authority, which are due and payable by Seller or Multiwave, and all interest
and penalties thereon, whether disputed or not, have been paid in full, all
tax returns required to be filed in connection therewith have been accurately
prepared and duly and timely filed and all deposits required by law to be made
by Seller or Multiwave with respect to such taxes have been duly made. Except
as set forth in Exhibit 3.10, Multiwave has not been delinquent in the payment
of any domestic or foreign tax, assessment or governmental charge or deposit
affecting the assets and business of Multiwave, and Multiwave has no tax
deficiency or claim outstanding, proposed or assessed against it, and there is
no basis for any such deficiency or claim which may affect the assets of
Multiwave.
3.11 Ownership of Assets. Multiwave owns outright, and has good and
marketable title to all of its assets, properties and business (including all
assets reflected in the financial statements or management accounts provided
to Buyer under this Agreement, except as the same may have been disposed of in
the ordinary course of business since the date of the financial statement or
management accounts), free and clear of all liens, mortgages, pledges,
conditional sales agreements, restrictions on transfer or other encumbrances
or charges, except those listed in Exhibit 3.11. Exhibit 3.11 sets forth a
true and complete list and brief description of all patents, copyrights,
trademarks, trade names and other similar intangible assets which are either
owned by Multiwave or in which Multiwave has an interest. Except as set
forth in Exhibit 3.11, to the best knowledge of the Seller, no other person,
firm or corporation has any proprietary or other interest in any such
intangible assets. Except as set forth in Exhibit 3.11, to the best of the
knowledge of the Seller, Multiwave is not a party to or bound by any license
or agreement requiring the payment to any person, firm or corporation of any
royalty. Seller and Multiwave do not know, or have reasonable grounds to know
of, any violation by others of the trademark, trade name or patent rights of
Multiwave. To the best of the knowledge of the Seller, Multiwave is not
infringing upon any patent, copyright, trade name or trademark or otherwise
violating the rights of any third party with respect thereto, and no
proceedings have been instituted or, to the knowledge of Seller and Multiwave
are threatened, and no claim has been received by Seller or Multiwave alleging
any such violation.
3.12 Insurance. Exhibit 3.12 sets forth a list and brief description of all
policies of fire, general liability, products liability and other forms of
insurance held by Multiwave as of the date hereof. Except as set forth in
Exhibit 3.13, such policies are valid, outstanding and enforceable policies,
as to which premiums have been paid currently. Except as set forth in said
Exhibit 3.13, neither Sellers, nor Multiwave know of any state of facts, or of
the occurrence of any event which might reasonably form the basis for any
claim against Multiwave not fully covered by insurance.
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3.13 Litigation. Except as set forth in Exhibit 3.13, there is no claim,
legal action, suit, arbitration, governmental investigation or other legal or
administrative proceeding, nor any order, decree or judgment in progress,
pending or in effect, or to the knowledge of Seller or Multiwave, threatened
against or relating to Seller or Multiwave, its officers, directors or
employees, its properties, assets or business or the transactions contemplated
by this Agreement, and neither Seller nor Multiwave knows or has reason to be
aware of any basis for the same.
3.14 Compliance with Laws and Other Instruments. Except as set forth in
Exhibit 3.14, there are no actions, suits, proceedings or governmental
investigations relating to Multiwave or to any of its properties, assets or
business pending or, to the knowledge of Seller and Multiwave , threatened, or
any order, injunction, award or decree outstanding against Multiwave or
against or relating to any of its properties, assets or business; and Seller
and Multiwave know of no basis for any such action, suits or proceedings
within the past two years or any such governmental investigation, orders,
injunctions or decrees. Seller and Multiwave are not in violation of any law,
regulation, ordinance, order, injunction, decree, award or other requirement
of any governmental body, court or arbitrator relating to its properties,
assets or business which could be reasonably expected to have a materially
adverse effect upon the business of Multiwave or Seller's or Multiwave's
performance under this Agreement.
3.15 Real Property. Multiwave does not own any real property. The real
property leases described in Exhibit 3.15 that relate to the leased properties
described therein are now in full force and effect, and all amounts payable
thereunder up to the date of this Agreement have been paid other than arrears
in rent due and payable in the amount of $200,000 as at 30 June to Uraco
Precision Engineering Pte Ltd ("UPE"). Except as set forth in Exhibit 3.15,
none of such leases could reasonably be expected to result in material
liability for restoration of premises. All uses of such owned or leased
property by Multiwave conform, in all material respects, to all applicable
building and zoning ordinances, laws, and regulations and, in the case of
leased property, to all terms of the leases relating thereto.
3.16 Agreements and Obligations, Performance. Except as listed and briefly
described in Exhibit 3.16 (the "Listed Agreements") Multiwave is not a party
to, or bound by any: (i) contract, arrangement, commitment or understanding
with its customers or any officer, employee, shareholder, director,
representative or agent thereof for the repurchase of products, sharing of
fees, the rebating of charges to such customers, bribes, kickbacks from such
customers or other similar arrangements; (ii) contract of employment with any
officer or employee not terminable at will without penalty or premium or any
continuing obligation of liability; (iii) deferred compensation, bonus or
incentive plan or agreement not cancelable at will without penalty or premium
or any continuing obligation or liability; (iv) management or consulting
agreement not terminable at will without penalty or premium or any continuing
obligation or liability; (v) license or royalty agreement; (vi) union or other
collective bargaining agreement; (vii) agreement, commitment or understanding
relating to indebtedness for borrowed money; (viii) contract containing
covenants limiting the freedom of Multiwave to engage or compete in any line
or business with any person in any geographical area; (ix) contract or option
relating to the acquisition or sale of any business; (x) voting trust
agreement; (xi) other contract, agreement, commitment or understanding which
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materially affects any of Multiwave's properties, assets or business, whether
directly or indirectly, or which was entered into other than in the ordinary
course of business. A true and correct copy of each of the written Listed
Agreements has been delivered to Buyer. Multiwave has in all material respects
performed all obligations required to be performed by it to date under all of
the Listed Agreements, is not in default in any material respect under any of
the Listed Agreements and has received no notice of any default or alleged
default thereunder which has not heretofore been cured or which notice has not
heretofore been withdrawn. Seller and Multiwave know of no material default
under any of the Listed Agreements by any other party thereto or by any other
person, firm or corporation bound thereunder.
3.17 Condition of Assets. All machinery and equipment regularly used by
Multiwave in the conduct of its business is in good operating condition and
repair. The inventories of Multiwave are substantially in usable and saleable
condition and in reasonable balance.
3.18 Accounts Receivable. To the knowledge of Seller and Multiwave, all of
the accounts receivable reflected in the books of account of Multiwave are
valid and arose in the ordinary course of its business, from the sale of
services or goods, and Seller and Multiwave do not know, or have reason to
know, of any valid defense or right of set-off to the rights of Multiwave to
collect such accounts receivable in the full amounts shown on such books of
account less any reserves on the Balance Sheet.
3.19 Permits and Licenses. Exhibit 3.19 sets forth all permits, licenses,
orders, franchises and approvals from all federal, state, local and foreign
governmental regulatory bodies held by Multiwave. Multiwave has all permits,
license, orders, franchises and approvals of all federal, state, local and
foreign governmental or regulatory bodies required of it to carry on its
business as presently conducted. All such permits, licenses, orders,
franchises and approvals are in full force and effect. To the knowledge of
Seller and Multiwave, no suspension or cancellation of any of such permits,
licenses, orders, franchises and approvals is threatened, and Multiwave is in
compliance in all material respects with all requirements, standards and
procedures of the federal, state, local and foreign governmental bodies which
have issued permits, licenses, orders, franchises and approvals. Exhibit 3.19
also sets forth a brief description of all motor vehicles owned or leased by
Multiwave and the state of title thereof.
3.20 Banking Arrangements. Exhibit 3.20 sets forth the name of each bank in
or with which Multiwave has an account, credit line or safety deposit box, and
a brief description of each such account, credit line or safety deposit box
including the names of all persons currently authorized to draw thereon or
having access thereto, and the names of all persons, if any, now holding
powers of attorney from Multiwave and a summary statement of the terms
thereof.
3.21 Salary Information. Exhibit 3.21 contains a list of the names and
current salary rates of and bonus commitments to all present officers of
Multiwave and the names and current annual salary rates of all other persons
employed by Multiwave whose annual salaries exceed $50,000.00.
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3.22 Employee Benefit Plans. Except as set forth in Exhibit 3.22, Multiwave
maintains no "pension or employee benefit plans" nor does it make any employer
contributions with respect to its employees except in accordance with the laws
of Singapore.
3.23 No Breach. Neither the execution and delivery of this Agreement by
Seller or Multiwave, nor compliance by Seller or Multiwave with any of the
provisions hereof, nor the consummation of the transactions contemplated
hereby, will:
(a) violate or conflict with any provision of the Articles of Incorporation
or By-Laws of Seller or Multiwave;
(b) violate, or with notice or the passage of time, result in the material
breach or termination of, or otherwise give any contracting party the right to
terminate, or declare a material default under, the terms of any agreement or
other document or undertaking, oral or written, to which Seller or Multiwave
is a party or by which either its properties or assets may be bound (except
for such violations, conflicts, breaches or defaults as to which required
waivers or consents by other parties have been, or will, prior to the Closing,
be, obtained);
(c) result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of Multiwave pursuant to the
terms of any such agreement or instrument;
(d) violate any judgment, order, injunction, decree or award against, or
binding upon, Seller or Multiwave or upon their respective properties or
assets; or
(e) violate any law or regulation of any jurisdiction relating to Seller or
Multiwave or any of their respective securities, assets or properties.
3.24 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on directly between Unico
and Seller without the intervention of any broker, finder, investment banker
or other third party.
3.25 Labor Discussions. Except with respect to the agreements listed in
Exhibit 3.16 pursuant, Multiwave is not, and has not, during the past three
years, been involved in any labor discussions with any unit or group seeking
to become the bargaining unit for any of its employees. With respect to said
Agreements, Exhibit 3.25 sets forth a description of the status thereof,
including any demands or proposals with respect to the renewal, extension or
replacement thereof.
3.26 Change of Name. Multiwave has not conducted business under any name
during the past three (3) years except those set forth on Exhibit 3.26.
3.27 Untrue or Omitted Facts. No representation or warranty by Seller or
Multiwave contained in this Agreement, nor any statement or certificate
furnished or to be furnished by Seller or Multiwave to Buyer or its
representatives in connection herewith or pursuant hereto, or any financial
statement or document delivered by Seller or Multiwave to Buyer or its
representatives, contains or at the Closing will contain any untrue statement
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of a material fact, or omits to state or will omit to state any material fact
required to make the statements herein or therein contained not misleading or
necessary in order, in any material respect, to provide the Buyer with
adequate information as to Multiwave and its business and financial condition,
and the assets of Multiwave and their condition, and Seller and Multiwave have
disclosed to Buyer in writing all material adverse facts known to them, or any
of them, relating to the same. The representations and warranties contained
in this Article 3, or elsewhere in this Agreement, or any document delivered
pursuant to hereto, shall not be affected or deemed waived by reason of the
fact that Buyer or its representatives knew, or should have known, that any
such representation or warranty is or might be inaccurate in any respect.
3.28 Unico Novation Agreement Dated June 26, 1998. Seller and Multiwave
represent and warrant that they have received and reviewed a copy of the
Novation Agreement dated June 26, 1998 by and between Unico, Inc. and
Intermountain Refining Co., Inc., on the one hand, and Starlicon Group, Inc.
and Starlicon International, on the other hand ("Novation Agreement"). Seller
and Multiwave represent and warrant that they have specifically reviewed
Paragraphs 12 and 13 of the Novation Agreement and acknowledge and understand
that (i) approximately $3,000,000 in Unico assets are the exclusive property
of Unico's subsidiary Intermountain Refining Co., Inc. ("IRC"); (ii) that
pursuant to Paragraph 12 of the Novation Agreement, that the management of
IRC, in its sole discretion, may consider a transaction involving the stock,
assets or business of IRC; (iii) that the transaction may include the
liquidation of IRC assets and distribution of such assets to Unico
shareholders; (iv) that the transaction may include a distribution of IRC
stock to Unico's shareholders; (v) that Seller and Multiwave, and their heirs
and assigns, pursuant to Paragraph 12B of the Novation Agreement will be, and
are, specifically excluded from participation as a Unico shareholder in such a
transaction or transactions.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer makes the following representations and warranties to Seller, each of
which shall be deemed material, and Seller, in executing, delivering and
consummating this Agreement, has relied and will rely on the correctness and
completeness of such representations and warranties:
4.1 Valid Corporate Existence; Qualification. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State
of New Mexico. Buyer has the corporate power to carry on its business as now
conducted and to own its assets. Buyer is duly qualified to conduct business
and is in good standing as a foreign corporation in those jurisdictions set
forth in Exhibit 4.1, which are the only jurisdictions in which Buyer is
required to qualify in order to own its assets or properties or to carry on
its business as now conducted, and there has not been any claim by any other
jurisdiction to the effect that Buyer is required to qualify or otherwise be
authorized to do business as a foreign corporation therein which could
reasonably be expected to have a materially adverse effect upon the business
of Buyer . The copies of Buyer 's Articles of Incorporation (certified by the
Secretary of State of New Mexico) and By-Laws (certified by Buyer 's
secretary), as amended to date, which have been or will be delivered to
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Seller, are true and complete copies of those documents as now in effect. The
minute books of Buyer contain accurate records of all material meetings of its
Board of Directors, Executive Committee of the Board, if any, and shareholders
since its incorporation, and accurately reflect all transactions authorized
therein.
4.2 Capitalization. The authorized capital stock of Buyer consists of
50,000,000 shares of Common Stock, par value $.20 per share, and 8,000,000
shares of Preferred Stock of which 7,681,409 shares of Common Stock are issued
and outstanding and 5,474 shares of Preferred Stock are issued and
outstanding. All of such Shares of Common Stock and Preferred Stock are duly
authorized and, in the case of the Common Stock, validly issued and
outstanding, fully paid and non-assessable. Except as set forth on Exhibit
4.2, there are no subscriptions, options, warrants, rights or calls or other
commitments or agreements to which Buyer is a party or by which any person is
bound, calling for the issuance, transfer, sale or other disposition of
securities of Buyer convertible or exchangeable, actually or contingently,
into Shares of Common Stock or any other securities of Buyer.
4.3 Subsidiaries. Except as set forth on Exhibit 4.3, there are no
corporations, partnerships and other business entities controlled by Buyer .
As used herein, "controlled by" has the meaning set forth in Section 3.3 of
this Agreement. Additionally, except as set forth in Exhibit 4.3, Buyer has no
commitment to purchase any interest, direct or indirect, in any other
corporation or in any partnership, joint venture or other business enterprise
or entity.
4.4 Consents. All requisite consents of governmental and other regulatory
agencies, foreign or domestic, and of other parties required to be received
by, or on the part of Buyer to enable it to enter into and carry out this
Agreement, have been, or prior to the Closing, will have been obtained.
4.5 Corporate Authority; Binding Nature of Agreement; Title to Shares.
Buyer has the corporate power to enter into this Agreement and to carry out
its obligations hereunder. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by its Board of Directors and no other corporate proceedings on the
part of Buyer are necessary to authorize the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby. This
Agreement constitutes Buyer 's valid and binding obligation and is enforceable
in accordance with its terms. At the Closing, Buyer will have the absolute
and unqualified right to issue, transfer and deliver its common stock to
Seller. The delivery of the common stock to Seller at the Closing pursuant to
the provisions of this Agreement will transfer valid title thereto, free and
clear of all manner of liens, charges, encumbrances and claims and, except as
provided in the Novation Agreement dated June 26, 1998 and referred to in
Paragraph 3.28, supra, such common stock shall rank pari passu in all respects
with the Buyer's issue of outstanding common stock.
4.6 Financial Statements. The books of accounts of Buyer taken as a whole,
fairly reflect its income, expenses, assets and liabilities in all material
respects. The audited financial statements of Buyer for the period ending
June 30, 1998, fairly present the financial position of Buyer as of said date
and the results of its operations for such period and were prepared in
conformity with generally accepted accounting principles.
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4.7 Liabilities. Except as set forth in Exhibit 4.7, as of June 30, 1998
(the "Balance Sheet Date"), Buyer had no material debts, liabilities or
obligations, contingent or absolute, other than those debts, liabilities and
obligations reflected or reserved against on Buyer 's balance sheet as at June
30, 1998 or in the footnotes thereto or in the exhibits to this Agreement.
4.8 Action Since Balance Sheet Date. Except as otherwise expressly provided
or set forth in, or required by this Agreement, since the Balance Sheet Date,
Buyer has not (and will not have as of the Closing Date): (i) issued or sold,
or agreed to issue or sell any of its capital stock, options, warrants, rights
or calls to purchase such stock, any securities convertible or exchangeable
into such capital stock or other corporate securities, or effected any
subdivision or other recapitalization affecting its capital stock; (ii)
incurred any material obligation or liability, absolute or contingent, except
those arising in the ordinary and usual course of its business; (iii)
discharged or satisfied any lien or encumbrances, except in the ordinary and
usual course of business, or paid or satisfied any liability, absolute or
contingent, other than liabilities as of the Balance Sheet Date and
liabilities incurred since the Balance Sheet Date in the ordinary and usual
course of business; (iv) made any wage or salary increases or granted any
bonuses other than wage and salary increases and bonuses granted in accordance
with its normal salary increase and bonus policies; (v) mortgaged, pledged or
subjected to any lien or other encumbrance any of its properties or assets, or
permitted any of its property or assets to be subjected to any liens or other
encumbrance, except in the ordinary and usual course of business; (vi) sold,
assigned or transferred any of its properties or assets, except in the
ordinary and usual course of business; (vii) entered into any transaction
except in the ordinary and usual course of business; (viii) waived any rights
of substantial value, or canceled, modified or waived any indebtedness for
borrowed money held by it, except in the ordinary and usual course of
business; (ix) declared, paid or set aside any dividends or other
distributions or payments on its capital stock, or redeemed or repurchased, or
agreed to redeem or repurchase, any Shares of its capital stock; (x) made any
loans or advances to any person, or assumed, guaranteed, endorsed or otherwise
became responsible for the obligations of any person; or (xi) incurred any
indebtedness for borrowed money (except for endorsement, for collection or
deposit of negotiable instruments received in the ordinary and usual course of
business).
4.9 Absence of Undisclosed Liabilities. Except as and to the extent set
forth on Exhibit 4.9, as of the date of Closing, the assets of Buyer are, or
will be unencumbered and subject to no debts, liabilities or obligations
(whether absolute, accrued, contingent or otherwise) of any nature whatsoever,
including, but not limited to, any domestic or foreign tax liabilities or
deferred tax liabilities or any other debts, liabilities or obligations
relating to or arising out of any act, omission, transaction, circumstance,
sale of goods or services, state of facts or other condition which occurred or
existed on or before the date of the Closing, whether or not then known, due
or payable.
4.10 Adverse Developments. Except as otherwise expressly provided or set
forth in, or required by, this Agreement, since the Balance Sheet Date, there
have been no changes in the properties, operations or financial condition of
Buyer, and no event has occurred other than in the ordinary and usual course
of business which could be reasonably expected to have a materially adverse
effect upon the business of Buyer , and Buyer does not know of any development
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or threatened development of a nature that is, or which could be reasonably
expected to have a materially adverse effect upon the business of Buyer or
upon any of its assets or properties, including, without limitation, the loss
of any licenses or permits, suppliers, customers or employees, which loss
would be of a materially adverse nature.
4.11 Taxes. Except as set forth on Exhibit 4.11 specifically provided in the
balance sheet as of June 30, 1998, all taxes affecting the business and assets
of Buyer, including, without limitation, income, property, sales, use,
franchise, excise, added value, employee's income, withholding, social
security and unemployment taxes imposed by the government of the United States
of America or by any other foreign country or by any state, municipality,
subdivision or instrumentality of the United States of America or of any
foreign country, or by any other taxing authority, which are due and payable
by Buyer, and all interest and penalties thereon, whether disputed or not,
have been paid in full, all tax returns required to be filed in connection
therewith have been accurately prepared and duly and timely filed and all
deposits required by law to be made by Buyer with respect to such taxes have
been duly made. Except as set forth in Exhibit 4.11, Buyer has not been
delinquent in the payment of any domestic or foreign tax, assessment or
governmental charge or deposit affecting the assets and business of Buyer, and
Buyer has no tax deficiency or claim outstanding, proposed or assessed against
it, and there is no basis for any such deficiency or claim which may affect
the assets of Buyer.
4.12 Ownership of Assets. Subject to the terms of the Novation Agreement
referred to in Paragraph 3.28, supra, Buyer owns outright, and has good and
remarkable title to all of its assets, properties and business (including all
assets reflected in the financial statements or management accounts provided
by Buyer under this Agreement, except as the same may have been disposed of in
the ordinary course of business since the date of the financial statement or
management accounts), free and clear of all liens, mortgages, pledges,
conditional sales agreements, restrictions on transfer or other encumbrances
or charges, except those listed on Exhibit 4.12. Exhibit 4.12 sets forth a
true and complete list and brief description of all patents, copyrights,
trademarks, trade names and other similar intangible assets which are either
owned by Buyer or in which the Buyer has an interest. Except as set forth in
Exhibit 4.12, to the best of the knowledge of the Buyer no other person, firm
or corporation has any proprietary or other interest in any such intangible
assets. Except as set forth in Exhibit 4.12, to the best of the knowledge of
the Buyer is not a party to or bound by any license or agreement requiring the
payment to any person, firm or corporation of any royalty. Buyer does not
know, or have reasonable grounds to know of, any violation by others of the
trademark, trade name or patent rights of Buyer. To the best of the knowledge
of the Buyer is not infringing upon any patent, copyright, trade name or
trademark or otherwise violating the rights of any third party with respect
thereto, and no proceedings have been instituted or, to the knowledge of Buyer
is threatened, and no claim has been received by Buyer alleging any such
violation.
4.13 Litigation, Compliance with Law. Except as set forth in Exhibit 4.13,
there are no actions, suits, proceedings or governmental investigations
relating to Buyer or to any of its properties, assets or business pending or,
to the knowledge of Buyer , threatened, or any order, injunction, award or
decree outstanding against Buyer or against or relating to any of its
properties, assets or business; and Buyer knows of no basis for any such
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action, suits or proceedings within the past two years or any such
governmental investigation, orders, injunctions or decrees. Buyer is in not
in violation of any law, regulation, ordinance, order, injunction, decree,
award or other requirement of any governmental body, court or arbitrator
relating to its properties, assets or business which could be reasonably
expected to have a materially adverse effect upon the business of Buyer.
4.14 Permits and Licenses. Exhibit 4.14 sets forth all permits, licenses,
orders, franchises and approvals from all federal, state, local and foreign
governmental regulatory bodies held by Buyer. Buyer has all permits, license,
orders, franchises and approvals of all federal, state, local and foreign
governmental or regulatory bodies required of it to carry on its business as
presently conducted. All such permits, licenses, orders, franchises and
approvals are in full force and effect. To the knowledge of Buyer, no
suspension or cancellation of any such permits, licenses, orders, franchises
and approvals is threatened, and Buyer is in compliance in all material
respects with all requirements, standards and procedures of the federal,
state, local and foreign governmental bodies which have issued permits,
licenses, orders, franchises and approvals. Exhibits 4.14 also set forth a
brief description of all motor vehicles owned or leased by Buyer and the state
of title thereof.
4.15 No Breach. Neither the execution and delivery of this Agreement by
Buyer nor compliance by Buyer with any of the provisions hereof nor the
consummation of the transactions contemplated hereby, will:
(a) violate or conflict with any provision of the Articles of Incorporation
or By-Laws of Buyer;
(b) violate, or with notice or the passage of time, result in the material
breach or termination of, or otherwise give any contracting party the right to
terminate, or declare a material default under, the terms of any agreement or
other document or undertaking, oral or written to which Buyer is a party or by
which either its properties or assets may be bound (except for such
violations, conflicts, breaches or defaults as to which required waivers or
consents by other parties have been, or will, prior to the Closing, be,
obtained);
(c) result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of Buyer pursuant to the
terms of any such agreement or instrument;
(d) violate any judgment, order, injunction, decree or award against, or
binding upon, Buyer or upon its properties or assets; or
(e) violate any law or regulation of any jurisdiction relating to Buyer or
any of its securities, assets or properties.
4.16 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on directly between Unico
and Seller and Multiwave without the intervention of any broker, finder,
investment banker or other third party.
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4.17 Untrue or Omitted Facts. No representation or warranty by Buyer
contained in this Agreement, nor any statement or certificate furnished or to
be furnished by Buyer to Seller and Multiwave or its representatives in
connection herewith or pursuant hereto, or any financial statement or document
delivered by Buyer to Seller or Multiwave or its representatives, contains or
at the Closing will contain any untrue statement of a material fact, or omits
to state or will omit to state any material fact required to make the
statements herein or therein contained not misleading or necessary in order to
provide a prospective Sellers of the Shares with adequate information as to
Buyer and its condition (financial and otherwise), and the assets of Buyer and
their condition, and Buyer has disclosed to Seller and Multiwave in writing
all material adverse facts known to them, or any of them, relating to the
same. The representations and warranties contained in this Article 4, or
elsewhere in this Agreement, or any document delivered pursuant to hereto,
shall not be affected or deemed waived by reason of the fact that Seller and
Multiwave or its representatives knew, or should have known, that any such
representation or warranty is or might be inaccurate in any respect.
4.18 Sale of Additional Shares. Buyer represents and warrants that, prior to
Closing, it has not and will not sell any of its Common Stock through a
private or public offering for less than the Weighted Average Price, as
defined herein.
ARTICLE 5
PRE-CLOSING COVENANTS
Buyer, Seller and Multiwave each hereby covenant to the other that, from and
after the date hereof, and until the Closing or earlier termination of this
Agreement:
5.1 Access. It shall afford to the officers, attorneys, accountants and
other authorized representatives of the other free and full access, during
regular business hours and upon reasonable notice, to its books, records,
personnel and properties (including, without limitation, the work papers
prepared by its auditors) so that such other party may have full opportunity
to make such review, examination and investigation as it may desire of its
respective business and affairs. It will cause its employees, accountants and
attorneys to cooperate fully with the review, examination and investigation
and to make full disclosure to the other party of all material facts affecting
their respective financial conditions and business operations. All material
disclosed will be held in strict confidence by the recipient. Any such
furnishing of information to Buyer or any investigation by Buyer shall not
affect Buyer's right to rely on any representations and warranties made by
Seller in this Agreement or in connection herewith or pursuant hereto. Any
such furnishing of information to Seller or any investigation by Seller or any
of them shall not affect Seller's right to rely on any representations and
warranties made by the Buyer in this Agreement or in connection herewith or
pursuant hereto.
5.2 Conduct of Business. Prior to the Closing, Multiwave and Buyer shall
conduct their business and affairs only in the ordinary course and consistent
with their prior practices and shall maintain, keep and preserve their assets
in good condition and repair and maintain insurance thereon in accordance with
present practices, and use their best efforts to preserve their business
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organizations intact to keep available the services of their present officers,
employees and consultants, and to preserve their respective goodwill. Seller
and Multiwave on the one hand, and Buyer on the other hand, shall give the
other prompt written notice of any change in any of the information contained
in the representations and warranties made in Articles 3 and 4 or elsewhere in
this Agreement or the exhibits referred to herein which occurs prior to the
Closing.
5.3 No Breach. It will: (i) use its best efforts to assure that all of its
representations and warranties contained herein are true in all material
respects as at the Closing as if repeated at the Closing; (ii) not voluntarily
take any action or do anything which will cause a breach of or default
respecting such covenants, representations or warranties; and (iii) promptly
notify the other of any event or fact which represents or is likely to cause
such a breach or default.
5.4 No Negotiations. Seller and Multiwave will not enter into or conduct
negotiations, or enter into any agreement or understanding, for the sale or
possible sale of any of Multiwave's securities or assets, with anyone other
than Buyer unless the Closing shall not have occurred by October 30, 1998 or
such extended Closing Date as mutually agreed by Buyer, Seller and Multiwave.
ARTICLE 6
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER TO CLOSE
The obligations of Buyer to enter into and complete the Closing is subject to
the fulfillment, prior to or on the Closing Date, of each of the following
conditions, any one or more of which may be waived by Buyer (except when the
fulfillment of such condition is a requirement of law).
6.1 Representations and warranties. All representations and warranties of
Seller and Multiwave contained in this Agreement and in any written statement
(including financial statements and documents), exhibit, certificate, schedule
or other document delivered or to be delivered pursuant hereto or in
connection with the transactions contemplated hereby shall be true and correct
in all material respects as at the Closing Date, as if made at the Closing and
as of the Closing Date.
6.2 Covenants. Seller and Multiwave shall have performed and complied in
all material respects with all covenants and agreements required by this
Agreement to be performed or complied with by it prior to or at the Closing.
6.3 No Actions. No action, suit, proceeding or investigation shall have
been instituted, and be continuing before a court or before or by a
governmental body or agency, and be unresolved, to restrain or to prevent or
to obtain damages in respect of, the carrying out of the transactions
contemplated hereby, or which might materially affect the right of Buyer to
own the Shares or to operate or control the assets, properties and business of
Multiwave after the Closing Date, or which might have a materially adverse
effect thereon.
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6.4 Consents, Licenses and Permits. Seller and Multiwave shall have
obtained all consents, licenses and permits of third parties necessary for the
performance by it of all of its obligations under this Agreement, and such
other consents, if any, to prevent: (i) agreements of Multiwave from
terminating, the termination of which, in the aggregate, would have a material
adverse effect on the business, financial condition or assets of Multiwave; or
(ii) any material indebtedness of Multiwave from becoming due or being subject
to becoming due with the passage of time or on notice as a result of the
performance of this Agreement, any other provisions of this Agreement to the
contrary notwithstanding.
6.5 Certificate. Buyer shall have received a certificate dated the Closing
Date, signed by an authorized officer or agent of Uraco, and NEL, and by Dr.
Soo, James Tan and any other selling Shareholder as to the satisfaction of the
conditions contained in Sections 6.1, 6.2, 6.3, 6.4 and 6.6.
6.6 No Material Adverse Change. There shall have been no material adverse
change at the Closing Date in the business, assets and properties, financial
status or prospects of Multiwave since June 30, 1998.
6.7 Documents. All documents required to be delivered to Buyer at or prior
to the Closing shall have been so delivered.
ARTICLE 7
CONDITIONS PRECEDENT TO THE OBLIGATION OF
SELLER TO CLOSE
The obligation of Seller to enter into and complete the Closing is subject to
the fulfillment, prior to or on the Closing Date, of each of the following
conditions, any one or more of which may be waived by Seller (except when the
fulfillment of such condition is a requirement of law).
7.1 Representations and warranties. All representations and warranties of
Buyer contained in this Agreement and in any written statement, schedule or
other document delivered pursuant hereto or in connection with the
transactions contemplated hereby shall be true and correct in all material
respects as at the Closing Date, as if made at the Closing and as of the
Closing Date.
7.2 Covenants. Buyer shall have performed and complied in all material
respects with all covenants and agreements required by this Agreement to be
performed or complied with by it prior to or at the Closing.
7.3 No Actions. No action suit, proceedings, or investigation shall have
been instituted, and be continuing, before a court or before or by a
governmental body or agency, or have been threatened, and be unresolved, to
restrain or prevent, or obtain damages in respect of, the carrying out of the
transactions contemplated hereby.
7.4 Consents, Licenses and Permits. Buyer shall have obtained all consents,
licenses and permits of third parties necessary for the performance by Buyer
of all of its obligations under this Agreement, and such other consents, if
any, to prevent; (i) agreements of Buyer from terminating, the termination of
which, in the aggregate, would have a material adverse effect on the business,
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financial condition or assets of Buyer , or (ii) any material indebtedness of
Buyer from becoming due or being subject to becoming due with the passage of
time or on notice as a result of the performance of this Agreement, any other
provisions of this Agreement to the contrary notwithstanding.
7.5 Certificate. Seller shall have received a certificate of Buyer, dated
the Closing Date, signed by the President and Secretary of Buyer as to the
satisfaction of the conditions contained in Sections 7.1, 7.2, 7.3 and 7.4 and
7.6.
7.6 No Material Adverse Change. There shall have been no material adverse
change at the Closing Date in the business, assets and properties, financial
status or prospects of Buyer since the Balance Sheet Date.
7.7 Documents. All documents required to be delivered to Seller at or prior
to the Closing shall have been so delivered.
ARTICLE 8
CLOSING
8.1 Time and Location. The Closing provided for herein shall take place at
the offices of Kristin M. Cano, 1 Corporate Plaza, Newport Beach, California
on the 30th of November, 1998, or at such other time and place as may be
mutually agreed to by the parties hereto. Such date is referred to in this
Agreement as the "Closing Date".
8.2 Items to be Delivered by Seller. At the Closing, Seller will deliver or
cause to be delivered to Buyer:
(a) Certificates representing the Shares in accordance with Section 1.1
hereof, accompanied by all instruments and documents as in the opinion of
Buyer's counsel, shall be necessary to effect the transfer of and to vest
title in and to the Shares in Buyer , free and clear of all manner of liens,
pledges, encumbrances, charges and claims thereon;
(b) The certificate required by Section 6.5;
(c) Such other certified resolutions, documents and certificates as are
required to be delivered by Seller and Buyer pursuant to the provisions of
this Agreement.
(d) All of Multiwave's corporate documents and records.
8.3 Items to be Delivered by Buyer . At the Closing, Buyer will deliver or
cause to be delivered to Seller:
(a) The certificate required by Sections 7.5;
(b) Such other certified resolutions, documents and certificates as are
required to be delivered by Buyer pursuant to the provisions of this
Agreement.
(c) The common stock certificates of Buyer to be delivered under Section
1.3.
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8.4 Additional Documentation. Both Seller and Multiwave, on the one hand,
and Buyer on the other hand, at any time before or after the Closing, will
execute, acknowledge and deliver any further documents reasonably requested by
the other, and will take any other action consistent with the terms of this
Agreement that may reasonably be requested by the other.
ARTICLE 9
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
9.1 Survival. Each statement, representation, warranty, indemnity, covenant
and agreement made by Seller or Multiwave in this Agreement or in any
document, certificate or other instrument delivered by or on behalf of Seller
or Multiwave pursuant to this Agreement or in connection herewith shall be
deemed several statement, representation, warranty, indemnity, covenant and
agreement of each of NEL, Uraco, Dr. Soo and James and Multiwave. All
statements, representations, warranties, indemnities, covenants and agreements
made by each of the parties to this Agreement shall survive the Closing for a
term of one year with the exception of those regarding taxes which shall
survive until the expiration of the respective periods within which such taxes
may be assessed.
9.2 Seller's Indemnification.
Each of NEL, Uraco, Dr. Soo and James and Multiwave, severally, hereby
indemnify in proportion of their shareholding held in Multiwave in relation to
the total issued share capital of Multiwave as at the date of this Agreement
and agree to hold Buyer harmless from and defend Buyer against and in respect
of (and shall on demand reimburse Buyer for):
(i) any and all losses, liabilities, costs (including without limitation
attorneys' fees) or damages incurred or suffered by the Buyer resulting from
any untrue representation, breach of warranty, or nonfulfillment of any
covenant by Seller or Multiwave contained herein or in any certificate,
document or instrument delivered to Buyer pursuant hereto or in connection
herewith;
(ii) any and all losses, liabilities, costs (including without limitation
attorneys' fees and costs) or damages suffered or incurred by Buyer in respect
of or in connection with any liabilities of Seller or Multiwave not expressly
assumed by Buyer hereunder;
(iii) any and all losses, liabilities, costs (including without limitation
attorneys' fees and costs) or damages suffered or incurred by Buyer by reason
of or in connection with any claim for a finder's fee or brokerage or other
commission arising by reason of any services alleged to have been rendered to
or at the instance of Seller or Multiwave with respect to this Agreement or
any of the transactions contemplated hereby; and
(iv) any and all actions, suits, proceedings, claims, demands, assessments,
judgments, costs and expenses (including without limitation attorneys' fees
and costs) incident to any of the foregoing or incurred in investigating or
attempting to avoid the same or to oppose the imposition thereof, or in
enforcing this indemnity.
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9.3 Liability Limitation. The provisions of this Section 9.3 shall operate
to limit the liability of each of Uraco, NEL, Dr Soo and James under or in
connection with all claims made by the Buyer under Sections 3 and 9.2. The
Buyer, Multiwave and the Seller each agree as follows:
(i) the representations and warranties given or made by Uraco and NEL under
Section 3 are in respect of matters arising on and from [date they became
shareholders] to the Closing Date (the "Uraco/NEL Warranty Period") and no
warranty is hereby given and no representation is hereby made by either Uraco
or NEL in relation to any matter or event concerning Multiwave which arose or
occurred prior to April 1, 1997. Accordingly, any claim against Uraco and/or
NEL shall be in respect of any matters relating to Multiwave during the
Uraco/NEL Warranty Period;
(ii) the liability of Uraco in respect of any claim shall not exceed 45.45%
of the amount payable to the Buyer in respect of such claim and the liability
of NEL in respect of any claim shall not exceed 45.45% of the amount payable
to the Buyer in respect of such claim; and
(iii) the total liability of each of Uraco, NEL, James and Dr. Soo arising
by reason of any and all claims asserted by the Buyer under section 9.2 shall
not exceed the total consideration paid by the Buyer to them pursuant to
Section 14.
9.4 Buyer's Indemnification.
Buyer hereby agrees to indemnify and hold Seller and Multiwave, and each of
them, harmless from, against and in respect of (and shall on demand reimburse
them for):
(i) Any and all losses, liabilities, costs (including without limitation
attorneys' fees and costs) or damages resulting from any untrue
representation, breach of warranty or non-fulfillment of any covenant or
agreement by Buyer contained herein or in any certificate, document or
instrument delivered to Seller hereunder or in connection herewith;
(ii) Any and all liabilities, costs (including without limitation attorneys'
fees and costs) or obligations of Seller specifically assumed by Buyer
pursuant to this Agreement; and
(iii) Any and all actions, suits, proceedings, claims, demands,
assessments,
judgments, costs and expenses (including without limitation attorney's fees
and costs) incident to any of the foregoing or incurred in investigating or
attempting to avoid the same or to oppose the imposition thereof, or in
enforcing this indemnity.
(iv) any and all actions, suits, proceedings, claims, demands, assessments,
judgements, costs and expenses (including without limitation attorneys' fees
and costs) incident to any of the foregoing or incurred in investigating or
attempting to avoid the same or to oppose the imposition thereof, or in
enforcing this indemnity.
9.5 Defense of Claims. An indemnified party shall notify the indemnifying
party with reasonable promptness of any claim asserted against it in respect
of which the indemnifying party may be liable under this Agreement, which
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notification shall be accompanied by a written statement setting forth the
basis of such claim and the manner of calculation thereof. The indemnifying
party shall have the right to defend any such claim at its own expense and
with counsel of its choice, provided, however, that such counsel shall have
been approved by the indemnified party prior to engagement, which approval
shall not be unreasonably withheld or delayed, and provided further that the
indemnified party may participate in such defense, if it so chooses, with its
own counsel and at its own expense.
9.6 Rights Without Prejudice. The rights of Buyer and Seller under this
Article 9 are without prejudice to any other rights or remedies that either
may have by reason of this Agreement or as otherwise provided by law.
ARTICLE 10
TERMINATION AND WAIVER
10.1 Termination. Anything herein or elsewhere to the contrary
notwithstanding, this Agreement may be terminated and the transactions
provided for herein abandoned at any time prior the Closing Date:
(a) By mutual consent of the Board of Directors of Buyer and Seller;
(b) By Buyer, if Buyer fails to obtain shareholder approval, if required by
law or NASDAQ rules.
(c) By Buyer if any of the conditions set forth in Article 6 shall not have
been fulfilled on or prior to the Closing Date, or shall become incapable of
fulfillment at any time, and shall not have been waived;
(d) By Seller if any of the conditions set forth in Article 7 shall not have
been fulfilled on or prior to the Closing Date, or shall have become incapable
of fulfillment at any time, and shall not have been waived;
(e) By Seller, or any of them, or Buyer if any material legal action or
proceedings shall have been instituted or threatened seeking to restrain,
prohibit, invalidate or otherwise affect the consummation of the transactions
contemplated by this Agreement which makes it inadvisable, in the judgment of
Seller or Buyer , to consummate same.
(f) By Buyer or Seller (acting by a majority by reference to the total
shareholdings in Multiwave as at the date of this Agreement) if either is not
satisfied with the Exhibits delivered to them pursuant to Paragraph 11.8.
In the event that the Agreement is terminated as described above, this
Agreement shall be void and of no force and effect, without any liability or
obligation on the part of any of the parties hereto.
10.2 Waiver. Any condition to the performance of either party which legally
may be waived on or prior to the Closing Date may be waived at any time by the
party entitled to the benefit thereof by action taken or authorized by an
instrument in writing executed by the relevant party. The failure of any
party at any time or times to require performance of any provision hereto
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shall in no manner effect the right of such party at a later time to enforce
the same. No waiver by any party of the breach of any term, covenant,
representation or warranty contained in this Agreement shall release or affect
any liability resulting from such breach, and no waiver of any nature, whether
by conduct or otherwise, in any one or more instances, shall be deemed to be
or construed as a further or continuing waiver of any such condition or of any
breach of any other term, covenant, representation or warranty of this
Agreement.
ARTICLE 11
MISCELLANEOUS PROVISIONS
11.1 Expenses. Each of the parties hereto shall bear its own expenses in
connection herewith.
11.2 Confidential Information. Each party agrees that such party and its
representatives will hold in strict confidence all information and documents
received from the other parties and, if the transactions herein contemplated
shall not be consummated, each party will continue to hold such information
and documents in strict confidence and will return to such other party all
such documents (including the documents annexed to this Agreement) then in
such receiving party's possession without retaining copies thereof; provided,
however, that each party's obligations under this Section 11.2 to maintain
such confidentiality shall not apply to any information or documents that are
in the public domain at the time furnished by the others or that become in the
public domain thereafter through any means other than as a result of any act
of the receiving party or of its agents, officers, directors or shareholders
which constitutes a breach of this Agreement, or that are required by
applicable law to be disclosed.
11.3 Modification, Termination or Waiver. This Agreement may be amended,
modified, superseded or terminated, and any of the terms, covenants,
representations, warranties or conditions hereof may be waived, but only by a
written instrument executed by the party waiving compliance. The failure of
any party at anytime or times to require performance of any provision hereof
shall in no manner affect the right of such party at a later time to enforce
the same.
11.4 Publicity. The parties agree that no publicity release or other public
announcement concerning the transactions contemplated by this Agreement shall
be issued by either party without the advance approval of both the form and
substance of the same by the other party and its counsel, which approval, in
the case of any publicity, release or other public announcement required by
applicable law, shall not be unreasonably withheld or delayed.
11.5 Notices. Any notice or other communication required or which may be
given hereunder shall be in writing and either be delivered personally or by
an American international overnight delivery service as follows:
If to Buyer, to:
John Hwang, President
Unico, Inc.
2925 Bayview Drive
Fremont, CA 94538
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With a copy to:
Kristin M. Cano
Law Offices of Kristin M. Cano
1 Corporate Plaza
Newport Beach, CA 92660
and if to Seller, to:
Tan Meng Dong James
Multiwave Innovations Pte Ltd.
25 Serangoon North Avenue 5,
6th Floor, Uraco Building
Singapore 554914
With a copy to:
Dilhan Pillay
Wong Partnership
80 Raffles Place #58-01
UOB Plaza 1
Singapore 048624
The parties may change the persons and addresses to which the notices or other
communications are to be sent by giving written notices of any such change in
the manner provided herein for giving notice.
11.6 Binding Effect and Assignment. This Agreement shall be binding upon and
inure to the benefit of the successors and assigns of the parties hereto;
provided, however, that no assignment of any rights or delegation of any
obligations provided for herein may be made by any party without the express
consent of the other parties.
11.7 Entire Agreement. This Agreement contains the entire agreement between
the parties with respect to the subject matter hereof.
11.8 Exhibits. All exhibits annexed hereto and the documents and instruments
referred to herein shall be delivered at the Closing are expressly made a part
of this Agreement as fully as though completely set forth herein, and all
references to this Agreement herein or in any of such exhibits, documents or
instruments shall be deemed to refer to and include all such exhibits,
documents and instruments. Multiwave will forward complete sets of all
Exhibits in this Agreement to each of Unico, Uraco and NEL not later than 14
days before Closing for their review. In the event that either of Unico or the
Sellers (acting by a majority by reference to their shareholdings in Multiwave
as at the date of this Agreement) are not satisfied with the exhibits or any
of their respective contents, they may elect to terminate this Agreement with
immediate effect, without any liability or obligation and upon such
termination, this Agreement shall ipso facto cease and be of no effect and no
party shall have any claim against any of the parties for anything whatsoever.
11.9 Governing Law/Attorneys' Fees/Venue. This Agreement shall be governed
by and construed in accordance with the laws of the United States and the laws
of the State of California applicable to agreements made and to be performed
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entirely within that state, excluding the choice of law rules thereof. Venue
in any action arising out under this Agreement shall be in the state and
federal courts in Orange County, California. Each of the parties expressly
consents to the personal jurisdiction over it/him by a court sitting in Orange
County, California. In any action arising under this Agreement, the
prevailing party shall be entitled to recover reasonable attorney's fees.
11.10 Section Headings. The section headings contained in this Agreement
are
inserted for convenience of reference only and shall not affect the meaning or
interpretation of this Agreement.
11.11 Cooperation. Each party hereto shall cooperate, shall take such
further
action and shall execute and deliver such further documents as may be
reasonably requested by the other party in order to carry out the provisions
and purposes of this Agreement.
11.12 Counterparts. This Agreement may be executed in one or more
counterparts. Facsimile copies shall have the same force and effect as
originals.
WITNESS the execution of this Agreement as of the date first above written.
UNICO, INC. URACO HOLDINGS, LTD.
By /s/ John Hwang By /s/ Philip Tan
John Hwang, President Philip Tan, Director
NATSTEEL ELECTRONICS, LTD. MULTIWAVE INNOVATION PTE, LTD.
By /s/ Chay Yee Meng By /s/ James Tan
Tan Meng Dong James
/s/ Dr. Soo Jia Sian /s/ James Tan
Dr. Soo Jia Sian, individually Tan Meng Dong James, individually
Exhibit 1.4
Proportion of Proportion of
Name of Seller Buyer's Stock Base Purchase Price
-------------- ------------- -------------------
Uraco Holdings Ltd. 67.27% US$ 3,363,500
NatSteel Electronics Ltd. 27.27 1,363,500
James Tan Meng Dong 3.33 166,500
Dr. Soo Jia Sian 2.13 106,500
-------------- ------------- -------------------
TOTAL 100.00% US$ 5,000,000
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UNICO, INC.
SCHEDULE 14A
APPENDIX I
AUDITED FINANCIAL STATEMENTS
AT FEBRUARY 28, 1998 OF
OLD UNICO (UNICO, INC. PRIOR TO THE JUNE 30, 1998 ACQUISITION)
Report of Independent Auditors
Stockholders and Board of Directors
Unico, Inc.
We have audited the accompanying consolidated balance sheets of Unico, Inc.
and subsidiaries as of February 28, 1998 and 1997, and the related
consolidated statements of operations, changes in stockholders' equity, and
cash flows for each of the three years in the period ended February 28,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted accounting
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Unico,
Inc. and subsidiaries as of February 28, 1998 and 1997, and the
consolidated results of operations and cash flows for each of the three
years in the period ended February 28, 1998, in conformity with generally
accepted accounting principles.
Atkinson & Co., Ltd.
Albuquerque, New Mexico
May 14, 1998 (Except Note Q, for which the date is June 11, 1998)
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<PAGE>
<TABLE>
<CAPTION>
UNICO, INC.
Consolidated Balance Sheets
February 28, February 28,
1998 1997
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,236,506 $ 349,055
Accounts receivable - Note B 22,059 114,685
Accounts and accrued interest receivable
from related parties - Note H 2,390 7,899
Inventories 20,861 20,861
Income tax refund receivable 6,567 340,298
Notes receivable from related parties - Note H 102,026 310,200
TOTAL CURRENT ASSETS 1,390,409 1,142,998
PROPERTY, PLANT AND EQUIPMENT, at cost - Note E
Land, buildings and improvements 434,327 434,327
Equipment 164,930 164,930
Crude oil refining equipment 1,183,333 1,183,333
Co-generation facilities - Note D 290,298 290,298
Oil and gas properties, (successful efforts
method) - Notes L and M 894,400 894,400
2,967,288 2,967,288
Less accumulated depletion and depreciation (1,960,679) (1,828,936)
1,006,609 1,138,352
OTHER ASSETS
Notes receivable - Note B 8,383 9,318
Investment in partnership - Note N - 134,663
Investment in Chatfield Dean - Note O 600,500 600,000
Other assets and deferred charges,
net - Note C 167,866 152,359
776,749 896,340
$ 3,173,767 $ 3,177,690
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Consolidated Balance Sheets, Continued
February 28, February 28,
1998 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 62,553 $ 87,033
Taxes other than income taxes 9,156 2,566
Other accrued expenses - 3,115
Income taxes payable - Note G 25,024 -
Current portion of convertible subordinated
debentures payable to related parties
- Notes F and H - 178,000
Current portion of long-term debt - Note E - 8,892
TOTAL CURRENT LIABILITIES 96,733 279,606
LONG-TERM DEBT, net of current portion - Note E - 9,727
DEFERRED TAXES PAYABLE - Note G 58,250 85,800
COMMITMENTS AND CONTINGENCIES - Note I - -
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value,
authorized 8,000,000 shares, none
outstanding
Common stock, $0.20 par value,
authorized 2,500,000 shares,
issued and outstanding 1,129,308
shares in 1998 and 986,590 in 1997
- Notes A and F 225,862 197,318
Additional paid in capital - Notes A and F 2,213,837 2,042,576
Less: Treasury stock 3,699 shares in 1998 (9,016) -
Retained earnings 588,101 562,663
3,018,784 2,802,557
$ 3,173,767 $ 3,177,690
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
UNICO, INC.
Consolidated Statements of Operations
For the year ended
Feb 28, 98 Feb 28, 97 Feb 29, 96
<S> <C> <C> <C>
REVENUES
Natural gas sales $ 216,137 $ 244,666 $ 140,794
Electrical capacity and energy - 214,697 666,345
Processing and terminalling agreements - - 59,944
Petroleum product sales - 478,662 468,491
COTI commissions - - 116,051
Rent and other income 20,125 12,947 14,468
236,262 950,972 1,466,093
COSTS AND EXPENSES
Cost of sales 101,787 676,637 1,478,679
General and administrative 318,451 293,484 293,252
Depletion, depreciation & amortization 131,743 135,340 140,483
Interest, net (27,792) 6,883 (5,991)
524,189 1,112,344 1,906,423
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (287,927) (161,372) (440,330)
Provision (benefit) for income taxes - Note G
Current (80,499) (39,132) (142,227)
Deferred (15,700) (16,100) (10,800)
(96,199) (55,232) (153,027)
NET INCOME (LOSS) FROM
CONTINUING OPERATIONS (191,728) (106,140) (287,303)
DISCONTINUED OPERATIONS
Income from operations related to the investment
in IC Partners, Ltd. (Less applicable income
taxes of $80,384, $(263,574), and $527,953
for 1998, 1997, and 1996
respectively-Note N 264,732 (619,436) 829,219
Loss on disposal of investment in IC
Partners, Ltd.(Less applicable income
tax credit of $(14,443)-Note N (47,566) - -
NET INCOME (LOSS) $ 25,438 $ (725,576) $ 541,916
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 986,413 986,590 986,590
BASIC AND FULLY DILUTED EARNINGS PER SHARE
Net income (loss) from continuing
operations $ (0.19) $ (0.11) $ (0.29)
Net income (loss) from discontinued
operations 0.22 (0.63) 0.84
Net income (loss) per share $ 0.03 $ (0.74) $ 0.55
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<TABLE>
<CAPTION>
UNICO, INC.
Consolidated Statements of Cash Flows
For the year ended
February 28, February 28, February 29,
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 25,438 $ (725,576) $ 541,916
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation, depletion and
amortization 131,743 135,340 140,483
Deferred income taxes (27,550) (15,250) 150
Dry hole costs - - 28,310
Conversion of interest on
debentures to common stock 18,690 - -
(Income) loss on investment in
partnership (44,121) 1,347,238 (1,029,736)
Changes in operating assets
and liabilities:
(Increase) decrease in accounts
receivable 98,135 (16,333) 99,913
Decrease in inventories - 15,455 46,797
Increase (decrease) in accounts
payable and accrued expenses (17,890) (22,606) 663
Decrease in refundable deposits 2,541 1,720 -
Increase (decrease) in income taxes
accrued/receivable 358,755 (707,449) 127,195
NET CASH FLOW (USED) BY
OPERATING ACTIVITIES 545,741 12,539 (44,309)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment - (26,950) -
Increase in cash value of life
insurance polices (18,048) (22,455) (23,015)
Increase in certificates of deposit and
short-term investments - (6,616) (52,309)
Decrease in certificates of deposit and
short-term investments - 128,474 -
Redemption of certificates of deposit - 235,000 -
Cash distributions from partnership 178,784 318,829 417,554
Investment in Chatfield Dean (500) (100,000) (500,000)
Issuance of notes receivable (416,300) (310,200) (350,000)
Collections of notes receivable 625,409 1,500 355,500
NET CASH FLOW PROVIDED (USED) BY
INVESTING ACTIVITIES 369,345 217,582 (152,270)
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<PAGE>
UNICO, INC.
Consolidated Statements of Cash Flows (Continued)
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock (9,016) - -
Proceeds from issuing long-term debt - 26,950 -
Payments on long-term debt (18,619) (140,425) (86,207)
NET CASH FLOW (USED) BY
FINANCING ACTIVITIES (27,635) (113,475) (86,207)
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 887,451 116,646 (282,786)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 349,055 232,409 515,195
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 1,236,506 $ 349,055 $ 232,409
<FN>
The Company paid interest of approximately $1,600, $29,000, and $36,600 in
1998, 1997 and 1996, respectively.
The Company paid income taxes of $200 in 1998, $406,981 in 1997, and $251,000
in 1996 and received a refund of income taxes of $362,300 in 1998, $1,300 in
1997, and $3,400 in 1996.
Supplemental Schedule of Noncash Financing Activities:
The Company converted $178,000 of debentures to common stock on February 28,
1998.
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<TABLE>
<CAPTION>
UNICO, INC.
Consolidated Statements of Changes
in Stockholders' Equity
Additional
Total
Common Stock Paid In
Retained Treasury Stockholders'
Shares Par value Capital
Earnings Stock Equity
<S> <C> <C> <C>
<C> <C> <C>
BALANCE, February 28, 1995 986,590 $ 197,318 $ 2,042,576
$ 746,323 $ - $ 2,986,217
Net income - - -
541,916 - 541,916
BALANCE, February 29, 1996 986,590 197,318 2,042,576
1,288,239 - 3,528,133
Net loss - - -
(725,576) - (725,576)
BALANCE, February 28, 1997 986,590 197,318 2,042,576
562,663 - 2,802,557
Conversion of debentures 142,718 28,544 171,261
- - - 199,805
Purchase of treasury stock - - -
- - (9,016) (9,016)
Net income - - -
25,438 - 25,438
BALANCE, February 28, 1998 1,129,308 $ 225,862 $ 2,213,837
$ 588,101 $ (9,016) $ 3,018,784
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
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UNICO, INC.
Notes to Consolidated Financial Statements
February 28, 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activity: The Company operates a petroleum products refinery and a
3,000 kilowatt co-generation facility. The Company owns an interest in certain
natural gas producing properties located in southwestern Kansas and is the
operator of the properties. Until September 1, 1997, the Company was the
general
partner and a limited partner of a partnership which is engaged in the
operation
of a 250 ton per day methanol production facility in Commerce City, Colorado.
Effective as of September 1, 1997, the Company sold its interest in the
partnership and operating results related to this activity are reported as
discontinued operations for all years presented.
The Company's financial statements for the year ended February 28, 1998 have
been prepared on a going concern basis which contemplates the realization of
assets and the settlement of liabilities and commitments in the normal course
of business. The Company incurred a net loss of $725,576 for the year ended
February 28, 1997 and incurred a loss from continuing operations of $191,728
for
the year ended February 28, 1998, and several of the Company's revenue sources
have substantially declined over the past two years. Management recognizes
that the Company must generate additional resources to replace its existing
depleting revenue base. The Company has positive working capital and positive
stockholders' equity at February 28, 1998. The Company also has no debt
service
requirements at February 28, 1998. The Company's current declining revenue
stream would allow the Company to sustain operations on an ongoing basis for
at
least the next fiscal year. Management's plans to enhance its revenue base
include consideration of the sale of its refinery in Fredonia, Arizona, with a
possible continued equity participation, acquisition of additional refinery
equipment in other locations through a private placement offering, or other
business transactions which would generate sufficient resources to assure
continuation of the Company's operations. See Also Note Q.
Basis of Presentation: The accompanying consolidated financial statements
include the operations of Unico's wholly-owned subsidiaries, Intermountain
Refining Co., Inc. ("IRC"), Intermountain Chemical, Inc., ("IC") and Gas
Technologies Group, Inc., ("GTGI"). All significant intercompany accounts
and transactions have been eliminated. The operations of IC and GTGI were
liquidated into the Company on February 28, 1998. See also Note N.
Cash and Cash Equivalents: For purposes of reporting cash flows, cash and
cash equivalents include cash on hand, cash in depository institutions, and
interest bearing over-night cash investments. The Company maintains its
cash balances and certificates of deposit in various local financial
institutions. The balances maintained are in excess of the maximum
insurance provided by the Federal Deposit Insurance Corporation.
Inventories: Raw materials, refined products, materials, and supplies
inventories of IRC are stated at the lower of cost (first-in, first-out) or
market.
Property, Plant and Equipment: Property, plant and equipment is stated at
cost. Depreciation of property and equipment is provided on the straight-
line method over the following useful lives:
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Buildings 15-20
Equipment 3-20
Crude Oil Refining Equipment 5-20
Co-generation Facilities 5-15
Maintenance, repairs and renewals which neither materially add to the value of
the property nor appreciably prolong its life are charged to expense as
incurred. Electrical generator repair expenses are accrued based on machine
hours utilized. Actual repair costs are charged against the accrued liability
when incurred. Gains or losses on disposition of property are included in
results of operations.
Long-lived assets to be held and used are reviewed for impairment whenever
events or changes in circumstances indicate that the related carrying amount
may
not be recoverable. When required, impairment losses on assets to be held are
recognized based on the excess of the assets carrying amount and fair value of
the asset and long-lived assets to be disposed of are reported at the lower of
carrying amount or fair value less cost to sell.
Investment in Partnership and Chatfield Dean: The investment in IC Partners
Limited Partnership has been accounted for under the equity method. The
Company's share of the results of operations of the Partnership, are reflected
in discontinued operations of the Company. Cash distributions from the
Partnership have been reflected as a reduction of the investment in the
Partnership. Summarized financial information for IC Partners Limited
Partnership has been presented in Note N to these financial statements. The
Company sold its interest in the partnership effective as of September 1,
1997.
The investment in Chatfield Dean is reported at cost and is discussed in Note
O
to these financial statements.
Oil and Gas Properties: The successful efforts method of accounting for the
acquisition, exploration, development and production of oil and gas properties
is utilized. Costs of acquiring undeveloped oil and gas leases are
capitalized.
All development costs of proved properties are capitalized as incurred and all
exploration costs are expensed. The capitalized costs of oil and gas wells and
related equipment are amortized by the units-of-production method based on the
estimated proved oil and gas reserves.
Income Taxes: Deferred income taxes are provided on temporary differences
arising primarily from the use of straight-line depreciation for financial
reporting purposes and accelerated depreciation on certain assets for income
tax
purposes. The Company files a consolidated income tax return with its wholly-
owned subsidiaries. Taxes are allocated to each subsidiary as if separate
returns are filed. Investment tax credits are accounted for on the
flow-through
method.
Earnings Per Share: Income (loss) per share is based on the weighted average
number of common shares outstanding during each period. Stock warrants are not
included in fully diluted earnings per share because they are antidilutive.
The
assumed conversion of subordinated debentures into common stock prior to their
conversion in 1998 were not included in fully diluted earnings per share
because
they were antidilutive.
Reclassifications: Certain reclassifications have been made to the 1997 and
1996 financial statements to conform with the 1998 presentation.
Estimates: The preparation of financial statements in conformity with
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generally accepted accounting principles requires management to make
estimates and assumptions that effect certain reported amounts and
disclosures. Accordingly, actual results could differ from those estimates.
Fair Value of Financial Instruments: The carrying amount of cash and cash
equivalents, accounts receivable, accounts payable, and accrued expenses
approximate fair value because of the short maturity of these amounts. The
carrying amount of the Company's notes receivable, long-term debt and
debentures approximate fair value because the interest rates are at or near
market value.
NOTE B - ACCOUNTS AND NOTES RECEIVABLE
Accounts receivable consists of amounts due from customers for sales of
petroleum products, natural gas, and electrical energy and capacity. Such
credit sales are generally made on terms ranging from net 10 days to net 30
days in accordance with normal industry practice. The Company performs
periodic credit evaluations of its customers' financial condition and
generally does not require collateral. Management does not believe that an
allowance for bad debts on accounts receivable is necessary.
Notes receivable consists of a note to a related party for $102,026 (See
Note H), and a $8,383 note, due in monthly installments through 2000,
secured by various collateral including real estate and equipment. The
Company uses the specific write-off method of accounting for bad debts.
NOTE C - OTHER ASSETS AND DEFERRED CHARGES
Other assets and deferred charges consist of the following:
February 28, February 28,
1998 1997
Cash value of life insurance contracts $ 167,591 $ 149,543
Utility and license deposits 275 2,816
$ 167,866 $ 152,359
NOTE D - CO-GENERATION FACILITIES
IRC installed energy co-generation facilities at its refinery and commenced
operations of the co-generation equipment in February 1986. The co-
generation facilities and certain ancillary equipment had been acquired
under an operating lease with the manufacturer of the equipment. In
January 1993, the original lease of the co-generation facilities expired
and a new operating lease was negotiated. The new lease had a term of
three years with fixed monthly lease payments of $7,300. As of February
29, 1996, the lease had expired and continued on a month to month basis
pending re-negotiation of the lease. In April 1996, the Company acquired
the generators from the lessor for $26,950.
In conjunction with the operation of the co-generation facilities, IRC had
entered into an agreement with a local utility company for the sale of
electrical capacity and energy. The agreement was terminated in 1997.
Revenues from the sale of electrical generating capacity and energy were
approximately $0 in 1998, $215,000 in 1997, and $666,000 in 1996, and
rental expense under the operating lease was approximately $7,300 in 1997,
and $88,000 in 1996.
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NOTE E - LONG-TERM DEBT
Long-term debt consists of the following:
February 28, February 28,
1998 1997
Note payable to Caterpillar Financial
Services, fixed rate of 9%, due in monthly
installments of $851 per month through
03/01/99. Secured by co-generation equipment
with a book value of $23,000 as of February
28, 1998. This note was fully retired
during 1998. $ - $ 18,619
- 18,619
Less current portion - (8,892)
$ - $ 9,727
NOTE F - CONVERTIBLE SUBORDINATED DEBENTURES
The Company had $178,000 of four year 10.5% subordinated convertible
debentures issued to related parties which were originally issued in
September 1986. The maturity date of the debentures had been extended on
several occasions by mutual agreement of the parties. Effective February
28, 1998, the Company accepted an offer by the holder of the debentures to
convert all of the debentures, along with the accrued interest thereon,
into 142,718 shares of common stock. The conversion price accepted in the
offer was $1.40 per share compared to the original conversation price of
$8.00 per share.
In addition to the conversion of the debentures, the Company reduced the
exercise price on 11,125 warrants attached to the debentures from $5.00 per
share to $1.40 per share and extended the expiration date of the warrants
to December 31, 1999.
Interest expense related to these debentures was approximately $18,700 in
1998, $18,700 in 1997, and $18,700 in 1996.
NOTE G - INCOME TAXES
Income tax expense (benefit) from continuing operations differs from income
tax at the statutory rate of 34% as follows:
February 28,February 28,February 29,
1998 1997 1996
Income taxes at statutory rate (34)% (34)% (34)%
State income taxes - 3 % (5)%
Other (net) 1 % (3)% 4 %
Income tax expense (benefit) (33)% (34)% (35)%
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Income tax expense (benefit) for the periods ended February 28, 1998,
February 28, 1997 and February 29, 1996 consists of the following:
Continuing Operations: 1998 1997 1996
Current
Federal $ (81,536) $ (44,082) $(119,724)
State 1,037 4,950 (22,503)
Deferred
Federal (15,700) (16,100) (10,800)
State - - -
Total taxes continuing operations $ (96,199) $ (55,232) $(153,027)
Discontinued Operations:
Current
Federal 77,791 $(264,424) $ 456,390
State - - 60,613
Deferred
Federal (11,850) 850 10,950
State - - -
Total taxes discontinued operations $ 65,941 $(263,574) $ 527,953
As of February 28, 1998, there were no net operating loss carry forwards or
unused investment tax credit carry forwards for Federal income tax
purposes. As of February 28, 1998 there were approximately $1,163,000 in
operating loss carry forwards for state income tax purposes which expire in
4 to 15 years depending on the State to which the carry forwards are
allocated. No deferred tax assets have been provided for on the state
carryforwards as the realization of those carryforwards is uncertain.
Deferred taxes payable as of February 28, 1998 and February 28, 1997
consist of the following:
1998 1997
Deferred tax liability arising from
using accelerated depreciation
for income tax purposes $ 58,250 $ 73,950
Deferred tax liability arising from
basis differences in investment in partnership
for financial and tax reporting purposes - 11,850
Deferred taxes payable $ 58,250 $ 85,800
NOTE H - RELATED PARTY TRANSACTIONS
The Company was obligated under debentures payable to an officer, director
and stockholder totaling $178,000 at February 28, 1997 and during the year
ended February 28, 1998. Interest expense on the debentures was
approximately $18,700 in 1998, 1997 and 1996. As of February 28, 1998, the
debentures, along with accrued interest of $21,805, were converted into
142,718 shares of the Company's common stock. See Note F.
In conjunction with the Company's management of SCCLP's Commerce City,
Colorado methanol production facilities, the company received certain
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payments and reimbursements of payroll and related costs. All payments,
with the exception of a basic monthly management fee were based on actual
costs accrued by the Company. Management fees paid to the Company were
$20,833 per month from December 1995 through August 1998, and $8,333 per
month from March 1995 through November 1995.
1998 1997 1996
Direct payroll and benefits $ - $ 1,045,426 $ 1,218,879
Management fees and overhead costs 240,118 465,210 328,815
Liquified CO2 sales - - 19,997
$ 240,118$ 1,510,636 $ 1,567,691
Amounts receivable from SCCLP for these transactions were $0 as of February
28, 1998 and $520 as of February 28, 1997.
In addition to payments received from SCCLP in conjunction with the
Company's management of SCCLP, the Company has also received cash
distributions associated with its investment in SCCLP. The Company
received $318,829 in 1997 and $417,554 in 1996 representing the estimated
tax liabilities associated with taxable partnership income allocations
through February 1996, and received $178,784 during 1998 representing
estimated tax liabilities for operations through August 31, 1997 and the
liquidation of IC-PL.
On November 1, 1996, IRC issued an 8%, $325,000 revolving line of credit to
Red Hills Manufacturing, Inc. ("RHMCO)" a New Mexico Corporation controlled
by certain current and former officers and employees of IRC. The revolving
line of credit was established to facilitate the purchase of certain
woodworking equipment and to fund start-up working capital requirements of
RHMCO. The revolving credit line was scheduled to terminate on December
31, 1997 but was extended until December 31, 1998. The credit line is
secured by cash, accounts receivable, inventories and equipment owned by
RHMCO. The balance outstanding on the revolving credit line was $102,026
as of February 28, 1998 and $310,200 as of February 28, 1997. In addition,
RHMCO was indebted to the Company in the amount of $2,390 as of February
28, 1998 and $7,400 as of February 28, 1997 for interest and accrued
expenses. RHMCO is currently occupying unutilized building space owned by
IRC in exchange for certain maintenance and monitoring services required by
IRC.
NOTE I - COMMITMENTS AND CONTINGENCIES
Reservation of Common Stock: At February 28, 1998, the Company has
11,125 shares of common stock reserved for issuance under stock purchase
warrants outstanding. Holders of convertible debentures were issued
warrants to purchase common stock at $5.00 per share that expired on
September 17, 1990. In consideration to those holders that agreed to
extend the maturity date of debentures held by them, the Company extended
the expiration date on the associated warrants to purchase 11,125 shares of
common stock, until September 17, 1997. In conjunction with the conversion
of the debentures on February 28, 1998, the Company agreed to reduce the
exercise price on the warrants to $1.40 per share and extend the expiration
date to December 31, 1999.
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Guarantee of Debt of Others: In January 1994, the Company agreed to
provide credit support to Consolidated Oil and Transportation, Inc.
("COTI") in the form of guarantees of commercial credit and stand by
letters of credit. COTI is a marketer and transporter of heavy fuel oils
and asphalt. The agreement between the parties provided for the Company to
obtain a collateral position in COTI, subordinated to commercial lenders to
COTI. In exchange for credit support provided to COTI, the Company
received a commission of 8.75% of the gross profits of COTI. The Company
does not have an ownership interest in COTI. The Agreement expired on
December 31, 1995 and has not been renewed. However, the Company continues
to be the guarantor on one account. As of the date of this report,
commitments to creditors of COTI amount to approximately $1,296,000 under a
railcar lease agreement. The railcar lease guarantee relates to a 5 year
lease of 100 railcars and the limit of the guarantee is reduced by $648,000
annually as long as COTI is not in default under the terms of the lease.
The Company believes that COTI has sufficient working capital to satisfy
its outstanding obligations secured by the guarantee.
Environmental Matters: The Company has been involved in the manufacture,
storage, and sale of petroleum products since 1979, which exposes the
Company to potential claims for environmental remediation costs, if any, of
sites previously operated by the Company. The Company is not aware of any
claims pending for such sites.
Starlicon Merger: The Company has entered into an agreement to acquire all
of the outstanding stock of Starlicon International, Inc. as discussed in
Note Q to these financial statements.
NOTE J - EMPLOYEE STOCK OWNERSHIP AND 401(k) PLANS
Effective for the year ended February 28, 1989, the Company adopted an ESOP
for the benefit of all of its full time employees. Company contributions to
the plan were determined at the discretion of the Company and were limited
to the maximum amount deductible for income tax purposes. Eligible
employees included all full time employees with a minimum of six months of
service as of any anniversary date of the plan and vesting over a six year
graded basis applied retroactive as of the effective date of the plan. The
Company made no contributions to the ESOP during 1998, 1997, or 1996.
Effective as of February 5, 1998, the ESOP plan was terminated with all
plan assets distributed to plan participants in accordance with the plan.
In 1994, the Company adopted a 401(k) Plan for the benefit of all its full
time employees. Company contributions to the Plan were determined at the
discretion of the Company and were limited to the maximum amount deductible
for income tax purposes. Eligible employees included all full time
employees with a minimum of six months of service as of a semi-annual
anniversary date of the plan. Employees were 100% vested in all voluntary
contributions and vested in Company contributions over a six year graded
basis applied retroactive as of the effective date of the plan. Company
contributions to the Plan were $0 for 1998 and 1997, and $11,758 for 1996.
Effective as of December 31, 1998 the plan was terminated and all plan
assets were distributed to the participants in accordance with the plan.
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NOTE K - FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS
The Company's major industry segments are natural gas production, petroleum
refining and processing, and electrical co-generation. Selected financial
information relating to these segments is as follows:
Years Ended
February 28, February 28, February 29,
1998 1997 1996
(Dollars in thousands)
REVENUES
Petroleum refining and processing $ - $ 478 $ 528
Electrical co-generation - 215 666
Natural gas production 216 245 141
Other 20 13 131
$ 236 $ 951 $ 1,466
OPERATING PROFIT (LOSS)
Petroleum refining and processing $ (36) $ (91) $ (47)
Electrical co-generation (12) 66 (4)
Natural gas production (15) 60 (43)
Other (1) (225) (196) (346)
$ (288) $ (161) $ (440)
IDENTIFIABLE ASSETS
Petroleum refining and processing $ 1,031 $ 1,008 $ 1,096
Electrical co-generation 121 132 179
Natural gas production 369 467 435
Other 1,653 1,571 2,712
$ 3,174 $ 3,178 $ 4,422
DEPRECIATION, AMORTIZATION AND DEPLETION
Petroleum refining and processing $ 65 $ 66 $ 64
Electrical co-generation 11 15 -
Natural gas production 40 39 43
Other (1) 16 15 33
$ 132 $ 135 $ 140
(1) Amounts include allocations of general and administrative, interest
and depreciation costs previously allocated to methanol plant operations
which were discontinued during 1998.
Years Ended
February 28, February 28, February 29,
1998 1997 1996
(Dollars in thousands)
CAPITAL EXPENDITURES
Petroleum refining and processing $ - $ - $ -
Electrical co-generation - 27 -
Natural gas production - - -
Other - - -
$ - $ 27 $ -
Sales of crude oil during 1997 were made substantially to one customer.
Sales to the customer during 1997 were $479,000. No sales of crude oil were
made in 1998.
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Electrical energy and capacity has been sold substantially to one customer.
Sales of energy and capacity to the customer were $0 for 1998, $215,000 for
1997, and $666,000 for 1996.
The Company sells substantially all natural gas produced from the Kansas gas
properties to one customer. Natural gas sales to the customer, net to the
Company's interest, totaled $210,000 for 1998, $240,000 for 1997, and $135,000
for 1996.
NOTE L - OIL AND GAS PROPERTIES
Kansas Gas Properties: On July 1, 1988, the Company acquired certain natural
gas producing properties from Methanol Production Corporation (MPC), a
privately
held Denver firm. The assets, valued at $902,000, included an estimated
2,850,000 Mcf, net to the Company's interest, of proven and developed natural
gas reserves and related production equipment located in Southwestern Kansas.
In
exchange for the assets, the Company gave $180,000 in cash, issued 106,851
shares of its common stock, and incurred a $290,000 note payable to a bank.
Oil and Gas Leases: In September 1988, the Company acquired a 25% revenue
interest in certain unproven oil and gas leases located in Hardeman County,
Texas, for $22,500. In conjunction with the acquisition, the Company agreed to
participate, to the extent of a 33 1/3% working interest, in the drilling of
one
test well. Drilling activity on the test well was completed and initial
results
indicated that the well would not produce sufficient quantities of oil or gas
to
warrant final completion. During 1996, the Company determined that it had no
further interest in the lease and accordingly, wrote off the remaining
capitalized costs in the project.
Capitalized Costs: Capitalized costs relating to oil and gas producing
activities, as of February 28, 1998 and February 28, 1997 are as follows:
1998 1997
Proved gas properties $ 894,400 $ 894,400
Unproved oil and gas properties - -
Less accumulated depletion (540,037) (505,928)
Net capitalized costs $ 354,363 $ 388,472
Results of Operations: Results of operations of oil and gas producing
activities, excluding overhead and interest allocations, for the years ended
February 28, 1998, February 28, 1997 and February 29, 1996 are as follows:
1998 1997 1996
Revenues
Natural gas sales $ 216,137 $ 244,666 $ 140,794
Costs and Expenses
Operating costs 103,199 72,576 98,384
General and administrative 2,438 2,992 1,703
Depletion, depreciation and
amortization 34,109 33,988 40,224
139,746 109,556 140,311
Pre-tax net income (loss) 76,391 135,110 483
Income tax expense 26,737 45,937 164
Net income (loss) $ 49,654 $ 89,173 $ 319
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NOTE M - GAS RESERVE DATA AND SUPPLEMENTAL DATA (UNAUDITED)
In accordance with Statement of Financial Accounting Standards No. 69, the
following unaudited information is presented with regard to the Company's
proved gas reserves. Information for gas is presented in million cubic feet
(MMcf) except where otherwise indicated in thousand cubic feet (Mcf).
Production: The Company's net gas production, average sales price and
production cost for the years ended February 28, 1998, February 28, 1997
and February 29, 1996 are as follows:
1998 1997 1996
Net gas production (Mcf) 211,528 211,723 250,568
Average sales price ($/Mcf) $ 1.0218 $ 1.1556 $ 0.5619
Average production cost ($/Mcf) $ 0.4994 $ 0.3569 $ 0.2865
Reserves: On July 1, 1988 the Company acquired certain natural gas
producing properties, (See Note L).The gas reserves are located primarily
in Western Kansas and are based upon the Jerry R. Bergeson & Associates
Petroleum Engineers Reserve Report, dated May 10, 1991 and reserve
information developed internally by the Company. Estimated net quantities
of proved developed and proved undeveloped gas reserves as of February 28,
1998 and February 28, 1997 are as follows:
1998 1997
(MMcf) (MMcf)
Proved developed 2,198 2,422
Proved undeveloped - -
2,198 2,422
Statement of Changes in Quantities of Proved Developed and Undeveloped Gas
Reserves for the years ended February 28, 1998, February 28, 1997 and
February 29, 1996 are as follows:
1998 1997 1996
(MMcf) (MMcf) (MMcf)
Proved reserves - beginning of year 2,422 2,634 2,884
Adjustment to reserves (13) - 1
Production (211) (212) (251)
Proved reserves - end of year 2,198 2,422 2,634
(25)
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The Standardized Measure of Discounted Future Net Cash Flows relating to
Proved Gas Reserves as of February 28, 1998 and February 28, 1997 are as
follows:
1998 1997
($/1000) ($/1000)
Future cash inflows $ 2,246 $ 2,799
Future production costs (1,098) (864)
Future income tax expense (278) (541)
Future net cash flow 870 1,394
Ten percent discount factor (371) (635)
Standardized measure of discounted
future net cash flows $ 499 $ 759
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Changes in the Standardized Measure of Discounted Future Net Cash Flows From
Proved Gas Reserve Quantities for the years ended February 28, 1998, February
28, 1997 and February 29, 1996 are as follows:
1998 1997 1996
($/1,000) ($/1000) ($/1000)
Standardized measure - beginning
of year $ 759 $ 353 $ 619
Adjustment to reserves (2) - -
Sales, net of production costs
and income taxes (84) (122) (59)
Accretion of discount (including
changes in present value due
to price changes) (174) 528 (207)
Standardized measure - end of year $ 499 $ 759 $ 353
Developed and Undeveloped Acreage: The following summarizes the Company's
gross
and net undeveloped and developed acreage at February 28, 1998 and at February
28, 1997:
1998 1997
Gross Net Gross Net
Developed Acreage
Kansas 11,088 9,040 11,568 9,324
Undeveloped Acreage - - - -
"Gross Acres" refers to the number of acres in which the Company owns a
working
interest. "Net Acres" refers to the sum of the fractional working interest
owned
by the Company in gross acres.
Other: The Company held interests, at February 28, 1998 and February 28,
1997,
in the following wells, none of which are multiple completion wells:
1998 1997
Gross Net Gross Net
Producing gas wells 19 15.49 20 16.12
NOTE N - METHANOL PLANT DEVELOPMENT
In July 1989, the Company initiated a project to construct and operate a 250
ton
per day methanol production facility in the Denver, Colorado area. In December
1989, the Company accepted a proposal from General Electric Capital
Corporation
("GECC"), for financing and third party equity investment for the $26,000,000
facility. In accordance with the proposal, GECC provided a $24,000,000
construction loan which, upon completion of the facility, was to be replaced
by
a $20,000,000 term loan. Ownership of the facility was to vest in Sand Creek
Chemical Limited Partnership ("SCCLP"), a Colorado limited partnership, with
the
Company acting as the managing general partner. The initial partnership equity
contributions were to consist of $4,000,000 in cash to be provided by the GECC
limited partner upon completion of construction, and $2,000,000 in cash,
capitalized costs and equipment provided by the general partner and funded
upon
closing of the construction loan. The construction loan was closed effective
on
May 31, 1990.
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The general partner of SCCLP was IC Partners Limited ("IC-PL"), a Colorado
limited partnership, the initial ownership of which consisted of the Company
as
the general partner and Public Service Company of Colorado ("PSCO"), as the
limited partner. The initial equity contributions to IC-PL consisted of
capitalized costs and equipment valued at $500,000 provided by the Company and
$1,500,000 provided by PSCO. On December 1, 1994, PSCO sold it's 46% interest
in IC-PL, 31.7% to Gas Technologies Group, Inc., ("GTGI") a wholly owned
subsidiary of the Company, and 14.3% to William N. Hagler, president,
director,
and stockholder of the Company.
The Company's investment in IC-PL through ICI was recorded at the book value
of
the equipment and capitalized costs contributed to the partnership totalling
$250,000, but was valued at $500,000 for purposes of establishing ownership
and
profit sharing percentages in IC-PL and SCCLP. No gain was recognized by the
Company on the transaction. The Company's investment in IC-PL through GTGI
was
recorded at cost of $200,000.
Construction of the facility was originally scheduled to be completed during
December 1991. However, in late November 1991, amid concerns regarding the
financial stability of a major subcontractor, the general contractor
terminated
it's contract with the subcontractor and advised SCCLP that it was unable to
complete the project under the terms of the existing construction contract
with
SCCLP. SCCLP advised the general contractor that it expected full performance
under the construction contract without amendment. On December 11, 1991, the
general contractor discontinued all construction activity on the project.
Upon
notice to the general contractor and its bonding company, SCCLP took over
construction activities on the project. Funding for the project continued
under
the terms of the construction loan agreement, as amended, to cover additional
costs associated with the general contractor's abandonment of the project.
SCCLP initiated a legal claim against the general contractor claiming damages
for the costs to complete construction of the facility plus delay penalties
and
interest in accordance with the construction contract. In March 1995, SCCLP
was
awarded a judgement in the net amount of $9,415,559. In December 1995, SCCLP
settled the claim for a cash payment of $7,500,000.
As the cost to complete the facility materially exceeded the budgeted
construction funding and it was uncertain as to the amount and timing of the
receipt of damages from the legal claim against the contractor, SCCLP and GECC
agreed that it was necessary to restructure the existing financing
arrangements
for the project. Effective on November 1, 1993, substantially all of the
facility assets were sold to Fleet Bank, formerly Shawmut Bank Connecticut,
for
$34,600,000 who then leased the facility back to SCCLP under a 15 year
operating
lease. The sale transaction resulted in a loss to SCCLP of approximately
$7,578,000. The proceeds from the sale were applied entirely to outstanding
construction debt owed to GECC.
Immediately prior to the sale to Fleet, GECC transferred its limited
partnership
interest in SCCLP to San Juan Holdings, ("SJH"), a Colorado limited liability
corporation owned by William Hagler and Rick Hurt, who are officers and
directors of the Company.
Simultaneous with the sale to Fleet, GECC loaned $7,800,000, non-recourse term
debt to SCCLP, the proceeds of which were applied first to the remaining
construction loan and credit line then outstanding and then deposited the
remainder in a restricted account to be used by SCCLP for
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future capacity and safety modifications and such other purposes as may
have been approved by GECC. In addition, GECC provided a $1,000,000 credit
line to SCCLP for the purpose of funding working capital as needed to
operate the facility. Both of the credit facilities were secured by cash,
accounts receivable, inventories, and other property and equipment held by
SCCLP. During 1995 the term loan to GECC was paid in its entirety out of
cash flow from operations and proceeds from the legal settlement.
On October 6, 1997 and effective as of September 1, 1997, IC-LP sold all of
its interest in SCCLP to an unrelated third party and dissolved by
distributing its net assets to its partners. The Company, through its
investments in IC-LP, received cash distributions totaling $178,784 in
conjunction with the dissolution of IC-LP.
The Company has been allocated income and losses from SCCLP through its
investment in IC-LP based on allocation percentages contained in the
partnership agreements. In accordance with the operative sections of the
SCCLP and IC-LP partnership agreements, IC's effective allocation
percentage for distributions and income/loss allocations from SCCLP was
approximately 38% and approximately 60% for allocation of income associated
with SCCLP's receipt of proceeds resulting from the contractor litigation.
GTGI's effective allocation percentage for distributions and income/loss
allocations from SCCLP was approximately 22% and approximately 7% for
allocation of income associated with SCCLP's receipt of proceeds resulting
from the contractor litigation.
The Company's share of income/loss allocations for the fiscal years ended
February 29, 1996, February 28, 1997, and the six months ended August 31,
1997 are as follows:
INCOME (LOSS) FROM OPERATIONS
IC & GTGI
Partnership SCCLP IC-LP IC & GTGI Effective
Year Ended Income (Loss) Income (Loss) Income (Loss) Allocation %
February 29, 1996 (2,699,032) (1,889,322) (1,619,420) 60.0%
February 28, 1997 (2,245,397) (1,571,778) (1,347,238) 60.0%
August 31, 1997 176,906 123,821 106,130 60.0%
INCOME (LOSS) FROM SALE OF ASSETS AND LEGAL SETTLEMENT
IC & GTGI
Partnership SCCLP IC-LP IC & GTGI Effective
Year Ended Income (Loss) Income (Loss) Income (Loss) Allocation %
February 29, 1996 6,346,570 4,442,599 4,235,574 66.7%
February 28, 1997 - - - -
August 31, 1997 - (1,313,623) (913,530) 70.0%
Changes in the Company's investment in IC-LP, accounted for using the
equity method, for the three most recent fiscal years is as follows:
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Investment Cash
Fiscal Beginning Income (Loss) Investment Investment
Year Ended of Year Allocations (Distributions) End of Year
(1) (2)
IC - General Partner:
February 29, 1996 - 1,156,590 (1) (22,244) 1,134,346
February 28, 1997 1,134,346 (848,760) (267,607) 17,979
February 28, 1998 17,979 94,674 (112,653) -
GTGI - Limited Partner:
February 29, 1996 1,188,548 (126,854) (395,310) 666,384
February 28, 1997 666,384 (498,478) (51,222) 116,684
February 28, 1998 116,684 (50,553) (66,131) -
(1) Total losses allocated to the General Partner through the year ended
February 28, 1994 totaled $4,774,218. The allocated losses recognized in 1994
represented only allocated losses to the extent of its basis in the
investment.
Income allocated to IC for the year ended February 28, 1995 totaled
$2,924,733.
The remaining unrecognized loss of $1,599,385 as of February 28, 1995 was
carried forward and utilized to offset allocations of income from the legal
settlement of $3,776,209 in 1996. The net amount of income allocations
recognized for 1996 includes an allocated operating loss of $1,020,234. The
net
amount of income allocations recognized in 1998 include $106,180 net operating
income offset by a net loss on the sale of the investment of $62,009 which was
limited to the remaining basis of the investment.
(2) Cash distributions to partners were restricted until such time as the note
payable to GECC was fully paid and cash reserves for future plant rental
payments were established at contractually established levels. However, cash
distributions have been made to partners to the extent that income allocations
resulted in taxable income to individual partners. The Company received cash
distributions for estimated income tax liabilities for income allocations of
$318,829 in 1997 and $417,534 in 1996. Included with the $178,784 liquidating
distribution received from IC-PL in 1998 was $28,822 distributed by SCCLP for
estimated tax liabilities through August 31, 1997.
Although the Company owned a greater than 50% ownership in IC-PL through its
wholly owned subsidiaries, management determined that control did not rest
with
the Company and therefore IC-PL had not been consolidated with the Company's
financial statements.
Financial statements for IC-LP consist only of its investment in SCCLP and
specific disclosure herein is not considered necessary.
Condensed balance sheet information for SCCLP as of August 31, 1997, February
28, 1997, and February 28, 1996 is as follows:
August February February
1997 1997 1996
(Audited)(1) (Audited) (Audited)
$/1000 $/1000 $/1000
Current assets $ 2,171 $ 2,381 $ 5,100
Property, plant and equipment
(net) 437 461 433
Other assets (net) 219 229 250
Total Assets $ 2,827 $ 3,071 $ 5,783
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Current liabilities $ 1,620 $ 1,993 $ 1,614
Long-term debt (net of current
portion) - - -
Other liabilities - - -
Partners' capital (deficit) 1,207 1,078 4,169
Total liabilities and partners'
capital $ 2,827 $ 3,071 $ 5,783
Condensed results of operations for SCCLP for the six months ended August
31, 1997, and the years ended February 28, 1997, and February 29, 1996, is
as follows:
August 31, February 28, February 29,
1997 1997 1996
(Audited)(1) (Audited) (Audited)
$/1000 $/1000 $/1000
Revenues $ 6,184 $ 9,847 $ 7,767
Costs and expenses (5,995) (12,116) (10,192)
Interest expense (net) 21 89 (72)
Depreciation and amortization (33) (65) (202)
Income (loss) from operations 177 (2,245) (2,699)
Extraordinary item - - 6,347
Net income (loss) $ 177 $ (2,245) $ 3,648
(1) A separately issued audit report has not been prepared for SCCLP as of
August 31, 1997 and for the six month period then ended, however, the
information has been audited for the inclusion in these notes to the
Company's financial statements.
NOTE O - INVESTMENT IN CHATFIELD DEAN
On January 15, 1996 the Company executed a Letter of Intent with Chatfield
Dean & Co., ("Chad") setting out the terms of a proposed acquisition, by
the Company, of all of the outstanding Common and Preferred stock of Chad.
On July 20, 1996, the Company and Chad executed a definitive merger
agreement. On February 10, 1997, the Company filed a Form S-4 with the
Securities and Exchange Commission ("SEC") and received comments on the
Form S-4 from the SEC on March 27, 1997. On May 14, 1997, the merger
agreement was terminated by mutual agreement of the parties. There are no
current plans to renegotiate the merger agreement and the Form S-4 was
withdrawn.
Investment in Chatfield Dean: On January 13, 1996, the Company acquired
50,000 shares of Chatfield Dean & Co., Inc., (Chatfield Dean) Series B 7%
commutative preferred stock directly from Chatfield Dean for $500,000. The
shares have not been registered with the SEC and are therefore restricted.
The shares are redeemable by Chatfield Dean upon the occurrence of certain
events for an amount equal to $10 per share, plus unpaid accumulated
dividends plus a premium ranging from $1 to $5 per share depending upon the
length of time the shares are outstanding. In addition to the shares
acquired, the Company received 50,000 warrants to purchase 50,000 shares of
Chatfield Dean common stock with an exercise price of $0.01 per share. On
September 12, 1997 the Company exercised all of the warrants and received
50,000 shares of Chatfield Dean common stock for $500.
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On March 8, 1996, the Company purchased 10,000 shares of Chatfield Dean
Series A 7% cumulative, convertible preferred stock directly from Chatfield
Dean for $100,000. The shares have not been registered with the SEC and
are therefore restricted. The shares are convertible into Chatfield Dean
common stock at any time at the option of the Company at the ratio of 1
share for 3.33 shares of common stock subject to certain events. The
shares may be redeemed by Chatfield Dean for the original issue price of $1
per share plus $1 per share for each year after issuance up to a maximum of
$15 per share. During the fiscal year ended February 28, 1997, the Company
received $1,517 in dividends on this investment. No dividends were received
during the fiscal year ended February 28, 1998.
Both the 50,000 shares of Series B and the 10,000 shares of Series A
preferred stock were, under the now terminated merger agreement, to be sold
to a third party prior to closing of the merger. In the absence of the
agreement, the Company, through the assistance of Chad, intends to seek a
buyer for or other disposition of the shares. As the shares are not
publicly traded and there is currently no apparent market for the shares,
the liquidity of this investment is questionable. However, it is believed
that the shares can ultimately be sold or disposed of without material loss
to the Company and in the opinion of Management, the establishment of a
valuation allowance is not necessary at this time.
NOTE P - FINANCIAL ACCOUNTING STANDARDS
The following new accounting standards will impact the Company in future
reporting periods:
Transfer and Servicing of Financial Assets and Extinguishment of
Liabilities: The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 125, "Transfer and Servicing of
Financial Assets and Extinguishment of Liabilities." This Statement
requires that transferred assets could be recognized only when control is
surrendered, rather than when risks and rewards related to the asset are
passed to another party. A liability would be extinguished when the
creditor no longer has ultimate responsibility for the liability. In
December of 1996, the FASB issued SFAS No. 127, "Deferral of the Effective
Date of Certain Provisions of SFAS No. 125." It defers for one year the
effective date of certain provisions of SFAS 125. This Statement has not
had and is not anticipated to have a material impact on the Company's
financial condition.
Earnings per Share: Recently the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128, "Earnings per
Share." It simplifies the standards for computing earnings per share,
superseding the standards previously found in Opinion 15. It replaces the
presentation of primary earnings per share with a presentation of basic
earnings per share. It also requires dual presentation of basic and
diluted earnings per share on the face of the income statement for all
entities with complex capital structures and requires a reconciliation of
the numerator and denominator of the basic earnings per share computation
to the numerator and denominator of the earnings per share computation.
This Statement was effective for the Company's financial statements issued
as of February 28, 1998 and did not have a material effect on previous
earnings per share presentations.
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Disclosure of information about an Entity's Capital Structure: The
Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards No. 129, "Disclosure of Information about an Entity's
Capital Structure." This Statement applies to all entities. Its
requirements are a consolidation of those found in APB Opinions 10 and 15,
and Statement of Financial Accounting Standards No. 47, and it eliminates
the exemption of non public entities from certain disclosure requirements.
This Statement will affect the financial statements issued by the Company
after December 15, 1997.
Reporting Comprehensive Income: In June 1997, the FASB issued SFAS No.
130, "Reporting Comprehensive Income". This Statement establishes
standards for reporting and display of comprehensive income on its
components (revenues, expenses, gains and losses). Comprehensive income is
defined as the change in equity of a business enterprise, during a period,
from transactions and other events and circumstances from nonowner sources.
The Statement requires that entities classify items of other comprehensive
income by their nature in a financial statement and display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in-capital in the equity section of a statement of
financial position. This Statement is effective for fiscal years beginning
after December 31, 1997.
Disclosures About Segments: Also in June 1997, the FASB issued SFAS no.
131, "Disclosures About Segments of an Enterprise and Related Information."
This Statement establishes standards for the way that public entities
report information about operating segments in annual financial statements
and requires that selected information about operating segments be reported
in interim financial reports as well. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. This Statement is effective for fiscal years beginning after
December 31, 1997.
NOTE Q - STARLICON MERGER
On February 21, 1998 the Company entered into an agreement ("the
Agreement") with Starlicon Group Inc. ("SGI") to acquire 100% of the
outstanding stock of privately held Starlicon International Corporation
("SI"). Based in Fremont, California, SI markets computer peripherals
under the Paradise brand name as well as certain generic computer
components. The effective date of the transaction was to have been
November 30, 1997.
A preliminary audit of SI's books as of November 30, 1997 revealed
that SI failed to meet certain financial criteria. As a result, the
Company notified SGI and SI on May 20, 1998 of its unilateral rescission of
the transaction. In addition, on May 21, 1998, the Company filed a
Complaint in the United States District Court for the Central District of
California entitled Unico, Inc. v. Starlicon Group, Inc., Starlicon
International Corporation, et al, Case No. CV 98-3990 DT (Shx), seeking the
Court's confirmation of the Company's unilateral rescission.
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The parties have subsequently agreed that the Agreement executed on
February 21, 1998 did not close and are presently negotiating a novation
agreement which, among other things, would result in a subsequent effective
date for the merger. In connection with these negotiations, the Company has
agreed to withdraw its Complaint upon execution of the novation agreement.
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