<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 7, 1998.
REGISTRATION NO. 33-53223
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE
AMENDMENT
NO. 3 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
HARRIER, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 8099
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
2200 PACIFIC COAST HIGHWAY
SUITE 301
87-0427731 HERMOSA BEACH, CALIFORNIA 90254
(I.R.S. EMPLOYER IDENTIFICATION NO.) (310) 376-7721
(ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA
CODE, OF REGISTRANT'S PRINCIPAL
EXECUTIVE OFFICES)
KEVIN DE VITO, PRESIDENT
2200 PACIFIC COAST HIGHWAY
SUITE 301
HERMOSA BEACH, CALIFORNIA 90254
(310) 376-7721
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
DANIEL K. DONAHUE, ESQ.
OPPENHEIMER WOLFF & DONNELLY LLP
500 NEWPORT CENTER DRIVE, SUITE 700
NEWPORT BEACH, CALIFORNIA 92660
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /__________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /__________
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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- -----------------------------------------------------------------------------------------------------------------------------------
AMOUNT TO BE REGISTERED PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION FEE
REGISTERED PER UNIT PRICE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value(1) 270,000 Shares $.79(2) $214,093 $83.50(3)
- -----------------------------------------------------------------------------------------------------------------------------------
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</TABLE>
Registration Statement Cover Page continues on following page.
<PAGE>
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(1) Represents shares of the $.001 par value common stock ("Harrier Common
Stock") of Harrier, Inc. issuable to certain minority shareholders of
COPE AG. The number of shares gives effect to the proposed one for 48
reverse split of the issued and outstanding shares of the Harrier Common
Stock proposed to take place immediately prior to such issuance.
(2) Estimated for purposes of calculating the registration fee pursuant to
Rule 457(f) based on the book value of COPE AG as of March 31, 1998, as
prorated among the minority shareholders of COPE AG.
(3) The Registrant has paid a filing fee in connection with the original
filing of the Proxy Statement/Prospectus to which this registration
statement relates. Pursuant to Rule 457(b), no further filing fee is
required to be paid in connection with the filing of this registration
statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a)
OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE>
PART II
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
DELAWARE STATUTES
Section 145 of the Delaware General Corporation Law, as amended, provides
for the indemnification of the Company's officers, directors, employees and
agents under certain circumstances as follows:
"(a) A 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 than 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 expenses (including attorneys'
fees), judgments, 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 contendere or its equivalent, shall 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 not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A 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 shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a director, officer, 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 subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall 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 subsections (a) and (b) of this
section. Such determination shall be made (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (2) if there are no such directors, or if such directors
so direct, by independent legal counsel in a written opinion, or (3) by the
stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the corporation as authorized in this section. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the board of directors deems appropriate.
<PAGE>
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall 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 this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction to
hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees). (Last amended by Ch.261,L.'94,eff.7-1-94.)"
CERTIFICATE OF INCORPORATION
The Company's Certificate of Incorporation provides that the directors of
the Company shall be protected from personal liability to the fullest extent
permitted by law. The Company's Bylaws also contain a provision for the
indemnification of the Company's directors (see "Indemnification of Directors
and Officers - Bylaws" below).
BYLAWS
The Company's Bylaws provide for the indemnification of the Company's
directors, officers, employees, or agents under certain circumstances as
follows:
"7.1 AUTHORIZATION FOR INDEMNIFICATION. The Corporation may indemnify, in
the manner and to the full extent permitted by law, any person (or the estate,
heirs, executors, or administrators of any person) who was or is a party to, 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 than an action by or in the right of the Corporation), by reason of the
fact that such person 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), judgments, fines
<PAGE>
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 contendere or its equivalent shall 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 not opposed to the best interests of the
Corporation, and with respect to any criminal action or proceeding, that he had
reasonable cause to believe that his conduct was unlawful.
7.2 ADVANCE OF EXPENSES. Costs and expenses (including attorneys' fees)
incurred by or on behalf of a director or officer in defending or investigating
any action, suit, proceeding or investigation may be paid by the Corporation in
advance of the final disposition of such matter, if such director or officer
shall undertake in writing to repay any such advances in the event that it is
ultimately determined that he is not entitled to indemnification. Such expenses
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the Board deems appropriate. Notwithstanding the
foregoing, no advance shall be made by the Corporation if a determination is
reasonably and promptly made by the Board by a majority vote of a quorum of
disinterested directors, or (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 by the stockholders, that, based upon the facts
known to the Board or counsel at the time such determination is made, (a) the
director, officer, employee or agent acted in bad faith or deliberately breached
his duty to the Corporation or its stockholders, and (b) as a result of such
actions by the director, officer, employee or agent, it is more likely than not
that it will ultimately be determined that such director, officer, employee or
agent is not entitled to indemnification.
7.3 INSURANCE. The Corporation may 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 or as a member of any committee or similar
body 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 Article or applicable law.
7.4 NON-EXCLUSIVITY. The right of indemnity and advancement of expenses
provided herein shall not be deemed exclusive of any other rights to which any
person seeking indemnification or advancement of expenses from the Corporation
may be entitled under any agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office. Any agreement for
indemnification of or advancement of expenses to any director, officer, employee
or other person may provide rights of indemnification or advancement of expenses
which are broader or otherwise different from those set forth herein."
INDEMNITY AGREEMENTS
The Company's Bylaws provide that the Company may indemnify directors,
officers, employees or agents to the fullest extent permitted by law and the
Company has agreed to provide such indemnification to its directors, Jurg
Kehrli, Kevin DeVito and William Cordeiro, pursuant to written indemnity
agreements.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description
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<S> <C>
3(i) Articles of Incorporation (1)
Amendment to Articles of Incorporation
3(ii) Bylaws (1)
5.1 Opinion re: legality (14)
8.1 Opinion of ATAG Ernst & Young AG (14)
8.2 Opinion of Raiskin & Revitz (14)
10.1 Agreement with Licensia Export Trading Co. dated December
12, 1986 (2)
10.2 Agreement with Erich Klemke dated June 6, 1988(3)
<PAGE>
10.3 Amendment to agreement with European Investment and Equity
Trading dated March 30, 1989 (5)
10.4 Distribution agreement with Mobal AG, dated
January 17, 1989(4)
10.5 1989 Stock Option and Stock Award Plan (1)
10.6 Warrant Agreement dated as of November 13, 1989 among
Harrier, Inc. ASFAG AG and Martin S. Wohnlich (5)
10.7 Agreement dated November 10, 1989 between Tibech AG and
Bioptron AG (5)
10.8 Agreement dated February 7, 1990 between Tibech AG and
Bioptron AG (5)
10.9 Sales Agreement for HDC AG stock between Dr. Carl Odermatt
and the Company (5)
10.10 Distribution Agreement with Planeta, dated September 1, 1991
(with accompanying unofficial translation. (6)
10.11 Univ. of Michigan Agreement dated October 17, 1992. (10)
10.12 Univ. of Michigan Agreement dated March 18, 1992. (10)
10.13 Sale of Assets Agreement by and between the Registrant and a
German Investor (8)
10.14 Agreement to Dissolve Joint Research and Development Project
by and between the Registrant and Tecno-Bio CO., Ltd. (9)
10.15 Purchase and License Agreement of HDC AG by and between the
Registrant and Tecno-Bio CO., Ltd. T (9)
10.16 Harrier, Inc./American Diagnostica Inc. R&D Joint Venture
Agreement(11)
10.17 Loan Agreement between New Capital Investment Fund and
Harrier, Inc. (12)
10.18 Asset Transfer and Plan of Liquidation and Dissolution dated
June 30, 1997 between the Registrant, Naturade, Inc. and
DermaRay, LLC. (13)
10.19 Securities Purchase Agreement and Plan of Reorganization
dated October 30, 1997 between Registrant and COPE AG. (13)
10.20 Agreement dated October 30, 1997 between Registrant and New
Concept Therapeutics, Inc. (13)
10.21 Subsidiaries of the Registrant(6)
23.1 Consent of Oppenheimer Wolff & Donnelly LLP (14)
23.2 Consent of Raimondo Pettit Group (14)
23.3 Consent of ATAG Ernst & Young AG (14)
23.4 Consent of Business Valuation Planning Group
23.5 Consent of ATAG Ernst & Young AG (14)
23.6 Consent of Raiskin & Revitz (14)
99.1 Opinion of Business Valuation Planning Group
</TABLE>
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(1) Filed as an exhibit to Proxy Statement dated May 14, 1990, filed on May 16,
1990 (File No 1-9925), incorporated herein by reference.
(2) Filed as an exhibit to Report on form 10-K for the year-ended June 30,
1987, filed on March 18, 1988 (File No 1-9925), incorporated by reference.
(3) Filed as an exhibit to Report on form 10-K for the year-ended June 30,
1988, filed on November 3, 1988 (File No 1-9925), incorporated herein by
reference.
(4) Filed as an exhibit to Report on form 10-K for the year-ended June 30,
1989, filed on October 13, 1989 (File No 1-9925), incorporated herein by
reference.
(5) Filed as an exhibit to Report on form 10-K for the year-ended June 30,
1990, filed on October 13, 1990 (File No 1-9925), incorporated herein by
reference.
(6) Filed as an exhibit to Report on form 10-K for the year-ended June 30,
1991, filed on October 13, 1991 (File No 1-9925), incorporated herein by
reference.
<PAGE>
(7) Filed as an exhibit to Report on form 8-K dated July 27, 1990,, filed on
September 6, 1990 (File No 1-9925), incorporated herein by reference.
(8) Filed as an exhibit to Report on Form 8-K dated July 10, 1992, filed on
July 31, 1992 (File No 1-9925), incorporated herein by reference.
(9) Filed as an exhibit to Report on form 8-K dated August 1, 1992, filed on
August 26, 1992 (File No 1-9925), incorporated herein by reference.
(10) Filed as an exhibit to Report on form 10-K for the year-ended June 30,
1992, filed on October 24, 1992 (File No. 1-9925), incorporated herein by
reference.
(11) Filed as an exhibit to Report on Form 10-K for the year-ended June 30,
1993, filed on November 25, 1993 (File No. 1-9925), incorporated herein by
reference.
(12) Filed as an exhibit to Report on Form 10-K for the year-ended June 30,
1996, filed on December 3, 1996 (File No. 1-9925), incorporated herein by
reference.
(13) Filed as an exhibit to Report on Form 10-K for the year-ended June 30,
1997, filed on December 10, 1997 (File No. 1-9925), incorporated herein
by reference.
(14) Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES
Financial Statement Schedules are omitted because they are not
applicable or because the required information is contained
in the Consolidated Financial Statements or the notes thereto.
(c) OPINIONS OR APPRAISALS
Inapplicable.
ITEM 22. UNDERTAKINGS.
A. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement: (i) To include
any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii)
to reflect in the prospectus any facts or events which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement; (iii) To include any additional or changed material
information on the plan of distribution.
(2) For determining any liability under the Securities Act of 1933,
each post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
B. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
C. The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities
Act of 1933, the registrant shall treat the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon Rule
430A and contained in a form of prospectus filed by the registrant under Rule
424(b)(1), or (4) or 497(h) under the Securities Act of 1933 as part of this
registration statement as of the time the Commission declared it effective.
(2) For determining any liability under the Securities Act of 1933,
the registrant shall treat each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities offered in the
registration statement, and that offering of the securities at that time as the
initial bona fide offering of those securities.
<PAGE>
SIGNATURES
Pursuant to the requirements of Securities Act, the
registrant has caused this pre-effective amendment no. 3 to registration
statement to be signed on its behalf by the undersigned, hereunto duly
authorized, in City of Hermosa Beach, State of California, on August 7, 1998.
HARRIER, INC.
By: /s/Jurg Kehrli
-------------------------
Jurg Kehrli, Chairman
Pursuant to the requirements of the Securities Act of 1933, this
pre-effective amendment no. 3 to registration statement has been signed by the
following persons in the capacities and on the dates indicated:
Date: August 7, 1998 By /s/Jurg Kehrli
-------------------------
Jurg Kehrli, Chairman
Date: August 7, 1998 By /s/Kevin DeVito
-------------------------
Kevin DeVito, President and
Director
By
-------------------------
William P. Cordeiro, Director
Date: August 7, 1998 By /s/Candace M. Beaver
-------------------------
Candace M. Beaver, Secretary and
Chief Financial Officer
<PAGE>
EXHIBIT 23.4
CONSENT OF BUSINESS VALUATION PLANNING GROUP
We consent to the use in this Pre-Effective Amendment No. 3 to
Registration Statement on Form S-4 of our fairness opinion relating to the
Company's sale of 2,850,000 shares of the common stock of Glycosyn
Pharmaceuticals, Inc. and the reference to our firm under the caption
"Proposal No. 2: Glycosyn Proposal - Fairness Opinion" in the Proxy
Statement/Prospectus made part of the Pre-Effective Amendment No. 2 to the
Registration Statement. Also, we consent to the inclusion of our fairness
opinion as an exhibit to the Pre-Effective Amendment No. 3 to the
Registration Statement as filed with the Securities and Exchange Commission.
BUSINESS VALUATION PLANNING GROUP
Orange, California
August 7, 1998
<PAGE>
EXHIBIT 99.1
FAIRNESS OPINION
Prepared For
HARRIER INC.'S BOARD OF DIRECTORS
2200 Pacific Coast Hwy., Suite 301
Hermosa Beach, CA 90254
January 8, 1998, as
amended on August 7, 1998
Prepared By:
BUSINESS VALUATION & PLANNING GROUP
Orange, California
<PAGE>
DISCLOSURE STATEMENT
This Fairness Opinion was prepared by the Business Valuation & Planning Group
("BVPG") for Harrier, Inc. The value stated herein constitutes the Fairness
Opinion of the Business Valuation & Planning Group relative to Harriet's sale
of 2,850,000 shares of the $.01 par value common stock of Glycosyn
Pharmaceuticals, Inc. in to the New Capital Investment Fund ("Fund") in
exchange for the Funds's consideration of approximately $595,176 of
indebtedness owed to it by Harrier. (Such transaction referred to herein as
the "Glycosyn Recapitalization").
The information contained herein has either been provided by the Officers of
the business or obtained from sources deemed to be reliable. We have no
reason to doubt its accuracy. However, neither BVPG nor any of its officers
confirmed the accuracy or completeness of the information provided by the
officers of Harrier or obtained from other third party sources.
BVPG has not independently reviewed the financial statements provided for the
Fairness Opinion. It should be noted that any financial projections are
provided for general reference purposes only, in that they are based on
assumptions relating to general economic conditions, competition, and other
factors beyond the control of the Owners, and, therefore are subject to
material variation.
Only those particular representations and warranties which may be made in
definitive written documents, when, as, and if executed, and subject to such
limitations and restrictions as may be specified in such definitive written
documents, shall have any legal effect.
i
<PAGE>
PURPOSE & ASSUMPTIONS
- --------------------------------------------------------------------------------
PURPOSE
The Business Valuation & Planning Group ("BVPG") Fairness Opinion Report
("Report") is furnished for the exclusive use of the Board of Directors and
shareholders of Harrier, Inc. Its purpose is to express BVPG's opinion on the
fairness, from a financial point of view, of the proposed Glycosyn
Recapitalization to the shareholders of Harrier, Inc. For the simplicity of
this Report When referring to Glycosyn Pharmaceuticals, Inc., it shall be
referred to as "Glycosyn", or the "Company".
It is our understanding that this Report will be used by the Board of
Directors of Harrier in considering the approval of the Glycosyn
Recapitalization. Based on this understanding, the valuation methods and
approach and Fairness Opinion described herein are not applicable for any
other purpose.
ASSUMPTIONS
In order to create an Fairness Opinion it was necessary to make certain
assumptions concerning the audience of this Report, as well as future
conditions, relative to the Company and its internal and external
environment. These assumptions are delineated below:
- The reader is familiar with Glycosyn Pharmaceuticals, Inc.
- Assumes the new owners will have the necessary resources and
commitment to grow the Company
- Is dependent on the Company's financial projections being met or
exceeded
- The Company is an on-going concern and as such the Company has value
in excess of the book value of its assets
Additional assumptions and conditions are outlined in the Limiting Conditions
section of this Report.
BUSINESS VALUATION & PLANNING GROUP BUSINESS VALUATION SERVICES PAGE 1
<PAGE>
SUMMARY OF OPINION
- --------------------------------------------------------------------------------
Our study has concluded that a reasonable estimate of the total fair market
value of the common stock of Glycosyn Pharmaceuticals, Inc. as of December,
31 1997 is $930,423. This value was determined by the Income Value Method
(a.k.a. the Discounted Cash Flow Method) and is deemed to be the most
applicable value of Glycosyn for the purpose of the Glycosyn Recapitalization.
We, also, obtained a value of $1,092,217 under the Market Value Method. This
value falls within the relevant range, but was eliminated from the Fairness
Opinion since the comparable companies of the study were too dissimilar to
Glycosyn, in terms of size and operational characteristics. Therefore, the
Income Value Method was considered more applicable, since it takes into
account Glycosyn's market demand and future expectations of the developing
technology applied by Glycosyn.
However, the exact amount the owners may receive for the stock or assets of
the Company is dependent on the terms of the sale, tax provisions existing at
the time of sale, financial performance and conditions at time of sale, as
well as other factors that impact value.
Nevertheless, the Fairness Opinion stated herein fairly represents the amount
the Owners' can expect to receive at the time of sale. This opinion is based
on the analysis of the financial statements; sales forecasts; market,
industry, and competitive analysis; and knowledge of the Company as provided
by Glycosyn Pharmaceuticals, Inc. 's management.
The FMV represents the amount the Owners' would net from a sale before taxes,
commissions, and other selling costs. This value may be increased by offering
terms which allow the prospective buyer to reduce the amount of the initial
cash investment. The effect of such terms on the value depends upon the
amount of the down payment, the interest rate on the balance, the repayment
schedule, the quality of the security offered by the buyer, inflationary
expectations, and other factors presently undiscovered.
In valuing Glycosyn Pharmaceuticals, Inc. we considered three methods of
valuation -- Income Value, Book Value, and Market Value methods. The Market
Value and Book Value Methods were eliminated, however, because it was
determined that they were not applicable to valuing Glycosyn Pharmaceuticals,
Inc. We did not use the Market Value Method for reasons stated earlier. We
also eliminated the Book Value Method, since Glycosyn is an ongoing concern.
Nevertheless, as indicated above, the Income Value Method offers a reasonable
estimate of value. Therefore, it was used to value Glycosyn Pharmaceuticals,
Inc.
BUSINESS VALUATION & PLANNING GROUP BUSINESS VALUATION SERVICES PAGE 2
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BUSINESS DESCRIPTION
- --------------------------------------------------------------------------------
COMPANY Glycosyn Pharmaceuticals, Inc. (the "Company"), rounded in March 1993,
is located in Raleigh, North Carolina, with corporate offices in
Durham, North Carolina. Glycosyn is a pharmaceuticals developer,
specializing in the development of novel pharmaceutical compounds.
Specifically, glycosylated structures used in the delivery of
boronated compounds in treating cancer tumors. The Company sets itself
apart from its competitors by offering superior technology in the
delivery of boronated compounds.
As a result, the Company has received considerable attention in
developing and marketing the compound. However, the Company holds
patent to this technology and is currently applying for individual and
continuation-in-part patents. These patents are co-owned by the
University of Michigan. Moreover, the Company seeks patents, not only
in the United States, but also in several other countries. Likewise,
FDA approval is being sought in the United States (i.e., approval with
similar agencies in being sought in a host of other nations, too). To
obtain these approvals, the Company's technology must be tested
extensively. There is no assurance, however, that the Company will
obtain the patents and government approvals it is seeking.
CORPORATE
STRUCTURE The Company currently has 5,262, 100 shares issued and outstanding
with an authorization limit of 30,000,000 shares, of which 5,000,000
shares of common stock are owned by Harrier, Inc. The Company was
originally funded through Harrier, Inc., as well as funds, to some
degree, from a research and development partnership that was
terminated in 1995. The total capital investment into the technology
exceeds $4 million over a 5 year period. It is the intent of the
Company to continue developing the technology.
The Company's continued success will depend on its ability to obtain patents,
government approval, and to properly educate the market on the advantages of its
technology.
BUSINESS VALUATION & PLANNING GROUP BUSINESS VALUATION SERVICES PAGE 3
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BASIC PRINCIPLES OF VALUATION
- --------------------------------------------------------------------------------
A business valuation of a closely-held private enterprise, such as Glycosyn,
is necessary to determine value where an active market for a company's
securities does not exist. The basic principle behind a valuation of this
type is to analyze the earning power of a company and its ability to convert
earning power into value. Earning power is measured using the rates of return
expected in the financial markets for various types of investment
alternatives, with consideration given to history, expected growth rates and
risk, and comparison to similar companies, as well as other techniques to
determine fair market value.
Fair market value is that value at which a willing buyer and a willing
seller, neither being compelled to act and both being informed of the
relevant facts and conditions that might be anticipated, would effect a sale
of an asset at "arms' length" on a given date.
A comprehensive valuation considers all of the elements set forth by the
Internal Revenue Service in its Revenue Ruling 59-60. Although this ruling
was initially written for estate and gift tax purposes, it has become a
standard in the valuation field. Specifically, this ruling considers the
following factors in valuing the stock of closely-held companies:
1. The nature of the business and history of the enterprise.
2. The general economic outlook and condition and outlook of the specific
industry.
3. The book value of the stock and the financial condition of the
business.
4. The company's earnings capacity.
5. The company's dividend-paying capacity.
6. Whether or not the enterprise has goodwill or other intangible value.
7. Sales of stock and the size of the block to be valued.
8. The market prices of stocks of corporations engaged in the same or
similar lines of business whose stocks are actively traded in a free
and open market, either on an exchange or over the counter.
This Report also complies with the Uniform Standards of Professional
Appraisal Practice, which mirrors many of the provisions of Revenue Ruling
59-60, as well as requiring the certification found at the end of this report.
The value of a corporation's securities in the hands of its stockholders and
the value of the underlying assets of the corporation is usually only
incidentally related. The value of the securities that are freely traded in a
public market is influenced as much by external factors beyond the control of
the company as it is by internal factors within the control of management.
Fair market value of securities that enjoy an active public market is
determined by actual market quotation on a particular date, unless the market
for a security is affected by some abnormal influence or condition.
Determination of the fair market value of securities of a closely-held
corporation, however, cannot be determined as precisely, thus creating the
need for independent professional business valuation.
BUSINESS VALUATION & PLANNING GROUP BUSINESS VALUATION SERVICES PAGE 4
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Attention must be given to evidence of earning power, book value, dividend
paying capacity, financial and competitive position and other facts and
circumstances that a potential buyer and seller would consider. The general
economic environment, specific industry trends, and the overall operating
climate are considered in determining appropriate discount rates and other
estimates. Also, prices realized in actual acquisitions of similar companies
near the valuation date may be a realistic measure of value.
Professional valuation of a closely-held company cannot be considered an
exact science. Experience has shown, however, that comprehensive and thorough
valuation analyses can generate an estimate of value that is reasonable and
relevant.
In preparing this Report, information was provided by the management of
GLYCOSYN PHARMACEUTICALS, INC. The Business Valuation & Planning Group is not
in position to certify the accuracy of basic data provided by the Company,
and the validity of this Report is dependent upon the accuracy of such data
and information. The Business Valuation & Planning Group does certify,
however, that conceptually-sound methods were used in the valuation.
Although, several methods were considered in valuing Glycosyn, the Income
Value Method was deemed the most applicable valuation method to value
Glycosyn.
CONTROL AND MARKETABILITY
The uncertainty inherent in the valuation process will likely cause differing
methods of valuation to produce disparate estimates of value. The value of a
security is influenced by many of its characteristics, including control and
marketability.
CONTROL
The market value of public securities normally reflects the minority
interest being traded. The price of a successful tender offer seeking
control is usually higher than previous minority trades and reflects the
value of the premium for control. For those methods which yield minority
interest values, such as the Market Value Method, a control premium may
have to be applied to Glycosyn Pharmaceuticals, Inc. in which a 100%
interest in being valued.
Control premium studies examine the difference in stock prices of a
particular company immediately before and immediately after the majority of
its stock is tendered. In a normal public market environment, only minority
positions are traded on a regular basis. The median range of control
premiums in the stock market has ranged from 30% to 45%, as per Mergerstat
Review, 1987, published by W.T. Grimm & Company. Subsequent studies support
these figures.
MARKETABILITY
The market value of public companies is based on comparisons with current
values of securities traded on national exchanges. There are important
marketability differences between the Company's securities and publicly
traded securities. An owner of publicly traded securities can determine the
market value of his holdings at all times. He can sell those holdings on
virtually a moment's notice and receive cash net of brokerage fees within
five working days.
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As a privately-held company, Glycosyn does not have a readily available
market for its stock. Consequently, there is no assurance of finding a
buyer at any price. Moreover, liquidating a position in the Company could
be a more costly and time-consuming process than liquidating stock in a
publicly traded firm. Therefore, a discount relative to the values of
publicly traded securities may have to be applied to the value of the
Company's securities to reflect this limited marketability.
Determining an exact discount for lack of marketability is a difficult
process. There have been numerous studies conducted focusing on the
discounts related to the value of restricted stocks. Eight significant
studies have been made covering transactions since 1966.
One of the largest studies was conducted by the Securities and Exchange
Commission, which studied reporting and non-reporting companies. The
overall average discount was 25.8%, while the average discount for
non-reporting OTC companies (a better comparison to small, privately-held
companies) was 32.6%.
A study conducted by Milton Gelman in 1972 evaluated 89 transactions of
four closed-end investment companies specializing in restricted securities
investments. The mean discount on these transactions was 33%, with almost
60% of the transactions having a discount of 30% or greater.
Robert Trout studied 60 purchases of restricted company stock from 1968 to
1972 and developed a regression model. The result of this study was a
discount of 33.45%. For those companies in this study that were traded on a
national stock exchange, the discount was lower than the discount of stock
which was more thinly traded.
In the May 1973 issue of Taxes, Robert E. Moroney published the results of
his study of 146 transactions handled by ten registered investment
companies. The range of the discounts was wide: as low as 3% to as high as
90%. For one of the stocks alone, the range was 10% to 90%. The average
discount for the stocks in the study was 35.6%.
J. Michael Maher published a later study in the September 1976 issue of
Taxes. His approach was similar to that of the Moroney study; he evaluated
the sale of restricted stock from 1969 to 1973 and calculated an average
discount of 35.43%. Even after eliminating the top ten percent of high and
low transactions, the average remained fairly steady at 34.73%.
Standard Research Consultants ("SRC") evaluated the validity of the prior
SEC study. In 1983, SRC studied 28 private placements of restricted company
stock from 1978 to 1982. The range of the discount was 7% to 91%, with a
median discount of 45%.
Willamette Management Associates, Inc. ("WMA") studied 33 transactions
involving restricted stock from 1981 to 1984. Most of the transactions
occurred in 1983. The median discount of those transactions was 31.2%. This
slightly lower discount when
BUSINESS VALUATION & PLANNING GROUP BUSINESS VALUATION SERVICES PAGE 6
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compared to the other studies is explained by the depressed stock market
during the period of the study.
Over the past several years, WMA has conducted a series of nine studies
comparing private stock transactions to subsequent public offerings of
stock in the same companies. The studies covered 12 years through 1989 and
showed discounts ranging from 41.7% to 74.4%.
The use of a discount for lack of marketability in this range has also been
supported by a number of court cases, including William T. Piper, Sr. Est.
(72 TC No. 88 CCH Dec. 36,315) and Estate of Arthur F. Little, Jr. [TCM
1982-26, CCH Dec. 38729(M)].
In the case of Glycosyn Pharmaceuticals, Inc., a discount for the lack of
marketability of 32% was applied, since the risk premium was not considered
to be sufficient to include risks associated with the lack of
marketability.
BUSINESS VALUATION & PLANNING GROUP BUSINESS VALUATION SERVICES PAGE 7
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INCOME VALUE METHOD
- --------------------------------------------------------------------------------
The income value method attempts to determine the present value of
anticipated future cash flow. In this analysis, financial projections are
made by the Company. In the case of Glycosyn Pharmaceuticals, Inc., a
forecast of three years is deemed to be sufficient. The operating cash flow
for these years is then discounted to its present value using an appropriate
discount rate. A terminal value of the business is then added to this present
value figure.
Management compiled its estimate of revenues and expenses. The cash flow
resulting from this financial forecast is then discounted to its present
value to determine the value in today's dollars. The present value of future
cash flow depends on the amount and timing of that cash flow. The risk
involved in earning that cash flow is a critical factor in determining the
discount rate.
The Capital Asset Pricing Model is a useful method of determining an
appropriate rate by which to discount the projection of future cash flow. The
model, in simplest terms, is based on the assertion that investors in risky
securities require a return higher than the expected rate of return on
risk-free investments. In essence, a premium for systematic risk is added to
a risk-free return to arrive at a discount rate for a closely-held company.
Since an investor in GLYCOSYN PHARMACEUTICALS, INC. would typically not have
a portfolio of investments available to him, an additional discount for
unsystematic risk is also added. Since this analysis was performed on a
pre-tax basis, a taxable security instrument was used as the basis for
developing a discount rate. The "30 Year Treasury Securities" rate is used as
the risk free, taxable rate. The 31 December 1997 figure of 6.73% was used as
the base rate.
The amount of the risk premium to be used for systematic and unsystematic
risk is based on a proprietary mathematical model developed by the Business
Valuation & Planning Group which yielded a risk premium of 45.00%. Adding the
base rate of 6.73% to the risk premium of 45% yields a discount rate of
51.73%. This discount rate is support by the SRC and WMA studies for a
business similar to Glycosyn with its historical losses and risk for
advancing its technology.
The three years of operating cash flow is then discounted to current dollars
using this discount rate. The value of the business must also take into
account the fact that the company will still be operating at the end of the
forecast period. Therefore, a terminal value beyond the end of the forecast
must be calculated and discounted to current dollars. The operating cash flow
figure for Year 5 was used to compute the terminal value. This figure is
capitalized using the reciprocal of the discount rate. This value was then
discounted to current dollars. We then applied a discount for the lack of
marketability of 32%. The value derived by the Income Value method was used
to determine the fair market value of Glycosyn Pharmaceuticals, Inc.
The discount for the lack of marketability has taken into account the level
of risk that may be perceived by a prospective investor, given that the
Company has not yet obtained a significant level of patents and government
approvals. Whereas, the discount rate has taken into account the level of
risk based on the Company's historical operational and financial performance.
BUSINESS VALUATION & PLANNING GROUP BUSINESS VALUATION SERVICES PAGE 8
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VALUATION
All financial statements were unaudited and the documentation was not subjected
to further verification. It is presumed that GLYCOSYN PHARMACEUTICALS, INC. was
conducting business in an approved manner during the valuation period under all
IRS rules and regulations applicable to the business.
Based on Income Value Method, it is our opinion that, as of 31 December 1997,
the fair market value of common stock of GLYCOSYN PHARMACEUTICALS, INC. is
$930,423. In valuing GLYCOSYN PHARMACEUTICALS, INC., we have included the
Owner's fair market value of equity in the overall valuation. Moreover, the
derived value presumes that the Company's stock is purchased under normal terms
and conditions in an arm's length transaction. The following table summarizes
the valuation calculation:
<TABLE>
<CAPTION>
DISCOUNTED CASH FLOW ANALYSIS
-----------------------------
FISCAL YEAR CASH FLOW(1) PRESENT VALUE
----------- ----------------------------- -------------
<S> <C> <C>
1998 $ 61,025 $ 40,219
1999 618,524 268,667
2000 1,261,649 361,180
---------------
$ 1,941,198
Cumulative Present Value of Cash Flows $ 670,066
Plus: Discount for Lack of Marketability @ 30% (437,846)
---------------
FAIR MARKET VALUE $ 930,423
</TABLE>
(1) From the Pro Forma Income Statement in Appendix 4.
(2) The residual value was determined by a three-step process. First, cash
flow was projected for 2000. Second, that projected cash flow was capitalized
by the assumed ROI. Third, the capitalized amount was discounted to its
present value.
This method yields a reasonable estimate of Glycosyn's FMV. Therefore, it was
used to value Glycosyn.
BUSINESS VALUATION & PLANNING GROUP BUSINESS VALUATION SERVICES PAGE 9
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MARKET VALUE METHOD
- -------------------------------------------------------------------------------
The Market Value Method utilizes values of transactions publicly disclosed and
attempts to identify comparable transactions to the company being valued. Our
research identified transactions of companies, somewhat comparable to Glycosyn,
and these transactions were utilized to value the Company. We were able to
justify the use of publicly-held companies, since the basic operations of
publicly-held companies do not differ a great extent from that of privately-held
companies in this industry. The following table summarizes our findings:
<TABLE>
<CAPTION>
MARKET VALUES
----------------------------------------------------------------------------------
VALUE AS A
TRANSACTION MULTIPLE OF
BUYER SELLER VALUE NET SALES
--------------------------- ------------------ ------------- -----------
<S> <C> <C> <C>
Watson Pharmaceuticals, Inc. Royce Laboratories $ 84,200,000 3.97
E.M. Warburg Pincus & Co. Envirogen, Inc. $ 16,000,000 1.51
</TABLE>
VALUATION CONCLUSION
Utilizing the values in the table above we can derive values for Glycosyn. The
following table calculates these values:
<TABLE>
<CAPTION>
GLYCOSYN'S MARKET VALUES
- ---------------------------------------------------------------------------------------------
COMPARABLE
VALUE AS A
GLYCOSYN'S SALES IN BASE YEAR COMPARABLE MULTIPLE OF
(1997) TRANSACTION SALES VALUE
-------------------------------- ------------------ ----------- ------------
<S> <C> <C> <C>
$ 4,041,644 Royce Laboratories 3.97 $ 1,092,217
$ 4,041,644 Envirogen, Inc. 1.51 $ 415,094
</TABLE>
The values for Glycosyn using the Market Value Method yielded values ranging
from $415,094 to $1,092,217. These values represent the relevant range for
valuing the Company. However, the value closest to the estimated FMV of
Glycosyn in the Table above is $1,092,217. Nevertheless, the Market Value
Method was eliminated from the Fairness Opinion, since the comparable companies
above are dissimilar to Glycosyn, in terms of size and operational structure.
BUSINESS VALUATION & PLANNING GROUP BUSINESS VALUATION SERVICES PAGE 10
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BOOK VALUE METHOD
- --------------------------------------------------------------------------------
We also considered the book value method in valuing Glycosyn Pharmaceuticals,
Inc. However, the book value of a company rarely bears a relationship to the
market value of the firm's stock. Whereas book value is a useful accounting
concept, it has only limited applicability in the valuation process. As of
December 31, 1997, the book value of Glycosyn Pharmaceuticals, Inc., that is the
assets less the liabilities on a estimated, recast basis is $838,871.
The value of a company is typically not a function of what the assets of the
company could be sold for (net of liabilities), but is rather a function of how
those assets can be utilized in generating revenue and net income. Internal
Revenue Ruling 59-60 states:
Earnings may be the most important criterion of value in some cases
wherein asset value will receive primary consideration in others. In
general, the appraiser will accord primary consideration to earnings
when valuing stocks of companies which sell products or services to
the public; conversely, in the investment or holding type of company,
the appraiser may accord the greatest weight to the assets underlying
the security to be valued. [Section 5]
Since, Glycosyn Pharmaceuticals, Inc. is an operating company engaged in the
development of pharmaceutical products, the book value of the Company is not
indicative of value, therefore, the Book Value Method will not be used for this
valuation.
BUSINESS VALUATION & PLANNING GROUP BUSINESS VALUATION SERVICES PAGE 11
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DEAL STRUCTURE
- --------------------------------------------------------------------------------
Glycosyn Pharmaceuticals, Inc.'s value may include some form of "deal structure"
or deferred payments. By accepting part of the payment in a form other than
cash, it is possible to offset some of the risk the buyer assumes, thereby
maximizing the total selling price.
From the buyer's perspective, factors contributing to transaction risk include:
- The price of the business in relation to historical earnings, cash
flow and net asset value
- Competition and the ease of competition entering into the marketplace
- Product liability exposure and other potential litigation issues
- Reliance of the business on key personnel, customers, and suppliers
- The sensitivity of the business' earnings to swings in the overall
economy
- Current state of Glycosyn Pharmaceuticals, Inc.'s products relative to
the market it serves
- Current state of the ability of plant and equipment to meet present
and future needs
Glycosyn Pharmaceuticals, Inc.'s potential for future sales and profits is
estimated to be strong over the next three years. For this reason, the Company's
price may be optimized through a deal structure which includes a part of the
purchase price in the form of deferred payments. Such deferred payments could
include amounts related to notes, non-compete agreements, consulting contracts,
and participation in future earnings (i.e., commonly referred to as "earnouts").
The ultimate realization of some of the deferred payments could be dependent on
successful operation of the Company after acquisition. In the case of an
earnout, the deferred payments would be contingent upon the Company achieving
agreed-to levels of sales and/or earnings for a specified period after the sale.
BUSINESS VALUATION & PLANNING GROUP BUSINESS VALUATION SERVICES PAGE 12
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FACTORS AFFECTING VALUE
- --------------------------------------------------------------------------------
Glycosyn Pharmaceuticals, Inc.'s value is based on an analysis of:
- The Company's financial performance.
- Strengths and weaknesses of the Company.
- The growth and opportunities of Glycosyn Pharmaceuticals, Inc.'s
industry and markets.
- Likelihood of being sold under the current market conditions.
Each of these components plays an important role in the value of Glycosyn
Pharmaceuticals, Inc. Some components will positively influence value, while
other factors of value, which a buyer may perceive as a threat to the Company's
future profit potential, will discount value. Elements which increase risk
decrease the value of the business. Conversely, elements which decrease risk,
increase the Company's value. High risk factors have a greater ability to
adversely affect the Company's earning power than do low risk factors.
There is no guarantee, however, that the Company's assessed risk will
necessarily apply in the future. Notwithstanding, taking all factors into
consideration, the risk associated with this business appears to be moderate.
There are two factors ranked "high." The balance of the risk factors were
ranked as "moderate," "low," or "very low." These factors are summarized below:
<TABLE>
<CAPTION>
VERY LOW LOW MODERATE HIGH VERY HIGH
-------- --- -------- ---- ---------
<S> <C> <C> <C> <C> <C>
SUMMARY OF RISK FACTORS 4 5 8 2 0
</TABLE>
The mean risk factor is 2.42. Therefore, the overall risk is considered to be
Moderate. The table on the next page shows each risk factor considered in
assessing the degree of risk inherent in this business:
<TABLE>
<CAPTION>
CURRENT
RISK FACTOR STATUS RISK PROFILE RATE
- ------------------------------- ------- ------------ ---------
<S> <C> <C> <C>
Years in Business 5 years 3 Moderate
Proprietary Content Low 2 Low
Industry Life Cycle Growth 3 Moderate
Industry Stability Stable 4 High
Relative Size of Company Small 3 Moderate
Concentration as a % of Sales High 4 High
Relative Service/Product Quality High 1 Very Low
Product/Service/Differentiation Low 3 Moderate
</TABLE>
BUSINESS VALUATION & PLANNING GROUP BUSINESS VALUATION SERVICES PAGE 13
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<TABLE>
<CAPTION>
CURRENT
RISK FACTOR STATUS RISK PROFILE RATE
- ------------------------------- ------- ------------ ---------
<S> <C> <C> <C>
Strength of Market Growing 3 Moderate
Size of Market Medium 3 Moderate
Price Competition Low 2 Low
Employee Turnover Low 2 Low
Technical Employees Highly 1 Very Low
Skilled
Unionization None 1 Very Low
Management Depth, Quality Limited 3 Moderate
Condition of Facilities Very Good 1 Very Low
Ease of Market Entry High 2 Low
Ease of Market Exit High 3 Low
Reg. Response/Environ. Excellent 3 Moderate
Compliance
</TABLE>
BUSINESS VALUATION & PLANNING GROUP BUSINESS VALUATION SERVICES PAGE 14
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CONTINGENT AND LIMITING CONDITIONS
- --------------------------------------------------------------------------------
1. The appraiser assumes no responsibility for matters of a legal nature
affecting the business appraised. This includes any liability for damage,
loss, or injury resulting from negligence or contingencies beyond Business
Valuation & Planning Group's total control.
2. The appraiser is not required to appear in court because of having made the
appraisal of the business in question, unless arrangements have been
previously made therefor.
3. The stated value is only valid for the date of the valuation and for the
purpose specified.
4. Future events, changed conditions, and other external factors, over which
the Business Valuation & Planning Group has no control may affect the
Company's value.
5. Business Valuation & Planning Group does not assume any of the Company's
business risks which could be attributable to the accuracy, completeness,
or relevancy of the materials supplied by the Company which are contained
in this report.
BUSINESS VALUATION & PLANNING GROUP BUSINESS VALUATION SERVICES PAGE 15
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CERTIFICATION
- --------------------------------------------------------------------------------
We certify that, to the best of our knowledge and belief,
1. The statements of fact contained in this report are true and correct.
2. The report analysis, opinions and conclusions are limited only by the
reported assumptions and limiting conditions, and are our personal,
unbiased professional analysis, opinions and conclusions. Moreover,
the stated value is considered to be an objective appraisal.
3. Our analysis, opinions, and conclusions were developed, and this
report have been prepared, in conformity with the Uniform Standards of
Professional Appraisal Practice.
4. No one provided significant professional assistance to the person
signing this report, except for other individuals of Business
Valuation & Planning Group.
5. The Business Valuation & Planning Group attest that neither it nor its
affiliated representatives who assisted in this Fairness Opinion have
no future interest in the subject business as a buyer or investor.
The Fairness Opinion expressed herein is valid only for the stated purpose and
date of the appraisal. Whereas we deemed as reliable the financial information
provided and the forecast presented, we make no representation as to the
accuracy or completeness of this data.
/s/ JIM MCCUNE
----------------------------------
Jim McCune
Managing Director
Business Valuation & Planning Group
BUSINESS VALUATION & PLANNING GROUP BUSINESS VALUATION SERVICES PAGE 16
