<PAGE> 1
As filed with the Securities and Exchange Commission on October 24, 1997
REGISTRATION NO.
-------------
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORPORATION
(Name of small business issuer in its charter)
OREGON 4724 93-0950786
(State or other jurisdiction (Primary industrial (I.R.S.
of incorporation or organization) classification code Employer
number) Identification No.)
GRAND ADVENTURES TOUR & TRAVEL MATTHEW O'HAYER
PUBLISHING CORPORATION 1120 Capital of Texas Highway South
1120 Capital of Texas Highway South Bldg. 3, Suite 300
Bldg. 3, Suite 300 Austin, Texas 78746
Austin, Texas 78746 (512) 329-7255
(512) 329-7255 (Name, address, including zip code,
(Address, including zip code, and and telephone number, including
telephone number, including area code, area code, of agent for service)
of registrant's principal executive
offices and principal place of business)
-----------------------
Copies to:
VINCE MOUER MARK ROBERTSON
Kuperman, Orr, Mouer & Albers, P.C. Robertson & Williams, Inc.
100 Congress Avenue, Suite 1400 3033 Northwest 63rd Street, Suite 160
Austin, Texas 78701-4042 Oklahoma City, Oklahoma 73116
-----------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Title of each Dollar Proposed maximum Proposed maximum
class of securities Amount to be offering price aggregate offering Amount of
to be registered Registered per unit price registration fee
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCK $4,900,000 $7.00 $5,635,000 $1,707.53
- ----------------------------------------------------------------------------------------------------------
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
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<PAGE> 3
CROSS REFERENCE SHEET
(Pursuant to Rule 404(a))
<TABLE>
<CAPTION>
ITEM
No. Item Location in Prospectus
-- ---- ----------------------
<S> <C> <C>
1. Front of Registration Statement and Outside Front of Registration Statement; Outside Front
Front Cover Page of Prospectus . . . . . . Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages Inside Front and Outside Back Cover Pages of
of Prospectus . . . . . . . . . . . . . . . Prospectus
3. Summary Information and Risk Factors . . . Prospectus Summary; Risk Factors
4. Use of Proceeds . . . . . . . . . . . . . . Use of Proceeds
5. Determination of Offering Price . . . . . . Underwriting
6. Dilution . . . . . . . . . . . . . . . . . Dilution
7. Selling Security Holders . . . . . . . . . Not Applicable
8. Plan of Distribution . . . . . . . . . . . Underwriters
9. Legal Proceedings . . . . . . . . . . . . . Not Applicable
10. Directors, Executive Officers, Promoters
and Control Persons . . . . . . . . . . . . Management
11. Security Ownership of Certain Beneficial Principal Stockholders
Owners and Management . . . . . . . . . . .
12. Description of Securities To Be Registered Description of the Securities
13. Interests of Named Experts and Counsel . . Experts, Legal Matters
14. Disclosure of Commission's Position on
Indemnification for Securities Act Management
Liabilities . . . . . . . . . . . . . . . .
15. Organization Within Last Five Years . . . . Prospectus Summary - Overview; Prospectus Summary -
Use of Proceeds; Use of Proceeds; THE BUSINESS--The
Merger; Security Ownership of Certain Beneficial
Owners and Management; Management - Certain
Relationships and Related Transactions
16. Description of Business . . . . . . . . . . Available Information; Risk Factors, Management's
Discussion and Analysis of Financial Condition;
Security Ownership of Certain Beneficial Owners
and Management; Management; Description of the
Common Stock; Index to Financial Statements
17. Management's Discussion and Analysis of The Company; Management's Discussion and Analysis
Plan of Operation . . . . . . . . . . . . . of Financial Conditions and Results of Operation
18. Description of Property . . . . . . . . . . The Company
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C> <C>
19. Certain Relationships and Related Use of Proceeds; The Company - The Business of the
Transactions . . . . . . . . . . . . . . . Company; Management - Certain Relationships and
Transactions
20. Market for Common Equity and Related Risk Factors; Description of Securities; Shares
Stockholder Matters . . . . . . . . . . . . Eligible for Future Sale
21. Executive Compensation . . . . . . . . . . Management
22. Financial Statements . . . . . . . . . . . Financial statements
23. Changes in and Disagreements with Not Applicable
Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . .
</TABLE>
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<PAGE> 5
SUBJECT TO COMPLETION, DATED OCTOBER 24, 1997
PROSPECTUS
700,000 SHARES
[GATT LOGO]
COMMON STOCK
All of the shares of common stock, $.0001 par value (the "Common
Stock"), offered hereby (the "Offering") are being sold by Grand Adventures
Tour & Travel Publishing Corporation, an Oregon corporation (the "Company" or
"GATT"). Prior to this Offering, the Company's Common Stock has been traded on
a very limited basis on the over-the-counter electronic bulletin board
maintained by the National Association of Securities Dealers under the symbol
"GATT." The Company has applied for listing on the [American Stock Exchange]
under the symbol "GAT." The initial public offering price is expected to be
$7.00 per share. See "UNDERWRITING; Determination of Offering Price" for a
discussion of the factors considered in determining the initial public offering
price.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THESE ARE SPECULATIVE SECURITIES. THE SECURITIES OFFERED HEREBY
INVOLVE A HIGH DEGREE OF RISK, AND SUBSTANTIAL DILUTION AND SHOULD BE
CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE ENTIRE LOSS OF THEIR INVESTMENT.
SEE "RISK FACTORS" BEGINNING AT PAGE ___ AND "DILUTION" AT PAGE ___.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Price To Underwriting Proceeds to
Public Discount Company (2)
and Commissions (3)
(1)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ 7.00 $____________ $____________
TOTAL(3) $____________ $____________
$4,900,000
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933,
as amended (the "Securities Act"). See "UNDERWRITING."
(2) Before deducting expenses payable by the Company, estimated at $_____.
See "USE OF PROCEEDS" and "UNDERWRITING."
(3) The Company has granted the Underwriters an option, exercisable within
45 business days from the date of this Prospectus, to purchase up to
105,000 additional shares of Common Stock upon the same terms and
conditions as set forth above, solely to cover over-allotments, if
any. If such over-allotment option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds
to Company will be $5,635,000.00, $______________- and
$_________________, respectively. See "UNDERWRITING."
The shares of Common Stock being offered by this Prospectus are
offered by the Underwriters, subject to prior sale, when, as and if delivered
to and accepted by the Underwriters subject to certain other conditions. It is
expected that delivery of the shares of Common Stock will be made against
payment therefor at the offices of Capital West Securities, Inc., 211 North
Robinson, 16th Floor, Oklahoma City, Oklahoma 73102, on or about December ___,
1997.
Capital West Securities, Inc.
THIS PROSPECTUS IS DATED , 1997.
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<PAGE> 6
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE
COMMON STOCK, INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE THEIR MARKET
PRICE OR PURCHASES OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION
IN THE COMMON STOCK MAINTAINED BY THE UNDERWRITERS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
-------------------
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON NASDAQ IN ACCORDANCE
WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
-------------------
The Company has filed a Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended, with the Securities and Exchange Commission
(the "Commission") with respect to the Securities offered pursuant to this
Prospectus. This Prospectus, which forms a part of the Registration Statement,
does not contain all of the information included in the Registration Statement
and the exhibits thereto. For further information, reference is made to the
Registration Statement and amendments thereof and to the exhibits thereto,
which are available for inspection without charge at the office of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of the
Registration Statement may be obtained from the Commission at prescribed rates.
-------------------
The Company will furnish to the common stockholders annual reports of
the Company containing audited financial statements. The Company will also
furnish, upon request from any stockholder, copies of any quarterly report
filed with the Commission.
-------------------
The mailing address of the Company's principal executive offices is
1120 Capital of Texas Highway South, Bldg. 3, Suite 300, Austin, Texas
78746, and its telephone number is (512) 329-7255.
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<PAGE> 7
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information and financial statements (including the notes thereto) and
the pro forma financial information appearing elsewhere in this Prospectus.
Unless otherwise indicated, the information in this Prospectus: (i) reflects a
1-for-7 reverse split of Common Stock effective prior to commencement of this
Offering (the "Reverse Stock Split"); (ii) assumes the conversion of
approximately $905,182 of the Company's convertible indebtedness shares into
395,303 shares of Common Stock upon the closing of this Offering (the
"Conversion"); and (iii) assumes that the Underwriters' over-allotment option
will not be exercised.
THE COMPANY
The Company serves a portion of the travel industry known as
"interliners" through two divisions operated within its wholly-owned
subsidiary. Interliners are the active employees and retirees of the airline
industry, who may fly on many carriers for free or at a very significantly
reduced fare, along with their families and the friends to whom they pass along
their allotments of no-cost or low-cost flying privileges. One division (the
"Publishing Division") publishes a magazine and other promotional material
directed at the interline market, see "THE BUSINESS; The Publishing Division,"
infra, and the other (the "Marketing Division") offers travel accommodations to
interliners. See "THE BUSINESS; The Marketing Division." infra.
The Publishing Division produces, publishes, and distributes Interline
Adventures, a 27 year-old, four-color, 120 plus-page, bi-monthly magazine, and
then supplements that publication with other information in between the
editions of the larger magazine. The Marketing Division, under the name
"Interline TravelReps," provides hotel and resort accommodations, consisting
of rooms or vacation packages (comprised of some combination of rooms, meals
and services) and berths or seats on cruises and escorted tours.
The Company uses the operations of the Publishing Division to market
the products offered by the Marketing Division. In addition to advertising and
products sold by the Marketing Division, the Publishing Division advertises
other travel accommodations and travel services in exchange for advertising
revenues or "room night" credits which can then be sold by the Marketing
Division. The Marketing Division procures its supply of hotel and resort
accommodations, cruise ship cabins, and tour reservations from the operators of
those businesses and then sells the products to the interliner at a price which
reflects a discount to the prevailing retail price. The amount charged to the
customer is established and published in the magazine and in the Company's
other publications and is quoted over the telephone by the Marketing Division's
reservation specialists.
MARKET OPPORTUNITY
The market that exists to service the interline market is highly
fragmented, generally consisting of small operators serving the market either
as a adjunct to a retail tour operation or by concentrating on an extremely
narrow segment. There are a handful of major interline companies that are
established and offer a relatively broad service, yet none of these operations
could be considered to have a dominant position. The Company believes that
with sufficient capital, it will be able to publish its magazine more
frequently, and more importantly, print and distribute a much larger number of
copies, thereby dramatically enhancing the Company's market presence. The
increased distribution levels should also serve to enhance the Company's
ability to realize advertising income and market its travel products.
On _______________, the Company completed a private placement (the
"1997 Private Placement") of units consisting of 10% Notes in an aggregate
principal amount of $500,000 and 500,000 shares of Common Stock. On
___________, 1997, the Company effected a 1 for 7 reverse stock split. Unless
otherwise indicated, the information in this Prospectus assumes that the 1997
Private Placement and the Reverse Stock Split were consummated prior to this
Offering. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" and "SELECTED FINANCIAL INFORMATION."
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<PAGE> 8
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered . . . . . . . . . . 700,000 shares
Common Stock Outstanding . . . . . . . .
Prior to the Offering (1) . . . 1,827,021
After the Offering (1) . . . . . 2,527,021
Use of Proceeds . . . . . . . . . . . . . The Company intends to use the net proceeds of the Offering
to retire the notes issued in the 1997 Private Placement;
expand its magazine publications; and for working capital and
general corporate purposes. See "Use of Proceeds."
Risk Factors . . . . . . . . . . . . . .
OTC EBB Trading Symbol . . . . . . . . . GATT
Proposed American Stock Exchange Symbol GAT
</TABLE>
(1) Does not include (i) 292,066 shares of Common Stock issuable
upon exercise of warrants issued and outstanding as of the
date of this Prospectus; (ii) shares of Common Stock issuable
upon exercise of the Underwriters' Warrants to be issued in
connection with the sale of shares of Common Stock in this
Offering; and (iii) 450,000 shares of Common Stock reserved
for issuance under the Company's stock option plans, of which
105,666 shares are subject to outstanding options. See
"UNDERWRITING" and "MANAGEMENT -- STOCK OPTION PLANS."
RISK FACTORS
The securities offered hereby are speculative and involve a high degree
of risk, including risk associated with the travel industry, general economic
conditions, dependence on suppliers and technology, competition and the risks
of development stage companies in general. Investors should carefully consider
the risk factors enumerated herein before investing in the Common Stock.
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<PAGE> 9
SUMMARY - FINANCIAL AND OPERATING DATA
The following table sets forth selected historical financial information
of the Company for each of the two fiscal years ended December 31, 1995 and
1996 and the nine months ended September 30, 1997. The following financial
information should be read in conjunction with such financial statements
including the notes thereto and the Pro Forma Balance Sheet included elsewhere
herein. Also see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS."
<TABLE>
<CAPTION>
UNAUDITED
YEAR ENDED YEAR ENDED NINE MONTHS ENDED
---------- ---------- -----------------
STATEMENT OF INCOME DATA DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
REVENUES ---- ---- ----
<S> <C> <C> <C>
Hotel revenue $ 2,289,018 $ 4,249,454 $ 3,473,835
Cruise and tour revenue 0 6,339,179 5,722,149
Magazine subscription and advertising revenue 0 374,789 340,276
Merchandise and other revenue 37,874 39,904 14,013
------------ ------------ ------------
Total Revenues 2,326,892 11,003,326 9,550,273
------------ ------------ ------------
COST OF SALES
Hotel cost 1,751,919 3,273,552 2,520,221
Cruise and tour cost 0 5,562,876 5,078,400
Magazine publishing cost 0 75,120 396,201
Merchandise cost 13,822 2,340 0
------------ ------------ ------------
Total Cost of Sales 1,765,741 8,913,888 7,994,822
------------ ------------ ------------
Gross Profit 561,151 2,089,438 1,555,451
OPERATING EXPENSES
Selling, general and administrative expenses 530,488 1,816,025 704,360
Wages 342,544 1,111,081 803,436
Depreciation and amortization 52,863 34,987 29,978
------------ ------------ ------------
Total Operating Expenses 925,895 2,962,093 1,537,774
------------ ------------ ------------
Net Loss Before Income Taxes (364,744) (872,655) 17,676
Income Tax Expense 0 0 0
Net (Loss) ($ 364,744) ($ 872,655) $ 17,676
============ ============ ============
Net (Loss) Per Common Share (Note 2) ($ 0.04) ($ 0.09) $ 0.00
============ ============ ============
Weighted Average Common Shares Outstanding 9,100,000 9,530,007 11,422.869
============ ============ ============
(not adjusted for 1 for 7 reverse stock split)
</TABLE>
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<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
==============================================================
PRO FORMA
AS ADJUSTED PRO FORMA
FOR THE 1997 AS ADJUSTED FOR
ACTUAL PRIVATE PLACEMENT THE OFFERING
==============================================================
<S> <C> <C> <C>
BALANCE SHEET DATA
Cash and Cash Equivalents $ 190,870 $ 640,920 $ 4,140,920
Total Assets 2,239,574 2,689,624 6,189,624
Long-term Obligations 803,480 1,303,480 64,473
Accumulated Deficit (1,775,131) (2,075,081) (2,075,081)
Total Stockholders' Equity (1,175,971) (1,225,921) 3,679,261
</TABLE>
RISK FACTORS
In consideration whether to subscribe for the purchase of Shares,
investors should consider the following:
LIMITED HISTORICAL FINANCIAL INFORMATION
The financial statements included within this Prospectus contain
unaudited pro forma financial information as of December 31, 1995, all as more
particularly set forth in the notes to such historical and pro forma financial
statements. This historical financial information is being furnished in
accordance with applicable disclosure requirements. Investors are cautioned,
however, that the results of operations of these divisions prior to their
acquisition by the Company are not likely to be indicative of the results of
operations of such divisions thereafter because of changes in management,
operating plans, integration of the various operating divisions, the Company's
long-term strategic plan, and other factors. Similarly, the financial
information respecting the Company since December 31, 1995, while the Company
was integrating the operations of the acquired divisions, implementing changes
in management policies and practices, and effecting other broad-scale changes
may not be indicative of the results of operations for the combined enterprise
in the future.
INTEGRATION OF ACQUIRED DIVISIONS
The Company's wholly-owned subsidiary acquired the majority of its
operating divisions in January 1996 and only since then has managed those
various divisions under the single management structure of the Company. In
bringing those separate acquired divisions under common management, the Company
has implemented a number of management and operating changes in an effort to
centralize certain management functions, take advantage of marketing, product,
and service synergies between the various divisions, and effect other changes
in order to position the Company for implementation of its long-term growth
strategies. There can be no assurances that all of such measures will yield the
results desired by the Company. The Company's future success will be dependent
on the success of such measures and, in the event that any of such measures do
not attain the desired level of success, the Company's ability to revise such
measures or adopt new measures in an attempt to more effectively integrate
these separate acquired divisions into coordinated enterprises and manage them.
There can be no assurance that the Company will be able to achieve results of
operations on a consolidated basis in the future that will be consistent with
the results of operations reported by such acquired divisions while they were
operated separately. See, "THE BUSINESS; The Merger and Integration of
Operating Divisions."
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<PAGE> 11
DEPENDENCE ON KEY EMPLOYEES
The Company relies on the experience and ability of its executive
officers and, senior management, and employees of its operating divisions, the
loss of any one of whom could have a material adverse effect on the Company.
Although the Company is considering the purchase of key-man life insurance
insuring the lives of some of its executives, no key executive is currently
covered by key man life insurance. See, "MANAGEMENT."
ABSENCE OF OPERATING CAPITAL/GOING CONCERN QUALIFICATION
The Company has a significant accumulated deficit and the Company's
auditors for fiscal year 1996 included in their audit opinions a qualification
regarding the Company's ability to continue as a going concern. Historically,
the Company has had insufficient cash or near-cash reserves and insufficient
current sources of operating income to satisfactorily implement its business
strategy and otherwise operate effectively. This has forced the Company to
publish and distribute its informational products on an inconsistent basis,
defer the payment of certain expense and otherwise limit its efforts to promote
sales growth. Although the Company believes that this Offering, if successful,
will provide enough capital to fully implement its business plan for the
foreseeable future, if implementation of the Company's business plan does not
generate cash resources in sufficient amounts and at appropriate times, the
Company may require additional capital or may be required to slow the
implementation of its business strategy. At this point in time, there can be no
assurances that the Company will be able to locate and procure such additional
capital. See, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS."
BUSINESS SEASONALITY
As most travel by interliners takes place during times when there are
empty seats on airlines, travel volume for the interline industry tends to
decrease when the leisure travel industry generally and airlines in particular
experience high traffic volume. Accordingly, generally high traffic volumes
from the middle of November through the middle of January usually result in low
interline traffic volumes. Management believes that it has taken appropriate
measures to prepare for the seasonality which confronts the Company but there
can be no assurance that this seasonality will not have a material adverse
effect on the Company or the Company's financial condition. See, "THE BUSINESS"
and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
COMPETITION
The Company is aware of over 30 competitors in the interline travel
industry, all of which are privately-held and for which no reliable sales
information is available. Two of the companies, Caesar's and Magellan, have
been in the travel business for over 20 years and have an established market
presence and variety of products and services. In providing travel services,
the Company believes that competition in the interline industry is based
principally on market visibility and the nature and variety of products and
services offered rather than merely price. The Company believes that it
benefits from being able to offer a broad variety of products in a variety of
destinations. The Company generally offers the prevailing interline discount
rate, and on specific customer requests, typically matches lower rates offered
by others. See "THE BUSINESS; The Marketing Division; Competition." In
publishing the Magazine, the Company competes with the ASU Travel Guide, an
approximately 400-page quarterly listing with a significant readership. The ASU
Travel Guide is not affiliated with any reservation or travel firm providing
the types of support services offered by the Company. Although the Company has
designed its products and services and its expansion strategy with a view to
operating in this competitive environment, there can be no assurance that the
Company will be able to compete effectively or profitably. Many of the
Company's competitors have significant management and financial resources and
more established market niches than the Company. See "THE BUSINESS; The
Publishing Division; Competition."
DIVIDENDS NOT LIKELY
The Company makes no assurances that its proposed operations will
result in sufficient revenues to enable profitable operations or to generate
positive cash flow. For the foreseeable future, the Company anticipates that it
will
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<PAGE> 12
use any funds available to finance the growth of the Company and that it will
not pay cash dividends to stockholders. See "DIVIDEND POLICY."
RISKS ASSOCIATED WITH THE TRAVEL INDUSTRY; GENERAL ECONOMIC CONDITIONS
The Company's results of operations will be dependent upon factors
affecting the travel industry. The Company's revenues and earnings are
especially sensitive to events that affect domestic and international air
travel, cruise travel and resort hotels in Mexico and the Carribbean. A number
of factors, most notably labor disturbances, but including political
instability, armed hostilities, international terrorism, extreme weather
conditions, a rise in fuel prices, a decline in the value of the U.S. dollar
and excessive inflation, could result in an overall decline in demand for
interline travel. These types of events could have a material adverse effect on
the Company's business, financial condition and results of operations. In
addition, demand for the Company's travel services may be significantly related
to the general level of economic activity and employment in the U.S. Therefore,
any significant economic downturn or recession in the U.S. could have a
material adverse effect on the Company's business, financial condition and
results of operations.
DEPENDENCE ON TRAVEL PROVIDERS
The Company is dependent upon travel providers for access to their
capacity. The Company anticipates that a significant portion of the Company's
revenues will be derived from the sale of capacity of relatively few travel
providers. Moreover, certain portions of the Company's business are dominated
by a limited number of providers, the loss of any of whom as a customer of the
Company could have a material adverse effect on a substantial portion of the
Company's business. The Company's agreements with its travel providers can
generally be canceled or modified by the travel provider upon relatively short
notice. The failure of a travel provider loss of a contract, changes in the
Company's pricing agreements or commission schedules, or more restricted access
to travel providers' capacity could have a material adverse effect on the
Company's business, financial condition and results of operations. See, "THE
BUSINESS; The Marketing Division."
DEPENDENCE UPON TECHNOLOGY
The Company's business is dependent upon a number of different
information and telecommunication technologies to facilitate its access to
information and manage a high volume of inbound and outbound calls. Any failure
of this technology would have a material adverse effect on the Company's
business, financial condition and results of operations. The Company is
dependent upon certain third party vendors, including central reservation
systems operators such as the SABRE Group, for access to certain information.
Any failure of these systems or restricted access by the Company would have a
material adverse effect on the Company's business, financial condition and
results of operations. See, "THE BUSINESS; Facilities."
LISTING REQUIREMENTS
The Company will apply for listing of the Common Stock on the American
Stock Exchange ("AMEX"). Inasmuch as the Company will not, solely after giving
effect to this Offering, meet the minimum requirements for the AMEX, it will
have to satisfy these requirements before it can apply to have its stock listed
on the AMEX. Management intends to file a listing application as a part of this
Offering. If the application is not granted by the staffs of that organization,
the Company may appeal such decision, which involves substantial additional
time and expense. At the time deemed appropriate by management, the Company
will incur costs for filing fees and other charges in seeking to have its
common stock listed on the AMEX, none of which will be recoverable in the event
the Company's application is not granted. See "DESCRIPTION OF SECURITIES;
Listing Requirements."
LIMITED AND UNCERTAIN MARKET FOR COMMON STOCK
The Common Stock is traded in the over-the-counter market and is
traded on the OTC Electronic Bulletin Board under the symbol "GATT," but there
has been very little consistent trading volume, with significant changes in the
bid and asked quotations for the Common Stock as a result of relatively minor
changes in the supply and demand and without any necessary correlation between
prices and the business, prospects, or results of operations of the Company.
The
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<PAGE> 13
Company believes that during the last few months, the Common Stock traded in
small amounts at prices of approximately $0.81 to $2.50 per share (before giving
effect to the Reverse Stock Split), but because of the lack of a continuous,
consistent trading volume, such figures should not be considered a reliable
indication of the market price for the Common Stock. Subscribers in this
Offering should be extremely cautious in relying on price quotations and other
market information respecting the Common Stock in making an investment decision.
See "DESCRIPTION OF SECURITIES; Determination of Offering Price." The Company
believes that the current trading activity does not represent a viable trading
market for the Common Stock.
The Company will apply for listing of the Common Stock on the American
Stock Exchange; however, there can be no assurance that an active public market
will develop. The initial public offering price was determined solely through
negotiations among the Company and representatives of the Underwriters based on
several factors, and may not be indicative of the market price for the Common
Stock after the completion of the Offering. Among the factors considered in such
negotiations were prevailing market conditions, the results of operations of the
Company in recent periods, the market capitalizations and stages of development
of other companies which the Company and the Underwriters believe to be
comparable to the Company, estimates of the business potential of the Company
and the present state of the Company's development. See "UNDERWRITING;
Determination of Offering Price."
Moreover, the trading price of the Company's Common Stock could be
subject to fluctuations in response to quarterly variations in results of
operations, announcements of new services or products by the Company or its
competitors, changes in financial estimates by securities analysts and other
events or factors. Recent history relating to the market prices of other newly
public companies indicates that the market price of the Company's Common Stock
following the Offering may be highly volatile. At various times, the stock
market has experienced volatility that has particularly affected the market
prices for stock of particular industry groups, such as retail-oriented
companies, often without regard to a particular company's operating results.
BLANK CHECK PREFERRED STOCK
The Board of Directors has the authority to issue the Preferred Stock
in one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series, without further vote or action by the stockholders. The issuance
of Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company without further action by the stockholders and
may adversely affect the voting and other rights of the holders of Common Stock.
The issuance of Preferred Stock with voting and conversion rights may adversely
affect the voting power of the holders of Common Stock, including the loss of
voting control to others, and otherwise result in dilution of the holders of
Common Stock. At present, the Company has no Preferred Stock outstanding and no
plans to issue any of the Preferred Stock. See, "DESCRIPTION OF SECURITIES."
SUBSTANTIAL DILUTION
The offering price of Common Stock is substantially in excess of book
value. On the basis of an assumed offering price of $7.00 per share (the low
point in the range set forth on the cover of this Prospectus), this Offering
involves an immediate dilution of approximately $5.69 per share of Common Stock
(approximately 82% of the offering price per share) between the offering price
per share and the pro forma net tangible book value per share of the Common
Stock immediately after the completion of this Offering. See "DILUTION."
LIMITED UNDERWRITING EXPERIENCE
Capital West Securities, Inc ("Capital West"), one of the Underwriters,
was first registered as a broker-dealer in May 1995 and has participated in only
eight public equity offerings as an underwriter, acting as a manager or
co-manager in five of those offerings. Prospective purchasers of the securities
offered hereby should consider this limited experience in evaluating this
Offering. See "UNDERWRITING."
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of shares of Common Stock by the Company or its existing
stockholders, or the perception that such sales may occur, could adversely
affect the market price of the Common Stock. Upon completion of the Offering,
2,527,021 shares of Common Stock will be outstanding (2,632,021 shares
outstanding assuming exercise of the Underwriters' over-allotment option in
full). Of the outstanding shares, the 700,000 shares (805,000 shares assuming
the Underwriters' over-allotment option is exercised in full) sold in the
Offering, and approximately 40,000 shares held by existing stockholders who are
not, as of the date of this Prospectus, "affiliates" of the Company, will be
tradeable without restriction. The remaining shares of Common Stock to be
outstanding after the Offering are "restricted securities" (the "Restricted
Securities") within the meaning of Rule 144 under the Securities Act and may not
be publicly resold, except in compliance with the registration requirements of
the Securities Act or pursuant to an exemption from registration, including that
provided by Rule 144 promulgated under the Securities Act. The Company believes
that the holders of approximately 400,000 of the Restricted Securities have
satisfied the one-year holding period mandated by Rule 144 and are capable of
sale in accordance with the other requirements of that rule. Approximately 34%
of the outstanding shares of Common Stock after the Offering (assuming that the
Underwriter's over-allotment option is not
-9-
<PAGE> 14
exercised), in addition to being Restricted Securities, are subject to
agreements to not sell such Restricted Shares for a 12-month period or, in the
case of certain executive officers of the Company, a 24-month period. Sales of
substantial amounts of Common Stock, or the perception that such sales could
occur, could adversely affect the prevailing market price of the Common Stock.
See "SHARES ELIGIBLE FOR FUTURE SALE" and "UNDERWRITING."
In addition to the outstanding shares of Common Stock, there are
242,066 shares subject to outstanding warrants and options at a weighted
average exercise price of $6.87 per share. There are also 450,000 shares of
Common Stock reserved for issuance under the Company's stock option plans, of
which 105,666 shares are subject to outstanding options at a weighted average
exercise price of $7.00 per share. See "MANAGEMENT; Incentive Stock Option
Plan." Registration statements are expected to be filed to permit the resale of
shares issuable upon exercise and, the resale of the shares acquired upon
exercise could adversely affect the prevailing market price of the Common Stock.
See "SHARES ELIGIBLE FOR FUTURE SALE."
CERTAIN GENERAL AND FORWARD-LOOKING INFORMATION
This Prospectus contains information developed by the Company, general
industry information from third party sources, estimates of market size and
characteristics, projected market growth, anticipated capital requirements,
assumptions concerning competitive conditions, and other matters. All of such
material is based on a number of variables, hypotheticals, and assumptions,
including third party data believed reliable but not fully verified or
verifiable independently by management of the Company. Further, the effect of
such information on the business of the Company is based on estimates and
future circumstances, including events that have not occurred, which may not
occur, or which may occur with difference consequences from those forecast. If
investors were to consult their own advisors and industry experts, it should be
expected that their views may differ from those set forth herein. Future
operating results are impossible to predict. No representation or warranty of
any kind is made by the Company, and none should be inferred, respecting the
future accuracy or completeness of such forward-looking information. See,
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
VOTING CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS
The Company's executive officers and directors, entities affiliated
with them and employees of the Company and holders of at least 5% of the
outstanding Common Stock affiliated with the executive officers and directors
will beneficially own shares of Common Stock representing more than 37% of the
total voting power of the Common Stock after giving effect to the Offering.
These persons, if acting in concert, will be able to exercise control over the
Company's affairs and are likely to be able to control the Board of Directors
and the disposition of any matter submitted to a vote of stockholders. See,
"PRINCIPAL STOCKHOLDERS."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 700,000 shares
being offered hereby are estimated to be approximately $4.0 million
(approximately $4.6 million if the Underwriters' over-allotment option is
exercised in full), assuming an initial offering price of $7.00 per share and
after deducting the estimated underwriting discounts and commissions and
offering expenses. The Company expects to use the net proceeds (assuming no
exercise of the Underwriters' over-allotment option) in fiscal 1998
approximately as follows:
<TABLE>
<CAPTION>
USE APPROXIMATE APPROXIMATE PERCENTAGE
DOLLAR AMOUNT OF NET PROCEEDS
<S> <C> <C>
Marketing/Publishing Expenses................... $ 1,750,000 43.75%
Furniture and Equipment.......................... 500,000 12.5%
Operating Capital................................ 1,000,000 25.0%
Repayment of debt incurred in connection
with 1997 Private Placement Financing and
other accumulated liabilities ................... 750,000 18.75%
TOTAL............................................ $4,000,000 100.0%
========== ======
</TABLE>
-10-
<PAGE> 15
Where appropriate, proceeds of this Offering also may be used to
acquire competitors who help the Company to more completely serve its markets
and clientele or to expand the Company's clientele, although there are no
present understandings, agreements or commitments with respect to any such
acquisitions.
Any remaining net proceeds are to be used for working capital and
other general corporate purposes. Pending application of the proceeds described
above, the net proceeds of the Offering will be invested in short-term,
investment grade, interest-bearing securities.
DIVIDEND POLICY
The Company makes no assurance that its proposed operations will
result in sufficient revenues to enable profitable operations or to generate
positive cash flow. For the foreseeable future, the Company anticipates that it
will use any funds available to finance the growth of the Company and that it
will not pay cash dividends to stockholders.
The payment of dividends, if any, in the future is within the
discretion of the Board of Directors and will depend on the Company's earnings,
its capital requirements, restrictions imposed by lenders and financial
condition and other relevant factors.
DILUTION
At September 30, 1997, pro forma net tangible book value of the
Company's Common Stock was approximately ($701,580), or ($0.38) per share,
after giving effect to (i) the 1997 Private Placement, (ii) the Reverse Stock
Split and (iii) the Conversion, all as if completed at September 30, 1997. "Pro
forma net tangible book value" per share of Common Stock is defined as total
tangible assets of the Company less total liabilities, divided by the total
number of shares of Common Stock outstanding. Giving effect to the Offering, at
an assumed initial public offering price of $7.00 per share, the adjusted pro
forma net tangible book value of Common Stock at September 30, 1997 would have
been approximately $1.31 per share of Common Stock. This will represent an
immediate dilution of $5.69 per share to new investors purchasing shares of
Common Stock in this Offering. The following table illustrates the per share
dilution to new investors:
<TABLE>
<S> <C>
Assumed initial public offering price per share.................................. $7.00
Pro forma net tangible book value per share at September 30, 1997................ ($0.38)
Increase attributable to new investors........................................... $1.69
Pro forma net tangible book value per share after the Offering................... $1.31
Dilution per share to new investors.............................................. $5.69
</TABLE>
The foregoing discussion and table do not assume the exercise of
warrants and stock options which are outstanding as of the date of this
Prospectus and entitling the holders thereof to purchase 397,733 shares of
Common Stock at a weighted average exercise price per share of $6.90, after
giving effect to the Reverse Stock Split.
A significant portion of the outstanding shares of Common Stock,
including substantially all of the shares of Common Stock owned by officers,
directors and affiliates of the Company, were issued in connection with a
Merger between the Company, a wholly-owned subsidiary of the Company and
Airfair Publishing, Inc. See "THE BUSINESS; The Merger" and "CERTAIN
TRANSACTIONS." Prior to the Merger, there was no reliable trading market for
shares
-11-
<PAGE> 16
of Common Stock, or any other reliable means of ascertaining the value of the
securities surrendered, as part of the merger, and in exchange for shares of
the Company's Common Stock.
CAPITALIZATION
The following table sets forth: (i) the capitalization of the Company
as of September 30, 1997, as adjusted for the Reverse Stock Split; (ii) the
effect of the completion of the 1997 Private Placement, with net proceeds to
the Company of approximately $450,000, as if completed at September 30, 1997;
and (iii) the pro forma capitalization of the Company as of such date, after
giving effect to the Conversion and the sale of the 700,000 shares of Common
Stock offered hereby at an assumed offering price of $7.00 per share. This
table should be read in conjunction with "USE OF PROCEEDS," "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," "PRO
FORMA BALANCE SHEET" and the financial statements and notes appearing elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
September 30, 1997
- --------------------------------------------------------------------------------------------------------------------
Pro Forma
-------------------------------------
As Adjusted As Adjusted for As Adjusted for
for the the 1997 the Offering (2)
Reverse Stock Private
Split (1) Placement (1)
<S> <C> <C> <C>
Long-term obligations...................................... $803,480 $1,303,480 $64,473
Stockholders' equity:
Preferred stock --
10,000,000 shares authorized;
none issued and outstanding
at September 30, 1997...................................... $------------- $------------- $-------------
Common Stock; $.0001 par value: 30,000,000 shares
authorized; 1,431,718 shares issued and outstanding at
September 30, 1997; 2,527,021 shares issued and
outstanding as adjusted for the Offering and the
Conversion................................................. $ 136 $143 $253
Additional paid-in capital................................. $ 599,024 $849,017 $5,754,089
Accumulated deficit ....................................... $(1,775,131) $(2,075,081) $(2,075,081)
Total stockholders' equity................................. $(1,775,971) $(1,225,921) $3,679,261
Total capitalization....................................... $(372,491) $77,559 $3,743,734
</TABLE>
(1) Excludes 450,000 shares of Common Stock reserved for issuance
pursuant to the Company's stock option plans (of which 105,666 are
subject to outstanding options), and 292,066 shares subject to
outstanding warrants. See "Management - Stock Option Plans,"
"Description of Securities" and "Shares Eligible for Future Sale."
(2) Excludes 450,000 shares of Common Stock reserved for issuance
pursuant to the Company's stock option plans (of which [105,666] are
subject to outstanding options), and 372,066 shares subject to
outstanding warrants. See "Management -- Stock Option Plans,"
"Description of Securities" and "Shares Eligible for Future Sale."
-12-
<PAGE> 17
SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS PRO FORMA FOR THE 1 FOR
FOR ADJUSTMENTS 7 STOCK SPLIT
1 FOR 7 FOR AND THE 1997
STOCK PRIVATE PRIVATE
ACTUAL SPLIT(1) PLACEMENT(2) PLACEMENT(1)(2)
======================================================
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents - restricted $190,870 $450,050 (2) $640,920
Accounts receivable, net of allowance for
doubtful accounts of $8,810 in 1997 76254 76254
Due from affiliate 140134 140134
Prepaid expenses 0 0
Prepaid hotel cost 565744 565744
Prepaid cruise and tour cost 810321 810321
-----------------------------------------------------
Total Current Assets 1783323 0 450050 2233373
PROPERTY AND EQUIPMENT, AT COST, NET
of accumulated depreciation 49300 49300
OTHER ASSETS
Deferred charges and other assets 26113 26113
Intangible assets, net of accumulated
amortization 380838 380838
-----------------------------------------------------
$2,239,574 $0 $450,050 $2,689,624
=====================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $343,434 $343,434
Other current liabilities 482964 482964
Current portion of long-term debt 337339 337339
Due to affiliate 0 0
Deferred hotel revenue 501754 501754
Deferred cruise and tour revenue 827581 827581
Deferred subscription revenue 118994 118994
-----------------------------------------------------
Total Current Liabilities 2612066 2612066
OTHER LIABILITIES
Long-term debt 803480 500,000 (2) 1303480
Deferred discount 0 0
-----------------------------------------------------
Total Other Liabilities 803480 500000 1303480
STOCKHOLDERS' (DEFICIT)
Preferred stock, no par value; authorized
10,000,000 shares; none issued and outstanding -
Common stock $.0001 par value; authorized
30,000,000 shares 952 -816 (1) 7 (2) 143
Additional paid-in capital 598208 816 (1) 249,993 (2) 849017
Accumulated deficit -1775131 (299,950 (2)) -2075081
-----------------------------------------------------
Total Stockholders' (Deficit) (1,175,971) 0 (49,950) (1,225,921)
-----------------------------------------------------
$2,239,574 $0 $450,050 $2,689,624
=====================================================
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS FOR FOR THE
THE OFFERING(3) OFFERING(1)(2)(3)
=================================
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents - restricted $3,500,000 (3) $4,140,920
Accounts receivable, net of allowance for
doubtful accounts of $8,810 in 1997 0 76254
Due from affiliate 0 140134
Prepaid expenses 0
Prepaid hotel cost 0 565744
Prepaid cruise and tour cost 0 810321
---------------------------------
Total Current Assets 3500000 5733373
PROPERTY AND EQUIPMENT, AT COST, NET
of accumulated depreciation 0 49300
OTHER ASSETS
Deferred charges and other assets 0 26113
Intangible assets, net of accumulated
amortization 0 380838
---------------------------------
$3,500,000 $6,189,624
=================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 0 $343,434
Other current liabilities -21675 (3) 461289
Current portion of long-term debt -144500 (3) 192839
Due to affiliate
Deferred hotel revenue 0 501754
Deferred cruise and tour revenue 0 827581
Deferred subscription revenue 0 118994
---------------------------------
Total Current Liabilities -166175 2445891
OTHER LIABILITIES
Long-term debt -1239007 (3) 64473
Deferred discount 0
---------------------------------
Total Other Liabilities -1239007 64473
STOCKHOLDERS' (DEFICIT)
Preferred stock, no par value; authorized
10,000,000 shares; none issued and outstanding -
Common stock $.0001 par value; authorized
30,000,000 shares 110 (3) 253
Additional paid-in capital 4905072 (3) 5754089
Accumulated deficit 0 -2075081
---------------------------------
Total Stockholders' (Deficit) 4,905,182 3,679,261
---------------------------------
$3,500,000 $6,189,624
=================================
</TABLE>
(1) The 1 for 7 Reverse Stock Split:
<TABLE>
<S> <C>
Outstanding shares of Common Stock Before Split: 9,522,024
Outstanding shares of Common Stock After Split: 1,360,289
Decrease in shares outstanding: 8,161,735
Decrease in par value outstanding @ $0.0001 per share: $ 816
</TABLE>
-13-
<PAGE> 18
(2) The 1997 Private Placement:
<TABLE>
<S> <C>
Record issuance of Private Placement Notes Payable
Gross Notes Payable: $ 500,000
Less Commissions (Charged to Earnings): - 50,000
Plus Proceeds From Sale of
Stock (500,000 shares @ $.0001): 50
Net Proceeds: $ 450,050
</TABLE>
Record charge to earnings for discounted stock price:
<TABLE>
<S> <C>
Exercise price of most recent options issued (pre-split) $ 0.5000
Price of shares in the Private Placement 0.0001
Estimated discounted value per share $ 0.4999
Shares in Private Placement 500,000
Additional charge to earnings for Private Placement $ 249,950
</TABLE>
(3) The Offering:
<TABLE>
<S> <C>
Record Public Offering of Common Stock
Offering Proceeds ( 700,000 shares @ $7.00 ) $4,900,000
Less: Commissions - 490,000
Less: Offering Expenses - 410,000
Less: Repayment of Private Placement Debt - 500,000
Net Proceeds $3,500,000
Record Conversion of Debt to Common Stock
Accrued Interest on Convertible Debt $ 21,675
Short-term Convertible Debt $ 144,500
Long-term Convertible Debt $ 739,007
Total Converted Debt $ 905,182
Number of Common Shares issued on conversion 395,303
Record Stockholder Equity Accounts
Total Offering Shares 700,000
Total Converted Shares 395,303
Total Shares Issued 1,095,303
Par value of shares issued @ $0.0001 per share $ 110
Additional Paid-in Capital $4,905,072
Total Shares Outstanding After Offering: 2,527,021
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The financial information set forth in the following discussion should
be read in conjunction with, and qualified in its entirety by, the financial
statements of the Company included elsewhere herein.
On December 1, 1994, IMS, a subsidiary of BEI Holdings, Inc. ("BEI"),
acquired from an unrelated third party, in consideration of the assumption of
$144,394 in liabilities, the net assets that have resulted in the hotel and
resort operations of the Company. BEI formed Airfair as a subsidiary on January
5, 1996, in which to consolidate its interline industry activities. On January
13, 1996, effective December 31, 1995, Airfair acquired certain assets and
assumed certain liabilities that became the cruise and Magazine divisions of
Airfair in consideration of the assumption of $593,791 in liabilities. Following
the organization of Airfair, IMS transferred the hotel and resort division to
Airfair, effective January 1, 1996. Effective October 10, 1996, Airfair merged
into a newly created, wholly-owned subsidiary
-14-
<PAGE> 19
of the Company. Airfair became the surviving operating corporation, albeit a
wholly owned subsidiary of the Company following the merger . In view of the
foregoing acquisitions and merger and its new management team, operating
strategies, expansion plans, resources, and other factors, management does not
believe that a discussion of the cruise prices and escorted operations of the
Company would be meaningful. Effective January 1, 1997, the Company combined
the operations of the hotel and resort divisions together with the cruise and
escorted tour divisions into a single division called "Interline Travel Reps."
FINANCIAL CONDITION AND CHANGES IN FINANCIAL CONDITION
The Company had a negative working capital of $828,743 as of September
30,1997, as compared to a negative working capital of $1,101,503 at September
30, 1996. The primary causes for this deficit in working capital was the
loss from operations of $452,240 for the nine-month interim period from
September 1996 to September 1997 and monthly debt service that had reached
approximately $20,000 per month. The Company ended the third quarter with
$2,612,066 in current liabilities as compared to $2,338,633 for the prior year
comparable quarter. This increase in current liabilities was a result of the
Company's inability to generate enough cash funds during the year to adequately
sustain the Company's acquisitions and management's desire to grow sales
through increasing the number of issues, size, distribution and quality of the
Magazine. The largest components of current liabilities are accounts payable of
$343,434 (of which $277,171 are greater than 90 days past due); accrued
expenses and negative cash balances of $482,964; current portion of notes
payable of $337,339, and deferred revenues relating to hotels, cruises and
tours and magazine subscriptions of $1,448,329. A large portion of accounts
payable are made up of amounts due for telephone services and the publication
of the Magazine. The Company has been diligently working with its primary
vendors to work out payment schedules. During the quarter ended September, 30,
1997, one of the Company's vendors agreed to convert its trade payable balance
to note payable. Accrued expenses of $482,964 are comprised mainly of payroll,
vacation, commissions, note interest negative cash balances, and general
administrative expenses. Deferred revenues for hotels and cruises represent the
moneys received from passengers that are deferred for revenue recognition
purposes until the passenger has completed travel. These deferred liabilities
are very short-term in nature due to the short time from between booking date
and travel date. Amounts deferred for hotels were $501,754 and for cruises
$827,581 at September 30, 1997. Deferred subscription revenue of $118,994
represents subscription moneys received but not earned at quarter end. Magazine
subscriptions are normally paid in full in advance for the one- or two-year
subscription period. Revenue is earned on a prorata basis as the magazines are
printed and shipped to the subscribers.
Total notes payable of $1,140,818 are detailed in Note 7 of the
financial statements. The holder of the acquisition notes agreed to a
substantially discounted payoff on these notes in April, 1997. The Company
completely extinguished this debt through the payment of $75,000 in cash in
April, 1997. The discount amounted to a reduction of $224,792 in the debt
balance and an equal reduction in the amount of goodwill created in the
acquisition. The Company obtained an additional $500,000 in financing during
the quarter ended June 30, 1997 through the issuance of convertible debentures
due April, 2000. These debentures bear a 7% annual interest rate due on each
anniversary. The Company may pay the interest due with shares of the Company's
common stock at the rate of one share for each $0.50 of interest due. The
holders of the debentures may convert the unpaid principal into shares of the
Company's common stock at a conversion price of $0.25 per share. These
debentures were issued with warrants which entitle the holders thereof to
purchase 1,000,000 of the Company's common stock at a exercise price of $1.00
per share. As a result of the Reverse Stock Split, these warrants will entitle
the holders thereof to acquire an aggregate of 114,285 shares of Common Stock a
per share exercise price of $7.00. During the quarter, Company negotiations
with one printing vendor led to its conversion of an account payable into a
note payable over the next 12 months. The Company also negotiated an agreement
with the holder of an existing note to lend an additional $80,000 so as to
permit the Company to publish one issue of the Magazine. Of the total of
$1,140,818 in notes, the current portion amounts to $337,339 and the long-term
portion equals $803,480.
Included in other liabilities of the previous quarter besides the long
term debt was a deferred discount of $54,644 that was received as a service
discount from the Company's long distance telephone carrier in 1996 upon the
execution of a long term agreement. The agreement required the Company to use a
minimum of $240,000 in annual long distance services for a period of three
years. If the Company failed to utilize the required minimum usage, the
discount was to be forfeited. The Company renegotiated this agreement during
the current quarter and the deferred discount was forgiven and became fully
earned.
-15-
<PAGE> 20
The Company had $2,239,574 in total assets at September 30, 1997
compared to assets of $1,915,169 at the end of September 30, 1996.
Substantially all of the balance in the cash account of $190,870 consists of
escrow deposits required by the Company's previous and current banks as a
reserve for charge backs against the Company's Visa/MasterCard credit card
processing. The Company has ceased processing Visa/MasterCard charges through
its previous processor, who has agreed to return all unused escrow funds to the
Company by May, 1998. The Company has had a history of minimal charge backs.
The Company contracted with a another credit card processor, as of July 1,
1997, to continue credit card processing. The new processor is requiring a
six-month rolling reserve of 5% of monthly credit card receipts. Approximately
70% of the Company's hotel and resort sales are generated through credit cards.
The accounts receivable of $76,254 is comprised primarily of advertising
revenue from vendors that advertised in the Magazine and updates. Prepaid tour
cost and prepaid cruise cost of $575,744 and $810,321, respectfully, represent
funds paid to hotels and cruise lines as of September, 1997, for travel dates
that occur after that date. These prepaid items relate directly to the
previously discussed deferred revenues and are also very short-term in nature.
Goodwill consist of the excess of purchase price over net assets acquired
during the aforementioned acquisitions. However, goodwill associated with the
cruise and magazine divisions was reduced by $224,963 during the quarter due to
a reduced lump sum settlement of the notes due the prior owners of the acquired
assets.
RESULTS OF OPERATIONS
Overall Operating Results
The Company had net income for the quarter ended September 30, 1997 of
$72,779 as compared to a loss of $55,103 for the previous six months of 1997.
The primary cause for the third quarter gain was an increase in sales of
$224,069 over the previous quarter as well as recognizing the deferred discount
from the long distance carrier. The Company also repriced the hotel rooms it
purchased from IMS in accordance with the Marketing Agreement ( See Note 7 Due
to Affiliate of the financial statements and "CERTAIN TRANSACTIONS." The
Company had previously estimated the cost of these room purchases until
adequate data was available in order to properly cost out this contractual
agreement. The result of the recalculation was that the Company had overpaid
IMS approximately $159,000 for the purchase of these utilized hotel rooms and
therefore had overstated cost of goods sold. The Company has changed the room
cost in the reservation system for future purchases. The following schedule
reflects the effects of this repricing applied to the periods in which
incurred:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Quarterly Net Adjustment for Allocation of Cost Quarterly Net
Income (Loss as Reduction of cost Reduction to Period Income (Loss) as
Reported on Repriced Rooms Incurred Adjusted
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
March 31, 1996 $(163,546) 18,353 $ (145,193)
June 30, 1996 11,316 15,383 26,699
September 30, 1996 (250,509) 17,439 (233,070)
December 31, 1996 (469,916) 8,418 (461,498)
- ---------------------------------------------------------------------------------------------------------------------------
Total 1996 $(872,655) $0 $ 59,593 $ (813,062)
- ---------------------------------------------------------------------------------------------------------------------------
March 31, 1997 $ (75,323) 26,933 $ (48,390)
June 30, 1997 20,220 34,148 54,368
September 30, 1997 72,779 (159,835) 39,161 (47,895)
- ---------------------------------------------------------------------------------------------------------------------------
Total 9 Months 1997 $ 17,676 $ (159,835) $ 100,242 $ (41,917)
- ---------------------------------------------------------------------------------------------------------------------------
Total Adjustment $ (159,835) 159,835
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
For the nine months ended September 30, 1997 the Company had a net
loss of $41,917 as adjusted for the above repricing as compared to a net loss
$351,564 for the comparable period of 1996. The decreased loss in 1997 is the
result of an increase in sales of approximately $1,100,000 over the 1996 period
as well a reduction in operating expenses of approximately $245,000 over the
same period. The increase in sales is primarily attributed to repeat customer
sales, a larger property portfolio and an additional year of experience in the
cruise market. The funding of
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<PAGE> 21
publications has come primarily from funding provided by the debt instruments
mentioned previously. Management set a goal in the latter part of 1996 of
increasing sales through increasing the size, quality and distribution of the
Magazine. The Magazine's production schedule was to be increased to every two
months as opposed to every three months before the Company's acquisition of the
Magazine. The Magazine also produces an update brochure promoting hotel and
cruise specials for bulk distribution through Airport offices. Management
believes that increased circulation will increase the value of the publications
to both advertisers and subscribers. The Company intends for the Magazine
Division to increase revenue from either or both of advertising or subscriptions
to the point where the Magazine Division will at least break even in 1998.
Revenue
Gross revenue for the quarter ended September 30, 1997, was $3,607,327
an increase of $224,069 over the June, 1997 quarter revenues of $3,383,258.
Hotel sales of $1,105,218 for the current quarter represent a 16% decrease for
the September, 1997 quarter compared to $1,324,238 for the June quarter. The
decrease in hotel sales was primarily caused by the unavailability of rooms
during the quarter at one of the Company's primary resort locations (Cancun),
which is attributed to overwhelming retail demand for hotel/resort space in
that market. However, the Marketing Division has substantially increased the
number of properties available to the interline market during the year. Gross
cruise and tour revenue equaled $2,317,601 for the 1997 September quarter, an
increase of $364,983 over the second quarter. The Company recognizes hotel and
cruise revenues on a "booked, paid, traveled" basis, (i.e. revenue is not
earned until the passenger has completed travel).
Gross revenue for the nine months ended September 30, 1997 increased
$1,086,623 over the comparable nine months of 1996. Cruise and tour revenues
accounted for $955,610 of this increase, while hotels increased $86,949 over
this time frame. Management believes that these increases are attributable to
an increased presence in the marketplace.
Cost of Goods Sold
Hotel cost has been restated in the following schedule to reflect the
effects of repricing of the IMS rooms aforementioned:
<TABLE>
<CAPTION>
Hotel Revenue As Hotel Cost As Adjustment for Allocation of cost Adjusted
Reported Reported Reduction of cost Reduction to Room
on Repriced Rooms Period Incurred Cost
<S> <C> <C> <C> <C>
March 31, 1996 $ 915,177 710,827 (18,353) $692,474
June 30, 1996 1,264,958 963,240 (15,383) 947,857
September 30, 1996 1,206,751 933,536 (17,439) 916,097
December 31, 1996 862,568 665,949 (8,418) 657,531
Total 1996 $4,249,454 $3,273,552 $0 $ (59,593) $3,213,959
March 31, 1997 $1,044,379 813,848 (26,933) $786,915
June 30, 1997 1,324,238 1,018,773 (34,148) 984,625
September 30, 1997 1,105,218 159,835 (39,161) 808,274
Total 9 months 1997 $3,473,835 2,520,221 $159,835 $(100,242) $2,579,814
Total Adjustment 159,835 (159,835)
</TABLE>
The Marketing Division had adjusted cost of sales of $808,274 on sales
of $1,105,218 for the current quarter producing a gross margin of $296,944, or
26.8% of sales. The comparable second quarter hotel cost of sales were $984,625
generating a gross margin of $339,613, or 25.6% on sales of $1,324,238. The
cruise division generated a gross margin of $239,322 or 10.3% on sales of
$2,317,601 for the quarter ended September 30, 1997. This compares
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<PAGE> 22
to the prior quarterly margin of $232,362 or 11.9% on sales of $1,952,618.
Average margins on cruises can range from 10% to 18% depending on cruise line
space availability.
The adjusted margin for hotel sales for the nine months ended
September 30, 1997, was $894,021 or 25.7% of sales. Cruise and tour gross
margin for the same period was $643,749 or 11.3% of sales. The comparable 1996
margin for hotels was $830,458 or 24.5% of hotel sales. Cruises in 1996
produced a $599,648 margin or 12.5% of sales. The larger 1996 cruise margin
percentage is attributable result of one unusual under-booked cruise in June
1996 on which the Company was able to acquire births and then sell to produce a
margin of approximately $84,000 on sales of approximately $110,000.
Operating Expenses
Operating expenses for the quarter ended September 30, 1997 were
$622,744, as compared to $436,573 for the second quarter. The increase was
caused by of increased computer programming cost for modifications to the
reservation system, commissions incurred for the relatively new Germany and
Canada operations which receive 60% of the margins on their production (in
recognitions of their obligations to bear their operating costs), an increase
of 1% in the discount fee charged by the new credit card processors, increased
travel to industry trade and vendor meetings, and increased expenses associated
with disseminating advertising material to the airline employees such as the
weekly fax communications, printing expenses of the Germany Guide and the
Suntrust brochure. The Suntrust brochure was a concept where the Company agreed
with Suntrust bank to market selected Company properties to the credit card
holders of the bank. The project was abandoned after a poor response rate.
Contracts were negotiated during the year with separate travel operators in
Germany and Canada where they are able to sell the Company's properties to
their respective markets. These operations are expected to significantly
increase Company sales over time. The Company is in the process of negotiating
with operators in Mexico and Japan for similar agreements.
The largest expense item for the Company is wages, which equaled
$803,436 for the nine months ended September 30, 1997 as compared to $913,837
for the previous year, a decrease of $110,401. The Company reduced salary
expenses as of January 1, 1997 through the reduction of personnel and
attrition. Another major expense area is management fees. Airfair entered into
a management agreement with BEI and IMS effective March 1, 1996, see, "CERTAIN
TRANSACTIONS." Under this agreement, BEI permits Airfair to use office space
and certain equipment leased by BEI, and BEI and IMS provide Airfair insurance,
payroll services, office supplies and other minor office services. IMS and BEI
charge Airfair a management fee equal to 0.5% of Airfair's gross revenue per
month for these services. In addition, pursuant to the terms of the Management
Agreement, IMS, BEI, and Airfair agreed that Airfair would reimburse BEI for a
portion of the direct payroll expenses of certain members of management who
serve BEI, IMS, and Airfair (the "Shared Management Members"). The proportion
is intended to correspond with the amount of time expended by the Shared
Management Members on the business matters of Airfair. These management fees
and the payroll reimbursements for Shared Management Members totaled $168,419
for the nine months ended September 30, 1997, as compared to a $15,975 for the
nine months of 1996. Prior to the management agreement, all general and
administrative expenses of BEI were allocated to Airfair and IMS on a ratio
basis. In February 1996, BEI incurred a large one-time gain which exceeded its
expenses. As such, both Airfair and IMS were the beneficiaries of an expense
credit for that month. Airfair's portion of that allocation was a credit of
approximately $142,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a significant accumulated deficit and the Company's
auditors for fiscal year 1996 included in their audit opinions a qualification
regarding the Company's ability to continue as a going concern. Historically,
the Company has had insufficient cash reserves to satisfactorily implement its
business strategy and otherwise operate effectively. This has forced the
Company to publish and distribute its information on an inconsistent basis,
defer payment of certain expenses and otherwise limit its efforts to promote
sales growth. As most travel by interliners takes place when there are empty
seats on airlines, travel volume tends to decrease when the retail travel
industry experiences high traffic volume. Accordingly, generally high retail
travel volumes from the middle of November through January usually results in
low interline travel volume. As a result the Company normally sees much lower
travel sales during
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<PAGE> 23
the fourth quarter of the year and their can be no assurances that the Company
will be able to generate an operating profit for the quarter.
Since Airfair's inception, it has financed its business growth through
internally generated revenue, borrowings from its former sole stockholder, BEI,
and borrowings from new stockholders subsequent to its spin-off from BEI. In
September, 1996, the Company borrowed $400,000 from seven shareholders ("bridge
loans") that were collateralized with 130,868 shares of equity securities that
are owned by BEI. BEI executed a Security Pledge Agreement in favor of the
lenders. Thereafter, management has taken a different strategy in raising and
conserving funds needed for operations in 1997 and thereafter. Since January 1,
1997, management has reduced expenses by approximately $27,000 per month
through a reduction in nonessential personnel, changing to a lower priced
package delivery service, obtaining more services such as small printing jobs
on a trade basis and reducing any other expenses that are not considered
absolutely necessary to the ongoing needs of the operation.
During the prior quarter, the Company raised funds through additional
long-term borrowings. The bridge loans were restructured in a transaction
whereby the loan-holders agreed to the release of the pledged equity securities
in exchange for the following: (1) payment of all accrued interest through
April 10, 1997, which was paid in the amount of approximately $29,000, (2) the
loan broker received a fee of $20,000, (3) 40,000 Company common stock warrants
were issued to the loan broker and 20,000 stock warrants were issued to a
principal of the loan broker, all exercisable at $1.00 per share, (4) the
bridge loans were converted to 3-year notes bearing 12% annual interests , with
principal and interest payable monthly, beginning in May, 1997, the outstanding
principal balance is convertible (at note holders' option) into Company common
stock at $.50 per share, and no prepayment penalties. Also in April and May,
1997, the Company raised an additional $500,000 from ten investors through the
issuance of three-year convertible debentures. The debentures carry an annual
interest rate of 7%. Interest and principal are due and payable in annual
installments on each anniversary. At the option of the Company, interest
payments due prior to the maturity date may be made in shares of common stock
of the Company at the rate one share for each $0.50 of interest accrued and
payable. The debenture holder has the right at any time prior to maturity to
convert all or any portion of the then outstanding principal balance into fully
paid and non-assessable shares of common stock of the Company at a conversion
price of $0.25 per share of such outstanding principal amount, subject to
adjustment from time to time as provided for in the debenture.
The Company also extinguished (in April, 1997) the $299,963 of notes
payable that were incurred in connection with the acquisition of the cruise and
magazine division for a cash settlement of $75,000 (See Financial Condition and
Changes in Financial Condition above). During the previous quarter, the Company
also negotiated the conversion of five accounts payable vendors into notes
payable with various terms and conditions (see Note 7 to the financial
statements ). The remaining unpaid balance of these vendor notes was $121,933
at September 30,1997. During the current quarter, the Company borrowed an
additional $80,000 from one of its existing note holders. This note was repaid
subsequent to the end of the quarter. Management has and is continuing to
negotiate with its accounts payable vendors in order to work out acceptable
payment schedules for all parties.
As a result of the transactions described in the preceding paragraph,
management believes that its existing working capital levels, supplemented by
cash expected to be generated by existing operations and cash generated through
stock sales or other financing arrangements, will be sufficient to fund the
Company's needs over the foreseeable future. The Company is in the process of
securing an additional $500,000 bridge loan with an anticipated October 1997
closing date. These funds will be utilized for publications, operating expenses
and some offering expenses in anticipation of a public offering prior to the
end of 1997. Management's belief is based on a number of assumptions including,
without limitation, that increased gross sales will result from increased
distribution (both in terms of frequency and number of issues) of the Company's
publications and that the Company can continue to operate effectively at
reduced levels of operating expenses. There can be no assurance that the
foregoing assumptions and the other assumptions relied upon by management will
prove accurate and any such inaccuracy may cause the Company to need working
capital. Moreover, there are no assurances that the Company will be able to
procure any such capital should it be needed and any such inability may have an
adverse effect on the Company's business, financial condition and future
operating results.
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<PAGE> 24
INFLATION
The Company's results of operations have not been affected by
inflation and management does not expect inflation to have a significant effect
on its operations in the future because of the short time frame between
reservation bookings and the dates of travel.
FORWARD-LOOKING INFORMATION
From time to time, the Company or its representatives have made or may
make forward-looking statements, orally or in writing. Such forward-looking
statements may be included in, but not limited to, press releases, oral
statements made with the approval of an authorized executive officer or in
various filings made by the Company with the Securities and Exchange
Commission. Words or phases "will likely result", "are expected to", "will
continue", "is anticipated", "estimate", "project or projected", or similar
expressions are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 ("the Reform
Act"). The Company wishes to ensure that such statements are accompanied by
meaningful cautionary statements, so as to maximize to the fullest extent
possible the protections of the safe harbor established in the Reform Act.
Accordingly, such statements are qualified in their entirety by reference to
and are accompanied by the following discussion of certain important factors
that could cause actual results to differ materially from such forward-looking
statements.
Management is currently unaware of any trends or conditions other than
those previously mentioned in this management's discussion and analysis that
could have a material adverse effect on the Company's consolidated financial
position, future results of operations, or liquidity.
However, investors should also be aware of factors that could have a
negative impact on the Company's prospects and the consistency of progress in
the areas of revenue generation, liquidity, and generation of capital
resources. These include: (i) variations in the mix of hotel, cruise, and
magazine revenues, (ii) possible inability to attract investors for its equity
securities or otherwise raise adequate funds from any source should the Company
seek to do so, (iii) increased governmental regulation, (iv) increased
competition, (v) unfavorable outcomes to litigation involving the Company or to
which the Company may become a party in the future and, (vi) a very competitive
and rapidly changing operating environment. Furthermore, reference is also made
to other sections of this report that include factors that could adversely
impact the Company's business and financial performance.
The risks identified here are not all inclusive. New risk factors
emerge from time to time and it is not possible for Management to predict all
of such risk factors, nor can it assess the impact of all such risk factors on
the Company's business or the extent to which any factor or combination of
factors may cause actual results to differ materially from those contained in
any forward-looking statements. Accordingly, forward-looking statements should
not be relied upon as a prediction of actual results.
THE BUSINESS
The Company serves a portion of the travel industry known as
"interliners" through two divisions operated within its wholly-owned
subsidiary. Interliners are the active employees and retirees of the airline
industry, who may fly on many carriers for free or at a very significantly
reduced fare, along with their families and the friends to whom they pass along
their allotments of no-cost or low-cost flying privileges. One division (the
"Publishing Division") publishes a magazine and other promotional material
directed at the interline market, see "THE BUSINESS; The Publishing Division,"
infra, and the other (the "Marketing Division") offers travel accommodations to
interliners. See "THE BUSINESS; The Marketing Division." infra. Primarily
because interliners have a high propensity to travel at the last minute or
during off-peak periods when "stand-by" space is available at hotels and
resorts and on cruise ships, interliners are generally able to procure hotel or
resort accommodations in destination locations, cabins on cruise ships and
other travel products at rates representing a courtesy discount of up to 50%
off of established rates. The discount is available because the travel industry
views interline bookings as incremental or marginal revenue that supplements
normal marketing revenue. A principal characteristic of the interline travel
industry is that interliners are generally unaware of the many opportunities,
discounts and specials that are available to them at any given time. The
industry that exists to service the interline market is highly fragmented,
generally consisting of small operators serving the market
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<PAGE> 25
either as an adjunct to a retail tour operation or by concentrating on an
extremely narrow segment. There are a handful of major interline companies that
are established and offer relatively broad service, yet none of these
operations could be considered to have a dominant position.
THE PUBLISHING DIVISION
The Products
The Publishing Division produces, publishes and distributes Interline
Adventures (formerly Airfair Magazine), a 27-year-old, 4-color, 120 plus-page,
bi-monthly magazine, Interline Adventures (the "Magazine") provides general
travel editorial coverage and, in a section known as the Interline Vacation
Guide, a significant focus on cruise and tour opportunities for interliners.
The Publishing Division attempts to supplement and update the Magazine's
information on product availability via a smaller, 4-color, publication. A
portion of the net proceeds of this offering will be used to insure that the
Publishing Division will be able to publish the Magazine and its other
publications (collectively the "Publications") regularly and predictably,
thereby assuring a more constant regular presence in the interline market.
See "USE OF PROCEEDS."
The Publishing Division's publication serve as the primary marketing
channel for the Marketing Division, which uses the publications to advertise
its products and services and to generate inquiries and sales. In addition, the
Magazine provides an advertising outlet for the cruise lines, hotels and
resorts frequented by the Company's clients.
The Publishing Division currently sends approximately 15,000 copies of
the Magazine to subscribers, mails up to another 40,000 copies on a promotional
basis, and distributes up to 20,000 more copies through the Company's airline
representatives. Copies not delivered directly to subscribers are placed in
airport areas and rooms reserved for and frequented by airline employees
(hereinafter referred to as "Employee Areas"). Among these areas and rooms are
employee break rooms, reservation and office areas, and "pass bureaus." "Pass
bureaus" are offices maintained by each airline in an attempt to facilitate
employee travel on other airlines - i.e., a Continental employee wishing to
make travel arrangements on American Airlines may utilize the services of
Continental's pass bureau. Airlines generally establish a pass bureau in their
"hub airports." The Company's financial performance and operations to date have
been severely constrained by a lack of capital. As a result of the lack of
adequate capital, the Company has shipped approximately half of the total
number of magazines and brochures called for by the Company's business plan.
Marketing
The Magazine derives revenue from sales of subscriptions to
interliners and sales of advertising to hotels, resorts, cruise lines and other
service providers located at or leaving from destination locations. The
Magazine is marketed to potential subscribers and to existing subscribers by
subscription renewals and through advertising and promotions. Advertising and
subscription cards are placed within the brochures distributed by the Marketing
Division to Employee Areas. Complimentary copies of the Magazine are mailed to
selected interliners who have previously made purchases from the Marketing
Division and to individuals who have previously inquired about the possibility
of subscribing to the Magazine. As the Company more firmly establishes its
frequent traveler program discussed below, see "The Marketing Division," infra,
it anticipates that it will be able to more effectively target its efforts to
promote the Magazine. See "Competition" below. At least to date, neither
airlines nor airline employee unions have provided lists of airline employees
to interline companies.
Recent indications are that airlines may be willing to provide these
lists to the Company. Mailing to all or substantially all of the employees of a
major airline would require more operating capital than has been available to
the Company to date. The Company has not taken this sort of mailing because it
is relatively capital intensive and the Company, to date, has lacked the
operating capital necessary to undertake such mailings. If this Offering is
successful, management anticipates that it will commence test mailings (and
undertake other evaluative measures) to ascertain the efficiency of mailing
directly to employees. There can be no assurance that major airlines will grant
the Company access to employees or retiree lists or that the Company, if such
access is granted, can devise and implement a strategy to profitably utilize
such lists.
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<PAGE> 26
Advertising space within the Magazine is marketed to hotels, resorts,
cruise lines and tour operators through direct telemarketing and distribution
of media kits to the advertisers and, on a selective basis, to agencies
representing the advertisers. Although many advertisers are hotels, resorts,
cruise lines, and tour operators who have rate agreements with the Marketing
Division, and their advertisements display the phone number of the Marketing
Division, the Magazine also sells advertising space to interline operators
which have no agreement or arrangement with the Marketing Division. The Company
has attempted to pursue both advertisers that are only adjuncts to the
interline travel industry, such as luggage manufacturers, and those that have
no connection to the travel industry, but the subscription base and total
distribution base of the Magazine has discouraged such advertisers. The Company
offers many advertisers the opportunity to purchase advertising space within
the Magazine in exchange for rooms in hotels, resort accommodations and cruise
cabins, which it then re-markets for cash at an additional profit. See "The
Marketing Division," infra.
Advertisers generally, and in particular advertisers who do not have
rate agreements with the Marketing Division, focus on subscriber base and total
distribution of publications in determining both in which publications to place
advertising and how much to pay for advertising space. To date the subscription
base and total distribution of the Magazine has been too small to attract
significant advertising sales. Upon successful completion of this Offering, the
Company intends to switch the Magazine, from a "paid" circulation to a
"controlled" circulation. A "paid" circulation is calculated on the basis of
the number of subscriptions sold. A "controlled" circulation is based on the
number of magazines sent to an identified recipient at an identified address
with his approval, without regard to whether the intended recipient has paid
for a subscription. The Company has approximately 13,000 subscribers, but has a
mailing list of approximately 125,000 reliable interline addresses. In general,
in terms of advertising rates and revenues, a "paid" circulation is more
valuable than a "controlled" circulation and more recipients are more valuable
than a lesser number. Company management believes that the diminution in value
associated with the shift from a "paid" to a "controlled" circulation will be
more than offset by the increase in size of the circulation base. Although
there can be no assurances in this regard, Company management also believes
that it can increase the size of "controlled" circulation and thereby increase
acceptance from advertisers and advertising revenues.
Competition
The Magazine competes with other publications for readership and for
advertisers' patronage. Most information available to interline travelers
consists of brochures distributed by other interline companies, hotel and
resort operators, cruise lines and escorted tour operators. The Magazine is the
only 4 color publication available which is updated and published six times
annually. The Magazine has one primary competitor, the ASU Travel Guide - a
400-page guide, published quarterly, with the look and feel of a paperback
novel. It competes with the Magazine for advertisements targeting interliners.
The ASU Travel Guide has been published successfully for a number of years and
enjoys widespread circulation. The Company hopes to compete for advertising
sales by increasing distribution and offering barter arrangements to
advertisers.
Sources of Materials
The Magazine is printed and distributed by a contract printing
operation at prices negotiated from time to time between the Company and
printers. There are a number of printers who could print and distribute the
Magazine. Chief among the factors influencing the Company's expenses in
printing and distributing the Magazine is the price of paper. Paper prices are
volatile and, although currently higher than historical averages and, in the
belief of the Company's management, not likely to rise significantly in the
foreseeable future, the possibility that paper prices will rise further cannot
be completely discounted. Significant increases in paper prices could have a
materially adverse effect on the printing expenses of the Magazine and the
profitability of the Company.
THE MARKETING DIVISION
The Products
The Marketing Division, under the name "Interline TravelReps,"
provides hotel and resort accommodations (comprised of rooms or vacation
packages consisting of some combination of rooms, meals and services) and
berths
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<PAGE> 27
or seats on cruises and escorted tours. The hotel and resort accommodations
offered by the Marketing Division are located in North and South America and
Europe, with access to properties throughout the world and a particular focus
on accommodations in Mexico and the Carribbean. The Marketing Division offers
space on cruises and escorted tours and offers cruises on 27 lines with over
100 ships in various worldwide destinations and a wide variety of escorted
tours, primarily to England, Europe and Africa. Cruise lines and escorted tour
operators typically limit the interline companies that market their products or
commodities to those which have a demonstrated ability to effectively serve
interline travelers. The Company is permitted to market all of the major cruise
lines serving the interline market. The Company maintains an office in Boca
Raton, Florida, in order to facilitate its relations with the substantial
number of cruise lines that are located in that area. Retention of the ability
to sell cruise cabins to the interline market is key to the continued success
of the Company's and is subject to the continued satisfaction of the cruise
lines with the Company's service. Moreover, although the Company sells all of
the major cruise lines serving the interline market, many of the cruise lines
part of holding company structures.
Should one of these holding companies fail, the possible adverse
effects on the Company would be twofold. First, the Company would be denied a
significant supply of cruise births to be sold to its interline travel
customers. Second, the amount of overall supply in the cruise industry would be
reduced, which would also reduce the amount of usual or "marginal" capacity
available for sale to interlines. To date, during the Company's operations
within the interline industry, no major cruise line operator has failed, making
it difficult to estimate with prevision the impact such failure would have on
the Company's operation. There can be no assurances that such impact would not
be materially adverse. An analogous situation arose with during the recent
Airlines labor strike. During this period, the other airlines were loaded to
and operating at full capacity. Full capacity in turn meant that the operating
airlines had no open seats for interline travelers and, moreover, that almost
all active airline employees had full flight schedules without time for a
pleasure trip. Company revenues during the strike were dramatically reduced.
Immediately after the strikes were settled, the Company had a dramatic increase
bookings and sales representing what the Company believes to have been pent-up
demand. There can be no assurances that labor issues and other travel industry
development will not produce a set of circumstances during which the Company
experiences substantially reduced levels of demand for its products or that the
Company, if such circumstances remain in place for an extended period, will
have the financial strength and resources necessary to adequately address or
compensate for such reduced levels of demand.
For an approximately eight-week period (from the middle of November of
a given year until the middle of January of the next year), the Marketing
Division confronts periods of substantially reduced levels of interline travel.
As already noted, when airlines operate at nearly full capacity, interline
travel decreases (as a consequence of the airlines having fewer open seats for
airline travelers to occupy and of airline employees having less time for
leisure travel). While the most dramatic events that lead to full capacities
(labor issues, airline failures and similar occurrences) have happened
infrequently, airlines usually operate at high capacities during the holiday
season--from the middle of November through the middle of January. The
Marketing Division and the rest of the interline industry, has found that very
few of its interline customers travel during this period and, since the Company
does not recognize income until a customer travels, the Company's income during
this eight-week period is substantially lower than the income during the
remainder of the year. The Company has found that, although actual travel is
reduced during the holiday season, reservation activity is not
reduced--presumably the airline employees recognize the demands on their time
during the holiday season and plan to vacation after it.
Sources of Supply
The amount charged to the interline customer is established and
published in the Magazine and the other Publications and is quoted over the
phone by the Marketing Division's reservation specialists. The Company does not
rigidly adhere to its price quotations and will negotiate with customers in an
attempt to match or better competitor's quotations. The average hotel or resort
accommodation sale, typically booked less than two weeks prior to travel, is
approximately $600 with typical margins for the Company of 18% to 35%. The most
popular destinations are: Cancun (36%), Jamaica (20%) and Cozumel (19%). Hotel
and resort accommodations sales in 1996 totaled $4.2 million. Through the
nine-month period ended September 30, 1997, sales of hotels or resort
accommodations totaled $3,473,835, as compared to $3,386,886 for the same
nine-month period of 1996. The average cruise or escorted tour sale is
approximately $1,600 with typical margins of 8% to 17%. The Marketing Division
works with all major cruise lines, and no single line accounted for more than
15% of its $6.3 million in sales in 1996. Through the nine-month period
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<PAGE> 28
ended September 30, 1997, sales of cruises and escorted tours totaled
$5,722,149, as compared to $4,766,539 for the same nine-month period of 1996
The Marketing Division primarily procures its supply of hotel and
resort accommodations, cruise ship cabins, and tour reservations directly from
the operators of those businesses. The Marketing Division negotiates the
prices, terms and, in some cases, availability of hotel and resort
accommodations over the telephone or via facsimile machines and, occasionally,
at industry conferences where hotel and resort operators within a given region
meet with both interline companies and travel wholesalers (which typically buy
blocks of hotel rooms or resort accommodations and resell them to travel
agencies). With the exception of instances where the Company is able to procure
a more favorable date as a result of volume guaranties or aggressive
negotiations, the Marketing Division usually procures the interline rate quoted
by a given hotel or resort operator to all interline operators. In contrast to
hotel and resort operators, most cruise lines and tour operators pay a
commission based on a pre-determined price to the interline customer.
On a limited basis, the Marketing Division may also acquire access to
travel accommodations through barter arrangements, most typically through the
provision of advertising in the Magazine, for which the Company is given credit
for room rights and which are then marketed to interline customers. No
assurances can be given that barter transactions will yield a significant
supply of travel products for sale by the Marketing Division. In addition to
these direct barter transactions, the Company is party to a marketing agreement
with Inventory Merchandising Services, Inc. ("IMS"), a subsidiary of BEI
Holdings, Inc., pursuant to which IMS has agreed to permit the Marketing
Division, on an exclusive basis, to sell travel accommodations which IMS
acquires through barter transactions. IMS conducts a barter exchange business
and, with some frequency, obtains travel accommodations through barter
transactions. Pursuant to the marketing agreement, IMS makes the travel
accommodations available for sale by the Company and, upon sale, the Company
pays to IMS a sum equal to 25% of the proceeds received by the Company, net of
IMS cost of goods sold, with respect to the sale of such inventory. SEE
"CERTAIN TRANSACTIONS."
The Marketing Division markets its hotel and resort rooms and
packages, cruises, and escorted tour products through advertisements within the
Magazine, but also advertises in the magazines and newsletters published by or
for a given airline's employees and distributes brochures and flyers into
airline Employee Areas. The Marketing Division has a network of more than 500
current and former airline employees who distribute the Publications in airport
Employee Areas throughout the United States, Canada, the United Kingdom and
western Europe. The Marketing Division's other significant marketing tools are
its reservation center and the reservation agents there who answer phone calls
placed by interliners in response to the Marketing Division's promotional
activities.
Customer Loyalty Program
The Company's management has implemented several product features in
an attempt to improve its products and differentiate them from the products and
services of competitors. In doing so, the Company has attempted to specifically
tailor the products offered to the needs and concerns of interliners. In July
1996, the Company launched PERX, a customer loyalty/referral program designed to
generate repeat travel business for the Marketing Division, as well as
subscribers to the Magazine. Membership in PERX allows eligible interliners to
receive points for each trip taken with the Marketing Division in a manner
similar to the many frequent flyer/guest programs operated by airlines and
hotels worldwide. In addition, PERX members will receive points for travel by
anyone they directly refer to the program. Points are redeemable for discounts
and/or free trips. In July 1996, approximately 150,000 brochures containing an
application for the PERX program were distributed. Although there is no
enrollment fee for interliners who join PERX, the Company anticipates the
following benefits from wide enrollment in PERX: (i) increase in the Company's
share of the interline market, (ii) increase in the Magazine's circulation,
enabling the Company to adjust advertising rates and underwrite the Magazine's
production and distribution costs; (iii) creation of an enthusiastic sales team
not requiring additional compensation; and (iv) establishment of a mailing list
that will supplement the lists available through the Company's own records and
may contain the names of recipients that might otherwise be reached only through
more expensive channels (e.g., paid advertising). The Company's efforts to date,
which have been severely limited by the Company's shortage of operating capital,
have resulted in approximately 7,000 interline enrollees in the PERX program.
The Company plans to use a portion of the proceeds of this Offering for
marketing expenses which are to include increased marketing of the PERX program.
No assurances can be given that sufficient numbers of interliners will enroll in
PERX so as to permit the Company to realize any of the foregoing benefits.
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<PAGE> 29
Competition
Management of the Company believes that competition within the
interline industry is based principally on market visibility and the nature and
variety of products and services offered. As most interline companies are
quoted the same price by hotels, resorts, cruise lines and tour operators,
price is not usually the basis for a competitive advantage. There are over 30
competitors in the interline travel industry. None are publicly held so
reliable sales information is not available. However, two companies, Caesar's
and Magellan, which have been in the travel business for more than 20 years,
currently may have greater sales, resources, and management experience and
depth than the Company and may be able to compete very effectively with them.
The balance of the Company's competition is largely made up of smaller
organizations formed by former airline employees and retail travel operators
which view the interline market as merely a portion of their business. Most
interline companies tend to focus on a specific destination (Mexico and the
Caribbean, Ski Trips, etc.) or specific airline (e.g., only Continental).
Others, like the Company, offer a more complete range of interline products and
services.
There are currently no federal laws or regulations governing the sale
of travel products but a relatively small number of states have laws relating
to the sale of travel products or the operation of travel agencies. The
Company's operations comply in all material respects with the applicable state
laws. Although the Company is not aware of any pending legislation imposing
additional regulation upon the Company's operations within the travel industry,
there can be no assurances that the federal or any state government will not
impose requirements, such as requirements imposing licensure or bonding
requirements, which might have a material adverse effect upon the Company's
operations.
FACILITIES
The Company maintains an extensive phone and computer system with
which it handles the calls generated by these advertisements and completes the
reservation process through it's reservation centers. The phone system and
computer system maintained by the Company are critical elements in the
Marketing Division's marketing efforts. The Company has installed an extensive
phone system and computer network which the Company believes is capable of
handling the Marketing Division's needs for the foreseeable future. The
Marketing Division's ability to service interliners be dramatically reduced
should either the phone or computer system become inoperable. The Company
believes that it has taken appropriate steps to assure that the phone and
computer system are as reliable and well protected as electronic equipment can
reasonably be expected to be. There can be no assurances, however, that the
Company's electronic equipment will at all times be usable by the Marketing
Division in its efforts to service interline customers.
The Company occupies approximately 8,000 square feet of office space
at 1120 Capital of Texas Highway, Building 3, Suite 300, Austin, Texas 78746
and 630 square feet of office space at 1499 West Palmetto Park Road, Suite 222,
Boca Raton, Florida 33486. The Company owns no property other than office
furniture, equipment and software. The Company employs 48 people. It is
anticipated that up to 200 additional personnel will be required to meet the
demands of the projected market over the next five years. Most of these
positions will be in the areas of reservations and operations processing and
servicing the Company's projected volume increases.
GOVERNMENT REGULATION
There are currently no federal laws or regulations governing the sale
of travel products but a relative small number of states have laws relating to
the sale of travel products or the operation of travel agencies. The State of
Texas, where the Company's principal business operations are conducted, has no
such laws or regulations. The Company is uncertain as to whether the states
which do impose regulation would apply such laws to the Company's operations,
but management believes that compliance with the laws of any state which
imposes regulation, under the regulatory structure currently in place, would
not have a material adverse effect upon the company's operations or business.
Although the Company is not aware of any pending legislation imposing
additional regulation upon the Company's operations within the travel
industry, there can be no assurances that the federal or any state government
will not impose requirements, such as requirements imposing licensure or
bonding requirements, which might have a material adverse effect upon the
Company's operations.
INTELLECTUAL PROPERTY
The Company has filed a federal trademark application to register the
trademark "Interline PERX Vacation Club" but has not yet heard any response
from the United States Patent and Trademark Office with respect to its
application. There can be no assurances that the Company will be able to obtain
a federal registration of this trade name. The Company has not filed trademark
applications with respect to any of the other trade names that it currently
uses. If this offering is successful, the Company will evaluate whether
meaningful trademark protection can be obtained for its other trademarks. There
can be no assurances that the Company will ever be able to obtain meaningful
trademark protection for its trade names such as "Interline Adventures" and
Interline "TravelReps."
LEGAL PROCEEDINGS
There are no legal proceedings pending against the Company.
THE MERGER AND INTEGRATION OF OPERATION DIVISIONS
Effective October 10, 1996, the Company, then operating as Riley
Investments, Inc., acquired as a wholly-owned subsidiary, Airfair Publishing,
Inc. ("Airfair"), an Austin, Texas based travel services group that consisted
of the businesses that now comprise the Company's operations. The acquisition
was accomplished by the merger (the "Merger") of a newly created, wholly-owned
subsidiary of the Company with and into Airfair, which was the surviving
corporation. The Merger was effected by the conversion of the issued and
outstanding shares of common stock of Airfair (the "Airfair Stock") into new
shares of common stock of the Company (the "Common Stock") on the basis of one
share of Common Stock for each share of Airfair Stock issued and outstanding,
or an aggregate of 9,125,000 shares of common stock, which represented
approximately 96% of the common stock of the Company. Following the Merger, the
executive officers and directors of Airfair, who were appointed to similar
positions of the Company, and owned approximately 65% of the issued and
outstanding Common Stock. To better reflect the nature of its business
following the acquisition, Riley changed its name to Grand Adventures Tour &
Travel Publishing Corporation and its trading symbol to "GATT."
Airfair acquired its operation in two transactions - in 1995 it
acquired the bulk of its hotel and resort operations from a former Continental
Airlines employee and in early 1996 it acquired the Magazine and the cruise and
escorted
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<PAGE> 30
tours operations. Since the date of these acquisitions, the Company has
undertaken measures to integrate the hotel and resort operations with the
cruise and escorted tour operations, to expand the scope and improve the
quality of the Magazine, to enhance the products offered by the Marketing
Division both in terms of products offered and customer services, and to
upgrade the technical infrastructure underlying all of the Company's
operations. Management believes that it has made substantial progress in all of
these areas but such progress has yet to be reflected in tangible operating
results and there can be no assurance that such tangible operating results will
be forthcoming.
OPERATIONS BEFORE THE MERGER
Before its activities under the name of Riley Investments, Inc., the
Company was known as Pace Group International, Inc., and operated until
November 1, 1995, through its then wholly-owned subsidiary, Pace International
Research, Inc.("PIR"), which globally marketed English language training
programs developed by the Company's founder, Edwin T. Cornelius, Jr. Despite
the proprietary nature of PIR's products, the then operating Company
continually failed to generate net income. Since disposing of its operating
subsidiary in late 1995, the Company has had no assets or operations until the
Merger.
MANAGEMENT
The following table sets forth information concerning the directors
and executive officers of the Company and their age and position with the
Company. Each director holds office until the next annual stockholders' meeting
and thereafter until the individual's successor is elected and qualified.
Officers serve at the pleasure of the board of directors.
Name Age Position
Matthew O'Hayer 42 Chairman, Chief Executive Officer
Jay Juba 34 President, Chief Operating Officer, Secretary
Darrell Barker 49 Chief Financial Officer, Treasurer
Fernando Cruz Silva 37 Senior Vice President of Sales & Marketing
Patti Macchi 52 Vice President of Cruise Sales & Marketing
Robert Sandner 44 Director
Matthew O'Hayer has served as Chairman and Chief Executive Officer of
the Company since the Merger and of Airfair since its inception. Mr. O'Hayer
founded Barter Exchange, Inc. (now known as BEI Holdings, Inc. "BEI") in 1983,
served as its President and Chief Executive Officer from its founding until
1995 and has served as its Chairman and Chief Executive Officer since 1995.
Mr. O'Hayer also serves on the boards of several small businesses and
non-profit organizations.
Jay Juba has served as President and Chief Operating Officer of
Airfair since the Merger and of Airfair since its inception. He was elected to
the same offices of BEI in January, 1996. Mr. Juba joined BEI in 1991 as
Director of Advertising after working for more than five years in the
advertising industry. From May 1994 through December 1995, Mr. Juba served as
Senior Vice President of BEI.
Darrell Barker, a Certified Public Accountant, has served as Chief
Financial Officer of the Company and BEI since March 1996. Mr. Barker provided
consulting services with respect to accounting from October 1995 through
February 1996. From June 1994 to October 1995, Mr. Barker served as Senior
Vice-President of Finance for USA Health Network of Phoenix, Arizona. From May
1993 until June 1994, Mr. Barker was President and co-owner of Texas Medical
Billing Administrators, Inc., a physician services company located in San
Antonio, Texas. Mr. Barker served as Vice-President of Finance and was a
director for Texas Savings Life Insurance Company in Austin, Texas from October
1987 until April 1993.
Fernando Cruz Silva, serves as Senior Vice President of Sales and
Marketing. Prior to joining Airfair in January 1996, Mr. Silva held the same
titles at Inventory Merchandising Services, Inc. ("IMS"), a subsidiary of BEI.
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<PAGE> 31
Mr. Silva became employed by IMS in May of 1994 after having worked as Director
of Sales and Marketing at the Fiesta Americana Hotel in Cancun, Mexico, and the
Las Brisas resort in Acapulco, Mexico and served in senior sales capacities at
the Hyatt and Fiesta Americana hotels in Puerto Vallarta, Mexico City, and
Cancun.
Patti Macchi is Vice President of Sales for the Company but also
contributes editing and marketing expertise to the magazine. Ms. Macchi joined
the Company in 1990 after working for six years with Norwegian Caribbean Line.
Ms. Macchi is responsible for negotiating rates and maintaining relationships
with the 27 cruise lines represented in IRL's product offering.
Robert Sandner has served as a director of Airfair since February 1996
and of the Company since the Merger. A co-founder of BEI, Mr. Sander has served
as director of BEI and IMS throughout the last five years. Mr. Sandner served
as President of Cellular Resources, Inc. of South Texas a cellular service
provider based in Uvalde, Texas from its inception in 1991 and until its sale
in August 1996. Prior to the organization of Cellular Resources, Inc., Mr.
Sandner held various offices within BEI and operated a barter franchise office
in San Antonio, Texas.
The following is a list of other significant employees of the Company:
Joe F. Brummer, age 31, became director of Marketing in January, 1996.
Mr. Brummer served in the same capacity within Airfair's
predecessor-in-interest since June 1995. Prior to becoming Director of
Marketing, Mr. Brummer served as an account executive with IMS since 1992.
Prior to this employment with IMS, Mr. Brummer worked for the Honolulu
advertising agency of Peck Sims Mueller. Mr. Brummer is responsible for
overseeing the Company's marketing communication efforts including collateral
development, list management, advertising, public relations, and promotions.
Shannan Rivers, age 29, serves as General Manager of the Company's
Reservation Center, which fields all incoming reservation and information calls
and processes all booked reservations for both Interline Travel and Interline
Representatives, Ltd. Ms. Rivers joined Airfair in February of 1995 after
spending seven years with Adventure Tours, USA, most recently as Destination
Manager.
MANAGEMENT COMPENSATION
The following table reflects compensation paid to the two mostly highly
compensated executive officers of the Company.
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Awards Payouts
------ -------
Annual Compensation Restricted Securities LTIP All Other
Stock Underlying/Options
- -----------------------------------------------------------------------------------------------------------------------------------
Name and
Principal Position Year Salary(1)(2) Bonus Other Award SARS Payouts Compensation
- ------------------ ---- ------------ ----- ----- ----- ---- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Matthew O'Hayer
Chairman & CEO 1996 $91,476 $0 $0 $0 0 $0 $0
- -----------------------------------------------------------------------------------------------------------------------------------
Joseph Juba
President, COO 1996 $67,200 $0 $0 $0 0 $0 $0
and Secretary
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The above compensation schedule reflects that portion of shared
management members compensation allocated to the Company within the
terms of a management agreement among the Company, BEI Holdings, Inc.
("BEI"),
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<PAGE> 32
and Inventory Merchandising Services, Inc. a wholly-owned subsidiary
of BEI, See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
(2) Messrs. O'Hayer and Juba have accepted salary reductions of 40% and
25%, respectively, for fiscal year 1997, meaning that the salaries
allocable to Messrs. O'Hayer and Juba for fiscal year 1997 would be
$55,035 and $53,760, respectively.
COMPENSATION OF DIRECTORS
The Company does not currently compensate directors for any services
provided as a director.
Mark T. Waller, a former director of the Company, entered into an
advisory services agreement in October 10, 1996. Mr. Waller was also granted a
non-qualified stock option in August, 1996. See, "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS."
EMPLOYMENT CONTRACTS
Matthew O'Hayer, who serves as the Company's Chairman of the Board and
Chief Executive Officer is not party to an employment agreement with the
Company or any affiliate thereof.
Joseph S. Juba, the President and Chief Operating Officer of the
Company has signed an employment agreement with BEI Holdings, Inc. ("BEI"), and
pursuant to the terms of a management agreement (the "Management Agreement")
executed by Airfair, BEI Holdings, Inc. ("BEI") and Inventory Merchandising
Services, Inc. ("IMS" and, together with Airfair and BEI, the "Employers"), the
Company reimburses BEI for that portion of Mr. Juba's time allocable to the
Company. See, "CERTAIN RELATIONSHIPS AND TRANSACTIONS," The following is a
description of the terms and conditions of Mr. Juba's employment agreement
which was entered into March 1, 1995:
Mr. Juba is paid $84,000 per year with 7% annual increases, commencing
with the first anniversary of the employment agreement, and a bonus equal to 2%
of both BEI's and Airfair's company's Pre-Tax Net Income after allocations of
corporate overhead, based upon audited financial statements. Such bonus to be
calculated on an annual basis, with quarterly draws of up to 50% of bonus due
with respect to be each quarters net income. Mr. Juba was granted shares of
common stock of BEI and Airfair, subject to repurchase rights which lapse over
time. Mr. Juba is paid an auto allowance of $420 per month for two years
commencing in April, 1996. Mr. Juba is subject to three-year prohibitions
(commencing with the date of employment termination) on competition,
non-disclosure and non-use of proprietary information, contact with current or
future customers or interference with the Employers' relationship with any
current or future customers, but if terminated without cause, the prohibitions
on competition and interference are terminated. If the Employers terminate the
agreement without cause or if the Employer materially reduces the
responsibilities of the employee, (i) the employee is to be paid all non-salary
monetary compensation accrued through the date of termination and (ii) the
employee is to receive, for a period of months equal to the number of years of
the employee's service to one or more of the Employers since September 5, 1991,
a monthly cash severance payment equal to the highest monthly salary paid to
the employee. The employee is indemnified against any lawsuits or claims by any
third party arising out of any action taken in good faith by the employee in
the performance of his duties.
The Company also has an Advisory Services Agreement with Mark T.
Waller, one of the Company's former directors, dated October 10, 1996. During
the term of this Agreement, the Company will engage the Consultant to provide
advisory services in connection with designing and implementing a long-term
strategic plan to enhance the Company's ability to attain its goals following
the Merger. The term of the Advisory Services Agreement is for 5 years from
October 10, 1996. Compensation for advisory services is $100 per year plus
reimbursement for Company approved actual expenses incurred when performing the
above services. The consultant serves as an independent contractor.
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<PAGE> 33
LONG-TERM INCENTIVE PLAN
The Company has a long-term stock incentive plan (LTSIP) that currently
authorizes an aggregate of 1,000,000 shares of common stock for future grants.
Management believes that the number of shares currently subject to the
LTSIP exceeds that which is in the best interests of the Company. Accordingly,
the Company plans to ask the Company's shareholders to enact measures to reduce
the number of shares subject to the LTSIP to a total of 450,000. Management
anticipates that this matter will be presented for the shareholder's
consideration at the same meeting where the shareholders will consider approval
of the Reverse Stock Split.
Pursuant to the terms of the Merger, options to purchase shares of
Airfair common stock granted under the previous Airfair stock option plan were
exchanged for comparable options granted under the LTSIP for an equivalent
number of shares. The exercise price of each employee option is $1.00. An
option's maximum term is five years. Employee options were granted on August 1,
1996 and vest in three years. The fair value of each option grant is estimated
on the grant date using an option-pricing model with the following
weighted-average assumptions used for grants in 1996: risk-free interest rate
of 6%, and expected lives of 5 years for the options.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Unless otherwise indicated, the terms of the following transactions
were not the results of arm's length negotiations, but in the opinion of
management of the Company each transaction is on terms as fair to the Company
as could be obtained in arm's length negotiations in similar circumstances.
ACQUISITION OF INTERLINE TRAVEL DIVISION
On December 1, 1994, IMS acquired assets from Louis J. and Claudia
Nackos in exchange for the assumption by IMS of $144,394 in liabilities. These
assets are the basis of the IT operating division. In connection with the
formation of Airfair on January 6, 1996, IMS transferred certain interline
travel operating assets to Airfair in exchange for Airfair's assumption of the
related liabilities.
ORGANIZATION OF THE COMPANY
Airfair, the Company's operating subsidiary, was initially organized
in January 1996 as a subsidiary of BEI Holdings, Inc. ("BEI"). In anticipation
of distributing its shares of Airfair Common Stock to the shareholders of BEI,
and in order to provide Airfair's executive officers with an increased equity
stake in Airfair, BEI granted 500,000 shares of Common Stock to Joseph S. Juba
and 100,000 shares to Fernando Cruz Silva. At the time of the grant, Mr. Juba
was President, Chief Operating Officer and Secretary of BEI and Airfair, and
Mr. Cruz Silva was Senior Vice- President of Sales and Marketing for both
companies.
From organization of the Company through March 1, 1996, the Company
obtained the services of its principal executives, Matthew O'Hayer, Jay Juba,
and after his employment on March 25, 1996, Darrell Barker, together with
computer access, accounting services, rental space and related administrative
support, from BEI, which allocated the direct costs of such items between the
Company and Inventory Merchandising Services, Inc., a wholly-owned subsidiary
of BEI ("IMS") on a fixed-ratio. Effective March 1, 1996, the Company entered
into a management agreement with IMS under which it agreed to provide the
Company with such executive services and administrative support for a fee equal
to .5% of the Company's gross revenue per month plus a portion of the direct
payroll expenses of certain members of management who serve BEI, IMS, and
Airfair. These management fees amounted to approximately $68,475 for the year
ended December 31, 1996. Such management fees include reimbursement for an
allocable portion of the time of such executives devoted to the business
affairs of the Company as follows: Matthew O'Hayer, approximately 70% of his
time at an annual salary of $130,680; Joseph S. Juba, approximately 80% of his
time at an annual salary of $84,000; and Darrell Barker, approximately 50% of
his time at an annual salary of $60,000.
Airfair and IMS have also entered into an inventory marketing
agreement whereby Airfair sells certain IMS inventories. Airfair is required to
make monthly payments to IMS equaling (i) the cash value of IMS's acquisition
cost in the inventory plus (ii) 25% of the collected revenue generated from
such sales less such cash value.
In order to provide short-term financing for Airfair, BEI advanced
certain amounts to it prior to the Merger. At December 31, 1996, Airfair owed
BEI $88,213 in connection with such advances.
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<PAGE> 34
ACQUISITION OF INTERLINE REPRESENTATIVES, LTD., AND AIRFAIR PUBLISHING CORP.
On January 13, 1996, effective January 1, 1996, Airfair acquired the
cruise line operations of the Marketing Division and the Magazine and the
related assets, by assuming liabilities of $204,326 (which assumed liabilities
have been paid), paying $30,000 in cash, and delivering promissory notes
aggregating $359,465. The promissory notes were personally guaranteed by
Matthew O'Hayer.
TRANSACTIONS OCCURRING PRIOR TO THE MERGER
Exchange of assets and liabilities of the Company for extinguishment
of debt owed Edwin T. Cornelius, Jr.:
As of October 31, 1995, the Company owed Edwin T. Cornelius, Jr., the
Company's founder, principal shareholder, and chief executive officer,
approximately $407,000, excluding unpaid salary, for amounts advanced to the
Company by Mr. Cornelius. Given the Company's continuing losses and lack of
operating capital, it was unlikely that such amount would have ever been
repaid. Further, the Company did not have sufficient resources to pay Mr.
Cornelius' salary. Therefore, the board of directors adopted a plan to exchange
substantially all of the assets and liabilities of the Company in settlement of
the obligations owed Mr. Cornelius. On October 31, 1995, pursuant to an Asset
Transfer Agreement, the Company transferred all of its assets, including all
equipment, inventory, receivables, and all other assets of the Company,
excluding only corporate records, to Pace International Research, Inc. ("PIR"),
which assumed all liabilities and obligations related to such assets including
trade payables, bank debt, unpaid taxes and wages, and all other outstanding
liabilities related to the assets and the operations of the Company. On
November 1, 1995, pursuant to a Stock Transfer Agreement, the Company
transferred its right, title, and interest in and to the shares of common stock
of PIR to Mr. Cornelius in consideration of his guaranty of payment of all
liabilities and obligations of PIR, including the liabilities and obligations
assumed by it in connection with the transfer of assets from the Company, and
the release and discharge of all liabilities and obligations owed to Mr.
Cornelius. Following consummation of the foregoing, the Company had no
operating assets to continue operations.
On November 1, 1995, Bridgeworks Capital, owned and operated by Mark
Waller, acquired 2,905,486 shares of common stock of the Company (193,699
shares after giving effect to the 15 for 1 reverse stock split) for $10 from
Edwin T. Cornelius, Jr., Joanne K. Cornelius, Edwin T. Cornelius, III, and
James D. Cornelius, ( collectively, the "Selling Shareholders") pursuant to an
option for the purchase of such shares. Prior to such purchase, the
shareholders approved (a) the 15 to 1 reverse stock split, (b) the exchange of
the Company's assets and liabilities in consideration of the cancellation of
the obligations and liabilities owed Edwin T. Cornelius, Jr., and (c) the
amendment to the articles of incorporation to opt out of the Oregon statutes
prohibiting voting by controlling shares of an Oregon corporation when a
controlling block of such corporation's shares are acquired in connection with
Mr. Waller's purchase of a majority of the issued and outstanding shares of
common stock of the Company from the Selling Shareholders. Edwin T. Cornelius,
Jr., and Joanne Cornelius resigned as directors and officers of the Company
after appointing Mark Waller a director.
In addition to the shares sold to Bridgeworks, the Selling
Shareholders retained an aggregate of 480,914 shares of common stock (Edwin T.
Cornelius, Jr., and Joanne K. Cornelius each retained 5,000 shares and Edwin T.
Cornelius, III and James D. Cornelius each retained 235,457 shares). Edwin T.
Cornelius, Jr., is founder of the Company and PIR. Joanne K. Cornelius is his
wife, and Edwin T. Cornelius, III, and James Cornelius are his sons.
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of September 30, 1997, and as
adjusted for the Revenue Stock Split, the name and shareholdings, including
options to acquire Common Stock, of each person who owns of record, or was
known by the Company to own beneficially, 5% or more of the shares of the
Common Stock currently issued and outstanding; the name and shareholdings,
including options to acquire the Common Stock, of each director; and the
shareholdings of all executive officers and directors as a group. The address
of each of the individuals listed below is the address of the Company.
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<PAGE> 35
<TABLE>
<CAPTION>
Nature of Number of Percentage of
Name of Person or Group Ownership Shares Owned Ownership(1)
<S> <C> <C> <C>
Matthew O'Hayer Direct 557,714 39.0%
Joseph S. "Jay" Juba Direct 157,142 11.0%
Fernando Cruz Silva Direct 44,285 3.1%
Robert Sandner Direct 114,285 8.0%
All executive officers and Direct 873,426 61.0%
directors as a group Options 21,427 1.5%
(seven persons)
TOTAL 894,853 72.5%
</TABLE>
(1) Not adjusted for this Offering.
The Company's executive officers and directors, entities affiliated
with them and employees of the Company and holders of at least 5% of the
outstanding Common Stock affiliated with the executive officers and directors
will beneficially own shares of Common Stock representing more than 37% of the
total voting power of the Common Stock after giving effect to the Offering.
These persons, if acting in concert, will be able to exercise control over the
Company's affairs and are likely to be able to control the Board of Directors
and the disposition of any matter submitted to a vote of stockholders. See,
"PRINCIPAL STOCKHOLDERS."
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue 30,000,000 shares of Common Stock,
of which 1,360,289 shares are currently issued and outstanding. Holders of
shares of Common Stock are entitled to receive such dividends as may be
declared by the Board of Directors from assets legally available for that
purpose after payment of dividends required to be paid on outstanding shares of
Preferred Stock, if any, and are entitled at all meetings of stockholders to
one vote for each share held by them. The shares of Common Stock are not
redeemable and do not have any preemptive or conversion rights. All of the
outstanding shares of Common Stock are fully paid and nonassessable. In the
event of a voluntary or involuntary winding up or dissolution, liquidation, or
partial liquidation of the Company, holders of Common Stock shall participate,
pro rata, in any distribution of the assets of the Company remaining after
payment of liabilities subject to the prior distribution rights of any
outstanding shares of Preferred Stock. The rights of the holders of Common
Stock will be subject to, and may be adversely effected by, the rights of the
holders of Preferred Stock, if any.
As of September 30, 1997, there were 330 holders of record of Common
Stock.
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<PAGE> 36
PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of Preferred
Stock. The Preferred Stock may be issued in one or more series, with such
voting powers, designations, preferences, rights, qualifications, limitations
and restrictions as shall be set forth in a resolution of the Company's Board
of Directors providing for the issue thereof. The issuance of Preferred Stock,
while providing flexibility in connection with possible financing, acquisitions
and other corporate purposes, could, among other things, adversely affect the
voting power of holders of Common Stock and, under certain circumstances, be
used as a means of discouraging, delaying or preventing a change in control of
the Company. At the closing of this Offering, the Company will have no shares
of Preferred Stock outstanding and has no plans to issue any of the Preferred
Stock.
TRANSFER AGENT
The transfer agent for the Common Stock is OTR Stock Transfer
Registry.
MARKET FOR COMMON STOCK
The Common Stock has been traded irregularly and infrequently in the
over-the-counter market and quoted on OTC EBB under the symbol "GATT" and
quoted in the pink sheets published by the National Quotations Bureau. Since
May 1995, from time to time, a very small number of securities broker-dealers
published only intermittent quotations for the Common Stock, and there was no
continuous, consistent trading market. The trading volume in the Common Stock
has been and is extremely limited, reflecting the fact that a very limited
number of shares are believed by the Company to be eligible for public trading.
During the above period, the limited nature of the trading market created the
potential for significant changes in the trading price for the Common Stock as
a result of relatively minor changes in the supply and demand for Common Stock
and perhaps without regard to the Company's business activities. Because of the
lack of specific transaction information and the Company's belief that
quotations during the period were particularly sensitive to actual or
anticipated volume of supply and demand, the Company does not believe that such
quotations during this period are reliable indicators of a trading market for
the Common Stock.
Subject to the above limitations, the Company believes that during the
period since the Merger, the Common Stock traded in small amounts at prices
ranging from $0.812 per share to $2.50 per share, although it appears that
during this period there were weeks or perhaps longer periods during which no
transactions are known to have occurred. Such prices are without retail
mark-up, mark-down, or commissions.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, the Common Stock has been traded on the
National Association of Security Dealers, Inc.'s electronic bulletin board.
Trading actively is very infrequent. Sales of substantial amounts of Common
Stock in the public market could adversely affect the market price of the
Common Stock.
Upon completion of the Offering (and after giving effect to the 1 for
7 Reverse Stock Split,) the Company will have outstanding 2,527,021 shares of
Common Stock. Of these shares, all of the 700,000 shares sold in the Offering
(assuming no exercise of the Underwriters' over allotment option) will be
transferable without restriction or further registration under the Securities
Act, unless they are held by "affiliates" of the Company within the meaning of
Rule 144 promulgated under the Securities Act. Of the remaining shares,
approximately 1,747,000 shares are Restricted Securities, and, as such, may not
be sold in the absence of registration under the Securities Act or an exemption
therefrom under Rules 144 and 701, and approximately 40,000 shares will be
eligible for sale without restriction or further registration under Rule
144(k), unless they are held by "affiliates" of the Company or subject to
"lock-up" agreements summarized below.
Of the Restricted Shares, 44,205 shares are 12-Month Lock-up Shares,
or cumulatively approximately 1.75% of the outstanding shares of Common Stock
after this Offering. See "Risk Factors -- Shares Eligible for Future Sale."
Upon expiration of the 12-month period, these shares will be eligible for
immediate resale, subject, in certain cases, to certain volume, timing and
other requirements of Rule 144 promulgated under the Securities Act. In
addition to the 12-
-32-
<PAGE> 37
month Lock-up Shares, an additional 829,141 shares of the Restricted Stock are
24-month Lock-up Shares, or cumulatively 32.25% of the outstanding Common Stock
after this Offering. See, "UNDERWRITING."
In general, under Rule 144, any person (or persons whose shares are
aggregated for purposes of Rule 144) who beneficially owns Restricted Shares
with respect to which at least one year has elapsed since the later of the date
the shares were acquired from the Company or from an affiliate of the Company,
is entitled to sell, within any three month period, a number of shares that
does not exceed the greater of (i) 1% of the then outstanding shares of Common
Stock of the Company; or (ii) the average weekly trading volume in Common Stock
during the four calendar weeks preceding such sale. Sales under Rule 144 are
also subject to certain manner-of-sale provisions and notice requirements, and
to the availability of current public information about the Company. A person
who is not an affiliate, has not been an affiliate within 90 days prior to sale
and who beneficially owns Restricted Shares with respect to which at least two
years have elapsed since the later of the date the shares were acquired from
the Company or from an affiliate of the Company, is entitled to sell such
shares under Rule 144(k) without regard to any of the volume limitations or
other requirements described above.
In addition to the outstanding shares of Common Stock, and exclusive
of options granted pursuant to the Company's employee stock option plan, there
are 292,066 shares of Common Stock subject to outstanding warrants and options
at a weighted average exercise price of $6.87 per share (as adjusted for the 1
for 7 Reverse Stock Split). Such warrants are exercisable for a period expiring
at various dates between 2003 and 2004. The Company has granted the holders of
such warrants certain registration rights relating to the Common Stock
purchasable upon the exercise of such warrants.
As of the date of this Prospectus, certain of the Company's creditors
held indebtedness, which, in accordance with its terms, could be converted into
shares of Common Stock. The convertible indebtedness totaled $905,182 and, upon
full conversion, would represent 395,303 shares of Common Stock (as adjusted
for the 7 for 1 Reverse Stock Split). The weighted average conversion price of
the convertible indebtedness is $2.29. The Company anticipates that, in
connection with the closing of this Offering, that holders of convertible
indebtedness will convert such indebtedness.
The Company can make no prediction as to the effect, if any, that
sales of shares of Common Stock or the availability of shares for sale will
have on the market price of Common Stock. Nevertheless, sales of significant
amounts of Common Stock could adversely affect the prevailing market price of
Common Stock, as well as impair the ability of the Company to raise capital
through the issuance of additional equity securities. Prior to this Offering,
there has been no trading market for the Common Stock. The Company anticipates
that the trading market in the Common Stock, if any, will be limited based upon
the number of shares currently outstanding and anticipated to be sold in this
Offering.
As of the date of this Prospectus, the Company has reserved an
aggregate of 1,000,000 shares of Common Stock for issuance pursuant to the
Company's stock option plan (but plans to ask shareholders to approve a proposal
to reduce the total number of shares subject to the plan to 450,000), and
options to purchase 739,666 shares were outstanding on September 30, 1997.
After giving effect to the Reverse Stock Split, there are 105,666 shares of
Common Stock subject to employee stock options. As soon as practicable
following the Offering, the Company intends to file a registration statement
under the Securities Act to register shares of Common Stock reserved for
issuance under such plans. See "MANAGEMENT, Stock Option Plan."
UNDERWRITING
Each of the underwriters named below (the "Underwriters") have
severally agreed, subject to the terms and conditions of the Underwriting
Agreement, to purchase from the Company the number of Shares set forth opposite
their respective names below. The nature of the obligations of the Underwriters
is such that if any of such shares are purchased, all must be purchased.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
<S> <C>
Capital West Securities, Inc.................................... ________________
TOTAL........................................................... 700,000
</TABLE>
-33-
<PAGE> 38
The Underwriters have advised the Company that they propose initially
to offer the Common Stock offered hereby to the public at the price to public
set forth on the cover page of this Prospectus. The Underwriters may allow a
concession to selected dealers who are members of the National Association of
Securities Dealers, Inc. ("NASD") not in excess of $ per share, and the
Underwriters may allow, and such dealers may re-allow, to members of the NASD a
concession not in excess of $ per share. After the public offering, the price
to public, the concession and the re-allowance may be changed by the
Underwriters.
Capital West Securities, Inc., one of the Underwriters, was first
registered as a broker-dealer in May 1995. Capital West has participated in
only eight public equity offerings as an underwriter, although certain of its
employees have had experience in underwriting public offerings while employed
by other broker-dealers. Prospective purchasers of the securities offered
hereby should consider Capital West's limited underwriting experience in
evaluating this Offering.
The Company has granted an option to the Underwriters, exercisable
within 45 business days after the date of this Prospectus, to purchase up to an
aggregate of 105,000 additional shares of Common Stock at the initial price to
public, less the underwriting discount, set forth on the cover page of this
Prospectus. The Underwriters may exercise the option only for the purpose of
covering over-allotments. To the extent that the Underwriters exercise such
option, each Underwriter will be committed, subject to certain conditions, to
purchase from the Company on a pro rata basis that number of additional shares
of Common Stock which is proportionate to such Underwriters' initial
commitment.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
The Company has agreed to pay to the Underwriters a non-accountable
expense allowance of 3% of the gross proceeds derived from the sale of the
shares of Common Stock underwritten (including the sale of any shares of Common
Stock subject to the Underwriters' over-allotment option), $45,000 of which has
been paid as of the date of this Prospectus. The Company also has agreed to pay
all expenses in connection with qualifying the Common Stock offered hereby for
sale under the laws of such states as the Underwriters may designate, including
filing fees and fees and expenses of counsel retained for such purposes by the
Underwriters, and registering the Offering with the NASD.
In connection with this Offering, the Company has agreed to sell to
the Underwriters, for a price of $.001 per warrant, warrants (the
"Underwriters' Warrants") to purchase shares of Common Stock equal to 10% of
the total number of shares of Common Stock sold pursuant to this Offering,
excluding shares subject to the over-allotment option. The Underwriters'
Warrants are exercisable at a price equal to 120% of the initial public
offering price ($8.40 assuming an initial public offering price of $7.00 per
Share) for a period of four years commencing one year from the date of this
Prospectus (the "Exercise Period"). The Underwriters' Warrants grant to the
holders thereof, with respect to the registration under the Securities Act of
the securities directly and indirectly issuable upon exercise of the
Underwriters' Warrants, one demand registration right during the Exercise
Period, as well as piggyback registration rights at any time.
Holders of 37% of the shares of Common Stock (including the directors
and executive officers of the Company) outstanding after completion of this
Offering have agreed for a period of 12 months after the date of this
Prospectus, they will not offer, sell or otherwise dispose of any shares of
Common Stock owned by them. Certain of the Company's executive officers have
agreed to enter into similar lock-up agreements with regard to 829,141 shares
of Common Stock they own, representing 32.25% of the Common Stock outstanding
after completion of this Offering, except that the term thereof is 24 months
and the officers will be permitted to sell a limited number of shares prior to
expiration of the 24-month period if certain criteria are satisfied.
Prior to this Offering, the market for the Common Stock has been
extremely limited and there can be no assurance that a regular trading market
will develop upon the completion of this Offering. The public offering price
was determined by negotiations between the Company and the Underwriters. The
primary factors considered in determining such offering price included the
history of and prospects for the Company's business and the industry in which
the Company competes, market valuation of comparable companies, market
conditions for public offerings, the prospects
-34-
<PAGE> 39
for future earnings of the Company, an assessment of the Company's management,
the general condition of the securities markets, the demand for similar
securities of comparable companies and other relevant factors.
The Underwriters have advised the Company that the Underwriters do not
expect any sales by the Underwriters to accounts over which they exercise
discretionary authority.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered
hereby has been passed upon for the Company by Kuperman, Orr, Mouer & Albers,
P.C., Austin, Texas. Robertson & Williams, Inc. of Oklahoma City, Oklahoma, has
served as counsel to the Underwriters in connection with this Offering.
EXPERTS
The financial statements of GATT for the year ended December 31, 1996,
and the pro forma consolidated financial statements for the Company as of
December 31, 1995, appearing in this Prospectus and Registration Statement have
been audited by Andersen, Andersen & Strong, Salt Lake City, Utah, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as an expert in accounting and auditing.
ADDITIONAL INFORMATION
As permitted by the rules and regulations of the Commission, this
Prospectus does not contain all of the information set forth in the
Registration Statement and in the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and the exhibits thereto
Statements contained in this Prospectus concerning the provisions of documents
filed with the Registration Statement as exhibits and schedules are necessarily
summaries of such documents, and each such statement is qualified in its
entirety by reference to the copy of the applicable document filed with the
Commission. The Registration Statement, including the exhibits and schedules
thereto, may be inspected without charge and copied upon payment of the charges
prescribed by the Commission at the Public Reference Room of the Commission,
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
maintains a website that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the
Commission at http://www.sec.gov.
-35-
<PAGE> 40
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated Balance Sheets at September 30, 1997 and 1996 F-2
Consolidated Statements of Operations for the three months ended
September 30, 1997 and 1996 F-3
Consolidated Statements of Operations for the nine months ended
September 30, 1997 and 1996 F-4
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1997 and 1996 F-5
Notes to Financial Statements for the nine months ended September 30, 1997 F-6
Report of Independent Certified Public Accountants (Isler)
for the Period from November 1, 1995 through October 9, 1996 F-13
Report of Independent Certified Public Accountants (Andersen, Andersen & Strong) F-14
Consolidated Balance Sheets at December 31, 1996 and 1995 F-15
Consolidated Statements of Operations for the Two Years ended
December 31, 1996 and 1995 F-16
Consolidated Statement of Stockholders' Equity for the Two Years ended
December 31, 1996 and 1995 F-17
Consolidated Statements of Cash Flows for the Two Years ended
December 31, 1996 and 1995 F-18
Notes to Consolidated Financial Statements F-19
</TABLE>
F-1
<PAGE> 41
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING
CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
UNAUDITED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents - restricted (Note 2) $ 190,870 $ 12,358
Accounts receivable, net of allowance for
doubtful accounts of $8,810 in 1997 (Note 2) 76,254 20,422
Due from affiliate (Note 6) 140,134 --
Prepaid expenses (Note 2) -- --
Prepaid hotel cost (Note 2) 565,744 335,051
Prepaid cruise and tour cost (Note 2) 810,321 869,299
------------- -------------
Total Current Assets 1,783,323 1,237,130
------------- -------------
PROPERTY AND EQUIPMENT, AT COST, NET OF
accumulated depreciation (Notes 2 and 3) 49,300 49,660
------------- -------------
OTHER ASSETS
Deferred charges and other assets 26,113 --
Intangible assets, net of accumulated
amortization (Notes 2 and 5) 380,838 628,379
------------- -------------
$ 2,239,574 $ 1,915,169
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 343,434 $ 4,878
Other current liabilities 482,964 103,259
Current portion of long-term debt (Note 7) 337,339 120,396
Due to affiliate (Note 6) -- 568,540
Deferred hotel revenue (Note 2) 501,754 400,501
Deferred cruise and tour revenue (Note 2) 827,581 1,043,899
Deferred subscription revenue 118,994 97,162
------------- -------------
Total Current Liabilities 2,612,066 2,338,633
------------- -------------
OTHER LIABILITIES
Long-term debt (Note 7) 803,480 300,267
Deferred discount (Note 9) -- --
------------- -------------
Total Other Liabilities 803,480 300,267
------------- -------------
STOCKHOLDERS' (DEFICIT)
Preferred stock, no par value; authorized
10,000,000 shares; none issued and outstanding -- --
Common stock $.0001 par value; authorized
30,000,000 shares; issued and outstanding
9,522,024 and 9,100,000 shares in 1997 and 1996,
respectively (Note 11) 952 1,000
Additional paid-in capital (deficit) 598,208 54,000
Accumulated deficit (1,775,131) (778,731)
------------- -------------
Total Stockholders' (Deficit) (1,175,971) (723,731)
------------- -------------
$ 2,239,574 $ 1,915,169
============= =============
</TABLE>
F-2
<PAGE> 42
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING
CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
===============================================================================
<TABLE>
<CAPTION>
UNAUDITED
THREE MONTHS ENDED
----------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------ -------------
<S> <C> <C>
REVENUES
Hotel revenue $ 1,105,218 $1,206,751
Cruise and tour revenue 2,317,601 1,795,151
Magazine subscription and advertising revenue 178,771 43,122
Merchandise and other revenue 5,737 11,498
----------- ----------
Total Revenues 3,607,327 3,056,523
----------- ----------
COST OF SALES
Hotel cost 687,600 933,536
Cruise and tour cost 2,078,279 1,610,736
Magazine publishing cost 145,924 168,826
Merchandise cost -- --
----------- ----------
Total Cost of Sales 2,911,803 2,713,097
----------- ----------
Gross Profit 695,524 343,426
OPERATING EXPENSES
Selling, general and administrative expenses 305,430 224,568
Wages 307,805 345,363
Depreciation and amortization 9,509 24,004
----------- ----------
Total Operating Expenses 622,744 593,935
----------- ----------
Net Income Before Income Taxes 72,779 (250,509)
Income Tax Expense -- --
Net Income $ 72,779 $ (250,509)
=========== ==========
Net Income Per Common Share (Note 2) $ 0.01 $ (0.03)
=========== ==========
Weighted Average Common Shares Outstanding 11,422,869 9,100,000
=========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE> 43
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING
CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
UNAUDITED
NINE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
<S> <C> <C>
REVENUES
Hotel revenue $ 3,473,835 $ 3,386,886
Cruise and tour revenue 5,722,149 4,766,539
Magazine subscription and advertising revenue 340,276 273,741
Merchandise and other revenue 14,013 36,483
------------- -------------
Total Revenues 9,550,273 8,463,650
------------- -------------
COST OF SALES
Hotel cost 2,520,221 2,607,603
Cruise and tour cost 5,078,400 4,166,891
Magazine publishing cost 396,201 307,946
Merchandise cost -- 1,556
------------- -------------
Total Cost of Sales 7,994,822 7,083,995
------------- -------------
Gross Profit 1,555,451 1,379,655
OPERATING EXPENSES
Selling, general and administrative expenses 704,360 817,814
Wages 803,436 913,837
Depreciation and amortization 29,978 50,743
------------- -------------
Total Operating Expenses 1,537,774 1,782,394
------------- -------------
Net Loss Before Income Taxes 17,676 (402,739)
Income Tax Expense -- --
Net (Loss) $ 17,676 $ (402,739)
============= =============
Net (Loss) Per Common Share (Note 2) $ 0.00 $ (0.04)
============= =============
Weighted Average Common Shares Outstanding 11,422,869 9,100,000
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE> 44
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
UNAUDITED
NINE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ 17,676 $ (402,739)
Adjustments to reconcile net loss to cash provided by
operating activities:
Depreciation and amortization 29,978 24,026
Provision for losses on accounts receivable 0 0
Changes in operating assets and liabilities:
Accounts receivable (56,343) (20,422)
Prepaid expenses 0 0
Prepaid hotel cost (313,400) (307,966)
Prepaid cruise and tour cost (231,406) (869,299)
Accounts payable (235,554) (1,909)
Accrued expenses 303,096 103,259
Receivable from affiliates and other (254,460) 92,928
Deferred hotel revenue 115,902 359,377
Deferred cruise and tour revenue 203,866 1,043,899
Deferred subscription revenue 13,934 97,162
Deferred discount (54,644) 0
------------- -------------
Net Cash Provided (Used) by Operating Activities (461,355) 118,316
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions 224,963 (575,128)
Purchase of property and equipment 0 (17,000)
Proceeds from sale of equipment 0 10,507
------------- -------------
Net Cash Provided (Used) by Investing Activities 224,963 (581,621)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock 0 55,000
Proceeds from notes payable 786,892 459,769
Repayments of notes payable (402,869) (39,106)
------------- -------------
Net Cash Provided by Financing Activities 384,022 475,663
------------- -------------
Net Increase (Decrease) in Cash 147,630 12,358
Cash at Beginning of Period 43,240 0
Cash at End of Period $ 190,870 $ 12,358
============= =============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest $ 65,288 28,732
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE> 45
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING
CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
1. BUSINESS ACTIVITIES
The Company serves a portion of the travel industry known as "interliners".
Interliners are the active employees and retirees of the airline industry, who
may fly on many carriers for free or at a very significantly reduced fare,
along with their families and the friends to whom they pass along their
allotments of no-cost or low-cost flying privileges. Interliners are generally
able to procure hotel or resort accommodations in destination locations, berths
on cruise ships and other travel products at rates representing a courtesy of
up to 50% off of established rates, primarily because interliners have a high
propensity to travel and tend to travel during off-peak periods when "stand-by"
space is available at hotels and resorts and on cruise ships. These factors
have led the travel industry to view interline bookings as incremental revenue
that supplements normal marketing revenue.
The Company serves both interline travelers and operators (hotels, resort,
cruise lines and others) segments of the interline industry through two
distinct business units: Interline Adventures, a publication formerly titled
Airfair Magazine and Interline TravelReps, which markets hotel-resort space to
interliners and specializes in Mexican and Caribbean locations: and cruise and
escorted tour packages.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Travel revenue is recognized on a "booked, paid, traveled" basis. This means
that all client funds received and all funds paid to travel suppliers prior to
the travel date are deferred for income recognition until such time as the
client has traveled and the Company has completed its commitment to the client
and the travel suppliers. Subscription sales are deferred for income
recognition until magazines are delivered to subscribers. (See Note 8.)
The assets "Prepaid Hotel Cost" and "Prepaid Cruise and Tour Cost" represent
expenses paid for tours and cruises which have been booked but not yet taken by
the customer. The liabilities "Deferred Hotel Revenue" and "Deferred Cruise and
Tour Revenue" represent payments received for tours and cruises booked but not
recognized as revenue until the customer completes the tour or cruise.
Cash and Cash Equivalents
Substantially all of the balance in the cash account consists of escrow
deposits required by Bank One (the previous processor) and Humboldt Bank (the
current processor) as a reserve for credit card processing. The Company agreed
to establish an escrow balance of 5% of Visa/Mastercard charges until a six
month rolling reserve is established with Humboldt Bank. The prior Bank One
reserve was partially released in October, 1997. The remaining $50,000 of that
reserve will be reviewed by the bank on a month to month basis and funds will
be returned to the Company on a gradual basis until fully released by March,
1998. The new reserve with Humboldt Bank was approximately $78,000 at September
30, 1997.
The Company considers all highly liquid instruments purchased with a maturity
at the time of purchase of less than three months to be cash equivalents.
Allowance for Uncollectible Accounts
The Company provides an allowance for accounts receivable which are doubtful of
collection. The allowance is based upon management's periodic analysis of
receivables, evaluation of current economic conditions, and other pertinent
factors. Ultimate losses may vary from the current estimates and, as additions
to the allowance become necessary, they are charged against earnings in the
period in which they become known. Losses are charged and recoveries are
credited to the allowance.
Income (Loss) Per Share
The computation of primary income (loss) per share of common stock is based on
the weighted average number of common shares outstanding during the period plus
(in periods in which they have a dilutive effect) the effect of common shares
contingently issuable from stock options and exercise of warrants.
F-6
<PAGE> 46
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING
CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Depreciation and Amortization
Property and equipment are stated at cost. Depreciation is computed on the
straight-line method for financial statement purposes. Estimated useful lives
range from 5 to 7 years. Intangibles, consisting of "excess of cost over net
assets acquired" and non-compete covenants are stated at cost and are being
amortized over 40- year and 3-year periods, respectively.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary Airfair Publishing Company, Inc. All intercompany
transactions have been eliminated.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the basis of certain assets and
liabilities for financial and tax reporting. The deferred taxes represent the
future tax return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered or settled.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No.123, Accounting for Stock-Based Compensation.
The Company currently accounts for its stock-based compensation plans using the
accounting prescribed by Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees. Since the Company is not required to adopt the
fair value based recognition provisions prescribed under SFAS No. 123, it has
elected to comply with the disclosure requirements set forth in the Statement,
which includes disclosing pro forma net income as if the fair value based
method of accounting had been applied. (See Note 14.)
Estimates and Assumptions
Management uses estimates and assumptions in preparing financial statements in
accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported revenues and
expenses. Actual results could vary from the estimates that were assumed in
preparing the financial statements.
3. PROPERTY AND EQUIPMENT
Property and equipment at September 30, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Property and equipment $ 93,795 $ 75,795
Less accumulated depreciation (44,495) (26,135)
-------- --------
Net property and equipment $ 49,300 $ 49,660
======== ========
</TABLE>
Depreciation expense for the quarters ending September 30, 1997 and 1996 was
$4,590 and $4,590, respectively. Depreciation expense for the nine months
ending September 30, 1997 and 1996 was $13,770 and $12,190, respectively.
F-7
<PAGE> 47
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING
CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. ACQUISITIONS
On December 1, 1994, Inventory Merchandising Services, Inc. (IMS) (a wholly
owned subsidiary of Barter Exchange, Inc. (BEI)), acquired the net assets of a
business owned by Lou and Claudia Nackos (Nackos) for the assumption of certain
liabilities in the amount of $144,394. This resulted in a new operating
division called Interline Travel (Interline).
Assets acquired from Nackos consist of the following:
<TABLE>
<S> <C>
Cash $ 814
Excess of cost over net assets acquired 74,278
Furniture and fixtures 69,302
--------
Total assets acquired $144,394
========
</TABLE>
Airfair Publishing, Inc. (Airfair) is a Delaware corporation formed on January
6, 1996. Immediately subsequent to incorporation of Airfair, the assets and
liabilities of Interline were transferred by IMS into Airfair. Additionally,
existing shareholders of BEI received four shares of Airfair for each share
held in BEI, resulting in 8,500,000 shares issued. An additional 600,000 shares
were authorized by the Board of Directors and issued to two shareholders,
resulting in a total of 9,100,00 shares issued pursuant to the spin-off of the
Interline division in IMS to Airfair. Capital of $30,000 was contributed to
Airfair by BEI.
On January 13, 1996, (Closing Date) [effective December 31, 1995 (Effective
Date)] Airfair acquired certain assets and assumed certain liabilities of
Interline Representatives Ltd. and Airfair Publishing Corp. (IRL/APC) for
$593,791.
Assets acquired from IRL/APC consist of the following:
<TABLE>
<S> <C>
Furniture and equipment $ 35,000
Covenant-not-to compete 30,000
Excess of cost over net assets acquired 528,791
--------
Total assets acquired $593,791
========
</TABLE>
Liabilities (unadjusted) assumed from IRL/APC consist of the following:
<TABLE>
<S> <C>
Subscription, prepaid advertising, and tour ledger $204,326
Net assets acquired $389,465
</TABLE>
Payment for the net assets acquired from IRL/APC is as follows:
<TABLE>
<S> <C>
Cash $ 30,000
Note payable #1 (see below) 201,879
Note payable #2 (see below) 157,586
--------
Total payments (unadjusted) $389,465
========
</TABLE>
Both of the promissory notes described above, had identical terms (except as
specified) as follows: The annual interest rate on unpaid principal is 12% per
annum. Interest only will be due on the unpaid balance on January 31, 1996,
February 29, 1996, and March 31, 1996. Thereafter, principal and interest shall
be due and payable in monthly installments of $5,593 on Note #1 and $4,366 on
Note #2, each payable on the last day of each month, beginning April 30, 1996,
until December 31, 1999, when the entire principal and accrued interest
remaining unpaid, shall be due and payable in full. These notes were settled in
full with a cash payment of $75,000 in April, 1997, when the remaining unpaid
balance was $299,963. The difference between the unpaid balance and the
settlement of $224,963 was credited to Goodwill which was created at
acquisition.
The purchase method of accounting was used to account for the above
transactions.
Effective July 19, 1996, Riley Investments, Inc. (Riley) and Airfair executed
an Agreement that provided for the merger of MergerCo, a newly-created,
wholly-owned subsidiary of Riley, with and into Airfair, which became the
surviving corporation, and the conversion of the issued and outstanding Airfair
stock into shares of Riley stock on the basis of one share of Riley stock for
each share of Airfair stock outstanding on the Effective date. On October 7,
1996, articles of amendment were filed on behalf of Riley wherein the name was
changed to Grand Adventures Tour & Travel Publishing Corporation (the Company)
with authority to issue 10,000,000, no par, preferred shares and 30,000,000
common shares with a par value of $.0001. The transaction was accounted for as
a reverse acquisition.
F-8
<PAGE> 48
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING
CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INTANGIBLE ASSETS
Intangible assets at September 30, 1997 and 1996 are as follows:
As explained in Note 4 to the financial statements, on December 31, 1994, IMS
acquired the net assets of a business owned by Nackos (referred to herein as
Interline) and assumed certain liabilities. Of the $144,394 total purchase
price, $74,278 represented the excess of the cost over the fair value of net
assets acquired. The excess of cost over net assets acquired is amortized on a
straight-line basis over 40 years.
As explained in Note 4 to the financial statements, on January 13, 1996,
(Closing Date) [effective December 31, 1995 (Effective Date)] Airfair acquired
certain assets and assumed certain liabilities of Interline Representatives
Ltd. and Airfair Publishing Corp. (IRL/APC) . Of the $593,791 total purchase
price, $528,791 represented the excess of the cost over the fair value of net
assets acquired and $30,000 represented a covenant-not-to compete. Also
amortizable are $16,336 of additional legal and acquisition costs. The excess
of cost over net assets acquired is amortized on a straight-line basis over 40
years and the covenant is amortized over 3 years. Also, as explained in Note 4,
Goodwill was reduced by $224,963 upon the reduced settlement of the debt
incurred in the acquisition.
At September 30, 1997 and 1996, the unamortized cost consists of the following:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Cost $ 424,442 $ 649,405
Less accumulated amortization (43,604) (21,026)
--------- ---------
</TABLE>
Net $380,838 $628,379 Amortization expense for the quarters ended
September 30, 1997 and 1996, was $4,919 and $6,370, respectively. Amortization
expense for the nine months ended September 30, 1997 and 1996, was $16,208 and
$19,015, respectively.
6. DUE TO AFFILIATE
The Company entered into a Management Services Agreement with BEI and IMS
whereby BEI agreed to permit the Company to use office space and certain
computer and telephone equipment leased by the Company, BEI and IMS agreed to
provide to the Company certain services including accounting, payroll,
services, and the services of certain executive officers and personnel who
perform services for Airfair, BEI, and IMS. The Company agreed to pay to BEI
and IMS, collectively, a cash sum equal to 1/2% of the Company's gross cash
receipts during any month in which the Agreement remains in effect.
The Company and IMS have also entered into an Inventory Marketing Agreement
whereby the Company sells certain IMS inventories. The Company is required to
make monthly payments to IMS equaling (i) the cash value of the inventory sold
plus (ii) 25% of the collected revenue generated from such sales less such cash
value. At September 30, 1997, BEI/IMS owed the Company $140,134. At September
30, 1996, the Company owed BEI/IMS $568,540.
F-9
<PAGE> 49
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING
CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LONG-TERM DEBT
At September 30, 1997 and 1996 long-term debt consisted of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Notes payable to shareholders, due April 30, 2000 including accrued
interest at 12% per annum payable in, in monthly installments, convertible into
common stock
at a conversion price of $0.50 principal amount for each share $ 352,633 $ --
Note payable at $1,163 per month, including
interest at 14% per annum, convertible into common stock at the conversion
price of $1.00 principal amount for each share of common
stock, subordinated to senior indebtedness 44,529 --
Note payable with a repayment schedule based on
on the release of bank credit card escrow funds, including interest
at 6% per annum, maturity date is April 16, 1998 116,354 --
Note payable (acquisition of IRL/APC - see Note
4) at $5,593 per month, including interest at
12% per annum, collateralized by assets acquired 0 179,916
Note payable (acquisition of IRL/APC - see Note
4) at $4,366 per month, including interest at
12% per annum, collateralized by assets acquired 0 140,747
Note payable with interest payments only for 12 months
with interest at 12% per annum. Maturity date of August, 1997 0 100,000
Convertible debentures due April, 2000
7% interest only due on each anniversary with principal due at maturity,
interest may be paid in shares of common stock at the option of the Company at
the rate one share for each $0.50 of interest due, unpaid principal is
convertible into common stock
at a conversion price of $0.25 per share 500,000 --
Note payable at $1,000 per month for six months beginning
April 25,1997, then $1,500 per month for six months, the $2,000
per month until paid in full, with interest at 8% per annum 48,502 --
Note payable at $4,246 per month beginning April, 1997,
with interest at 6% per annum 23,021 --
Note payable at $1,154 per month beginning April, 1997,
with interest at 10% per annum, maturity date of March, 1999,
unpaid balance can be converted into common stock at $0.50 per share 19,209 --
Note payable at $1,000 per month beginning May 15,1997
remaining unpaid balance due June 15, 1998, interest at 9% per annum 23,167 --
Note payable at $556 per month beginning August 5, 1997
with interest at 8% per annum, maturity date of August 5, 1998 5,368
Note payable at $300.00 per month beginning June 15, 1997
for 35 months at 10% interest per annum 8,035
----------- -----------
1,140,818 420,663
Less current portion (337,339) (120,396)
----------- -----------
Total $ 803,480 $ 300,267
=========== ===========
</TABLE>
F-10
<PAGE> 50
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING
CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. DEFERRED SUBSCRIPTION REVENUE
Subscription sales are deferred as unearned income at the time of sale.
Magazine customers normally pay for a one-year or two-year subscription in
advance. As magazines are delivered to subscribers, the proportionate share of
the subscription price is taken into revenue. Magazine subscription selling
expenses are deferred and charged to operations over the same period as the
related subscription income is earned.
9. DEFERRED DISCOUNT
In April of 1996, the Company entered into an agreement with a telephone
long-distance service provider wherein the Company receives a discount (credit)
against its telephone charges provided that its annual volume of telephone
usage is equal to at least $240,000 for a period of three years. If the Company
fails to meet the minimum usage requirement, the discount will be forfeited.
The discount credit balance as of June 30, 1997 is $54,644. The Company
renegotiated this contract during the current quarter and as a result this
discount became earned and was recognized during this period.
10 . INCOME TAXES
The Company had no provision for income taxes at September 30, 1997 and 1996.
There are no reconciling items between the statutory U.S. federal rate and
effective rates for the quarters ended September 30, 1997 and 1996.
At September 30, 1997, Interline has a net operating loss carryforward totaling
approximately $880,000 that may be offset against future taxable income. If not
used, the carryforward will expire in 2011.
11. COMMON STOCK
Riley Investments, Inc. was incorporated as Pace Group International, Inc.,
("Pace") in October, 1987 under the laws of the State of Oregon. On September
20, 1995, the stockholders approved a name change of the Company to Riley
Investments, Inc. As of November 1, 1995, after the effects of the transaction
described below, the Company had no operating assets and was dormant.
On May 23, 1995, the Chairman of the Board, Edwin T. Cornelius, Jr.
("Cornelius"), the Secretary/Treasurer, Joanne Cornelius, and two sons of Mr.
and Mrs. Cornelius entered into an option agreement to sell 2,905,486 common
shares of Pace they owned to Bridgeworks Capital. The above shareholders,
together with another shareholder who was also the son of Mr. and Mrs.
Cornelius, owned an aggregate of 3,984,000 common shares of Pace. The option
agreement, among other provisions, was subject to shareholder approval of a
1-for-15 reverse stock split of the outstanding shares of Pace common stock and
an exchange of substantially all net assets of Pace, including its ownership of
100% of the outstanding common stock of Pace International Research, Inc., for
notes payable and unpaid accrued interest thereon owed to Cornelius which
approximated $422,000 as of October 31, 1995. The above transaction was
approved by the shareholders on September 20, 1995 and became effective
November 1, 1995.
Prior to the consummation of the option agreement, Cornelius also transferred
450,000 shares of Pace common stock to two investors who had previously
advanced the Company $525,000 in 1987 pursuant to profit-sharing agreements.
Under the term of those profit-sharing agreements, the investors were to be
paid in full from certain Pace profits. As of October 31, 1995, those investors
had not been repaid for their advances.
The remaining Pace common stock owned by the Cornelius family, which aggregated
628,514 shares, were returned to the Company and 588,674 shares were canceled
as of December 31, 1996.
Airfair Publishing, Inc. (Airfair) is a Delaware corporation formed on January
6, 1996. Immediately Subsequent to incorporation of Airfair on January 6, 1996,
the existing shareholders of BEI received four shares of Airfair for each share
held in BEI, resulting in 8,500,000 shares issued. An additional 600,000 shares
were authorized by the Board of Directors and issued to two shareholders,
resulting in a total of 9,100,000 shares issued pursuant to the spin-off of the
Interline division in IMS to Airfair. (See Note 4.) Capital of $30,000 was
contributed to Airfair by BEI.
In September of 1996, 25,000 shares of common stock were issued for $25,000.
F-11
<PAGE> 51
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING
CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Effective July 19, 1996, Riley and Airfair executed an Agreement that provided
for the merger of MergerCo, a newly-created, wholly-owned subsidiary of Riley,
with and into Airfair, which became the surviving corporation, and the
conversion of the issued and outstanding Airfair stock into shares of Riley
stock on the basis of one share of Riley stock for each share of Airfair stock
outstanding on the Effective date. Airfair shares outstanding on the Effective
date totaled 9,125,000. On October 7, 1996, articles of amendment were filed on
behalf of Riley wherein the name was changed to Grand Adventures Tour & Travel
Publishing Corporation with authority to issue 10,000,000, no par, preferred
shares and 30,000,000 common shares with a par value of $.0001.
Existing shareholders in Riley at the date of conversion held 384,024 shares.
12. LEASING ARRANGEMENTS
As part of the Management Services Agreement with BEI (see Note 6), the Company
is allowed access and use of (i) approximately 8,000 square feet of space
leased by BEI and (ii) all common areas within the building to which BEI is
permitted access. The fees for usage are included in the management services
fee calculation under the Management Services Agreement.
13. SUBSEQUENT EVENTS
Subsequent to the end of the September 30,1997 quarter, the Company raised an
additional $100,000 through short-term borrowings from an existing
shareholder/noteholder. The prior credit card processor also released
approximately $50,000 from the escrow reserve being held as security. The
Company is also in negotiations with an Underwriter to provide for a $500,000
bridge loan pending a public offering to raise approximately $4,900,000 before
discounts and offering fees. The Company anticipates that the bridge loan will
be completed before the end of October, 1997 and the offering will be finalized
prior to the end of December, 1997. In connection with the bridge financing,
the Company is offering the noteholders the right to purchase up to 500,000
shares of stock at a price of $0.0001 per share. If the bridge loan is
consummated the Company will have a charge against earnings for the difference
in the fair market value of the stock and the discounted value offered to the
noteholders.
14. STOCK OPTION PLAN
The Company has a long-term stock incentive plan (LTSIP) that authorizes an
aggregate of 1,000,000 shares of common stock for future grants. Options to
purchase shares of Airfair common stock granted under the previous Airfair
stock option plan were exchanged for comparable options granted under the LTSIP
for an equivalent number of shares pursuant to the terms of the Merger as
explained in Note 4 to the financial statements. Under the plan, the exercise
price of each employee option is $1.00 and the exercise price of options
granted to shareholders range from $.50 to $1.00. An option's maximum term is
five years. Employee options were granted on August 1, 1996, and February 1,
1997, and vest in three years. Other options are fully vested. The fair value
of each option grant is estimated on the grant date using an option-pricing
model with the following weighted-average assumptions used for grants in 1996:
risk-free interest rate of 6%, and expected lives of 5 years for the options.
A summary of the status of the Company's outstanding stock options as of
September 30, 1997 is presented below:
<TABLE>
<CAPTION>
Outstanding Options Exercisable Options
- --------------------------------------- -----------------------------------------
Weighted-
Average
Number Remaining Weighted- Number Weighted-
Range of Outstanding Contractual Average Exercisable Average
Exercise Prices 9/30/97 Life Exercise Price at 9/30/97 Exercise Price
- --------------- ------- ---- -------------- ---------- --------------
<C> <C> <C> <C> <C> <C>
$1.00 1,014,466 4 years $ .94 1,014,466 $ .94
1.00 361,000 4 years 1.00 101,667 1.00
1.00 449,000 4 years 1.00 110,000 1.00
--------- ---------
1,824,466 1,226,133
========= =========
</TABLE>
F-12
<PAGE> 52
Independent Auditor's Report
April 28, 1997
The Board of Director
Riley Investments, Inc.
Lake Oswego, Oregon
We have audited the accompanying balance sheet of Riley Investments,
Inc. as of October 9, 1996, and the related statement of operations,
stockholders' equity, and cash flows for the period from November 1, 1995
through October 9, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our 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 Riley Investments,
Inc. at October 9, 1996, and the results of its operations and its cash flows
for the period from November 1, 1995 through October 9, 1996 in conformity with
generally accepted accounting principles.
Isler & Co., L.L.C.
Portland, Oregon
F-13
<PAGE> 53
To The Board of Directors
of Grand Adventures Tour & Travel Publishing Corporation and Subsidiary
Austin, Texas
We have audited the accompanying consolidated balance sheets of Grand
Adventures Tour & Travel Publishing Corporation (formerly Riley Investments,
Inc.) for the period November 1, 1996 through December 31, 1996, and its
subsidiary (Airfair Publishing, Inc.) for the years ended December 31, 1996 and
1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for the periods then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits. We did
not audit the financial statements of Grand Adventures Tour & Travel Publishing
Corporation (formerly Riley Investments, Inc.), whose financial statements are
immaterial in relation to the consolidated financial statements, for the years
ended October 31, 1996 and 1995. Those statements were examined by other
auditors whose reports have been furnished to us and our opinion expressed
herein, insofar as it relates to the amounts included for Grand Adventures Tour
& Travel Publishing Corporation, is based solely on the reports of the other
auditors.
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 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Grand Adventures
Tour & Travel Publishing Corporation and subsidiary as of December 31, 1996 and
1995, and the results of their operations for the years then ended, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 15 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 15. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Andersen Andersen & Strong, L.C.
April 4, 1997
(except for Note 15, as to which the date is May 1, 1997)
Salt Lake City, Utah
F-14
<PAGE> 54
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING
CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
===============================================================================
<TABLE>
<CAPTION>
ASSETS 1996 1995
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents - restricted (Note 2) $ 43,240 $ --
Accounts receivable, net of allowance for
doubtful accounts of $8,810 in 1996 (Note 2) 19,911 --
Prepaid hotel cost (Note 2) 252,344 27,085
Prepaid cruise and tour cost (Note 2) 578,915 --
------------- -------------
Total Current Assets 894,410 27,085
------------- -------------
PROPERTY AND EQUIPMENT, AT COST, NET OF
accumulated depreciation (Notes 2 and 3) 63,070 48,179
------------- -------------
OTHER ASSETS
Intangible assets, net of accumulated
amortization (Notes 2 and 5) 622,009 72,266
------------- -------------
$ 1,579,489 $ 147,530
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 578,988 $ 6,787
Other current liabilities 179,868 --
Due to affiliate (Note 6) 88,213 475,611
Current portion of long-term debt (Note 7) 502,573 --
Deferred hotel revenue (Note 2) 385,852 41,124
Deferred cruise and tour revenue (Note 2) 623,715 --
Deferred subscription revenue 105,060 --
------------- -------------
Total Current Liabilities 2,464,269 523,522
------------- -------------
OTHER LIABILITIES
Long-term debt (Note 7) 254,223 --
Deferred discount (Note 9) 54,644 --
------------- -------------
Total Other Liabilities 308,867 --
------------- -------------
STOCKHOLDERS' (DEFICIT)
Preferred stock, no par value; authorized
10,000,000 shares; none issued and outstanding -- --
Common stock $.0001 par value; authorized
30,000,000 shares; issued and outstanding
9,509,024 and 9,100,000 shares in 1996 and 1995,
respectively (Note 11) 951 9,100
Additional paid-in capital (deficit) 598,209 (9,100)
Accumulated deficit (1,792,807) (375,992)
------------- -------------
Total Stockholders' (Deficit) (1,193,647) (375,992)
------------- -------------
$ 1,579,489 $ 147,530
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-15
<PAGE> 55
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING
CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
DECEMBER 31, 1996 AND 1995
===============================================================================
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
REVENUES
Hotel revenue $ 4,249,454 $ 2,289,018
Cruise and tour revenue 6,339,179 --
Magazine subscription and advertising revenue 374,789 --
Merchandise and other revenue 39,904 37,874
------------ ------------
Total Revenues 11,003,326 2,326,892
------------ ------------
COST OF SALES
Hotel cost 3,273,552 1,751,919
Cruise and tour cost 5,562,876 --
Magazine publishing cost 75,120 --
Merchandise cost 2,340 13,822
------------ ------------
Total Cost of Sales 8,913,888 1,765,741
------------ ------------
Gross Profit 2,089,438 561,151
OPERATING EXPENSES
Selling, general and administrative expenses 1,816,025 530,488
Wages 1,111,081 342,544
Depreciation and amortization 34,987 52,863
------------ ------------
Total Operating Expenses 2,962,093 925,895
------------ ------------
Net Loss Before Income Taxes (872,655) (364,744)
Income Tax Expense -- --
Net (Loss) $ (872,655) $ (364,744)
============ ============
Net (Loss) Per Common Share (Note 2) $ (0.09) $ (0.04)
============ ============
Weighted Average Common Shares Outstanding 9,530,007 9,100,000
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-16
<PAGE> 56
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING
CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
DECEMBER 31, 1996 AND 1995
===============================================================================
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
GRAND ADVENTURES TOUR & TRAVEL
PUBLISHING CORPORATION (FORMERLY
RILEY INVESTMENTS, INC.)
BALANCE AT OCTOBER 31, 1994 5,800,531 $ 580 $ 543,580 $ (764,168) $ (220,008)
Net loss -- -- -- (133,220) (133,220)
----------- ----------- ----------- ----------- -----------
BALANCE AT OCTOBER 31, 1995 5,800,531 $ 580 543,580 (897,388) (353,228)
Cancellation of shares (588,674) (59) 59 -- --
Effect of 1-for-15 reverse stock
split (exclusive of fractional shares) (4,827,833) (483) 483 -- --
Airfair shares converted to shares in
the Company 9,125,000 913 54,087 -- 55,000
Net income (prior to merger) -- -- -- 353,228 353,228
----------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1996 9,509,024 $ 951 $ 598,209 $ (544,160) $ 55,000
=========== =========== =========== =========== ===========
AIRFAIR PUBLISHING, INC
BALANCE DECEMBER 31, 1994 -- $ -- $ -- $ (11,248) $ (11,248)
Issuance of shares pursuant to
spin-off of Airfair from IMS 9,100,000 9,100 (9,100) -- --
Net loss -- -- -- (364,744) (364,744)
----------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1995 9,100,000 9,100 (9,100) (375,992) (375,992)
Contribution of capital -- -- 30,000 -- 30,000
Issuance of common shares
($1.00 per share) 25,000 25 24,975 -- 25,000
Exchange of Airfair shares
for shares in the Company (9,125,000) (9,125) (45,875) -- (55,000)
Net loss -- -- -- (872,655) (872,655)
----------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1996 -- $ -- $ -- $(1,248,647) $(1,248,647)
=========== =========== =========== =========== ===========
CONSOLIDATED BALANCES AT
DECEMBER 31, 1996 9,509,024 $ 951 $ 598,209 $(1,792,807) $(1,193,647)
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-17
<PAGE> 57
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (872,655) $ (364,744)
Adjustments to reconcile net loss to cash provided by
operating activities:
Depreciation and amortization 34,987 21,355
Provision for losses on accounts receivable 8,810 --
Changes in operating assets and liabilities:
Accounts receivable (28,720) --
Prepaid hotel cost (225,260) (14,015)
Prepaid cruise and tour cost (578,915) --
Accounts payable 629,710 --
Accrued expenses 122,307 (137,607)
Payroll taxes payable 52 --
Payable to affiliates and other (387,397) 491,874
Deferred hotel revenue 344,728 3,137
Deferred cruise and tour revenue 623,715 --
Deferred subscription revenue 105,060 --
Deferred discount 54,643 --
----------- -----------
Net Cash Provided (Used) by Operating Activities (168,935) --
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions (575,128) --
Purchase of property and equipment (35,000) --
Proceeds from sale of equipment 10,507 --
----------- -----------
Net Cash Provided (Used) by Investing Activities (599,621) --
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock 55,000 --
Proceeds from notes payable 909,465 --
Repayments of notes payable (152,669) --
----------- -----------
Net Cash Provided by Financing Activities 811,796 --
----------- -----------
Net Increase (Decrease) in Cash 43,240 --
Cash at Beginning of Period -- --
Cash at End of Period $ 43,240 $ --
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for interest $ 38,402 $ --
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-18
<PAGE> 58
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING
CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
===============================================================================
1. BUSINESS ACTIVITIES
The Company serves a portion of the travel industry known as "interliners".
Interliners are the active employees and retirees of the airline industry, who
may fly on many carriers for free or at a very significantly reduced fare,
along with their families and the friends to whom they pass along their
allotments of no-cost or low-cost flying privileges. Interliners are generally
able to procure hotel or resort accommodations in destination locations, berths
on cruise ships and other travel products at rates representing a courtesy of
up to 50% off of established rates, primarily because interliners have a high
propensity to travel and tend to travel during off-peak periods when "stand-by"
space is available at hotels and resorts and on cruise ships. These factors
have led the travel industry to view interline bookings as incremental revenue
that supplements normal marketing revenue.
The Company serves both interline travelers and operators (hotels, resort,
cruise lines and others) segments of the interline industry through three
distinct business units: Interline Adventures, a publication formerly titled
Airfair Magazine: Interline Travel, which markets hotel-resort space to
interliners and specializes in Mexican and Caribbean locations: and Interline
Representatives, Ltd., which markets cruise and escorted tour packages to
interliners.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Travel revenue is recognized on a "booked, paid, traveled" basis. This means
that all client funds received and all funds paid to travel suppliers prior to
the travel date are deferred for income recognition until such time as the
client has traveled and the Company has completed its commitment to the client
and the travel suppliers. Subscription sales are deferred for income
recognition until magazines are delivered to subscribers. (See Note 8.)
The assets "Prepaid Hotel Cost" and "Prepaid Cruise and Tour Cost" represent
expenses paid for tours and cruises which have been booked but not yet taken by
the customer. The liabilities "Deferred Hotel Revenue" and "Deferred Cruise and
Tour Revenue" represent payments received for tours and cruises booked but not
recognized as revenue until the customer completes the tour or cruise.
Cash and Cash Equivalents
Substantially all of the balance in the cash account consists of an escrow
deposit required by Bank One as a reserve for credit card processing. The
Company has agreed to establish an escrow balance of $125,000 to be funded by
depositing amounts equal to 5% of the prior week's gross sales deposit activity
on a weekly basis commencing September 9, 1996, for a six week period.
Commencing the 7th week, the Company agreed to deposit $5,000 per week for a
4-week period, and commencing the 11th week, a deposit of $10,000 per week
until the reserve is fully funded. As of December 31, 1996, the Company had
funded the escrow account to a balance of $42,876, and as of the date of the
audit report, the balance in the account is $105,376.
F-19
<PAGE> 59
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING
CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)-
Cash and Cash Equivalents (continued)
The Company considers all highly liquid instruments purchased with a maturity
at the time of purchase of less than three months to be cash equivalents.
Allowance for Uncollectible Accounts
The Company provides an allowance for accounts receivable which are doubtful of
collection. The allowance is based upon management's periodic analysis of
receivables, evaluation of current economic conditions, and other pertinent
factors. Ultimate losses may vary from the current estimates and, as additions
to the allowance become necessary, they are charged against earnings in the
period in which they become known. Losses are charged and recoveries are
credited to the allowance.
Income (Loss) Per Share
The computation of primary income (loss) per share of common stock is based on
the weighted average number of common shares outstanding during the period plus
(in periods in which they have a dilutive effect) the effect of common shares
contingently issuable from stock options and exercise of warrants.
Depreciation and Amortization
Property and equipment are stated at cost. Depreciation is computed on the
straight-line method for financial statement purposes. Estimated useful lives
range from 5 to 7 years. Intangibles, consisting of "excess of cost over net
assets acquired" and non-compete covenants are stated at cost and are being
amortized over 40- year and 3-year periods, respectively.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary Airfair Publishing Company, Inc. All intercompany
transactions have been eliminated.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the basis of certain assets and
liabilities for financial and tax reporting. The deferred taxes represent the
future tax return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered or settled.
F-20
<PAGE> 60
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING
CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)-
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No.123, Accounting for Stock-Based Compensation.
The Company currently accounts for its stock-based compensation plans using the
accounting prescribed by Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees. Since the Company is not required to adopt the
fair value based recognition provisions prescribed under SFAS No. 123, it has
elected to comply with the disclosure requirements set forth in the Statement,
which includes disclosing pro forma net income as if the fair value based
method of accounting had been applied. (See Note 14.)
Estimates and Assumptions
Management uses estimates and assumptions in preparing financial statements in
accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported revenues and
expenses. Actual results could vary from the estimates that were assumed in
preparing the financial statements.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Property and equipment $ 93,795 $ 69,302
Less accumulated depreciation (30,725) (21,123)
-------- --------
Net property and equipment $ 63,070 $ 48,179
======== ========
</TABLE>
Depreciation expense for the years ending December 31, 1996 and 1995 was $9,601
and $19,498, respectively.
4. ACQUISITIONS
On December 1, 1994, Inventory Merchandising Services, Inc. (IMS) (a wholly
owned subsidiary of Barter Exchange, Inc. (BEI)), acquired the net assets of a
business owned by Lou and Claudia Nackos (Nackos) for the assumption of certain
liabilities in the amount of $144,394. This resulted in a new operating
division called Interline Travel (Interline).
F-21
<PAGE> 61
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING
CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
4. ACQUISITIONS (Continued)-
Assets acquired from Nackos consist of the following:
<TABLE>
<S> <C>
Cash $ 814
Excess of cost over net assets acquired 74,278
Furniture and fixtures 69,302
--------
Total assets acquired $144,394
========
</TABLE>
Airfair Publishing, Inc. (Airfair) is a Delaware corporation formed on January
6, 1996. Immediately subsequent to incorporation of Airfair, the assets and
liabilities of Interline were transferred by IMS into Airfair. Additionally,
existing shareholders of BEI received four shares of Airfair for each share
held in BEI, resulting in 8,500,000 shares issued. An additional 600,000 shares
were authorized by the Board of Directors and issued to two shareholders,
resulting in a total of 9,100,00 shares issued pursuant to the spin-off of the
Interline division in IMS to Airfair. Capital of $30,000 was contributed to
Airfair by BEI.
On January 13, 1996, (Closing Date) [effective December 31, 1995 (Effective
Date)] Airfair acquired certain assets and assumed certain liabilities of
Interline Representatives Ltd. and Airfair Publishing Corp. (IRL/APC) for
$593,791.
Assets acquired from IRL/APC consist of the following:
<TABLE>
<S> <C>
Furniture and equipment $ 35,000
Covenant-not-to compete 30,000
Excess of cost over net assets acquired 528,791
--------
Total assets acquired $593,791
========
Liabilities (unadjusted) assumed from IRL/APC consist of the following:
Subscription, prepaid advertising, and tour ledger $204,326
--------
Net assets acquired $389,465
========
Payment for the net assets acquired from IRL/APC is as follows:
Cash $ 30,000
Note payable #1 (see below) 201,879
Note payable #2 (see below) 157,586
--------
Total payments (unadjusted) $389,465
========
</TABLE>
F-22
<PAGE> 62
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING
CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
4. ACQUISITIONS (Continued)-
Both of the promissory notes described above, have identical terms (except as
specified) as follows: The annual interest rate on unpaid principal is 12% per
annum. Interest only will be due on the unpaid balance on January 31, 1996,
February 29, 1996, and March 31, 1996. Thereafter, principal and interest shall
be due and payable in monthly installments of $5,593 on Note #1 and $4,366 on
Note #2, each payable on the last day of each month, beginning April 30, 1996,
until December 31, 1999, when the entire principal and accrued interest
remaining unpaid, shall be due and payable in full.
The purchase method of accounting was used to account for the above
transactions.
The following unaudited pro forma information has been prepared assuming that
the above acquisitions had occurred at the beginning of 1995. Permitted pro
forma adjustments include only the effects of events directly attributable to a
transaction that are factually supportable and expected to have a continuing
impact. Pro forma adjustments reflecting anticipated "efficiencies" in
operation resulting from a transaction are, under most circumstances, not
permitted. As a result of the limitations imposed with regard to the types of
permitted pro forma adjustments, the Company believes that this unaudited pro
forma information is not indicative of future results of operations, nor the
results of historical operations had the above acquisitions been consummated as
of the assumed date.
<TABLE>
<CAPTION>
Unaudited
1995
-----------
<S> <C>
Revenues $ 9,077,000
Gross profit 1,825,000
Net (loss) (414,000)
Net (loss) per weighted average
common share (.04)
</TABLE>
Effective July 19, 1996, Riley Investments, Inc. (Riley) and Airfair executed
an Agreement that provided for the merger of MergerCo, a newly-created,
wholly-owned subsidiary of Riley, with and into Airfair, which became the
surviving corporation, and the conversion of the issued and outstanding Airfair
stock into shares of Riley stock on the basis of one share of Riley stock for
each share of Airfair stock outstanding on the Effective date. On October 7,
1996, articles of amendment were filed on behalf of Riley wherein the name was
changed to Grand Adventures Tour & Travel Publishing Corporation (the Company)
with authority to issue 10,000,000, no par, preferred shares and 30,000,000
common shares with a par value of $.0001. The transaction was accounted for as
a reverse acquisition.
F-23
<PAGE> 63
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING
CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
5. INTANGIBLE ASSETS
Intangible assets at December 31, 1996 and 1995 are as follows:
As explained in Note 4 to the financial statements, on December 31, 1994, IMS
acquired the net assets of a business owned by Nackos (referred to herein as
Interline) and assumed certain liabilities. Of the $144,394 total purchase
price, $74,278 represented the excess of the cost over the fair value of net
assets acquired. The excess of cost over net assets acquired is amortized on a
straight-line basis over 40 years.
As explained in Note 4 to the financial statements, on January 13, 1996,
(Closing Date) [effective December 31, 1995 (Effective Date)] Airfair acquired
certain assets and assumed certain liabilities of Interline Representatives
Ltd. and Airfair Publishing Corp. (IRL/APC) . Of the $593,791 total purchase
price, $528,791 represented the excess of the cost over the fair value of net
assets acquired and $30,000 represented a covenant-not-to compete. Also
amortizable are $16,336 of additional legal and acquisition costs. The excess
of cost over net assets acquired is amortized on a straight-line basis over 40
years and the covenant is amortized over 3 years.
At December 31, 1996 and 1995, the unamortized cost consists of the following:
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Cost $ 649,405 $ 74,278
Less accumulated amortization (27,396) (2,012)
--------- --------
Net $ 622,009 $ 72,266
========= ========
</TABLE>
Amortization expense for the years ended December 31, 1996 and 1995, was
$25,386 and $1,857, respectively.
6. DUE TO AFFILIATE
The Company entered into a Management Services Agreement with BEI and IMS
whereby BEI agreed to permit the Company to use office space and certain
computer and telephone equipment leased by the Company, BEI and IMS agreed to
provide to the Company certain services including accounting, payroll,
services, and the services of certain executive officers and personnel who
perform services for Airfair, BEI, and IMS. The Company agreed to pay to BEI
and IMS, collectively, a cash sum equal to 1/2% of the Company's gross cash
receipts during any month in which the Agreement remains in effect.
The Company and IMS have also entered into an Inventory Marketing Agreement
whereby the Company sells certain IMS inventories. The Company is required to
make monthly payments to IMS equaling (i) the cash value of the inventory sold
plus (ii) 25% of the collected revenue generated from such sales less such cash
value.
F-24
<PAGE> 64
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING
CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
6. DUE TO AFFILIATE (Continued)
In order to provide short-term financing for the Company's operations, BEI has
advanced certain amounts to the Company for the above services. At December 31,
1996 and 1995, the Company owed BEI $88,213 and $475,611, respectively.
7. LONG-TERM DEBT
At December 31, 1996 and 1995 long-term debt consisted of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Notes payable to shareholders, due September 30, 1997
including accrued interest at 14% per annum,
collateralized by marketable securities and other
property pursuant to a Security-Agreement Pledge
executed by BEI in favor of the lenders $ 400,000 $ --
Note payable at $1,163 per month, including
interest at 14% per annum, convertible into
common stock at the conversion price of $1.00
principal amount for each share of common
stock, subordinated to senior indebtedness 50,000 --
Note payable (acquisition of IRL/APC - see Note
4) at $5,593 per month, including interest at
12% per annum, collateralized by assets acquired 172,300 --
Note payable (acquisition of IRL/APC - see Note
4) at $4,366 per month, including interest at
12% per annum, collateralized by assets acquired 134,496 --
---------- ----------
756,796 --
Less current portion (502,573) --
---------- ----------
Total $ 254,223 $ --
========== ==========
</TABLE>
F-25
<PAGE> 65
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING
CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
7. LONG-TERM DEBT (Continued)-
The annual maturities of long-term debt for the next five years are as follows:
<TABLE>
<CAPTION>
Year ending
December 31, Amount
------------ ------
<S> <C> <C>
1997 $502,573
1998 108,048
1999 121,944
2000 11,274
2001 12,957
--------
Total $756,796
========
</TABLE>
8. DEFERRED SUBSCRIPTION REVENUE
Subscription sales are deferred as unearned income at the time of sale.
Magazine customers normally pay for a one-year or two-year subscription in
advance. As magazines are delivered to subscribers, the proportionate share of
the subscription price is taken into revenue. Magazine subscription selling
expenses are deferred and charged to operations over the same period as the
related subscription income is earned.
9. DEFERRED DISCOUNT
In April of 1996, the Company entered into an agreement with a telephone
long-distance service provider wherein the Company receives a discount (credit)
against its telephone charges provided that its annual volume of telephone
usage is equal to at least $240,000 for a period of three years. If the Company
fails to meet the minimum usage requirement, the discount will be forfeited.
The discount credit balance as of December 31, 1996 is $54,644.
10 . INCOME TAXES
The components of the provision for income taxes at December 31, 1996 and 1995
are as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Current tax expense $ -- $ --
Deferred tax expense -- --
--------- ---------
Income tax expense $ -- $ --
========= =========
</TABLE>
F-26
<PAGE> 66
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING
CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
10. INCOME TAXES (Continued)-
The tax effects of temporary differences and carryforwards that give rise to
significant portions of deferred tax assets and liabilities consist of the
following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable $ 2,995 $ --
Net operating loss carryforwards 299,517 --
----------- -----------
Gross deferred tax assets 302,512 --
Valuation allowance (290,770) --
----------- -----------
Total deferred tax assets 11,742 --
----------- -----------
Deferred tax liabilities:
Fixed assets 4,513 --
Intangible assets 7,229 --
----------- -----------
Total deferred tax liabilities 11,742 --
----------- -----------
Net deferred tax asset (liability) $ -- $ --
=========== ===========
</TABLE>
There are no reconciling items between the statutory U.S. federal rate and
effective rates for the years ended December 31, 1996 and 1995.
At December 31, 1996, Interline has a net operating loss carryforward totaling
approximately $880,000 that may be offset against future taxable income. If not
used, the carryforward will expire in 2011.
11. COMMON STOCK
Riley Investments, Inc. was incorporated as Pace Group International, Inc.,
("Pace") in October, 1987 under the laws of the State of Oregon. On September
20, 1995, the stockholders approved a name change of the Company to Riley
Investments, Inc. As of November 1, 1995, after the effects of the transaction
described below, the Company had no operating assets and was dormant.
On May 23, 1995, the Chairman of the Board, Edwin T. Cornelius, Jr.
("Cornelius"), the Secretary/Treasurer, Joanne Cornelius, and two sons of Mr.
and Mrs. Cornelius entered into an option agreement to sell 2,905,486 common
shares of Pace they owned to Bridgeworks Capital. The above shareholders,
together with another shareholder who was also the son of Mr. and Mrs.
Cornelius, owned an aggregate of 3,984,000 common shares of Pace. The option
agreement, among other provisions, was subject to shareholder approval of a
1-for-15 reverse stock split of the outstanding shares of Pace common stock and
an exchange of substantially all net assets of Pace, including its ownership of
100% of the outstanding common stock of Pace International
F-27
<PAGE> 67
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING
CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
11. COMMON STOCK (Continued)-
Research, Inc., for notes payable and unpaid accrued interest thereon owed to
Cornelius which approximated $422,000 as of October 31, 1995. The above
transaction was approved by the shareholders on September 20, 1995 and became
effective November 1, 1995.
Prior to the consummation of the option agreement, Cornelius also transferred
450,000 shares of Pace common stock to two investors who had previously
advanced the Company $525,000 in 1987 pursuant to profit-sharing agreements.
Under the term of those profit-sharing agreements, the investors were to be
paid in full from certain Pace profits. As of October 31, 1995, those investors
had not been repaid for their advances.
The remaining Pace common stock owned by the Cornelius family, which aggregated
628,514 shares, were returned to the Company and 588,674 shares were canceled
as of December 31, 1996.
Airfair Publishing, Inc. (Airfair) is a Delaware corporation formed on January
6, 1996. Immediately Subsequent to incorporation of Airfair on January 6, 1996,
the existing shareholders of BEI received four shares of Airfair for each share
held in BEI, resulting in 8,500,000 shares issued. An additional 600,000 shares
were authorized by the Board of Directors and issued to two shareholders,
resulting in a total of 9,100,000 shares issued pursuant to the spin-off of the
Interline division in IMS to Airfair. (See Note 4.) Capital of $30,000 was
contributed to Airfair by BEI.
In September of 1996, 25,000 shares of common stock were issued for $25,000.
Effective July 19, 1996, Riley and Airfair executed an Agreement that provided
for the merger of MergerCo, a newly-created, wholly-owned subsidiary of Riley,
with and into Airfair, which became the surviving corporation, and the
conversion of the issued and outstanding Airfair stock into shares of Riley
stock on the basis of one share of Riley stock for each share of Airfair stock
outstanding on the Effective date. Airfair shares outstanding on the Effective
date totaled 9,125,000. On October 7, 1996, articles of amendment were filed on
behalf of Riley wherein the name was changed to Grand Adventures Tour & Travel
Publishing Corporation with authority to issue 10,000,000, no par, preferred
shares and 30,000,000 common shares with a par value of $.0001.
Existing shareholders in Riley at the date of conversion held 384,024 shares.
12. LEASING ARRANGEMENTS
As part of the Management Services Agreement with BEI (see Note 6), the Company
is allowed access and use of (i) approximately 8,000 square feet of space
leased by BEI and (ii) all common areas within the building to which BEI is
permitted access. The fees for usage are included in the management services
fee calculation under the Management Services Agreement.
F-28
<PAGE> 68
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING
CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
13. SUBSEQUENT EVENTS
On February 13, 1997, the Company borrowed $40,000, payable to a trust
established by a stockholder of the company. Interest accrues at the rate of
12% per annum. Payments shall be due from time to time as follows: (i)
immediately after ascertaining that any check received in payment of any
Pledged Account, as designated in the Pledge Agreement, the Company shall make
a payment in the amount of such check; (ii) immediately after the Company
utilizes any credit issued by any advertiser in payment of any Pledged Account,
the Company shall make a payment in the amount of such utilization; and (iii)
on May 15, 1997 (the maturity date), the Company shall pay the entire unpaid
principal and interest. The promissory note is secured by (i) the secured
interest granted in the Pledged Accounts and intangible assets, and (ii) the
security interests granted in certain marketable securities and warrants
pursuant to the provisions of the Security Agreement-Pledge executed by the
Company and BEI Holdings, Inc. in favor of the lender.
On January 31, 1997, an account payable in the amount of $36,906 was converted
into a note payable with the following terms: Nine Monthly payments of $4,246,
including interest at 6% per annum. (Also, see Note 15.)
14. STOCK OPTION PLAN
The Company has a long-term stock incentive plan (LTSIP) that authorizes an
aggregate of 1,000,000 shares of common stock for future grants. Options to
purchase shares of Airfair common stock granted under the previous Airfair
stock option plan were exchanged for comparable options granted under the LTSIP
for an equivalent number of shares pursuant to the terms of the Merger as
explained in Note 4 to the financial statements. Under the plan, the exercise
price of each employee option is $1.00 and the exercise price of options
granted to shareholders range from $.50 to $1.00. An option's maximum term is
five years. Employee options were granted on August 1, 1996 and vest in three
years. Other options are fully vested. The fair value of each option grant is
estimated on the grant date using an option-pricing model with the following
weighted-average assumptions used for grants in 1996: risk-free interest rate
of 6%, and expected lives of 5 years for the options.
A summary of the status of the Company's stock option plan as of December 31,
1996, and the changes during the year ending December 31, 1996 is presented
below:
F-29
<PAGE> 69
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING
CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
14. STOCK OPTION PLAN (Continued)-
<TABLE>
<CAPTION>
Weighted Average
Fixed Options Shares Exercise Price
- ----------------------------------------------------------- ----------------
<S> <C> <C>
Balance - January 1, 1996 -- $ --
Granted - Stockholders 1,014,466 0.94
Granted - Employees 305,000 1.00
Exercised -- --
Forfeited -- --
----------
Balance, - December 31, 1996 1,319,466
==========
Exercisable at December 31, 1996 1,116,133
Weighted-average fair value of options
granted during the year $ .38
==========
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Outstanding Options Exercisable Options
- --------------------------------------- -----------------------------------------
Weighted-
Average
Number Remaining Weighted- Number Weighted-
Range of Outstanding Contractual Average Exercisable Average
Exercise Prices 12/31/96 Life Exercise Price at 12/31/96 Exercise Price
- --------------- -------- ----------- -------------- ----------- --------------
<C> <C> <C> <C> <C> <C>
$1.00 1,014,466 4 years $ .94 1,014,466 $ .94
1.00 305,000 4 years 1.00 101,667 1.00
--------- ---------
1,319,466 1,116,133
========= =========
</TABLE>
If the Company had used the fair value based method of accounting for its
employee stock option plan, as prescribed by Statement of Financial Accounting
Standard No. 123, compensation cost in net loss for the year ended December 31,
1996 would have increased by $38,400, resulting in a net loss of $911,055, net
of tax, and a loss per common share of $.10.
15. GOING-CONCERN
As shown is the accompanying financial statements, the Company incurred net
losses during the years ended December 31, 1996 and 1995 of $872,655 and
$364,744, respectfully, and as of December 31, 1996 and 1995, current
liabilities exceeded its current assets by $1,569,859 and $496,437,
respectively. Those factors could create an uncertainty about the Company's
ability to continue as a going concern. Since January 1, 1997, management has
reduced expenses by approximately $40,000 per month through a reduction in
nonessential personnel, changing to a lower priced package delivery service,
obtaining more services such as small printing jobs on a trade basis and
reducing any other expenses that are not considered absolutely necessary to the
F-30
<PAGE> 70
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING
CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
15. GOING CONCERN (Continued)-
ongoing needs of the operation. Subsequent to the date of the audit report, the
Company raised funds through additional long-term borrowings. Loans to
shareholders in the amount of $400,000 (see Note 7) were restructured whereby,
the loan holders agreed to release the equity securities held as collateral
pursuant to a Security-Agreement Pledge executed by BEI in favor of the
loanholders in exchange for the following conditions: (1) payment of all
accrued interest as of April 10, 1997 (which amounted to approximately
$29,000), (2) the loan broker (Avonwood Capital) is to receive a fee of
$20,000, (3) 40,000 Company common stock warrants to be issued to Avonwood
Capital and 20,000 stock warrants to Stan Moyer (a principal of Avonwood), all
exercisable at $1.00 per share, (4) conversion of the existing $400,000 notes
to new 3 year notes at a 12% annual interest rate, with principal and interest
payable monthly, beginning in May, 1997, (5) the outstanding principal balance
is convertible (at the note holders' option) to Company common stock at $.50
per share, and (6) no prepayment penalties.
With the release of the equity securities, the Company obtained a margin loan
of $185,000 with the equity securities as collateral with the Principal
Financial Group in April, 1997. Also in April, 1997, the Company raised an
additional $500,000 from ten investors through the issuance of three-year
convertible debentures. The debentures carry an annual interest rate of 7%.
Interest and principal are due and payable in annual installments on each
anniversary. At the option of the Company, interest payments due prior to the
maturity date may be made in shares of common stock of the Company at the rate
one share for each $.50 of interest accrued and payable. The debenture holder
has the right at any time prior to maturity, to convert all or any portion of
the then outstanding principal balance into fully paid and non-assessable
shares of common stock of the Company at a conversion price of $.25 per share
of such outstanding principal amount, subject to adjustment from time to time
as provided for in the debenture. The Company also extinguished in April, 1997,
the $306,796 of notes payable that were incurred in connection with the
acquisition of the cruise and magazine division for a cash settlement of
$75,000. With these cash resources, the Company has been able to expand the
distribution and number of publications advertising the Company's hotel and
cruise and tour packages which management believes should substantially
increase sales in both areas. Management has, and is continuing to negotiate
with its accounts payable vendors in order to work out acceptable payment
schedules for all parties.
Management believes that its working capital after accomplishing the above
financing arrangement, together with cash generated from existing operations
will be sufficient to satisfy anticipated sales growth. There can be no
assurance that even with the provided financing that the Company will not
encounter adverse effects on its business, financial conditions or results of
operations in the future. The financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern.
F-31
<PAGE> 71
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Incorporation of Grand Adventures Tour & Travel
Publishing Corporation (the "Company") provide that, to the fullest extent
permitted by Oregon law, directors and former directors of the Company shall
not be liable to the Company or its shareholders for monetary damages occurring
in their capacity as a director. Oregon law does not currently authorize the
elimination or limitation of the liability of a director to the extent the
director is found liable (i) for any breach of the director's duty of loyalty
to the Company or its shareholders, (ii) for acts or omissions not in good
faith that constitute a breach of duty of the director of the Company or which
involve intentional misconduct or a knowing violation of law, (iii) for
transactions from which the director received an improper benefit, whether the
benefit resulted from an action taken within the scope of the director's office
or (iv) for acts or omissions for which the liability of a director is
expressly provided by law.
The Company's Articles of Incorporation and its Bylaws grant mandatory
indemnification to directors and officers of the Company to the fullest extent
authorized under the Oregon Business Corporation Act. In general, an Oregon
corporation may indemnify a director or officer who was, is or is threatened to
be made a named defendant or respondent in a proceeding by virtue of his
position in the corporation 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, in the case of criminal proceedings, had no reasonable cause
to believe his conduct was unlawful. An Oregon corporation may indemnify an
officer or director in an action brought by or in the right of the corporation
only if such director or officer was not found liable to the corporation,
unless or only to the extent that a court finds him to be fairly and reasonably
entitled to indemnity for such expenses as the court deems proper.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses to be incurred in connection with the issuance
and distribution of the Notes covered by this Registration Statement, all of
which will be paid by the Company, are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee .............................................................$
American Stock Exchange Filing Fee ..............................................................................$
National Association of Securities Dealers, Inc. Filing Fee .....................................................$
Printing and Engraving ..........................................................................................$
Legal Fees and Expenses..........................................................................................$
Accounting Fees and Expenses.....................................................................................$
Miscellaneous ..........................................................................................$ *
-------
Totalxx.................................................................................................$
</TABLE>
- ------------------
* Estimated
xx To the extent that the actual offering expenses exceed the limitation
on the payment of offering expenses [set forth in the Prospectus
and/or] imposed by applicable state securities law, Grand Adventures
Tour & Travel Publishing Corporation, will pay such excess offering
expense
II-1
<PAGE> 72
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following sets forth certain information regarding sales of
securities of the Company issued within the past three years, which were not
registered pursuant to the Securities Act of 1933, as amended (the "Securities
Act"). The following information has been adjusted to reflect the 1-for-7 split
for all Common Stock to be effected in October, 1997 (the "Reverse Stock
Split"):
On October 10, 1996, the Company, in connection with a merger (the
"Merger") of a newly created, wholly-owned subsidiary of the Company with and
into Airfair Publishing, Inc. ("Airfair"), which operated the businesses that
now comprise the Company's operations, the Company issued the following
securities:
(i) 1,303,571 shares of Common Stock to shareholders of Airfair.
Such issuance was exempt from registration pursuant to either or
both Section 4(2) of the Securities Act or Rule 506 under the
Securities Act ("Rule 506"), based on the absence of any public
solicitation, there being a limited number of shareholders of
Airfair (a significant number of whom were accredited
investors), and the investors' access to information and
sophistication;
(ii) incentive options to acquire 51,571 shares of Common Stock to
employees and officers of Airfair to replace incentive stock
options to acquire 325,000 shares of Airfair common stock. Based
on the absence of any public solicitation, there being a limited
number of shareholders of Airfair (a significant number of whom
were accredited investors), the investors' access to information
and sophistication, and compliance with the requirements of Rule
701 promulgated under the Securities Act ("Rule 701"), the
options granted to the employees and officers of Airfair were
exempt from registration pursuant to any or all of Section 4(2)
of the Securities Act or Rules 506 or 701. The exercise of such
options will be made pursuant to Rule 701;
(iii) warrants to acquire 13,095 shares of Common Stock to replace
warrants to acquire an equal number of shares of Airfair common
stock. Under the terms of the Airfair warrants, upon
consummation of the Merger, such warrants were automatically
converted into an equivalent warrant to acquire shares of the
Company's common stock. Each of these warrant holders was an
accredited investor and had received their Airfair warrants or
claim options in transactions exempt under one or both of Rule
506 or Section 4(2) of the Securities Act. It is a condition to
exercise of the warrants that such exercise not be integrated
with any prior registered offering and that the holders certify,
at the time of exercise, that such holder is an accredited
investor. The Company believes that the issuance of these
warrants was not a sale of securities by the Company but, if
such issuance is a "sale" within the meaning of the Securities
Act, that such issuances was, and that the issuance of shares of
common stock upon exercise of the warrants will be, exempt from
the registration requirements of the Securities Act under either
or both Section 4(2) of the Securities Act or Rule 506;
(iv) warrants to acquire 8,571 shares of Common Stock issued to
Avonwood Capital Corporation ("Avonwood") and F. Stanton Moyer
in satisfaction of their bona fide claims to Airfair warrants
which, if issued timely by Airfair, would have caused Mr. Moyer
and Avonwood to have held Airfair warrants at the time of the
Merger and to have been issued warrants together with the
individuals described in subparagraph (iii) above. Mr. Moyer and
Avonwood are highly sophisticated and accredited investors and
their claim for Airfair warrants arose from a transaction exempt
from the registration requirements of the Securities Act. It is
a condition to exercise of the warrants that such exercise not
be integrated with any prior registered offering and that the
holders certify, at the time of exercise, that such holder is an
accredited investor. The Company believes that the issuance of
these warrants was and that the issuance of shares of Common
Stock upon exercise of the warrants will be, exempt from the
registration requirements of the Securities Act under either of
both Section 4(2) of the Securities Act or Rule 506; and
(v) an option to acquire 114,285 shares of Common Stock to Mark T.
Waller, a director and substantial shareholder of the Company.
The issuance to Mr. Waller was effected in accordance with the
terms of an advisory services agreement between Mr. Waller and
the Company. Such warrant issuance was
II-2
<PAGE> 73
exempt from the registration requirements of the Securities Act
pursuant to either or both Section 4(2) of the Securities Act or
Rule 506 under the Securities Act.
Effective as of October 10, 1996, the Company issued to a consultant a
warrant to acquire 400 shares of Common Stock. The warrant was issued to the
consultant as consideration for assistance to the Company in procuring a
valuable relationship and contract with a significant cruise line operator. The
consultant is a sophisticated investor with extensive knowledge of the Company
and its markets. It is a condition to exercise of the warrants that such
exercise not be integrated with any prior registered offering and that the
holders certify, at the time of exercise, that such holder is an accredited
investor. The Company believes that the issuance of these warrants was not a
sale of securities by the Company but, if such issuance is a "sale" within the
meaning of the Securities Act, that such issuances was, and that the issuance of
shares of common stock upon exercise of the warrants will be, exempt from the
registration requirements of the Securities Act under either or both Section
4(2) of the Securities Act or Rule 506. Based on these factors, the Company
believes that the warrant issuance to Mr. Calhoun was exempt under Section 4(2)
of the Securities Act.
Effective as of October 10, 1996, the Company issued to a consultant a
warrant to acquire 400 shares of Common Stock. The warrant was issued to the
consultant as consideration for consulting services rendered to the Company and
relating to financial matters, strategic planning and operational matters. The
consultant is a sophisticated investor with extensive knowledge of the Company
and its markets. It is a condition to exercise of the warrants that such
exercise not be integrated with any prior registered offering and that the
holders certify, at the time of exercise, that such holder is an accredited
investor. The Company believes that the issuance of these warrants was not a
sale of securities by the Company but, if such issuance is a "sale" within the
meaning of the Securities Act, that such issuances was, and that the issuance of
shares of common stock upon exercise of the warrants will be, exempt from the
registration requirements of the Securities Act under either or both Section
4(2) of the Securities Act or Rule 506. Based on these factors, the Company
believes that the warrant issuance to Mr. Calhoun was exempt under Section 4(2)
of the Securities Act.
In February, 1997, the Company granted to several employees incentive
stock options to acquire a total of 64,142 shares of Common Stock. The options
granted to these employees were, and the exercise of such options will be,
effected in accordance with the provisions of Rule 701.
In November, 1996, the Company issued to Dennis O'Connor a warrant to
acquire 1,428 shares of Common Stock. The warrant was issued to Mr. O'Connor, a
securities lawyer, in consideration for consulting services rendered to the
Company and related to the Company's status as a formerly defunct reporting
company. Mr. O'Connor is an accredited and sophisticated investor and was
provided with access to all material information regarding the Company. It is a
condition to exercise of the warrants that such exercise not be integrated with
any prior registered offering and that the holders certify, at the time of
exercise, that such holder is an accredited investor. The Company believes that
the issuance of these warrants was not a sale of securities by the Company but,
if such issuance is a "sale" within the meaning of the Securities Act, that such
issuances was, and that the issuance of shares of common stock upon exercise of
the warrants will be, exempt from the registration requirements of the
Securities Act under either or both Section 4(2) of the Securities Act or Rule
506. Based on these facts, the Company believes that the issuance of this
warrant to Mr. O'Connor was exempt under Section 4(2) of the Securities Act.
In March, 1997, the Company issued to a consultant providing the
Company with computer services, a convertible note in the principal amount of
$25,000, convertible into 7,142 shares of Amended Stock. The consultant shared
office space with an affiliate of the Company, and has extensive knowledge of
the Company's business. It is a condition to exercise of the conversion feature
that such conversion not be integrated with any prior offering of the Company's
securities. The Company believes that the issuance of this convertible note
was, and the issuance of shares to occur when conversion of such notes will be,
exempt from the registration requirements of the Securities Act based on
Section 4(2) of the Act.
In April, 1997, the Company completed a private placement (the "First
1997 Placement") of convertible notes and warrants to ten accredited investors.
The aggregate principal amount of the convertible notes was $500,000 and no
portion of the consideration (which consisted entirely of cash) was attributed
to the warrants. The warrants entitle the holders to acquire an aggregate of
142,857 shares of Common Stock. It is a condition to exercise of the warrants
that
II-3
<PAGE> 74
such exercise not be integrated with any prior registered offering and
that each holder certify, at the time of exercise, that such holder is an
accredited investor. The Company believes that the issuance of notes and
warrants was, and that the issuance of shares of common stock upon exercise of
the warrants will be, exempt from the registration requirements of the
Securities Act under either or both Section 4(2) of the Securities Act or Rule
506 under the Securities Act.
In April 1997, holders of Notes issued by Airfair in 1996 agreed to
exchange the 1996 notes for convertible notes issued by GATT which, although
unsecured, incorporated a conversion feature. Each of the note holders is an
accredited investor and each of them, or their purchaser representative, as the
case may be, received complete access to the books and records of the Company.
The Company believes that this transaction was exempt under Section 4 (2) of
the Securities Act, based on the absence of any public solicitation, the Note
holders' prior relationship with the Company and their accredited status. Based
on the absence of any payment of remuneration at the time of conversion of the
convertible notes, the Common Stock to be issued upon such conversion will be
exempt from registration pursuant to the provisions of Section 3(a) and 9 of
the Securities Act.
In April 1997, in consideration for consulting services provided in
connection with restructuring of the 1996 Notes, the Company issued to F.
Stanton Moyer and Avonwood warrants to acquire an aggregate of 8,571 shares of
Common Stock. It is a condition to exercise of the warrants that such exercise
not be integrated with any prior registered offering and that the holders
certify, at the time of exercise, that such holder is an accredited investor.
Based on the absence of any public solicitation, the status of Mr. Moyer and
Avonwood as accredited and sophisticated investors and their access to
information regarding the Company, the Company believes that these issuances
are, and that the issuance of shares upon the warrants will be, exempt from
registration pursuant to the provisions of Section 4(2) of the Securities Act.
In April 1997, the Company issued to Robert A. Barrett a warrant to
acquire 7,142 shares of Common Stock. Mr. Barrett is the principal shareholder
of the two corporations which sold to Airfair most of the business operations
the Company currently operates. A substantial portion of the purchase price
paid by Airfair to these two corporations were promissory notes payable to each
of them. The warrant was issued to Mr. Barrett as partial consideration for his
causing the two corporations to discount the two promissory notes
substantially. Mr. Barrett is very knowledgeable about the Company's industry
and the Company's operations and is a sophisticated investor. It is a condition
to exercise of the warrants that such exercise not be integrated with any prior
registered offering and that the holders certify, at the time of exercise, that
such holder is an accredited investor. The Company believes that the issuance
of these warrants was not a sale of securities by the Company but, if such
issuance is a "sale" within the meaning o the Securities Act, that such
issuances was, and that the issuance of shares of common stock upon exercise of
the warrants will be, exempt from the registration requirements of the
Securities Act under either or both Section 4(2) of the Securities Act or Rule
506. Based upon these factors, and in the absence of any public solicitation,
the Company believes that this transaction is exempt from registration pursuant
to the provisions of Section 4(2) of the Securities Act.
In October 1997, the Company conducted a private placement of Notes and
Shares. The aggregate offering price was $500,050 and the aggregate principal
amount of the Notes was $500,000. Each of the investors is an accredited
investor and the Company believes that the Second Private Placement was exempt
under the provisions of either or both Rule 506 or Section 4(2) of the
Securities Act.
ITEM 27. EXHIBITS.
Exhibit No. Name of Exhibit
----------- ---------------
1.01 Underwriting Agreement between Grand
Adventures Tour & Travel Publishing
Corporation (filed electronically herewith)
and underwriter
1.02 Warrant Agreement between Grand Adventures
Tour & Travel Publishing Corporation (filed
electronically herewith)
1.03 Lock-up Agreement between Grand Adventures
Tour & Travel Publishing Corporation and
underwriter (to be filed by amendment)
*2.01 Agreement and Plan of Merger entered into
effective July 19,1996, by and between
Riley Investments, Inc., and Airfair
Publishing, Inc.
II-4
<PAGE> 75
*3.01 Restated Articles of Incorporation of Grand
Adventures Tour & Travel Publishing
Corporation
3.02 Amended and Restated Bylaws of Grand
Adventures Tour & Travel Publishing
Corporation (filed electronically herewith)
5.01 Opinion of Kuperman, Orr, Mouer & Albers,
P.C. regarding legality of Common Stock
(to be filed by amendment)
*10.01 Advisory Services Agreement effective
October 10, 1996 by and between Riley
Investments, Inc. and Mark Waller
*10.02 Long Term Stock Incentive Option Plan
*10.03 Non-Qualified Stock Option granted effective
August 19, 1996 by Riley Investments, Inc.
to Mark Waller
*10.04 Indemnification and Pledge Agreement between
Grand Adventures Tour & Travel Publishing
Corporation and Mark Waller
10.05 Employment Agreement with Joseph S. Juba
(filed electronically herewith)
10.06 Employment Agreement with Fernando Cruz-
Silva (filed electronically herewith)
10.07 Management Agreement between Grand
Adventures Tour & Travel Publishing
Corporation, BEI Holdings, Inc. and
Inventory Marketing Services, Inc. (filed
electronically herewith)
10.08 Marketing Agreement between Grand Adventures
Tour & Travel Publishing Corporation and
Inventory Merchandising Services, Inc.
(filed electronically herewith)
11.01 Statement of Computation of Earnings
*16.01 Letter from Isler & Co., former Company
auditors
21.01 List of Subsidiaries (filed electronically
herewith)
23.01 Consent of Kuperman, Orr, Mouer & Albers,
P.C. (filed electronically herewith)
23.02 Consent of Andersen, Andersen & Strong
(filed electronically herewith)
- ----------
*Incorporated by reference from Form 8-K filed October 15, 1996.
ITEM 28. UNDERTAKINGS.
1. The undersigned Registrant hereby undertakes:
(a) To provide to the Underwriters at the closing specified in
the Underwriting Agreement certificates in such denominations
and registered in such names as required by the Underwriters
to permit prompt delivery to each purchaser.
(b) For determining any liability under the Securities Act, treat
the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule
430A and contained in
II-5
<PAGE> 76
a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act as part of
this Registration Statement as of the time the Commission
declared it effective.
(c) To file, during any period in which offers or sales are made,
a post-effective amendment to this Registration Statement to:
(i) include any prospectus required by Section 10(a)(3)
of the Securities Act;
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental
change in the information in the Registration
Statement; and
(iii) include any additional or changed material
information on the plan of distribution.
(d) That, for the purpose of determining liability under the
Securities Act, each post-effective amendment shall be deemed
to be a new registration statement of the securities offered,
and the offering of the securities at that time shall be
deemed to be the initial bona fide offering thereof.
(e) To file a post-effective amendment to remove from
registration any of the securities that remain unsold at the
termination or end of the offering.
2. Insofar as indemnification for liabilities arising under the
Securities Act 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
Securities 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
Securities Act and will be governed by the final adjudication of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended (the "Act") the Registrant certifies that it has reasonable grounds to
believe that it meets all the requirements of filing on Form SB-2 and has duly
caused this Registration Statement on Form SB-2 to be signed on its behalf by
the undersigned, thereon duly authorized in the City of Austin, State of Texas
on October 23, 1997.
Grand Adventures Tour & Travel Publishing Corporation
an Oregon corporation
By: /s/ Matthew O'Hayer
----------------------------
Matthew O'Hayer
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Act, this Registration Statement has
been signed below by the following persons in the capacities and on the date
indicated.
II-6
<PAGE> 77
/s/ Joseph S. Juba
----------------------------
Joseph S. Juba
President, Chief Operating Officer and Secretary
/s/ Darrell Barker
----------------------------
Darrell Barker
Chief Financial Officer and Treasurer
/s/ Fernando Cruz Silva
----------------------------
Fernando Cruz Silva
Senior Vice President of Sales & Marketing
/s/ Patti Macchi
----------------------------
Patti Macchi
Vice President of Cruise Sales & Marketing
/s/ Robert Sandner
----------------------------
Robert Sandner
Director
II-7
<PAGE> 78
EXHIBIT INDEX
Exhibit No. Name of Exhibit
----------- ---------------
1.01 Underwriting Agreement between Grand
Adventures Tour & Travel Publishing
Corporation (filed electronically herewith)
and underwriter
1.02 Warrant Agreement between Grand Adventures
Tour & Travel Publishing Corporation (filed
electronically herewith)
1.03 Lock-up Agreement between Grand Adventures
Tour & Travel Publishing Corporation and
underwriter (to be filed by amendment)
*2.01 Agreement and Plan of Merger entered into
effective July 19,1996, by and between
Riley Investments, Inc., and Airfair
Publishing, Inc
*3.01 Restated Articles of Incorporation of Grand
Adventures Tour & Travel Publishing
Corporation
3.02 Amended and Restated Bylaws of Grand
Adventures Tour & Travel Publishing
Corporation (filed electronically herewith)
5.01 Opinion of Kuperman, Orr, Mouer & Albers,
P.C. regarding legality of Common Stock
(to be filed by amendment)
*10.01 Advisory Services Agreement effective
October 10, 1996 by and between Riley
Investments, Inc. and Mark Waller
*10.02 Long Term Stock Incentive Option Plan
*10.03 Non-Qualified Stock Option granted effective
August 19, 1996 by Riley Investments, Inc.
to Mark Waller
*10.04 Indemnification and Pledge Agreement between
Grand Adventures Tour & Travel Publishing
Corporation and Mark Waller
10.05 Employment Agreement with Joseph S. Juba
(filed electronically herewith)
10.06 Employment Agreement with Fernando Cruz-
Silva (filed electronically herewith)
10.07 Management Agreement between Grand
Adventures Tour & Travel Publishing
Corporation, BEI Holdings, Inc. and
Inventory Marketing Services, Inc. (filed
electronically herewith)
10.08 Marketing Agreement between Grand Adventures
Tour & Travel Publishing Corporation and
Inventory Merchandising Services, Inc.
(filed electronically herewith)
11.01 Statement of Computation of Earnings
*16.01 Letter from Isler & Co., former Company
auditors
21.01 List of Subsidiaries (filed electronically
herewith)
23.01 Consent of Kuperman, Orr, Mouer & Albers,
P.C. (filed electronically herewith)
23.02 Consent of Andersen, Andersen & Strong
(filed electronically herewith)
----------
* Incorporated by reference from Form 8-K filed October 15, 1996.
<PAGE> 1
EXHIBIT 1.01
700,000 SHARES
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORPORATION
(an Oregon corporation)
(Par Value $0.___ Per Share)
UNDERWRITING AGREEMENT
December ___, 1997
CAPITAL WEST SECURITIES, INC.
211 N. Robinson
16th Floor, One Leadership Square
Oklahoma City, Oklahoma 73102
Ladies/Gentlemen:
Grand Adventures Tour & Travel Publishing Corporation, an Oregon
corporation (the "Company"), hereby confirms its agreement with Capital West
Securities, Inc. ("Capital West") as representative of the several underwriters
named in Schedule A hereto (herein collectively called the "Underwriters") as
follows:
1. DESCRIPTION OF SHARES. The Company proposes to issue and sell
700,000 shares (the "Firm Shares") of its authorized and unissued common stock,
par value $0.___ per share (the "Common Stock") to the Underwriters upon the
terms and subject to the conditions set forth herein. The Company also
proposes to grant to the Underwriters an option to purchase, for the sole
purpose of covering over-allotments in connection with the sale of Firm Shares,
an aggregate of up to 105,000 additional shares ("Option Shares") of Common
Stock upon the terms and subject to the conditions set forth herein and as
provided in Section 7 hereof. As used in this Agreement, the term "Shares"
shall include the Firm Shares and the Option Shares. All shares of Common
Stock of the Company, including the Shares, are hereinafter referred to as
"Common Stock."
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY.
Unless otherwise indicated or the context otherwise requires, references to the
"Company" in this Section 2 are references to Grand Adventures Tour & Travel
Publishing Corporation, an Oregon corporation. The Company represents and
warrants to and agrees with the Underwriters, as follows:
(a) A registration statement on Form SB-2 (File No.
333-______) with respect to the Shares, including a prospectus subject to
completion, has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
applicable rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") under the Act and has
been filed with the Commission; such amendments to such registration statement
and such amended prospectuses subject to completion, as may have been required
prior to the date hereof have been similarly prepared and filed with the
Commission; and the Company will file such additional
<PAGE> 2
amendments to such registration statement and such amended prospectuses subject
to completion, as may hereafter be required. The Company meets the requirements
for use of a Registration Statement on Form SB-2. Copies of such registration
statement and any amendments and of each related prospectus subject to
completion have been delivered to you.
If the registration statement has been declared effective
under the Act by the Commission, the Company will prepare and promptly file
with the Commission the information omitted from the registration statement
pursuant to Rule 430A(a) of the Rules and Regulations or as part of a
post-effective amendment to the registration statement (including a final form
of prospectus). If the registration statement has not been declared effective
under the Act by the Commission, the Company will prepare and promptly file a
further amendment to the registration statement, including a final form of
prospectus. The term "Registration Statement" as used in this Agreement shall
mean such registration statement, including financial statements, schedules and
exhibits, in the form in which it became or becomes, as the case may be,
effective (including, if the Company omitted information from the registration
statement pursuant to Rule 430A(a) of the Rules and Regulations, the
information deemed to be a part of the registration statement at the time it
became effective pursuant to Rule 430A(b) of the Rules and Regulations) and, in
the event of any amendment thereto after the effective date of such
registration statement, shall also mean (from and after the effectiveness of
such amendment) such registration statement as so amended. The term
"Prospectus" as used in this Agreement shall mean the prospectus relating to
the Shares as included in such Registration Statement at the time it becomes
effective (including, if the Company omitted information from the Registration
Statement pursuant to Rule 430A(a) of the Rules and Regulations, the
information deemed to be a part of the Registration Statement at the time it
became effective pursuant to Rule 430A(b) of the Rules and Regulations), except
that if any revised prospectus shall be provided to the Underwriters by the
Company for use in connection with the offering of the Shares that differs from
the Prospectus on file with the Commission at the time the Registration
Statement became or becomes, as the case may be, effective (whether or not such
revised prospectus is required to be filed with the Commission pursuant to Rule
424(b)(3) of the Rules and Regulations), the term "Prospectus" shall refer to
such revised prospectus from and after the time it is first provided to the
Underwriters for such use.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or instituted proceedings for
that purpose, and each such Preliminary Prospectus has conformed in all
material respects to the requirements of the Act and the Rules and Regulations
and, as of its date, has not included any untrue statement of a material fact
or omitted to state a material fact necessary to make the statements therein,
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and at the time the Registration
Statement became or becomes, as the case may be, effective and at all times
subsequent thereto up, to and on the Closing Date (hereinafter defined) and on
any later date on which Option Shares are to be purchased, (i) the Registration
Statement and the Prospectus, and any amendments or supplements thereto,
contained and will contain all material information required to be included
therein by the Act and the Rules and Regulations and will in all material
respects conform to the requirements of the Act and the Rules and Regulations,
and (ii) neither the Registration Statement nor the Prospectus, nor any
amendments or supplements thereto, will include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to
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<PAGE> 3
make the statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that none of the representations
and warranties contained in this subparagraph shall apply to information
contained in or omitted from the Registration Statement or the Prospectus or
any such amendment or supplement in reliance upon, and in conformity with,
written information furnished to the Company by any Underwriter specifically
for inclusion therein.
(c) Each contract, agreement, instrument, lease, license
or other item required to be described in the Registration Statement or the
Prospectuses or filed as an exhibit to the Registration Statement has been so
described or filed, as the case may be.
(d) The Company and each of its Subsidiaries (as such
term is defined in Rule 405 under the Act) has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its organization, with full corporate power and authority to
own, lease and operate its properties and to conduct its business as described
in the Registration Statement; each of the Company and its Subsidiaries is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which the ownership or leasing of its properties or the
conduct of its business requires such qualification except where the failure to
be so qualified or to be in good standing would not have a material adverse
effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its Subsidiaries considered
as a whole; each of the Company and its Subsidiaries is in possession of and
operating in compliance with all authorizations, licenses, certificates,
consents, orders and permits from state, Federal and other regulatory
authorities which are material to the conduct of its business, all of which are
valid and in full force and effect; neither the Company nor its Subsidiaries is
in violation of its charter or bylaws or in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any material indenture, mortgage, deed of trust, loan agreement,
bond, debenture, note agreement or other evidence of indebtedness, or any
material lease, contract, joint venture, or other agreement or instrument to
which it is a party or by which its property is bound or in violation of any
law, order, rule, regulation, writ, injunction, judgment or decree of any
government, governmental agency or body or court, domestic or foreign, of which
it has knowledge except such failures to comply as would not, individually or
in the aggregate, have a material adverse effect on the Company and its
Subsidiaries considered as a whole.
(e) The Company has full legal right, power and authority
to enter into this Agreement and perform the transactions contemplated hereby.
This Agreement and the Warrant Agreement (the "Warrant Agreement") by and
between the Company and the Underwriters have been duly authorized, executed
and delivered by the Company and are valid and binding agreements on the part
of the Company, enforceable in accordance with their respective terms, except
as rights to indemnification and contribution hereunder may be limited by
applicable law and except as the enforcement hereof may be limited by
applicable bankruptcy, insolvency, reorganization moratorium or other similar
laws relating to or affecting creditors' rights generally, or by general
equitable principles; the performance of this Agreement and the Warrant
Agreement and the consummation of the transactions herein and therein
contemplated will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under, (i) any material indenture,
mortgage, deed of trust, loan agreement, bond,
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<PAGE> 4
debenture, note agreement or other evidence of indebtedness, or any material
lease, contract, joint venture or other agreement or instrument to which the
Company is a party or by which the property of the Company is bound including
any licenses from third parties, or (ii) the Certificate of Incorporation and
Bylaws of the Company, or (iii) any law, order, rule, regulation, writ,
injunction, judgment or decree of any government or governmental agency or body
or court, domestic or foreign, having jurisdiction over the Company or over the
properties of the Company, except for breaches, violations or defaults that
individually or in the aggregate, would not have a material adverse effect on
the Company; and no consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the
transactions herein contemplated, except such as may be required under the Act,
the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), or
under state or other securities or Blue Sky laws, all of which requirements
have been satisfied in all material respects.
(f) Except as disclosed in the Registration Statement or
the Prospectus, there is no action, suit or proceeding before or by any court
or governmental agency or body, domestic or foreign, now pending, or, to the
knowledge of the Company, threatened, against or affecting the Company or its
Subsidiaries which (i) is required to be disclosed in the Registration
Statement or the Prospectus or which might result in any material adverse
change in the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company and its Subsidiaries considered as
one enterprise, or which might materially and adversely affect the properties
or assets thereof; or (ii) which might be expected to materially and adversely
affect the consummation of the transactions contemplated by this Agreement; all
pending legal or governmental proceedings to which the Company or its
Subsidiaries is a party or of which any of their respective properties or
assets is the subject which are not described in the Registration Statement,
including ordinary routine litigation incidental to the Company's business,
could not reasonably be expected to result in a material adverse change in the
condition, financial or otherwise, or the earnings, business affairs or
business properties of the Company and its Subsidiaries considered as one
enterprise; and there are no contracts or documents of the Company or its
Subsidiaries which are required to be described in the Registration Statement
or the Prospectus, or to be filed as exhibits thereto, by the Act or by the
Rules and Regulations which have not been accurately described in all material
respects and filed as exhibits to the Registration Statement. To the best of
the Company's knowledge, the contracts so described in the Prospectus are in
full force and effect on the date hereof, and neither the Company nor its
Subsidiaries is in breach of or default under, and to the Company's knowledge,
no other party is in material breach of or material default under, any of such
contracts.
(g) All outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all Federal and state
securities laws, were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities (other than such
preemptive rights or other rights to subscribe for or purchase securities as
were fully complied with or expressly waived or with respect to the violation
of which the right to make claim is barred by the applicable statute of
limitations), and the authorized and outstanding capital stock of the Company
conforms in all material respects to the statements relating thereto contained
in the Registration Statement and the Prospectus (and such statements correctly
state the
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<PAGE> 5
substance of the instruments defining the capitalization of the Company); the
Firm Shares and the Option Shares to be purchased from the Company hereunder
have been duly authorized for issuance and sale to the Underwriters pursuant to
this Agreement and, when issued and delivered by the Company against payment
therefor in accordance with the terms of this Agreement, will be duly and
validly issued and fully paid and nonassessable; the shares of Common Stock
issuable under the warrant (the "Underwriters' Warrant") to be granted to the
Underwriters under the Warrant Agreement have been duly authorized for issuance
and sale to the Underwriters pursuant to this Agreement and, when issued and
delivered by the Company against payment therefor in accordance with the terms
of the Warrant Agreement, will be duly and validly issued and fully paid and
nonassessable; and no preemptive right, co-sale right, registration right,
right of first refusal or other similar right of stockholders exists with
respect to any of the Firm Shares, Option Shares or shares of Common Stock
issuable under the Underwriters' Warrant or the issuance and sale thereof other
than those that have been expressly waived prior to the date hereof and those
that will automatically expire upon the consummation of the transactions
contemplated on the Closing Date. No further approval or authorization of any
stockholder, the Board of Directors or others is required for the issuance and
sale or transfer of the Shares except as may be required under the Act, the
Exchange Act or under state or other securities or Blue Sky laws. Except as
disclosed in or contemplated by the Prospectus and the financial statements of
the Company (including the notes thereto) included in the Prospectus, the
Company has no outstanding options to purchase, or any preemptive rights or
other rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell, shares of
its capital stock or any such options, rights, convertible securities or
obligations. The description of the Company's stock option, stock bonus and
other stock plans or arrangements, and the options or other rights granted and
exercised thereunder, set forth in the Prospectus accurately and fairly
presents the information required to be shown with respect to such plans,
arrangements, options and rights. The shares of Common Stock reserved for
issuance upon exercise of the Company's outstanding options and warrants have
been duly and validly authorized and are sufficient in number to meet the
exercise requirements of such options.
(h) Andersen Andersen & Strong, L.C., which has examined
the financial statements (together with related schedules and notes) of the
Company filed with the Commission as a part of the Registration Statement and
which are included in the Prospectus, are independent accountants within the
meaning of the Act and the Rules and Regulations; the audited and pro forma
financial statements of the Company, together with the related schedules and
notes, and the unaudited financial information, forming part of the
Registration Statement and Prospectus, fairly present the financial position
and the results of operations of the Company at the respective dates and for
the respective periods to which they apply; and all audited and pro forma
financial statements, together with the related schedules and notes, and the
unaudited and pro forma financial information, filed with the Commission as
part of the Registration Statement, have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved except as may be otherwise stated therein. The selected and
summary financial and statistical data included in the Registration Statement
present fairly the information shown therein and have been compiled on a basis
consistent with the audited financial statements presented therein. No other
financial statements or schedules are required to be included in the
Registration Statement.
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<PAGE> 6
(i) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as otherwise
stated therein, (i) there has been no material adverse change in the business,
properties, operations, condition (financial or otherwise) or in the earnings,
business affairs or business prospects of the Company and its Subsidiaries,
whether or not arising in the ordinary course of business, (ii) there have been
no transactions entered into by the Company other than those in the ordinary
course of business, which are material with respect to the Company, (iii) there
has been no obligation that is material to the Company, direct or contingent,
incurred by the Company or any Subsidiary, except obligations incurred in the
ordinary course of business, (iv) there has been no change in the capital stock
of the Company, (v) there has been no change in the outstanding indebtedness of
the Company which is material to the Company, (vi) there has been no dividend
or distribution of any kind declared, paid or made by the Company on behalf of
any class of its respective capital stock, (vii) there has been no redemption,
purchase or acquisition or agreement to redeem, purchase or acquire shares of
Common Stock of the Company, or (viii) to the knowledge of the Company, there
has been no change in any Federal, state, or other laws, rules, or regulations
(or interpretations thereof) applicable to the business of the Company that
would have a material adverse effect on the Company, and, to the knowledge of
the Company, no such change is pending other than as described in the
Prospectus.
(j) Except as described in the Prospectus, (i) the
Company and its Subsidiaries have good and marketable title to all properties
and assets described in the Prospectus as owned by them, free and clear of all
liens, charges, encumbrances or restrictions of any kind, except those
described in the Prospectus, or those not material, singly or in the aggregate,
to the business of the Company and its Subsidiaries considered as a whole, (ii)
the agreements to which the Company is a party described in the Prospectus are
valid agreements, enforceable by the Company, except as the enforcement thereof
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting creditors' rights generally or by general
equitable principles, and (iii) the Company has valid and enforceable leases
for the properties described in the Prospectus as leased by it except as
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles.
(k) All Federal, state, local and foreign tax returns
required to be filed by the Company or its Subsidiaries in any jurisdiction
have been filed, and all material taxes, including withholding taxes, penalties
and interest, assessments, fees and other charges due or claimed to be due from
such entities have been paid other than those being contested in good faith and
for which adequate reserves have been provided or those currently payable
without penalty or interest; and adequate charges, accruals and reserves have
been provided for in the financial statements referred to in Section 2(g) above
in respect of all Federal, state, local and foreign taxes for all periods as to
which the tax liability of the Company or its Subsidiaries has not been finally
determined or remains open to examination by applicable taxing authorities.
(l) No labor dispute with the employees of the Company or
its Subsidiaries exists or, to the knowledge of the Company, is imminent; and
the Company is not aware of any existing or imminent labor disturbance by the
employees of any of its principal suppliers, manufacturers, contractors or
customers which might be expected to result in any material
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<PAGE> 7
adverse change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company and its Subsidiaries
considered as one enterprise. No collective bargaining agreement exists with
any of the Company's employees and, to the Company's knowledge, no such
agreement is imminent.
(m) The Company and its Subsidiaries own or possess, or
can acquire on reasonable terms, the patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks and trade names presently employed by
them in connection with the business now operated by them and neither the
Company nor its Subsidiaries has received any notice or is otherwise aware of
any infringement of or conflict with asserted rights of others with respect to
any patent or proprietary rights or of any facts or circumstances which would
render any patent and proprietary rights invalid or inadequate to protect the
interest of the Company or its Subsidiaries therein, and which infringement or
conflict (if the subject of any unfavorable decision, ruling or finding) or
invalidity or inadequacy singly or in the aggregate, would result in any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
Subsidiaries considered as one enterprise.
(n) Except as set forth in the Prospectus, the Company
and its Subsidiaries are in compliance in all material respects with all
applicable laws, statutes, ordinances, rules or regulations, the enforcement of
which, individually or in the aggregate, would be reasonably expected to have a
material adverse effect on the condition, financial or otherwise, or the
earnings, business affairs or business prospects of the Company and its
Subsidiaries considered as one enterprise.
(o) The Common Stock has been approved for quotation on
__________ subject to official notice of issuance.
(p) The Company has been advised concerning the
Investment Company Act of 1940, as amended (the "1940 Act"), and the rules and
regulations thereunder, and has in the past conducted, and intends in the
future to conduct, its affairs in such a manner as to ensure that it will not
become an "investment company" within the meaning of the 1940 Act and such
rules and regulations.
(q) The Company has not distributed and will not
distribute prior to the Closing Date or on any date on which Option Shares are
to be purchased, as the case may be, any offering material in connection with
the offering and sale of the Shares other than the Prospectus, the Registration
Statement and other materials permitted by the Act.
(r) The Company has not at any time during the last five
years (i) made any unlawful contribution to any candidate for foreign office,
or failed to disclose fully any contribution in violation of law, or (ii) made
any payment to any Federal or state governmental officer or official, or other
person charged with similar public or quasi-public duties, other than payments
required or permitted by the laws of the United States or any jurisdiction
thereof.
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<PAGE> 8
(s) The Company has not taken and will not take, directly
or indirectly, any action designed to or that might be reasonably expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares. The Company has not
effected any sales of securities required to be disclosed in Item 26 of Form
SB-2 under the Act, other than as disclosed in the Registration Statement.
(t) Each officer and director of the Company and each
beneficial owner of at least 5% of the outstanding shares of Common Stock and
options and warrants to purchase Common Stock outstanding prior to the
effective date of the Registration Statement have agreed in writing that such
persons will not, for a period expiring 12 months after the effective date of
the Registration Statement, offer to sell, contract to sell, sell short, or
otherwise sell or dispose of any shares of Common Stock of the Company, any
options or warrants to purchase any shares of Common Stock of the Company, or
any securities convertible into or exchangeable for shares of the Common Stock
owned directly by such person or with respect to which such person has the
power of disposition otherwise than (i) as a gift or gifts, provided the donee
or donees thereof agree to be bound by this restriction or (ii) with the prior
written consent of Capital West. Messrs. O'Hayer, Juba and Sandner shall be
subject to a two (2) year lock-up unless the trading price of the Common Stock
of the Company is equal to or greater than 115% of the registered offering
price for 20 consecutive trading days, at which time, O'Hayer may sell up to
2,000 shares of Common Stock per month during the second year and Juba and
Sandner may sell up to 1,000 shares of Common Stock per month during the second
year; and, subject to the limitations of Rule 144, to the extent that any of
Messrs. O'Hayer, Juba and Sandner do not sell, in any given month, the full
number of shares of Common Stock which they were entitled to sell, such unsold
amount shall be available for sale in subsequent months without regard to any
other sales.
(u) Except as described in the Registration Statement,
(i) neither the Company nor its Subsidiaries is in violation of any Federal,
state, local or foreign laws or regulations relating to pollution or protection
of human health, the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata) or wildlife,
including, without limitation, laws and regulations relating to the release or
threatened release of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum or petroleum products
(collectively, "Environmental Materials") or to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Environmental Materials (collectively, the "Environmental Laws"), except such
violations as would not, singly or in the aggregate, have a material adverse
effect on the condition, financial or otherwise, or the earnings, business
affairs or business prospects of the Company and its Subsidiaries considered as
one enterprise, and (ii) to the best of the Company's knowledge, there are no
events or circumstances that could form the basis of an order for clean-up or
remediation, or an action, suit or proceeding by any private party or
governmental body or agency, against or affecting the Company or its
Subsidiaries relating to any Environmental Materials or the violation of any
Environmental Laws, which, singly or in the aggregate, could reasonably be
expected to have a material adverse effect on the condition, financial or
otherwise, or the earnings, business affairs or business prospects of the
Company and its Subsidiaries considered as one enterprise.
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<PAGE> 9
(v) The Company and its Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles as in effect in the United States and to maintain asset
accountability; (iii) access to bank accounts is permitted only in accordance
with management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(w) There are no outstanding loans, advances (except
normal advances for business expenses in the ordinary course of business) or
guarantees of indebtedness by the Company to or for the benefit of any of the
officers or directors of the Company or any of the members of the families of
any of them, except as disclosed in the Registration Statement and the
Prospectus. Neither the Company nor any employee or agent of the Company has
made any payment or transfer of any funds or assets of the Company or conferred
any personal benefit by use of the Company's assets, or received any funds,
assets or personal benefit in violation of any law, rule or regulation.
(x) On the Closing Date and upon delivery of the Option
Shares, as applicable, all transfer and other taxes (other than income taxes)
that are required to be paid in connection with the sale and transfer of the
Shares to the Underwriters will have been paid.
(y) The Company does not currently have and has never had
any pension plan subject to the provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in ERISA)
for which the Company would have any liability, the Company has not incurred
and does not expect to incur liability under (i) Title IV of ERISA with respect
to termination of, or withdrawal from, any "pension plan" or (ii) Sections 412
or 4971 of the Internal Revenue Code of 1986, as amended, including the
regulations and published interpretations thereunder (the "Code"); and each
"pension plan" for which the Company would have any liability that is intended
to be qualified under Section 401(a) of the Code is so qualified in all
material respects and nothing has occurred, whether by action or by failure to
act, which would cause the loss of such qualification.
(z) The Company confirms as of the date hereof that it is
in compliance with all provisions of Section 517.075, Florida Statutes (Chapter
92-198, Laws of Florida) An Act Relating to Disclosure of Doing Business with
Cuba (the "Cuba Act"), and the Company further agrees that if it commences
engaging in business with the government of Cuba or with any person or
affiliate located in Cuba after the date the Registration Statement becomes or
has become effective with the Commission or the Florida Department of Banking
and Finance (the "Department"), whichever date is later, or if the information
reported or incorporated by reference in the Prospectus, if any, concerning the
Company's business in Cuba or with any person or affiliate located in Cuba
changes in any material way, the Company will provide the Department notice of
such business or change, as appropriate, in a form acceptable to the
Department.
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<PAGE> 10
(aa) Any certificate signed by any officer of the Company
and delivered to the Underwriters or to counsel for the Underwriters shall be
deemed a representation and warranty by the Company to each Underwriter as to
the matters covered thereby.
(ab) Except as may be set forth in the Prospectus, the
Company has not incurred any liability for a fee, commission, or other
compensation on account of the employment of a broker or finder in connection
with the transactions contemplated by the Underwriting Agreement.
(ac) The Company and each subsidiary is insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which the
Company and the subsidiaries are engaged.
3. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Company agrees to sell to each Underwriter,
severally and not jointly, and each Underwriter, severally and not jointly,
agrees to purchase from the Company, respectively, at a purchase price per
share of $_____ per Share, the number of Shares set forth in Schedule A hereto
(subject to adjustment as provided in Section 10).
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 3 shall be made against
payment of the purchase price therefor by the Underwriters by certified or
official bank check in next day funds, payable to the order of the Company at
the offices of Capital West Securities, Inc., 211 N. Robinson, 16th Floor, One
Leadership Square, Oklahoma City, Oklahoma 73102, or at such other place as
shall be agreed upon by the Underwriters and the Company, at 9:30 a.m. on the
fourth business day following the first day that Shares are traded (or at such
time and date to which payments and delivery shall have been postponed pursuant
to Section 10 hereof), such time and date of payment and delivery being herein
called the "Closing Date." The certificates for the Firm Shares to be so
delivered will be made available to you at such office or at such other
location as you may reasonably request for checking at least one business day
prior to the Closing Date and will be in such names and denominations as you
may request, such request to be made at least two business days prior to the
Closing Date. If the Underwriters so elect, delivery of the Shares may be made
by credit through full fast transfer to the accounts at Depository Trust
Company designated by the Underwriters.
It is understood that Capital West, individually and not as
representative of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by Capital West prior to the
Closing Date for the Firm Shares to be purchased by such Underwriter or
Underwriters. Any such payment by Capital West shall not relieve any such
Underwriter or Underwriters of any of its or their obligations hereunder.
After the Registration Statement becomes effective, the
several Underwriters intend to offer the Firm Shares to the public as set forth
in the Prospectus.
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<PAGE> 11
The information set forth in the last paragraph on the front
cover page (insofar as such information relates to the Underwriters) and under
"Underwriting" in any Preliminary Prospectus and in the final form of
Prospectus filed pursuant to Rule 424(b) constitutes the only information
furnished by the Underwriters to the Company for inclusion in any Preliminary
Prospectus, the Prospectus or the Registration Statement, and you, on behalf of
the Underwriters, represent and warrant to the Company that the statements made
therein do not include any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make such
statements, in the light of the circumstances in which they were made, not
misleading.
4. FURTHER COVENANTS OF THE COMPANY. The Company covenants with
the several Underwriters as follows:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto,
to become effective as promptly as possible; it will notify you, promptly after
it shall receive notice thereof, of the time when the Registration Statement or
any subsequent amendment to the Registration Statement has become effective or
any supplement to the Prospectus has been filed; if the Company omitted
information from the Registration Statement at the time it was originally
declared effective in reliance upon Rule 430A(a) of the Rules and Regulations,
the Company will provide evidence satisfactory to you that the Prospectus
contains such information and has been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (1) or (4) of Rule
424(b) of the Rules and Regulations or as part of a post-effective amendment to
such Registration Statement as originally declared effective which is declared
effective by the Commission; if for any reason the filing of the final form of
Prospectus is required under Rule 424(b)(3) of the Rules and Regulations, it
will provide evidence satisfactory to you that the Prospectus contains such
information and has been filed with the Commission within the time period
prescribed; it will notify you promptly of any request by the Commission for
the amending or supplementing of the Registration Statement or Prospectus or
for additional information; promptly upon your request, it will prepare and
file with the Commission any amendments or supplements to the Registration
Statement or Prospectus which, in the opinion of counsel for the several
Underwriters, may be necessary or advisable in connection with the distribution
of the Shares by the Underwriters; it will promptly prepare and file with the
Commission, and promptly notify you of the filing of, any amendments or
supplements to the Registration Statement or Prospectus which may be necessary
to correct any statements or omissions, if, at any time when a prospectus
relating to the Shares is required to be delivered under the Act, any event
shall have occurred as a result of which the Prospectus or any other prospectus
relating to the Shares as then in effect would include any untrue statement of
a material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; in case any
Underwriter is required to deliver a prospectus nine months or more after the
effective date of the Registration Statement in connection with the sale of the
Shares, it will prepare promptly upon request, but at the expense of such
Underwriter, such amendment or amendments to the Registration Statement and
such prospectus or prospectuses as may be necessary to permit compliance with
the requirements of Section 10(a)(3) of the Act; and it will file no amendment
or supplement to the Registration Statement or Prospectus which shall not
previously have been submitted to you a reasonable time prior to the proposed
filing
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<PAGE> 12
thereof or to which you shall reasonably object in writing, subject, however,
to compliance with the Act, the Rules and Regulations thereunder and the
provisions of this Agreement.
(b) The Company will advise you, promptly after it shall
receive notice or obtain knowledge thereof of the issuance of any stop order by
the Commission suspending the effectiveness of the Registration Statement or of
the initiation or threat of any proceeding for that purpose; and it will
promptly use its best efforts to prevent the issuance of any stop order or to
obtain its withdrawal at the earliest possible moment if such stop order should
be issued.
(c) The Company will cooperate with the Underwriters and
Underwriters' counsel in connection with their efforts to qualify the Shares
for offering and sale under the securities laws of such jurisdictions as you
may designate as to continue such qualifications in effect for so long as may
be required for purposes of the distribution of the Shares, except that the
Company shall not be required in connection therewith or as a condition thereof
to qualify as a foreign corporation or to execute a general consent to service
of process in any jurisdiction or to make any undertaking with respect to the
conduct of its business. In each jurisdiction in which the Shares shall have
been qualified as above provided, the Company will make and file such
statements and reports in each year as are or may be reasonably required by the
laws of such jurisdiction.
(d) The Company will furnish you, as soon as available,
copies of the Registration Statement (three of which will be signed a include
all exhibits), each Preliminary Prospectus, the Prospectus and any amendments
or supplements to such documents, including any prospectus prepared to permit
compliance with Section 10(a)(3) of the Act, all in such quantities as you may
from time to time reasonably request.
(e) The Company will make generally available to its
stockholders as soon as practicable, but in any event not later than the 45th
day following the end of the fiscal quarter first occurring after the first
anniversary of the effective date of the Registration Statement, an earnings
statement (which will be in reasonable detail but need not be audited)
complying with the provisions of Section 11(a) of the Act and covering a
twelve-month period beginning after the effective date of the Registration
Statement.
(f) As long as the Company is a reporting company under
the Exchange Act, the Company will furnish to its stockholders, as soon as
practicable after the end of each respective period, annual reports (including
financial statements audited by independent certified public accountants) and
unaudited quarterly reports of operations for each of the first three quarters
of the fiscal year, and for a period of five years after the effective date of
the Registration Statement, the Company will furnish to the several
Underwriters hereunder, upon request (i) concurrently with furnishing such
reports to its stockholders, statements of operations of the Company for each
of the first three quarters in the form furnished to the Company's
stockholders; (ii) concurrently with furnishing to its stockholders, a balance
sheet of the Company as of the end of such fiscal year, together with
statements of operations, of stockholders' equity, and of cash flows of the
Company for such fiscal year, accompanied by a copy of the certificate or
report thereon of independent accountants; (iii) as soon as they are available,
copies of all reports and financial statements furnished to or filed with the
Commission, any securities exchange or the National Association of Securities
Dealers, Inc.
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<PAGE> 13
("NASD"); (v) every material press release and every material news item or
article in respect of the Company or its affairs which was released or prepared
by the Company (excluding, in each case customary product-related press
releases and articles); and (vi) any additional information of a public nature
concerning the Company, or its business which you may reasonably request.
During such five-year period, if the Company shall have active subsidiaries,
the foregoing financial statements shall be on a consolidated basis to the
extent that the accounts of the Company and its Subsidiaries are consolidated,
and shall be accompanied by similar financial statements for any significant
subsidiary which is not so consolidated. For a period of five years from the
date of the Registration Statement, the Company will furnish to you and, upon
request, to each of the other Underwriters, as soon as available, a copy of
each report of the Company mailed to holders of the Common Stock or publicly
filed with the Commission or any automated quotation system or national
securities exchange on which any class of securities of the Company is listed.
(g) The Company will apply the net proceeds from the sale
of the Shares being sold by it in the manner set forth under the caption "Use
of Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for its Common Stock.
(i) The Company will file Form SR in conformity with the
requirements of the Act and the Rules and Regulations.
(j) The Company shall comply with all provisions of all
undertakings contained in the Registration Statement.
(k) If the transactions contemplated hereby are not
consummated by reason of any failure, refusal or inability on the part of the
Company to perform any agreement on its part to be performed hereunder or to
fulfill any condition of the Underwriters' obligations hereunder, or if the
Company shall terminate this Agreement under Section 11(a), the Company will
reimburse the several Underwriters for all out-of-pocket accountable expenses
(including fees and disbursements of counsel for the several Underwriters)
actually incurred by the Underwriters in investigating, preparing to market or
marketing the Shares, up to an aggregate of $45,000, which amount has already
been paid and which shall be reimbursed to the Company to the extent not
actually incurred.
(l) If at any time during the 90-day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, forthwith prepare, consult with you concerning the substance of, and
disseminate a press release or other public statement, reasonably satisfactory
to you, responding to or commenting on such rumor, publication or event.
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<PAGE> 14
(m) For a period of 180 days after the date of this
Agreement, without the prior written consent of Capital West, the Company shall
not, directly or indirectly, offer, sell, contract to sell, pledge, grant any
option to purchase or otherwise dispose (or announce any offer, sale, contract
of sale or other disposition of), any shares of Common Stock or any other
shares of capital stock of the Company, or any securities convertible into or
exercisable or exchangeable for, or warrants, options or rights to purchase or
acquire, shares of Common Stock or any other shares of capital stock of the
Company, or any interest in the Common Stock (including derivative interests)
other than the Company's issuance and sale of Shares in accordance with the
Underwriting Agreement, and the issuance of stock options under, or the
issuance of Common Stock upon the exercise of stock options granted under, any
stock option plan described in the Prospectuses.
(n) During a period of 90 days from the effective date of
the Registration Statement, the Company will not file a registration statement
registering shares under any employee benefit plan.
(o) On the Closing Date the Company will sell to you, for
$.001 per share of Common Stock covered by each warrant, the Underwriters'
Warrants to purchase one share of Common Stock of the Company for each ten
shares of the Company's Common Stock which have been sold (or purchased by the
Underwriters), excluding any over-allotment shares, as set forth in the
Prospectus. The Underwriters' Warrants shall have the terms and be in the form
filed as an exhibit to the Registration Statement. At any time during the
period commencing 12 months and ending five years after the effective date of
the offering and at the written request of the then holders of 51% of the
Underwriters' Warrants and the Common Stock of the Company issued upon the
exercise of the Underwriters' Warrants, and on one occasion, the Company will
file with the Commission and process to effectiveness a registration statement
covering not less than 51% of the shares of the Common Stock of the Company
issuable and/or issued upon the exercise of the Underwriters' Warrants. The
Company must file a registration statement only if the shares of Common Stock
issuable under the Underwriters' Warrants cannot be sold without registration
under Rule 144 promulgated under the Act. The Company agrees to use its
commercially reasonable best efforts to cause the filing to become effective.
The costs of the filing of such registration statement including but not
limited to, legal (including legal fees relating to clearance in the various
states, limited however to such states as may be reasonably requested),
accounting and printing fees, shall be borne by the Company but the Company
shall not be responsible for the cost of any separate counsel to review the
registration statement on behalf of or to advise the selling stockholders and
shall not be responsible for the payment of any underwriting discount or
commissions with respect to such sale. Such registration statement shall
comply with any undertaking applicable to such shares. If the Company
otherwise than upon the request of the owners of the Underwriters' Warrants or
the shares of Common Stock issuable upon the exercise thereof files a
registration statement under the Act with respect to any of its securities at
any time (other than on Form S-4, S-8, or any other form that does not provide
for resales by selling security holders), the Company will give such persons 30
days' notice of its intention to do so, and at their written request given
within 10 days of the receipt of such notice, will include in such registration
statement such number of such Shares as they may specify, all at no cost to
them (except for underwriting discounts and the fees and expenses of counsel to
such holders). In connection with any such registration statement covering all
or a part of such shares, the
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<PAGE> 15
Company agrees that it will covenant with the owners of such shares with
respect to such shares and the offering thereof, in customary form
substantially to the effect contained in this Section 4. If the offering
pursuant to any registration statement provided for herein is made through
Underwriters, the Company agrees to enter into an underwriting agreement in
customary form with such underwriters in which the Company and the underwriters
and each person who controls such underwriters within the meaning of the Act
grant to each other customary reciprocal indemnities against liabilities under
the Act.
(p) As long as the Company is a reporting company under
the Exchange Act, the Company will comply with the Act, the Exchange Act, the
rules and regulations of the NASD and applicable state securities or Blue Sky
laws so as to permit the continuance of sales and dealings in the Common Stock
under the Act, the Exchange Act, the rules and regulations of the NASD, and
applicable state securities or Blue Sky laws, including the filing with the
NASD and the Commission of all reports required to be filed pursuant to the
applicable provisions of the rules and regulations of the NASD, the Act, and
the Exchange Act, and will deliver to the holders of the Common Stock all
reports required to be provided to such holders pursuant to the applicable
provisions of the rules and regulations of the NASD, the Act, the Exchange Act,
and applicable state securities or Blue Sky laws.
(q) Immediately following the later to occur of: (i) the
Option Closing Date, as defined in Section 6(h)(3), below, or (ii) 30 days
following the Closing Date, the Company shall take and complete all necessary
corporate and stockholder action that will allow Capital West to designate one
person of its choosing to serve as a member of the Board of Directors of the
Company.
5. EXPENSES.
(a) The Company agrees with each Underwriter that the
Company will pay and bear all costs and expenses in connection with the
preparation, printing and filing of the Registration Statement (including
financial statements, schedules and exhibits), Preliminary Prospectuses and the
Prospectus and any amendments or supplements thereto; the printing of this
Agreement, the Preliminary Blue Sky Survey and any Supplemental Blue Sky
Survey, the Underwriters' Questionnaire and Power of Attorney and any
instruments related to any of the foregoing; the issuance and delivery of the
Shares hereunder to the Underwriters, including transfer taxes, if any, and the
cost of all certificates representing the Shares and transfer agents' and
registrars' fees; the fees and disbursements of counsel for the Company; all
fees and other charges of the Company's independent public accountants; the
cost of furnishing to the Underwriters copies of the Registration Statement
(including appropriate exhibits), Preliminary Prospectus and the Prospectus,
and any amendments or supplements to any of the foregoing; and all postage
costs incurred in connection with the qualification of the Shares under the
laws of such jurisdictions as you may designate; and all other expenses
directly incurred by the Company in connection with the performance of its
obligations hereunder.
(b) Capital West shall be entitled to receive from the
Company, for itself and not as representative of the Underwriters, a
nonaccountable expense allowance equal to three percent of the aggregate public
offering price of Shares sold to the Underwriters in connection with the
Offering (out of which the Capital West shall pay all filing fees, expenses and
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<PAGE> 16
disbursements, except for postage costs, incurred in connection with the
qualification of the Shares under the laws of such jurisdictions as you may
designate including fees and expenses of Underwriters' counsel), reduced by any
amounts advanced by the Company to Capital West pursuant to the terms of the
Letter of Intent. Capital West shall be entitled to withhold this allowance on
the Closing Date.
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of
the Underwriters to purchase and pay for Shares as provided herein shall be
subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased (the "Option Closing
Date"), as the case may be, of the representations and warranties of the
Company herein, to the performance by the Company of its obligations hereunder,
and to the following additional conditions:
(a) The Registration Statement shall have become
effective not later than 5:30 p.m. on the date hereof, or with the consent of
the Underwriters, at a later time and date, not later, however, than 5:30 p.m.
on the first business day following the date hereof, or at such later time and
date as may be approved by a majority in interest of the Underwriters; and no
stop order suspending the effectiveness of the Registration Statement shall
have been issued under the Act or proceedings therefor initiated or threatened
by the Commission and any request on the part of the Commission for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise) shall have been complied with to the reasonable satisfaction of
counsel to the Underwriters. If the Company has elected to rely upon Rule 430A
of the Rules and Regulations, the price of the Shares and any price-related
information previously omitted from the effective Registration Statement
pursuant to such Rule 430A shall have been transmitted to the Commission for
filing pursuant to Rule 424(b) of the Rules and Regulations within the
prescribed time period, and prior to the Closing Date the Company shall have
provided evidence satisfactory to the Underwriters of such timely filing, or a
post-effective amendment providing such information shall have been promptly
filed and declared effective in accordance with the requirements of Rule 430A
of the Rules and Regulations. Qualification under the securities laws of such
states as you may deem necessary to the success of the underwriting of the
issue and sale of the Shares upon the terms and conditions set forth in this
Agreement or contemplated by this Agreement and containing no provisions
unacceptable to you will have been secured, and no stop order (or the
equivalent thereof) will be in effect denying or suspending effectiveness of
such qualification, nor will any stop order proceedings (or the equivalent
thereof) with respect thereto be instituted or pending or threatened under such
laws.
(b) At the Closing Date and the Option Closing Date, if
any, counsel for the Underwriters shall have been furnished with such documents
and opinions as they may require for the purpose of enabling them to pass upon
the issuance and sale of the Shares as contemplated herein and related
proceedings or in order to evidence the accuracy of any of the representations
and warranties, or the fulfillment of any of the conditions, herein contained;
and all proceedings taken by the Company in connection with the issuance and
sale of the Shares as herein contemplated shall be satisfactory in form and
substance to the Underwriters and counsel for the Underwriters.
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<PAGE> 17
(c) There shall not have been, since the date hereof or
since the respective dates as of which information is given in the Registration
Statement and the Prospectus, any change in the condition (financial or
otherwise), earnings, operations, business affairs or business prospects of the
Company and its Subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business which, in your sole judgment, is
material and adverse and that makes it, in your sole judgment, impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated
by the Prospectus, and the Underwriters shall have received a certificate of
the President or Vice President of the Company and of the chief financial or
chief accounting officer of the Company, dated as of the Closing Date, to the
effect that (i) there has been no such material adverse change, (ii) the
representations and warranties in Section 2 hereof are true and correct with
the same force and effect as though expressly made at and as of the Closing
Date, (iii) the Company has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied at or prior to the Closing
Date, and (iv) no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
initiated or threatened by the Commission or any Blue Sky jurisdiction.
(d) At the Closing Date the Underwriters shall have
received:
(1) The opinion, dated as of the Closing Date of
Kuperman, Orr, Mouer & Albers, P.C., counsel for the Company, in form and
substance satisfactory to counsel for the Underwriters, to the effect that:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the State
of Oregon.
(ii) The Company has corporate power and authority
to own, lease and operate its properties and to conduct its business as
described in the Registration Statement and the Prospectus and to enter into
and perform its obligations under this Agreement and to issue, sell and deliver
to the Underwriters the Firm Shares or the Option Shares, as the case may be,
to be issued and sold by it hereunder.
(iii) The Company is duly qualified to do business
as a foreign corporation and is in good standing in the States of Texas and
_______, and to the best of its knowledge is not required to be qualified to do
business as a foreign corporation in any other jurisdiction.
(iv) At the Closing Date, after giving effect to
the sale of the Firm Shares, the authorized capital stock of the Company is as
set forth in the Prospectus under the caption "Capitalization" as of the dates
stated therein; the issued and outstanding shares of Common Stock have been
duly authorized and validly issued and are fully paid and nonassessable and
have not been issued in violation of any preemptive right contained in the
Certificate of Incorporation or Bylaws of the Company or, to such counsel's
knowledge, any co-sale right, registration right, right of first refusal or
other similar right (other than such preemptive rights or other rights to
subscribe for or purchase securities as were fully complied with or expressly
waived or with respect to the violation of which the right to make a claim is
barred by the applicable statute of limitation).
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<PAGE> 18
(v) The Firm Shares and the Option Shares, as the
case may be, to be purchased from the Company hereunder have been duly
authorized for issuance and sale to the Underwriters pursuant to this Agreement
and, when issued and delivered by the Company pursuant to this Agreement
against payment therefor in accordance with the terms hereof, will be validly
issued and fully paid and nonassessable, and will not be issued in violation of
any preemptive right under the Certificate of Incorporation or Bylaws of the
Company or, to such counsel's knowledge, any co-sale right, right of first
refusal or other similar right and the stockholders of the Company have no
preemptive right under the Certificate of Incorporation or Bylaws of the
Company or, to such counsel's knowledge, other rights to purchase any of the
Shares; the shares of Common Stock reserved for issuance upon the exercise of
the Underwriters' Warrants have been duly and validly authorized and are
sufficient in number to meet the exercise requirements thereof, and such shares
of Common Stock, when issued upon exercise, will be duly and validly issued,
fully paid (assuming exercise in accordance with the Warrant Agreement and
receipt by the Company of the exercise price thereof) and nonassessable; the
stockholders of the Company have no preemptive right under the Certificate of
Incorporation or Bylaws of the Company or, to such counsel's knowledge, other
rights to purchase any of the Shares; and the shares of Common Stock reserved
for issuance upon the exercise of the Company's outstanding options have been
duly and validly authorized and are sufficient in number to meet the exercise
requirements of such options, and such shares of Common Stock, when issued upon
exercise, will be duly and validly issued, fully paid (assuming exercise in
accordance with the governing instruments therefor and receipt by the Company
of the exercise price thereof) and nonassessable.
(vi) The issuance of the Shares to be purchased
hereunder is not subject to preemptive or other similar rights arising by
operation of law or, to the best of their knowledge and information, otherwise.
(vii) Each Subsidiary has been duly incorporated
and is validly existing as a corporation and is in good standing under the laws
of the jurisdiction of its incorporation, has full corporate power and
authority to own, lease and operate its properties and to conduct it business
as described in the Registration Statement, and is duly qualified as a foreign
corporation to transact business and is in good standing in the States of Texas
and _______, and to the best of its knowledge any Subsidiary is not required to
be qualified to do business as a foreign corporation in any other jurisdiction;
all of the issued and outstanding capital stock of such Subsidiary have been
duly authorized and validly issued, is fully paid and nonassessable and, to the
best of their knowledge and information, is owned by the Company directly or
through subsidiaries, free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity.
(viii) This Agreement and the Warrant Agreement have
been duly authorized by all necessary corporate action on the part of the
Company and have been duly executed and delivered by the Company and assuming
due authorization, execution and delivery by the Underwriters, are valid and
binding agreements of the Company, except insofar as indemnification and
contribution provisions may be limited by applicable law or equitable
principles, and except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally or any general equitable principles;
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<PAGE> 19
(ix) The Registration Statement has been declared
effective under the Act; any required filing of the Prospectus pursuant to Rule
424(b) has been made in the manner and within the time period required by Rule
424(b) and, to the best of their knowledge and information, no stop order
suspending the effectiveness of the Registration Statement has been issued
under the Act or proceedings therefor have been initiated or are pending or
threatened by the Commission.
(x) The Registration Statement, Prospectus and
each amendment or supplement to the Registration Statement and Prospectus, as
of their respective effective or issue dates (other than the financial
statements and supporting schedules included therein, as to which no opinion
need be rendered) complied as to form in all material respects with the
requirements of the Act and the applicable Rules and Regulations.
(xi) The terms and provisions of the capital stock
of the Company conform in all material respects to the description thereof
contained in the Prospectus under the caption "Description of Securities";
(xii) The information in the Prospectus under the
caption "Description of Securities" to the extent that they constitute matters
of law or legal conclusions, has been reviewed by such counsel and accurately
and fairly summarizes in such counsel's opinion the matters described therein
and to the knowledge of such counsel, there are no outstanding options,
warrants, convertible securities, or other rights to acquire from the Company
any capital stock, except as described in the Registration Statement; in
addition, the forms of certificates evidencing the Company stock comply with
Oregon law;
(xiii) To the best of their knowledge and
information, except as set forth in the Prospectus, there is not pending or
threatened any action, suit, proceeding, inquiry or investigation, to which the
Company or its Subsidiaries is a party, or to which the property of the Company
or its Subsidiaries is subject, before or brought by any court or government
agency or body, which might reasonably be expected to result in any material
adverse change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company and its Subsidiaries
considered as one enterprise, or which might reasonably be expected to
materially and adversely affect the properties or assets thereof or the
consummation of this Agreement or the performance by the Company of its
obligations hereunder; and all pending legal or governmental proceedings to
which the Company or its Subsidiaries is a party or that affect any of their
respective properties that are not described in the Prospectus, including
ordinary routine litigation incidental to the business, could not reasonably be
expected to result in a material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its Subsidiaries considered as one enterprise.
(xiv) The information in the Prospectus under the
captions "Business and Properties - Legal Proceedings", "- Governmental
Regulation" and "- Properties", "Certain Transactions" and "Description of
Capital Stock" in the Prospectus and Items 24 and 26 of Part II of the
Registration Statement to the extent that such items constitute matter of law,
summaries of legal matters, documents or proceedings, or legal conclusions, has
been reviewed by them and is correct in all material respects, and there are no
legal or governmental actions,
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<PAGE> 20
suits or proceedings pending or threatened against the Company or its
Subsidiaries that are required to be described in the Prospectus are not
described as required by the Act or the applicable Rules and Regulations.
(xv) All descriptions in the Prospectus of
contracts and other documents are accurate in all material respects; to the
best of their knowledge and information, there are no agreements, no contracts,
indentures, mortgages, loan agreements, notes, leases or other instrument
required to be described or referred to in the Registration Statement or to be
filed as exhibits thereto other than those described or referred to therein or
filed as exhibits thereto, the descriptions thereof or references thereto are
correct in all material respects, and to the best of counsel's knowledge and
information, the Company is not in default in the due performance or observance
of any material obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, loan agreement, note, lease or other instrument
so described, referred to or filed as exhibits thereto.
(xvi) No authorization, approval, consent or order
of any court or governmental authority or agency (other than under the Act or
the Rules and Regulations, which have been obtained, or as may be required
under the securities or Blue Sky laws of the various states) is required in
connection with the due authorization, execution and delivery of this Agreement
or for the offering, issuance or sale of the Shares to the Underwriters; and
the execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated herein and compliance by the Company with its
obligations hereunder (other than performance of the Company's indemnification
and contribution obligations hereunder, concerning which no opinion need be
expressed) will not, whether with or without the giving of notice or lapse of
time or both, conflict with or constitute a breach or violation of, or default
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or its Subsidiaries
pursuant to any material contract, indenture, mortgage, loan agreement, note,
lease or other instrument to which the Company or its Subsidiaries is a party
or by which it or any of them may be bound, or to which any of the property or
assets of the Company or its Subsidiaries is subject, nor will such action
result in any violation of the provisions of the Certificate of Incorporation
or Bylaws of the Company, or any applicable law, administrative regulation or
court decree, provided, however, no opinion need be rendered concerning state
securities or Blue Sky laws.
(xvii) To the best of such counsel's knowledge and
information, with the exception of the Underwriters' Warrants, no holder of any
security of the Company has any right to require registration of any shares of
Common Stock or any other security of the Company and, except as set forth in
the Registration Statement and Prospectus, all holders of securities of the
Company having rights to registration of such shares of Common Stock, or other
securities, because of the filing of the Registration Statement by the Company
have, with respect to the offering contemplated thereby, waived such rights or
such rights have expired by reason of lapse of time following notification of
the Company's intent to file the Registration Statement, or have included
securities in the Registration Statement pursuant to the exercise of such
rights.
(xviii) The Company is not an "investment company" or
an entity "controlled" by an "investment company" as such terms are defined in
the 1940 Act.
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<PAGE> 21
(xix) To the best of such counsel's knowledge and
information, neither the Company nor its Subsidiaries are in violation of their
charter or by-laws.
In rendering such opinion, such counsel may rely as to matters
of fact (but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials. Such
opinion shall not state that it is to be governed or qualified by, or that it
is otherwise subject to, any treatise, written policy or other document
relating to legal opinions, including with limitation, the Legal Opinion Accord
of the ABA Section of Business Law (1991).
In giving their opinion required by subsection (d)(1) of this
Section, Kuperman, Orr, Mouer & Albers, P.C. shall additionally state that
nothing has come to their attention that would lead them to believe that the
Registration Statement, at the time it became effective, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading or
that the Prospectus, at the effective date of the Registration Statement
(unless the term "Prospectus" refers to a prospectus which has been provided to
the Underwriters by the Company for use in connection with the offering of the
Shares which differs from the Prospectus declared effective by the Commission,
in which case at the time it is first provided to the Underwriters for such
use) or at the Closing Date, included an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. Such opinion may state that such counsel does not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement and the Prospectus except as otherwise
expressly provided in such opinion, and such counsel need express no opinion or
belief as to the financial statements, schedules, and other financial or
statistical data included in the Registration Statement or Prospectus.
(2) The opinion, dated as of Closing Date, of
Robertson & Williams, Inc., counsel for the Underwriters, in form and substance
satisfactory to you, with respect to the sufficiency of all such corporate
proceedings and other legal matters relating to this Agreement and the
transactions contemplated hereby as you may reasonably require, and the Company
shall have furnished to such counsel such papers, opinions and information as
they request to enable them to pass upon such matters.
(e) At the time of the execution of this Agreement, the
Underwriters shall have received from Andersen Andersen & Strong, L.C. a letter
dated such date, in form and substance satisfactory to the Underwriters, to the
effect that:
(1) they are independent public accountants with
respect to the Company and its Subsidiaries within the meaning of the Act and
the Rules and Regulations;
(2) it is their opinion that the consolidated
balance sheet included in the Registration Statement and covered by their
opinion therein complies as to form in all material respects with the
applicable accounting requirements of the Act and the Rules and Regulations;
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<PAGE> 22
(3) based upon limited procedures set forth in
detail in such letter, nothing has come to their attention which causes them to
believe that, at a specified date not more than three days prior to the date of
this Agreement, (A) the unaudited consolidated balance sheet of the Company and
its Subsidiaries included in the Registration Statement does not comply as to
form in all material respects with the applicable accounting requirements of
the Act and the Rules and Regulations or is not presented in conformity with
generally accepted accounting principles applied on a basis substantially
consistent with that of the audited financial statements included in the
Registration Statement, or (B) at a specified date not more than three days
prior to the date of this Agreement, there has been any change in the capital
stock of the Company or any increase in the combined long term debt of the
Company and its Subsidiaries or any decrease in combined net current assets or
net assets as compared with the amounts shown in the December 31, 1996 balance
sheet included in the Registration Statement or, during the period from
December 31, 1996 to a specified date not more than three days prior to the
date of this Agreement, there were any decreases, as compared with the
corresponding period in the preceding year, in combined revenues, net income or
net income per share of the Company and its Subsidiaries, except in all
instances for changes, increases or decreases which the Registration Statement
and the Prospectus disclose have occurred or may occur;
(4) in addition to the examination referred to in
their opinion and the limited procedures referred to in clause (3) above, they
have carried out certain specified procedures, not constituting an audit, with
respect to certain amounts, percentages and financial information which are
included in the Registration Statement and Prospectus and which are specified
by the Underwriters, and have found such amounts, percentages and financial
information to be in agreement with the relevant accounting, financial and
other records of the Company and its Subsidiaries identified in such letter;
and
(5) they have compared the information in the
Prospectus under selected captions with the disclosure requirements of
Regulation S-B and on the basis of limited procedures specified in such letter
nothing came to their attention as a result of the foregoing procedures that
caused them to believe that this information does not conform in all material
respects with the disclosure requirements of Item 402 of Regulation S-B.
(f) At the Closing Date, the Underwriters shall have
received from Andersen Andersen & Strong, L.C. a letter, dated as of the
Closing Date, to the effect that they reaffirm the statements made in the
letter furnished pursuant to subsection (e) of this Section 6, except that the
specified date referred to shall be a date not more than three days prior to
the Closing Date and, if the Company has elected to rely on Rule 430A of the
1933 Act Regulations, to the further effect that they have carried out
procedures as specified in clause (4) of subsection (e) of this Section 6 with
respect to certain amounts, percentages and financial information specified by
the Underwriters and deemed to be a part of the Registration Statement pursuant
to Rule 430(A)(b) and have found such amounts, percentages and financial
information to be in agreement with the records specified in such clause (4).
(g) At the Closing Date, the Common Stock shall have been
approved for listing on the American Stock Exchange.
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<PAGE> 23
(h) In the event that the Underwriters exercise their
option provided in Section 7 hereof to purchase all or any portion of the
Option Shares, the representations and warranties of the Company contained
herein and the statements in any certificates furnished by the Company
hereunder shall be true and correct as of the Option Closing Date and, at the
Option Closing Date, the Underwriters shall have received:
(1) A certificate, dated the Option Closing Date,
of the President or a Vice President of the Company and of the Chief
Financial or Chief Accounting Officer of the Company confirming that
the certificate delivered at the Closing Date pursuant to Section 5(c)
hereof remains true and correct as of the Option Closing Date (except
that all references in such Section to "Closing Date" shall be deemed
to refer to the "Option Closing Date").
(2) The opinions of Kuperman, Orr, Mouer &
Albers, P.C., counsel for the Company, in form and substance
satisfactory to counsel for the Underwriters, dated the Option Closing
Date, relating to the Option Shares and otherwise to the same effect
as the opinion required by Section 5(b)(1) hereof (except that all
references in such Section to "Closing Date" shall be deemed to refer
to the "Option Closing Date").
(3) The opinion of Robertson & Williams, Inc.,
counsel for the Underwriters, dated the Option Closing Date, relating
to the Option Shares to be purchased on the Option Closing Date and
otherwise to the same effect as the opinion required by Section
5(b)(2) hereof (except that all references in such Section to "Closing
Date" shall be deemed to refer to the "Option Closing Date").
(4) A letter from Andersen Andersen & Strong,
L.C. in form and substance satisfactory to the Underwriters and dated
the Option Closing Date, substantially the same in form and substance
as the letter furnished to the Underwriters pursuant to Section 5(e)
hereof, except that the "specified date" in the letter furnished
pursuant to this Section 6(h)(4) shall be a date not more than three
days prior to the Option Closing Date.
(i) The Company and the Underwriters shall have entered
into the Warrant Agreement and the Company shall have sold to the Underwriters
the Underwriters' Warrants, which shall be in the form attached as an exhibit
to the Warrant Agreement.
If any condition specified in this Section shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be
terminated by the Representative by notice to the Company at any time at or
prior to Closing Date, and such termination shall be without liability of any
party to any other party except as provided in Section 4 and except that
Sections 4(j) and 8 shall survive any such termination and remain in full force
and effect.
7. OPTION SHARES.
(a) On the basis of the representations and warranties
herein contained, but subject to the terms and conditions herein set forth, the
Company hereby grants to the several Underwriters, for the purpose of covering
over-allotments in connection with the distribution
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<PAGE> 24
and sale of the Firm Shares only, a non-transferable option to purchase up to
an aggregate 105,000 Option Shares at the purchase price per share for the Firm
Shares set forth in Section 3 hereof. Such option may be exercised by Capital
West on behalf of the several Underwriters on one occasion in whole or in part
during the period of 30 days from and after the date on which the Firm Shares
are initially offered to the public, by giving notice to the Company. The
number of Option Shares to be purchased by each Underwriter upon the exercise
of such option shall be the same proportion of the total number of Option
Shares to be purchased by the several Underwriters pursuant to the exercise of
such option as the number of Firm Shares purchased by such Underwriter (set
forth in Schedule A hereto) bears to the total number of Firm Shares purchased
by the several Underwriters (set forth in Schedule A hereto), adjusted by the
Underwriters in such manner as to avoid fractional shares.
Delivery of definitive certificates for the Option Shares to
be purchased by the several Underwriters pursuant to the exercise of the option
granted by this Section 7 shall be made against payment of the purchase price
therefor by the several Underwriters by certified or official bank check or
checks drawn in same day funds, payable to the order of the Company. Such
delivery and payment shall take place at the offices of Capital West
Securities, Inc., 211 N. Robinson, 16th Floor, Oklahoma City, Oklahoma 73102
or at such other place as may be agreed upon between the Underwriters and the
Company on the Closing Date, if written notice of the exercise of such option
is received by the Company not later than three full business days prior to the
Closing Date.
The certificates for the Options Shares so to be delivered
will be made available to you at such office or other location including,
without limitation, in Oklahoma City, as you may reasonably request for
checking at least two full business days prior to the date of payment and
delivery and will be in such names and denominations as you may request, such
request to be made at least three full days prior to such date of payment and
delivery. If the Underwriters so elect, delivery of the Shares may be made by
credit through full fast transfer to the accounts at Depository Trust Company
by the Underwriters.
It is understood that Capital West, individually, and not as
the representative of the Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the date of
payment and delivery for the Option Shares to be purchased by such Underwriter
or Underwriters. Any such payment by Capital West shall not relieve any
Underwriter of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section
7(a) hereof the obligations of the Underwriters to purchase such Option Shares
will be subject (as of the date hereof and as of the date of payment for such
Option Shares) to the accuracy of and compliance with the representations and
warranties of the Company herein, to the accuracy of the statements of the
Company and officers of the Company made pursuant to the provisions hereof, to
the performance by the Company of their respective obligations hereunder, and
to the condition that all proceedings taken at or prior to the payment date in
connection with the sale and transfer of such Option Shares shall be
satisfactory in form and substance to you and to Underwriters' counsel, and you
shall have been furnished with all such documents, certificates and opinions as
you may reasonably request in order to evidence the accuracy and
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<PAGE> 25
completeness of any of the representations, warranties or statements, the
performance of any of the covenants of the Company or the compliance with any
of the conditions herein contained.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless
each Underwriter against any losses, claims, damages or liabilities, joint or
several, as incurred, to which such Underwriter may become subject under the
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (i) any breach of
any representation, warranty, agreement or covenant of the Company herein
contained, or (ii) any untrue statement or alleged untrue statement made by the
Company in Section 2 hereof, or (iii) any untrue statement or alleged untrue
statement of a material fact contained (A) in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or (B) in any blue sky application or other document executed by the Company
specifically for that purpose or based upon written information furnished by
the Company filed in any state or other jurisdiction in order to qualify any or
all of the Shares under the securities laws thereof (any such application,
documents or information being hereinafter called a "Blue Sky Application"), or
(iii) the omission or alleged omission to state in the Registration Statement
or any amendment thereto a material fact required to be stated therein or
necessary to make the statements therein not misleading, or the omission or
alleged omission to state in any Preliminary Prospectus, the Prospectus or any
supplement thereto or in any Blue Sky Application a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and shall
reimburse each Underwriter for any legal or other expenses reasonably incurred
by such Underwriter in connection with investigating or defending against or
appearing as a third-party witness in connection with any such loss, claim,
damage, liability or action, notwithstanding the possibility that payments for
such expenses might later be held to be improper, in which case the person
receiving them shall promptly refund them; except that the Company shall not be
liable in any such case to the extent, but only to the extent, that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
the Registration Statement, such Preliminary Prospectus or the Prospectus, or
any amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any Underwriter
specifically for use in the preparation thereof and, provided further, that the
indemnity agreement provided in this Section 8(a) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any losses, claims, charges, liabilities or
litigation based upon any untrue statement or alleged untrue statement of
material fact or omission or alleged omission to state therein a material fact
purchased Shares, if a copy of the Prospectus in which such untrue statement or
alleged untrue statement or omission or alleged omission was corrected has not
been sent or given to such person within the time required by the Act and the
Rules and Regulations thereunder, unless such failure is the result of
noncompliance by the Company with Section 4(c) hereof.
(b) Each Underwriter severally, but not jointly, shall
indemnify and hold harmless the Company against any losses, claims, damages or
liabilities, joint or several, as incurred, to which the Company may become
subject, under the Act or otherwise, insofar as
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<PAGE> 26
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of a material fact contained (A) in the Registration Statement,
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or (B) in any Blue Sky Application, or (ii) the omission or alleged omission to
state in the Registration Statement or any amendment thereto a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or the omission or alleged omission to state in any Preliminary
Prospectus, the Prospectus or any supplement thereto or in any Blue Sky
Application a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; except that such indemnification shall be available in
each such case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company through the Underwriters by or on behalf of such Underwriter
specifically for use in the preparation thereof; and shall reimburse any legal
or other expenses reasonably incurred by the Company in connection with
investigation or defending against any such loss, claim, damage, liability or
action.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of any claim or the commencement of any
action, the indemnified party shall, if a claim in respect thereof is to be
made against the indemnifying party under such subsection, notify the
indemnifying party in writing of the claim or the commencement of that action;
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have to an indemnified party otherwise than under such
subsection. If any such claim or action shall be brought against an indemnified
party, and it shall notify the indemnifying party thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it
wishes, jointly with any other similarly notified indemnifying party, to assume
the defense thereof with counsel reasonably satisfactory to the indemnified
party; provided, however, if the defendants in any such action include both the
indemnified parties and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnified party or parties
shall have the right to select separate counsel to assume such legal defenses
and to otherwise participate in the defense of such action on behalf of such
indemnified party or parties. After notice from the indemnifying party to the
indemnified party of its election to assume the defense of such claim or
action, the indemnifying party shall not be liable to the indemnified party
under such subsection for any legal or other expenses subsequently incurred by
the indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party, representing all the indemnified parties under Section 8(a)
and 8(b) hereof who are parties to such action), (ii) the indemnifying party
shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action, or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall any indemnifying party be liable in
respect of any amounts paid in settlement
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<PAGE> 27
of any action unless the indemnifying party shall have approved the terms of
such settlement; provided, however, that such consent shall not be unreasonably
withheld.
(d) In order to provide for just and equitable
contribution in any action in which a claim for indemnification is made
pursuant to this Section 8 for which it is judicially determined (by the entry
of a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 8 provides for indemnification in such case, all the parties
hereto shall contribute to the aggregate losses, claims, damages or liabilities
to which they may be subject (after contribution from others) in such
proportion so that the Underwriters are responsible pro rata for the portion
represented by the percentage that the underwriting discount bears to the
initial public offering price, and the Company is responsible for the remaining
portion; provided, however, that (i) no Underwriter shall be required to
contribute any amount in excess of the underwriting discount applicable to the
Shares purchased by such Underwriter, and (ii) no person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to a contribution from any person who is not guilty of such fraudulent
misrepresentation. This subsection (d) shall not be operative as to any
Underwriter to the extent that the Company has received indemnity under this
Section 8.
(e) The obligations of the Company under this Section 8
shall be in addition to any liability which the Company may otherwise have, and
shall extend, upon the same terms and conditions, to each officer and director
of each Underwriter and to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section 8 shall be in addition to any liability that the respective
Underwriters may otherwise have, and shall extend, upon the same terms and
conditions, to each director of the Company (including any person who, with his
consent, is named in the Registration Statement as about to become a director
of the Company), to each officer of the Company who has signed the Registration
Statement and to each person, if any, who controls the Company within the
meaning of the Securities Act, in either case, whether or not such person is a
party to any action or proceeding.
(f) The parties to this Agreement hereby acknowledge that
they are sophisticated business persons who were represented by counsel during
the negotiations regarding the provisions hereof including without limitation
the provisions of this Section 8, and are fully informed regarding said
provisions. They further acknowledge that the provisions of this Section 8
fairly allocate the risks in light of the ability of the parties to investigate
the Company and its business in order to assure that adequate disclosure is
made in the Registration Statement and Prospectus as required by the Act and
the Exchange Act. The parties are advised that Federal or state public policy,
as interpreted by the courts in certain jurisdictions, may be contrary to
certain of the provisions of this Section 8, and the parties hereto hereby
expressly waive and relinquish any right or ability to assert such public
policy as a defense to a claim under this Section 8 and further agree not to
attempt to assert any such defense.
9. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties, covenants and agreements of the
Company contained in this
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<PAGE> 28
Agreement (including, without limitation, the agreements of the Company set
forth in Sections 4(i)-(n)), or contained in certificates of officers of the
Company submitted pursuant hereto, and the indemnity and contribution
agreements contained in Section 8 hereof, shall remain operative and in full
force and effect, regardless of any investigation made by or on behalf of any
Underwriter or controlling person, or by or on behalf of the Company, or any of
its officers, controlling persons or directors and shall survive delivery of
the Shares to the several Underwriters hereunder or termination of this
Agreement.
10. SUBSTITUTION OF UNDERWRITER. If any Underwriter or
Underwriters shall fail to take up and pay for the number of Firm Shares agreed
by such Underwriter or Underwriters to be purchased hereunder upon tender of
such Firm Shares in accordance with the terms hereof, and if the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters so
agreed but failed to purchase does not exceed 10% of the Firm Shares, the
remaining Underwriters shall be obligated, severally in proportion to their
respective commitments hereunder, to take up and pay for the Firm Shares of
such defaulting Underwriter or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for
twenty-four hours to allow the several Underwriters the privilege of
substituting within twenty-four hours (including non-business hours) another
underwriter or underwriters (which may include any non-defaulting Underwriter)
satisfactory to the Company. If no such underwriter or underwriters shall have
been substituted as aforesaid by such postponed Closing Date, the Closing Date
may, at the option of the Company, be postponed for a further twenty-four
hours, if necessary to allow the Company the privilege of finding another
underwriter or underwriters, satisfactory to you, to purchase the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If it shall be arranged for the remaining Underwriters or
substituted underwriters to take up the Firm Shares of the defaulting
Underwriter or Underwriters as provided in this Section, (i) the Company shall
have the right to postpone the time of delivery for a period of not more than
seven full business days, in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus which
may thereby be made necessary, and (ii) the respective number of Firm Shares to
be purchased by the remaining Underwriters and substitute underwriters shall be
taken as the basis of their underwriting obligation. If the remaining
Underwriters shall not take up and pay for all such Firm Shares so agreed to be
purchased by the defaulting Underwriter or Underwriters or substitute another
underwriter or underwriters as aforesaid and the Company shall not find or
shall not elect to seek another underwriter or underwriters for such Firm
Shares as aforesaid, then this Agreement shall terminate.
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<PAGE> 29
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section, neither the Company shall be liable to any
Underwriter (except as provided in Sections 5 and 8 hereof )nor shall any
Underwriter (other than an Underwriter who shall have failed, otherwise than
for some reason permitted under this Agreement, to purchase the number of Firm
Shares agreed by such Underwriter to be purchased hereunder, which Underwriter
shall remain liable to the Company and the other Underwriters for damages, if
any, resulting from such default) be liable to the Company (except to the
extent provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section.
11. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at the later of
(i) execution of this Agreement, or (ii) when notification of the effectiveness
of the Registration Statement has been released by the Commission.
(b) You shall have the right to terminate this Agreement
by giving notice as hereinafter specified at any time at or prior to the
Closing Date (i) if the Company shall have failed, refused or been unable, to
perform any agreement on its part to be performed, or because any other
condition of the Underwriters' obligations hereunder required to be fulfilled
by the Company is not fulfilled including, without limitation, any change in
the financial condition, earnings, operations, business, management, technical
staff, or business prospects of the Company from that set forth in the
Registration Statement or Prospectus which, in your sole judgment, is material
and adverse, or (ii) if trading on the New York Stock Exchange or the Nasdaq
Stock Market shall have been suspended, or minimum or maximum prices for
trading shall have been fixed, or maximum ranges for prices for securities
shall have been required on the New York Stock Exchange or the Nasdaq Stock
Market, by the New York Stock Exchange, the Nasdaq Stock Market or by order of
the Commission or any other governmental authority having jurisdiction, or if a
banking moratorium shall have been declared by Federal, New York, Oklahoma or
Texas authorities, or (iii) if on or prior to the Closing Date, or on or prior
to any later date on which Option Shares are to be purchased, as the case may
be, the Company shall have sustained a loss by strike, fire, flood, earthquake,
accident or other calamity of such character as to interfere materially and
adversely with the conduct of the business and operations of the Company
regardless of whether or not such loss shall have been insured, or (iv) if
there shall have been a material adverse change in the general political or
economic conditions or financial markets in the United States as in your
reasonable judgment makes it inadvisable or impracticable to proceed with the
offering, sale and delivery of the Shares, or (v) if on or prior to the Closing
Date, or on or prior to any later date on which Option Shares are to be
purchased, as the case may be, there shall have been an outbreak or escalation
of hostilities or other international or domestic calamity, crises or material
adverse change in political, financial or economic conditions, the effect of
which on the financial markets of the United States is such as to make it in
your reasonable judgment, inadvisable to proceed with the marketing of the
Shares. In the event of termination pursuant to this Section 11(b), the
Company shall remain obligated to pay costs and expenses pursuant to Section
4(k), 5 and 8 hereof.
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<PAGE> 30
If you elect to prevent this Agreement from becoming effective
or to terminate this Agreement as provided in this Section 11, you shall
promptly notify the Company by telephone or telecopy, in each case confirmed by
letter. If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone or telecopy, in
each case, confirmed by letter.
12. NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed to have been given if mailed or transmitted
by any standard form of telecommunication. Notices to the Underwriters shall be
directed to the Underwriters in care of Capital West Securities, Inc., 211 N.
Robinson, 16th Floor, One Leadership Square, Oklahoma City, Oklahoma 73102,
attention of Robert O. MacDonald; notices to the Company shall be directed to
it at 1120 Capital of Texas Highway South, Building 3, Suite 300, Austin, Texas
78746, attention of Matthew O'Hayer.
13. PARTIES. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters and the Company and their respective
executors, administrators, successors, and assigns. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any
person or corporation, other than the parties hereto and their respective
executors, administrators, successors, and assigns and the controlling persons
and officers and directors referred to in Section 8 hereof any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provisions herein contained. This Agreement and all conditions and provisions
hereof are intended to be for the sole and exclusive benefit of the parties
hereto and their respective executors, administrators, successors, and assigns
and said controlling persons and said officers and directors, and for the
benefit of no other person or corporation. No purchaser of the Shares from any
Underwriter shall be construed to be a successor by reason merely of such
purchase.
14. GOVERNING LAW. This Agreement and the Pricing Agreement shall
be governed by and construed in accordance with the laws of the State of
Oklahoma applicable to agreements made and to be performed in said State.
Specified times of day refer to Central time.
15. COUNTERPARTS. This Agreement may be signed in several
counterparts, each of which will constitute an original.
* * * * * * *
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<PAGE> 31
If the foregoing correctly sets forth your understanding of our
agreement, please sign in the space provided below for that purpose, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Underwriter and the Company in accordance with its terms.
GRAND ADVENTURES TOUR & TRAVEL
PUBLISHING CORPORATION
By:
----------------------------------
Matthew O'Hayer, Chairman and CEO
CONFIRMED AND ACCEPTED, as of the date first above written:
CAPITAL WEST SECURITIES, INC.
By:
----------------------------------
Robert O. McDonald, Chairman
Draft Date: October 24, 1997
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<PAGE> 32
SCHEDULE A
<TABLE>
<CAPTION>
UNDERWRITER SHARES PURCHASED
- ----------- ----------------
<S> <C>
Capital West Securities, Inc.
</TABLE>
<PAGE> 1
EXHIBIT 1.02
WARRANT AGREEMENT
__________________, 1997
CAPITAL WEST SECURITIES, INC.
c/o Capital West Securities, Inc.
211 N. Robinson
16th Floor, One Leadership Square
Oklahoma City, Oklahoma 73102
Ladies and Gentlemen:
Grand Adventure Tour & Travel Publishing Corporation (the "Company"),
agrees to issue and sell to you warrants (the "Warrants") to purchase the
number of shares of common stock, no par value per share (the "Common Stock"),
of the Company set forth herein, subject to the terms and conditions contained
herein.
1. ISSUANCE OF WARRANTS; EXERCISE PRICE. The Warrants, which shall
be in the form attached hereto as Exhibit A, shall be issued to you
concurrently with the execution hereof in consideration of the payment by you
to the Company of the sum of $.001 cash per share of Common Stock subject to
the Warrants, the receipt and sufficiency of which are hereby acknowledged. The
Warrant shall provide that you, or such other holder or holders of the Warrants
to whom transfer is authorized in accordance with the terms of this Agreement,
shall have the right to purchase an aggregate of 105,000 shares of Common
Stock for an exercise price equal to $8.40 per share (the "Exercise Price") or
$882,000 in the aggregate. The number, character and Exercise Price of such
shares of Common Stock are subject to adjustment as hereinafter provided, and
the term "Common Stock" shall mean, unless the context otherwise requires, the
stock and other securities and property receivable upon exercise of the
Warrants. The term "Exercise Price" shall mean, unless the context otherwise
requires, the price per share of the Common Stock purchasable under the
Warrants as set forth in this Section 1, as adjusted from time to time pursuant
to Section 6.
2. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to you and to each subsequent holder of Warrants and agrees that:
(a) This Agreement has been duly authorized, executed and delivered
by the Company and constitutes the valid and binding obligation of the Company
enforceable in accordance with its terms; and neither the issuance of the
Warrants nor the issuance of the shares of Common Stock issuable upon exercise
of the Warrants will result in a breach or violation of any terms or provisions
of, or constitute a default under, any contract, indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which the Company is
a party or by which the Company is bound, the Certificate of Incorporation or
Bylaws of the Company, or any law, order, rule, regulation or decree of any
government, governmental instrumentality or court, domestic or foreign, or
result in the creation or imposition of any lien, charge or encumbrance upon
any property or assets of the Company.
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<PAGE> 2
(b) No consent, approval, authorization or order of any court or
governmental agency or body is required for the sale and issuance of the
Warrants or the sale and issuance of the shares of Common Stock issuable upon
exercise of the Warrants, except such as have been obtained or may be required
under the Securities Act of 1933, as amended (the "Act"), and such as may be
required under state securities or blue sky laws in connection with the
issuance of the Warrants and the shares of Common Stock issuable upon exercise
of the Warrants. Upon exercise of the Warrants by the holder thereof, the
shares of Common Stock with respect to which the Warrants are exercised will be
validly issued, fully paid, and non-assessable, and good and marketable title
to such shares of Common Stock shall be delivered to such holder free and clear
of all liens, encumbrances, equities, claims or preemptive or similar rights.
(c) During the term of this Agreement, the Company shall make timely
filings of all periodic and other reports and forms and other materials
required (but only to the extent required) to be filed with the Securities and
Exchange Commission (the "Commission") pursuant to the Act or the Securities
Exchange Act of 1934, as amended, and with any national securities exchange or
quotation system upon which any of the securities of the Company may be listed.
3. NOTICES OF RECORD DATE; ETC. In the event of (i) any taking by
the Company of a record date with respect to the holders of any class of
securities of the Company for purposes of determining which of such holders are
entitled to dividends or other distributions (other than regular quarterly
dividends), or any right to subscribe for, purchase or otherwise acquire shares
of stock of any class or any other securities or property, or to receive any
other right, (ii) any capital reorganization of the Company, or
reclassification or recapitalization of capital stock of the Company or any
transfer in one or more related transactions of all or a majority of the assets
or revenue or income generating capacity of the Company to, or consolidation or
merger of the Company with or into, any other entity or person, or (iii) any
voluntary or involuntary dissolution or winding up of the Company, then and in
each such event the Company will mail or cause to be mailed to each holder of a
Warrant at the time outstanding a notice specifying, as the case may be, (A)
the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and stating the amount and character of such
dividend, distribution or right; or (B) the date on which any such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, conveyance, dissolution, liquidation or winding-up is to take place and
the time, if any is to be fixed, as of which the holders of record of Common
Stock (or any other class of stock or securities of the Company, or another
issuer pursuant to Section 6, receivable upon the exercise of the Warrants)
shall be entitled to exchange their shares of Common Stock (or such other stock
or securities) for securities or other property deliverable upon such event.
Any such notice shall be deposited in the United States mail, postage prepaid,
at least ten (10) days prior to the date therein specified, and the holders(s)
of the Warrant(s) may exercise the Warrant(s) and participate in such event as
a registered holder of Common Stock, upon exercise of the Warrant(s) so held,
within the ten (10) day period from the date of mailing of such notice.
4. NO IMPAIRMENT. The Company shall not, by amendment of its
organizational documents or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
action, avoid or seek to avoid the observance or
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<PAGE> 3
performance of any of the terms of this Agreement or of the Warrants, but will
at all times in good faith take any and all action as may be necessary in order
to protect the rights of the holders of the Warrants against impairment.
Without limiting the generality of the foregoing, the Company (a) will at all
times reserve and keep available, solely for issuance and delivery upon
exercise of the Warrants, shares of Common Stock issuable from time to time
upon exercise of the Warrants, (b) will not increase the par value of any
shares of stock receivable upon exercise of the Warrants above the amount
payable in respect thereof upon such exercise, and (c) will take all such
action as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and non-assessable stock upon the exercise of the
Warrants, or any of them.
5. EXERCISE OF WARRANTS. At any time and from time to time on and
after the first anniversary of the date hereof and expiring on the fifth
anniversary of the effective date of the public offering of the Common Stock at
5:00 p.m., Oklahoma City, Oklahoma time, Warrants may be exercised as to all or
any portion of the whole number of shares of Common Stock covered by the
Warrants by the holder thereof by surrender of the Warrants, accompanied by a
subscription for shares to be purchased in the form attached hereto as Exhibit
B and by a check payable to the order of the Company in the amount required for
purchase of the shares as to which the Warrant is being exercised, delivered to
the Company at its principal office at 1200 Capital of Texas Highway South,
Building 3, Suite 300, Austin, Texas 78746, Attention: Matthew O'Hayer.
Warrants may also be exercised from time to time, without any payment required
for the purchase of the shares as to which the Warrant is being exercised, as
to all or any portion of the number of shares of Common Stock covered by the
Warrant(s) by the holder thereof by surrender of the Warrants, accompanied by a
subscription for shares in the form attached as Exhibit C, pursuant to which
the holder thereof will be entitled to receive upon such surrender of the
Warrant(s) (and without any further payment) that number of shares of Common
Stock equal to the product of the number of shares of Common Stock obtainable
upon exercise of the Warrant(s) (or the portion thereof as to which the
exercise relates) multiplied by a fraction: (i) the numerator of which shall be
the difference between the then Current Value (as defined in this Section 5 and
Section 7(d)) of one full share of Common Stock on the date of exercise and the
Exercise Price, and (ii) the denominator of which shall be the Current Value of
one full share of Common Stock on the date of exercise. Upon the exercise of a
Warrant in whole or in part, the Company will within five (5) days thereafter,
at its expense (including the payment by the Company of any applicable issue or
transfer taxes), cause to be issued in the name of and delivered to the Warrant
holder a certificate or certificates for the number of fully paid and
non-assessable shares of Common Stock to which such holder is entitled upon
exercise of the Warrant. In the event such holder is entitled to a fractional
share, in lieu thereof such holder shall be paid a cash amount equal to such
fraction, multiplied by the Current Value of one full shares of Common Stock on
the date of exercise. Certificates for shares of Common Stock issuable by
reason of the exercise of the Warrant or Warrants shall be dated and shall be
effective as of the date of the surrendering of the Warrant for exercise,
notwithstanding any delays in the actual execution, issuance or delivery of the
certificates for the shares so purchased. In the event a Warrant or Warrants
is exercised as to less than the aggregate amount of all shares of Common Stock
issuable upon exercise of all Warrants held by such person, the Company shall
issue a new Warrant to the holder of the Warrant so exercised covering the
aggregate number of shares of Common Stock as to which Warrants remain
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<PAGE> 4
unexercised.
For purposes of this section, Current Value is defined (i) in the case
for which a public market exists for the Common Stock at the time of such
exercise, according to Section 7(d), and (ii) in the case no public market
exists at the time of such exercise, at the Appraised Value. For the purposes
of this Agreement, "Appraised Value" is the value determined in accordance with
the following procedures. For a period of five (5) days after the date of an
event (a "Valuation Event") requiring determination of Current Value at a time
when no public market exists for the Common Stock (the "Negotiation Period"),
each party to this Agreement agrees to negotiate in good faith to reach
agreement upon the Appraised Value of the securities or property at issue, as
of the date of the Valuation Event, which will be the fair market value of such
securities or property, without premium for control or discount for minority
interests, illiquidity or restrictions on transfer. In the event that the
parties are unable to agree upon the Appraised Value of such securities or
other property by the end of the Negotiation Period, then the Appraised Value
of such securities or property will be determined for purposes of this
Agreement by a recognized appraisal or investment banking firm mutually
agreeable to the holders of the Warrants and the Company (the "Appraiser"). If
the holders of the Warrants and the Company cannot agree on an Appraiser within
two (2) business days after the end of the Negotiation Period, the Company, on
the one hand, and the holders of the Warrants, on the other hand, will each
select an Appraiser within ten (10) business days after the end of the
Negotiation Period and those two Appraisers will select ten (10) days after the
end of the Negotiation Period an independent Appraiser to determine the fair
market value of such securities or property, without premium for control or
discount for minority interests. Such independent Appraiser will be directed
to determine fair market value of such securities or property as soon as
practicable, but in no event later than thirty (30) days from the date of its
selection. The determination by an Appraiser of the fair market value will be
conclusive and binding on all parties to this Agreement. Appraised Value of
each share of Common Stock at a time when (i) the Company is not a reporting
company under the Exchange Act and (ii) the Common Stock is not traded in the
organized securities markets, will, in all cases, be calculated by determining
the Appraised Value of the entire Company taken as a whole and dividing that
value by the number of shares of Common Stock then outstanding, without premium
for control or discount for minority interests, illiquidity or restrictions on
transfer. The costs of the Appraiser will be borne by the Company. In no
event will the Appraised Value of the Common Stock be less than the per share
consideration received or receivable with respect to the Common Stock or
securities or property of the same class in connection with a pending
transaction involving a sale, merger, recapitalization, reorganization,
consolidation, or share exchange, dissolution of the Company, sale or transfer
of all or a majority of its assets or revenue or income generating capacity, or
similar transaction.
6. PROTECTION AGAINST DILUTION. The Exercise Price for the shares
of Common Stock and number of shares of Common Stock issuable upon exercise of
the Warrants is subject to adjustment from time to time as follows:
(a) STOCK DIVIDENDS, SUBDIVISIONS, RECLASSIFICATIONS, ETC. In case
at any time or from time to time after the date of execution of this Agreement,
the Company shall (i) take a record of the holders of Common Stock for the
purpose of entitling them to receive a dividend or a distribution on shares of
Common Stock payable in shares of Common
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<PAGE> 5
Stock or other class of securities, (ii) subdivide or reclassify its
outstanding shares of Common Stock into a greater number of shares, or (iii)
combine or reclassify its outstanding Common Stock into a smaller number of
shares, then, and in each such case, the Exercise Price in effect at the time
of the record date for such dividend or distribution or the effective date of
such subdivision, combination or reclassification shall be adjusted in such a
manner that the Exercise Price for the shares issuable upon exercise of the
Warrants immediately after such event shall bear the same ratio to the Exercise
Price in effect immediately prior to any such event as the total number of
shares of Common Stock outstanding immediately prior to such event shall bear
to the total number of shares of Common Stock outstanding immediately after
such event.
(b) ADJUSTMENT OF NUMBER OF SHARES PURCHASABLE. When any adjustment
is required to be made in the exercise Price under this Section 6, (i) the
number of shares of Common Stock issuable upon exercise of the Warrants shall
be changed (upward to the nearest full share) to the number of shares
determined by dividing (x) an amount equal to the number of shares issuable
pursuant to the exercise of the Warrants immediately prior to the adjustment,
multiplied by the Exercise Price in effect immediately prior to the adjustment,
by (y) the Exercise Price in effect immediately after such adjustment, and (ii)
upon exercise of the Warrant, the holder will be entitled to receive the number
of shares or other securities referred to in Section 6(a) that such holder
would have received had the Warrant been exercised prior to the events referred
to in Section 6(a).
(c) ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC. In
case of any reorganization or consolidation of the Company with, or any merger
of the Company with or into, another entity (other than a consolidation or
merger in which the Company is the surviving corporation) or in case of any
sale or transfer to another entity of the majority of assets of the Company,
the entity resulting from such reorganization or consolidation or surviving
such merger or to which such sale or transfer shall be made, as the case may
be, shall make suitable provision (which shall be fair and equitable to the
holders of Warrants) and shall assume the obligations of the Company hereunder
(by written instrument executed and mailed to each holder of the Warrants then
outstanding) pursuant to which, upon exercise of the Warrants, at any time
after the consummation of such reorganization, consolidation, merger or
conveyance, the holder shall be entitled to receive the stock or other
securities or property that such holder would have been entitled to upon
consummation if such holder had exercised the Warrants immediately prior
thereto, all subject to further adjustment as provided in this Section 6.
(d) CERTIFICATE AS TO ADJUSTMENTS. In the event of adjustment as
herein provided in paragraphs of this Section 6, the Company shall promptly
mail to each Warrant holder a certificate setting forth the Exercise Price and
number of shares of Common Stock issuable upon exercise after such adjustment
and setting forth a brief statement of facts requiring such adjustment. Such
certificate shall also set forth a brief statement of facts requiring such
adjustment. Such certificate shall also set forth the kind and amount of stock
or other securities or property into which the Warrants shall be exercisable
after any adjustment of the Exercise Price as provided in this Agreement.
(e) MINIMUM ADJUSTMENT. Notwithstanding the foregoing, no
certificate as to adjustment of the Exercise Price hereunder shall be made if
such adjustment results in a change
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<PAGE> 6
in the Exercise Price then in effect of less than ______ ($_____) and any
adjustment of less than ______ ($_____) of any Exercise Price shall be carried
forward and shall be made at the time of and together with any subsequent
adjustment that, together with the adjustment or adjustments so carried
forward, amounts to ______ ($_____) or more; provided however, that upon the
exercise of a Warrant, the Company shall have made all necessary adjustments
(to the nearest cent) not theretofore made to the Exercise Price up to and
including the date upon which such Warrant is exercised.
7. REGISTRATION RIGHTS.
(a) The Company agrees that upon written notice given to the Company
at any time on or after the first anniversary of the effective date of the
public offering of the Common Stock but before the fifth anniversary of the
effective date of the public offering, from the holder or holders of not less
than fifty-one percent (51%) of the shares issued and issuable upon exercise of
the Warrants, of a proposed distribution by such holder or holders of Common
Stock issued or issuable upon exercise of Warrants, the Company will, within 45
days after receipt of such notice, promptly prepare, file and diligently
prosecute to effectiveness, an appropriate filing with the Commission of a
registration statement covering the proposed sale or distribution of all or any
part of such shares under the Securities Act of 1933, as amended (the "Act"),
and the appropriate registration statements or applications under the
securities laws of such states as such holders, in their discretion, shall
determine, and will use its reasonable best efforts to have such registration
and application (including both the registration under the Act and the
registration or application made under the various state securities laws)
declared effective as soon as practicable after the filing thereof and to
remain effective for such period that may be reasonably necessary to complete
the distribution of securities so registered or qualified. At least 15 days
prior to such filing, the Company shall give written notice of such proposed
filing to each registered holder of any Warrants at the holders' addresses
appearing on the records of the Company and to each registered holder of Common
Stock purchased from the exercise of any Warrants at such holder's address
appearing on the Company records, and shall offer to include in such
registration statement any proposed distribution of such Common Stock held or
to be held by each such registered holder; provided, however, that except as
provided in Section 7(e), the Company need not effect the registration of the
sale or distribution of Common Stock purchased upon exercise of Warrants more
than once. All expenses, disbursements and fees (including fees and expenses
of counsel for the Company, special auditing fees specifically attributable to
the sale by the selling holder or holders of Common Stock, printing expenses
(including all necessary copies of the registration statement and prospectuses
contained therein), registration and filing fees and blue sky fees and
expenses, and fees and charges of the Company's transfer agent and registrar
for services rendered in connection therewith) shall be borne by the Company;
provided, however, that the Company shall not be required to pay for any
expenses of any registration proceeding begun (in which case holders shall bear
such expenses), if the registration request is subsequently withdrawn at any
time at the request of the holder or holders of not less than 51% of the shares
issued and issuable upon exercise of the Warrants, unless such withdrawal is
due to the misconduct of the Company or due to an unforeseen material adverse
change in the business, properties, prospects or financial condition of the
Company occurring prior to the effectiveness of the registration
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<PAGE> 7
statement, in which case the Company will continue to bear such expenses.
(b) In connection with any registration under the Act and specified
state securities law pursuant to this Agreement, the Company will, without
charge, furnish each holder whose shares are registered thereunder with copies
of the registration statement and all amendments thereto and will, without
charge, supply each such holder with copies of any preliminary and final
prospectus included therein in such quantities as may be necessary for the
purposes of such proposed sale or distribution that the holder or holders may
reasonably request.
(c) In connection with any registration of shares pursuant to this
Section 7, the holders whose shares are being registered shall furnish the
Company with such information concerning such holders and the proposed sale or
distribution as shall be required for use in the preparation of such
registration statement and applications.
(d) Notwithstanding the foregoing provisions of this Section 7, upon
receipt of such written notice from the holder or holders of not less than
fifty one percent (51%) of the shares issued and issuable upon exercise of the
Warrants requesting that the Company effect registration of the sale or
distribution of Common Stock as provided in Section 7(a) or upon election by
holders of Warrants or Common Stock to participate in a registration pursuant
to Section 7(e), the Company shall have the option, for a period of ten (10)
days thereafter, to purchase all or any such Warrants and all or any such
shares of Common Stock acquired pursuant to the exercise of the Warrants and
held by holders providing the request for registration under Section 7(a)
and/or 7(e) and held by any other holder of Warrants or shares issued and will
exercise its option if it so elects as follows:
(i) as to such Warrants, at a price per Warrant equal to the
difference between (A) the average of the means between the closing bid and
asked prices of the Common Stock in the over-the-counter market for 20
consecutive business days commencing 30 business days before the date of
receipt of such notice, (B) if the Common Stock is quoted on the Nasdaq
SmallCap Market, at the average of the means of the daily closing bid and asked
prices of the Common Stock for 20 consecutive business days commencing 30
business days before the date of such notice, or (C) if the Common Stock is
listed on any national securities exchange or quoted on the Nasdaq National
Market System, at the average of the daily closing prices of the Common Stock
for 20 consecutive business days commencing 30 business days before the date of
such notice and the Exercise Price of the Warrant at the time of receipt of
such notice; and
(ii) as to shares of Common Stock previously purchased pursuant to the
exercise of Warrants, at a price per share equal to (A) the average of the
means between the closing bid and asked prices of the Common Stock in the
over-the-counter market for 20 consecutive business days commencing 30 business
days before the date of such notice, (b) if the Common Stock is quoted on the
Nasdaq SmallCap Market, at the average of the means of the daily closing bid
and asked prices of the Common Stock for 20 consecutive business days
commencing 30 business days before the date of such notice or (C) if the Common
Stock is listed on any national securities exchange or the Nasdaq National
Market System, at the average of the daily closing prices of the Common Stock
for 20 consecutive business days
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<PAGE> 8
commencing 30 business days before the date of such notice (such value of
shares so determined in this Section 7(d)(ii), as the case may be, is referred
to herein as the "Current Value").
(e) If any time on or after the first anniversary of the date hereof
but before the fifth anniversary of the date hereof the Company proposes to
file a registration statement under the Act covering a proposed sale of shares
of Common Stock, it shall give to each holder who then owns any Warrants or any
shares of Common Stock acquired pursuant to the exercise of the Warrants notice
of such proposed registration at least 30 days prior to the filing of the
registration statement and shall afford each such holder who then proposed to
sell or distribute publicly any of the shares subject to the Warrants upon
giving not less than 10 days notice prior to such filing, the opportunity to
have such shares included in the securities registered under the registration
statement. All expenses, disbursements and fees (including, but without
limitation, fees and expenses of counsel, auditing fees, printing expenses, SEC
filing fees and expenses, but excluding any underwriting discounts or
commissions) incurred in connection with the registration by the Company of the
sale of any shares for any such holder under this Section 7(e) shall be borne
by the Company.
8. INDEMNIFICATION; CONTRIBUTION.
(a) The Company will indemnify and hold harmless each holder and each
affiliate thereof of Common Stock registered pursuant to this Agreement with
the Commission, or under any Blue Sky Law or regulation against any losses,
claims, damages, or liabilities, joint or several, to which such holder may
become subject under the Act or otherwise, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon an untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus, registration statement, prospectus, or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse each such holder and affiliate for any legal or other expenses
reasonably incurred by such holder in connection with investigating or
defending any such action or claim regardless of the negligence of any such
holder or affiliate; provided, however, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage, or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in any preliminary prospectus,
registration statement or prospectus, or any such amendment or supplement
thereto, in reliance upon and in conformity with written information furnished
to the Company by any such holder expressly for use therein.
(b) Each holder of Common Stock registered pursuant to this Agreement
will indemnify and hold harmless the Company against any losses, claims,
damages, or liabilities to which the Company may become subject, under the Act
or otherwise, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in any preliminary
prospectus, registration statement or prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in
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<PAGE> 9
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in any
preliminary prospectus, registration statement or prospectus, or any amendment
or supplement thereto, in reliance upon and in conformity with written
information furnished to the Company by such holder expressly for use therein.
(c) Promptly after receipt by an indemnified party under Sections
8(a) or (b) above of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under either such subsection, notify the indemnifying party in writing of
the commencement thereof; but the omission so to notify the indemnifying party
shall not relieve it from any liability that it may otherwise have to any
indemnified party. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the
commencement thereof the indemnifying party shall be entitled to assume the
defense thereof by notice in writing to the indemnified party. After notice
from the indemnifying party to such indemnified party of its election to assume
the defense thereof, the indemnifying party shall not be liable to such
indemnified party under either of such subsections for any legal expenses of
other counsel or any other expense, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than reasonable
costs of investigation incurred prior to the assumption by the indemnifying
party, unless such expenses have been specifically authorized in writing by the
indemnifying party, the indemnifying party has failed to assume the defense and
employ counsel, or the named parties to any such action include both the
indemnified party and the indemnifying party, as appropriate, and such
indemnified party has been advised by counsel that the representation of such
indemnified party and the indemnifying party by the same counsel would be
inappropriate due to actual or potential differing interests between them, in
each of which cases the fees of counsel for the indemnified party will be paid
by the indemnifying party.
(d) If the indemnification provided for in this Section 8 is
unavailable or insufficient to hold harmless an indemnified party under Section
8(a) or 8(b) in respect of any losses, claims, damages, or liabilities (or
action in respect thereof) referred to therein, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect the relative benefits
received by the Company and the holder or holders from this Agreement and from
the offering of the shares of Common Stock. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law, then each indemnifying party shall contribute to such amount paid or
payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
Company and the holders in connection with the statement or omissions that
resulted in such losses, claims, damages, or liabilities (or actions in respect
thereof), as well as any other relevant equitable considerations. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company or the holder and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or
omission. The Company and the holders agree that it would not be just and
equitable if contribution pursuant to this Section 8(d) were determined
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<PAGE> 10
by pro rata allocation (even if the holders were treated as one entity for such
purpose) or by any other method of allocation that does not take into account
the equitable considerations referred to above in this subsection (e). Except
as provided in Section 8(c), the amount paid or payable by an indemnified party
as a result of the losses, claims, damages, or liabilities (or actions in
respect thereof) referred to above in this Section 8(d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigation or defending any such action or claim.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. Notwithstanding any provision in
this Section 8(d) to the contrary, no holder shall be liable for any amount, in
the aggregate, in excess of the net proceeds to such holder from the sale of
such holder's shares (obtained upon exercise of Warrants) giving rise to such
losses, claims, damages, or liabilities.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability that the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
holder of Warrants within the meaning of the Act. The obligations of the
holders of Common Stock under this Section 8 shall be in addition to any
liability that such holders may otherwise have and shall extend, upon the same
terms and conditions to each person, if any, who controls the Company within
the meaning of the Act.
9. STOCK EXCHANGE LISTING. In the event the Company lists its
Common Stock on any national securities exchange, the Company will, at its
expense, also list on such exchange, upon exercise of a Warrant, all shares of
Common Stock issuable pursuant to such Warrant.
10. SPECIFIC PERFORMANCE. The Company stipulates that remedies at
law, in money damages, available to the holder of a Warrant, or of a holder of
Common Stock issued pursuant to exercise of a Warrant, in the event of any
default or threatened default by the Company in the performance of or
compliance with any of the terms of this Agreement are not and will not be
adequate. Therefore, the Company agrees that the terms of this Agreement may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
11. SUCCESSORS AND ASSIGNS; BINDING EFFECT. This Agreement shall be
binding upon and inure to the benefit of you and the Company and their
respective successors and permitted assigns.
12. NOTICES. Any notice hereunder shall be given by registered or
certified mail, if to the Company, at its principal office referred to in
Section 5 and, if to the holders, to their respective addresses shown in the
Warrant ledger of the Company, provided that any holder may at any time on
three (3) days' written notice to the Company designate or substitute another
address where notice is to be given. Notice shall be deemed given and received
after a certified or registered letter, properly addressed with postage
prepaid, is deposited in the U.S. mail.
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13. SEVERABILITY. Every provision of this Agreement is intended to
be severable. If any term or provision hereof is illegal or invalid for any
reason whatsoever, such illegality or invalidity shall not affect the remainder
of this Agreement.
14. ASSIGNMENT; REPLACEMENT OF WARRANTS. If the Warrant or Warrants
are assigned, in whole or in part, the Warrants shall be surrendered at the
principal office of the Company, and thereupon, in the case of a partial
assignment, a new Warrant shall be issued to the holder thereof covering the
number of shares not assigned, and the assignee shall be entitled to receive a
new Warrant covering the number of shares so assigned. Upon receipt of
evidence reasonably satisfactory to the Company of the loss, theft,
destruction, or mutilation of any Warrant and appropriate bond or
indemnification protection, the Company shall issue a new Warrant of like
tenor. Except as contemplated by Section 7 of this Agreement, the Warrants
will not be transferred, sold, or otherwise hypothecated by you or any other
person and the Warrants will be nontransferable, except to (i) one or more
persons, each of which on the date of transfer is an officer, shareholder, or
employee of you; (ii) a partnership or partnerships, the partners of which are
you and one or more persons, each of whom on the date of transfer is an officer
to you; (iii) a successor to you in merger or consolidation; (iv) a purchaser
of all or substantially all of your assets; or (v) a person that receives a
Warrant upon death of a Holder pursuant to will, trust, or the laws of
intestate succession.
15. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Oklahoma without giving effect to the
principles of choice of laws thereof.
16. DEFINITION. All references to the word "you", and to "Capital
West Securities, Inc." in this Agreement shall be deemed to apply with equal
effect to any persons or entities to whom Warrants have been transferred in
accordance with the terms hereof, and, where appropriate, to any persons or
entities holding shares of Common Stock issuable upon exercise of Warrants.
17. HEADINGS. The headings herein are for purposes of reference only
and shall not limit or otherwise affect the meaning of any of the provisions
hereof.
Very truly yours,
Grand Adventure Tour & Travel Publishing Corporation
By:
-----------------------------------
Matthew O'Hayer, President
Accepted as of , 1997.
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CAPITAL WEST SECURITIES, INC.
By:
-------------------------------------
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EXHIBIT 3.02
BY-LAWS
OF
GRAND ADVENTURES TOUR & TRAVEL PUBLISHING CORPORATION
(an Oregon corporation)
ARTICLE I
OFFICES
Section 1. Principal Office. The principal office for the
transaction of the business of the corporation in Texas is hereby fixed and
located at:
1120 Capital of Texas Highway South
Bldg. 3, Suite 300
Austin, Texas 78746
The Board of Directors is hereby granted full power and authority to change
said principal office from one location to another in said state. Any such
change shall be noted in the by-laws by the Secretary, opposite this section,
or this section may be amended to state the new location.
Section 2. Other Offices. Branch or subordinate offices may at any
time be established by the Board of Directors at any place or places where the
corporation is qualified to do business or the business of the corporation may
require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Place of Meetings. All annual meetings of shareholders
and all other meetings of shareholders shall be held either at the principal
office of the corporation or at any other place within or without the State of
Oregon as may be designated either by the Board of Directors pursuant to
authority hereinafter granted to said Board or by the written consent of the
shareholders entitled to vote at such meeting holding at least a majority of
such shares given either before or after the meeting and filed with the
Secretary of the corporation.
Section 2. Annual Meetings. The annual meetings of shareholders
shall be held on such date not less than sixty (60) nor more than one hundred
twenty (120) days after the end of the corporation's last preceding fiscal
year, as the Board of Directors shall prescribe; provided, that if in any such
year the annual meeting shall not have been held within such period, then it
shall be held at 10:00 a.m. on the first Tuesday in the fifth month after the
end of the corporation's last preceding fiscal year; provided, however, that
should said day fall on a legal holiday, then any such annual meeting of
shareholders shall be held at the same time and place on the next day
thereafter ensuing which is a full business day. Any such annual meeting may
be held at any other time which may be designated in a resolution by the Board
of Directors or by the written consent of the shareholders entitled to vote at
such meeting holding at least a majority of such shares. At such annual
meeting, directors shall be elected, reports of the affairs of the corporation
shall be considered, and any other business may be
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transacted which is within the powers of the shareholders to transact and which
may be properly brought before the meeting.
Written notice of each annual meeting shall be given to each
shareholder entitled to vote, either personally or by mail or other means of
written communication, charges prepaid, addressed to such shareholder at his
address appearing on the books of the corporation or given by him to the
corporation for the purpose of notice. If a shareholder gives no address,
notice shall be deemed to have been given him if sent by mail or other means of
written communication addressed to the place where the principal office of the
corporation is situated. All such notices shall be sent to each shareholder
entitled thereto not less than ten (10) nor more than sixty (60) days before
each annual meeting.
Section 3. Special Meetings. Special meetings of the shareholders for
any purpose or purposes, unless otherwise prescribed by statute, may be called
at any time by the President, or by resolution of the Board of Directors, or by
one or more shareholders holding not less than ten percent (10%) of the issued
and outstanding voting shares of the corporation, or such meeting may be held
at any time without call or notice upon unanimous consent of the shareholders.
Except in special cases where other express provision is made by statute,
notice of such special meetings shall be given in the same manner and pursuant
to the same notice provisions as for annual meetings of shareholders. Notices
or any special meeting shall state, in addition to the place, day and hour of
such meeting, the purpose or purposes of the meeting. Business transacted at
any special meeting of shareholders shall be limited to the purposes stated in
the notice.
Section 4. List of Shareholders Entitled to Vote. The officer who
has charge of the stock ledger of the corporation shall prepare and make, at
least ten (10) days before every meeting of shareholders, a complete list of
the shareholders entitled to vote at the meeting, arranged in alphabetical
order, and showing the address of each shareholder and the number of shares
registered in the name of each shareholder. Such list shall be open to the
examination of any shareholder for any purpose germane to the meeting during
ordinary business hours for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any shareholder who is present.
Section 5. Quorum. The holders of one-third (1/3) of the stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
shareholders for the transaction of business, except as otherwise provided by
statute or the Certificate of Incorporation of the corporation. When a quorum
is present at any meeting, a majority of the shares represented thereat and
entitled to vote thereat shall decide any question brought before such meeting.
The shareholders present at a duly called or held meeting at which a quorum is
present may continue to do business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum.
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Section 6. Voting. At each meeting of shareholders each shareholder
entitled to vote shall vote in person or by proxy and he shall have one (1)
vote for each share standing registered in his name at the closing of the
transfer books for such meeting, or the record date fixed for such meeting by
the Board of Directors, as the case may be, or standing registered in his name
at the time of such meeting if neither a date for the closing of the transfer
books nor a record date for such meeting has been fixed by the Board of
Directors.
Section 7. Consent of Absentees. The transaction of any meeting of
shareholders, either annual or special, however called and noticed, shall be as
valid as though had at a meeting duly held after regular call and notice, if a
quorum be present either in person or by proxy, and if, either before or after
the meeting, each of the persons entitled to vote, not present in person, or by
proxy, signs a written waiver of notice, or a consent to the holding of such
meeting, or an approval of the minutes thereof. All such waivers, consents or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Section 8. Action Without Meeting. Any action which, under any
provisions of the laws of the State of Oregon or under the provisions of the
Certificate of Incorporation or under these by-laws may be taken at a meeting
of the shareholders, may be taken without a meeting if a record or memorandum
thereof be made in writing and signed by all of the persons who would be
entitled to vote upon such action at a meeting for such purpose, and such
record or memorandum be filed with the Secretary of the corporation and made a
part of the corporate records.
Section 9. Proxies. Any shareholder entitled to vote or execute
consents shall have the right to do so either in person or by one or more
agents authorized by proxy. The appointment of a proxy shall be in writing and
signed by the shareholder but shall require no other attestation and shall be
filed with the Secretary of the corporation at or prior to the meeting. The
termination of a proxy's authority by act of the shareholder shall, subject to
the time limitation herein set forth, be ineffective until written notice of
the termination has been given to the Secretary of the corporation. Unless
otherwise provided therein, an appointment filed with the Secretary shall have
the effect of revoking all proxy appointments of prior date.
ARTICLE III
DIRECTORS
Section 1. Powers. Subject to limitations of the Certificate of
Incorporation, of the by-laws and of the laws of the State of Oregon as to
action to be authorized or approved by the shareholders, and subject to the
duties of directors as prescribed by the by-laws, all corporate powers shall be
exercised by or under the authority of, and the business and affairs of the
corporation shall be controlled by, the Board of Directors.
Section 2. Number, Election and Term of Office. The number of
directors which shall constitute the whole Board shall be not less than one (1)
nor more than five (5) until changed by amendment to these by-laws. The
shareholders at any annual meeting may determine the number which shall
constitute the Board and the number so determined shall remain fixed until
changed at a subsequent annual meeting. The directors shall be elected at each
annual meeting of the shareholders; however, if any such annual meeting is not
held or the directors are not
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elected thereat, the directors may be elected at any special meeting of
shareholders held for that purpose. All directors shall hold office until
their respective successors are elected.
Section 3. Vacancies. Vacancies in the Board of Directors may be
filled by a majority of the directors then in office, though less than a
quorum, or by a sole remaining director, and each director so elected shall
hold office until his successor is elected at an annual or a special meeting of
the shareholders.
Section 4. Removal. The entire Board of Directors or any individual
director may be removed from office with or without cause by vote of
shareholders holding a majority of the outstanding shares entitled to vote at
any annual or special meeting of shareholders. In case the entire Board or any
one or more directors be so removed, new directors may be elected at the same
meeting of shareholders.
Section 5. Place of Meetings. Regular meetings of Board of Directors
shall be held at any place within or without the State of Texas as may be
designated from time to time by resolution of the Board of Directors or by the
written consent of all members of the Board. In the absence of such
designation, regular meetings shall be held at the principal office of the
corporation. Special meetings of the Board may be held either at a place so
designated or at the principal office.
Section 6. Regular Meetings. A regular annual meetings of the Board
of Directors for the purpose of election of officers of the corporation and the
transaction of any other business coming before such meeting shall be held each
year immediately following the adjournment of the annual shareholder's meeting
and no notice of such meeting to the elected directors shall be necessary in
order to legally constitute the meeting, provided a majority of the whole Board
shall be present. If a majority of the Board shall not be present, then such
regular annual meeting may be held at such time as shall be fixed by the
consent, in writing, of all of the directors. Other regular meetings of the
Board may be held without notice at such time as shall from time to time be
determined by the Board.
Section 7. Special Meetings. Special meetings of the Board of
Directors for any purpose or purposes shall be called at any time by the
President or, if he is absent or unable to act, by any Vice President or by any
two directors upon three (3) days written notice. No business shall be
considered at any special meeting other than the purposes stated in the notice
given to each director of the meeting, except upon the unanimous consent of all
directors.
Section 8. Waiver of Notice. Any action taken or approved at any
meeting of the Board of Directors, however called and noticed or wherever held,
shall be as valid as though had at a meeting duly held after regular call and
notice, if a quorum be present and if, either before or after the meeting, each
of the directors not present signs a written waiver of notice, or a consent to
the holding of such meeting, or an approval of the minutes thereof. All such
waivers, consents or approvals shall be filed with the corporate records or
made a part of the minutes of the meeting. If a director does not receive
notice of a meeting, but attends and participates in the meeting, he shall be
deemed to have waived notice of the meeting.
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Section 9. Quorum. At all meetings of the Board, a quorum shall
consist of a majority of the entire number of directors and the acts of a
majority of the directors present shall be the acts of the Board of Directors
except as may be otherwise specifically provided by statute or by the
Certificate of Incorporation of the corporation or by these by- laws.
Section 10. Fees and Compensation. The Board of Directors may from
time to time fix the compensation of directors for their services in that
capacity. The compensation of a director may consist of an annual fee or a fee
for attendance at each regular or special meeting of the Board or any meeting
of any committee of the Board of which such director is a member or a
combination of fees of both types; provided, that nothing herein contained
shall be construed to preclude any director from serving the corporation in any
other capacity and receiving compensation therefor. The Board may also provide
for the reimbursement to any director of expenses incurred in attending any
meeting of the Board or any committee of the Board of which he is a member.
Section 11. Action Without Meeting. Any action required or permitted
to be taken at a meeting of the Board of Directors may be taken without a
meeting if all members of the Board shall individually or collectively consent
to such action by signing a written record or memorandum thereof. Such record
or memorandum shall have the same effect as a unanimous vote of the Board of
Directors and shall be filed with the Secretary of the corporation and made a
part of the corporate records.
Section 12. Participation in Meetings by Telephone. Any one or more
members of the Board of Directors or of any committee of the Board may
participate in a meeting of the Board or committee by means of conference
telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time.
Participation by such means shall constitute presence in person at a meeting.
ARTICLE IV
EXECUTIVE COMMITTEE
Section 1. Election. At the annual meeting, or any special meeting
of the Board of Directors, the Board may if it deems necessary, acting by
resolution adopted by a majority of the number of directors fixed by these
by-laws, elect from their own members an Executive Committee composed of three
or more voting members.
Section 2. Duties. The Executive Committee shall have all of the
powers of the directors in the interim between meetings of the Board, except
the power to declare dividends and to adopt, amend or repeal the by-laws and
where action of the Board of Directors is required by law. It shall keep
regular minutes of its proceedings which shall be reported to the directors at
their next meeting.
Section 3. Meetings. The Executive Committee shall meet at such
times as may be fixed by the Committee or on the call of the President. Notice
of the time and place of the meeting shall be given to each member of the
Committee in the manner provided for the giving of notice to members of the
Board of Directors of the time and place of special meetings of the Board of
Directors.
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Section 4. Quorum and Voting. A majority of the members of the
Executive Committee shall constitute a quorum for the transaction of business.
The act of the majority of the members of the Executive Committee present at a
meeting at which a quorum is present shall be the act of the Executive
Committee. At all meetings of the Executive Committee, each member present
shall have one (1) vote which shall be cast by him in person.
Section 5. Waiver of Notice. Any actions taken or approved at any
meeting of the Executive Committee, however called and noticed or wherever
held, shall be as valid as though had at a meeting duly held after regular call
and notice, if a quorum be present and if, either before or after the meeting,
each of the members not present signs a written waiver of notice or a consent
to holding such meeting or an approval of the minutes thereof.
Section 6. Removal. The entire Executive Committee or any individual
member thereof may be removed from the Committee with or without cause by a
vote of a majority of the whole Board of Directors.
Section 7. Vacancies. The Board of Directors shall fill all
vacancies in the Executive Committee which may occur from time to time.
Section 8. Action Without Meeting. Any action which might be taken
at a meeting of the Executive Committee may be taken without a meeting if a
record or memorandum thereof be made in writing and signed by all members of
the Executive Committee.
ARTICLE V
COMMITTEES OF DIRECTORS
Section 1. Designation. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, in
addition to the Executive Committee provided for in Article IV hereof, each
committee to consist of two or more of the directors of the corporation, which
to the extent provided in the resolution, shall have and may exercise the
powers of the Board of Directors in the management of the business and affairs
of the corporation, except where action of the Board of Directors is required
by law, and may authorize the seal of the corporation to be affixed to all
papers which may require it. Such committee or committees shall have such name
or names as may be determined from time to time by resolution adopted by the
Board of Directors.
Section 2. Procedural Rules. Each committee shall comply with the
same procedural rules set forth in Sections 3 through 8, both inclusive, of
Article IV that are applicable to the Executive Committee.
ARTICLE VI
OFFICERS
Section 1. Officers and Qualifications. The officers of the
corporation shall be a President, a Secretary, a Treasurer and such other
officers as the Board of Directors may deem necessary or advisable, including
but not limited to a Chairman of the Board, a Vice Chairman of the Board, an
Executive Vice President, one or more Vice Presidents, one or more Assistant
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Secretaries, one or more Assistant Treasurers, and such other officers as may
be appointed in accordance with the provisions Section 3 or Section 5 of this
Article. One person may hold two or more offices.
Section 2. Election. The officers of the corporation, except such
officers as may be appointed in accordance with the provisions of Section 3 or
Section 5 of this Article, shall be chosen annually by the Board of Directors,
and each shall hold his office until he shall resign or shall be removed or
otherwise disqualified to serve, or his successor shall be elected and
qualified.
Section 3. Subordinate Officers. The Board of Directors may appoint,
and may empower the President to appoint, such other officers as the business
of the corporation may require, each of whom shall hold office for such period,
have such authority and perform such duties as are provided in the by-laws or
as the Board of Directors may from time to time determine.
Section 4. Removal and Resignation. Any officer may be removed,
either with or without cause, by the Board of Directors, at any regular or
special meeting thereof, or, except in case of an officer chosen by the Board
of Directors, by any officer upon whom such power of removal may be conferred
by the Board of Directors.
Section 5. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in
the manner prescribed in the by-laws for regular appointments to such office.
Section 6. Duties of Officers. The duties and powers of the officers
of the corporation shall be as follows, and as shall hereafter be set by
resolution of the Board of Directors:
Chairman of the Board. The Chairman of the Board, if there shall be
such an officer, shall, if present, preside at all meetings of the Board of
Directors and exercise and perform such other powers and duties as may be from
time to time assigned to him by the Board of Directors or prescribed by the
by-laws.
President. Subject to such powers and duties, if any, as may be
assigned by the Board of Directors to the Chairman of the Board, if there be
such an officer, the President shall be the Chief Executive Officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation.
Vice President. In the absence or disability of the President, the
Vice Presidents in order of their rank as fixed by the Board of Directors,
shall perform all the duties of the President and, when so acting, shall have
all the powers of, and be subject to all the restrictions upon, the President.
The Vice Presidents shall have such other powers and perform such other duties
as from time to time may be prescribed for them respectively by the Board of
Directors or the by-laws. The Board of Directors may designate such titles as
may be descriptive of their respective functions or indicative of their
relative seniority.
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Secretary. The Secretary shall keep or cause to be kept, at the
principal office of the corporation or such other place as the Board of
Directors may order, a book of minutes of all meetings of directors and
shareholders, with the time and place of holding, whether regular or special,
and, if special, how authorized, notice thereof given, the names of those
present at directors' meetings, the number of shares present or represented at
shareholders' meetings, and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal office
of the corporation or at the office of the corporation's transfer agent, a
share ledger, or a duplicate share ledger, showing the names of the
shareholders and their addresses, the number and classes of shares held by
each, the number and date of certificates issued for the same, and the number
and date of cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the Board of Directors required by the by-laws or by
law to be given, and he shall keep the seal of the corporation in safe custody.
He shall also sign, with the President or Vice President, all contracts, deeds,
licenses and other instruments when so ordered. He shall make such reports to
the Board of Directors as they may request and shall also prepare such reports
and statements as are required by the laws of the State of Oregon and shall
perform such other duties as may be prescribed by the Board of Directors or by
the by-laws.
The Secretary shall allow any shareholder, on application, during
normal business hours, to inspect the share ledger. He shall attend to such
correspondence and perform such other duties as may be incidental to his office
or as may be properly assigned to him by the Board of Directors.
The Assistant Secretary or Secretaries shall perform the duties of the
Secretary in the case of his absence or disability and such other duties as may
be specified by the Board of Directors.
Treasurer. The Treasurer shall keep and maintain, or cause to be kept
and maintained, adequate and correct accounts of the properties and business
transactions of the corporation, including account of its assets, liabilities,
receipts, disbursements, gains, losses, capital, surplus and shares. The books
of account shall at all reasonable times be open to inspection by any director.
The Treasurer shall deposit all monies and other valuables in the name
and to the credit of the corporation with such depositories may be designated
by the Board of Directors. He shall disburse the funds of the corporation as
may be ordered by the Board of Directors, shall render to the President and
directors, whenever they request it, an account of all of his transactions as
Treasurer and of the financial condition of the corporation, and shall have
such other powers and perform such other duties as may be prescribed by the
Board of Directors or the by-laws.
The Assistant Treasurer or Treasurers shall perform the duties of the
Treasurer in the event of his absence or disability and such other duties as
the Board of Directors may determine.
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Section 7. Delegation of Duties. In case of the absence or
disability of any officer of the corporation or for any other reason that the
Board of Directors may deem sufficient, the Board of Directors may, by a vote
of a majority of the whole Board, delegate, for the time being, the powers or
duties, or any of them, of such officer to any other officer or to any
director.
ARTICLE VII
SHARES OF STOCK
Section 1. Certificates of Stock. A certificate or certificates
shares of capital stock of the corporation shall be issued to each shareholder
when any such shares are fully paid, showing the number of the shares of the
corporation standing on the books in his name. All such certificates shall be
signed by the President or a Vice President and the Secretary or an Assistant
Secretary, or be authenticated by facsimiles of the signatures of the President
and Secretary or by a facsimile of the signature of the President and a written
signature of the Secretary or an Assistant Secretary. Every certificate
authenticated by a facsimile of a signature must be countersigned by a transfer
agent or transfer clerk. Even though an officer who signed, or whose facsimile
signature has been written, printed or stamped on, a certificate for shares
shall have ceased by death, resignation or otherwise to be an officer of the
corporation before such certificate delivered by the corporation, such
certificate shall be as valid as though signed by a duly elected, qualified and
authorized officer, if it be countersigned by a transfer agent or transfer
clerk and registered by an incorporated bank or trust company as registrar of
transfer. Such certificates shall also be numbered and sealed with the seal of
the corporation. Such seal may be a facsimile, engraved or imprinted.
Section 2. Record of Shareholders; Transfer of Shares. There shall
be kept at the registered office of the corporation a record containing the
names and addresses of all shareholders of the corporation, the number and
class of shares held by each and the dates when they respectively became the
owners of record thereof; provided, however, that the foregoing shall not be
required if the corporation shall keep at its registered office a statement
containing the name and post office address, including street number, if any,
of the custodian of such record. Duplicate lists may be kept in such other
state or states as may, from time to time, be determined by the Board.
Transfers of stock of the corporation shall be made on the books of the
corporation only upon authorization by the registered holder thereof or by his
attorney lawfully constituted in writing and on surrender and cancellation of a
certificate or certificates for a like number of shares of the same class
properly endorsed or accompanied by a duly executed proof of authenticity of
the signatures as the corporation or its transfer agents may reasonably
require.
Section 3. Fixing Record Date. In order that the corporation may
determine the shareholders entitled to notice of or to vote at any meeting of
the shareholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment or any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, the Board of Directors may fix
in advance, a record date, which shall not be more than sixty (60) nor less
than ten (10) days before the date of such meeting, nor more than sixty (60)
days prior to any other action. A determination of
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shareholders of record entitled to notice of or to vote at a meeting of
shareholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned
meeting.
Section 4. Registered Shareholders. The corporation shall be
entitled to recognize the holder of record of any share or shares of stock as
the exclusive owner thereof for all purposes, and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such shares
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by law.
Section 5. Lost Certificates. Except as hereinafter in this section
provided, no new certificate for shares shall be issued in lieu of an old one
unless the latter is surrendered and canceled at the same time. The Board of
Directors may, however, in case any certificate for shares is lost, stolen,
mutilated or destroyed, authorize the issuance of a new certificate in lieu
thereof, upon such terms and conditions including indemnification of the
corporation reasonably satisfactory to it, as the Board shall determine.
Section 6. Regulations; Appointment of Transfer Agents and
Registrars. The Board may make such rules and regulations as it may deem
expedient concerning the issuance, transfer and registration of certificates
for shares of stock. It may appoint one or more transfer agents or registrars
of transfers, or both, and may require all certificates of stock to bear the
signature of either or both.
Section 7. Treasury Shares. Treasury shares, or other shares not at
the time issued and outstanding, shall not, directly or indirectly, be voted at
any meeting of the shareholders, or counted in calculating the actual voting
power of shareholders at any given time.
Section 8. Securities. Any security of the corporation, which is
issued to any person without an effective registration under the Securities Act
of 1933, as amended, or the Blue Sky laws of any state having jurisdiction,
shall not be transferable, or be the subject of any offer, sale, pledge, assign
or transfer until the corporation has been furnished with the opinion of
owner's counsel satisfactory to counsel for the Corporation that such offer,
sale, pledge, assign or transfer does not involve a violation of the Securities
Act of 1933, as amended, or the applicable Blue sky laws of any state having
jurisdiction. The certificate representing any restricted securities shall
bear substantially the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE NOT REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE BLUE
SKY LAWS OF ANY STATE, AND THESE SHARES MAY NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION UNDER THE ACT OR AN OPINION OF OWNER'S COUNSEL
SATISFACTORY COUNSEL FOR THE ISSUER THE SUCH OFFER, SALE, TRANSFER,
ASSIGN, OR PLEDGE DOES NOT INVOLVE A VIOLATION OF THE ACT, OR THE BLUE
SKY LAWS OF ANY STATE HAVING JURISDICTION."
Section 9. Fractional Shares. The corporation shall not be required
to issue certificates representing any fraction or fractions of a share or
shares of any class, but may issue in lieu thereof, one or more script
certificates in such form or forms as shall be approved by the Board
10
<PAGE> 11
of Directors, each representing a fractional interest in respect to one share.
Such script certificates, upon presentation together with similar script
certificates representing in the aggregate an interest in respect of one or
more full shares, shall entitle the holder thereof to receive one or more full
shares of the class and series, if any, specified in such script certificate.
Unless otherwise provided by the terms of the script certificate, each
script certificate shall entitle the holder thereof to receive dividends, to
participate in the distribution of corporate assets in the event of the
corporation's liquidation, and to vote the fractional shares in person or by
proxy.
ARTICLE VIII
MISCELLANEOUS
Section 1. Fiscal Year. The fiscal year of the corporation shall be
the calendar year unless otherwise determined by the Board.
Section 2. Seal. The corporate seal shall be a device containing the
name of the corporation, the year, and the words "Corporate Seal, Grand
Adventures Tour & Travel Publishing Corporation."
Section 3. Annual Report. An Annual Report may be furnished to the
shareholders at the request of the directors but same shall not be required.
Section 4. Inspection of Corporation Records. The share ledger or
duplicate share ledger, the books of account, copy of the by-laws as amended
certified by the Secretary, and minute of proceedings of the shareholders and
directors and of the Executive Committee and other committees of the Board of
Directors shall be open to inspection upon the written demand of any
shareholder or holder or as the holder of a voting trust certificate and shall
be exhibited at any time when required by the demand of ten percent (10%) of
the shares represented at any shareholders' meeting. Such inspection may be
made in person or by an agent or attorney and shall include the right to make
extracts. Demand of inspection other than at a shareholders' meeting shall be
made in writing upon the President, Secretary or Assistant Secretary of the
corporation.
Section 5. Dividends. Dividends upon the shares of the capital stock
of the corporation may be declared and paid, when earned, to the extent
permitted by the laws of the State of Oregon by the Board of Directors in their
discretion at any regular or special meeting. Dividends may be paid in cash,
in property, or in shares of capital stock.
11
<PAGE> 12
ARTICLE IX
NOTICES
Section 1. Form of Notices. Whenever, under the provisions of these
by-laws, notice is required to be given to any director, officer or
shareholder, it shall not be construed to mean personal notice, but such notice
may be given in writing, by mail, by depositing the same in the United States
Mail in a postpaid sealed wrapper, addressed to such director, officer or
shareholder at such address as appears on the books of the corporation, or, in
default of other address, to such director, officer or shareholder at the
general post office in the city where the corporation's principal office for
the transaction of business is located, and such notice be deemed to be given
at the time when the same shall be thus mailed.
Section 2. Waiver of Notice. Any shareholder, director or officer
may waive any notice required to be given under these by-laws by a written
waiver signed by the person, or persons, entitled to such notice, whether
before or after the time stated therein, and such waiver shall be deemed
equivalent to the actual giving of such notice.
ARTICLE X
AMENDMENTS
Section 1. Who May Amend. These by-laws may be amended, altered,
changed or repealed by the affirmative vote of a majority of the shares issued
and outstanding, and entitled to vote thereat, at any regular or special
meeting of the shareholders if notice of the proposed amendment, alteration,
change or repeal be contained in the notice of the meeting, or by the
affirmative vote of the majority of the Board of Directors at any regular or
special meeting of the Board of Directors; provided, however, that the Board of
Directors shall have no power to adopt, amend or alter any by-laws fixing
their number, qualifications, classifications, term of office or the right of
the shareholders to remove them from office.
ARTICLE XI
INDEMNIFICATION
Section 1. Indemnification of Officers, Directors, Employees and
Agents of the Corporation. The corporation shall indemnify its officers,
directors, employees and agents to the extent permitted by the Oregon Business
Corporation Act.
Section 2. Nonexclusive Indemnification. The indemnification
provided by this Article XI shall not be deemed exclusive of any other rights
to which those seeking indemnification may be entitled under any agreement,
vote of shareholders or disinterested directors otherwise, both as to action in
his official capacity and as to action in another capacity while holding such
office, and shall 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.
Section 3. Insurance. The 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
12
<PAGE> 13
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
XI.
Section 4. Constituent Corporation. For the purposes of this
Article, references to "the corporation" include all constituent corporations
absorbed in a consolidation or merger as well as the resulting or surviving
corporation so that any person who is or was a director, officer, employee or
agent of such a 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 the provisions of this Article XI with
respect to the resulting or surviving corporation as he would if he had served
the resulting or surviving corporation in the same capacity.
APPROVAL OF DIRECTORS
The foregoing by-laws were read and discussed, section by section, by
the directors, who have authority to adopt by-laws which shall remain effective
until legally amended or repealed. Following such discussion, they were duly
approved at a meeting held via teleconference on October 23, 1997.
13
<PAGE> 14
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting Secretary of Grand
Adventures Tour & Travel Publishing Corporation, an Oregon corporation;
2. That the foregoing by-laws comprising of 13 pages constitute
the by-laws of said corporation as duly adopted by the Board of Directors
thereof on October 23, 1997.
IN WITNESS WHEREOF, I have hereunto subscribed my name on October 23,
1997.
/s/ Joseph S. Juba
-----------------------------
Joseph S. Juba, Secretary
14
<PAGE> 1
EXHIBIT 10.05
EMPLOYMENT AGREEMENT
This Agreement resulting in a contract having an Effective Date of March 1,
1996 is executed in the City of Austin, Travis County Texas, by Airfair
Publishing, Inc., BEI Holdings, Inc. (hereafter "BEI") , Inventory
Merchandising Services, Inc., (hereafter "IMS") and successor companies
thereto, collectively hereafter referred to as "Employer" and Joseph S. Juba
(hereafter referred to as "Employee"). This Agreement presents their mutual
promises and forebearances as set forth below:
1. AGREEMENT - Employer agrees to employ Employee for an indefinite
period from the Effective Date of this Agreement, until such period is
terminated as provided in Art. 19 hereof. Employee's compensation and other
aspects specific to Employee are set forth in Attachment "A" hereto, which is
expressly incorporated in its entirety in this Agreement. Employee's
responsibilities include those expressly assigned and such other duties
expressed or implied from the following.
2. FULL TIME ATTENTION TO THE BUSINESS - Employee shall devote his or
her entire time, attention and ability to the business of Employer during the
term of this Agreement. This obligation shall continue in full force
regardless of the corporate entity for which Employee is asked to perform
services. Employee shall ensure that he or she and any staff supervised adhere
to the provisions of this Agreement and all Company policy, especially that
regarding confidentiality of Company information, noninterference,
noncircumvention and obligations not to compete, as well as the provisions of
this Agreement.
3. CONFIDENTIALITY AND TRADE SECRETS - Employee agrees that Employer
has certain proprietary records, material and information, such as customer or
client lists, customer/client identity and prospective customer/client
identities, methods of doing business, all of which can be trade secrets, and
work product, as well as other information concerning Employer's business
practices and methodologies, including information relative to doing business
with the foregoing, including without limitation the operations, economics,
trade secrets, financing and other important factors regarding trade, barter,
media, magazine and other publishing, cruises, accommodations and travel,
especially with respect to airline personnel and their families, all of which
are considered as confidential and proprietary and are valuable business and
property rights and agrees that any information disclosed to Employee by
Employer, whether written, oral, physical or otherwise, which information is
not previously known to Employee, before employment, without obligation of
confidence, will not be used or disclosed to others by Employee, except as may
be necessary to fulfill the purpose for which it has been disclosed by Employer
or if expressly permitted by Employer. Employee understands that some of this
protected information may be generated by Employee as a consequence of his or
her employment hereunder.
3.1 Employee agrees the above information is either trade secret or
confidential and shall remain the exclusive property of the Employer, and the
Employee does hereby agree that he or she will remove any physical or
intangible indicia of the above information from the possession of the
Employer, during the course of his or her employment, unless
<PAGE> 2
expressly authorized. During the course of Employee's employment status and
for a period of three (3) years thereafter, he or she will not divulge said
information in any format to any entity, including persons, corporations,
partnerships, etc. other than Employer, nor use such information for herself or
himself, or on behalf of any other entity for any purpose, including the
noncircumvent, noninterfere, noncompete aspects set forth below.
4. NONCOMPETITION - Employee agrees that, during the course of his or
her employment and for a period of three (3) years after the termination of his
or her employment for any reason whatsoever, with or without cause, he or she
will not solicit as clients or customers entities which are already agents,
representatives, clients or customers of Employer or for which Employer seeks
or sought up to the point of termination to establish customer/client status,
or act as or become a principal, agent, stockholder, owner, director, officer,
or investor in any other relationship or capacity whatsoever in the same or
similar business of Employer if located within the territorial limits of the
United States of America or Mexico.
4.1 Employee shall not compete, whether as an owner, stockholder,
employee, partner, officer, director or Employee with Employer within the
continental United States with Employer by contacting any clients or customers
of Employer or current or future offices, conducting business on behalf of
Employer, in providing hotel, cruise, magazine and other publications, travel,
barter, corporate non cash, trade or media buying or selling services
(hereafter "services") or in any business similar to Employer's for three (3)
years from the end of Employee's status as such under this AGREEMENT and as set
forth below:
4.2 Employee shall not use nor disclose to any person, firm,
association, or corporation, directly or indirectly, the name or address of any
present or future customer or customers or clients of Employer hereto or
otherwise known to Employer and given herewith to Employee.
5. NONCIRCUMVENT - Employee (and on behalf of any Employees he or she
may have after leaving Employer's employ), agrees that during the period of
employment herein and for a period of three (3) years from the date of
termination that he or she will not take any action of any nature whatsoever to
divert any customer, client or future/prospective customer or client of
Employer to do business with another entity other than Employer or to divert
a prospective advantage to Employer, that Employee knows about, not to inure
to Employer's benefit.
6. NONINTERFERENCE - Employee for himself or herself and any
Employees, including those of their corporation or other controlled entity,
agree that during the term of employment and for a period of three (3) years
after the date of termination of this employment that he or she will not become
involved in any manner with any prospective or actual client or customer of
Employer other than to progress Employer's business, nor will he or she
interfere with any of Employer's contractual or potential contractual
relationships with any entity Employee learns of from its employment with
Employer pursuant to this Agreement, whether obtained by virtue of Employee's
actions or otherwise. Nor shall Employee cause or attempt to cause such
existing or prospective client or customer to deal with Employee or any other
entity so that the resources of such client or customer are improperly diverted
from Employer. Noninterference, as used herein, is contractual and
<PAGE> 3
does not require the severe level of interference, as would be required to
support a tortuous interference claim.
6.1 Specifically, it is meant by prospective and current clients,
vendors and customers, those that Employee learned were in such category
through his or her employment with Company, such knowledge not necessarily
being considered trade secret, but part of the confidentiality and non use
obligation of Employee imposed by Par. 3 of this Agreement.
7. LIQUIDATED DAMAGES AS A SUPPLEMENT TO NONDISCLOSURE, NONCOMPETE,
NONINTERFERE AND NONCIRCUMVENT OBLIGATIONS - It is agreed by the parties hereto
that it would be difficult and impracticable to prove the damages resulting
from Employee's breach of any of his or her covenants hereunder, such as those
not to compete, noncircumvention, confidentiality and noninterference.
Accordingly, any breach of these specific covenants shall require the payment
to Employer by Employee of the sum of One Hundred and Fifty Thousand Dollars
($150,000.00) for past violations and in addition Employer may seek and obtain
relief from a court of appropriate jurisdiction to enjoin (injunction), as it
is admitted by Employee that breach of these covenants would be irreparable.
This provision for liquidated damages shall not limit the right of Employer to
obtain and recover any other damages for breach of any other terms or
provisions of this Agreement.
8. INJUNCTION - Injunction or other remedy available at law or equity
in such court of appropriate jurisdiction can be obtained by Employer for any
breach of confidentiality, noncircumvention, noncompete and noninterference
hereunder with the express agreement by Employee that any bond required to be
posted therefor will be sufficient in the amount of no more than One Thousand
($1,000.00) U.S. Dollars. Consequently for these reasons and those set forth
in Par. 7 hereof, Employee agrees that, in the event of any breach by Employee
of any of the covenants set forth in this Agreement regarding these specific
provisions, in addition to money damages from such breach, Employer may apply
to any court of competent jurisdiction for the entry of an immediate temporary
restraining order (TRO) or an injunction restraining breach of said covenant by
Employee with a bond not to exceed One Thousand ($1,000.00) U.S. Dollars as
set forth above.
8.1 Employee agrees that in the event any of the restrictions set
forth herein become operative, he or she will be able to engage in another
business not requiring a breach hereof for the purpose of obtaining such
livelihood.
9. OPTION TO LIQUIDATED DAMAGES - At its sole option, in the event of
a breach of a material provision of any of the noncompete obligations herein,
Employer will grant Employee or any of its Employees or their principals the
right to so compete at a cost of Three Hundred Fifty Thousand Dollars
($350,000.00) to be paid in advance for such activity taking place any time
during the (3) three years after termination.
10. VALUE OF EMPLOYER'S INFORMATION; REMEDIES FOR BREACH - The
parties hereto agree that the services of Employee are unique and extraordinary
and that Employer has and will give Employee, under this contractual obligation
of confidence,
<PAGE> 4
continued access to proprietary, confidential and valuable information.
Moreover, Employee expects through his or her efforts hereunder to generate new
information of this nature on behalf of Employer and which is not to be used by
Employee after employee status termination hereunder since it is subject to the
same restructure as if the information was obtained by Employer without the
participation of Employee.
10.1 Employee will be, in the course of his or her employment,
servicing particular actual, prospective and potential vendors, clients and
customers on a unique and extraordinary personal basis, thereby putting
Employee in a position to cause irreparable damage to Employer if Employee
improperly exploits, in breach of this Agreement, any personal relationship
with such customer/clients, etc. as a result thereof. Accordingly, the damages
and injunction aspects are as set forth above.
11. NO WAIVER - It is further agreed that the failure of Employer to
insist upon strict adherence to one or more or all of the covenants and
restrictions herein shall not be construed as a waiver of such covenants or
restrictions, nor any others, nor shall such course of action deprive employer
of the right thereafter to require strict compliance with same.
12. SEVERABILITY - In the event that any portion of this Agreement
shall be held to be invalid or unenforceable for any reason, it is agreed that
such invalidity shall not affect any other portion of this Agreement and that
the remaining covenants and restrictions or portions thereof shall remain in
full force and effect, including that situation if the invalidity or
unenforceability is due to the adjudged unreasonableness of a particular time
or area restrictions covered by such covenants by an unappealable court
decision, said covenants and restrictions of this Agreement shall nevertheless
be effective for such period of time and for such area as may be actually or
arguably determined to be reasonable by a court of competent jurisdiction.
13. ENFORCEMENT, VENUE AND CONTROLLING LAW AND SITUS - The laws of
the State of Texas are applicable to the substantive aspects of this Agreement.
Employee agrees that he or she will only challenge this Agreement in the Courts
of Travis County, State of Texas and expressly agrees that the Agreement is to
be at least partially performed in Travis County. Employee also agrees that
execution of this Agreement establishes sufficient minimum contacts to
establish jurisdiction for extra territorial service of process under Texas
law and Employee hereby consents to extra territorial service of process from
Texas courts and under Texas law and further agrees that entering into this
Agreement constitutes doing business in Texas and establishes venue in Travis
County, Texas.
13.1 The parties hereto also agree that for this Agreement and any
other entered into by the parties, a facsimile document and facsimile
signature is effective as an original.
14. SURVIVAL - The expiration of the time periods for Employee's
obligations does not terminate this Agreement or the right of Employer or
Employee to assert its remedies hereunder for breach. The termination of
employment hereunder does not terminate this Agreement or right of Employer or
Employee to assert any of their remedies hereunder for breach. In particular
the obligations of confidentiality, noncircumvent,
<PAGE> 5
noninterference and noncompete, and the provisions herein regarding enforcement
of those obligations do not terminate upon termination of employment.
15. INDEMNIFICATION AND HOLD HARMLESS - Employee agrees to indemnify
and hold Employer harmless from any claims, liabilities, suits, administrative
actions or damages asserted against Employer and arising from the acts or
contracts or omissions of Employee with respect to Employee's breach of any
provision herein after the Effective Date of this contract, or any acts of
Employee prior to the date of employment, which includes all costs of
litigation, including reasonable attorney fees in the event that Employee is
made a party to a suit brought against it by Employer for any breach of this
Agreement, as well as for any suits brought against Employer by third parties
for any negligence or deliberate failure caused by Employee's failure to
exercise its good faith obligations as an Employee to carry out its duties with
at least workmanlike standards of performance.
16. EMPLOYEE WARRANTY - Employee represents and warrants that: there
is no contractual conflict between his or her activities or relationships prior
to assuming the duties of this employment except obligations of confidence and
which Employee will not unauthorizedly reveal to Employer, which existence of
which shall be promptly disclosed to Employer.
17. WARRANT OF UNDERSTANDING - Employee warrants that he or she has
carefully read all the terms herein stated and agrees that the same are
necessary for the reasonable and proper protection and operation of Employer's
business, that each and every covenant is reasonable with respect to such
matter covered and the lengths of time involved, and that irrespective of all
other covenants and restrictions, hereinabove provided, shall be operative
during the full period of and throughout the geographical area of Employer's
business.
18. ASSIGNMENT OF INTELLECTUAL PROPERTY RIGHTS - If Employee creates
any significant intellectual property relating to any business of Employer's
during the course of his or her employment hereunder or six months thereafter,
he or she agrees, especially in the case of inventions and copyrighted works,
to promptly disclose such invention and other intellectual property to
Employer. In the case of all intellectual property rights pertaining to such
intellectual property developed by Employee during the course of his or her
employment and thereafter to the extent necessary. Employee also agrees during
the course of his or her employment not to assert any claims to such
intellectual property rights nor to use them without permission of Employer.
19. TERMINATION - The employment status of Employee can be terminated
at the will of either party upon notice to the other party upon thirty (30)
days notice. Except that if Employee commits any acts which inherently
constitute major and material injury to Employer, such as: breaches any of the
noncompetition, noncircumvent, noninterfere and confidentiality provisions set
forth in Pars. 3-9, above, as well as: nonperformance of the Employee's
material duties, failure to carry out material instructions of Employer, any
material violation of Employer's company policy (such as engaging in sexual
harassment), violation of criminal laws or other defalcation, material
violation of the common law duties owed an employer by an employee (other than
expressly set forth in this Agreement) and
<PAGE> 6
any action constituting a conflict of interest, these will be considered for
cause and termination can be effected immediately without notice. The
continuing obligations and rights provided under this Agreement shall survive
any termination of employment status.
19.1 With respect to those matters set forth immediately above
expressly restrictive to material violation of the common law duties owed an
employer by an employee not otherwise set forth in this Agreement),
nonperformance of the Employee's material duties and failure to carry out
material instructions of Employer, Employee's act or failure to act shall not
be considered material until written notice regarding such act or omission has
been expressly communicated to Employee and Employee has had adequate time to
cure such act or omission and has not done so.
20. EFFECT OF TERMINATION ON COMPENSATION AND RETURN OF ALL PHYSICAL
ITEMS RECEIVED FROM EMPLOYER - In the event of termination of employment under
this Agreement, Employee shall be entitled to the compensation earned up to the
date of termination. Employee shall also ensure that all physical items, both
written, printed and otherwise, belonging to Employer which are in Employee's
physical possession or control shall be returned forthwith after termination to
Employer.
21. ENTIRE AGREEMENT - This Agreement is the entire agreement between
the parties hereto. It may not be changed except by written agreement duly
executed by the parties hereto.
22. APPLICABILITY OF CONSIDERATION - The parties hereto agree that
the consideration for this Agreement relating to employment is also largely
applicable to the noncompete, nondisclose, noninterfere, and noncircumvent
provisions hereof.
23. EXCEPTIONS: - Notwithstanding the foregoing provisions, for any
termination by Employer or by Employee because of material reduction of
responsibilities, which is regarded by Employee as constructive discharge,
except termination for cause, as defined in Par. 19 above, all the provisions
regarding noncompete and noninterference shall expire immediately after such
termination. However, the provisions regarding noncircumvention, nonuse and
nondisclosure of proprietary confidential information (Pars. 3, 5 and 6 hereof)
shall remain in effect and can be enforced as provided in this Agreement.
23.1 In the event of such termination without cause, Employee shall be
immediately entitled to one month salary at the highest compensation rate
during employment for each full year of employment, which commenced on
September 1, 1991. In the event of a partial year, them compensation shall be
based on a percentage of such month's salary based on the percentage of the
year worked.
23.2 With respect to Par. 20 hereof, Employee shall be entitled to
receive immediately upon such termination without cause, all nonsalary
compensation such as bonuses, overrides, commissions and the like accrued by
Employee to date of termination.
23.3 The provisions of Paragraph 15 above are deleted in their
entirety. And Employer hereby indemnifies and holds harmless Employee against
any claim or suit
<PAGE> 7
initiated against Employee by third parties, while Employee is operating in
good faith in the execution of his or her responsibilities hereunder as an
Employee.
AGREED by the parties hereto as evidenced by their signatures on the date
indicated below.
BEI HOLDINGS, INC.
INVENTORY MERCHANDISING SERVICES, INC.
AIRFAIR PUBLISHING, INC. OR SUCCESSORS IN INTEREST, collectively
EMPLOYER
BY: DATE:
--------------------------- ---------------------
TITLE: DATE:
------------------------ ---------------------
- -------------------------------
EMPLOYEE
<PAGE> 8
EXHIBIT A TO EMPLOYMENT AGREEMENT OF JOSEPH S. JUBA
1. JOB TITLE: President/Chief Operating Officer, Airfair Publishing, Inc.
President/Chief Operating Officer, BEI Holdings, Inc.
Senior Vice President, Inventory Merchandising Services, Inc.
2. JOB DUTIES: Employee's responsibilities include those expressly assigned
and such other duties expressed or implied from the following. Employee shall
perform the duties customarily associated with such capacity and from time to
time and at such place or places as the Company shall designate are appropriate
and necessary in connection with such employment. Employee shall duly,
punctually and faithfully perform and observe any and all rules, regulations
which the Company may now or shall hereafter establish governing the conduct of
its business.
3. COMPENSATION PACKAGE:
A. BASE SALARY: $84,000 per year with 7% annual increases payable in
accordance with the Company's payroll policies.
B. BONUSES: 2% of both company's Pre-Tax Net Income after Corporate
Allocation based upon audited financial statements. This bonus to be
calculated on an annual basis, with quarterly draws of up to 50% of bonus
due from each quarter's net income.
C. RESTRICTED STOCK GRANTS AND STOCK OPTIONS: Employee has been
granted 150,000 shares of common stock in BEI Holdings, Inc. prior to the
dividend of shares in Airfair Publishing, Inc. to BEI shareholders. Also
another 500,000 shares of common stock in Airfair Publishing, Inc. will be
granted. All aforementioned shares are to be subject to a restricted
stock grant agreement, which, among other things, will require certain
periods of employment with the Company before the stock can be sold.
D. AUTO ALLOWANCE - Company agrees to pay up to $420 per month for two
years commencing in April, 1996.
4. INTEGRATION: This agreement replaces and supersedes any and all previous
agreements between the Employer and Employee.
<PAGE> 1
EXHIBIT 10.06
EMPLOYMENT AGREEMENT
This Agreement resulting in a contract having an Effective Date of March 1,
1996 is executed in the City of Austin, Travis County Texas, by Airfair
Publishing, Inc., BEI Holdings, Inc. (hereafter "BEI") , Inventory
Merchandising Services, Inc., (hereafter "IMS") and successor companies
thereto, collectively hereafter referred to as "Employer" and Fernando Cruz
(hereafter referred to as "Employee"). This Agreement presents their mutual
promises and forebearances as set forth below:
1. AGREEMENT - Employer agrees to employ Employee for an indefinite
period from the Effective Date of this Agreement, until such period is
terminated as provided in Art. 19 hereof. Employee's compensation and other
aspects specific to Employee are set forth in Attachment "A" hereto, which is
expressly incorporated in its entirety in this Agreement. Employee's
responsibilities include those expressly assigned and such other duties
expressed or implied from the following.
2. FULL TIME ATTENTION TO THE BUSINESS - Employee shall devote his or
her entire time, attention and ability to the business of Employer during the
term of this Agreement. This obligation shall continue in full force
regardless of the corporate entity for which Employee is asked to perform
services. Employee shall ensure that he or she and any staff supervised adhere
to the provisions of this Agreement and all Company policy, especially that
regarding confidentiality of Company information, noninterference,
noncircumvention and obligations not to compete, as well as the provisions of
this Agreement.
3. CONFIDENTIALITY AND TRADE SECRETS - Employee agrees that Employer
has certain proprietary records, material and information, such as customer or
client lists, customer/client identity and prospective customer/client
identities, methods of doing business, all of which can be trade secrets, and
work product, as well as other information concerning Employer's business
practices and methodologies, including information relative to doing business
with the foregoing, including without limitation the operations, economics,
trade secrets, financing and other important factors regarding trade, barter,
media, magazine and other publishing, cruises, accommodations and travel,
especially with respect to airline personnel and their families, all of which
are considered as confidential and proprietary and are valuable business and
property rights and agrees that any information disclosed to Employee by
Employer, whether written, oral, physical or otherwise, which information is
not previously known to Employee, before employment, without obligation of
confidence, will not be used or disclosed to others by Employee, except as may
be necessary to fulfill the purpose for which it has been disclosed by Employer
or if expressly permitted by Employer. Employee understands that some of this
protected information may be generated by Employee as a consequence of his or
her employment hereunder.
3.1 Employee agrees the above information is either trade secret or
confidential and shall remain the exclusive property of the Employer, and the
Employee does hereby agree that he or she will remove any physical or
intangible indicia of the above information from the possession of the
Employer, during the course of his or her employment, unless expressly
authorized. During the course of Employee's employment status and for a period
of three (3) years
<PAGE> 2
thereafter, he or she will not divulge said information in any format to any
entity, including persons, corporations, partnerships, etc. other than
Employer, nor use such information for herself or himself, or on behalf of any
other entity for any purpose, including the noncircumvent, noninterfere,
noncompete aspects set forth below.
4. NONCOMPETITION - Employee agrees that, during the course of his or
her employment and for a period of three (3) years after the termination of his
or her employment for any reason whatsoever, with or without cause, he or she
will not solicit as clients or customers entities which are already agents,
representatives, clients or customers of Employer or for which Employer seeks
or sought up to the point of termination to establish customer/client status,
or act as or become a principal, agent, stockholder, owner, director, officer,
or investor in any other relationship or capacity whatsoever in the same or
similar business of Employer if located within the territorial limits of the
United States of America or Mexico.
4.1 Employee shall not compete, whether as an owner, stockholder,
employee, partner, officer, director or Employee with Employer within the
continental United States with Employer by contacting any clients or customers
of Employer or current or future offices, conducting business on behalf of
Employer, in providing hotel, cruise, magazine and other publications, travel,
barter, corporate non cash, trade or media buying or selling services
(hereafter "services") or in any business similar to Employer's for three (3)
years from the end of Employee's status as such under this AGREEMENT and as set
forth below:
4.2 Employee shall not use nor disclose to any person, firm,
association, or corporation, directly or indirectly, the name or address of any
present or future customer or customers or clients of Employer hereto or
otherwise known to Employer and given herewith to Employee.
5. NONCIRCUMVENT - Employee (and on behalf of any Employees he or she
may have after leaving Employer's employ), agrees that during the period of
employment herein and for a period of three (3) years from the date of
termination that he or she will not take any action of any nature whatsoever to
divert any customer, client or future/prospective customer or client of
Employer to do business with another entity other than Employer or to divert
a prospective advantage to Employer, that Employee knows about, not to inure
to Employer's benefit.
6. NONINTERFERENCE - Employee for himself or herself and any
Employees, including those of their corporation or other controlled entity,
agree that during the term of employment and for a period of three (3) years
after the date of termination of this employment that he or she will not become
involved in any manner with any prospective or actual client or customer of
Employer other than to progress Employer's business, nor will he or she
interfere with any of Employer's contractual or potential contractual
relationships with any entity Employee learns of from its employment with
Employer pursuant to this Agreement, whether obtained by virtue of Employee's
actions or otherwise. Nor shall Employee cause or attempt to cause such
existing or prospective client or customer to deal with Employee or any other
entity so that the resources of such client or customer are improperly diverted
from Employer. Noninterference, as used herein, is contractual and does not
require the severe level of interference, as would be required to support a
tortuous interference claim.
<PAGE> 3
6.1 Specifically, it is meant by prospective and current clients,
vendors and customers, those that Employee learned were in such category
through his or her employment with Company, such knowledge not necessarily
being considered trade secret, but part of the confidentiality and non use
obligation of Employee imposed by Par. 3 of this Agreement.
7. LIQUIDATED DAMAGES AS A SUPPLEMENT TO NONDISCLOSURE, NONCOMPETE,
NONINTERFERE AND NONCIRCUMVENT OBLIGATIONS - It is agreed by the parties hereto
that it would be difficult and impracticable to prove the damages resulting
from Employee's breach of any of his or her covenants hereunder, such as those
not to compete, noncircumvention, confidentiality and noninterference.
Accordingly, any breach of these specific covenants shall require the payment
to Employer by Employee of the sum of One Hundred and Fifty Thousand Dollars
($150,000.00) for past violations and in addition Employer may seek and obtain
relief from a court of appropriate jurisdiction to enjoin (injunction), as it
is admitted by Employee that breach of these covenants would be irreparable.
This provision for liquidated damages shall not limit the right of Employer to
obtain and recover any other damages for breach of any other terms or
provisions of this Agreement.
8. INJUNCTION - Injunction or other remedy available at law or equity
in such court of appropriate jurisdiction can be obtained by Employer for any
breach of confidentiality, noncircumvention, noncompete and noninterference
hereunder with the express agreement by Employee that any bond required to be
posted therefor will be sufficient in the amount of no more than One Thousand
($1,000.00) U.S. Dollars. Consequently for these reasons and those set forth
in Par. 7 hereof, Employee agrees that, in the event of any breach by Employee
of any of the covenants set forth in this Agreement regarding these specific
provisions, in addition to money damages from such breach, Employer may apply
to any court of competent jurisdiction for the entry of an immediate temporary
restraining order (TRO) or an injunction restraining breach of said covenant by
Employee with a bond not to exceed One Thousand ($1,000.00) U.S. Dollars as
set forth above.
8.1 Employee agrees that in the event any of the restrictions set
forth herein become operative, he or she will be able to engage in another
business not requiring a breach hereof for the purpose of obtaining such
livelihood.
9. OPTION TO LIQUIDATED DAMAGES - At its sole option, in the event of
a breach of a material provision of any of the noncompete obligations herein,
Employer will grant Employee or any of its Employees or their principals the
right to so compete at a cost of Three Hundred Fifty Thousand Dollars
($350,000.00) to be paid in advance for such activity taking place any time
during the (3) three years after termination.
10. VALUE OF EMPLOYER'S INFORMATION; REMEDIES FOR BREACH - The
parties hereto agree that the services of Employee are unique and extraordinary
and that Employer has and will give Employee, under this contractual obligation
of confidence, continued access to proprietary, confidential and valuable
information. Moreover, Employee expects through his or her efforts hereunder
to generate new information of this nature on behalf of Employer and which is
not to be used by Employee after employee status termination hereunder since it
is subject to the same restructure as if the information was obtained by
Employer without the participation of Employee.
<PAGE> 4
10.1 Employee will be, in the course of his or her employment,
servicing particular actual, prospective and potential vendors, clients and
customers on a unique and extraordinary personal basis, thereby putting
Employee in a position to cause irreparable damage to Employer if Employee
improperly exploits, in breach of this Agreement, any personal relationship
with such customer/clients, etc. as a result thereof. Accordingly, the damages
and injunction aspects are as set forth above.
11. NO WAIVER - It is further agreed that the failure of Employer to
insist upon strict adherence to one or more or all of the covenants and
restrictions herein shall not be construed as a waiver of such covenants or
restrictions, nor any others, nor shall such course of action deprive employer
of the right thereafter to require strict compliance with same.
12. SEVERABILITY - In the event that any portion of this Agreement
shall be held to be invalid or unenforceable for any reason, it is agreed that
such invalidity shall not affect any other portion of this Agreement and that
the remaining covenants and restrictions or portions thereof shall remain in
full force and effect, including that situation if the invalidity or
unenforceability is due to the adjudged unreasonableness of a particular time
or area restrictions covered by such covenants by an unappealable court
decision, said covenants and restrictions of this Agreement shall nevertheless
be effective for such period of time and for such area as may be actually or
arguably determined to be reasonable by a court of competent jurisdiction.
13. ENFORCEMENT, VENUE AND CONTROLLING LAW AND SITUS - The laws of
the State of Texas are applicable to the substantive aspects of this Agreement.
Employee agrees that he or she will only challenge this Agreement in the Courts
of Travis County, State of Texas and expressly agrees that the Agreement is to
be at least partially performed in Travis County. Employee also agrees that
execution of this Agreement establishes sufficient minimum contacts to
establish jurisdiction for extra territorial service of process under Texas
law and Employee hereby consents to extra territorial service of process from
Texas courts and under Texas law and further agrees that entering into this
Agreement constitutes doing business in Texas and establishes venue in Travis
County, Texas.
13.1 The parties hereto also agree that for this Agreement and any
other entered into by the parties, a facsimile document and facsimile
signature is effective as an original.
14. SURVIVAL - The expiration of the time periods for Employee's
obligations does not terminate this Agreement or the right of Employer or
Employee to assert its remedies hereunder for breach. The termination of
employment hereunder does not terminate this Agreement or right of Employer or
Employee to assert any of their remedies hereunder for breach. In particular
the obligations of confidentiality, noncircumvent, noninterference and
noncompete, and the provisions herein regarding enforcement of those
obligations do not terminate upon termination of employment.
15. INDEMNIFICATION AND HOLD HARMLESS - Employee agrees to indemnify
and hold Employer harmless from any claims, liabilities, suits, administrative
actions or damages asserted against Employer and arising from the acts or
contracts or omissions of Employee with respect to Employee's breach of any
provision herein after the Effective Date of this contract, or
<PAGE> 5
any acts of Employee prior to the date of employment, which includes all costs
of litigation, including reasonable attorney fees in the event that Employee is
made a party to a suit brought against it by Employer for any breach of this
Agreement, as well as for any suits brought against Employer by third parties
for any negligence or deliberate failure caused by Employee's failure to
exercise its good faith obligations as an Employee to carry out its duties with
at least workmanlike standards of performance.
16. EMPLOYEE WARRANTY - Employee represents and warrants that: there
is no contractual conflict between his or her activities or relationships prior
to assuming the duties of this employment except obligations of confidence and
which Employee will not unauthorizedly reveal to Employer, which existence of
which shall be promptly disclosed to Employer.
17. WARRANT OF UNDERSTANDING - Employee warrants that he or she has
carefully read all the terms herein stated and agrees that the same are
necessary for the reasonable and proper protection and operation of Employer's
business, that each and every covenant is reasonable with respect to such
matter covered and the lengths of time involved, and that irrespective of all
other covenants and restrictions, hereinabove provided, shall be operative
during the full period of and throughout the geographical area of Employer's
business.
18. ASSIGNMENT OF INTELLECTUAL PROPERTY RIGHTS - If Employee creates
any significant intellectual property relating to any business of Employer's
during the course of his or her employment hereunder or six months thereafter,
he or she agrees, especially in the case of inventions and copyrighted works,
to promptly disclose such invention and other intellectual property to
Employer. In the case of all intellectual property rights pertaining to such
intellectual property developed by Employee during the course of his or her
employment and thereafter to the extent necessary. Employee also agrees during
the course of his or her employment not to assert any claims to such
intellectual property rights nor to use them without permission of Employer.
19. TERMINATION - The employment status of Employee can be terminated
at the will of either party upon notice to the other party upon thirty (30)
days notice. Except that if Employee commits any acts which inherently
constitute major and material injury to Employer, such as: breaches any of the
noncompetition, noncircumvent, noninterfere and confidentiality provisions set
forth in Pars. 3-9, above, as well as: nonperformance of the Employee's
material duties, failure to carry out material instructions of Employer, any
material violation of Employer's company policy (such as engaging in sexual
harassment), violation of criminal laws or other defalcation, material
violation of the common law duties owed an employer by an employee (other than
expressly set forth in this Agreement) and any action constituting a conflict
of interest, these will be considered for cause and termination can be
effected immediately without notice. The continuing obligations and rights
provided under this Agreement shall survive any termination of employment
status.
19.1 With respect to those matters set forth immediately above
expressly restrictive to material violation of the common law duties owed an
employer by an employee not otherwise set forth in this Agreement),
nonperformance of the Employee's material duties and failure to carry out
material instructions of Employer, Employee's act or failure to act shall not
be considered
<PAGE> 6
material until written notice regarding such act or omission has been expressly
communicated to Employee and Employee has had adequate time to cure such act or
omission and has not done so.
20. EFFECT OF TERMINATION ON COMPENSATION AND RETURN OF ALL PHYSICAL
ITEMS RECEIVED FROM EMPLOYER - In the event of termination of employment under
this Agreement, Employee shall be entitled to the compensation earned up to the
date of termination. Employee shall also ensure that all physical items, both
written, printed and otherwise, belonging to Employer which are in Employee's
physical possession or control shall be returned forthwith after termination to
Employer.
21. ENTIRE AGREEMENT - This Agreement is the entire agreement between
the parties hereto. It may not be changed except by written agreement duly
executed by the parties hereto.
22. APPLICABILITY OF CONSIDERATION - The parties hereto agree that
the consideration for this Agreement relating to employment is also largely
applicable to the noncompete, nondisclose, noninterfere, and noncircumvent
provisions hereof.
23. EXCEPTIONS: - Notwithstanding the foregoing provisions, for any
termination by Employer or by Employee because of material reduction of
responsibilities, which is regarded by Employee as constructive discharge,
except termination for cause, as defined in Par. 19 above, all the provisions
regarding noncompete and noninterference shall expire immediately after such
termination. However, the provisions regarding noncircumvention, nonuse and
nondisclosure of proprietary confidential information (Pars. 3, 5 and 6 hereof)
shall remain in effect and can be enforced as provided in this Agreement.
23.1 In the event of such termination without cause, Employee shall be
immediately entitled to one month salary at the highest compensation rate
during employment for each full year of employment, which commenced on August
31, 1994. In the event of a partial year, them compensation shall be based on
a percentage of such month's salary based on the percentage of the year worked.
23.2 With respect to Par. 20 hereof, Employee shall be entitled to
receive immediately upon such termination without cause, all nonsalary
compensation such as bonuses, overrides, commissions and the like accrued by
Employee to date of termination.
23.3 The provisions of Paragraph 15 above are deleted in their
entirety. And Employer hereby indemnifies and holds harmless Employee against
any claim or suit initiated against Employee by third parties, while Employee
is operating in good faith in the execution of his or her responsibilities
hereunder as an Employee.
AGREED by the parties hereto as evidenced by their signatures on the date
indicated below.
BEI HOLDINGS, INC.
INVENTORY MERCHANDISING SERVICES, INC.
AIRFAIR PUBLISHING, INC. OR SUCCESSORS IN INTEREST, collectively
EMPLOYER
<PAGE> 7
BY: DATE:
-------------------------- -------------------
TITLE: DATE:
---------------------- -------------------
- ------------------------------
EMPLOYEE
<PAGE> 8
EXHIBIT A TO EMPLOYMENT AGREEMENT OF FERNANDO CRUZ
1. JOB TITLE: Senior Vice President, Airfair Publishing, Inc.
2. JOB DUTIES: Employee's responsibilities include those expressly
assigned and such other duties expressed or implied from the following.
Employee shall perform the duties customarily associated with such capacity and
from time to time and at such place or places as the Company shall designate
are appropriate and necessary in connection with such employment. Employee
shall duly, punctually and faithfully perform and observe any and all rules,
regulations which the Company may now or shall hereafter establish governing
the conduct of its business.
3. COMPENSATION PACKAGE:
A. BASE SALARY: $60,000 per year with 7% annual increases payable in
accordance with the Company's payroll policies.
B. BONUSES: 1% of Airfair Publishing, Inc.'s Pre-Tax Net Income after
Corporate Allocation based upon audited financial statements.
C. COMMISSIONS:
1. One/Tenth of One Percent (.1%) of the Gross Revenues of the
currently existing divisions of Airfair Publishing, Inc., payable on a
monthly basis.
2. Five Percent (5%) of the collected income on sales of advertising
and/or advertising services agreements.
D. RESTRICTED STOCK GRANTS AND STOCK OPTIONS: Employee has been
granted 50,000 shares of common stock in BEI Holdings, Inc. prior to the
dividend of shares in Airfair Publishing, Inc. to BEI shareholders. Also
another 100,000 shares of common stock in Airfair Publishing, Inc. will be
granted. All aforementioned shares are to be subject to a restricted
stock grant agreement, which, among other things, will require certain
periods of employment with the Company before the stock can be sold.
4. INTEGRATION: This agreement replaces and supersedes any and all previous
agreements between the Employer and Employee.
<PAGE> 1
EXHIBIT 10.07
MANAGEMENT SERVICES AGREEMENT
This Management Services Agreement is entered into as of March 1, 1996
by and between Airfair Publishing, Inc., a Delaware corporation ("API"), BEI
Holdings, Inc., a Texas corporation ("BEI"), and Inventory Merchandising
Services, Inc., a Texas corporation and wholly-owned subsidiary of BEI ("IMS").
RECITALS
API, formerly a wholly-owned subsidiary of BEI, continues to maintain
offices within the space leased by BEI at 1120 Capital of Texas Highway,
Building 3, Austin, Texas and desires (a) to document its right to use such
offices and use certain common areas within and outside the space leased by BEI
and (b) to procure certain management and administrative services from BEI and
IMS. BEI desires to document such use rights and BEI and IMS desire to provide
such management and administrative services.
NOW, THEREFORE, for and in consideration of the foregoing recitals,
the mutual covenants and agreements set forth herein, and other good and
valuable consideration, the receipt and sufficiency of all of which is hereby
conclusively acknowledged, API, BEI and IMS do hereby agree as follows:
AGREEMENTS
1. (a) BEI hereby permits Airfair access to and use of (i)
approximately 8,000 square feet of space on the third floor of Building 3 of
the building known locally as "The Setting," located at 1120 Capital of Texas
Highway South, Austin, Texas 78746 (the "Building"), which space is indicated
as the "API Space" on Exhibit A attached hereto and (ii) all common areas
within the Building to which BEI is permitted access or is permitted to use
((i) and (ii) together are hereinafter referred to as the "Used Areas"). API
hereby assumes the obligations of BEI under that certain lease agreement dated
as of December 30, 1996 by and between BEI and Norwood Properties, Inc., as
subsequently assigned to Carramerica, Ltd., (the "Landlord") with respect to
the Used Areas, save and except any rent or expense payment obligation to the
Landlord.
(b) IMS and BEI has leased certain telephone, computer
and other equipment which is used by API, and BEI and API share use of other
equipment. BEI hereby subleases to API and API hereby subleases from BEI the
items set forth on Exhibit B attached hereto (the "Shared Equipment"). API
hereby assumes the obligations of BEI under various equipment leases set forth
on Exhibit B attached hereto with respect to the Shared Equipment, save and
except any rent or expense payment obligation to the Lessor.
2. (a) BEI and IMS hereby agrees to provide the management
services of the following individuals (the "Shared Management Members"), each
of whom has currently serves as an executive officer of BEI and/or IMS:
Matthew O'Hayer
<PAGE> 2
Joseph S. Juba
Darrell Barker
API acknowledges and understands that each of the Shared Management
Members has significant management responsibilities to BEI and IMS. BEI and
IMS agree that the obligation of each of the Shared Management Members to
provide management services to BEI and IMS shall not interfere with the
obligation of each of the Shared Management Members to provide services to API
hereunder and that each of the Shared Management Members shall be available for
service to API at such times as API may reasonably require. BEI, IMS and API
estimate that Mr. O'Hayer will expend approximately 40% of his work effort on
the affairs of API, Mr. Juba will expend approximately 80% of his work effort
on the affairs of API and that Mr. Barker will expend approximately 50% of his
work effort on the affairs of API. BEI hereby agrees that it will serve as
employer of each of the Shared Management Members and assumes payroll
responsibility, including without limitation salary, FICA, SUTA and FUTA
payment and compliance, for each of the Shared Management Members without
regard to the amount of time or effort expended by the Shared Management
Members on behalf of API, IMS or BEI. API agrees to reimburse BEI for that
proportion of the total direct payroll expense incurred by BEI during any month
with respect to each of the Shared Management Members as equals the proportion
of the work effort which each such each Shared Management Member is estimated
to expend on the affairs of API. Any such reimbursement shall be due on the
fifth (5th) day after the last day of any month during the term of this
Agreement.
(b) API and BEI agree that certain individuals on the
payroll of BEI work only in the service of API (the "Current Employees") but
that transfer of the Current Employees from the payroll of BEI to API will work
an undue hardship upon the Current Employees. BEI agrees that it will (i)
serve as the employer of the Current Employees and any other employees
(together with the Current Employees, the "API Employees") which API may hire
between the date of this Agreement and the earlier of December 31, 1996 or such
date as API may request (the "Payroll Termination Date"), (ii) assume payroll
responsibility for the API Employees through the Payroll Termination Date and
(iii) not involve any of the API Employees in the affairs or business of BEI or
IMS. API agrees to reimburse BEI for the total direct payroll expense incurred
by BEI during such month with respect to the API Employees. Any such
reimbursement shall be due on the fifth (5th) day after the last day of any
month during the term of this Agreement.
(c) API and BEI agree that certain individuals on the
payroll of BEI provide or will provide services benefitting API and one or both
of BEI and IMS (the "Shared Employees"), including without limitation employees
who provide reception or accounting services. BEI agrees that it will (i)
serve as the employer of the Shared Employees and (ii) assume payroll
responsibility for the Shared Employees through the Payroll Termination Date.
(d) BEI hereby agrees to indemnify and hold API harmless
from and against any claims by any of the Shared Management Members or the API
Employees for any matters relating to their employment, save and except any
claims for damages or liabilities arising out of the employment or hiring
practices of API. API hereby agrees to
<PAGE> 3
indemnify and hold BEI harmless from and against any claims by any of the
Shared Management Members or the API Employees for any matters relating to the
employment or hiring practices of API.
3. BEI agrees to insure the Subleased Areas, the Subleased
Equipment, the Shared Management Members, the API Employees and the Shared
Employees to the same extent and against the same risks as BEI insures its own
lease area, equipment, operations, management and employees. BEI shall be
deemed to have complied with the insurance requirement set forth in this
paragraph if API is named as an additional insured on each policy of insurance
maintained by BEI.
4. As compensation for the various services to be provided
hereunder and the various agreements of BEI and IMS hereunder, API hereby
agrees to pay to BEI and IMS, collectively, a cash sum equal to one-half
percent (.5%) of API's gross cash receipts during any month in which this
Agreement remains in full force and effect. Such sums shall be due and payable
on the thirtieth (30th) day after the last day of the month with respect to
which such calculation is made. Not later than the twentieth (20th) day after
the last day of any month during which this Agreement remains in effect, API
shall deliver to BEI a certificate setting forth its gross receipts during such
month.
5. Any sums (whether reimbursement, compensation or otherwise)
not paid on or prior to the due date for payment of such sum, shall accrue
interest at the rate of ten percent (10%) per annum, compounded monthly, from
such due date through the date such sum is paid in full.
6. This Agreement may be terminated at the option of either party
by giving 30 days prior written notice to the other party. If not sooner
terminated, this Agreement shall terminate on the second anniversary of the
date hereof.
7. (a) This Agreement shall be binding upon and inure to the
benefit of the respective successors and permitted assigns of the parties
hereto; provided, however, that a party hereto may not assign any rights,
obligations, or liabilities hereunder without the prior written consent of the
other parties.
(b) All notices required or desired to be delivered under this
Agreement shall be in writing and shall be effective when delivered personally
on the day delivered or, when given by registered mail, postage prepaid, return
receipt requested, on the day of receipt, addressed as follows (or to such
other address as the party entitled to notice shall hereafter designate in
accordance with the terms hereof):
if to Airfair:
Airfair Publishing, Inc.
1120 Capital of Texas Highway South
Building 3, Suite 300
Austin, Texas 78746
Attn: Joseph S. Juba, President
<PAGE> 4
if to BEI:
BEI Holdings, Inc.
1120 Capital of Texas Highway South
Building 3, Suite 300
Austin, Texas 78746
Attn: Darrell Barker, Chief Financial Officer
if to IMS:
Inventory Merchandising Services, Inc.
1120 Capital of Texas Highway South
Building 3, Suite 300
Austin, Texas 78746
Attn: Tim Valentine, President
(c) This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Texas (excluding the law thereof that
requires the application of, or reference to, the law of any other
jurisdiction). This Agreement shall be performable in Austin, Travis County,
Texas.
(d) This Agreement may be executed in counterparts, each such
counterpart to be deemed an original, but which all together shall constitute
one and the same instrument.
(e) This Agreement constitutes the entire agreement between the
parties hereto with respect to the matters referred to herein, and no other
agreement, verbal or otherwise, shall be binding among the parties unless it is
in writing and signed by the party against whom enforcement is sought.
(f) This Agreement may not be amended except by the express
written consent of the parties hereto. No waiver of any provision of this
Agreement may be implied from any course of dealing between or among any of the
parties hereto or from any failure by any party hereto to assert its rights
under this Agreement on any occasion or series of occasions.
(g) The provisions of this Agreement shall survive the termination
of this Agreement with respect to any matter arising while this Agreement was
in effect.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first set forth above.
API:
Airfair Publishing, Inc.
By:
------------------------------
Joseph S. Juba, President
<PAGE> 5
BEI:
BEI Holdings, Inc.
By:
------------------------------
Joseph S. Juba, President
IMS:
Inventory Merchandising Services, Inc.
By:
------------------------------
Tim Valentine, President
<PAGE> 1
EXHIBIT 10.08
MARKETING AGREEMENT
This Marketing Agreement is entered into as of March 1, 1996 by and
between Airfair Publishing, Inc., a Delaware corporation ("API"), and Inventory
Merchandising Services, Inc., a Texas corporation ("IMS").
RECITALS
IMS is engaged in the barter business and, from time to time, acquires
hotel room nights or other travel accommodations or products through barter
transactions. API operates in the travel industry as a reservation service and
a marketer of travel accommodations. IMS desires to have API market the hotel
room nights and other travel accommodations it acquires through barter
transactions and API desires to conduct such marketing activities.
NOW, THEREFORE, for and in consideration of the foregoing recitals,
the mutual covenants and agreements set forth herein, and other good and
valuable consideration, the receipt and sufficiency of all of which is hereby
conclusively acknowledged, API and IMS do hereby agree as follows:
AGREEMENTS
1. (a) As soon as practicable after acquiring travel
accommodations or products through barter transactions ("Bartered Products"),
IMS shall notify API of the nature and extent of the Bartered products and of
IMS's estimated cash value of the consideration tendered by IMS in the barter
transaction pursuant to which the Bartered Products were acquired (the "IMS
Proposal").
(b) As soon as practicable but in no event later than the second
business day after receiving notice of IMS's acquisition and the IMS Proposal,
API shall accept the IMS Proposal or submit to IMS a counterproposal as to the
estimated cash value of the consideration tendered by IMS in the barter
transaction pursuant to which the Bartered Products were acquired (the "API
Proposal"). If API does not timely accept the IMS Proposal or submit an API
Proposal, then API shall be deemed to have accepted the IMS Proposal. If API
accepts the IMS Proposal, then API shall commence to market the Bartered
Products in accordance with paragraph 2 below.
(c) As soon as practicable but in no event later than the second
business day after receiving notice of the API Proposal, IMS shall accept or
reject the API Proposal. If IMS does not timely accept or reject the API
Proposal, then IMS shall be deemed to have accepted the API Proposal and PI
shall commence to market the Bartered Products in accordance with paragraph 2
below. If IMS timely rejects the API Proposal, then API and IMS shall attempt
to reach an agreement as to the estimated cash value of the consideration
tendered by IMS in the barter transaction pursuant to which the Bartered
Products were acquired. If no such agreement can be reached within one
business day after IMS' rejection of the API proposal, then IMS shall be
permitted to sell or dispose of the Bartered Products through any means or
fashion that IMS deems appropriate. If IMS and API agree as to the estimated
cash value, then API shall commence to market the Bartered Products in
accordance with paragraph 2 below.
<PAGE> 2
(d) For purposes of this Agreement, the term "Cash Value" means
the estimated cash value of the consideration tendered by IMS in the barter
transaction pursuant to which the Bartered Products were acquired, as
determined in accordance with one or more of paragraphs (b)-(c) above, as the
case may be.
2. Immediately upon determination of the Cash Value of the
Bartered Products, API shall commence to market the Bartered Products to its
customers and other participants in the interline travel industry. API shall
have absolute discretion as to the manner in which such marketing is conducted
and the price at which the Bartered Products are marketed or sold; provided,
however, that the Bartered Products may not be sold by API in a barter
transaction.
3. Within fifteen (15) days after the close of any month in which
API effects any sale of Bartered Products, API shall deliver to IMS a
certificate setting forth its gross receipts from sales of Bartered Products
during such month.
4. API hereby agrees to pay to BEI the sum of (i) the Cash Value
of all Bartered Products sold during any given month plus (ii) twenty-five
percent (25%) of the excess of API's gross cash receipts from sale of Bartered
Products during any month over the Cash Value of such sold Bartered Products.
Such sums shall be due and payable on the thirtieth (30th) day after the last
day of the month with respect to which such calculation is made.
5. Any sums not paid on or prior to the due date for payment of
such sum, shall accrue interest at the rate of ten percent (10%) per annum,
compounded monthly, from such due date through the date such sum is paid in
full.
6. This Agreement may be terminated at the option of either party
by giving 30 days' prior written notice to the other party.
7. (a) This Agreement shall be binding upon and insure to
the benefit of the respective successors and permitted assigns of the parties
hereto; provided, however, that a party hereto may not assign any rights,
obligations, or liabilities hereunder without the prior written consent of the
other parties.
(b) All notices required or desired to be delivered under this
Agreement shall be in writing and shall be effective when delivered personally
on the day delivered or, when given by registered mail, postage prepaid, return
receipt requested, on the day of receipt, addressed as follows (or to such
other address as the party entitled to notice shall hereafter designate in
accordance with the terms hereof):
if to Airfair:
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if to IMS:
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<PAGE> 3
(c) This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Texas (excluding the law thereof that
requires the application of, or reference to, the law of any other
jurisdiction). This Agreement shall be performable in Austin, Travis County,
Texas.
(d) This Agreement may be executed in counterparts, each such
counterpart to be deemed an original, but which all together shall constitute
one and the same instrument.
(e) This Agreement constitutes the entire agreement between the
parties hereto with respect to the matters referred to herein, and no other
agreement, verbal or otherwise, shall be binding among the parties unless it is
in writing and signed by the party against whom enforcement is sought.
(f) This Agreement may not be amended except by the express
written consent of the parties hereto. No waiver of any provision of this
Agreement may be implied from any course of dealing between or among any of the
parties hereto or from any failure by any party hereto to assert its rights
under this Agreement on any occasion or series of occasions.
(g) The provisions of this Agreement shall survive the termination
of this Agreement with respect to any matter arising while this Agreement was
in effect.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first set forth above.
IMS: API:
Inventory Merchandising Services, Inc. Airfair Publishing, Inc.
By: By:
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Name: Name:
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Title: Title:
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<PAGE> 1
EXHIBIT 11.01
Computation of per share earnings
The Company utilizes the "treasury stock" method in computing earnings per
share calculations on both a primary and fully diluted basis. The cash
proceeds from the anticipated exercise of warrants are assumed to be used to
repurchase shares of common stock at the average market price during the
period. If the exercise price of the warrants is less than the average market
price of common stock, more common shares will have been issued than will have
been repurchased; thus, the net number of common shares outstanding is
increased and the warrants are dilutive in effect. However, if the exercise
price of the warrants is greater than the average price of common stock, the
cash proceeds from the assumed exercise of the warrants would provide for
repurchasing more common shares than were issued when the warrants were
exercised; thus, the net number of common shares outstanding is decreased and
the warrants are antidilutive. In the latter situation, the warrants are
disregarded in calculating primary earnings per share, notwithstanding the fact
that they are classified as common stock equivalents.
<PAGE> 1
EXHIBIT 21.01
LIST OF SUBSIDIARIES
Airfair Publishing, Inc., a Delaware corporation
<PAGE> 1
EXHIBIT 23.01
Consent of Counsel
Kuperman, Orr, Mouer & Albers, a professional corporation, hereby
consents to the use of its name under the heading "Legal Matters" in the
Prospectus constituting a part of Form SB-2 Registration Statement of Grand
Adventures Tour & Travel Publishing Corporation ("GATT") for the registration
of 700,000 shares of GATT common stock (805,000 shares assuming the exercise in
full of the overallotment option).
/s/ KUPERMAN, ORR, MOUER & ALBERS
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Kuperman, Orr, Mouer & Albers, a professional corporation
Austin, Texas
October 23, 1997
<PAGE> 1
EXHIBIT 23.02
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use in this Registration Statement on Form SB-2 of our report
included herein dated April 4, 1997 (except for Note 15, as to which the date
is May 1, 1997), relating to the consolidated financial statements of Grand
Adventures Tour & Travel Publishing Corporation and subsidiary, to the
incorporation by reference of such report included in the Company's 1996 annual
report on Form 10-K, and to our Firm under the caption "Experts" in the
Prospectus.
Andersen Andersen & Strong L.C.
Salt Lake City, Utah
October 23, 1997
