<PAGE>
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934. FOR THE QUARTERLY PERIOD
ENDED JUNE 1, 1997.
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 0-16401
------------------------
ADVANCED MATERIALS GROUP, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 33-0215295
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20211 S. SUSANA ROAD, RANCHO DOMINGUEZ, CALIFORNIA 90221
(Address of principal executive offices)
(310) 537-5444
Issuer's telephone number
------------------------
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes _X_ No __
Indicate the number of shares outstanding of each of the issuer's class of
common equity, as of the latest practicable date:
COMMON STOCK, $.001 PAR VALUE, 10,480,629 SHARES AS OF JUNE 1, 1997.
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<PAGE>
PART I - FINANCIAL INFORMATION
ADVANCED MATERIALS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 1, 1997 AND NOVEMBER 30, 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................ $ 2,932,000 $ 2,639,000
Accounts receivable, net......................................................... 3,330,000 3,064,000
Inventories...................................................................... 2,539,000 2,110,000
Prepaid expenses and other....................................................... 424,000 506,000
------------- -------------
Total current assets........................................................... 9,225,000 8,319,000
Property and equipment, net........................................................ 2,350,000 2,279,000
Goodwill, net...................................................................... 2,444,000 2,564,000
Other assets....................................................................... 438,000 499,000
------------- -------------
$ 14,457,000 $ 13,661,000
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
2
<PAGE>
ADVANCED MATERIALS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 1, 1997 AND NOVEMBER 30, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Current liabilities:
Accounts payable................................................................. $ 2,220,000 $ 1,993,000
Current portion of long-term obligations......................................... 228,000 1,197,000
Other............................................................................ 902,000 863,000
------------- -------------
Total current liabilities...................................................... 3,350,000 4,053,000
Long-term liabilities:
Long-term debt................................................................... 3,067,000 2,888,000
Other............................................................................ 150,000 150,000
------------- -------------
Total liabilities.............................................................. 6,567,000 7,091,000
------------- -------------
Stockholders' equity:
Preferred stock - $.001 par value; 5,000,000 shares
authorized; no shares issued and outstanding................................... -- --
Common stock - $.001 par value; 25,000,000 shares
authorized; 10,480,629 and 10,458,742 shares issued and outstanding
at June 1, 1997 and November 30, 1996, respectively............................ 10,000 10,000
Additional paid-in capital....................................................... 10,209,000 10,192,000
Unrealized holding gain on available-for-sale securities......................... -- 88,000
Accumulated deficit.............................................................. (2,329,000) (3,720,000)
------------- -------------
Total stockholders' equity..................................................... 7,890,000 6,570,000
------------- -------------
$ 14,457,000 $ 13,661,000
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
3
<PAGE>
ADVANCED MATERIALS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED JUNE TWENTY-SIX WEEKS ENDED JUNE
1, 1,
-------------------------- ---------------------------
1997 1996 1997 1996
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net sales............................................... $ 7,068,000 $ 3,854,000 $ 13,862,000 $ 7,664,000
Cost of sales........................................... 5,276,000 3,281,000 10,382,000 6,469,000
------------ ------------ ------------- ------------
Gross profit............................................ 1,792,000 573,000 3,480,000 1,195,000
------------ ------------ ------------- ------------
Operating expenses:
Selling, general and administrative................... 975,000 664,000 1,821,000 1,400,000
Intangible asset amortization......................... 79,000 73,000 157,000 147,000
------------ ------------ ------------- ------------
Total operating expenses............................ 1,054,000 737,000 1,978,000 1,547,000
------------ ------------ ------------- ------------
Income (loss) from operations........................... 738,000 (164,000) 1,502,000 (352,000)
Other income and expenses:
Interest expense...................................... (83,000) (184,000) (179,000) (405,000)
Realized gain on sale of securities................... -- 2,463,000 130,000 3,742,000
Realized gain on stock rights......................... -- 572,000 -- 572,000
Other, net............................................ 11,000 9,000 18,000 2,000
------------ ------------ ------------- ------------
Total other income and expenses..................... (72,000) 2,860,000 (31,000) 3,911,000
Income before income taxes.............................. 666,000 2,696,000 1,471,000 3,559,000
Income taxes.......................................... 1,000 153,000 80,000 157,000
------------ ------------ ------------- ------------
Net income.............................................. $ 665,000 $ 2,543,000 $ 1,391,000 $ 3,402,000
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
Primary earnings per common share:...................... $ 0.06 $ 0.24 $ 0.13 $ 0.32
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
Weighted average common shares outstanding.............. 11,093,630 10,586,889 11,123,029 10,587,806
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
4
<PAGE>
ADVANCED MATERIALS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED JUNE TWENTY-SIX WEEKS ENDED JUNE
1, 1,
--------------------------- ---------------------------
1997 1996 1997 1996
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 665,000 $ 2,543,000 $ 1,391,000 $ 3,402,000
Adjustments to reconcile net income to net cash used
in operating activities:............................ 155,000 (2,716,000) 343,000 (3,760,000)
Changes in operating assets and liabilities........... 345,000 (1,911,000) (354,000) (3,671,000)
------------ ------------- ------------ -------------
Net cash used in operating activities................... 1,165,000 (2,084,000) 1,380,000 (4,029,000)
------------ ------------- ------------ -------------
Cash flows from investing activities:
Purchases of property and equipment................... (234,000) (108,000) (435,000) (135,000)
Proceeds from sale of available-for-sale securities... -- 3,254,000 163,000 3,689,000
Other................................................. 14,000 506,000 25,000 1,844,000
------------ ------------- ------------ -------------
Net cash provided by investing activities............... (220,000) 3,652,000 (247,000) 5,398,000
------------ ------------- ------------ -------------
Cash flows from financing activities:
Proceeds from issuance of common stock, net of
offering costs...................................... 17,000 -- 17,000 700,000
Net change in borrowings.............................. 193,000 (1,659,000) 259,000 (1,850,000)
Payments on debt...................................... (988,000) (100,000) (988,000) (120,000)
Other................................................. (55,000) (30,000) (128,000) (30,000)
------------ ------------- ------------ -------------
Net cash used in financing activities................... (833,000) (1,789,000) (840,000) (1,300,000)
------------ ------------- ------------ -------------
Net change in cash and cash equivalents................. 112,000 (221,000) 293,000 69,000
Cash and cash equivalents, beginning of period.......... 2,820,000 356,000 2,639,000 66,000
------------ ------------- ------------ -------------
Cash and cash equivalents, end of period................ $ 2,932,000 $ 135,000 $ 2,932,000 $ 135,000
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest.............................................. $ 78,000 $ 257,000 $ 139,000 $ 429,000
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
Income taxes.......................................... $ 65,000 $ 3,000 $ 79,000 $ 5,000
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1) The accompanying unaudited interim financial statements have been prepared
pursuant to the rules and regulations for reporting on Form 10-QSB.
Accordingly, certain information and footnotes required by generally
accepted accounting principles for complete financial statements are not
included herein. The interim statements should be read in conjunction with
the financial statements and notes thereto included in the Company's latest
Annual Report on Form 10-KSB.
Interim statements are subject to possible adjustments in connection with
the annual audit of the Company's accounts for the full fiscal year 1997; in
the Company's opinion, all adjustments necessary for a fair presentation of
these interim statements have been included and are of a normal and
recurring nature.
2) In January 1997 the Company sold 50,000 shares of Innovative Technologies,
Ltd. for approximately $163,000. These securities had been accounted for as
available-for-sale securities in accordance with Statement of Financial
Accounting Standards No. 115. As a result of the transaction the Company
recorded a gain of $130,000 in the first quarter.
3) Legal proceedings to which the Company is a party are discussed in Part 1
Legal Proceedings, in the Annual Report on Form 10-KSB.
4) Earnings per common share equals net earnings divided by the weighted
average number of common shares outstanding, after giving effect to dilutive
stock options and warrants. The 7 1/2% convertible debentures were
determined, at the time of issuance, to not be common stock equivalents, and
accordingly, are not included in earnings per share calculations for either
period. Primary and fully diluted earnings per share for the thirteen week
and twenty-six week periods ended June 1, 1997 and June 1, 1996 were
approximately the same.
5) During 1995 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation," which defines a fair value based method of
accounting for stock-based options. However, SFAS 123 allows an entity to
continue to measure compensation cost related to stock and stock options
issued to employees using the intrinsic method of accounting prescribed by
Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock
Issued to Employees." Entities electing to remain with the accounting method
of APB 25 must make pro forma disclosures of net income and earnings per
share, as if the fair value method of accounting defined in SFAS 123 had
been applied. The Company has elected to account for its stock-based
compensation to employees under APB 25.
Pro forma information regarding net income is required by SFAS 123, and has
been determined as if the Company had accounted for its employee stock
options under the fair value method pursuant to SFAS 123, rather than the
method pursuant to APB 25 discussed above. The fair value for these options
was estimated at the date of grant using a Black-Scholes option pricing
model with the following assumptions: risk-free interest rates of 6.3%;
dividend yields of 0.0%; volatility factors of the expected market price of
the Company's common stock of 125%; and expected terms of three years.
The Black-Scholes valuation model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input
of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
employee stock options.
6
<PAGE>
For the purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expenses over the options' vesting period. The
Company's pro forma information is as follows:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
JUNE 1, JUNE 1,
------------------------ --------------------------
1997 1996 1997 1996
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Pro forma net income:
Net income, as reported............................... $ 665,000 $ 2,543,000 $ 1,391,000 $ 3,402,000
Compensation expense under SFAS 123................... 75,000 35,000 326,000 56,000
---------- ------------ ------------ ------------
Pro forma net income.................................. $ 590,000 $ 2,508,000 $ 1,065,000 $ 3,346,000
---------- ------------ ------------ ------------
---------- ------------ ------------ ------------
Pro forma net income per share........................ $ 0.05 $ 0.24 $ 0.10 $ 0.32
---------- ------------ ------------ ------------
---------- ------------ ------------ ------------
</TABLE>
Included in the thirteen and twenty-six week periods ended June 1, 1997 are
the pro rata vesting effects of 555,271 and 100,000 options to purchase the
Company's stock issued during fiscal 1997 and 1996, respectively. Included
in the thirteen and twenty-six week periods ended June 1, 1996 are the pro
rata vesting effects of 205,000 options to purchase the Company's issued
during fiscal 1996. Options to purchase the Company's common stock issued to
directors and key employees generally vest from the date of grant to three
years from the date of grant.
7
<PAGE>
MANAGEMENT'S ANALYSIS OF INTERIM FINANCIAL INFORMATION
RESULTS OF OPERATIONS
FY 97 CURRENT THIRTEEN WEEKS VERSUS FY96
The Company achieved record sales for the current thirteen weeks of fiscal
1997. Sales were $7,068,000 compared to $3,854,000 for the thirteen weeks of
fiscal 1996, an increase of 83.4%. The increase was driven by a volume increase
from the Company's sales of products introduced in the second and third quarters
of fiscal 1996. The two new products, sold to computer printer makers, accounted
for approximately $2,600,000. Revenues from the company's new facility in
Denver, Colorado accounted for $300,000 of volume increase. In addition, volume
increases in the medical and aerospace product lines added approximately
$300,000.
Gross profit was favorably impacted, as a result of the volume increases.
Gross profit for 1997 increased by 213%, to $1,792,000, over the year ago
period. Volume increases created production efficiency gains as a result of
longer factory production runs.
Operating expenses were $975,000 in fiscal 1997 versus $664,000 in fiscal
1996. As a percent of sales, fiscal 1997 was 13.8% compared to 17.2% in fiscal
1996. Operating expenses were higher in fiscal 1997 as a result of headcount
increases in sales and engineering, higher commission expense associated with
increased sales levels and the Company's incorporation of the Denver, Colorado
acquisition into its operations.
Interest expense decreased by 54.9%, or $101,000, in fiscal 1997 as a result
of the Company's balance sheet restructuring in fiscal 1996 and 1997.
Net income for fiscal 1997 was $665,000, or $0.06 per share, compared to
$2,543,000, or $0.24 per share. Net income for fiscal 1996 included one-time
gains for sales of securities totaling $2,463,000, and $572,000 gain on stock
rights. Excluding these one-time gains, the Company would have posted a pro
forma net loss of $492,000, or $0.05 per share, an improvement of $1,157,000 in
year-to-year results.
FY 97 CURRENT TWENTY-SIX WEEKS VERSUS FY96
The Company achieved record sales for the twenty-six weeks of fiscal 1997.
Sales were $13,862,000 compared to $7,664,000 in fiscal 1996, an increase of
80.9%. The increase was driven by a volume increase from the Company's sales of
products introduced in the second and third quarters of fiscal 1996. The two new
products, sold to computer printer makers, accounted for approximately
$5,500,000. Revenues from the company's new facility in Denver, Colorado
accounted for $475,000 of volume increase. In addition, volume increases in the
medical and aerospace product lines added approximately $250,000.
Gross profit was favorably impacted, as a result of the volume increases
from the new product introductions. Gross profit for 1997 increased by 191%, to
$3,480,000, over the year ago period. Volume increases created production
efficiency gains as a result of longer factory production runs.
Operating expenses were $1,821,000 in fiscal 1997 versus $1,400,000 in
fiscal 1996. As a percent of sales, fiscal 1997 was 13.1% compared to 18.3% in
fiscal 1996. Operating expenses were higher in fiscal 1997 as a result of
headcount increases in sales and engineering, higher commission expense
associated with increased sales levels and the Company's incorporation of the
Denver, Colorado acquisition into its operations.
Interest expense decreased by 55.8%, or $226,000, in fiscal 1997 as a result
of the Company's balance sheet restructuring in fiscal 1996 and 1997.
Net income for fiscal 1997 was $1,391,000, or $0.13 per share, compared to
$3,402,000, or $0.32 per share. Fiscal 1997 results included a one-time
transaction relating to the sale of 50,000 shares of IT stock in
8
<PAGE>
January 1997. Excluding this one-time transaction the Company, would have had
pro forma net income of $1,261,000 or $0.11 per share.
Net income for fiscal 1996 included one-time gains for sales of securities
totaling $3,742,000 and gain on stock rights of $572,000. Excluding these
one-time gains, the Company would have posted a pro forma net loss of $912,000,
or $0.09 per share.
Comparing pro forma net income for fiscal 1997, excluding one-time items,
compared to fiscal 1996, excluding one-time items, fiscal 1997 pro forma net
income was $1,261,000 versus a loss $912,000 in fiscal 1996. This was an
improvement of $2,173,000 in year-to-year results.
The Company has not received any notice of investigation, claim or
proceeding relating environmental liability nor is the Company aware of any
environmental litigation, investigation or unasserted claim involving the
Company or its subsidiaries.
LIQUIDITY AND CAPITAL RESOURCES
Company operations generated $820,000 and $1,734,000 of cash during the
current thirteen weeks and twenty-six weeks of fiscal 1997, respectively. The
Company used cash from operations and the sales of securities to fund net
working capital additions of $354,000, primarily additions of $266,000 in
accounts receivable. The growth of accounts receivable is directly attributable
to sales volume increases.
The Company made capital purchases of $234,000 and $435,000 during the
current thirteen weeks and twenty-six weeks of fiscal 1997, respectively. The
capital expenditures added necessary capacity for die cutting operations in
response to volume increases. At the end of the period, the Company had no
material commitments for capital expenditures.
The Company had approximately $2,932,000 of cash at quarter-end, which
consisted primarily of investments in money market funds. The Company's
operating credit line with Wells Fargo has current availability, as of June 26,
1997, of $3,164,000 with $672,000 currently outstanding. The Company anticipates
that existing cash and cash from operations, and existing lines of credit, will
supply sufficient cash for working capital requirements, capital expenditures
and debt payments in fiscal 1997, for the next twelve months.
BUSINESS OUTLOOK
The following statements are based on current expectations. These statements
are forward-looking and actual results may differ materially.
Advanced Materials Group has shifted its marketplace strategy to place
primary marketing emphasis on large volume and longer run products. The
Company's operations in the first half of fiscal 1997 showed strong results
based on this shift in emphasis in terms of sales mix and gross margins. Based
on existing program orders and commitments, the Company anticipates sales growth
of between 45% to 50%, i.e. an estimated sales range of approximately $26.5
million to $27.5 million for fiscal 1997. The Company's growth trend -- based on
historical trends -- could see a slight seasonal slowing in the third quarter as
customers adjust their inventory levels, but should be followed by an
acceleration of orders in the fourth quarter.
The Company is also in the process of formulating plans to expand into the
Pacific Rim and Great Britain. This is in response to requests from some of
Advanced Materials' major customers who conduct operations in Europe and Asia
and would like the Company to establish a presence proximal to their operations.
Advanced Materials management believes the establishment of such operations
would be highly beneficial to the Company in that it would result in a greater
volume of business from the aforementioned customers while at the same time
positioning it to take advantage of additional growth opportunities in Southeast
Asia and Europe.
9
<PAGE>
Separately, ongoing testing on the waterproof, breathable coating system
that Advanced Materials Group has been developing jointly in the United Kingdom
with Innovative Technologies plc remains inconclusive, and the Company is
planning to conduct follow-up tests in fiscal 1997.
Interest expense is estimated to continue to decline in fiscal 1997 as a
result of debt reductions made in fiscal 1996, scheduled reductions in fiscal
1997 and rate differentials between the Concord and Wells Fargo credit lines,
even though the prime interest has increased and may be increased further during
fiscal 1997.
The Private Securities Litigation Reform Act of 1995 provides for a new
"safe harbor" for forward looking statements to encourage Companies to provide
prospective information about their companies without fear of litigation so long
as those statements are identified as forward looking and are accompanied by
meaningful cautionary statements identifying important factors that could cause
actual results to differ materially from those projected in the statement. The
Act only became law in late December 1995 and, except for the Conference Report,
no official interpretations of the Act's provisions have been published.
Accordingly, the Company has identified important factors, in its recently filed
10-KSB, which could cause the Company's actual financial results to differ
materially from any such results which might be projected, forecast, estimated
or budgeted by the Company in forward looking statements.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The Board of Directors negotiated employment agreements with Mr. Steve P.
Scott, President and CEO of the Company, Mr. David Lasnier, Sr. Vice President
and General Manager of Advanced Materials, Inc. and Mr. J. Douglas Graven, Vice
President and CFO of the Company. These agreements are attached as Exhibits
10.1, 10.2 and 10.3.
The Company signed a consulting agreement with Mr. Price Paschall, a member
of the Board of Directors. Mr. Paschall was retained to assist the Company in
merger and acquisition activities. The agreement is attached as Exhibit 10.4.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -- None
(b) Reports -- None
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: July 10, 1997 ADVANCED MATERIALS GROUP INC.
By: /s/ J. DOUGLAS GRAVEN
-----------------------
J. Douglas Graven
Vice President and CFO
(Principal Financial
Officer and
Principal Accounting
Officer)
12
<PAGE>
EMPLOYMENT AGREEMENT
Agreement made this 2nd day of May 1997, between Advanced Materials Group, Inc.,
a Nevada corporation (the "Company") and Steve F. Scott, Hermosa Beach,
California ("Employee").
WITNESSETH:
WHEREAS, the parties acknowledge that Employee has abilities and expertise that
are unique and valuable to the Company; and
WHEREAS, in view of such abilities and expertise, the Company desires to retain
Employee as President/Chief Executive Officer; and
WHEREAS, the Company and Employee have determined that such engagement of
Employee be subject to a mutually acceptable written agreement;
NOW THEREFORE, in consideration of the mutual agreements contained herein and
intending to be legally bound, the parties hereto agree as follows:
1. SERVICES
(a) The Company hereby employs Employee and Employee hereby accepts such
employment on the terms and conditions set forth herein. In this
regard, Employee shall perform and discharge well and faithfully the
duties and responsibilities that are commensurate with his position.
(b) Employee is not and shall not be engaged directly or indirectly in any
other business activity, or previously have contracted to perform such
activity at a future date which would prevent the performance of the
obligations hereunder or involve activities which would result in a
breach of any provision of this Agreement.
2. TERM
(a) The term of this Agreement shall begin on the date hereof and shall
cease and terminate upon the earliest of (i) the close of business on
2nd day of May 2000, (ii) the death of Employee; (iii) termination by
the Company, at its option, for "cause" as defined in subdivision (b)
of this Section 2; or (iv) termination by mutual agreement between the
parties.
(b) As used in this Section, "cause" shall mean and be limited to gross
negligence or willful misconduct of Employee in the performance of his
duties, or conviction of a felony or a crime involving moral
turpitude.
<PAGE>
(c) In the event of a permanent disability, the contract will remain in
effect until the start of long-term disability insurance coverage (3
months).
3. COMPENSATION
(a) The Company shall pay to Employee a base salary of $190,000.00 per
year, payable in weekly installments.
(b) During the term of his employment, Employee shall be entitled to
participate in employee benefit plans or programs of the Company, if
any, to the extent his position, tenure, salary, age, health and other
qualifications makes him eligible to participate, subject to the rules
and regulations applicable thereto, which plans or programs will
include, without limitation, health insurance benefits,
performance-based options, an appropriate automobile allowance, and
bonus programs, consistent with the reasonable past practices of the
Company.
(c) The Company reserves the right to increase the compensation of the
Employee, specified in this instrument, at any time or times hereafter
and no such increase or adjustment shall operate as a cancellation of
this Agreement, but merely as an amendment to Section 3, and all the
other terms, provision, and conditions of this Agreement shall
continue in force and effect as herein provided.
(d) The Company will review this contract for consideration of a one (1)
year extension when contract is at one year from expiration.
4. EXPENSES.
The Company will reimburse Employee for direct out-of-pocket expenses
properly incurred by him in his performance of this Agreement and provided
that a written accounting is made to the Company by Employee.
5. CONFIDENTIALITY AND NON-COMPETITION
(a) Employee acknowledges that as a consequence of his relationship with
the Company, he has been and will continue to be given access to
confidential information which may include the following types
information: financial statements and related financial information
with respect to the Company, trade secrets, computer programs, certain
methods of operation, procedures, improvements, systems, customer
lists, supplier lists and specifications, and other private and
confidential materials concerning the Company's business
(collectively, "Confidential Information"). Employee agrees that he
shall maintain any Confidential Information in strictest confidence
and shall not disclose any Confidential Information to third parties
during the terms of this agreement and after the termination hereof,
however such termination shall occur, unless previously approved by
the President or Chairman of AMG in writing.
<PAGE>
Notwithstanding the foregoing, nothing herein shall be construed as
prohibiting Employee from disclosing any Confidential Information (a)
which, at the time of disclosure, Employee can demonstrate either was
in the public domain and generally available to the public or
thereafter became a part of the public domain and generally available
to the public by publication or otherwise through no act of Employee;
(b) which Employee can establish was independently developed by a
third party who developed it without the use of the Confidential
Information and who did not acquire it directly or indirectly from
Employee under an obligation of confidence; (c) which Employee can
show was received by him after the termination of this Agreement from
a third party who did not acquire it directly or indirectly from the
Company under an obligation of confidence; or (d) to the extent that
Employee can reasonable demonstrate such disclosure is required by law
or in any legal proceeding, governmental investigation, or other
similar proceeding.
(b) Employee covenants and agrees that, in order to protect the company's
interest in its business, operations and assets during the term of
this Agreement and for a period of one (1) year following the
termination of this Agreement, however the same shall occur, he will
not, without prior written consent of the Company, directly or
indirectly:
(i) engage anywhere in the United States, whether by virtue of stock
ownership, management responsibilities or otherwise, in
companies, business, organizations and/or ventures which are
directly or indirectly competitive with the business of the
Company as presently conducted or contemplated (the "Business");
or
(ii) become interested, directly or indirectly, whether as principal,
owner, stockholder, partner, agent, officer, director, employee,
salesman, joint venture, consultant, advisor, independent
contractor or otherwise, in any person, firm, partnership,
association, venture, corporation or entity engaging anywhere in
the United State in the Business or directly or indirectly in
competition with the Company.
6. INVENTIONS
(a) Employee hereby sells, transfers and assigns to the Company, or to any
person or entity designated by the Company, all of the entire right, title
and interest of Employee in and to all inventions, ideas, disclosures and
improvements, whether patented or unpatented, and copyrightable materials,
made or conceived by Employee, solely or jointly, or in whole or in part,
during or before the term hereof which (i) relate to methods, apparatus,
designs, products, processes or devices sold, leased, used or under
construction or development by the Company, or (ii) otherwise relate,
pertain or are useful to the business,
<PAGE>
functions or operations of the Company as presently conducted or to be
conducted by the company, or (iii) arise (wholly or partly) from the
efforts of Employee since June 5th, 1991 or otherwise during the term
hereof.
(b) Employee shall communicate promptly and disclose to the Company, in such
form as the Company requested, all information, details and data pertaining
to the aforementioned inventions, ideas, disclosures and improvements; and,
whether during the term hereof or thereafter, Employee shall execute and
deliver to the company such formal transfers and assignments and such other
papers and documents as may be required of the Employee to permit the
Company or any person or entity designated by the Company to file and
prosecute the patent applications and, as to copyrightable material, to
obtain copyright thereon. Any invention by Employee within one year
following the termination of this Agreement shall be deemed to fall within
the provisions of this paragraph unless proved by Employee to have been
first conceived and made following such termination.
7. NO WAIVER
The failure of any party to insist upon the strict performance of any of
the terms, conditions or provisions of this Agreement shall not be
construed as a waiver or relinquishment of future compliance therewith, and
said terms, conditions and provisions shall remain in full force and
effect. No interpretation, changes, modifications, terminations or waivers
of any of the provisions of this Agreement shall be binding upon the
Company or Employee unless in writing and signed by the person to be bound.
8. RIGHTS, OBLIGATIONS AND ASSIGNMENT.
The rights and obligations of the Company under this Agreement shall inure
to the benefit of, and shall be binding upon, its successors and assigns.
The duties of Employee to any such successor entity shall not be greater
than duties performed for the Company prior to such succession. Employee is
prohibited from making any assignment of this Agreement.
9. ENTIRE AGREEMENT.
This Agreement and the exhibits hereto embody the entire understanding
between the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements and understandings of the parties in
connection therewith.
10. SEVERABILITY.
<PAGE>
If any of the provisions of this Agreement shall for any reason be adjudged
by any court of competent jurisdiction to be invalid or unenforceable, such
judgment shall not affect, impair or invalidate the remainder of this
Agreement, but shall be confined in its operations to the provision of this
Agreement directly involved in the controversy in which such judgment shall
have been rendered.
11. NOTICES.
Notices, other communications or deliveries required or permitted under
this Agreement shall be in writing directed as follows:
(a) TO THE COMPANY AT:
Advanced Materials Group, Inc.
20211 South Susana Road
Rancho Dominguez, CA 90221
(b) TO EMPLOYEE:
Steve F. Scott
935 3rd Street
Hermosa Beach, CA 90254
WITH A COPY TO:
None
The parties may designate by notice to each other any new address for the
purpose of this Agreement. Unless otherwise specified in this Agreement, all
notices shall be effective when mailed postage prepaid by registered or
certified mail, return receipt requested.
12. APPLICABLE LAW.
This Agreement shall be enforced and construed in accordance with the laws
of the State of California.
13. DISPUTES.
In the event any party brings legal proceedings to resolve a dispute
hereunder, the prevailing party shall have the right to recover reasonable
attorneys' fees and costs from the other. The term "legal proceedings"
shall include appeals from the lower court judgment.
14. PAYMENT ON TERMINATION.
If the Company terminates this Agreement other than for cause as defined in
Section 2(b) of this Agreement, it shall pay Employee an amount equal to
the
<PAGE>
amount set forth in Section 3(a) as an annual base salary divided by twelve
and multiplied by the number of months remaining until 2nd day of May 2000.
15. HEADINGS.
The captions and headings contained in this Employment Agreement are for
reference purposes only and shall not affect the interpretation or meaning
of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Consulting Agreement as of
the date and year first above written.
ADVANCED MATERIALS GROUP, INC.
By: /s/ BOARD OF DIRECTORS
-------------------------------
Board of Directors
EMPLOYEE
By: /s/ STEVE F. SCOTT
-------------------------------
Steve F. Scott
<PAGE>
EMPLOYMENT AGREEMENT
Agreement made this 2nd day of May 1997, between Advanced Materials Group, Inc.,
a Nevada corporation (the "Company") and David A. Lasnier, Laguna Niguel,
California ("Employee").
WITNESSETH:
WHEREAS, the parties acknowledge that Employee has abilities and expertise
that are unique and valuable to the Company; and
WHEREAS, in view of such abilities and expertise, the Company desires to retain
Employee as Senior Vice President/General Manager; and
WHEREAS, the Company and Employee have determined that such engagement of
Employee be subject to a mutually acceptable written agreement;
NOW THEREFORE, in consideration of the mutual agreements contained herein and
intending to be legally bound, the parties hereto agree as follows:
1. SERVICES
(a) The Company hereby employs Employee and Employee hereby accepts such
employment on the terms and conditions set forth herein. In this
regard, Employee shall perform and discharge well and faithfully the
duties and responsibilities that are commensurate with his position.
(b) Employee is not and shall not be engaged directly or indirectly in any
other business activity, or previously have contracted to perform such
activity at a future date which would prevent the performance of the
obligations hereunder or involve activities which would result in a
breach of any provision of this Agreement.
2. TERM
(a) The term of this Agreement shall begin on the date hereof and shall
cease and terminate upon the earliest of (I) the close of business on
the 2nd day of May 2000, (ii) the death of Employee; (iii) termination
by the Company, at its option, for "cause" as defined in subdivision
(b) of this Section 2; or (iv) termination by mutual agreement between
the parties.
(b) As used in this Section, "cause" shall mean and be limited to gross
negligence or willful misconduct of Employee in the performance of his
duties, or conviction of a felony or a crime involving moral
turpitude.
(c) In the event of a permanent disability, the contract will remain in
effect until the start of long-term disability insurance coverage (3
months).
<PAGE>
3. COMPENSATION
(a) The Company shall pay to Employee a base salary of $120,000 per year,
payable in weekly installments.
(b) During the term of his employment, Employee shall be entitled to
participate in employee benefit plans or programs of the Company, if
any, to the extent his position, tenure, salary, age, health and other
qualifications makes him eligible to participate, subject to the rules
and regulations applicable thereto, which plans or programs will
include, without limitation, health insurance benefits,
performance-based options, an appropriate automobile allowance, and
bonus programs, consistent with the reasonable past practices of the
Company.
(c) The Company reserves the right to increase the compensation of the
Employee, specified in this instrument, at any time or times hereafter
and no such increase or adjustment shall operate as a cancellation of
this Agreement, but merely as an amendment to Section 3, and all the
other terms, provision, and conditions of this Agreement shall
continue in force and effect as herein provided.
(d) The Company will review this contract for consideration of a one (1)
year extension when contract is at one year from expiration.
4. EXPENSES.
The Company will reimburse Employee for direct out-of-pocket expenses
properly incurred by him in his performance of this Agreement and provided
that a written accounting is made to the Company by Employee.
5. CONFIDENTIALITY AND NON-COMPETITION
(a) Employee acknowledges that as a consequence of his relationship with
the Company, he has been and will continue to be given access to
confidential information which may include the following types
information: financial statements and related financial information
with respect to the Company, trade secrets, computer programs, certain
methods of operation, procedures, improvements, systems, customer
lists, supplier lists and specifications, and other private and
confidential materials concerning the Company's business
(collectively, "Confidential Information"). Employee agrees that he
shall maintain any Confidential Information in strictest confidence
and shall not disclose any Confidential Information to third parties
during the terms of this agreement and after the termination hereof,
however such termination shall occur, unless previously approved by
the President or Chairman of AMG in writing.
Notwithstanding the forgoing, nothing herein shall be construed as
prohibiting Employee from disclosing any Confidential Information (a)
which,
<PAGE>
at the time of disclosure, Employee can demonstrate either was in the
public domain and generally available to the public or thereafter
became a part of the public domain and generally available to the
public by publication or otherwise through no act of Employee; (b)
which Employee can establish was independently developed by a third
party who developed it without the use of the Confidential Information
and who did not acquire it directly or indirectly from Employee under
an obligation of confidence; (c) which Employee can show was received
by him after the termination of this Agreement from a third party who
did not acquire it directly or indirectly from the Company under an
obligation of confidence; or (d) to the extent that Employee can
reasonable demonstrate such disclosure is required by law or in any
legal proceeding, governmental investigation, or other similar
proceeding.
(b) Employee covenants and agrees that, in order to protect the company's
interest in its business, operations and assets during the term of
this Agreement and for a period of one (1) year following the
termination of this Agreement, however the same shall occur, he will
not, without prior written consent of the Company, directly or
indirectly:
(i) engage anywhere in the United States, whether by virtue of stock
ownership, management responsibilities or otherwise, in
companies, business, organizations and/or ventures which are
directly or indirectly competitive with the business of the
Company as presently conducted or contemplated (the "Business");
or
(ii) become interested, directly or indirectly, whether as principal,
owner, stockholder, partner, agent, officer, director, employee,
salesman, joint venture, consultant, advisor, independent
contractor or otherwise, in any person, firm, partnership,
association, venture, corporation or entity engaging anywhere in
the United State in the Business or directly or indirectly in
competition with the Company.
6. INVENTIONS
(a) Employee hereby sells, transfers and assigns to the Company, or to
any person or entity designated by the Company, all of the entire
right, title and interest of Employee in and to all inventions, ideas,
disclosures and improvements, whether patented or unpatented, and
copyrightable materials, made or conceived by Employee, solely or
jointly, or in whole or in part, during or before the term hereof
which (I) relate to methods, apparatus, designs, products, processes
or devices sold, leased, used or under construction or development by
the Company, or (ii) otherwise relate, pertain or are useful to the
business, functions or operations of the Company as presently
conducted or to be conducted by the company, or (iii) arise (wholly or
partly) from the efforts of Employee since August 16th, 1991 or
otherwise during the term hereof.
<PAGE>
(b) Employee shall communicate promptly and disclose to the Company,
in such form as the Company requested, all information, details and
data pertaining to the aforementioned inventions, ideas, disclosures
and improvements; and, whether during the term hereof or thereafter,
Employee shall execute and deliver to the company such formal
transfers and assignments and such other papers and documents as may
be required of the Employee to permit the Company or any person or
entity designated by the Company to file and prosecute the patent
applications and, as to copyrightable material, to obtain copyright
thereon. Any invention by Employee within one year following the
termination of this Agreement shall be deemed to fall within the
provisions of this paragraph unless proved by Employee to have been
first conceived and made following such termination.
7. NO WAIVER
The failure of any party to insist upon the strict performance of any of
the terms, conditions or provisions of this Agreement shall not be
construed as a waiver or relinquishment of future compliance therewith, and
said terms, conditions and provisions shall remain in full force and
effect. No interpretation, changes, modifications, terminations or waivers
of any of the provisions of this Agreement shall be binding upon the
Company or Employee unless in writing and signed by the person to be bound.
8. RIGHTS, OBLIGATIONS AND ASSIGNMENT.
The rights and obligations of the Company under this Agreement shall inure
to the benefit of, and shall be binding upon, its successors and assigns.
The duties of Employee to any such successor entity shall not be greater
than duties performed for the Company prior to such succession. Employee is
prohibited from making any assignment of this Agreement.
9. ENTIRE AGREEMENT.
This Agreement and the exhibits hereto embody the entire understanding
between the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements and understandings of the parties in
connection therewith.
10. SEVERABILITY.
If any of the provisions of this Agreement shall for any reason be adjudged
by any court of competent jurisdiction to be invalid or unenforceable, such
judgment shall not affect, impair or invalidate the remainder of this
Agreement, but shall be
<PAGE>
confined in its operations to the provision of this Agreement directly
involved in the controversy in which such judgment shall have been
rendered.
11. NOTICES.
Notices, other communications or deliveries required or permitted under
this Agreement shall be in writing directed as follows:
(a) TO THE COMPANY AT:
Advanced Materials Group, Inc.
20211 South Susana Road
Rancho Dominguez, CA 90221
Attn: Steve Scott
(b) TO EMPLOYEE:
David A. Lasnier
30042 Happy Sparrow Lane
Laguna Niguel, CA 92677
WITH A COPY TO:
None
The parties may designate by notice to each other any new address for the
purpose of this Agreement. Unless otherwise specified in this Agreement, all
notices shall be effective when mailed postage prepaid by registered or
certified mail, return receipt requested.
12. APPLICABLE LAW.
This Agreement shall be enforced and construed in accordance with the laws
of the State of California.
13. DISPUTES.
In the event any party brings legal proceedings to resolve a dispute
hereunder, the prevailing party shall have the right to recover reasonable
attorneys' fees and costs from the other. The term "legal proceedings"
shall include appeals from the lower court judgment.
14. PAYMENT ON TERMINATION.
If the Company terminates this Agreement other than for cause as defined in
Section 2(b) of this Agreement, it shall pay Employee an amount equal to
the
<PAGE>
amount set forth in Section 3(a) as an annual base salary divided by twelve
and multiplied by the number of months remaining until the 2nd day of May
2000.
15. HEADINGS.
The captions and headings contained in this Employment Agreement are for
reference purposes only and shall not affect the interpretation or meaning
of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Consulting Agreement as of
the date and year first above written.
ADVANCED MATERIALS GROUP, INC.
By: /s/ Board of Directors
---------------------------
EMPLOYEE
By: /s/ David A. Lasnier
---------------------------
David A. Lasnier
<PAGE>
EMPLOYMENT AGREEMENT
Agreement made this 2nd day of May 1997, between Advanced Materials Group, Inc.,
a Nevada corporation (the "Company") and James Douglas Graven, Westminster,
California ("Employee").
WITNESSETH:
WHEREAS, the parties acknowledge that Employee has abilities and expertise that
are unique and valuable to the Company; and
WHEREAS, in view of such abilities and expertise, the Company desires to retain
Employee as Vice President/Chief Financial Officer; and
WHEREAS, the Company and Employee have determined that such engagement of
Employee be subject to a mutually acceptable written agreement;
NOW THEREFORE, in consideration of the mutual agreements contained herein and
intending to be legally bound, the parties hereto agree as follows:
1. SERVICES
(a) The Company hereby employs Employee and Employee hereby accepts such
employment on the terms and conditions set forth herein. In this
regard, Employee shall perform and discharge well and faithfully the
duties and responsibilities that are commensurate with his position.
(b) Employee is not and shall not be engaged directly or indirectly in any
other business activity, or previously have contracted to perform such
activity at a future date which would prevent the performance of the
obligations hereunder or involve activities which would result in a
breach of any provision of this Agreement.
2. TERM
(a) The term of this Agreement shall begin on the date hereof and shall
cease and terminate upon the earliest of (i) the close of business on
the 2nd day of November 1998, (ii) the death of Employee; (iii)
termination by the Company, at its option, for "cause" as defined in
subdivision (b) of this Section 2; or (iv) termination by mutual
agreement between the parties.
(b) As used in this Section, "cause" shall mean and be limited to gross
negligence or willful misconduct of Employee in the performance of his
duties, or conviction of a felony or a crime involving moral
turpitude.
(c) In the event of a permanent disability, the contract will remain in
effect until the start of long-term disability insurance coverage (3
months).
<PAGE>
3. COMPENSATION
(a) The Company shall pay to Employee a base salary of $102,500 per year,
payable in weekly installments.
(b) During the term of his employment, Employee shall be entitled to
participate in employee benefit plans or programs of the Company, if
any, to the extent his position, tenure, salary, age, health and other
qualifications makes him eligible to participate, subject to the rules
and regulations applicable thereto, which plans or programs will
include, without limitation, health insurance benefits,
performance-based options, an appropriate automobile allowance, and
bonus programs, consistent with the reasonable past practices of the
Company.
(c) The Company reserves the right to increase the compensation of the
Employee, specified in this instrument, at any time or times hereafter
and no such increase or adjustment shall operate as a cancellation of
this Agreement, but merely as an amendment to Section 3, and all the
other terms, provision, and conditions of this Agreement shall
continue in force and effect as herein provided.
(d) The Company will review this contract for consideration of a one (1)
year extension when contract is at one year from expiration.
4. EXPENSES.
The Company will reimburse Employee for direct out-of-pocket expenses
properly incurred by him in his performance of this Agreement and provided
that a written accounting is made to the Company by Employee.
5. CONFIDENTIALITY AND NON-COMPETITION
(a) Employee acknowledges that as a consequence of his relationship with
the Company, he has been and will continue to be given access to
confidential information which may include the following types
information: financial statements and related financial information
with respect to the Company, trade secrets, computer programs, certain
methods of operation, procedures, improvements, systems, customer
lists, supplier lists and specifications, and other private and
confidential materials concerning the Company's business
(collectively, "Confidential Information"). Employee agrees that he
shall maintain any Confidential Information in strictest confidence
and shall not disclose any Confidential Information to third parties
during the terms of this agreement and after the termination hereof,
however such termination shall occur, unless previously approved by
the President or Chairman of AMG in writing.
Notwithstanding the forgoing, nothing herein shall be construed as
prohibiting Employee from disclosing any Confidential Information (a)
which,
<PAGE>
at the time of disclosure, Employee can demonstrate either was in the
public domain and generally available to the public or thereafter
became a part of the public domain and generally available to the
public by publication or otherwise through no act of Employee; (b)
which Employee can establish was independently developed by a third
party who developed it without the use of the Confidential Information
and who did not acquire it directly or indirectly from Employee under
an obligation of confidence; (c) which Employee can show was received
by him after the termination of this Agreement from a third party who
did not acquire it directly or indirectly from the Company under an
obligation of confidence; or (d) to the extent that Employee can
reasonable demonstrate such disclosure is required by law or in any
legal proceeding, governmental investigation, or other similar
proceeding.
(b) Employee covenants and agrees that, in order to protect the company's
interest in its business, operations and assets during the term of
this Agreement and for a period of one (1) year following the
termination of this Agreement, however the same shall occur, he will
not, without prior written consent of the Company, directly or
indirectly:
(i) engage anywhere in the United States, whether by virtue of stock
ownership, management responsibilities or otherwise, in
companies, business, organizations and/or ventures which are
directly or indirectly competitive with the business of the
Company as presently conducted or contemplated (the "Business");
or
(ii) become interested, directly or indirectly, whether as principal,
owner, stockholder, partner, agent, officer, director, employee,
salesman, joint venture, consultant, advisor, independent
contractor or otherwise, in any person, firm, partnership,
association, venture, corporation or entity engaging anywhere in
the United State in the Business or directly or indirectly in
competition with the Company.
6. INVENTIONS
(a) Employee hereby sells, transfers and assigns to the Company, or to any
person or entity designated by the Company, all of the entire right,
title and interest of Employee in and to all inventions, ideas,
disclosures and improvements, whether patented or unpatented, and
copyrightable materials, made or conceived by Employee, solely or
jointly, or in whole or in part, during or before the term hereof
which (i) relate to methods, apparatus, designs, products, processes
or devices sold, leased, used or under construction or development by
the Company, or (ii) otherwise relate, pertain or are useful to the
business, functions or operations of the Company as presently
conducted or to be conducted by the company, or (iii) arise (wholly or
partly) from the efforts of Employee since February 20th, 1996 or
otherwise during the term hereof.
<PAGE>
(b) Employee shall communicate promptly and disclose to the Company, in
such form as the Company requested, all information, details and data
pertaining to the aforementioned inventions, ideas, disclosures and
improvements; and, whether during the term hereof or thereafter,
Employee shall execute and deliver to the company such formal
transfers and assignments and such other papers and documents as may
be required of the Employee to permit the Company or any person or
entity designated by the Company to file and prosecute the patent
applications and, as to copyrightable material, to obtain copyright
thereon. Any invention by Employee within one year following the
termination of this Agreement shall be deemed to fall within the
provisions of this paragraph unless proved by Employee to have been
first conceived and made following such termination.
7. NO WAIVER
The failure of any party to insist upon the strict performance of any of
the terms, conditions or provisions of this Agreement shall not be
construed as a waiver or relinquishment of future compliance therewith, and
said terms, conditions and provisions shall remain in full force and
effect. No interpretation, changes, modifications, terminations or waivers
of any of the provisions of this Agreement shall be binding upon the
Company or Employee unless in writing and signed by the person to be bound.
8. RIGHTS, OBLIGATIONS AND ASSIGNMENT.
The rights and obligations of the Company under this Agreement shall inure
to the benefit of, and shall be binding upon, its successors and assigns.
The duties of Employee to any such successor entity shall not be greater
than duties performed for the Company prior to such succession. Employee is
prohibited from making any assignment of this Agreement.
9. ENTIRE AGREEMENT.
This Agreement and the exhibits hereto embody the entire understanding
between the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements and understandings of the parties in
connection therewith.
10. SEVERABILITY.
If any of the provisions of this Agreement shall for any reason be adjudged
by any court of competent jurisdiction to be invalid or unenforceable, such
judgment shall not affect, impair or invalidate the remainder of this
Agreement, but shall be
<PAGE>
confined in its operations to the provision of this Agreement directly
involved in the controversy in which such judgment shall have been
rendered.
11. NOTICES.
Notices, other communications or deliveries required or permitted under
this Agreement shall be in writing directed as follows:
(a) TO THE COMPANY AT:
Advanced Materials Group, Inc.
20211 South Susana Road
Rancho Dominguez, CA 90221
Attn: Steve Scott
(b) TO EMPLOYEE:
James Douglas Graven
15432 Notre Dame Street
Westminster, CA 92683
WITH A COPY TO:
None
The parties may designate by notice to each other any new address for the
purpose of this Agreement. Unless otherwise specified in this Agreement, all
notices shall be effective when mailed postage prepaid by registered or
certified mail, return receipt requested.
12. APPLICABLE LAW.
This Agreement shall be enforced and construed in accordance with the laws
of the State of California.
13. DISPUTES.
In the event any party brings legal proceedings to resolve a dispute
hereunder, the prevailing party shall have the right to recover reasonable
attorneys' fees and costs from the other. The term "legal proceedings"
shall include appeals from the lower court judgment.
14. PAYMENT ON TERMINATION.
If the Company terminates this Agreement other than for cause as defined in
Section 2(b) of this Agreement, it shall pay Employee an amount equal to
the amount set forth in Section 3(a) as an annual base salary divided by
twelve and
<PAGE>
multiplied by the number of months remaining until the 2nd day of November
1998.
15. HEADINGS.
The captions and headings contained in this Employment Agreement are for
reference purposes only and shall not affect the interpretation or meaning
of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of
the date and year first above written.
ADVANCED MATERIALS GROUP, INC.
By: /s/ BOARD OF DIRECTORS
---------------------------
EMPLOYEE
By: /s/ JAMES DOUGLAS GRAVEN
---------------------------
James Douglas Graven
<PAGE>
[LETTERHEAD]
March 31, 1997
Mr. Steve Scott
President
Advanced Materials Group, Inc.
20221 South Susana Road
Rancho Dominguez, CA 90221
Dear Steve,
We are writing this letter to confirm our agreement that Paschall and Company
("PASCO") has been retained by Advanced Materials Group, Inc. ("AMG" or the
"Company") to provide various corporate finance services to the Company.
These services will include the identification of and successful acquisition
of target companies ("Target") meeting the criteria of AMG whether introduced
by PASCO or other sources during the term of this engagement. Services may
also include identifying financing for growth or acquisition purposes.
This Agreement shall become binding upon the execution hereof by PASCO and
AMG. The term of this Agreement shall extend for a minimum of 24 months. The
contract shall be renewed with the mutual consent of AMG and PASCO for twelve
months periods.
I. SERVICES
PASCO agrees to coordinate and initiate all discussions with targets and as
well contact all appropriate transaction sources that might be able to assist
in finding an appropriate Target.
II. COMPENSATION FOR SERVICES
In consideration for the services rendered, AMG shall pay PASCO a monthly
retainer due on the first of each month. The retainer shall be $10,000 for
the first month and for each of the next 23 months, a monthly retainer of
$4,000.
AMG agrees to reimburse PASCO monthly for all reasonable out-of-pocket
expenses incurred in carrying out the terms of this Agreement, including
travel, lodging, meals, telephone, facsimile, courier, printing charges, data
acquisition and mailing charges. These out-of-pocket expenses will be payable
upon invoicing by PASCO on a monthly basis.
<PAGE>
In addition to the retainer, PASCO will receive a 10 year option to purchase
50,000 AMG shares at a market price at the close of today. In addition, AMG
shall revise the previous option agreement earned for past acquisition
services to extend for 10 years from the date of signing. The option price
shall be set as of the close of business 3/31/97.
A. If an acquisition of a Target is completed during the course of this
agreement or within one(1) year following the termination of this Agreement
in which AMG acquires the stock or assets of the Target, PASCO shall be
compensated based on the following schedule:
PASCO will earn options to purchase the following number of shares of AMG
stock at the price of the day the transaction closes.
1. Options in the amount of 75,000 shares shall be earned if
total consideration for the Target is $10.0 million or less,
2. Additional options will be issued at a pro-rata rate of 10,000
shares for each additional $1.0 million of purchase price
above $10.0 million.
For the purposes of this agreement consideration for stock shall be defined
as the cash, debt instruments and stock transferred to the shareholders in
exchange for their ownership in Target plus any long term debt assumed.
Consideration for assets shall be defined as cash, debt and stock instruments
transferred for selected assets and liabilities. In the event some portion of
the consideration is contingent payable based on future events, that portion
of the fee shall be payable at that time.
B. In the event of an acquisition PASCO shall have the right of first
refusal as placement agent for subordinated debt financing (non-bank) if
appropriate.
III. DISCLOSURE
All non-public information provided by the AMG to Target(s) will be
considered as confidential information and shall be maintained as such by
PASCO, except as required by law.
IV. ENTIRE AGREEMENT, ETC.
This Agreement sets forth the entire understanding of the parties relating to
the subject matter hereof and supersedes and cancels any prior
communications, understandings, and agreements between the parties. This
Agreement cannot be modified or changed, nor can any of its provisions be
waived, except by written agreement signed by all parties hereto. Attached to
this agreement is an indemnification agreement that will survive this
agreement.
<PAGE>
V. ACCEPTANCE
Please confirm that the foregoing is in accordance with your understanding by
signing upon behalf of the Company and returning an executed copy of this
Agreement.
Sincerely, ACCEPTED AND AGREED TO:
ADVANCED MATERIALS GROUP, INC.
PASCHALL and COMPANY
By: [illegible]
-----------------------
/s/ N. Price Paschall
- ---------------------
N. Price Paschall
Managing Director Title: PRESIDENT/CEO
---------------------
Date: April 28, 1997
---------------------
<PAGE>
PASCHALL and COMPANY
ANNEX "A"
Indemnification Provisions
In connection with the engagement of PASCO by AMG pursuant to the Engagement
Letter of March 31, 1997 between AMG and PASCO, as it may be amended from
time to time (the "Engagement Letter"), AMG hereby agrees as follows:
1. (a) In connection with or arising out of or relating to the engagement
of PASCO under the Engagement Letter, or any actions taken or omitted,
services performed or matters contemplated by or in connection with the
Engagement Letter, or otherwise in connection with activities of PASCO that
involve and are in good faith intended to benefit AMG, AMG agrees to
reimburse PASCO, its affiliates and their respective directors, officers,
employees, agents and controlling persons (each an "Indemnified Party")
promptly upon demand for reasonable expenses (including reasonable fees and
expenses of legal counsel) as they are incurred in connection with the
investigation of, preparation for or defense of any pending or threatened
claim, or any litigation, proceeding or other action in respect thereof. AMG
agrees (in connection with the foregoing) to indemnify and hold harmless
each Indemnified Party from and against any and all losses, claims, damages
and liabilities, joint and several, to which any Indemnified Party may
become subject, including any amount paid in settlement of any litigation
or other action (commenced or threatened), to which AMG shall have
consented in writing (such consent not to be unreasonably withheld),
whether or not any Indemnified Party is a party and whether or not
liability resulted; PROVIDED, HOWEVER, that AMG shall not be liable
pursuant to this sentence in respect of any loss, claim, damage or
liability resulting primarily from the wilful misconduct of gross
negligence of such Indemnified Party.
(b) Notwithstanding the foregoing, no payments will be due hereunder to
the extent that N. Price Paschall as a director of AMG, would be
prohibited from receiving such payments pursuant to Nevada or California
law, or pursuant to AMG's certificate of incorporation or bylaws, in the
event the actions of PASCO were attributable to Mr. Paschall, nor will such
payments be due to the extent N. Price Paschall has the right to claim
such payments either from AMG in his capacity as a director or pursuant to
AMG's directors' and officers' liability policy.
2. An Indemnified Party shall have the right to retain separate legal
counsel of its own choice to conduct the defense and all related matters
in connection with any such litigation, proceeding or other action;
PROVIDED, HOWEVER, that AMG shall not be obligated to pay the expense of
more than one legal counsel for each jurisdiction for all Indemnified
Parties in connection with any one litigation, proceeding or other action.
AMG shall pay the reasonable fees of one such legal counsel and such legal
counsel shall, to the fullest extent consistent with its professional
responsibilities, cooperate with AMG and any legal counsel designated by
AMG. AMG agrees to consult in advance with PASCO with respect to the terms
of any proposed waiver, release or settlement of any claim, liability,
proceeding or other action against AMG to which any Indemnified Party may
also be subject, and to use
<PAGE>
its best efforts to afford PASCO and/or any such Indemnified Party the
opportunity to join in such waiver, release or settlement.
3. In the event that the Indemnity provided for in paragraphs 1 or 2 hereof
is unavailable or insufficient to hold any Indemnified Parties harmless,
then AMG shall contribute to amounts paid or payable by an Indemnified
party in respect of such Indemnified Party's losses, claim, damages and
liabilities to which the Indemnity provided in paragraphs 1 and 2 hereof
is unavailable or insufficient (i) in such proportion as appropriately
reflects the relative benefits received by AMG on the one hand, and PASCO
on the other hand, in connection with the matters as to which such losses,
claims, damages or liabilities relate, or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such
proportion as appropriately reflects not only the relative benefits
referred to in clause (i) but also the relative fault of AMG, on the one
hand, and PASCO on the other hand, as well as any other equitable
considerations. The amounts paid or payable by a party in respect of
losses, claims, damages and liabilities referred to above shall be deemed
to include any reasonable legal or other fees and expenses incurred in
defending any litigation, proceeding or other action or claim.
Notwithstanding the provisions hereof, PASCO's share of the liability
hereunder shall not be in excess of the amount of fees received by PASCO
under the Engagement Letter (excluding any amounts received as
reimbursement of expenses incurred by PASCO).
4. PASCO agrees to reimburse AMG or its affiliates and their respective
directors (except N. Price Paschall), officers, employees, agents and
controlling persons (the "AMG Parties") for expenses, to indemnify and
hold harmless the AMG Parties from losses, claims damages and liabilities
(including reasonable fees and expenses of legal counsel) and to contribute
to amounts paid or payable by the AMG Parties, on the same terms and
conditions on which AMG agrees to reimburse, indemnify and contribute to
Indemnified Parties herein, but only to the extent that any expense or
indemnity, or any claim for contribution, results primarily and directly
from the wilful misconduct or gross negligence of PASCO.
5. These Indemnification Provisions shall remain in full force and effect
whether or not any of the assignments contemplated by the Engagement
Letter are consummated and shall survive the expiration of the period
of the Engagement Letter, and shall be in addition to any liability that
AMG might otherwise have to any Indemnified Party under the Engagement
Letter or otherwise.
6. It is further agreed that no Indemnified Party (including PASCO) shall be
liable to AMG in connection with any matter arising out of or relating to
the engagement of PASCO under the Engagement Letter, or any actions taken
or omitted, services performed or matters contemplated by or in connection
with the Engagement Letter, except to the extent that a court having
competent jurisdiction shall have determined by final judgement (not
subject to further appeal) that such liability resulted solely from the
wilful misconduct or gross negligence of such Indemnified Party.
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<PAGE>
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