U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
[x] Annual report under Section 13 or 15 (d) of the Securities
Exchange Act of 1934 (No fee required, effective October 7, 1996.)
For the fiscal year ended March 31, 1997
[ ] Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No fee required)
For the transition period from _____________ to _____________.
Commission file number 0-18865
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
(Name of Small Business Issuer in Its Charter)
UTAH 87-0401400
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
102 West 500 South, Suite 400, Salt Lake City, Utah 84101
(Address of Principal Executive Offices) (Zip Code)
(801) 363-8961
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.001 per share
(Title of Class)
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 for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [x] No [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for the year ended March 31, 1997 were $274,000.
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of June 30, 1997 was $1,135,085.
The number of shares outstanding of the issuer's common equity, as of
June 30, 1997 was1,841,486 shares.
Transitional Small Business Disclosure Format (check one):Yes [ ] No[x]
<PAGE>
PART I
Item 1. Business.
All information in this Form 10-K gives effect to a 1-for-20 reverse stock split
effected on March 27, 1997.
GENERAL
American Resources & Development Company ("ARDCO" or "the Company")
formerly known as Leasing Technology, Incorporated, is a Utah corporation. When
used throughout this document , unless the context suggests otherwise , the
"Company" refers to ARDCO and/or its subsidiaries. ARDCO is primarily engaged in
the venture capital business offering consulting expertise to selected business
opportunities with an eye toward acquiring interests in businesses, or entire
businesses, believed by management to hold potential for profit. The nature and
manner of any acquisition cannot be determined at the present time and will be
subject to the business judgment of management. The company presently intends to
find businesses in which an interest can be acquired by the Company in exchange
for the Company's securities, where the Sellers will play the major role in the
development, and managing the ongoing operations of the business, and the
primary function of the Company would be providing the corporate structure and
some financing for the business operations. Management understands that every
potential deal opportunity will be based on a different set of circumstances,
terms and conditions, and there is no way of knowing when the Company will make
its next acquisition.
ARDCO's principal corporate offices are located at 102 West 500 South,
Suite 400, Salt Lake City, Utah 84101 and its telephone number is (801)
363-8961.
Effective March 27, 1997, the name of the Company was changed to
American Resources and Development Company.
FINALLY COMMUNITIES, INC.
During the prior year the Company reviewed many potential acquisitions
and business opportunities. On May 20, 1997 the Company entered into an
agreement with William R. Vowell to organize a corporation, Finally Communities,
Inc. (Finally), to develop and sell vacation ownership interests in various
resorts initially located in Fairfield Bay, Arkansas. Finally is a wholly owned
subsidiary of ARDCO. Fairfield Bay is a 15,000 acre resort community in north
central Arkansas, and Finally was organized to develop Fairfield Bay Outdoors, a
500 site resort camp-sharing RV park within the Fairfield Bay community. In
addition to the development of RV parks, Finally will also introduce new
vacation products that will be available to existing property owners and new
consumers seeking added value from their vacation dollars.
Mr. Vowell, the President of Finally, will operate the business in
Arkansas for which he will receive 500,000 shares of the Company's Series E
convertible Preferred Stock (E Preferred). 25,400 shares of the E Preferred are
immediately convertible into 25,400 of ARDCO restricted Common Stock. The
remaining shares of E Preferred are convertible into ARDCO Common Stock after
June 30, 1999 and upon completion of the March 31, 1999 audit based on the two
year pre-tax income of Finally and the Average Trading Price of the Company's
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Common Stock. Per the terms of the agreement the Company arranged for a loan of
$50,000 to be made to Finally. The E Preferred is pledged to secure the loan. A
portion of the loan will be used to purchase land to be developed by Finally.
Additionally, Finally has agreed to reimburse the company up to $20,000 per
month for management and consulting services provided to Finally.
FAN-TASTIC, INC.
In March, 1997, the company acquired 80% of the outstanding shares of
Fan-Tastic, Inc., (Fan-Tastic) a Utah Corporation. Fan-Tastic is a franchiser
and owner of retail entertainment and sports stores, dba Fan-A-Mania, based in
regional shopping malls. As of June 30, 1997, Fan-Tastic owned 5 of its own
stores (2 in Utah and 3 in Oregon) and 5 franchisees (Utah, Oregon,
Pennsylvania, and Barbados). Fan-Tastic opened its first Fan-A-Mania store in
October, 1995, with the purpose of taking advantage of the high growth and
popularity of licensed entertainment and sports products.
Fan-A-Mania stores carry a broad range of sports and entertainment
products purchased from national vendors who are licensed with the following
entertainment and sports companies: Disney, Warner Brothers, Public Television
(Sesame Street), National Football League, National Basketball Association,
Major League Baseball, National Hockey League. Products carried range from
apparel for ages ranging from toddlers to adults, collectibles and souvenirs for
fans of the world of entertainment and sports.
In May, 1997, Fan-Tastic initiated a national marketing campaign to
promote the Fan-A-Mania stores primarily through advertising in national
magazines. Limited additional marketing will also be done at specific
entrepreneur shows held in strategic regions of the United States and through
direct marketing.
With the sales of each franchise unit, Fan-Tastic receives a franchise
fee of $19,500, and a royalty fee on ongoing sales of 3 1/2%. Principal services
Fan-Tastic provides to its franchisees are as follows:
- Site evaluation and selection and lease negotiation.
- Store design and merchandising and display plans.
- Lower inventory costs from our negotiated volume pricing and
simplified buying through our consolidated buying program.
- Inventory control through our consolidated point of sale software and
chain wide identification of hot selling products.
- Three days of initial training at our corporate office covering all
phases of store operations; product purchasing, store promotions,
etc. using the proprietary Fan-A-Mania operations manual. This
initial training is followed closely with three days of training at
the opening of the store and on-going follow-up training.
International Franchising
Fan-Tastic's marketing efforts have also resulted in international
interest in the concept, with a first store opening in Bridgetown, Barbados in
December, 1996, and the signing of a master franchise agreement with a Japanese
company that is expected to open its first store in October 1997. Management of
Fan-Tastic believes a strong area of growth will be in the international market
due to the growing interest in American entertainment and sports in the global
marketplace. The revenue from international franchisees was not greater than
10%.
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Seasonality
Approximately 36% of annual sales are incurred in the months of
November and December.
Competition
The entertainment and sports products industry is quite competitive.
Most mass merchants carry entertainment and sports products and thus provide
competition on an indirect basis. However, management believes service and
atmosphere differentiate Fan-A-Mania products from mass merchant products.
Direct competition in malls where Fan-A-Mania stores are located comes primarily
from national chains such as Disney, Warner Brothers, and Champs. Currently,
there are no Fan-A-Mania stores in locations with these stores, although direct
competition exists with smaller sports stores. Management believes that
Fan-A-Mania has differentiated itself by selling both entertainment and sports
products and by having a more attractive look which includes an interactive
shopping experience.
Fan-Tastic also receives indirect competition from other franchisers
for prospective franchisees. However, there is very little direct competition
for prospective franchisees since Fan-A-Mania is the only entertainment and
sports concept on the market. Fan-Tastic also has competition from suitable
store locations from a wide variety of retailers.
Trademarks
Fan-Tastic owns the registered mark, "Fan-A-Mania".
GOLF VENTURES, INC.
In 1990, the Company acquired a 616 acre real estate development near
St. George, Utah. In 1994, the name was changed to Red Hawk(R) International
Golf & Country Club ("Red Hawk(R)"). Also in 1991, the Company purchased two
residential developments in St. George consisting of condominiums, cottages, and
single family dwelling lots known as Cotton Manor and Cotton Acres respectively.
In December 1992, the Company assigned all of its real estate holdings
in Red Hawk(R), Cotton Manor and Cotton Acres to GVIC, a publicly held Utah
Corporation, in exchange for 3,273,728 shares of GVIC common stock, which
represented approximately 86% of GVIC's total outstanding shares. GVIC further
agreed to assume all obligations related to the acquired real estate. On June 1,
1994, GVIC acquired an additional 54 acres of land adjacent to Red Hawk(R) for
future development. GVIC is developing the real estate projects as initially
anticipated by the Company.
RED HAWK(R) INTERNATIONAL COUNTRY CLUB
Red Hawk(R) International Golf & Country Club is a master-planned
residential golfing and recreational community situated on 670 acres of land
that, when completed, will include more than 945 building lots, a 27 hole golf
course, tennis courts, swimming pools, and other recreational amenities. Red
Hawk(R) is located in southwest Utah, three (3) miles southeast of St. George in
the City of Washington, approximately 120 miles from Las Vegas, Nevada, and
within a short drive of several national parks including Zion National Park and
Bryce National Park. Red Hawk(R) is situated on rolling farm land surrounded on
three sides by a horseshoe of rolling hills.
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Land and Debt
On March 30, 1990, the Company purchased, pursuant to an option
agreement (as amended, the "Stucki Purchase Agreement") with Dr. Karl F. Stucki
and Mrs. Marcia C. Stucki, Trustees of the Karl F. and Marcia C. Stucki Income
Trust (the "Stuckis"), 487 acres of real property (the "Stucki Parcel") to be
the site of the proposed Red Hawk(R) project. The total purchase price of the
property was $3,000,000, which included a trust deed note for $2,865,000,
bearing interest at 10% secured by the Stucki land. The note included monthly
payments with the note payable in full in January 1994. In May 1994, the Company
renegotiated the Stucki contract and has been making monthly payments of $25,000
inclusive of principle and interest. On July 5, 1996, GVI entered into a Further
Modification Agreement with the Stuckis whereby GVI, in exchange for the
Stucki's extending repayment of the Stucki Note, agreed to pay the Stucki's a
lump payment of $75,000 upon the execution of the Further Modification Agreement
and provides for the payment of $25,000 per month through May 15, 1998 after
which time the entire balance of the Stucki Note will be due and payable. In
addition, the May 15 modification provided for the release to GVI of
approximately 200 acres of the Stucki parcel at a cost of $6,500 per acre. As of
May 31, 1997, a balance of approximately $2,234,000 remained outstanding on the
Stucki note, inclusive of principal and accrued interest.
GVI owns two additional parcels of land contiguous to the 487-acre
Stucki land. The first parcel, approximately 129 acres, was acquired by the
Company from an unaffiliated third party and transferred to GVI in December 1992
under the LTI Real Estate Acquisition Agreement. The purchase price for the
parcel was paid in full by delivery of 13,000 shares of the Company's common
stock. The second parcel (54 acres) was Purchased by GVI on June 1, 1994 from an
unaffiliated third party, for a purchase price of $500,000 and 600 shares of
GVI's common stock. The terms of the purchase were $25,000 cash down, $25,000
payable 90 days from closing, and annual payments of $100,000, with interest
accruing at a rate of 8% per annum. GVI intends to use the 54 acre parcel for
commercial and higher density residential development. At June 30, 1997 the
balance owing on the purchase note was $355,890.
On December 31, 1997 GVI signed a trust deed note in favor of Miltex
Industries, Geneva Switzerland for $3,238,805. GVI borrowed these funds to
commence construction on the Red Hawk project. The note requires monthly
interest payments of 10.5% through June 10, 1999 at which time the entire
principle balance is due and payable. The note is secured by a trust deed on the
three parcels of land comprising the Red Hawk project. Interest payable on the
note at June 30, 1997 was approximately $170,000. GVI expects to be able to
convert this accrued interest to Class B Preferred stock. Since December 31,
1996 and through June 30, 1997 GVI has borrowed an additional $410,000 from
Miltex.
On May 31, 1994 GVI borrowed $250,000 from the Foss Lewis Profit
Sharing Plan. The loan is secured by a trust deed in the second position on the
Stucki parcel, a trust deed in the first position on the 129-acre parcel and
50,000 shares of GVI investment stock. The outstanding balance of principle and
accrued interest at June 30, 1997 was $89,383. Although the Foss Lewis note
became due on May 31, 1995, the holder has verbally agreed to extend payment,
and has taken no action against GVI. GVI's management expects to pay the note in
full before December 31, 1997.
Red Hawk(R) current developments and twelve month plan of operation
During fiscal year 1997 Washington City completed construction of a
storage tank for culinary (drinking) water in close proximity to Red Hawk(R),
together with a water pumping station and delivery lines which run through GVI's
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property. As a result, management believes that Red Hawk(R) will have adequate
quantities of culinary water available. The cost to GVI for this water line was
$130,000.
In July 1996 Granite Construction broke ground on Phase I at Red Hawk.
Phase I will consist of development and sale of 102 estate lots, 7 cottages, 5
corporate villas, and construction of the first 18 holes of the golf course, a
double driving range, irrigation, lakes and infrastructure for utilities.
Through November 1996, Granite roughed in eighteen holes of the golf course,
graded the sites for 102 residential lots, installed sewer laterals to the lots
and graded the major roads in the project. Granite was paid $1,981,681 for its
work. GVI employed Crown Golf to do the finish grading on the golf course. Crown
has been paid $35,817 and is owed $218,721 through June 30, 1997. In November
GVI stopped construction at its Red Hawk project until additional funding is
obtained. Management can give no assurance as to when financing will be obtained
and construction resumed. During the fiscal year ending March 31, 1998, the
Company will continue to assist GVI in its efforts to acquire permanent
financing for development of Phase I at Red Hawk(R).
Assuming adequate financing can be obtained, the Phase I construction
could be completed within six months of the receipt of that financing at a cost
of approximately $5,700,000. Additionally, a sewer line will need to be brought
to the property. As Washington City owns and is responsible for sewer lines, the
Company must negotiate with the City with respect to the construction and
payment of the sewer line. Construction costs are estimated to be approximately
$1,000,000 for the off-site sewer. GVI estimates that an additional $135,000
will be required for construction of a gas line. There is a possibility that
future expenditures for on-site electric power will be necessary; however, this
has not been determined and no estimates of costs will be obtained until future
demands are assessed. The final plat for Red Hawk will be recorded upon
installation of all improvements and/or bonding of Phase I. No other permits or
authorization are required until after filing of the final plat for Phase I at
which time building permits will be obtained from Washington City. 35
reservations have been taken for residential lots in Red Hawk(R) under the
pre-sales lot program.
COTTON MANOR AND COTTON ACRES
In September 1991, the Company purchased for an aggregate purchase
price of $2,592,050, two real estate developments located in St. George, Utah,
consisting of approximately 80 contiguous acres that included an existing
condominium development known as Cotton Manor, and a single residence
development known as Cotton Acres. At the time of the acquisition, the two
developments consisted of both developed and undeveloped property. On December
31, 1992, pursuant to the LTI Real Estate Acquisition Agreement, GVI assumed all
of LTI's right, title and interest in Cotton Manor and Cotton Acres and assumed
the related liabilities, including the Company's outstanding obligations.
Debt
The total purchase price for Cotton Manor and Cotton Acres under the
Sales Agreement between Property Alliance and the Company was $2,592,050,
payable as described below. LTI made an initial payment of $23,601 at the time
of the acquisition and assumed various obligations of Property Alliance related
to the acquired properties including, (i) a promissory note with an outstanding
balance of $277,304, payable $30,000 per year, (ii) a promissory note with an
outstanding balance of $101,145, which has been paid in full and (iii) a Special
Improvement District (SID) obligation estimated at $53,000, of which $36,000 has
been paid through June 30, 1997. The Company also delivered to Property Alliance
a trust deed note in the principal amount of $1,387,000, bearing interest at the
rate of 10% per annum, which note is secured by a trust deed covering the
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conveyed properties. A portion of the principal on the trust deed note was
payable in six annual installments of $120,000 through February 1, 1997 and
interest is payable in shares of LTI common stock. In addition, the Sales
Agreement requires mandatory prepayments of 75% of the gross proceeds from the
sale of the acquired assets plus $2,000 from the sale of each Red Hawk(R) lot.
Although the Company did not make payments on the trust deed note on the
foregoing terms, the Company and GVI have made various oral arrangements with
Property Alliance, described below, with respect to such payments. Additionally,
the Company issued 150,000 shares of its Series C Convertible Preferred stock
valued at $5.00 per share ($750,000) which Preferred shares are to be converted
into GVI Common shares at which time the 150,000 Series C Preferred shares are
to be canceled and returned to the Company.
On June 30, 1994, Property Alliance, GVI and the Company entered into a
modification of the original Sales Agreement under which, in consideration of
Property Alliance extending the due date of the first four annual payments on
the Note (aggregating $480,000) until July 31, 1995, GVI is obligated to make a
mandatory prepayment on the Note of $5,000 (rather than $2,000) for each Red
Hawk(R) lot sold by GVI. In addition, GVI is obligated to pay Property Alliance,
as a mandatory prepayment on the Note, $175,000 from the first $1,000,000 of
financing proceeds GVI secures for development of Red Hawk(R). As of May 31,
1997 the principal balance of the trust deed note was $646,502 and accrued
interest, payable with ARDCO common stock, was $485,954.
Cotton Manor, a 19 acre development, currently includes 28 completed
condominiums (one two-story building with 16 units and three one-story
four-plexes) and recreational facilities including swimming pool, tennis courts,
and a putting green.
GVI currently intends to build an additional 102 cottages as marketing
of the project develops. Each cottage is part of a single, detached planned unit
development (PUD). Two cottage models have been completed. Approval to construct
the first 19 cottages has been obtained from the City of St. George.
Installation of the water, sewer and power lines for the 19 units is completed.
GVI has recently commenced marketing the cottages and believes that the initial
19 cottages can be sold within approximately two years. Building permits will be
obtained from the City of St. George as needed. Following the sale of the 19
units, known as Phase IV, GVI intends to commence marketing and developing
additional Phases.
Cotton Acres is a 61 acre development consisting of 259 lots. All 200
lots in Phases I-IX have been sold and dwelling units on such lots have been
completed. Development of Phase X, consisting of 19 lots has been completed.
These lots have been pre-sold and should all close prior to September, 1997.
Development and sale of the remaining lots should be completed within two years.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
No information is presented as to industry segments. The Company,
through its subsidiary GVIC, is presently engaged in the principal business of
developing residential and recreational real estate projects. The Finally
acquisition occurred in May, 1997 and the Fan-Tastic acquisition occurred in
March, 1997. The assets, equity, and operations of Fan-Tastic are each
respectively less than 10% of the Company's, and not material for separate
industry segment disclosure. Reference is made to the statements of operations
included herein in response to Part II, Item 7 of this Form 10-KSB for a
statement of the Company's revenues and operating profit (loss) for the past
three fiscal years.
<PAGE>
Item 2. Properties.
The Company's executive offices are located at 102 West 500 South,
Suite 400, Salt Lake City, Utah 84101. This office facility consists of
approximately 2,150 square feet and was being leased pursuant to a 24-month
lease which expired on May 31, 1997. The Company is paying $2,229 for the space
on a month-by-month basis. Management intends to renegotiate the lease, or move
to a different office space within the same building and sign a new lease for
multiple years. The Company shares this office space with GVI. The Company and
GVI have an oral agreement pursuant to which GVI pays the rent and certain
related overhead charges for both companies and the Company pays the salary of
certain of GVI's employees who provide part-time services to the Company.
Historically, the value of the rent and overhead charges paid by GVI
attributable to the Company have been approximately equal to the value of the
services provided by GVI employees on behalf of the Company, however no exact
accounting has been maintained.
GVIC's real estate holdings are comprised of one recreational and
residential development consisting of approximately 670 acres near St. George,
Utah named Red Hawk(R) International Golf & Country Club, and two residential
developments in St. George, Utah aggregating approximately 80 acres known as
Cotton Manor and Cotton Acres. See "Item 1. Business." for the related
encumbrances on these properties.
Fan-Tastic leases an office and warehouse space in Salt Lake City, Utah
and leases retail space for it's six stores. Lease commitments from fiscal 1998
through fiscal 2002 are $77,721, $59,653, $35,256 and $20,566.
Item 3. Legal Proceedings.
No legal proceeding is pending at this time.
Item 4. Submission of Matters to a Vote of Security Holders.
On February 20, 1997, an amendment to the Articles of Incorporation of
the Company was approved by written consent of certain shareholders owning
1,219,331 shares (66%) in lieu of a meeting, changing the name of the
corporation to American Resources and Development Company. A one-for-twenty
reverse split of the Company's common stock was also approved. These changes
became effective on March 27, 1997.
PART II
Item 5. Market for Common Equity & Related Stockholder Matters.
The Company's common stock is currently traded in the over-the-counter
market on the Electronic Bulletin Board under the symbol ADCO. The Company
intends to apply to have its common stock listed for trading on the National
Association of Securities Dealers Automated Quotation System (NASDAQ), although
there is no assurance that such listing will be obtained.
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The following table represents the average range of high and low bid
quotations for the calendar quarters indicated since the first quarter of 1995.
Calendar Quarters High Bid Low Bid
1995
1st Quarter 3.80 2.60
2nd Quarter 10.00 5.00
3rd Quarter 2.60 1.20
4th Quarter 3.80 1.20
1996
1st Quarter 3.80 1.20
2nd Quarter 3.80 1.20
3rd Quarter 3.00 1.20
4th Quarter 2.50 0.60
1997
1st Quarter 6.50 2.50
2nd Quarter 5.50 2.75
The foregoing quotations were obtained from broker-dealers and market
makers who provide daily reports of the NASD Electronic Bulletin Board. The
above quotes reflect inter-dealer prices without retail mark-up, mark-down, or
commissions and may not necessarily represent actual transactions.
As of June 30, 1997, the Company had 1,841,486 shares of its common
stock issued and outstanding, and there are 1,425 shareholders of record, which
figures do not take into consideration those shareholders whose certificates are
held in the name of broker-dealers.
As of the date hereof, the Company has not paid or declared any cash
dividends. The Company can give no assurance that it will generate future
earnings from which cash dividends can be paid. Future payment of dividends by
the Company, if any, is at the discretion of the Board of Directors and will
depend, among other criteria, upon the Company's earnings, capital requirements,
and its financial condition as well as other relative factors. Management has
followed the policy of retaining any and all earnings to finance the development
of its business. Such a policy is likely to be maintained as long as necessary
to provide working capital for the Company's operations.
RECENT SALES OF UNREGISTERED SECURITIES
On March 17, 1997 the Company acquired 80% of the outstanding shares of
Fantastic for 100,000 shares of the Company's Series D Convertible Preferred
Stock. The shares were exempt from registration pursuant to Section (4)(2) of
the Securities Act of 1933.
On May 20, 1997 the Company entered into an agreement with William R.
Vowell to form Finally Communities, Inc. In consideration of Mr. Vowell's time
and effort to develop the Finally business, the Company issued Mr. Vowell, or
his designee, 500,000 shares of Series E Convertible Preferred Stock. The shares
were exempt from registration pursuant to Section (4)(2) of the Securities Act
of 1933. Item 6. Management's Discussion & Analysis of Financial Condition &
Results of Operations.
<PAGE>
Item 6. Management's Discussion & Analysis of Financial Condition & Results of
Operations
RESULTS OF OPERATIONS
For the Year Ended March 31, 1997, Compared to the Year Ended March 31, 1996.
Total revenue for the fiscal year ended March 31, 1997 ("fiscal 1997")
decreased $460,675, 63%, to $274,000, compared with $734,675 for the fiscal year
ended March 31, 1996 ("fiscal 1996"). Income is comprised of the sale of lots
from Cotton Acres and condominiums from Cotton Manor. During fiscal 1997, 9 lots
were sold at an average price of $30,400. During the comparable prior year
period, 20 lots were sold at an average price of $24,000 and 3 condominium units
were sold at an average price of $84,700. The sales volume is dependent upon the
number of completed lots and condominiums in inventory. During the past year
GVI's available capital was used to develop Red Hawk and no funds were made
available to Cotton Manor or Cotton Acres for development and therefore no new
inventory was available for sale and sales decreased.
Cost of sales decreased by $354,462, 69%, to $158,066 for the fiscal
year ended March 31, 1997 from $512,528 for fiscal 1996. As a percentage of
total revenue, cost of sales decreased to 58% in the current year from 70% in
the prior year. Gross profit decreased $106,213, 48%, to $115,934 during fiscal
1997 from $222,147 during fiscal 1996. Gross profit as a percentage of total
revenue increased to 42% from 30% in fiscal 1996.
General and administrative expenses decreased $2,859,610, or 68%, to
$1,377,082 during fiscal 1997 from $4,236,692 during fiscal 1996. The decrease
was principally attributable to the 1996 issuance by GVI of 2,835,000 shares of
GVI stock valued at $1.00 per share in exchange for financial services, and GVI
issuing 350,000 shares of GVI stock in exchange for promotional services valued
at $1.00 per share. The decrease was offset somewhat by increases in legal fees
of $197,730, 202%.
The Company had other income of $241,863 during fiscal 1997 compared
with $232,173 during fiscal 1996 an increase of $9,690, 4%.
The Company experienced a net loss of $1,024,802 in fiscal 1997
compared with a net loss of $3.786.145 in fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had total assets of $13,323,105 and
total stockholders equity of $3,057,708 compared with total assets of $6,984,871
and total stockholders equity of $3,005,871 at March 31, 1996. The increase in
total assets of $6,338,234, 91% is due primarily to (i) recording $2,266,104 of
the Stucki land asset on the GVI balance sheet (ii) the addition of $2,200,000
in construction costs on the Red Hawk project (iii) $1,200,000 of capitalized
development related interest. Total liabilities at March 31, 1997 increased
$6,286,397, 158%, from $3,979,000 to $10,265,397. The increase is due to (i)
recording $2,266,104 of the Stucki debt corresponding to the land described
above (ii) loans from Miltex Industries of $3,238,805 for construction and
overhead in GVI (iii) an increase in current liabilities of $1,012,677 explained
below.
As of March 31, 1997, the Company had total current assets of
$1,336,961 and total current liabilities of $3,486,633 which results in a
current ratio of 0.38:1, compared to a current ratio of 0.68:1 as of March 31,
1996. The current ratio decrease was due to the decrease in year end cash of
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$742,894, 94%, from $790,744 at year end 1996 to $47,850 at March 31, 1997. The
decrease in cash reflects the slow down in real estate sales in GVI and the
decrease in borrowings during the fourth quarter of FY 1997. The decrease in
cash was offset somewhat by the increase in real estate inventories of $184,429,
25%, from $748,010 to $932,439 due primarily to the completion of an additional
townhome in the Cotton Manor development and the construction of an additional
19 lots in Phase X of Cotton Acres. There are now two townhomes being used as
models until they are sold.
Current liabilities at March 31, 1997 increased $1,012,677, 41%, over
the prior year due to an increase in accounts payable of $385,938, 50%, and an
increase in interest payable of $556,649, 100%, related to the ongoing interest
accrual for notes payable and an adjustment for prior periods.
The Company has historically satisfied its cash needs through the sale
of real estate in GVI and private placements of securities and secured
borrowings. During 1997, the Company's subsidiary GVI sold $274,000 of real
estate in Cotton Manor and Cotton Acres. This figure is substantially lower than
prior years due to the inability to raise sufficient funds to complete lot
development in Cotton Acres and Cotton Manor and make sales. During the year GVI
borrowed $3,238,805 from Miltex Industries of Geneva, Switzerland. (Miltex).
Approximately $2,000,000 of these funds were used to pay Granite Construction
Co. to start the rough grading on the golf course and the first phase of
residential lots in Red Hawk. Additionally, the Miltex funds were used to keep
the Stucki land note current and to pay overhead expenses. The construction at
Red Hawk has now stopped until further development money is raised.
Completion of Phase I in Red Hawk and the subsequent sale of lots in
Phase I will depend largely on GVI, with assistance from the Company, being able
to raise additional funds, preferably long term financing. GVI is pursuing
development loans in the $10,000,000 to $14,000,000 range. GVI will also
continue to develop and sell lots and townhomes in the Cotton Manor/Acres
developments as financing becomes available. These sales will not be sufficient
to financially support the Company and GVI's Red Hawk project. The Company's and
GVI's ongoing overhead and land obligations are approximately $75,000 per month.
Additionally, GVI has approximately $1,200,000 of long-term debt due during
1998. If the Company does not receive sufficient financing for the Red Hawk
project, the Company intends to meet its obligations through private or public
offerings of common and/or preferred stock for cash and additional borrowings.
No assurance can be given that the Company will succeed in obtaining sufficient
financing for Red Hawk or, if unsuccessful, that it will raise sufficient cash
to meet its obligations through the sale of securities or additional borrowings.
Item 7. Financial Statements and Supplementary Data.
The Following financial statements and documents are filed herewith on
the pages listed below, as part of Part II, Item 8 of this report.
Document .......................................................... Page
1. Financial Statements and Accounts Report:
Independent Auditor's Report.............................. F-3
Consolidated Balance Sheet............................... F-4
Consolidated Statements of Operations .................... F-6
Statement of Stockholders' Equity......................... F-7
Consolidated Statements of Cash Flows..................... F-8
Notes to Consolidated Financial Statements
Notes 1 through 11........................................ F-10
2. Financial Statement Schedules
Schedule VIII - Valuation and Qualifying Accounts......... F-19
Schedule X - Supplementary Income Statement Information... F-20
Schedule XI - Real Estate and Accumulated Depreciation.... F-21
<PAGE>
Other schedules are omitted because of the absence of conditions under
which they are required or because the required information is given in the
consolidated financial statements or notes thereto.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
This item is not applicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons.
All directors of the Company serve a term of one (1) year until the next
Annual Shareholders Meeting or until their death, resignation, retirement,
removal, disqualification, or until their successors have been elected and
qualified. Vacancies in the existing board are to be filled by a majority vote
of the remaining directors. Officers of the Company serve at the will of the
Board of Directors.
The following table sets forth the name and office held by each director
and officer of the company, followed by a brief resume of each individual.
NAME AGE POSITION HELD
Karl F. Badger 42 President, Chief Executive Officer and Director
Barry L. Papenfuss 37 Vice President and Director
Stephen B. Spencer 41 Secretary/Treasurer and Director
KARL F. BADGER, has been with the Company since 1992 working as the
Director of Shareholder Relations. He was appointed President, CEO and Director
of the Company upon resignation of George H. Badger, his father in December
1996. Prior to 1992, Mr. Badger was a licensed broker/principle for Rocky
Mountain Securities and Investments.
BARRY L. PAPENFUSS, Vice President and Director of the Company, is the
President of Fan-Tastic and has been with the Company since Fan-Tastic was
acquired by ARDCO in March, 1997. From 1990-1994, Mr. Papenfuss was the
controller of The Pro Image, a sports apparel company and from 1985-1990, was an
auditor with Deloitte and Touche, an international accounting firm. Mr.
Papenfuss graduated from Brigham Young University.
<PAGE>
STEPHEN B. SPENCER, Secretary/Treasurer and a Director of the Company,
is a Certified Public Accountant and has been the Controller of ARDCO since
1990. From 1988 to 1990, he worked for Mrs. Fields, Inc. as an Assistant
Financial Controller and then Controller, and from 1985 to 1988, he was the
Director of Operations for the Salt Lake Convention and Visitors Bureau. Mr.
Spencer became a director of the Company in June, 1991. Mr. Spencer is also the
Secretary/Treasurer and director of Golf Ventures, Inc., a subsidiary of the
Company and a publicly traded corporation.
DUANE H. MARCHANT is the President and CEO of Golf Ventures, Inc.
since January, 1993. From 1990 until 1995 he was a Director and President of
ARDCO. Mr. Marchant directly supervises all real estate activities in GVI. He
has been involved in real estate development for over twenty years.
GEORGE H. BADGER, resigned as President, Chief Executive Officer and a
Director of the Company on December 31, 1996. Mr. Badger served as a director
since June 1992, and was President since 1993. On October 9, 1996, Mr. Badger
was arraigned in the U.S. Federal District Court for the Southern District of
N.Y. on charges of conspiracy to commit securities fraud and criminal contempt.
Mr. Badger is cooperating fully with the U.S. Attorney in the investigation of
this matter.
Item 10. Executive Compensation.
The Company has not had a bonus, profit sharing, or deferred
compensation plan for the benefit of its employees, officers or directors.
The following table sets forth a summary of cash and non-cash
compensation for each of the last three fiscal periods ended March 31, 1997,
1996, and 1995, with respect to the Company's Chief Executive Officer. No
executive officer of the Company has earned a salary greater than $100,000
annually for any of the periods depicted.
Summary Compensation Table
Name and
Principal Position Year Salary
Karl F. Badger, 1997 $73,058
President & CEO 1996 $73,058
(from December, 1996 to present) 1995 $73,058
George H. Badger, 1997 $50,400
President & CEO 1996 $50,400
(from 1993 to December 1996) 1995 $50,400
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information, to the best knowledge of the
Company, as of June 30, 1997, with respect to the beneficial ownership of the
Company's Common Stock by (i) each person known by the Company to be the
beneficial owner of more than 5% of the Company's outstanding Common Stock; (ii)
each director; and (iii) all current directors and executive officers as a
group.
NAME AND ADDRESS OF NUMBER OF PERCENT
BENEFICIAL OWNER SHARES OWNED OF CLASS
- ----------------------------------- ------------- ---------
Banque SCS Alliance SA 948,336 51.50%
P.O. Box 880
12111 Geneva 3, Switzerland
George H. Badger 131,487 7.14%
102 West 500 South, Suite 400
Salt Lake City, UT 84101
Don Pickett, agent for 125,860 6.83%
Mindon Investment and The Stella Trust
P. O. Box 58548
Salt Lake City, UT 84101
Karl F. Badger 5 *
102 West 500 South, Suite 400
Salt Lake City, UT 84101
Barry L. Papenfuss 0(1) *
102 West 500 South, Suite 400
Salt Lake City, UT 84101
Stephen B. Spencer, Trustee 160,820(2) 8.73%
102 West 500 South, Suite 400
Salt Lake City, UT 84101
All Officers and Directors as a Group
(3 persons) 160,825 8.73%
*Less than 1%
Item 12. Certain Relationships and Related Transactions.
Since the beginning of the Company's last fiscal year, there have been
no transactions between the Company and any officer, director, nominee for
election as director, or any shareholder owning greater than five percent (5%)
of the Company's outstanding shares, nor any member of the above referenced
individuals' immediate family.
- --------
(1) Mr. Papenfuss is the holder 37,012 shares of the Company's Serie D
Convertible Preferred Stock. After June 30, 2000 and before September
30, 2000 the D Preferred is convertible at the option of the holder
into shares of the Company's common stock or the common stock of
Fantastic at a conversion rate to be determined based on net income of
Fantastic at the time of conversion and the trading price of the
Company's common stock. Additionally Mr. Papenfuss has received options
to acquire 56,903 shares of the Company's common stock valued at $2.00
per share. The options become available on June 1, 1999 if certain
income related performance goals have been met.
(2) These shares were issued with the intent of converting the Company's
debenture holders and Series B Convertible preferred shareholders to
common stock. These conversions have not taken place. Mr. Spencer will
hold these shares in trust until the conversions have taken place.
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.
(a) 3. Exhibits
The following exhibits are filed herewith or are incorporated
by reference to exhibits previously filed with the Securities and Exchange
Commission. The Company shall furnish copies of exhibits for a reasonable fee
(covering the expense of furnishing copies) upon request.
Exhibit No. Exhibit Name
3.1 (1) Articles of Incorporation
3.2 (2) Amendment to Articles of Incorporation
3.3 (1) By-Laws
3.4 (7) Amendment on name change
3.5 (7) Amendment on Series D designation
3.6 (7) Amendment on Series E designation
10.1 (1) Agreement with TechKNOWLOGY, Inc.
10.2 (1) Financing Agreement
10.3 (1) Exchange of Shares Agreement
10.4 (1) Option Contract
10.5 (1) Extension to Option Contract
10.6 (1) Further Amendment to Option Agreement
10.7 (1) Purchase Agreement
10.8 (1) Amendment to Purchase Agreement
10.9 (1) Addendum to Purchase Agreement
10.10 (1) Purchase Agreement (Stella Trust)
10.11 (2) Agreement of Joint Project
10.12 (2) Amendment to Agreement of Joint Project
10.13 (2) Dynamic American Option
10.14 (2) Land Sale Agreement
10.15 (2) Assignment of Trust Deed and Trust Deed Note
10.16 (2) Promissory Note (Johnson)
10.17 (3) TKI Dealer Agreement
10.18 (4) Modification Agreement
10.19 (4) Land Sales Agreement (Mindon)
10.20 (4) Sales Agreement (Property Alliance)
10.21 (5) Assignment Agreement
10.22 (6) Agreement with The Stella Trust and Mindon Investments (Pickett
Group)
10.23 (6) Acquisition Agreement with Golf Ventures, Inc.
10.24 (6) Settlement Agreement and General Release (TKI)
10.25 (7) Stock Purchase Agreement (Fantastic)
10.26 (7) Agreement (Vowell/Finally)
16.1 (2) Letter Regarding Change in Certifying Public Accountant
21.1 (7) Subsidiaries
23.1 (7) Consent of Independent Auditor
27.1 (7) Financial Data Schedule
99.1 (2) List of Third Party Loans to TechKNOWLOGY, Inc.
(28.1)*
99.2 (2) Lease of LTI Office
(28.2)*
99.3 (2) Financial Statements for years ended March 31, 1989, 1988 and
1987, and
(28.3)* quarter ended June 30, 1989, as prepared by Dale K. Barker Co.,
P.C.
99.4 (4) Class "A" Preferred Stock
(28.4)*
99.5 (4) Debenture
(28.5)*
<PAGE>
(1) Incorporated by reference to the Form 10 Registration
Statement filed with the Commission October 16, 1990,
File No. 0-18865.
(2) Incorporated by reference to Amendment No. 1 to Form 10
Registration Statement filed with the Commission May 23,
1991, File No. 0-18865.
(3) Incorporated by reference to Amendment No. 2 to Form 10
Registration Statement filed with the Commission August 12,
1991, File No. 0-18865.
(4) Incorporated by reference to Amendment No. 3 to Form 10
Registration Statement filed with the Commission November 13,
1991, File No. 0-18865.
(5) Incorporated by reference to Amendment No. 4 to Form 10
Registration Statement filed with the Commission February 13,
1992, File No. 0-18865.
(6) Incorporated by reference to Form 10-K for the year ended March
31, 1993
(7) Incorporated by reference to form 10-KSB for the year ended
March 31, 1997.
(*)Exhibits previously filed as Exhibits 28.1 through 28.5 are now depicted as
99.1 through 99.5.
(b) The Registrant filed a report on Form 8-K on March 17, 1997 outlining the
acquisition by the Company of Fan-Tastic, Inc. on March 17, 1997, identifying
the Company's name change from Leasing Technology, Inc. to American Resources
and Development Company and a one for twenty (1:20) reverse stock split effected
on the Company's common stock.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
(Registrant)
BY: /s/ KARL F. BADGER
----------------------
Karl F. Badger, President
Dated: July 11, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Signature Title Date
/s/ Karl F. Badger President, Chief Executive July 11, 1997
- ----------------------- Officer and Director
Karl F. Badger (Principal Executive Officer)
/s/ Barry L. Papenfuss Vice President and Director July 11, 1997
- -----------------------
Barry L. Papenfuss
/s/ Stephen B. Spencer Secretary/Treasurer and July 11, 1997
- ----------------------- Director (Chief Financial
Stephen B. Spencer Officer, Chief Accounting
Officer and Controller)
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Financial Statements
March 31, 1997 and 1996
<PAGE>
C O N T E N T S
Independent Auditors' Report ....................................... 3
Consolidated Balance Sheet ......................................... 4
Consolidated Statements of Operations .............................. 6
Consolidated Statements of Stockholders' Equity .................... 7
Consolidated Statements of Cash Flows ...............................8
Notes to the Consolidated Financial Statements .................... 10
Supplemental Schedules ............................................ 19
<PAGE>
INDEPENDENT AUDITORS' REPORT
Shareholders and Board of Directors
American Resources and Development Company
We have audited the accompanying consolidated balance sheet of American
Resources and Development Company at March 31, 1997 and the related consolidated
statements of operations, stockholders' equity, and cash flows for the years
ended March 31, 1997 and 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 American Resources
and Development Company at March 31, 1997 and the results of their operations
and their cash flows for the years ended March 31, 1997 and 1996 in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 10 to
the consolidated financial statements, the Company has incurred significant
losses since inception, has a substantial working capital deficit, and has debt
significantly in excess of stockholders' equity, all of which raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 10. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The supplemental schedules on pages 20 and 21 are
presented for purposes of additional analysis and are not a required part of the
basic consolidated financial statements. Such information has been subjected to
the auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic consolidated financial statements taken as a whole.
/s/ Jones, Jensen & Company
Jones, Jensen & Company
Salt Lake City, Utah
June 19, 1997
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Balance Sheet
ASSETS
March 31,
1997
CURRENT ASSETS ----------------
<S> <C>
Cash $ 47,850
Accounts receivable 41,349
Real estate inventories 932,439
Merchandise inventory 291,169
Prepaid and other current assets 23,682
Current portion of contract receivable 472
----------------
Total Current Assets 1,336,961
----------------
PROPERTY AND EQUIPMENT
Model home 133,954
Furniture, fixtures and equipment 146,412
Vehicle under capital lease 17,852
----------------
Total depreciable assets 298,218
Less: accumulated depreciation (97,965)
----------------
Net Property and Equipment 200,253
----------------
OTHER ASSETS
Land held for development (Note 2) 11,475,016
Goodwill (Note 9) 252,912
Long-term portion of contract receivable 55,993
Deposits 1,970
----------------
Total Other Assets 11,785,891
----------------
TOTAL ASSETS $ 13,323,105
================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31,
1997
CURRENT LIABILITIES ----------------
<S> <C>
Accounts payable $ 1,151,894
Accrued expenses and other current liabilities 1,108,635
Current portion of notes payable (Note 3) 1,213,866
Current portion of capital lease obligations (Note 4) 12,238
----------------
Total Current Liabilities 3,486,633
----------------
LONG-TERM DEBT
Commission payable 90,000
Long-term portion of notes payable (Note 3) 6,356,331
Long-term portion of capital lease obligations (Note 4) 13,394
Notes payable, related parties (Note 9) 319,039
----------------
Total Long-Term Debt 6,778,764
----------------
COMMITMENTS AND CONTINGENCIES (Note 8)
MINORITY INTEREST (Note 1) -
----------------
PREFERRED STOCK, CLASS D SHARES: par value
$0.001 per share; 100,000 and -0- shares
Issued and outstanding, respectively. (Note 6) -
----------------
STOCKHOLDERS' EQUITY
Preferred stock, par value $0.001 per share: 10,000,000
shares authorized; issued and outstanding: 102,220
Series B shares, 150,000 Series C shares (Note 6) 252
Common stock, par value $0.001 per share: 125,000,000
shares authorized; issued and outstanding: 1,835,486
shares issued and 1,674,666 shares outstanding, respectively
(See Note 7) 1,835
Additional paid-in capital 13,021,721
Accumulated deficit (9,966,100)
----------------
Total Stockholders' Equity 3,057,708
----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 13,323,105
================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Operations
For the Years Ended
March 31,
-------------------------------------
1997 1996
INCOME --------- --------
<S> <C> <C>
Real estate sales $ 274,000 $ 734,675
Cost of real estate sales 158,066 512,528
---------------- ----------------
Gross Profit on Real Estate Sales 115,934 222,147
---------------- ----------------
EXPENSES
Depreciation and amortization 5,517 3,773
General and administrative expenses 1,377,082 4,236,692
---------------- ----------------
Total Expenses 1,382,599 4,240,465
---------------- ----------------
LOSS FROM OPERATIONS (1,266,665) (4,018,318)
---------------- ----------------
OTHER INCOME AND (EXPENSES)
Other revenue 29,931 102,896
Interest income 38,817 5,683
Gain on sale of assets 215,375 149,463
Interest expense (42,260) (25,869)
---------------- ----------------
Total Other Income and (Expenses) 241,863 232,173
---------------- ----------------
NET LOSS BEFORE INCOME TAXES AND
MINORITY INTEREST (1,024,802) (3,786,145)
INCOME TAXES - -
---------------- ----------------
NET LOSS BEFORE MINORITY INTEREST (1,024,802) (3,786,145)
MINORITY INTEREST (Note 1) - -
---------------- ----------------
NET LOSS $ (1,024,802) $ (3,786,145)
================ ================
NET LOSS PER SHARE OF COMMON STOCK $ (0.56) $ (2.06)
================ ================
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 1,835,486 1,835,486
================ ================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCE AND DEVELOPMENT COMPANY
Statement of Stockholders' Equity
March 31, 1997 and 1996
Additional
Common Stock Preferred Stock Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit
--------- -------------- --------- ------------ -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1995 1,835,486 $ 1,835 252,220 $ 252 $ 7,679,394 $ (5,155,153)
Capital contributed by stock
issuances of a subsidiary - - - - 4,230,818 -
Net loss - - - - - (3,786,145)
----------- ---------- ------------- ----------- --------------- --------------
Balance, March 31, 1996 1,835,486 1,835 252,220 252 11,910,212 (8,941,298)
Capital contributions by stock
issuances of a subsidiary - - - - 1,111,509 -
Net loss - - - - - (1,024,802)
----------- ---------- ------------- ----------- --------------- --------------
Balance, March 31, 1997 1,835,486 $ 1,835 252,220 $ 252 $ 13,021,721 $ (9,966,100)
=========== ========== ============= =========== =============== ==============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Cash Flows
For the Years Ended March 31,
------------------------------------------
1997 1996
OPERATING ACTIVITIES -------- --------
<S> <C> <C>
Net Income (Loss) $ (1,024,802) $ (3,786,145)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,517 3,773
Common stock issued for services - 3,260,000
Changes in operating assets and liabilities:
(Increase) Decrease in inventory 5,936 416,782
(Increase) Decrease in notes and accounts
receivable 35,688 52,298
Increase (Decrease) in other current assets 58,024 (58,024)
Increase (Decrease) in accounts payable and
other current liabilities 708,273 402,577
---------------- -------------------
Net Cash Provided (Used) by Operating Activities (211,364) 291,261
---------------- -------------------
INVESTING ACTIVITIES
Purchases of property and equipment (32,610) (8,495)
Investment in land held for development (3,796,686) (708,276)
---------------- -------------------
Net Cash Provided (Used) by Investing Activities (3,829,296) (716,771)
---------------- -------------------
FINANCING ACTIVITIES
Cash from acquisition on subsidiary 19,954 -
Payments on long-term debt and capital lease obligations (1,045,324) (126,558)
Long-term borrowings 3,246,497 355,000
Contributions from subsidiary 1,076,639 -
Issuance of common and preferred stock for cash - 970,818
---------------- -------------------
Net Cash Provided (Used) by Financing Activities 3,297,766 1,199,260
---------------- -------------------
INCREASE (DECREASE) IN CASH (742,894) 773,750
CASH, BEGINNING OF YEAR 790,744 16,994
---------------- -------------------
CASH, END OF YEAR $ 47,850 $ 790,744
================ ===================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Cash Flows (Continued)
For the Years Ended March 31,
--------------------------------------
1997 1996
---------------- -------------------
CASH PAID FOR
<S> <C> <C>
Interest $ 370,046 $ 147,370
Income taxes $ - $ -
NON CASH FINANCING ACTIVITIES
Common stock issued for services $ - $ 3,260,000
Debt incurred for acquisition of inventory $ 190,365 $ -
Debt incurred for acquisition of land held for development $ 2,390,725 $ -
Debt incurred for acquisition of property and equipment $ 116,800 $ -
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
9
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
a. Organization
American Resources And Development Company (The Company) was
formed as a Utah company on March 31, 1983 under the name Leasing
Technologies Incorporated for the purpose of leasing equipment.
The Company has significantly increased its investing activities
which include startup companies, real estate development, and/or
other projects. Operations include related and non related party
transactions. In March 1997, the shareholders of the Company
approved a name change to America Resources and Development
Corporation. In addition, the shareholders also approved a
reverse split of its common stock on a 1 share for 20 share
basis. The accompanying consolidated financial statements reflect
this reverse split retroactively.
Effective March 17, 1997, the Company acquired 80% of the issued
and outstanding common stock of Fan-Tastic, Inc. (FTI), a Utah
corporation, in exchange for 100,000 shares of the Company's
class "D" preferred stock. This acquisition has been accounted
for using the purchase method in the acompanying consolidated
financial statements. See Note 9 for further discussion regarding
this transaction.
b. Property and Equipment
Property and equipment are recorded at cost. When assets are
retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts, and any
resulting gain or loss is reflected in income for the period.
The costs of maintenance and repairs are charged to income as
incurred. Renewals and betterments are capitalized and
depreciated over their estimated useful lives.
c. Depreciation
Depreciation is computed using the declining-balance method over
the estimated useful life of the assets (usually three years).
d. Net Loss Per Common Share
Net loss per common share is computed based on the weighted
average number of common shares outstanding during the period.
The common stock equivalents are anti-dilutive and, accordingly,
are not used in the net loss per common share computation.
10
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
e. Income Taxes
Income taxes consist of Federal Income and State Franchise taxes.
The Company has elected a March 31 fiscal year-end for both book
and income tax purposes.
The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards No. 109 (SFAS No.
109), "Accounting for Income Taxes," which requires the asset and
liability method of accounting for tax deferrals.
f. Cash and Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
g. Estimates
Management uses estimates and assumptions in preparing financial
statements. Those estimates and assumptions affect the
reported amounts of assets and liabilities, the disclosure
of commitments and contingencies, and the reported revenues and
expenses.
h. Concentrations of Risk
The Company maintains its cash in bank deposit accounts at high
credit quality financial institutions. The balances, at times,
may exceed federally insured limits.
The Company builds and develops real property in Southern Utah.
In the normal course of business the Company extends secured
credit to its customers.
i. Principles of Consolidation
The accompanying consolidated financial statements include
American Resources and Development Company (formerly Leasing
Technologies Incorporated) and its subsidiaries, Golf Ventures,
Inc. (GVI) and Fan-Tastic, Inc. (FTI), neither of which
are wholly owned by the Company.
All significant intercompany transactions have been eliminated in
the consolidated financial statements. The only significant
intercompany transactions are loans made by the Company to GVI.
The notes receivable on the books of the Company and the accrued
interest receivable have been eliminated against the liability on
the books of the subsidiaries and the related accrued interest
payable. The interest income accrued by the Company has been
eliminated against the interest expense accrued by the
subsidiary.
j. Inventories
Inventories are stated at the lower of cost or market using the
first-in, first-out method.
11
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
k. Profit Recognition and Capitalization of Costs Related to
Real Estate
Income on real estate is recognized in accordance with the
provisions os FASB-66. Revenue and profits from the sale of land
and other real estate have been recognized using the full accrual
method for all periods presented. As such, each sale has been
determined to have been consummated, with the buyers initial and
continuing investment determined to show adequate demonstration
of commitment to pay. In addition, all outstanding remaining
receivables related to these transactions are not subject to the
future subordination and the Company no longer has a substantial
continuing involvement with the property with the buyer
substantially assuming the usual risks and rewards of ownership
of the property.
Costs associated with real estate are accounted for in accordance
with the provisions of FASB-67. Accordingly, acquisition,
development and construction costs, including property taxes and
interest on associated debt and selling costs, are capitalized.
Such costs are specifically allocated to the related opponents
or, if relating to multiple components, allocated on a pro rata
basis as appropriate. Estimates are reviewed periodically and
revised as needed. The respective real estate projects are
also periodically reviewed to determine the that carrying amount
does not exceed the net realizable value. To date, no allowance
has had to be provided for estimated impairments of value based
on evaluation of the projects.
GVI recognizes gain on real estate sales in accordance with the
provisions of FASB-66.
l. Notes Receivable
Notes receivable are shown net of the allowance for bad debts of
$5,000 at March 31, 1997.
m. Goodwill
Goodwill resulting from the acquisition of FTI will be amortized
using the straight-line method over a 15 year period.
NOTE 2 - LAND HELD FOR DEVELOPMENT
On March 30, 1990 the Company purchased 486 acres of undeveloped
land from Karl Stucki and the Stucki Family Trust for $3,004,356,
and on July 31, 1990 the Company purchased 130 acres from Dynamic
American Company for $610,000 which makes up the Red Hawk real
estate development. On December 28, 1992, this real estate
development, together with Cotton Manor/Cotton Acres was
transferred to Golf Ventures, Inc. (GVI) in exchange for 3,273,728
shares of GVI common stock. The Red Hawk land (616 acres) is
undeveloped, and in order for GVI to realize its investment,
adequate financing will need to be obtained.
12
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
NOTE 2 - LAND HELD FOR DEVELOPMENT (CONTINUED)
For the years ended March 31, 1997, the Company capitalized
$1,093,468 in construction period interest costs. The cost of the
land is less than the estimated net realizable value of the land.
NOTE 3 - NOTES PAYABLE
Notes payable are comprised of the following:
<TABLE>
March 31,
1997
-----------------
<S> <C>
Convertible subordinated debentures,
due June 30, 1997 bearing interest at
12% per annum. Interest payable
quarterly, secured by land. $ 185,000
Promissory note payments through August
15, 2016 at $30,524 per year including
interest at 10% per annum. 201,890
Trust deed note payable, secured by land.
Interest accrued at 8% per annum. Payable
$100,000 per year plus the accrued interest
for that year. 355,890
Note payable, unsecured, bearing interest at 12%,
payable in monthly installments of $13,193, plus
interest. 105,546
Trust deed note, secured by land and 50,000 shares of the
Company's common stock. Interest accrued at 15% per annum.
Principal and interest due May 31, 1996. 80,575
Promissory note secured by land. Interest accrued at 10% per
annum, payable in shares of the Company's common stock. $120,000
plus a percentage of the proceeds of lot sales payable annually
beginning on February 1, 1991 through February 1, 1997 at which
time the balance will be due as a balloon payment. $2,000 from
each Red Hawk lot sale also applies to the note. 646,502
----------------
Balance forward $ 1,575,403
================
</TABLE>
13
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
NOTE 3 - NOTES PAYABLE (CONTINUED)
<TABLE>
March 31,
1997
-----------
<S> <C>
Balance forward $1,575,403
Promissory note secured by land, bearing interest at 10.5%.
Interest payable monthly with principal and any accrued interest
payable in full on June
10, 1999. 3,440,805
Purchase contract and note secured by land, bearing interest at
10%. Monthly installments of $25,000 due through May 15, 1998
with remaining principal and
accrued interest due in full. 2,246,823
Mortgage note payable secured by real estate bearing
interest at 11.5%. Due in monthly installment of $911. 90,915
Mortgage note payable secured by real estate bearing
interest at 8.125%. Due in monthly installments of $919. 116,800
Mortgage note payable secured by real estate bearing
interest at 8.125%. Due in monthly installments of $879. 99,451
----------------
Subtotal 7,570,197
Less current portion 1,213,866
Long-term portion $ 6,356,331
================
Maturities of long-term debt are as follows:
March 31, 1998 $ 1,213,866
1999 2,282,797
2000 3,557,065
2001 73,718
2002 19,559
Thereafter 423,192
----------------
$ 7,570,197
================
</TABLE>
14
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
NOTE 4 - CAPITAL LEASES
Property and equipment under capital leases as of March 31, 1997
is summarized as follows:
Property and equipment $ 35,255
Less accumulated depreciation (12,175)
----------------
Net property and equipment under capital lease $ 23,080
================
At March 31, 1997, the Company and its subsidiaries have capital
leases obligations as follows:
Year End
March 31
1998 $ 15,689
1999 13,492
2000 302
----------------
Total minimum lease payments 29,483
Less interest and taxes 3,851
----------------
Present value of net minimum
lease payments 25,632
Less current portion 12,238
----------------
Long-term portion of capital
lease obligations $ 13,394
================
NOTE 5 - INCOME TAXES
The Company had net operating loss carry-forwards available to
offset future taxable income. The Company has net operating loss
carry-forwards of approximately $9,900,000 to offset future tax
liabilities. The loss carry-forwards will begin to expire in 2007.
Deferred income taxes payable are made up of the estimated federal
and state income taxes on items of income and expense which due to
temporary differences between books and taxes are deferred. The
temporary differences are primarily caused by the use of the
equity method for reporting investment in subsidiaries. The
deferred tax asset is offset in full by a valuation allowance
because it can not be reasonably determined that the net operating
loss will be useable.
15
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
NOTE 6 - PREFERRED STOCK
The shareholders of the Company have authorized 10,000,000 shares
of preferred stock with a par value of $0.001. The terms of the
preferred stock are to be determined when issued by the board of
directors of the Company.
SERIES B:
At March 31, 1997, there are 102,220 shares of series B preferred
stock issue and outstanding. The holders of these series B
preferred shares are entitled to an annual cumulative cash
dividend of not less than sixty cents per share. At March 31,
1997, there is a total of $251,450 of accrued and unpaid dividends
related to the series B preferred stock which have been included
in the accompanying consolidated financial statements. These
series B preferred shares were convertible into shares of the
Company's common stock which conversion option expired March 31,
1995.
SERIES C:
In September 1991, the Company purchased the Cotton Manor real
estate project as follows:
Cash $ 23,601
Debt assumed 431,449
Promissory note 1,387,000
Series C preferred stock 750,000
----------
$ 2,592,050
============
The Company delivered to the seller, 150,000 shares of authorized
but previously unissued Series C preferred stock, which for the
purpose of the agreement were valued at $5.00 per share or a total
of $750,000. The shares of Series C preferred stock may be
redeemed by the Company at any time prior to September 3, 1997, by
the Company paying to the seller or its assigns, the sum of $5.50
cash per share if redeemed within 12 months from the date hereof;
$6.00 cash per share if redeemed between 12 and 24 months from the
date hereof; and $6.50 if redeemed between 24 and 36 months from
the date hereof; and $7.00 cash per share if redeemed between 36
and 48 months from the date hereof; and $7.50 cash per share if
redeemed within 48 and 60 months from the date hereof. Prior to
the Company redeeming the preferred shares to be issued to the
seller hereunder and prior to the third day of September, 1997,
the seller will have the right to convert any remaining shares of
preferred stock into shares of the Company's common stock at the
rate of 5 shares of common stock for each share of preferred stock
converted.
16
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
NOTE 6 - PREFERRED STOCK (CONTINUED)
CLASS D:
As discussed in Note 9, the Company issued 100,000 shares of
Series D preferred stock in exchange for 80% of the issued and
outstanding common stock of FTI. This Series D preferred stock
entitles the holder to dividends on the same basis had their
shares been converted into common stock. In addition, after
June 30, 2000 but before September 30, 2000, holders of these
Series D shares of preferred stock shall have the right to
convert such shares into shares of common stock of the Company at
the rate of the number of the Company's common stock equal to the
number that is represented by the total net income of FTI for the
three year period ended March 31, 2000 divided by $1,000,000 times
ten divided by seventy percent of the average trading price of the
Company's common stock on June 30, 2000. Or, after June 30, 2000
but before September 30, 2000, holders of these Series D preferred
shares may convert such shares into shares of FTI if the total net
income of FTI for the three year period ended March 31, 2000
is equal to or exceeds $1,000,000 at a rate equal to that number
of FTI common stock that is equal to 61.5% of the outstanding
common stock of FTI as of June 30, 2000, divided by 100,000.
Because of the conversion provisions of these Series D preferred
shares, they have been reflected separately from equity in the
accompanying consolidated financial statements.
NOTE 7 - COMMON STOCK ISSUED BUT NOT OUTSTANDING
The Company has issued 160,820 shares of common stock which have
been offered to the holders of the Series B preferred stock and
the debentures. The shares have not been accepted by the holders
of those investments as of the date of the consolidated financial
statements.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company is leasing its principle place of business on a month-
to-month basis for $2,229. The Company shares this office space
with GVI.
FTI leases office and warehouse space in Salt Lake City, Utah and
leases space for six retail stores in various locations. Lease
commitments for the years ended March 31, 1998 through March 31,
2002 are $77,721, $59,653, $35,256 and $20,566, respectively.
17
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1997 and 1996
NOTE 9 - ACQUISITION OF FAN-TASTIC, INC.
As discussed in Note 1, the Company acquired 80% of the issued and
outstanding common stock of Fan-Tastic, Inc. (FTI) in exchange for
the issuance of 100,000 shares of the Company's Series D preferred
stock. FTI is a franchiser and owner of retail entertainment and
sports stores doing business as Fan-A-Mania. The acquisition was
accounted for by the purchase method of accounting, and
accordingly, the purchase price has been allocated to assets
acquired and liabilities assumed based on their fair market
value at the date of acquisition. The acquired interest was
valued at $252,912, which represents liabilities assumed in excess
of assets acquired which has been reflected as goodwill. In
addition, the FTI acquisition involves contingent consideration
based on FTI achieving specified earnings (see Note 6). The
additional cost of contingent consideration shall be recognized
in the period that the contingency is resolved.
For the years ended March 31, 1997 and 1996, FTI sustained net
losses of $(101,314) and $(268,162) on gross revenues of $875,532
and $386,204, respectively.
Notes payable to related parties totaling $319,039 at March 31,
1997 as reflected in the accompanying consolidated financial
statements consists of the $269,039 payable to the now 20% common
stock shareholders of FTI and $50,000 payable to a significant
shareholder and former officer and director of the Company.
These balances are not expected to be repaid in the current period
and therefore have been reflected as long-term in the
accompanying consolidated financial statements.
NOTE 10 - GOING CONCERN
The accompanying financial statements have been prepared assuming
the Company will continue as a going concern. In order to carry
out its operating plans, the Company will need to obtain
additional funding from outside sources. The Company has received
funds from a private placement and plans to continue making
private placements of its Subsidiary's preferred and common stock.
There is no assurance that the Company will be able to obtain
sufficient funds from other sources as needed or that such funds,
if available, will be obtainable on terms satisfactory to the
Company. Management also intends to renegotiate the terms of its
debt for a longer repayment period.
NOTE 11 - SUBSEQUENT EVENT
In May 1997, the Company entered into an agreement with an
unrelated party to organize a corporation to develop and sell
vacation ownership interest in various resorts initially located
in the State of Arkansas and develop and market other new
vacation products. The unrelated party will serve as president of
the new corporation and will receive 500,000 shares of the
Company's newly issued Series E convertible preferred stock with
25,400 of those preferred shares immediately convertible into
common stock of the Company. The balance of the Series E preferred
stock is convertible into common stock of the Company after June
30, 1999. According to the terms of the agreement, the Company
arranged for a loan of $50,000 to be made to the new corporation.
One of the Company's subsidiaries, GVI has entered into
discussions with an unrelated company regarding a possible
business reorganization that would combine the two companies. The
unrelated company is extensively involved in golf course
construction and management.
18
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Supplemental Schedules
March 31, 1997 and 1996
Schedule VIII - Valuation and qualifying accounts
Allowance for returns and bad debts:
<TABLE>
<CAPTION>
Balance at Balance at
Beginning End of
of Year Additions Deductions Year
---------------- --------------- ----------------- ------------------
<S> <C> <C> <C> <C>
March 31, 1997 $ 5,000 $ - $ - $ 5,000
March 31, 1996 5,000 - - 5,000
<CAPTION>
Schedule X - Supplementary income statement information
For the Years Ended
March 31,
--------------------------------------
1997 1996
-------- --------
<S> <C> <C>
Maintenance and repair $ 35,749 $ 16,571
Depreciation and amortization 5,517 3,773
Taxes, other than payroll and income taxes 7,199 33,120
Royalties - -
Advertising 17,323 1,002
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Supplemental Schedules
March 31, 1997 and 1996
Schedule XI - Real Estate and Accumulated Depreciation
Life on
which
Costs Gross depreciation
capitalized amount in latest
(Disposals) at which Accumu- income
Initial subsequent carried lated Date of statements
cost to to at close deprec- construc- Date is
Description Encumbrances Company acquisition of period iation tion acquired computed
- --------------------------- -------------- --------- ----------- ----------- --------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Red Hawk Development
St. George, Utah
Undeveloped Land
Convertible subordinated
Debentures $ 185,000
Foss Lewis Construction,
Trust Deed Note 80,575
Miltex Industries, Ltd.
Promissory Note 3,440,805
Daniel C. Watson
Trust Deed Note 355,890
Stucki income trust,
Trust Deed Note 2,246,823
$ 6,309,093 $ 4,135,000 $ 6,242,166 $ 10,377,166 $ N/A 7-8-96 3-30-90 N/A
============ ============= =========== ============ ========= ========= ========== ==========
Cotton Manor/Cotton
Acres Dev.
St. George, Utah
Improved residential
Blaine Harmon Family
Trust, Promissory Note $ 201,890
Property Alliance, Inc.
Promissory Note 646,502
$ 848,392 $ 1,902,130 $ (804,280) $ 1,097,850 $ N/A 9-1-91 9-1-91 N/A
=========== ============ =========== =========== ========= ========= ========= ==========
</TABLE>
20
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
LEASING TECHNOLOGY INCORPORATED
LEASING TECHNOLOGY INCORPORATED (THE "CORPORATION"), PURSUANT TO THE
PROVISION OF SS. 16-10A-1006 OF THE UTAH REVISED BUSINESS CORPORATION ACT HEREBY
ADOPTS AND FILES THESE ARTICLES OF AMENDMENT AS AN AMENDMENT TO THE
CORPORATION'S ARTICLES OF INCORPORATION.
1. THE NAME OF THE CORPORATION IS LEASING TECHNOLOGY
INCORPORATED.
2. THE FOLLOWING AMENDMENT IS MADE TO THE ARTICLES OF
INCORPORATION:
ARTICLE I OF THE ARTICLES OF INCORPORATION IS AMENDED SO THAT
IT SHALL READ IN ITS ENTIRELY AS FOLLOWS:
ARTICLE I
NAME
THE NAME OF THIS CORPORATION IS AMERICAN RESOURCES AND
DEVELOPMENT COMPANY.
3. THE AMENDMENT SET FORTH IN PARAGRAPH 2 ABOVE WAS ADOPTED BY
THE SHAREHOLDERS OF THE CORPORATION ON FEBRUARY 20, 1997.
4. THE NUMBER OF SHARES ENTITLED TO VOTE AND VOTING ON THE
AMENDMENT WERE:
OUTSTANDING SHARES SHARES VOTING PERCENT OF
ENTITLED TO VOTE FOR THE AMENDMENT SHARES ENTITLED
COMMON: 36,704,644 24,386,623 66%
PREFERRED: 252,220
COMMON AND PREFERRED SHARES VOTE AS A SINGLE CLASS. THE AMENDMENT WAS
APPROVED BY WRITTEN CONSENT OF CERTAIN SHAREHOLDERS IN LIEU OF A MEETING AND
WILL BECOME EFFECTIVE ON OR ABOUT MARCH 27, 1997. THE SHARES VOTED IN FAVOR OF
THE AMENDMENT WERE SUFFICIENT TO APPROVE THE AMENDMENT.
1
<PAGE>
THE UNDERSIGNED HEREBY ACKNOWLEDGES UNDER PENALTY OF PERJURY THAT HE
HAS EXECUTED THESE ARTICLES OF AMENDMENT ON BEHALF OF THE CORPORATION AND THAT
THE FACTS STATED HEREIN ARE TRUE.
DATED: MARCH ____, 1997 -----------------------
KARL BADGER, PRESIDENT
2
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
Of
Series D Convertible Preferred Stock
Of
LEASING TECHNOLOGY INCORPORATED
Pursuant to Section 16-10a-602 Utah Revised
Business Corporation Act
We, Karl Badger, President and Stephen B. Spencer, Secretary of
Leasing Technology Incorporated, a corporation organized and existing under the
Laws of the State of Utah, in accordance with the provisions of Section
16-10a-602 thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors
by the Certificate of Incorporation of said Corporation, the said Board of
Directors on February 20, 1997, adopted a resolution creating a series of Series
D Convertible Preferred Stock and that the designations and amounts thereof and
the powers, preferences and relative, participating, optional and other special
rights of the shares of such series, and the qualifications, limitations or
restrictions thereof are as follows:
1. Designation of Series and Number of Shares.
A series of Preferred Stock is hereby designated "Series D Convertible
Preferred Stock" (hereinafter referred to as "Series D Preferred Stock"), and
the number of shares which shall constitute such Series shall be 300,000 shares,
which number of shares may be increased or decreased (but not below the number
of shares thereof then outstanding) from time to time by the Board of Directors.
Shares of Series D Preferred Stock shall be issued and become outstanding as
determined by the Board of Directors from time to time.
2. Dividends.
If dividends are declared on the Common Stock of the Corporation, the
holders of Series D Preferred Stock shall be entitled to receive such dividends
as they would have received had their shares of Series D Preferred Stock been
converted into common shares. The holders of Series D Preferred Stock shall be
entitled to such dividends even if their shares of Series D Preferred Stock are
not eligible to be converted into common shares at the time the dividends are
- 1 -
<PAGE>
declared. Notwithstanding the foregoing, the holder of Series D Preferred Stock
shall not be entitled to receive any dividend with respect to any spinoff or
distribution of the shares of Golf Ventures, Inc. in the event such shares are
distributed to the Shareholders of the Corporation. Other than as described
above, the holders of Series D Preferred Stock shall not be entitled to receive
any dividends.
3. Conversion of Series D Preferred Stock into Common Stock.
The holders of record of Series D Preferred Stock shall have the
right, at their option, to convert such shares into shares of common stock of
the Corporation ("LTI Common Stock") or of common stock of Fan-Tastic, Inc.
("FTI Common Stock") in accordance with and subject to the following terms and
conditions:
(a) After June 30, 2000 and before September 30, 2000, each
outstanding share of Series D Preferred Stock may be convertible into fully paid
and non- assessable shares of LTI Common Stock at the rate of that number of LTI
Common Stock equal to the number that is represented by the total net income of
Fan-Tastic, Inc. for the three (3) year period ended March 31, 2000 divided by
$1,000,000 times ten (10) divided by seventy percent (70%) of the average
trading price of the LTI Common Stock, with June 30, 2000 being the
determination date.
(b) After June 30, 2000 and before September 30, 2000, if the total
net income of Fan-Tastic, Inc. for the three (3) year period ended March 31,
2000 is equal to or exceeds $1,000,000, each share of Series D Preferred Stock
may be convertible into fully paid and non-assessable shares of common stock of
Fan-Tastic, Inc. at a rate equal to that number of Fan-Tastic Common Stock that
is equal to sixty one and one half percent (61.5%) of the outstanding common
stock of Fan-Tastic, Inc. as of June 30, 2000, divided by 100,000.
(c) Each holder of a Series D Preferred Stock may elect to convert
pursuant to paragraph 3(a) or 3(b) above.
(d) Within 100 days of the end of the Corporation's fiscal year dated
March 31, 2000, the Corporation shall give notice to all holders of record of
the Series D Preferred Stock of their right to convert and the notice shall set
forth the calculation by the Corporation of the number of LTI Common Stock or
FTI Common Stock into which the Series D Preferred Stock is convertible. In the
event the holders of the Series D Preferred Stock question the calculation of
the Corporation, the determination of the Corporation's independent auditor
shall be final and binding on the holders of the Series D Preferred Stock.
Within 90 days of receipt of the notice from the Corporation, the holders of
- 2 -
<PAGE>
record of the Series D Preferred Stock shall have the right to give notice in
writing to the Corporation of the election to convert the Series D Preferred
Stock and whether they desire to convert pursuant to paragraph 3(a) or 3(b).
(e) In the event all shares of Series D Preferred Stock have not been
converted into either LTI Common Stock or FTI Common Stock by October 15, 2000
the same shall be automatically converted into LTI or FTI Common Stock based
upon the stock which a majority of the holders of Series D Preferred Stock who
have converted elected to convert to. In addition, at such time as a
registration statement shall be filed with the United States Securities and
Exchange Commission to register the common shares of Fan-Tastic, Inc. to be
distributed or sold to the public, the right pursuant to paragraph 3(b) to
convert the Series D Preferred Stock into FTI Common Stock shall terminate. Not
less than 30 days prior to such a registration statement being filed, the
Corporation shall give written notice to the holders of record of the Series D
Preferred Stock of their final right to convert into FTI Common Stock. This
right must be exercised within 10 days of receipt of the notice from the
Corporation.
(f) In order to receive share certificates representing the Common
Stock into which the Series D Preferred Stock was converted, the holder thereof
shall surrender to the Corporation the certificate or certificates for Series D
Preferred Stock (or, in the case of a lost or destroyed certificate, proof of
loss or destruction and indemnity as required by the Corporation). The
Corporation will, as soon as practicable thereafter, deliver to such holder, or
to his nominee or nominees, a certificate or certificates for the number of full
shares of Common Stock to which he shall be entitled as aforesaid, together with
an amount in cash with respect to any fractional share, as provided in Paragraph
6.
(g) The conversion rate provided in clause (ii) above shall be subject
to adjustment as set forth in Paragraph 6. Upon each adjustment of the
conversion rate a written instrument signed by an officer of the Corporation
setting forth the adjustment and accompanied by an opinion of an independent
public accountant or accountants (who may be the independent public accountant
or accountants then acting as auditor or auditors for the Corporation) setting
forth the computation of the adjustment and a summary of the facts upon which it
is based, together with a copy of the resolutions, if any, of the Board of
Directors passed in connection therewith, shall forthwith be filed with the
Transfer Agent for the Series D Preferred Stock and made available for
inspection by stockholders, and any adjustment so evidenced, made in good faith,
shall be binding upon all stockholders and the Corporation.
(h) All shares of the Series D Preferred Stock which shall have been
converted into Common Stock as herein provided shall not be reissued as Series D
Preferred Stock but shall have the status of authorized and unissued shares of
Preferred Stock undesignated as to series.
- 3 -
<PAGE>
4. Priority of Series D Preferred Stock on Dissolution.
In the event of any dissolution, liquidation or winding-up of the
affairs of the Corporation, whether voluntary or involuntary, after payment or
provision for payment of the debts and other liabilities of the Corporation, the
holders of Series D Preferred Stock shall be entitled to receive, out of the net
assets of the Corporation, an amount equal to $10.00 per share and no more,
before any distribution shall be made to the holders of Common Stock; provided,
however, that no such distribution shall be made to the holders of Series D
Preferred Stock unless at the same time a like proportionate distribution shall
be made, ratably in proportion to the respective amounts payable upon
dissolution, liquidation or winding-up of the affairs of the Corporation, to the
holders of all shares of Preferred Stock of all other series, if any, then
outstanding and ranking as to distribution of assets on a parity with the Series
D Preferred Stock. Neither the merger or consolidation of the Corporation, nor
the sale, lease or conveyance of all or a part of its assets, shall be deemed to
be a liquidation, dissolution or winding- up of the affairs of the Corporation
within the meaning hereof.
5. Voting Powers of Series D Preferred Stock.
(a) The holders of Series D Preferred Stock shall have no voting
rights except as specifically provided by this Paragraph 5 and by applicable
law.
(b) The holders of all of the outstanding Series D Preferred Stock, as
a class, shall have the right to elect one member to the Board of Directors of
the Corporation.
(c) Without the affirmative vote or written consent of the holders of
the least one-half of the aggregate number of shares of Series D Preferred Stock
outstanding, unless the vote or consent of a greater number of shares shall then
be required by law, the Corporation shall not, by action of the Articles of
Incorporation, or by an amendment to the Articles of Incorporation or by merger
or consolidation or in any other manner, (A) authorize any class or series of
stock, or designate any series of the Preferred Stock ranking, either as to the
payment of dividends or distribution of assets, prior to the Series D Preferred
Stock or (B) change the rights, preferences or limitations with respect to the
Series D Preferred Stock in any material respect prejudicial to the holders
thereof, but nothing herein contained shall, except as provided in subclause (A)
of this clause (ii) of Paragraph 5(b), require such a vote or consent (1) in
connection with any increase in the total number of authorized shares of Common
Stock or Preferred Stock, or of any series of Preferred Stock, not ranking prior
to the Series D Preferred Stock as to payment of dividends or distribution of
assets, (2) in connection with the authorization or increase of any class or
series of stock ranking junior to or on a parity with the Series D Preferred
- 4 -
<PAGE>
Stock as to payment of dividends and distribution of assets, or (3) in
connection with the fixing of any of the particulars of shares of other series
of Preferred Stock, not ranking prior to the Series D Preferred Stock as to
payment of dividends or distribution of assets, that may be fixed by the Board
of Directors as provided in the Articles of Incorporation.
6. Adjustment of Conversion Rate.
The rate at which each share of Series D Preferred Stock may be
converted into Common Stock (hereinafter called the conversion rate) shall be
subject to the following adjustments:
(a) While any such shares of the Series D Preferred Stock shall be
outstanding, in case this Corporation shall subdivide the outstanding shares of
Common Stock into a greater number of shares of Common Stock, or combine the
outstanding shares of Common Stock into a smaller number of shares of Common
Stock, the conversion rate in effect immediately prior to such subdivision or
combination, as the case may be, shall be proportionately increased or
decreased, as the case may require, such increase or decrease to become
effective immediately after the opening of business on the date following the
day upon which such subdivision or combination becomes effective.
(b) Any dividend to holders of Common Stock in shares of Common Stock
equal in number to twenty-five percent (25%) or more of the total number of
shares of the Common Stock outstanding at the closing of business on the record
date fixed for the determination of the stockholders entitled to such dividend
shall be considered a subdivision of the outstanding shares of Common Stock (and
not a dividend under clause (c) of this Paragraph 6) and an adjustment in the
conversion rate shall be made in accordance with the provisions of clause (a) of
this Paragraph 6 with respect to the subdivision of outstanding shares of Common
Stock.
(c) If this Corporation shall declare and pay to the holders of the
Common Stock a dividend in Common Stock, the conversion rate in effect
immediately prior to the record date fixed for the determination of the
stockholders entitled to such dividend shall be increased proportionately to the
amount of Common Stock so paid as a dividend, such adjustment to become
effective immediately after the opening of business on the day following the
record date for the determination of the Corporation's stockholders entitled to
receive such dividend. If the Corporation shall declare and pay to the holders
of the Common Stock a dividend in any securities of the Corporation convertible
into Common Stock, such dividend shall, for all purposes of clause (c) of this
Paragraph 6, be deemed a dividend of the maximum number of shares of Common
- 5 -
<PAGE>
Stock into which such securities are convertible, but shall no longer be deemed
such a dividend in Common Stock whenever and to the extent that such right of
conversion shall terminate without having been exercised.
(d) No adjustment of the conversion rate shall be made by reason of
the issuance of common stock in exchange for cash, property or services.
(e) In case the Corporation shall be recapitalized or shall be consolidated with
or merged into, or shall sell or transfer its property and assets as, or
substantially as, an entirety, proper provisions shall be made as part of the
terms of such recapitalization, consolidation, merger, sale or transfer whereby
the holder of any shares of the Series D Preferred Stock outstanding immediately
prior to such event shall thereafter be entitled to such conversion rights with
respect to securities of the corporation resulting from such recapitalization,
consolidation or merger, or to which such sale or transfer shall be made, as
shall be substantially equivalent to the conversion rights provided for herein
with respect to such Series D Preferred Stock.
(f) No fraction of a share of Common Stock shall be issued upon any
conversion but, in lieu thereof, there shall be paid an amount in cash equal to
the same fraction of the market value of a full share of Common Stock.
(g) Notwithstanding the above provisions of this paragraph 6, no
adjustment shall be made in the rate of conversion of the Series D Preferred
Stock into Common Stock as a result of the reverse stock split currently
contemplated by the Corporation whereby the existing Common Stock will be
reverse split on a one-for-twenty basis on or about March 27, 1997.
7. No Stock Repurchases.
Notwithstanding anything to the contrary herein or in the Articles of
Incorporation of the Corporation, no shares of any other class or series of
Preferred Stock or of Common Stock, other than the outstanding Series C
Preferred Stock of the Corporation, shall be purchased or redeemed by the
Corporation without the affirmative vote of the holders of a majority of the
outstanding shares of Series D Preferred Stock.
8. Other Rights.
Except as provided by law, the shares of Series D Preferred Stock
shall not have any designation, preferences, or relative, participating,
optional or other special rights, or qualifications, limitations or restrictions
thereof, other than as set forth herein and in the Articles of Incorporation of
this Corporation.
- 6 -
<PAGE>
9. Definitions.
(a) As used in this document "net income" shall mean all revenues less
all expenses before interest and tax.
(b) "Average trading price" or "market value" shall be the average of
the daily closing prices for the 20 consecutive trading days ending on the last
full trading day on the exchange or market specified in the succeeding sentence
prior to the determination date. The closing price for any day shall be the last
reported sale price or, in case no such reported sale takes place on such day,
the average of the closing bid and asked prices for such day, in each case (1)
on the principal national securities exchange on which the shares of Common
Stock are listed or to which such shares are admitted to trading or (2) if the
Common Stock is not listed or admitted to trading on a national securities
exchange, in the over-the-counter market as reported by NASDAQ or any comparable
system or (3) if the Common Stock is not listed on NASDAQ or a comparable
system, as furnished by two members of NASDAQ selected from time to time in good
faith by the Board of Directors of the Corporation for that purpose. In the
absence of all of the foregoing, or if for any other reason the current market
price per share cannot be determined pursuant to the foregoing provisions of
this paragraph, the current market price per share shall be the fair market
value thereof as determined in good faith by the Board of Directors of the
Corporation.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate of
Designations and do affirm the foregoing as true under penalties of perjury this
17th day of March, 1997.
ATTEST:
-------------------------------- -----------------------------------
Stephen B. Spencer, Secretary Karl Badger, President
- 7 -
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
Of
Series E Convertible Preferred Stock
Of
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Pursuant to Section 16-10a-602 Utah Revised
Business Corporation Act
We, Karl Badger, President and Stephen B. Spencer, Secretary of
American Resources and Development Company, a corporation organized and existing
under the Laws of the State of Utah, in accordance with the provisions of
Section 16-10a-602 thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors
by the Certificate of Incorporation of said Corporation, the said Board of
Directors on May 20, 1997, adopted a resolution creating a series of Series E
Convertible Preferred Stock and that the designations and amounts thereof and
the powers, preferences and relative, participating, optional and other special
rights of the shares of such series, and the qualifications, limitations or
restrictions thereof are as follows:
1. Designation of Series and Number of Shares.
A series of Preferred Stock is hereby designated "Series E Convertible
Preferred Stock" (hereinafter referred to as "Series E Preferred Stock"), and
the number of shares which shall constitute such Series shall be 500,000 shares,
which number of shares may be increased or decreased (but not below the number
of shares thereof then outstanding) from time to time by the Board of Directors.
Shares of Series E Preferred Stock shall be issued and become outstanding as
determined by the Board of Directors from time to time.
2. Dividends.
No dividends shall be payable on the Series E Convertible Preferred
Stock.
3. Conversion of Series E Preferred Stock into Common Stock.
The holders of record of Series E Preferred Stock shall have the right
to convert such shares into shares of common stock of the Corporation ("Common
Stock") in accordance with and subject to the following terms and conditions:
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<PAGE>
(a) 25,400 shares of Series E Preferred Stock shall be immediately
convertible into 25,400 shares of Common Stock.
(b) After June 30, 1999 and before September 30, 1999, each
outstanding share of Series E Preferred Stock may be convertible into fully paid
and non-assessable shares of Common Stock.
The aggregate number of shares of Common Stock into which all
500,000 Series E Preferred Stock shall be converted shall be that number equal
to 500,000 divided by $5,000,000 multiplied by the number that is equal to the
net pre-tax income of Finally Communities, Inc. for the two year period ended
March 31, 1999 multiplied by ten and divided by the Average Trading Price of the
Common Stock (hereinafter the "Aggregate Number"). Each outstanding share of
Series E Preferred Stock is convertible into the number of shares equal to the
Aggregate Number minus 25,400 divided by 474,600.
(c) Within 100 days of the end of the Corporation's fiscal year dated
March 31, 1999, the Corporation shall give notice to all holders of record of
the Series E Preferred Stock of their right to convert and the notice shall set
forth the calculation by the Corporation of the number of Common Stock into
which the Series E Preferred Stock is convertible. In the event the holders of
the Series E Preferred Stock question the calculation of the Corporation, the
determination of the Corporation's independent auditor shall be final and
binding on the holders of the Series E Preferred Stock.
(d) In the event all shares of Series E Preferred Stock have not been
converted into Common Stock by October 15, 1999 the same shall be automatically
cancelled and shall become null and void.
(e) In order to receive share certificates representing the Common
Stock into which the Series E Preferred Stock was converted, the holder thereof
shall surrender to the Corporation the certificate or certificates for Series E
Preferred Stock (or, in the case of a lost or destroyed certificate, proof of
loss or destruction and indemnity as required by the Corporation). The
Corporation will, as soon as practicable thereafter, deliver to such holder, or
to his nominee or nominees, a certificate or certificates for the number of full
shares of Common Stock to which he shall be entitled as aforesaid, together with
an amount in cash with respect to any fractional share, as provided in Paragraph
6.
(f) The conversion rate provided in clause (ii) above shall be subject
to adjustment as set forth in Paragraph 6. Upon each adjustment of the
conversion rate a written instrument signed by an officer of the Corporation
setting forth the adjustment and accompanied by an opinion of an independent
public accountant or accountants (who may be the independent public accountant
or accountants then acting as auditor or auditors for the Corporation) setting
forth the computation of the adjustment and a summary of the facts upon which it
2
<PAGE>
is based, together with a copy of the resolutions, if any, of the Board of
Directors passed in connection therewith, shall forthwith be filed with the
Transfer Agent for the Series E Preferred Stock and made available for
inspection by stockholders, and any adjustment so evidenced, made in good faith,
shall be binding upon all stockholders and the Corporation.
(g) All shares of the Series E Preferred Stock which shall have been
converted into Common Stock as herein provided shall not be reissued as Series E
Preferred Stock but shall have the status of authorized and unissued shares of
Preferred Stock undesignated as to series.
4. Priority of Series E Preferred Stock on Dissolution.
In the event of any dissolution, liquidation or winding-up of the
affairs of the Corporation, whether voluntary or involuntary, after payment or
provision for payment of the debts and other liabilities of the Corporation, the
holders of Series E Preferred Stock shall be entitled to receive, out of the net
assets of the Corporation, an amount equal to $5.00 per share and no more,
before any distribution shall be made to the holders of Common Stock; provided,
however, that no such distribution shall be made to the holders of Series E
Preferred Stock unless at the same time a like proportionate distribution shall
be made, ratably in proportion to the respective amounts payable upon
dissolution, liquidation or winding-up of the affairs of the Corporation, to the
holders of all shares of Preferred Stock of all other series, if any, then
outstanding and ranking as to distribution of assets on a parity with the Series
E Preferred Stock. Neither the merger or consolidation of the Corporation, nor
the sale, lease or conveyance of all or a part of its assets, shall be deemed to
be a liquidation, dissolution or winding-up of the affairs of the Corporation
within the meaning hereof.
5. Voting Powers of Series E Preferred Stock.
(a) The holders of Series E Preferred Stock shall have no voting
rights except as set forth in Paragraph 5(b).
(b) Without the affirmative vote or written consent of the holders of
at least one-half of the aggregate number of shares of Series E Preferred Stock
outstanding, unless the vote or consent of a greater number of shares shall then
be required by law, the Corporation shall not, by action of the Articles of
Incorporation, or by an amendment to the Articles of Incorporation or by merger
or consolidation or in any other manner change the rights, preferences or
limitations with respect to the Series E Preferred Stock in any material respect
prejudicial to the holders thereof.
6. Adjustment of Conversion Rate.
The rate at which each share of Series E Preferred Stock may be
converted into Common Stock (hereinafter called the conversion rate) shall be
subject to the following adjustments:
(a) While any such shares of the Series E Preferred Stock shall be
outstanding, in case this Corporation shall subdivide the outstanding shares of
Common Stock into a greater number of shares of Common Stock, or combine the
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<PAGE>
outstanding shares of Common Stock into a smaller number of shares of Common
Stock, the conversion rate in effect immediately prior to such subdivision or
combination, as the case may be, shall be proportionately increased or
decreased, as the case may require, such increase or decrease to become
effective immediately after the opening of business on the date following the
day upon which such subdivision or combination becomes effective.
(b) Any dividend to holders of Common Stock in shares of Common Stock
equal in number to twenty-five percent (25%) or more of the total number of
shares of the Common Stock outstanding at the closing of business on the record
date fixed for the determination of the stockholders entitled to such dividend
shall be considered a subdivision of the outstanding shares of Common Stock (and
not a dividend under clause (c) of this Paragraph 6) and an adjustment in the
conversion rate shall be made in accordance with the provisions of clause (a) of
this Paragraph 6 with respect to the subdivision of outstanding shares of Common
Stock.
(c) If this Corporation shall declare and pay to the holders of the
Common Stock a dividend in Common Stock, the conversion rate in effect
immediately prior to the record date fixed for the determination of the
stockholders entitled to such dividend shall be increased proportionately to the
amount of Common Stock so paid as a dividend, such adjustment to become
effective immediately after the opening of business on the day following the
record date for the determination of the Corporation's stockholders entitled to
receive such dividend. If the Corporation shall declare and pay to the holders
of the Common Stock a dividend in any securities of the Corporation convertible
into Common Stock, such dividend shall, for all purposes of clause (c) of this
Paragraph 6, be deemed a dividend of the maximum number of shares of Common
Stock into which such securities are convertible, but shall no longer be deemed
such a dividend in Common Stock whenever and to the extent that such right of
conversion shall terminate without having been exercised.
(d) No adjustment of the conversion rate shall be made by reason of
the issuance of common stock in exchange for cash, property or services.
(e) In case the Corporation shall be recapitalized or shall be
consolidated with or merged into, or shall sell or transfer its property and
assets as, or substantially as, an entirety, proper provisions shall be made as
part of the terms of such recapitalization, consolidation, merger, sale or
transfer whereby the holder of any shares of the Series E Preferred Stock
outstanding immediately prior to such event shall thereafter be entitled to such
conversion rights with respect to securities of the corporation resulting from
such recapitalization, consolidation or merger, or to which such sale or
transfer shall be made, as shall be substantially equivalent to the conversion
rights provided for herein with respect to such Series E Preferred Stock.
(f) No fraction of a share of Common Stock shall be issued upon any
conversion but, in lieu thereof, there shall be paid an amount in cash equal to
the same fraction of the market value of a full share of Common Stock.
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<PAGE>
7. Other Rights.
Except as provided by law, the shares of Series E Preferred Stock
shall not have any designation, preferences, or relative, participating,
optional or other special rights, or qualifications, limitations or restrictions
thereof, other than as set forth herein and in the Articles of Incorporation of
this Corporation. The Series E Preferred Stock shall not be assignable without
the prior written consent of the Corporation.
8. Definitions.
(a) As used in this document "net income" shall mean all revenues less
all expenses before interest and tax.
(b) "Average trading price" or "market value" shall be the average of
the daily closing prices for the 20 consecutive trading days ending on the last
full trading day on the exchange or market specified in the succeeding sentence
prior to the determination date. The closing price for any day shall be the last
reported sale price or, in case no such reported sale takes place on such day,
the average of the closing bid and asked prices for such day, in each case (1)
on the principal national securities exchange on which the shares of Common
Stock are listed or to which such shares are admitted to trading or (2) if the
Common Stock is not listed or admitted to trading on a national securities
exchange, in the over-the-counter market as reported by NASDAQ or any comparable
system or (3) if the Common Stock is not listed on NASDAQ or a comparable
system, as furnished by two members of NASDAQ selected from time to time in good
faith by the Board of Directors of the Corporation for that purpose. In the
absence of all of the foregoing, or if for any other reason the current market
price per share cannot be determined pursuant to the foregoing provisions of
this paragraph, the current market price per share shall be the fair market
value thereof as determined in good faith by the Board of Directors of the
Corporation.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate
of Designations and do affirm the foregoing as true under penalties of perjury
this 8th day of July, 1997.
ATTEST:
- ----------------------------- -----------------------------
Stephen B. Spencer, Secretary Karl F. Badger, President
5
STOCK PURCHASE
AGREEMENT
FAN-TASTIC, INC.
Company
LEASING TECHNOLOGY INCORPORATED
Buyer
March 17, 1997
Date
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made as of March 17,
1997, by and between Leasing Technology Incorporated, a Utah corporation
("Buyer"), and those individuals set forth on Schedule A attached hereto (each
such individual hereinafter referred to as "Seller" and collectively as
"Sellers").
RECITALS
Sellers desire to sell, and Buyer desires to purchase, eighty percent
(80%) of the issued and outstanding shares (the "Shares") of capital stock of
Fan-Tastic, Inc., a Utah corporation (the "Company"), for the consideration and
on the terms set forth in this Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"Acquired Companies"--the Company and its Subsidiaries, collectively.
"Applicable Contract"--any Contract (a) under which any Acquired Company has or
may acquire any rights, (b) under which any Acquired Company has or may become
subject to any obligation or liability, or (c) by which any Acquired Company or
any of the assets owned or used by it is or may become bound.
"Balance Sheet"--as defined in Section 3.4.
"Best Efforts"--the efforts that a prudent Person desirous of achieving a result
would use in similar circumstances to ensure that such result is achieved as
expeditiously as possible.
"Breach"--a "Breach" of a representation, warranty, covenant, obligation, or
other provision of this Agreement or any instrument delivered pursuant to this
Agreement will be deemed to have occurred if there is or has been (a) any
inaccuracy in or breach of, or any failure to perform or comply with, such
representation, warranty, covenant, obligation, or other provision, or (b) any
claim (by any Person) or other occurrence or circumstance that is or was
inconsistent with such representation, warranty, covenant, obligation, or other
provision, and the term "Breach" means any such inaccuracy, breach, failure,
claim, occurrence, or circumstance.
"Buyer"--as defined in the first paragraph of this Agreement.
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"Closing"--as defined in Section 2.3.
"Closing Date"--the date and time as of which the Closing actually takes place.
"Company"--as defined in the Recitals of this Agreement.
"Consent"--any approval, consent, ratification, waiver, or other authorization
(including any Governmental Authorization).
"Contemplated Transactions"--all of the transactions contemplated by this
Agreement, including:
(a) the sale of the Shares by Sellers to Buyer;
(b) the execution, delivery, and performance of the Employment
Agreements, the Loan Agreements, the Shareholders' Agreement, the
Option Agreements, the Investment Letters, and the Sellers' Releases;
(c) the performance by Buyer and Sellers of their respective
covenants and obligations under this Agreement; and
(d) Buyer's acquisition and ownership of the Shares.
"Contract"--any agreement, contract, obligation, promise, or undertaking
(whether written or oral and whether express or implied) that is legally
binding.
"Damages"--as defined in Section 11.2.
"Disclosure Letter"--the disclosure letter delivered by Sellers to Buyer
concurrently with the execution and delivery of this Agreement.
"Employment Agreements"--as defined in Section 2.4(a)(iii).
"Encumbrance"--any charge, claim, community property interest, condition,
equitable interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income, or exercise of any other attribute of ownership.
"Environment"--soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.
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<PAGE>
"Environmental, Health, and Safety Liabilities"--any cost, damages, expense,
liability, obligation, or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law and consisting of or
relating to:
(a) any environmental, health, or safety matters or conditions
(including on-site or off-site contamination, occupational safety and
health, and regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and
response, investigative, remedial, or inspection costs and expenses
arising under Environmental Law or Occupational Safety and Health Law;
(c) financial responsibility under Environmental Law or
Occupational Safety and Health Law for cleanup costs or corrective
action, including any investigation, cleanup, removal, containment, or
other remediation or response actions ("Cleanup") required by
applicable Environmental Law or Occupational Safety and Health Law
(whether or not such Cleanup has been required or requested by any
Governmental Body or any other Person) and for any natural resource
damages; or
(d) any other compliance, corrective, investigative, or
remedial measures required under Environmental Law or Occupational
Safety and Health Law.
The terms "removal," "remedial," and "response action," include the
types of activities covered by the United States Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C. ss. 9601 et seq., as
amended ("CERCLA").
"Environmental Law"--any Legal Requirement that requires or relates to:
(a) advising appropriate authorities, employees, and the
public of intended or actual releases of pollutants or hazardous
substances or materials, violations of discharge limits, or other
prohibitions and of the commencements of activities, such as resource
extraction or construction, that could have significant impact on the
Environment;
(b) preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or
minimizing the hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged,
and used so that they do not present unreasonable risks to human health
or the Environment when used or disposed of;
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<PAGE>
(e) protecting resources, species, or ecological
amenities;
(f) reducing to acceptable levels the risks inherent in
the transportation of hazardous substances, pollutants, oil, or other
potentially harmful substances;
(g) cleaning up pollutants that have been released,
preventing the threat of release, or paying the costs of such clean up
or prevention; or
(h) making responsible parties pay private parties, or groups
of them, for damages done to their health or the Environment, or
permitting self-appointed representatives of the public interest to
recover for injuries done to public assets.
"ERISA"--the Employee Retirement Income Security Act of 1974 or any successor
law, and regulations and rules issued pursuant to that Act or any successor law.
"Facilities"--any real property, leaseholds, or other interests currently or
formerly owned or operated by any Acquired Company and any buildings, plants,
structures, or equipment (including motor vehicles, tank cars, and rolling
stock) currently or formerly owned or operated by any Acquired Company.
"GAAP"--generally accepted United States accounting principles, applied on a
basis consistent with the basis on which the Balance Sheet and the other
financial statements referred to in Section 3.4(b) were prepared.
"Governmental Authorization"--any approval, consent, license, permit, waiver, or
other authorization issued, granted, given, or otherwise made available by or
under the authority of any Governmental Body or pursuant to any Legal
Requirement.
"Governmental Body"--any:
(a) nation, state, county, city, town, village, district,
or other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other
government;
(c) governmental or quasi-governmental authority
of any nature (including any governmental agency, branch, department,
official, or entity and any court or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any
administrative, executive, judicial, legislative, police, regulatory,
or taxing authority or power of any nature.
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<PAGE>
"Hazardous Activity"--the distribution, generation, handling, importing,
management, manufacturing, processing, production, refinement, Release, storage,
transfer, transportation, treatment, or use (including any withdrawal or other
use of groundwater) of Hazardous Materials in, on, under, about, or from the
Facilities or any part thereof into the Environment, and any other act,
business, operation, or thing that increases the danger, or risk of danger, or
poses an unreasonable risk of harm to persons or property on or off the
Facilities, or that may affect the value of the Facilities or the Acquired
Companies.
"Hazardous Materials"--any waste or other substance that is listed, defined,
designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law, including any admixture or solution thereof, and specifically
including petroleum and all derivatives thereof or synthetic substitutes
therefor and asbestos or asbestos-containing materials.
"Intellectual Property Assets" --as defined in Section 3.22.
"IRC"--the Internal Revenue Code of 1986 or any successor law, and regulations
issued by the IRS pursuant to the Internal Revenue Code or any successor law.
"IRS"--the United States Internal Revenue Service or any successor agency, and,
to the extent relevant, the United States Department of the Treasury.
"Knowledge"--an individual will be deemed to have "Knowledge" of a particular
fact or other matter if:
(a) such individual is actually aware of such fact or other
matter; or
(b) a prudent individual could be expected to discover or
otherwise become aware of such fact or other matter in the course of
conducting a reasonably comprehensive investigation concerning the
existence of such fact or other matter.
A Person (other than an individual) will be deemed to have "Knowledge"
of a particular fact or other matter if any individual who is serving, or who
has at any time served, as a director, officer, partner, executor, or trustee of
such Person (or in any similar capacity) has, or at any time had, Knowledge of
such fact or other matter.
"Legal Requirement"--any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"Loan Agreements"--the Loan Agreement, Promissory Note, and Security Agreement
as defined in Section 2.4.
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<PAGE>
"Occupational Safety and Health Law"--any Legal Requirement designed to provide
safe and healthful working conditions and to reduce occupational safety and
health hazards, and any program, whether governmental or private (including
those promulgated or sponsored by industry associations and insurance
companies), designed to provide safe and healthful working conditions.
"Order"--any award, decision, injunction, judgment, order, ruling, subpoena, or
verdict entered, issued, made, or rendered by any court, administrative agency,
or other Governmental Body or by any arbitrator.
"Ordinary Course of Business"--an action taken by a Person will be deemed to
have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of
such Person and is taken in the ordinary course of the normal day-to-
day operations of such Person;
(b) such action is not required to be authorized by the board
of directors of such Person (or by any Person or group of Persons
exercising similar authority) [and is not required to be specifically
authorized by the parent company (if any) of such Person]; and
(c) such action is similar in nature and magnitude to actions
customarily taken, without any authorization by the board of directors
(or by any Person or group of Persons exercising similar authority), in
the ordinary course of the normal day-to-day operations of other
Persons that are in the same line of business as such Person.
"Organizational Documents"--(a) the articles or certificate of incorporation and
the bylaws of a corporation; (b) the partnership agreement and any statement of
partnership of a general partnership; (c) the limited partnership agreement and
the certificate of limited partnership of a limited partnership; (d) any charter
or similar document adopted or filed in connection with the creation, formation,
or organization of a Person; and (e) any amendment to any of the foregoing.
"Person"--any individual, corporation (including any non-profit corporation),
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, labor union, or other entity or
Governmental Body.
"Proceeding"--any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"Related Person"--with respect to a particular individual:
(a) each other member of such individual's Family;
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(b) any Person that is directly or indirectly controlled by
such individual or one or more members of such individual's Family;
(c) any Person in which such individual or members of such
individual's Family hold (individually or in the aggregate) a
Material Interest; and
(d) any Person with respect to which such individual or one or
more members of such individual's Family serves as a director, officer,
partner, executor, or trustee (or
in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is
directly or indirectly controlled by, or is directly or indirectly
under common control with such specified Person;
(b) any Person that holds a Material Interest in such
specified Person;
(c) each Person that serves as a director, officer,
partner, executor, or trustee of such specified Person (or in a similar
capacity);
(d) any Person in which such specified Person holds a Material
Interest;
(e) any Person with respect to which such specified
Person serves as a general partner or a trustee (or in a similar
capacity); and
(f) any Related Person of any individual described in clause
(b) or (c).
For purposes of this definition, (a) the "Family" of an individual
includes (i) the individual, (ii) the individual's spouse and former spouses,
(iii) any other natural person who is related to the individual or the
individual's spouse within the second degree, and (iv) any other natural person
who resides with such individual, and (b) "Material Interest" means direct or
indirect beneficial ownership (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934) of voting securities or other voting interests
representing at least 10% of the outstanding voting power of a Person or equity
securities or other equity interests representing at least 10% of the
outstanding equity securities or equity interests in a Person.
"Release"--any spilling, leaking, emitting, discharging, depositing, escaping,
leaching, dumping, or other releasing into the Environment, whether intentional
or unintentional.
"Representative"--with respect to a particular Person, any director, officer,
employee, agent, consultant, advisor, or other representative of such Person,
including legal counsel, accountants, and financial advisors.
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"Securities Act"--the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
"Sellers"--as defined in the first paragraph of this Agreement.
"Sellers' Releases"--as defined in Section 2.4.
"Shares"--as defined in the Recitals of this Agreement.
"Subsidiary"--with respect to any Person (the "Owner"), any corporation or other
Person of which securities or other interests having the power to elect a
majority of that corporation's or other Person's board of directors or similar
governing body, or otherwise having the power to direct the business and
policies of that corporation or other Person (other than securities or other
interests having such power only upon the happening of a contingency that has
not occurred) are held by the Owner or one or more of its Subsidiaries; when
used without reference to a particular Person, "Subsidiary" means a Subsidiary
of the Company.
"Tax Return"--any return (including any information return), report, statement,
schedule, notice, form, or other document or information filed with or submitted
to, or required to be filed with or submitted to, any Governmental Body in
connection with the determination, assessment, collection, or payment of any Tax
or in connection with the administration, implementation, or enforcement of or
compliance with any Legal Requirement relating to any Tax.
"Threat of Release"--a substantial likelihood of a Release that may require
action in order to prevent or mitigate damage to the Environment that may result
from such Release.
"Threatened"--a claim, Proceeding, dispute, action, or other matter will be
deemed to have been "Threatened" if any demand or statement has been made
(orally or in writing) or any notice has been given (orally or in writing), or
if any other event has occurred or any other circumstances exist, that would
lead a prudent Person to conclude that such a claim, Proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken, or otherwise
pursued in the future.
2. SALE AND TRANSFER OF SHARES; CLOSING
2.1 SHARES
Subject to the terms and conditions of this Agreement, at the Closing,
Sellers will sell and transfer the Shares to Buyer, and Buyer will purchase the
Shares from Sellers. In addition, at any time prior to March 31, 2000 Sellers
shall have the right to exchange their remaining shares of common stock of the
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Company for shares of Class D preferred stock of Buyer on the basis of 0.0240385
shares of Class D preferred stock of Buyer for every one share of common stock
of the Company.
2.2 PURCHASE PRICE
The purchase price (the "Purchase Price") for the Shares will be the
issuance of 100,000 shares of Class D preferred stock of Buyer. The Class D
preferred stock shall be issued to Sellers in the amounts set forth on Schedule
A hereof and shall have such rights, preferences and limitations as set forth on
Schedule B hereof.
2.3 CLOSING
The purchase and sale (the "Closing") provided for in this Agreement
will take place at the offices of Buyer's counsel at 1270 Eagle Gate Tower, 60
East South Temple, Salt Lake City, Utah, at 10:00 a.m. (local time) on March 17,
1997 or at such other time and place as the parties may agree. Subject to the
provisions of Section 10, failure to consummate the purchase and sale provided
for in this Agreement on the date and time and at the place determined pursuant
to this Section 2.3 will not result in the termination of this Agreement and
will not relieve any party of any obligation under this Agreement.
2.4 CLOSING OBLIGATIONS
At the Closing:
(a) Sellers will deliver to Buyer:
(i) certificates representing the Shares, duly
endorsed (or accompanied by duly executed stock powers), with
signatures guaranteed by a commercial bank or by a member
firm of the New York Stock Exchange, for transfer to Buyer;
(ii) releases in the form of Exhibit 2.4(a)(ii)
executed by Sellers (collectively, "Sellers' Releases");
(iii) employment agreements in the form of Exhibit
2.4(a)(iii), executed by Barry Papenfuss, Tim Papenfuss,
Greg Park and Will Papenfuss (collectively, "Employment
Agreements");
(iv) investment letters in the form of Exhibit
2.4(a)(iv), executed by Sellers (collectively, the "Investment
Letters"); and
(v) a certificate executed by Sellers, excluding Rod
Hawes, representing and warranting to Buyer that each of
Sellers' representations and warranties in this Agreement was
accurate in all respects as of the date of this Agreement and
is accurate in all respects as of the Closing Date as
if made on the Closing Date (giving full effect to any
supplements to the Disclosure Letter that were delivered by
Sellers to Buyer prior to the Closing Date in accordance with
Section 6.5); and
(vi) Loan Agreements in the form of Exhibit
2.4(a)(vi), executed by the Company (the "Loan Agreements");
and
(vii) a shareholder's agreement in the form of
Exhibit 2.4(a)(vii) executed by Sellers (the "Shareholders'
Agreement"); and
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(b) Buyer will deliver to Sellers:
(i) certificates representing the Purchase price,
which Buyer and Sellers mutually agree that for purposes of
this Agreement shall represent a value of $1,000,000;
(ii) the Loan Agreement evidencing a line of credit
for the Company in an amount of not less than $358,000
executed by Lender;
(iii) a certificate executed by Buyer to the effect
that, except as otherwise stated in such certificate, each of
Buyer's representations and warranties in this Agreement was
accurate in all respects as of the date of this Agreement and
is accurate in all respects as of the Closing Date as if made
on the Closing Date;
(iv) the Employment Agreements, executed by the
Company; and
(v) the Shareholders' Agreement executed by Buyer;
and
(vi) Option Agreements in the form of Exhibit
2.4(b)(vi) executed by Buyer (the "Option Agreement") granting
Sellers, collectively an option to purchase 150,000 shares of
Buyer's common stock.
3. REPRESENTATIONS AND WARRANTIES OF CERTAIN SELLERS
Barry Papenfuss, Tim Papenfuss and Greg Park, jointly and severally
represent and warrant to Buyer as follows:
3.1 ORGANIZATION AND GOOD STANDING
(a) Part 3.1 of the Disclosure Letter contains a complete and
accurate list for each Acquired Company of its name, its jurisdiction
of incorporation, other jurisdictions in which it is authorized to do
business, and its capitalization (including the identity of each
stockholder and the number of shares held by each). Each Acquired
Company is a corporation duly organized, validly existing, and in good
standing under the laws of its jurisdiction of incorporation, with full
corporate power and authority to conduct its business as it is now
being conducted, to own or use the properties and assets that it
purports to own or use, and to perform all its obligations under
Applicable Contracts. Each Acquired Company is duly qualified to do
business as a foreign corporation and is in good standing under the
laws of each state or other jurisdiction in which either the ownership
or use of the properties owned or used by it, or the nature of the
activities conducted by it, requires such qualification.
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(b) Sellers have delivered to Buyer copies of the
Organizational Documents of each Acquired Company, as currently in
effect.
3.2 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and binding
obligation of Sellers, enforceable against Sellers in accordance with
its terms. Upon the execution and delivery by Sellers of the Employment
Agreements, and the Sellers' Releases (collectively, the "Sellers'
Closing Documents"), the Sellers' Closing Documents will constitute the
legal, valid, and binding obligations of Sellers, enforceable against
Sellers in accordance with their respective terms. Sellers have the
absolute and unrestricted right, power, authority, and capacity to
execute and deliver this Agreement and the Sellers' Closing Documents
and to perform their obligations under this Agreement and the Sellers'
Closing Documents.
(b) Except as set forth in Part 3.2 of the Disclosure Letter,
neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions
will, directly or indirectly (with or without notice or lapse of time):
(i) contravene, conflict with, or result in a
violation of (A) any provision of the Organizational Documents
of the Acquired Companies, or (B) any resolution adopted by
the board of directors or the stockholders of any Acquired
Company;
(ii) contravene, conflict with, or result in a
violation of, or give any Governmental Body or other Person
the right to challenge any of the Contemplated Transactions or
to exercise any remedy or obtain any relief under, any Legal
Requirement or any Order to which any Acquired Company or
Sellers, or any of the assets owned or used by any Acquired
Company, may be subject;
(iii) contravene, conflict with, or result in a
violation of any of the terms or requirements of, or give any
Governmental Body the right to revoke, withdraw, suspend,
cancel, terminate, or modify, any Governmental Authorization
that is held by any Acquired Company or that otherwise relates
to the business of, or any of the assets owned or used by, any
Acquired Company;
(iv) cause Buyer or any Acquired Company to become
subject to, or to become liable for the payment of, any Tax;
(v) cause any of the assets owned by any Acquired
Company to be reassessed or revalued by any taxing authority
or other Governmental Body;
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(vi) contravene, conflict with, or result in a
violation or breach of any provision of, or give any Person
the right to declare a default or exercise any remedy under,
or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Applicable Contract; or
(vii) result in the imposition or creation of any
Encumbrance upon or with respect to any of the assets owned or
used by any Acquired Company.
Except as set forth in Part 3.2 of the Disclosure Letter, no Seller or
Acquired Company is or will be required to give any notice to or obtain any
Consent from any Person in connection with the execution and delivery of this
Agreement or the consummation or performance of any of the Contemplated
Transactions.
(c) Sellers are acquiring the Class D preferred shares for
their own account and not with a view to their distribution within the
meaning of Section 2(11) of the Securities Act.
3.3 CAPITALIZATION
The authorized equity securities of the Company consist of 10,000,000
shares of common stock, no par value per share and 5,000,000 shares of preferred
stock, no par value per share, of which 5,200,000 shares of common stock are
issued and outstanding and constitute the Shares and no shares of preferred
stock are issued or outstanding. Sellers are and will be on the Closing Date the
record and beneficial owners and holders of the Shares, free and clear of all
Encumbrances. Sellers own the number of shares set forth opposite their name on
Schedule A. With the exception of the Shares (which are owned by Sellers), all
of the outstanding equity securities and other securities of each Acquired
Company are owned of record and beneficially by one or more of the Acquired
Companies, free and clear of all Encumbrances. No legend or other reference to
any purported Encumbrance appears upon any certificate representing equity
securities of any Acquired Company. All of the outstanding equity securities of
each Acquired Company have been duly authorized and validly issued and are fully
paid and nonassessable. There are no Contracts relating to the issuance, sale,
or transfer of any equity securities or other securities of any Acquired
Company. None of the outstanding equity securities or other securities of any
Acquired Company was issued in violation of the Securities Act or any other
Legal Requirement. No Acquired Company owns, or has any Contract to acquire, any
equity securities or other securities of any Person (other than Acquired
Companies) or any direct or indirect equity or ownership interest in any other
business.
Rod Hawes hereby represents and warrants that on the Closing Date he
will be the beneficial owner and holder of the shares set opposite his name on
Schedule A, free and clear of all Encumbrances.
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3.4 FINANCIAL STATEMENTS
Sellers have delivered to Buyer: (a) unaudited consolidated balance
sheets of the Acquired Companies as at December 31, 1996 (the "Balance Sheet")
and the related unaudited consolidated statements of income, changes in
stockholders' equity, and cash flow for each of the fiscal years then ended.
Such financial statements and notes fairly present the financial condition and
the results of operations, changes in stockholders' equity, and cash flow of the
Acquired Companies as at the respective dates of and for the periods referred to
in such financial statements, all in accordance with GAAP, subject, in the case
of interim financial statements, to normal recurring year-end adjustments (the
effect of which will not, individually or in the aggregate, be materially
adverse) and the absence of notes (that, if presented, would not differ
materially from those included in the Balance Sheet); the financial statements
referred to in this Section 3.4 reflect the consistent application of such
accounting principles throughout the periods involved, except as disclosed in
the notes to such financial statements. No financial statements of any Person
other than the Acquired Companies are required by GAAP to be included in the
consolidated financial statements of the Company.
3.5 BOOKS AND RECORDS
The books of account, minute books, stock record books, and other
records of the Acquired Companies, all of which have been made available to
Buyer, are complete and correct and have been maintained in accordance with
sound business practices and the requirements of Section 13(b)(2) of the
Securities Exchange Act of 1934, as amended (regardless of whether or not the
Acquired Companies are subject to that Section), including the maintenance of an
adequate system of internal controls. The minute books of the Acquired Companies
contain accurate and complete records of all meetings held of, and corporate
action taken by, the stockholders, the Boards of Directors, and committees of
the Boards of Directors of the Acquired Companies, and no meeting of any such
stockholders, Board of Directors, or committee has been held for which minutes
have not been prepared and are not contained in such minute books. At the
Closing, all of those books and records will be in the possession of the
Acquired Companies.
3.6 TITLE TO PROPERTIES; ENCUMBRANCES
Part 3.6 of the Disclosure Letter contains a complete and accurate list
of all real property, leaseholds, or other interests therein owned by any
Acquired Company. Sellers have delivered or made available to Buyer copies of
the deeds and other instruments (as recorded) by which the Acquired Companies
acquired such real property and interests, and copies of all title insurance
policies, opinions, abstracts, and surveys in the possession of Sellers or the
Acquired Companies and relating to such property or interests. The Acquired
Companies own (with good and marketable title in the case of real property,
subject only to the matters permitted by the following sentence) all the
properties and assets (whether real, personal, or mixed and whether tangible or
intangible) that they purport to own located in the facilities owned or operated
by the Acquired Companies or reflected as owned in the books and records of the
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Acquired Companies, including all of the properties and assets reflected in the
Balance Sheet (except for assets held under capitalized leases disclosed or not
required to be disclosed in Part 3.6 of the Disclosure Letter and personal
property sold since the date of the Balance Sheet, as the case may be, in the
Ordinary Course of Business), and all of the properties and assets purchased or
otherwise acquired by the Acquired Companies since the date of the Balance Sheet
(except for personal property acquired and sold since the date of the Balance
Sheet in the Ordinary Course of Business and consistent with past practice),
which subsequently purchased or acquired properties and assets (other than
inventory and short-term investments) are listed in Part 3.6 of the Disclosure
Letter. All material properties and assets reflected in the Balance Sheet are
free and clear of all Encumbrances and are not, in the case of real property,
subject to any rights of way, building use restrictions, exceptions, variances,
reservations, or limitations of any nature except, with respect to all such
properties and assets, (a) mortgages or security interests shown on the Balance
Sheet as securing specified liabilities or obligations, with respect to which no
default (or event that, with notice or lapse of time or both, would constitute a
default) exists, (b) mortgages or security interests incurred in connection with
the purchase of property or assets after the date of the Balance Sheet (such
mortgages and security interests being limited to the property or assets so
acquired), with respect to which no default (or event that, with notice or lapse
of time or both, would constitute a default) exists, (c) liens for current taxes
not yet due, and (d) with respect to real property, (i) minor imperfections of
title, if any, none of which is substantial in amount, materially detracts from
the value or impairs the use of the property subject thereto, or impairs the
operations of any Acquired Company, and (ii) zoning laws and other land use
restrictions that do not impair the present or anticipated use of the property
subject thereto. All buildings, plants, and structures owned by the Acquired
Companies lie wholly within the boundaries of the real property owned by the
Acquired Companies and do not encroach upon the property of, or otherwise
conflict with the property rights of, any other Person.
3.7 CONDITION AND SUFFICIENCY OF ASSETS
The buildings, plants, structures, and equipment of the Acquired
Companies are structurally sound, are in good operating condition and repair,
and are adequate for the uses to which they are being put, and none of such
buildings, plants, structures, or equipment is in need of maintenance or repairs
except for ordinary, routine maintenance and repairs that are not material in
nature or cost. The building, plants, structures, and equipment of the Acquired
Companies are sufficient for the continued conduct of the Acquired Companies'
businesses after the Closing in substantially the same manner as conducted prior
to the Closing.
3.8 ACCOUNTS RECEIVABLE
All accounts receivable of the Acquired Companies that are reflected on
the Balance Sheet or on the accounting records of the Acquired Companies as of
the Closing Date (collectively, the "Accounts Receivable") represent or will
represent valid obligations arising from sales actually made or services
actually performed in the Ordinary Course of Business. Unless paid prior to the
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Closing Date, the Accounts Receivable are or will be as of the Closing Date
current and collectible net of the respective reserves shown on the Balance
Sheet or on the accounting records of the Acquired Companies as of the Closing
Date (which reserves are adequate and calculated consistent with past practice
and, in the case of the reserve as of the Closing Date, will not represent a
greater percentage of the Accounts Receivable as of the Closing Date than the
reserve reflected in the Balance Sheet represented of the Accounts Receivable
reflected therein and will not represent a material adverse change in the
composition of such Accounts Receivable in terms of aging). Subject to such
reserves, each of the Accounts Receivable either has been or will be collected
in full, without any set-off, within ninety days after the day on which it first
becomes due and payable. There is no contest, claim, or right of set-off, other
than returns in the Ordinary Course of Business, under any Contract with any
obligor of an Accounts Receivable relating to the amount or validity of such
Accounts Receivable. Part 3.8 of the Disclosure Letter contains a complete and
accurate list of all Accounts Receivable as of the date of the Balance Sheet,
which list sets forth the aging of such Accounts Receivable.
3.9 INVENTORY
All inventory of the Acquired Companies, whether or not reflected in
the Balance Sheet, consists of a quality and quantity usable and salable in the
Ordinary Course of Business, except for obsolete items and items of
below-standard quality, all of which have been written off or written down to
net realizable value in the Balance Sheet or on the accounting records of the
Acquired Companies as of the Closing Date, as the case may be. All inventories
not written off have been priced at the lower of cost or net realizable value on
a first in, first out basis. The quantities of each item of inventory (whether
raw materials, work-in-process, or finished goods) are not excessive, but are
reasonable in the present circumstances of the Acquired Companies.
3.10 NO UNDISCLOSED LIABILITIES
Except as set forth in Part 3.10 of the Disclosure Letter, the Acquired
Companies have no liabilities or obligations of any nature (whether known or
unknown and whether absolute, accrued, contingent, or otherwise) except for
liabilities or obligations reflected or reserved against in the Balance Sheet
and current liabilities incurred in the Ordinary Course of Business since the
respective dates thereof.
3.11 TAXES
(a) The Acquired Companies have filed or caused to be filed
all Tax Returns that are or were required to be filed by or with
respect to any of them, either separately or as a member of a group of
corporations, pursuant to applicable Legal Requirements. The Acquired
Companies have paid, or made provision for the payment of, all Taxes
that have or may have become due pursuant to those Tax Returns or
otherwise, or pursuant to any assessment received by Sellers or any
Acquired Company, except such Taxes, if any, as are listed in Part
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3.11 of the Disclosure Letter and are being contested in good faith and
as to which adequate reserves (determined in accordance with GAAP) have
been provided in the Balance Sheet.
(b) Except as described in Part 3.11 of the Disclosure Letter,
no Seller or Acquired Company has given or been requested to give
waivers or extensions (or is or would be subject to a waiver or
extension given by any other Person) of any statute of limitations
relating to the payment of Taxes of any Acquired Company or for which
any Acquired Company may be liable.
(c) The charges, accruals, and reserves with respect to Taxes
on the respective books of each Acquired Company are adequate
(determined in accordance with GAAP) and are at least equal to that
Acquired Company's liability for Taxes. There exists no proposed tax
assessment against any Acquired Company except as disclosed in the
Balance Sheet or in Part 3.11 of the Disclosure Letter.
(d) All Tax Returns filed by (or that include on a
consolidated basis) any Acquired Company are true, correct, and
complete. There is no tax sharing agreement that will require any
payment by any Acquired Company after the date of this Agreement.
3.12 NO MATERIAL ADVERSE CHANGE
Since the date of the Balance Sheet, there has not been any material
adverse change in the business, operations, properties, prospects, assets, or
condition of any Acquired Company, and no event has occurred or circumstance
exists that may result in such a material adverse change.
3.13 EMPLOYEE BENEFITS
(a) As used in this Section 3.13, the following terms have the
meanings set forth below.
"Company Other Benefit Obligation" means an Other Benefit Obligation
owed, adopted, or followed by an Acquired Company or an ERISA Affiliate
of an Acquired Company.
"Company Plan" means all Plans of which an Acquired Company or an ERISA
Affiliate of an Acquired Company is or was a Plan Sponsor, or to which
an Acquired Company or an ERISA Affiliate of an Acquired Company
otherwise contributes or has contributed, or in which an Acquired
Company or an ERISA Affiliate of an Acquired Company otherwise
participates or has participated. All references to Plans are to
Company Plans unless the context requires otherwise.
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"Company VEBA" means a VEBA whose members include employees of any
Acquired Company or any ERISA Affiliate of an Acquired Company.
"ERISA Affiliate" means, with respect to an Acquired Company, any other person
that, together with the Company, would be treated as a single employer under IRC
ss. 414.
"Multi-Employer Plan" has the meaning given in ERISA ss. 3(37)(A).
"Other Benefit Obligations" means all obligations, arrangements, or customary
practices, whether or not legally enforceable, to provide benefits, other than
salary, as compensation for services rendered, to present or former directors,
employees, or agents, other than obligations, arrangements, and practices that
are Plans. Other Benefit Obligations include consulting agreements under which
the compensation paid does not depend upon the amount of service rendered,
sabbatical policies, severance payment policies, and fringe benefits within the
meaning of IRCss.132.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor thereto.
"Pension Plan" has the meaning given in ERISA ss. 3(2)(A).
"Plan" has the meaning given in ERISA ss. 3(3).
"Plan Sponsor" has the meaning given in ERISA ss. 3(16)(B).
"Qualified Plan" means any Plan that meets or purports to meet the requirements
of IRC ss. 401(a).
"Title IV Plans" means all Pension Plans that are subject to Title IV of ERISA,
29 U.S.C. ss. 1301 et seq., other than Multi-Employer Plans.
"VEBA" means a voluntary employees' beneficiary association under IRC ss.
501(c)(9).
"Welfare Plan" has the meaning given in ERISA ss. 3(1).
(b) Part 3.13 of the Disclosure Letter contains a complete and
accurate list of all Company Plans, Company Other Benefit Obligations,
and Company VEBAs, and identifies as such all Company Plans that are
(A) defined benefit Pension Plans, (B) Qualified Plans, (C) Title IV
Plans, or (D) Multi-Employer Plans.
3.14 COMPLIANCE WITH LEGAL REQUIREMENTS;
GOVERNMENTAL AUTHORIZATIONS
(a) Except as set forth in Part 3.14 of the Disclosure Letter:
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(i) each Acquired Company is, and at all times since
December 31, 1996 has been, in full compliance with each Legal
Requirement that is or was applicable to it or to the conduct
or operation of its business or the ownership or use of any of
its assets;
(ii) no event has occurred or circumstance exists
that (with or without notice or lapse of time) (A) may
constitute or result in a violation by any Acquired Company
of, or a failure on the part of any Acquired Company to comply
with, any Legal Requirement, or (B) may give rise to any
obligation on the part of any Acquired Company to undertake,
or to bear all or any portion of the cost of, any remedial
action of any nature; and
(iii) no Acquired Company has received, at any time
since December 31, 1996, any notice or other communication
(whether oral or written) from any Governmental Body
or any other Person regarding (A) any actual, alleged,
possible, or potential violation of, or failure to comply
with, any Legal Requirement, or (B) any actual, alleged,
possible, or potential obligation on the part of any Acquired
Company to undertake, or to bear all or any portion of the
cost of, any remedial action of any nature.
(b) Part 3.14 of the Disclosure Letter contains a complete
and accurate list of each Governmental Authorization that is held by
any Acquired Company or that otherwise relates to the business of, or
to any of the assets owned or used by, any Acquired Company. Each
Governmental Authorization listed or required to be listed in Part 3.14
of the Disclosure Letter is valid and in full force and effect.
Except as set forth in Part 3.14 of the Disclosure Letter:
(i) each Acquired Company is, and at all times since
December 31, 1996 has been, in full compliance with all of the
terms and requirements of each Governmental Authorization
identified or required to be identified in Part 3.14 of the
Disclosure Letter;
(ii) no event has occurred or circumstance exists
that may (with or without notice or lapse of time) (A)
constitute or result directly or indirectly in a violation of
or a failure to comply with any term or requirement of any
Governmental Authorization listed or required to be listed in
Part 3.14 of the Disclosure Letter, or (B) result directly or
indirectly in the revocation, withdrawal, suspension,
cancellation, or termination of, or any modification to, any
Governmental Authorization listed or required to be
listed in Part 3.14 of the Disclosure Letter;
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(iii) no Acquired Company has received, at any time
since December 31, 1996, any notice or other communication
(whether oral or written) from any Governmental Body or any
other Person regarding (A) any actual, alleged, possible, or
potential violation of or failure to comply with any term or
requirement of any Governmental Authorization, or (B) any
actual, proposed, possible, or potential revocation,
withdrawal, suspension, cancellation, termination of, or
modification to any Governmental Authorization; and
(iv) all applications required to have been filed for
the renewal of the Governmental Authorizations listed or
required to be listed in Part 3.14 of the Disclosure Letter
have been duly filed on a timely basis with the appropriate
Governmental Bodies, and all other filings required to have
been made with respect to such Governmental Authorizations
have been duly made on a timely basis with the appropriate
Governmental Bodies.
The Governmental Authorizations listed in Part 3.14 of the Disclosure
Letter collectively constitute all of the Governmental Authorizations necessary
to permit the Acquired Companies to lawfully conduct and operate their
businesses in the manner they currently conduct and operate such businesses and
to permit the Acquired Companies to own and use their assets in the manner in
which they currently own and use such assets.
3.15 LEGAL PROCEEDINGS; ORDERS
(a) Except as set forth in Part 3.15 of the Disclosure Letter,
there is no pending Proceeding:
(i) that has been commenced by or against any
Acquired Company or that otherwise relates to or may affect
the business of, or any of the assets owned or used by,
any Acquired Company; or
(ii) that challenges, or that may have the effect of
preventing, delaying, making illegal, or otherwise interfering
with, any of the Contemplated Transactions.
To the Knowledge of Sellers and the Acquired Companies, (1) no such
Proceeding has been Threatened, and (2) no event has occurred or circumstance
exists that may give rise to or serve as a basis for the commencement of any
such Proceeding. Sellers have delivered to Buyer copies of all pleadings,
correspondence, and other documents relating to each Proceeding listed in Part
3.15 of the Disclosure Letter. The Proceedings listed in Part 3.15 of the
Disclosure Letter will not have a material adverse effect on the business,
operations, assets, condition, or prospects of any Acquired Company.
(b) Except as set forth in Part 3.15 of the Disclosure Letter:
(i) there is no Order to which any of the Acquired
Companies, or any of the assets owned or used by any Acquired
Company, is subject;
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(ii)no Seller is subject to any Order that relates to
the business of, or any of the assets owned or used by, any
Acquired Company; and
(iii) to the Knowledge of Sellers and the Acquired
Companies, no officer, director, agent, or employee of any
Acquired Company is subject to any Order that prohibits such
officer, director, agent, or employee from engaging in or
continuing any conduct, activity, or practice relating to the
business of any Acquired Company.
(c) Except as set forth in Part 3.15 of the Disclosure Letter:
(i) each Acquired Company is, and at all times since
December 31, 1996 has been, in full compliance with all of the
terms and requirements of each Order to which it, or any of
the assets owned or used by it, is or has been subject;
(ii) no event has occurred or circumstance exists
that may constitute or result in (with or without notice or
lapse of time) a violation of or failure to comply with any
term or requirement of any Order to which any Acquired
Company, or any of the assets owned or used by any Acquired
Company, is subject; and
(iii) no Acquired Company has received, at any time
since December 31, 1996, any notice or other communication
(whether oral or written) from any Governmental Body or any
other Person regarding any actual, alleged, possible, or
potential violation of, or failure to comply with, any term or
requirement of any Order to which any Acquired Company, or any
of the assets owned or used by any Acquired Company, is or has
been subject.
3.16 ABSENCE OF CERTAIN CHANGES AND EVENTS
Except as set forth in Part 3.16 of the Disclosure Letter, since the
date of the Balance Sheet, the Acquired Companies have conducted their
businesses only in the Ordinary Course of Business and there has not been any:
(a) change in any Acquired Company's authorized or issued
capital stock; grant of any stock option or right to purchase shares of
capital stock of any Acquired Company; issuance of any security
convertible into such capital stock; grant of any registration rights;
purchase, redemption, retirement, or other acquisition by any Acquired
Company of any shares of any such capital stock; or declaration or
payment of any dividend or other distribution or payment in respect of
shares of capital stock;
(b) amendment to the Organizational Documents of any Acquired
Company;
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(c) payment or increase by any Acquired Company of any
bonuses, salaries, or other compensation to any stockholder, director,
officer, or (except in the Ordinary Course of Business) employee or
entry into any employment, severance, or similar Contract with any
director, officer, or employee;
(d) adoption of, or increase in the payments to or benefits
under, any profit sharing, bonus, deferred compensation, savings,
insurance, pension, retirement, or other employee benefit plan for or
with any employees of any Acquired Company;
(e) damage to or destruction or loss of any asset or property
of any Acquired Company, whether or not covered by insurance,
materially and adversely affecting the properties, assets, business,
financial condition, or prospects of the Acquired Companies, taken as
a whole;
(f) entry into, termination of, or receipt of notice of
termination of (i) any license, distributorship, dealer, sales
representative, joint venture, credit, or similar agreement, or (ii)
any Contract or transaction involving a total remaining commitment by
or to any Acquired Company of at least $10,000;
(g) sale (other than sales of inventory in the Ordinary Course
of Business), lease, or other disposition of any asset or property of
any Acquired Company or mortgage, pledge, or imposition of any lien or
other encumbrance on any material asset or property of any Acquired
Company, including the sale, lease, or other disposition of any of the
Intellectual Property Assets;
(h) cancellation or waiver of any claims or rights with a
value to any Acquired Company in excess of $10,000;
(i) material change in the accounting methods used by any
Acquired Company; or
(j) agreement, whether oral or written, by any Acquired
Company to do any of the foregoing.
3.17 CONTRACTS; NO DEFAULTS
(a) Part 3.17(a) of the Disclosure Letter contains a complete
and accurate list, and Sellers have delivered to Buyer true and
complete copies, of:
(i) each Applicable Contract that involves
performance of services or delivery of goods or materials by
one or more Acquired Companies of an amount or value in excess
of $10,000;
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(ii) each Applicable Contract that involves
performance of services or delivery of goods or materials
to one or more Acquired Companies of an amount or value in
excess of $10,000;
(iii) each Applicable Contract that was not entered
into in the Ordinary Course of Business and that involves
expenditures or receipts of one or more Acquired Companies in
excess of $10,000;
(iv) each lease, rental or occupancy agreement,
license, installment and conditional sale agreement, and other
Applicable Contract affecting the ownership of, leasing of,
title to, use of, or any leasehold or other interest in, any
real or personal property (except personal property leases and
installment and conditional sales agreements having a value
per item or aggregate payments of less than $5,000 and with
terms of less than one year);
(v) each licensing agreement or other Applicable
Contract with respect to patents, trademarks, copyrights, or
other intellectual property, including agreements with current
or former employees, consultants, or contractors regarding the
appropriation or the non-disclosure of any of the Intellectual
Property Assets;
(vi) each collective bargaining agreement and other
Applicable Contract to or with any labor union or other
employee representative of a group of employees;
(vii) each joint venture, partnership, and other
Applicable Contract (however named) involving a sharing of
profits, losses, costs, or liabilities by any Acquired Company
with any other Person;
(viii) each Applicable Contract containing covenants
that in any way purport to restrict the business activity of
any Acquired Company or any Affiliate of an Acquired Company
or limit the freedom of any Acquired Company or any Affiliate
of an Acquired Company to engage in any line of business or to
compete with any Person;
(ix) each Applicable Contract providing for payments
to or by any Person based on sales, purchases, or profits,
other than direct payments for goods;
(x) each power of attorney that is currently
effective and outstanding;
(xi) each Applicable Contract entered into other than
in the Ordinary Course of Business that contains or provides
for an express undertaking by any Acquired Company to be
responsible for consequential damages;
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(xii) each Applicable Contract for capital
expenditures in excess of $10,000;
(xiii) each written warranty, guaranty, and or other
similar undertaking with respect to contractual performance
extended by any Acquired Company other than in the Ordinary
Course of Business; and
(iv) each amendment, supplement, and modification
(whether oral or written) in respect of any of the foregoing.
Part 3.17(a) of the Disclosure Letter sets forth reasonably complete
details concerning such Contracts, including the parties to the Contracts, the
amount of the remaining commitment of the Acquired Companies under the
Contracts, and the Acquired Companies' office where details relating to the
Contracts are located.
(b) Except as set forth in Part 3.17(b) of the Disclosure
Letter:
(i) no Seller (and no Related Person of either
Seller) has or may acquire any rights under, and no Seller has
or may become subject to any obligation or liability under,
any Contract that relates to the business of, or any of the
assets owned or used by, any Acquired Company; and
(ii) to the Knowledge of Sellers and the Acquired
Companies, no officer, director, agent, employee, consultant,
or contractor of any Acquired Company is bound by any Contract
that purports to limit the ability of such officer, director,
agent, employee, consultant, or contractor to (A) engage in or
continue any conduct, activity, or practice relating to the
business of any Acquired Company, or (B) assign to any
Acquired Company or to any other Person any rights to any
invention, improvement, or discovery.
(c) Except as set forth in Part 3.17(c) of the Disclosure
Letter, each Contract identified or required to be identified in Part
3.17(a) of the Disclosure Letter is in full force and effect and is
valid and enforceable in accordance with its terms.
(d) Except as set forth in Part 3.17(d) of the Disclosure
Letter:
(i) each Acquired Company is, and at all times since
December 31, 1996 has been, in full compliance with all
applicable terms and requirements of each Contract under which
such Acquired Company has or had any obligation or liability
or by which such Acquired Company or any of the assets owned
or used by such Acquired Company is or was bound;
(ii) each other Person that has or had any obligation
or liability under any Contract under which an Acquired
Company has or had any rights is, and at all times since
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December 31, 1996 has been, in full compliance with all
applicable terms and requirements of such Contract;
(iii) no event has occurred or circumstance exists
that (with or without notice or lapse of time) may contravene,
conflict with, or result in a violation or breach of, or give
any Acquired Company or other Person the right to declare a
default or exercise any remedy under, or to accelerate the
maturity or performance of, or to cancel, terminate, or
modify, any Applicable Contract; and
(iv) no Acquired Company has given to or received
from any other Person, at any time since December 31, 1996,
any notice or other communication (whether oral or written)
regarding any actual, alleged, possible, or potential
violation or breach of, or default under, any Contract.
(e) There are no renegotiations of, attempts to renegotiate,
or outstanding rights to renegotiate any material amounts paid or
payable to any Acquired Company under current or completed Contracts
with any Person and, to the Knowledge of Sellers and the Acquired
Companies, no such Person has made written demand for such
renegotiation.
(f) The Contracts relating to the sale, design, manufacture,
or provision of products or services by the Acquired Companies have
been entered into in the Ordinary Course of Business and have been
entered into without the commission of any act alone or in concert with
any other Person, or any consideration having been paid or promised,
that is or would be in violation of any Legal Requirement.
3.18 INSURANCE
(a) Sellers have delivered to Buyer:
(i) true and complete copies of all policies of
insurance to which any Acquired Company is a party or under
which any Acquired Company, or any director of any Acquired
Company, is or has been covered at any time within the
three years preceding the date of this Agreement;
(ii) true and complete copies of all pending
applications for policies of insurance; and
(iii) any statement by the auditor of any Acquired
Company's financial statements with regard to the adequacy of
such entity's coverage or of the reserves for claims.
(b) Except as set forth on Part 3.18(b) of the Disclosure
Letter:
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(i) All policies to which any Acquired Company is a
party or that provide coverage to either Seller, any Acquired
Company, or any director or officer of an Acquired Company:
(A) are valid, outstanding, and enforceable;
(B) are issued by an insurer that is
financially sound and reputable;
(C) taken together, provide adequate
insurance coverage for the assets and the operations
of the Acquired Companies for all risks normally
insured against by a Person carrying on the same
business or businesses as the Acquired Companies;
(D) are sufficient for compliance with all
Legal Requirements and Contracts to which any
Acquired Company is a party or by which any of them
is bound;
(E) will continue in full force and effect
following the consummation of the Contemplated
Transactions; and
(F) do not provide for any retrospective
premium adjustment or other experienced-based
liability on the part of any Acquired Company.
(ii) No Seller or Acquired Company has received (A)
any refusal of coverage or any notice that a defense will be
afforded with reservation of rights, or (B) any notice of
cancellation or any other indication that any insurance policy
is no longer in full force or effect or will not be renewed or
that the issuer of any policy is not willing or able to
perform its obligations thereunder.
(iii) The Acquired Companies have paid all premiums
due, and have otherwise performed all of their respective
obligations, under each policy to which any Acquired Company
is a party or that provides coverage to any Acquired Company
or director thereof.
(iv) The Acquired Companies have given notice to the
insurer of all claims that may be insured thereby.
3.19 ENVIRONMENTAL MATTERS
Except as set forth in part 3.19 of the disclosure letter:
(a) Each Acquired Company is, and at all times has been, in
full compliance with, and has not been and is not in violation of or
liable under, any Environmental Law.
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No Seller or Acquired Company has any basis to expect, nor has any of
them or any other Person for whose conduct they are or may be held
to be responsible received, any actual or Threatened order, notice, or
other communication from (i) any Governmental Body or private citizen
acting in the public interest, or (ii) the current or prior owner or
operator of any Facilities, of any actual or potential violation or
failure to comply with any Environmental Law, or of any actual or
Threatened obligation to undertake or bear the cost of any
Environmental, Health, and Safety Liabilities with respect to any of
the Facilities or any other properties or assets (whether real,
personal, or mixed) in which Sellers or any Acquired Company has had
an interest, or with respect to any property or Facility at or to
which Hazardous Materials were generated, manufactured, refined,
transferred, imported, used, or processed by Sellers, any Acquired
Company, or any other Person for whose conduct they are or may be held
responsible, or from which Hazardous Materials have been transported,
treated, stored, handled, transferred, disposed, recycled, or received.
(b) There are no pending or, to the Knowledge of Sellers and
the Acquired Companies, Threatened claims, Encumbrances, or other
restrictions of any nature, resulting from any Environmental, Health,
and Safety Liabilities or arising under or pursuant to any
Environmental Law, with respect to or affecting any of the Facilities
or any other properties and assets (whether real, personal, or mixed)
in which Sellers or any Acquired Company has or had an interest.
(c) No Seller or Acquired Company has any basis to expect, nor
has any of them or any other Person for whose conduct they are or may
be held responsible, received, any citation, directive, inquiry,
notice, Order, summons, warning, or other communication that relates to
Hazardous Activity, Hazardous Materials, or any alleged, actual, or
potential violation or failure to comply with any Environmental Law, or
of any alleged, actual, or potential obligation to undertake or bear
the cost of any Environmental, Health, and Safety Liabilities with
respect to any of the Facilities or any other properties or assets
(whether real, personal, or mixed) in which Sellers or any Acquired
Company had an interest, or with respect to any property or facility to
which Hazardous Materials generated, manufactured, refined,
transferred, imported, used, or processed by Sellers, any Acquired
Company, or any other Person for whose conduct they are or may be held
responsible, have been transported, treated, stored, handled,
transferred, disposed, recycled, or received.
(d) No Seller or Acquired Company, or any other Person for
whose conduct they are or may be held responsible, has any
Environmental, Health, and Safety Liabilities with respect to the
Facilities or, to the Knowledge of Sellers and the Acquired Companies,
with respect to any other properties and assets (whether real,
personal, or mixed) in which Sellers or any Acquired Company (or any
predecessor), has or had an interest, or at any property geologically
or hydrologically adjoining the Facilities or any such other property
or assets.
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(e) There are no Hazardous Materials present on or in the
Environment at the Facilities or at any geologically or hydrologically
adjoining property, including any Hazardous Materials contained in
barrels, above or underground storage tanks, landfills, land deposits,
dumps, equipment (whether moveable or fixed) or other containers,
either temporary or permanent, and deposited or located in land, water,
sumps, or any other part of the Facilities or such adjoining property,
or incorporated into any structure therein or thereon. No Seller,
Acquired Company, any other Person for whose conduct they are or may be
held responsible, or to the Knowledge of Sellers and the Acquired
Companies, any other Person, has permitted or conducted, or is aware
of, any Hazardous Activity conducted with respect to the Facilities or
any other properties or assets (whether real, personal, or mixed) in
which Sellers or any Acquired Company has or had an interest except in
full compliance with all applicable Environmental Laws.
(f) There has been no Release or, to the Knowledge of Sellers
and the Acquired Companies, Threat of Release, of any Hazardous
Materials at or from the Facilities or at any other locations where any
Hazardous Materials were generated, manufactured, refined, transferred,
produced, imported, used, or processed from or by the Facilities, or
from or by any other properties and assets (whether real, personal, or
mixed) in which Sellers or any Acquired Company has or had an interest,
or to the Knowledge of Sellers and the Acquired Companies any
geologically or hydrologically adjoining property, whether by Sellers,
any Acquired Company, or any other Person.
(g) Sellers have delivered to Buyer true and complete copies
and results of any reports, studies, analyses, tests, or monitoring
possessed or initiated by Sellers or any Acquired Company pertaining to
Hazardous Materials or Hazardous Activities in, on, or under the
Facilities, or concerning compliance by Sellers, any Acquired Company,
or any other Person for whose conduct they are or may be held
responsible, with Environmental Laws.
3.20 EMPLOYEES
(a) Part 3.20 of the Disclosure Letter contains a complete and
accurate list of the following information for each employee or
director of the Acquired Companies, including each employee on leave of
absence or layoff status: employer; name; job title; current
compensation paid or payable and any change in compensation since
December 31, 1996; vacation accrued; and service credited for purposes
of vesting and eligibility to participate under any Acquired Company's
pension, retirement, profit-sharing, thrift-savings, deferred
compensation, stock bonus, stock option, cash bonus, employee stock
ownership (including investment credit or payroll stock ownership),
severance pay, insurance, medical, welfare, or vacation plan, other
Employee Pension Benefit Plan or Employee Welfare Benefit Plan, or any
other employee benefit plan or any Director Plan.
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(b) No employee or director of any Acquired Company is a party
to, or is otherwise bound by, any agreement or arrangement, including
any confidentiality, noncompetition, or proprietary rights agreement,
between such employee or director and any other Person ("Proprietary
Rights Agreement") that in any way adversely affects or will affect (i)
the performance of his duties as an employee or director of the
Acquired Companies, or (ii) the ability of any Acquired Company to
conduct its business, including any Proprietary Rights Agreement with
Sellers or the Acquired Companies by any such employee or director. To
Sellers' Knowledge, no director, officer, or other key employee of any
Acquired Company intends to terminate his employment with such Acquired
Company.
(c) Part 3.20 of the Disclosure Letter also contains a
complete and accurate list of the following information for each
retired employee or director of the Acquired Companies, or their
dependents, receiving benefits or scheduled to receive benefits in the
future: name, pension benefit, pension option election, retiree medical
insurance coverage, retiree life insurance coverage, and other
benefits.
3.21 LABOR RELATIONS; COMPLIANCE
Since December 31, 1996, no Acquired Company has been or is a party to
any collective bargaining or other labor Contract. Since December 31, 1996,
there has not been, there is not presently pending or existing, and to Sellers'
Knowledge there is not Threatened, (a) any strike, slowdown, picketing, work
stoppage, or employee grievance process, (b) any Proceeding against or affecting
any Acquired Company relating to the alleged violation of any Legal Requirement
pertaining to labor relations or employment matters, including any charge or
complaint filed by an employee or union with the National Labor Relations Board,
the Equal Employment Opportunity Commission, or any comparable Governmental
Body, organizational activity, or other labor or employment dispute against or
affecting any of the Acquired Companies or their premises, or (c) any
application for certification of a collective bargaining agent. To Sellers'
Knowledge no event has occurred or circumstance exists that could provide the
basis for any work stoppage or other labor dispute. There is no lockout of any
employees by any Acquired Company, and no such action is contemplated by any
Acquired Company. Each Acquired Company has complied in all respects with all
Legal Requirements relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar taxes, occupational safety and
health, and plant closing. No Acquired Company is liable for the payment of any
compensation, damages, taxes, fines, penalties, or other amounts, however
designated, for failure to comply with any of the foregoing Legal Requirements.
3.22 INTELLECTUAL PROPERTY
(a) Intellectual Property Assets--The term "Intellectual
Property Assets" includes:
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(i) the name "Fan-Tastic" and "Fan-A-Mania", all
fictional business names, trading names, registered and
unregistered trademarks, service marks, and applications
(collectively, "Marks");
(ii) all patents, patent applications, and inventions
and discoveries that may be patentable (collectively,
"Patents");
(iii) all copyrights in both published works and
unpublished works (collectively, "Copyrights");
(iv) all rights in mask works (collectively, "Rights
in Mask Works"); and
(v) all know-how, trade secrets, confidential
information, customer lists, software, technical information,
data, process technology, plans, drawings, and blue prints
(collectively, "Trade Secrets"); owned, used, or licensed by
any Acquired Company as licensee or licensor.
(b) Agreements--Part 3.22(b) of the Disclosure Letter contains
a complete and accurate list and summary description, including any
royalties paid or received by the Acquired Companies, of all Contracts
relating to the Intellectual Property Assets to which any Acquired
Company is a party or by which any Acquired Company is bound, except
for any license implied by the sale of a product and perpetual, paid-up
licenses for commonly available software programs with a value of less
than $5,000 under which an Acquired Company is the licensee. There are
no outstanding and, to Sellers' Knowledge, no Threatened disputes or
disagreements with respect to any such agreement.
(c) Know-How Necessary for the Business
(i) The Intellectual Property Assets are all those
necessary for the operation of the Acquired Companies'
businesses as they are currently conducted or as reflected in
the business plan given to Buyer. One or more of the Acquired
Companies is the owner of all right, title, and interest in
and to each of the Intellectual Property Assets, free and
clear of all liens, security interests, charges, encumbrances,
equities, and other adverse claims, and has the right to use
without payment to a third party all of the Intellectual
Property Assets.
(ii) Except as set forth in Part 3.22(c) of the
Disclosure Letter, all former and current employees of each
Acquired Company have executed written Contracts with one or
more of the Acquired Companies that assign to one or more of
the Acquired Companies all rights to any inventions,
improvements, discoveries, or information relating to the
business of any Acquired Company. No employee of any Acquired
Company has entered into any Contract that restricts or limits
in any way the scope or type of work in which the employee may
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be engaged or requires the employee to transfer, assign, or
disclose information concerning his work to anyone other than
one or more of the Acquired Companies.
(d) Patents
(i) Part 3.22(d) of the Disclosure Letter contains a
complete and accurate list and summary description of all
Patents. One or more of the Acquired Companies is the owner of
all right, title, and interest in and to each of the Patents,
free and clear of all liens, security interests, charges,
encumbrances, entities, and other adverse claims.
(ii) All of the issued Patents are currently in
compliance with formal legal requirements (including payment
of filing, examination, and maintenance fees and proofs of
working or use), are valid and enforceable, and are not
subject to any maintenance fees or taxes or actions falling
due within ninety days after the Closing Date.
(iii) No Patent has been or is now involved in any
interference, reissue, reexamination, or opposition
proceeding. To Sellers' Knowledge, there is no potentially
interfering patent or patent application of any third party.
(iv) No Patent is infringed or, to Sellers'
Knowledge, has been challenged or threatened in any way. None
of the products manufactured and sold, nor any process or
know-how used, by any Acquired Company infringes or is alleged
to infringe any patent or other proprietary right of any other
Person.
(v) All products made, used, or sold under the
Patents have been marked with the proper patent notice.
(e) Trademarks
(i) Part 3.22(e) of Disclosure Letter contains a
complete and accurate list and summary description of all
Marks. One or more of the Acquired Companies is the owner of
all right, title, and interest in and to each of the Marks,
free and clear of all liens, security interests, charges,
encumbrances, equities, and other adverse claims.
(ii) All Marks that have been registered with the
United States Patent and Trademark Office are currently in
compliance with all formal legal requirements (including the
timely post-registration filing of affidavits of use and
incontestability and renewal applications), are valid and
enforceable, and are not subject to any maintenance fees or
taxes or actions falling due within ninety days after the
Closing Date.
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(iii) No Mark has been or is now involved in any
opposition, invalidation, or cancellation and, to Sellers'
Knowledge, no such action is Threatened with the respect to
any of the Marks.
(iv) To Sellers' Knowledge there is no potentially
interfering trademark or trademark application of any third
party.
(v) No Mark is infringed or, to Sellers' Knowledge,
has been challenged or threatened in any way. None of the
Marks used by any Acquired Company infringes or is alleged
to infringe any trade name, trademark, or service mark of
any third party.
(vi) All products and materials containing a Mark
bear the proper federal registration notice where permitted by
law.
(f) Copyrights
(i) Part 3.22(f) of the Disclosure Letter contains a
complete and accurate list and summary description of all
Copyrights. One or more of the Acquired Companies is the owner
of all right, title, and interest in and to each of the
Copyrights, free and clear of all liens, security interests,
charges, encumbrances, equities, and other adverse claims.
(ii) All the Copyrights have been registered and are
currently in compliance with formal legal requirements, are
valid and enforceable, and are not subject to any maintenance
fees or taxes or actions falling due within ninety days
after the date of Closing.
(iii) No Copyright is infringed or, to Sellers'
Knowledge, has been challenged or threatened in any way. None
of the subject matter of any of the Copyrights infringes or is
alleged to infringe any copyright of any third party or is a
derivative work based on the work of a third party.
(iv) All works encompassed by the Copyrights have
been marked with the proper copyright notice.
(g) Trade Secrets
(i) With respect to each Trade Secret, the
documentation relating to such Trade Secret is current,
accurate, and sufficient in detail and content to identify and
explain it and to allow its full and proper use without
reliance on the knowledge or memory of any individual.
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(ii) Sellers and the Acquired Companies have taken
all reasonable precautions to protect the secrecy,
confidentiality, and value of their Trade Secrets.
(iii) One or more of the Acquired Companies has good
title and an absolute (but not necessarily exclusive) right to
use the Trade Secrets. The Trade Secrets are not part of the
public knowledge or literature, and, to Sellers' Knowledge,
have not been used, divulged, or appropriated either for the
benefit of any Person (other than one or more of the Acquired
Companies) or to the detriment of the Acquired Companies. No
Trade Secret is subject to any adverse claim or has been
challenged or threatened in any way.
3.23 CERTAIN PAYMENTS
Since December 31, 1996, no Acquired Company or director, officer,
agent, or employee of any Acquired Company, or to Sellers' Knowledge any other
Person associated with or acting for or on behalf of any Acquired Company, has
directly or indirectly (a) made any contribution, gift, bribe, rebate, payoff,
influence payment, kickback, or other payment to any Person, private or public,
regardless of form, whether in money, property, or services (i) to obtain
favorable treatment in securing business, (ii) to pay for favorable treatment
for business secured, (iii) to obtain special concessions or for special
concessions already obtained, for or in respect of any Acquired Company or any
Affiliate of an Acquired Company, or (iv) in violation of any Legal Requirement,
(b) established or maintained any fund or asset that has not been recorded in
the books and records of the Acquired Companies.
3.24 DISCLOSURE
(a) No representation or warranty of Sellers in this Agreement
and no statement in the Disclosure Letter omits to state a material
fact necessary to make the statements herein or therein, in light of
the circumstances in which they were made, not misleading.
(b) No notice given pursuant to Section 6.5 will contain any
untrue statement or omit to state a material fact necessary to make the
statements therein or in this Agreement, in light of the circumstances
in which they were made, not misleading.
(c) There is no fact known to Sellers that has specific
application to any Seller or any Acquired Company (other than general
economic or industry conditions) and that materially adversely affects
or, as far as Sellers can reasonably foresee, materially threatens, the
assets, business, prospects, financial condition, or results of
operations of the Acquired Companies (on a consolidated basis) that has
not been set forth in this Agreement or the Disclosure Letter.
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3.25 RELATIONSHIPS WITH RELATED PERSONS
No Seller or any Related Person of Sellers or of any Acquired Company
has, or since the first day of the next to last completed fiscal year of the
Acquired Companies has had, any interest in any property (whether real,
personal, or mixed and whether tangible or intangible), used in or pertaining to
the Acquired Companies' businesses. No Seller or any Related Person of Sellers
or of any Acquired Company is, or since the first day of the next to last
completed fiscal year of the Acquired Companies has owned (of record or as a
beneficial owner) an equity interest or any other financial or profit interest
in, a Person that has (i) had business dealings or a material financial interest
in any transaction with any Acquired Company, or (ii) engaged in competition
with any Acquired Company with respect to any line of the products or services
of such Acquired Company (a "Competing Business") in any market presently served
by such Acquired Company except for less than one percent of the outstanding
capital stock of any Competing Business that is publicly traded on any
recognized exchange or in the over-the-counter market. Except as set forth in
Part 3.25 of the Disclosure Letter, no Seller or any Related Person of Sellers
or of any Acquired Company is a party to any Contract with, or has any claim or
right against, any Acquired Company.
3.26 BROKERS OR FINDERS
Sellers and their agents have incurred no obligation or liability,
contingent or otherwise, for brokerage or finders' fees or agents' commissions
or other similar payment in connection with this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF PAPENFUSS, SR.,
PAPENFUSS, JR., PUGMIRE AND TOOLSON
As used in this Section 4, except as otherwise noted, "Sellers" shall
mean B. Willes Papenfuss, Sr., B. Willis Papenfuss, Jr., Tom Pugmire and Andy
Toolson only. B. Willes Papenfuss, Sr., B. Willis Papenfuss, Jr., Tom Pugmire
and Andy Toolson, individually represent and warrant to buyer as follows:
4.1 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and binding
obligation of Sellers, enforceable against Sellers in accordance with
its terms. Upon the execution and delivery by Sellers of the Sellers'
Releases, (collectively, the "Sellers' Closing Documents"), the
Sellers' Closing Documents will constitute the legal, valid, and
binding obligations of Sellers, enforceable against Sellers in
accordance with their respective terms. Sellers have the absolute and
unrestricted right, power, authority, and capacity to execute and
deliver this Agreement and the Sellers' Closing Documents and to
perform their obligations under this Agreement and the Sellers' Closing
Documents.
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Sellers will not be required to give any notice to or obtain any
Consent from any Person in connection with the execution and delivery of this
Agreement or the consummation or performance of any of the Contemplated
Transactions.
(b) Sellers are acquiring the Class D preferred shares for
their own account and not with a view to their distribution within the
meaning of Section 2(11) of the Securities Act.
4.2 OWNERSHIP OF SHARES
Sellers are and will be on the Closing Date the record and beneficial
owners and holders of the Shares set opposite their names on Schedule A, free
and clear of all Encumbrances.
4.3 NO UNDISCLOSED LIABILITIES
To the knowledge of Sellers, the Acquired Companies have no liabilities
or obligations of any nature (whether known or unknown and whether absolute,
accrued, contingent, or otherwise) except for liabilities or obligations
reflected or reserved against in the Balance Sheet and current liabilities
incurred in the Ordinary Course of Business since the respective dates thereof.
4.4 DISCLOSURE
To the knowledge of Sellers:
(a) No representation or warranty of Sellers (as defined in
the first paragraph of this Agreement) contained in Section 3 or
Section 4 of this Agreement and no statement in the Disclosure Letter
omits to state a material fact necessary to make the statements herein
or therein, in light of the circumstances in which they were made, not
misleading.
(b) No notice given pursuant to Section 6.5 will contain any
untrue statement or omit to state a material fact necessary to make the
statements therein or in this Agreement, in light of the circumstances
in which they were made, not misleading.
(c) There is no fact known to Sellers that has specific
application to any Seller or any Acquired Company (other than general
economic or industry conditions) and that materially adversely affects
or, as far as Sellers can reasonably foresee, materially threatens, the
assets, business, prospects, financial condition, or results of
operations of the Acquired Companies (on a consolidated basis) that has
not been set forth in this Agreement or the Disclosure Letter.
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5. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as follows:
5.1 ORGANIZATION AND GOOD STANDING
Buyer is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Utah.
5.2 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and binding
obligation of Buyer, enforceable against Buyer in accordance with its
terms. Upon the execution and delivery by Buyer of the Purchase Price,
and the Employment Agreements, (collectively, the "Buyer's Closing
Documents"), the Buyer's Closing Documents will constitute the legal,
valid, and binding obligations of Buyer, enforceable against Buyer in
accordance with their respective terms. Buyer has the absolute and
unrestricted right, power, and authority to execute and deliver this
Agreement and the Buyer's Closing Documents and to perform its
obligations under this Agreement and the Buyer's Closing Documents.
(b) Except as set forth in Schedule 5.2, neither the execution
and delivery of this Agreement by Buyer nor the consummation or
performance of any of the Contemplated Transactions by Buyer will give
any Person the right to prevent, delay, or otherwise interfere with any
of the Contemplated Transactions pursuant to:
(i) any provision of Buyer's Organizational
Documents;
(ii) any resolution adopted by the board of
directors or the stockholders of Buyer;
(iii) any Legal Requirement or Order to which
Buyer may be subject; or
(iv) any Contract to which Buyer is a party
or by which Buyer may be bound.
Except as set forth in Schedule 5.2, Buyer is not and will not be
required to obtain any Consent from any Person in connection with the execution
and delivery of this Agreement or the consummation or performance of any of the
Contemplated Transactions.
5.3 INVESTMENT INTENT
Buyer is acquiring the Shares for its own account and not with a view
to their distribution within the meaning of Section 2(11) of the Securities Act.
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5.4 CERTAIN PROCEEDINGS
There is no pending Proceeding that has been commenced against Buyer
and that challenges, or may have the effect of preventing, delaying, making
illegal, or otherwise interfering with, any of the Contemplated Transactions. To
Buyer's Knowledge, no such Proceeding has been Threatened.
5.5 SEC FILINGS
Buyer has furnished Sellers with copies of Form 10-K and Forms 10-Q for
all period since March 31, 1995. All such documents do not contain any untrue
statements nor do they omit to state any statement necessary to make the
statements made not misleading. All such documents comply with all applicable
rules and regulations of the United States Securities and Exchange Commission.
5.6 BROKERS OR FINDERS
Buyer and its officers and agents have incurred no obligation or
liability, contingent or otherwise, for brokerage or finders' fees or agents'
commissions or other similar payment in connection with this Agreement and will
indemnify and hold Sellers harmless from any such payment alleged to be due by
or through Buyer as a result of the action of Buyer or its officers or agents.
6. COVENANTS OF SELLERS PRIOR TO CLOSING DATE
6.1 ACCESS AND INVESTIGATION
Between the date of this Agreement and the Closing Date, Sellers will,
and will cause each Acquired Company and its Representatives to, (a) afford
Buyer and its Representatives and prospective lenders and their Representatives
(collectively, "Buyer's Advisors") full and free access to each Acquired
Company's personnel, properties (including subsurface testing), contracts, books
and records, and other documents and data, (b) furnish Buyer and Buyer's
Advisors with copies of all such contracts, books and records, and other
existing documents and data as Buyer may reasonably request, and (c) furnish
Buyer and Buyer's Advisors with such additional financial, operating, and other
data and information as Buyer may reasonably request.
6.2 OPERATION OF THE BUSINESSES OF THE ACQUIRED COMPANIES
Between the date of this Agreement and the Closing Date, Sellers will,
and will cause each Acquired Company to:
(a) conduct the business of such Acquired Company only in the
Ordinary Course of Business;
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(b) use their Best Efforts to preserve intact the current
business organization of such Acquired Company, keep available the
services of the current officers, employees, and agents of such
Acquired Company, and maintain the relations and good will with
suppliers, customers, landlords, creditors, employees, agents, and
others having business relationships with such Acquired Company;
(c) confer with Buyer concerning operational matters of a
material nature; and
(d) otherwise report periodically to Buyer concerning the
status of the business, operations, and finances of such Acquired
Company.
6.3 NEGATIVE COVENANT
Except as otherwise expressly permitted by this Agreement, between the
date of this Agreement and the Closing Date, Sellers will not, and will cause
each Acquired Company not to, without the prior written consent of Buyer, take
any affirmative action, or fail to take any reasonable action within their or
its control, as a result of which any of the changes or events listed in Section
3.16 is likely to occur.
6.4 REQUIRED APPROVALS
As promptly as practicable after the date of this Agreement, Sellers
will, and will cause each Acquired Company to, make all filings required by
Legal Requirements to be made by them in order to consummate the Contemplated
Transactions (including all filings under the HSR Act). Between the date of this
Agreement and the Closing Date, Sellers will, and will cause each Acquired
Company to, (a) cooperate with Buyer with respect to all filings that Buyer
elects to make or is required by Legal Requirements to make in connection with
the Contemplated Transactions, and (b) cooperate with Buyer in obtaining all
consents identified in Schedule 5.2 (including taking all actions requested by
Buyer to cause early termination of any applicable waiting period under the HSR
Act).
6.5 NOTIFICATION
Between the date of this Agreement and the Closing Date, each Seller
will promptly notify Buyer in writing if such Seller or any Acquired Company
becomes aware of any fact or condition that causes or constitutes a Breach of
any of Sellers' representations and warranties as of the date of this Agreement,
or if such Seller or any Acquired Company becomes aware of the occurrence after
the date of this Agreement of any fact or condition that would (except as
expressly contemplated by this Agreement) cause or constitute a Breach of any
such representation or warranty had such representation or warranty been made as
of the time of occurrence or discovery of such fact or condition. Should any
such fact or condition require any change in the Disclosure Letter if the
Disclosure Letter were dated the date of the occurrence or discovery of any such
fact or condition, Sellers will promptly deliver to Buyer a supplement to the
Disclosure Letter specifying such change. During the same period, each Seller
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will promptly notify Buyer of the occurrence of any Breach of any covenant of
Sellers in this Section 6 or of the occurrence of any event that may make the
satisfaction of the conditions in Section 8 impossible or unlikely.
6.6 PAYMENT OF INDEBTEDNESS BY RELATED PERSONS
Except as expressly provided in this Agreement, Sellers will cause all
indebtedness owed to an Acquired Company by any Seller or any Related Person of
any Seller to be paid in full prior to Closing.
6.7 NO NEGOTIATION
Until such time, if any, as this Agreement is terminated pursuant to
Section 10, Sellers will not, and will cause each Acquired Company and each of
their Representatives not to, directly or indirectly solicit, initiate, or
encourage any inquiries or proposals from, discuss or negotiate with, provide
any non-public information to, or consider the merits of any unsolicited
inquiries or proposals from, any Person (other than Buyer) relating to any
transaction involving the sale of the business or assets (other than in the
Ordinary Course of Business) of any Acquired Company, or any of the capital
stock of any Acquired Company, or any merger, consolidation, business
combination, or similar transaction involving any Acquired Company.
6.8 BEST EFFORTS
Between the date of this Agreement and the Closing Date, Sellers will
use their Best Efforts to cause the conditions in Sections 8 and 9 to be
satisfied.
7. COVENANTS OF BUYER PRIOR TO CLOSING DATE
7.1 APPROVALS OF GOVERNMENTAL BODIES
As promptly as practicable after the date of this Agreement, Buyer
will, and will cause each of its Related Persons to, make all filings required
by Legal Requirements to be made by them to consummate the Contemplated
Transactions. Between the date of this Agreement and the Closing Date, Buyer
will, and will cause each Related Person to, cooperate with Sellers with respect
to all filings that Sellers are required by Legal Requirements to make in
connection with the Contemplated Transactions, and (ii) cooperate with Sellers
in obtaining all consents identified in Part 3.2 of the Disclosure Letter;
provided that this Agreement will not require Buyer to dispose of or make any
change in any portion of its business or to incur any other burden to obtain a
Governmental Authorization.
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7.2 BEST EFFORTS
Except as set forth in the proviso to Section 7.1, between the date of
this Agreement and the Closing Date, Buyer will use its Best Efforts to cause
the conditions in Sections 8 and 9 to be satisfied.
8. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Shares and to take the other actions required
to be taken by Buyer at the Closing is subject to the satisfaction, at or prior
to the Closing, of each of the following conditions (any of which may be waived
by Buyer, in whole or in part):
8.1 ACCURACY OF REPRESENTATIONS
(a) All of Sellers' representations and warranties in this
Agreement (considered collectively), and each of these representations
and warranties (considered individually), must have been accurate in
all material respects as of the date of this Agreement, and must be
accurate in all material respects as of the Closing Date as if made on
the Closing Date, without giving effect to any supplement to the
Disclosure Letter.
(b) Each of Sellers' representations and warranties in
Sections 3.3, 3.4, 3.12, and 3.24 must have been accurate in all
respects as of the date of this Agreement, and must be accurate in all
respects as of the Closing Date as if made on the Closing Date, without
giving effect to any supplement to the Disclosure Letter.
8.2 SELLERS' PERFORMANCE
(a) All of the covenants and obligations that Sellers are
required to perform or to comply with pursuant to this Agreement at or
prior to the Closing (considered collectively), and each of these
covenants and obligations (considered individually), must have been
duly performed and complied with in all material respects.
(b) Each document required to be delivered pursuant to
Section 2.4 must have been delivered, and each of the other covenants
and obligations in Sections 6.4 and 6.8 must have been performed and
complied with in all respects.
8.3 CONSENTS
Each of the Consents identified in subpart b of Part 3.2 of the
Disclosure Letter, and each Consent identified in Schedule 5.2, must have been
obtained and must be in full force and effect.
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8.4 ADDITIONAL DOCUMENTS
Each of the following documents must have been delivered to Buyer:
(a) such documents as Buyer may reasonably request for the
purpose of (i) evidencing the accuracy of any of Sellers'
representations and warranties, (ii) evidencing the performance by any
Seller of, or the compliance by any Seller with, any covenant or
obligation required to be performed or complied with by such Seller,
(iii) evidencing the satisfaction of any condition referred to in this
Section 8, or (iv) otherwise facilitating the consummation or
performance of any of the Contemplated Transactions.
8.5 NO PROCEEDINGS
Since the date of this Agreement, there must not have been commenced or
Threatened against Buyer, or against any Person affiliated with Buyer, any
Proceeding (a) involving any challenge to, or seeking damages or other relief in
connection with, any of the Contemplated Transactions, or (b) that may have the
effect of preventing, delaying, making illegal, or otherwise interfering with
any of the Contemplated Transactions.
8.6 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS
There must not have been made or Threatened by any Person any claim
asserting that such Person (a) is the holder or the beneficial owner of, or has
the right to acquire or to obtain beneficial ownership of, any stock of, or any
other voting, equity, or ownership interest in, any of the Acquired Companies,
or (b) is entitled to all or any portion of the Purchase Price payable for the
Shares.
8.7 NO PROHIBITION
Neither the consummation nor the performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse of
time), materially contravene, or conflict with, or result in a material
violation of, or cause Buyer or any Person affiliated with Buyer to suffer any
material adverse consequence under, (a) any applicable Legal Requirement or
Order, or (b) any Legal Requirement or Order that has been published,
introduced, or otherwise proposed by or before any Governmental Body.
9. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE
Sellers' obligation to sell the Shares and to take the other actions required to
be taken by Sellers at the Closing is subject to the satisfaction, at or prior
to the Closing, of each of the following conditions (any of which may be waived
by Sellers, in whole or in part):
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9.1 ACCURACY OF REPRESENTATIONS
All of Buyer's representations and warranties in this Agreement
(considered collectively), and each of these representations and warranties
(considered individually), must have been accurate in all material respects as
of the date of this Agreement and must be accurate in all material respects as
of the Closing Date as if made on the Closing Date.
9.2 BUYER'S PERFORMANCE
(a) All of the covenants and obligations that Buyer is
required to perform or to comply with pursuant to this Agreement at or
prior to the Closing (considered collectively), and each of these
covenants and obligations (considered individually), must have been
performed and complied with in all material respects.
(b) Buyer must have delivered each of the documents required
to be delivered by Buyer pursuant to Section 2.4.
9.3 CONSENTS
Each of the Consents identified in Subpart b of Part 3.2 of the
Disclosure Letter must have been obtained and must be in full force and effect.
9.4 ADDITIONAL DOCUMENTS
Buyer must have caused the following documents to be delivered to
Sellers:
(a) such documents as Sellers may reasonably request for the
purpose of (i) evidencing the accuracy of any representation or
warranty of Buyer, (ii) evidencing the performance by Buyer of, or the
compliance by Buyer with, any covenant or obligation required to be
performed or complied with by Buyer, (iii) evidencing the satisfaction
of any condition referred to in this Section 9, or (iv) otherwise
facilitating the consummation of any of the Contemplated Transactions.
9.5 NO INJUNCTION
There must not be in effect any Legal Requirement or any injunction or
other Order that (a) prohibits the sale of the Shares by Sellers to Buyer, and
(b) has been adopted or issued, or has otherwise become effective, since the
date of this Agreement.
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10. TERMINATION
10.1 TERMINATION EVENTS
This Agreement may, by notice given prior to or at the Closing, be
terminated:
(a) by either Buyer or Sellers if a material Breach of any
provision of this Agreement has been committed by the other party and
such Breach has not been waived;
(b) (i) by Buyer if any of the conditions in Section 8
has not been satisfied as of the Closing Date or if satisfaction of
such a condition is or becomes impossible (other than through the
failure of Buyer to comply with its obligations under this Agreement)
and Buyer has not waived such condition on or before the Closing Date;
or (ii) by Sellers, if any of the conditions in Section 9 has not been
satisfied as of the Closing Date or if satisfaction of such a condition
is or becomes impossible (other than through the failure of Sellers to
comply with their obligations under this Agreement) and Sellers have
not waived such condition on or before the Closing Date;
(c) by mutual consent of Buyer and Sellers; or
(d) by either Buyer or Sellers if the Closing has not occurred
(other than through the failure of any party seeking to terminate this
Agreement to comply fully with its obligations under this Agreement) on
or before March 31, 1997, or such later date as the parties may agree
upon.
10.2 EFFECT OF TERMINATION
Each party's right of termination under Section 10.1 is in addition to
any other rights it may have under this Agreement or otherwise, and the exercise
of a right of termination will not be an election of remedies. If this Agreement
is terminated pursuant to Section 10.1, all further obligations of the parties
under this Agreement will terminate, except that the obligations in Sections
12.1 and 12.3 will survive; provided, however, that if this Agreement is
terminated by a party because of the Breach of the Agreement by the other party
or because one or more of the conditions to the terminating party's obligations
under this Agreement is not satisfied as a result of the other party's failure
to comply with its obligations under this Agreement, the terminating party's
right to pursue all legal remedies will survive such termination unimpaired.
11. INDEMNIFICATION; REMEDIES
11.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE
All representations, warranties, covenants, and obligations in this
Agreement, the Disclosure Letter, the supplements to the Disclosure Letter, the
certificate delivered pursuant to Section 2.4(a)(v), and any other certificate
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or document delivered pursuant to this Agreement will survive the Closing. The
right to indemnification, payment of Damages or other remedy based on such
representations, warranties, covenants, and obligations will not be affected by
any investigation conducted with respect to, or any Knowledge acquired (or
capable of being acquired) at any time, whether before or after the execution
and delivery of this Agreement or the Closing Date, with respect to the accuracy
or inaccuracy of or compliance with, any such representation, warranty,
covenant, or obligation. The waiver of any condition based on the accuracy of
any representation or warranty, or on the performance of or compliance with any
covenant or obligation, will not affect the right to indemnification, payment of
Damages, or other remedy based on such representations, warranties, covenants,
and obligations.
11.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS
Barry Papenfuss, Tim Papenfuss and Greg Park, jointly and severally,
will indemnify and hold harmless Buyer, the Acquired Companies, and their
respective Representatives, stockholders, controlling persons, and affiliates
(collectively, the "Indemnified Persons") for, and will pay to the Indemnified
Persons the amount of, any loss, liability, claim, damage (including incidental
and consequential damages), expense (including costs of investigation and
defense and reasonable attorneys' fees) or diminution of value, whether or not
involving a third-party claim (collectively, "Damages"), arising, directly or
indirectly, from or in connection with:
(a) any Breach of any representation or warranty made by
Sellers in this Agreement (without giving effect to any supplement to
the Disclosure Letter), the Disclosure Letter, the supplements to the
Disclosure Letter, or any other certificate or document delivered by
Sellers pursuant to this Agreement;
(b) any Breach of any representation or warranty made by
Sellers in this Agreement as if such representation or warranty were
made on and as of the Closing Date without giving effect to any
supplement to the Disclosure Letter, other than any such Breach that is
disclosed in a supplement to the Disclosure Letter and is expressly
identified in the certificate delivered pursuant to Section 2.4(a)(v)
as having caused the condition specified in Section 8.1 not to be
satisfied;
(c) any Breach by any Seller of any covenant or obligation of
such Seller in this Agreement;
(d) any product shipped or manufactured by, or any services
provided by, any Acquired Company prior to the Closing Date;
(e) any matter disclosed in parts 3.11, 3.13, 3.15 and 3.19 of
the Disclosure Letter; or
(f) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or
understanding alleged to have been made by any such Person with any
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Seller or any Acquired Company (or any Person acting on their behalf)
in connection with any of the Contemplated Transactions.
The remedies provided in this Section 11.2 will not be exclusive of or
limit any other remedies that may be available to Buyer or the other Indemnified
Persons.
11.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER
Buyer will indemnify and hold harmless Sellers, and will pay to Sellers
the amount of any Damages arising, directly or indirectly, from or in connection
with (a) any Breach of any representation or warranty made by Buyer in this
Agreement or in any certificate delivered by Buyer pursuant to this Agreement,
(b) any Breach by Buyer of any covenant or obligation of Buyer in this
Agreement, or (c) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by such Person with Buyer (or any Person acting on its
behalf) in connection with any of the Contemplated Transactions.
11.4 TIME LIMITATIONS
If the Closing occurs, Sellers will have no liability (for
indemnification or otherwise) with respect to any representation or warranty, or
covenant or obligation to be performed and complied with prior to the Closing
Date, other than those in Sections 3.3, 3.11, 3.13, and 3.19, unless on or
before March 31, 1998 Buyer notifies Sellers of a claim specifying the factual
basis of that claim in reasonable detail to the extent then known by Buyer; a
claim with respect to Section 3.3, 3.11, 3.13, or 3.19, or a claim for
indemnification or reimbursement not based upon any representation or warranty
or any covenant or obligation to be performed and complied with prior to the
Closing Date, may be made at any time. If the Closing occurs, Buyer will have no
liability (for indemnification or otherwise) with respect to any representation
or warranty, or covenant or obligation to be performed and complied with prior
to the Closing Date, unless on or before March 31, 1998 Sellers notify Buyer of
a claim specifying the factual basis of that claim in reasonable detail to the
extent then known by Sellers.
11.5 LIMITATIONS ON AMOUNT--SELLERS
Sellers will have no liability (for indemnification or otherwise) with
respect to the matters described in clause (a), clause (b) or, to the extent
relating to any failure to perform or comply prior to the Closing Date, clause
(c) of Section 11.2 until the total of all Damages with respect to such matters
exceeds $50,000, and then only for the amount by which such Damages exceed
$50,000. Sellers will have no liability (for indemnification or otherwise) with
respect to the matters described in clause (d) of Section 11.2 until the total
of all Damages with respect to such matters exceeds $50,000, and then only for
the amount by which such Damages exceed $50,000. However, this Section 11.5 will
not apply to any Breach of any of Sellers' representations and warranties of
which any Seller had Knowledge at any time prior to the date on which such
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representation and warranty is made or any intentional Breach by any Seller of
any covenant or obligation, and Sellers, other than Rod Hawes, will be jointly
and severally liable for all Damages with respect to such Breaches.
11.6 LIMITATIONS ON AMOUNT--BUYER
Buyer will have no liability (for indemnification or otherwise) with
respect to the matters described in clause (a) or (b) of Section 11.3 until the
total of all Damages with respect to such matters exceeds $50,000, and then only
for the amount by which such Damages exceed $50,000. However, this Section 11.6
will not apply to any Breach of any of Buyer's representations and warranties of
which Buyer had Knowledge at any time prior to the date on which such
representation and warranty is made or any intentional Breach by Buyer of any
covenant or obligation, and Buyer will be liable for all Damages with respect to
such Breaches.
11.7 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS
(a) Promptly after receipt by an indemnified party under
Section 11.2 or 11.3, of notice of the commencement of any Proceeding
against it, such indemnified party will, if a claim is to be made
against an indemnifying party under such Section, give notice to the
indemnifying party of the commencement of such claim, but the failure
to notify the indemnifying party will not relieve the indemnifying
party of any liability that it may have to any indemnified party,
except to the extent that the indemnifying party demonstrates that the
defense of such action is prejudiced by the indemnifying party's
failure to give such notice.
(b) If any Proceeding referred to in Section 11.7(a) is
brought against an indemnified party and it gives notice to the
indemnifying party of the commencement of such Proceeding, the
indemnifying party will, unless the claim involves Taxes, be entitled
to participate in such Proceeding and, to the extent that it wishes
(unless (i) the indemnifying party is also a party to such Proceeding
and the indemnified party determines in good faith that joint
representation would be inappropriate, or (ii) the indemnifying party
fails to provide reasonable assurance to the indemnified party of its
financial capacity to defend such Proceeding and provide
indemnification with respect to such Proceeding), to assume the defense
of such Proceeding with counsel satisfactory to the indemnified party
and, after notice from the indemnifying party to the indemnified party
of its election to assume the defense of such Proceeding, the
indemnifying party will not, as long as it diligently conducts such
defense, be liable to the indemnified party under this Section 11 for
any fees of other counsel or any other expenses with respect to the
defense of such Proceeding, in each case subsequently incurred by the
indemnified party in connection with the defense of such Proceeding,
other than reasonable costs of investigation. If the indemnifying party
assumes the defense of a Proceeding, (i) it will be conclusively
established for purposes of this Agreement that the claims made in that
Proceeding are within the scope of and subject to indemnification; (ii)
no compromise or settlement of such claims may be effected by the
indemnifying party without the indemnified party's consent unless (A)
45
<PAGE>
there is no finding or admission of any violation of Legal Requirements
or any violation of the rights of any Person and no effect on any other
claims that may be made against the indemnified party, and (B) the sole
relief provided is monetary damages that are paid in full by the
indemnifying party; and (iii) the indemnified party will have no
liability with respect to any compromise or settlement of such claims
effected without its consent. If notice is given to an indemnifying
party of the commencement of any Proceeding and the indemnifying
party does not, within ten days after the indemnified party's notice
is given, give notice to the indemnified party of its election to
assume the defense of such Proceeding, the indemnifying party will
be bound by any determination made in such Proceeding or any compromise
or settlement effected by the indemnified party.
(c) Notwithstanding the foregoing, if an indemnified party
determines in good faith that there is a reasonable probability that
a Proceeding may adversely affect it or its affiliates other than as a
result of monetary damages for which it would be entitled to
indemnification under this Agreement, the indemnified party may, by
notice to the indemnifying party, assume the exclusive right to defend,
compromise, or settle such Proceeding, but the indemnifying party will
not be bound by any determination of a Proceeding so defended or any
compromise or settlement effected without its consent (which may not be
unreasonably withheld).
(d) Sellers hereby consent to the non-exclusive jurisdiction
of any court in which a Proceeding is brought against any Indemnified
Person for purposes of any claim that an Indemnified Person may have
under this Agreement with respect to such Proceeding or the matters
alleged therein, and agree that process may be served on Sellers with
respect to such a claim anywhere in the world.
11.8 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS
A claim for indemnification for any matter not involving a third-party
claim may be asserted by notice to the party from whom indemnification is
sought.
12. GENERAL PROVISIONS
12.1 EXPENSES
Except as otherwise expressly provided in this Agreement, each party to
this Agreement will bear its respective expenses incurred in connection with the
preparation, execution, and performance of this Agreement and the Contemplated
Transactions, including all fees and expenses of agents, representatives,
counsel, and accountants. In the event of termination of this Agreement, the
obligation of each party to pay its own expenses will be subject to any rights
of such party arising from a breach of this Agreement by another party.
46
<PAGE>
12.2 PUBLIC ANNOUNCEMENTS
Any public announcement or similar publicity with respect to this
Agreement or the Contemplated Transactions will be issued, if at all, at such
time and in such manner as Buyer determines. Unless consented to by Buyer in
advance or required by Legal Requirements, prior to the Closing Sellers shall,
and shall cause the Acquired Companies to, keep this Agreement strictly
confidential and may not make any disclosure of this Agreement to any Person.
Sellers and Buyer will consult with each other concerning the means by which the
Acquired Companies' employees, customers, and suppliers and others having
dealings with the Acquired Companies will be informed of the Contemplated
Transactions, and Buyer will have the right to be present for any such
communication.
12.3 CONFIDENTIALITY
Between the date of this Agreement and the Closing Date, Buyer and
Sellers will maintain in confidence, and will cause the directors, officers,
employees, agents, and advisors of Buyer and the Acquired Companies to maintain
in confidence, and not use to the detriment of another party or an Acquired
Company any written, oral, or other information obtained in confidence from
another party or an Acquired Company in connection with this Agreement or the
Contemplated Transactions, unless (a) such information is already known to such
party or to others not bound by a duty of confidentiality or such information
becomes publicly available through no fault of such party, (b) the use of such
information is necessary or appropriate in making any filing or obtaining any
consent or approval required for the consummation of the Contemplated
Transactions, or (c) the furnishing or use of such information is required by
legal proceedings.
If the Contemplated Transactions are not consummated, each party will
return or destroy as much of such written information as the other party may
reasonably request.
12.4 NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by telecopier
(with written confirmation of receipt), provided that a copy is mailed by
registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
47
<PAGE>
(receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
Sellers:
Attention: Barry Papenfuss
3855 South 500 West, No. R
Salt Lake City, Utah 84115
Facsimile No.: (801) 288-9210
Buyer:
Leasing Technology Incorporated
102 West 500 South, Suite 400
Salt Lake City, Utah 84101
Attention: Karl Badger
Facsimile No.: (801) 363-8487
with a copy to: Parry Murray Ward & Lawrence
1270 Eagle Gate Tower
60 East South Temple
Salt Lake City, Utah 84111
Attention: Richard J. Lawrence
Facsimile No.: (801) 521-3484
12.5 JURISDICTION; SERVICE OF PROCESS
Any action or proceeding seeking to enforce any provision of, or based
on any right arising out of, this Agreement may be brought against any of the
parties in the courts of the State of Utah, County of Salt Lake, or, if it has
or can acquire jurisdiction, in the United States District Court for the Central
District of Utah, and each of the parties consents to the jurisdiction of such
courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to venue laid therein. Process in any action
or proceeding referred to in the preceding sentence may be served on any party
anywhere in the world.
48
<PAGE>
12.6 FURTHER ASSURANCES
The parties agree (a) to furnish upon request to each other such further
information, (b) to execute and deliver to each other such other documents, and
(c) to do such other acts and things, all as the other party may reasonably
request for the purpose of carrying out the intent of this Agreement and the
documents referred to in this Agreement.
12.7 WAIVER
The rights and remedies of the parties to this Agreement are cumulative
and not alternative. Neither the failure nor any delay by any party in
exercising any right, power, or privilege under this Agreement or the documents
referred to in this Agreement will operate as a waiver of such right, power, or
privilege, and no single or partial exercise of any such right, power, or
privilege will preclude any other or further exercise of such right, power, or
privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
12.8 ENTIRE AGREEMENT AND MODIFICATION
This Agreement supersedes all prior agreements between the parties with
respect to its subject matter (including the Letter of Intent between Buyer and
Sellers dated December 17, 1996) and constitutes (along with the documents
referred to in this Agreement) a complete and exclusive statement of the terms
of the agreement between the parties with respect to its subject matter. This
Agreement may not be amended except by a written agreement executed by the party
to be charged with the amendment.
12.9 DISCLOSURE LETTER
(a) The disclosures in the Disclosure Letter, and those in any
Supplement thereto, must relate only to the representations and
warranties in the Section of the Agreement to which they expressly
relate and not to any other representation or warranty in this
Agreement.
(b) In the event of any inconsistency between the statements
in the body of this Agreement and those in the Disclosure Letter (other
than an exception expressly set forth as such in the Disclosure Letter
with respect to a specifically identified representation or warranty),
the statements in the body of this Agreement will control.
49
<PAGE>
12.10 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS
Neither party may assign any of its rights under this Agreement without
the prior consent of the other parties, which consent will not be unreasonably
withheld, except that Buyer may assign any of its rights under this Agreement to
any Subsidiary of Buyer. Subject to the preceding sentence, this Agreement will
apply to, be binding in all respects upon, and inure to the benefit of the
successors and permitted assigns of the parties. Nothing expressed or referred
to in this Agreement will be construed to give any Person other than the parties
to this Agreement any legal or equitable right, remedy, or claim under or with
respect to this Agreement or any provision of this Agreement. This Agreement and
all of its provisions and conditions are for the sole and exclusive benefit of
the parties to this Agreement and their successors and assigns.
12.11 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by
any court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
12.12 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for
convenience only and will not affect its construction or interpretation. All
references to "Section" or "Sections" refer to the corresponding Section or
Sections of this Agreement. All words used in this Agreement will be construed
to be of such gender or number as the circumstances require. Unless otherwise
expressly provided, the word "including" does not limit the preceding words or
terms.
12.13 TIME OF ESSENCE
With regard to all dates and time periods set forth or referred to in
this Agreement, time is of the essence.
12.14 GOVERNING LAW
This Agreement will be governed by the laws of the State of Utah
without regard to conflicts of laws principles.
12.15 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original copy of this Agreement and all of which,
when taken together, will be deemed to constitute one and the same agreement.
50
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
Buyer:
LEASING TECHNOLOGY
INCORPORATED
By:---------------------------
Karl Badger, President
Sellers:
- ------------------------ ------------------
Barry Papenfuss Tim Papenfuss
- ------------------------ ------------------
Greg Park Rod Hawes
- ------------------------ -----------------
Andy Toolson Tom Pugmire
- ------------------------ ------------------
Will Papenfuss Bruce Papenfuss
51
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE A
Sellers
Name Address Number of Number of Number of
Shares of Preferred LTI
Fan-Tastic Shares of Option
Owned LTI to be to be
issued issued
- ----------------- ---------------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Barry Papenfuss 3855 S. 500 W. #R 1,972,600 37,012 56,903
Salt Lake City, UT
84115
Tim Papenfuss 3441 S. Medford 1,054,500 19,786 30,418
Bountiful, UT 84010
Greg Park 4321 S. Camille 922,500 17,310 26,611
Holladay, UT 84124
Rodney A. Hawes Life Re Corp. 800,000 17,230 23,076
969 High Ridge Rd.
Stamford, CT 06905
Andy Toolson Farigold #9 250,000 4,808 7,212
Alella (Barcelona)
08382
Spain
Tom Pugmire c/o Annuity Pro- 150,000 2,885 4,327
fessional Mgt, Inc.
19125 N. Creek Pkwy.
#206
Bothell, WA 98011
B. Willes
Papenfuss, Jr. 12313 SE Wagner St. 30,000 577 865
Portland, OR 97236
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
Name Address Number of Number of Number of
Shares of Preferred LTI
Fan-Tastic Shares of Option
Owned LTI to be to be
issued issued
- ----------------- ---------------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
B. Willes
Papenfuss, Sr. 517 N. First Avenue 20,400 392 588
St. Ignatius, MT 59865
========= ======= =======
TOTAL: 5,200,000 100,000 150,000
</TABLE>
53
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS...........................................................1
"Acquired Companies"................................................... 1
"Applicable Contract".................................................. 1
"Balance Sheet"........................................................ 1
"Best Efforts"......................................................... 1
"Breach"............................................................... 1
"Buyer"................................................................ 1
"Closing".............................................................. 2
"Closing Date"......................................................... 2
"Company".............................................................. 2
"Consent".............................................................. 2
"Contemplated Transactions"............................................ 2
"Contract"............................................................. 2
"Damages".............................................................. 2
"Disclosure Letter".................................................... 2
"Employment Agreements"................................................ 2
"Encumbrance".......................................................... 2
"Environment".......................................................... 2
"Environmental, Health, and
Safety Liabilities".................................................. 3
"Environmental Law".................................................... 3
"ERISA"................................................................ 4
"Facilities"........................................................... 4
"GAAP"................................................................. 4
"Governmental Authorization"........................................... 4
"Governmental Body".................................................... 4
"Hazardous Activity"................................................... 5
"Hazardous Materials".................................................. 5
"Intellectual Property Assets"......................................... 5
"IRC".................................................................. 5
"IRS" .............................................................. 5
"Knowledge"............................................................ 5
"Legal Requirement".................................................... 5
"Loan Agreements....................................................... 5
"Occupational Safety and
Health Law".......................................................... 6
"Order"................................................................ 6
"Ordinary Course of Business".......................................... 6
"Organizational Documents"............................................. 6
"Person"............................................................... 6
"Proceeding"........................................................... 6
i
<PAGE>
"Related Person"....................................................... 6
"Release".............................................................. 7
"Representative"....................................................... 7
"Securities Act"....................................................... 7
"Sellers".............................................................. 7
"Sellers' Releases".................................................... 7
"Shares"............................................................... 8
"Subsidiary"........................................................... 8
"Tax Return"........................................................... 8
"Threat of Release".................................................... 8
"Threatened"........................................................... 8
2. SALE AND TRANSFER OF SHARES; CLOSING................................ 8
2.1 Shares.......................................................... 8
2.2 Purchase Price.................................................. 9
2.3 Closing......................................................... 9
2.4 Closing Obligations............................................. 9
3. REPRESENTATIONS AND WARRANTIES OF CERTAIN SELLERS................... 10
3.1 Organization and Good Standing.................................. 10
3.2 Authority; No Conflict.......................................... 11
3.3 Capitalization.................................................. 12
3.4 Financial Statements............................................ 13
3.5 Books and Records............................................... 13
3.6 Title to Properties; Encumbrances............................... 13
3.7 Condition and Sufficiency of Assets............................. 14
3.8 Accounts Receivable............................................. 14
3.9 Inventory....................................................... 15
3.10 No Undisclosed Liabilities...................................... 15
3.11 Taxes........................................................... 15
3.12 No Material Adverse Change...................................... 16
3.13 Employee Benefits............................................... 16
3.14 Compliance with Legal Requirements; Governmental Authorization.. 17
3.15 Legal Proceedings; Orders....................................... 19
3.16 Absence of Certain Changes and Events........................... 20
3.17 Contracts; No Defaults.......................................... 21
3.18 Insurance....................................................... 24
3.19 Environmental Matters........................................... 25
3.20 Employees....................................................... 27
3.21 Labor Relations; Compliance..................................... 28
3.22 Intellectual Property........................................... 28
3.23 Certain Payments................................................ 32
ii
<PAGE>
3.24 Disclosure...................................................... 32
3.25 Relationships with Related Persons.............................. 33
3.26 Brokers or Finders.............................................. 33
4. REPRESENTATIONS AND WARRANTIES OF PAPENFUSS, SR., PAPENFUSS, JR.,
PUGMIRE AND TOOLSON................................................ 33
4.1 Authority; No Conflict.......................................... 33
4.2 Ownership of Shares............................................. 34
4.3 No Undisclosed Liabilities...................................... 34
4.4 Disclosure...................................................... 34
5. REPRESENTATIONS AND WARRANTIES OF BUYER............................. 35
5.1 Organization and Good Standing.................................. 35
5.2 Authority; No Conflict.......................................... 35
5.3 Investment Intent............................................... 35
5.4 Certain Proceedings............................................. 36
5.5 SEC Filings......................................................36
5.6 Brokers or Finders.............................................. 36
6. COVENANTS OF SELLERS PRIOR TO CLOSING DATE.......................... 36
6.1 Access and Investigation........................................ 36
6.2 Operation of the Businesses of the Acquired Companies........... 36
6.3 Negative Covenant............................................... 37
6.4 Required Approvals.............................................. 37
6.5 Notification.................................................... 37
6.6 Payment of Indebtedness by Related Persons...................... 38
6.7 No Negotiation.................................................. 38
6.8 Best Efforts.................................................... 38
7. COVENANTS OF BUYER PRIOR TO CLOSING DATE............................ 38
7.1 Approvals of Governmental Bodies................................ 38
7.2 Best Efforts.................................................... 39
8. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE................. 39
8.1 Accuracy of Representations..................................... 39
8.2 Sellers' Performance............................................ 39
8.3 Consents........................................................ 39
8.4 Additional Documents........................................... 40
8.5 No Proceedings.................................................. 40
iii
<PAGE>
8.6 No Claim Regarding Stock Ownership or Sale Proceeds............. 40
8.7 No Prohibition...................................................40
9. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE................ 40
9.1 Accuracy of Representations..................................... 41
9.2 Buyer's Performance............................................. 41
9.3 Consents........................................................ 41
9.4 Additional Documents............................................ 41
9.5 No Injunction................................................... 41
10. TERMINATION........................................................ 42
10.1 Termination Events.............................................. 42
10.2 Effect of Termination........................................... 42
11. INDEMNIFICATION; REMEDIES.......................................... 42
11.1 Survival; Right to Indemnification Not Affected by Knowledge.... 42
11.2 Indemnification and Payment of Damages by Sellers............... 43
11.3 Indemnification and Payment of Damages by Buyer................. 44
11.4 Time Limitations................................................ 44
11.5 Limitations on Amount--Sellers.................................. 44
11.6 Limitations on Amount--Buyer.................................... 45
11.7 Procedure for Indemnification--Third Party Claims............... 45
11.8 Procedure for Indemnification--Other Claims..................... 46
12. GENERAL PROVISIONS................................................. 46
12.1 Expenses........................................................ 46
12.2 Public Announcements............................................ 47
12.3 Confidentiality................................................. 47
12.4 Notices......................................................... 47
12.5 Jurisdiction; Service of Process................................ 48
12.6 Further Assurances.............................................. 49
12.7 Waiver.......................................................... 49
12.8 Entire Agreement and Modification............................... 49
12.9 Disclosure Letter............................................... 49
12.10 Assignments, Successors, and No Third-Party Rights.............. 50
12.11 Severability.................................................... 50
12.12 Section Headings, Construction.................................. 50
12.13 Time of Essence................................................. 50
12.14 Governing Law................................................... 50
12.15 Counterparts.................................................... 50
iv
<PAGE>
SCHEDULES
Schedule A Sellers Information..........................................52
Schedule B Rights, Preferences and Limitations of Preferred Stock.........
EXHIBITS
Exhibit 1 Disclosure Letter...............................................
Exhibit 2.4(a)(ii) Release................................................
Exhibit 2.4(a)(iii) Employment Agreement..................................
Exhibit 2.4(a)(iv) Investment Letter......................................
Exhibit 2.4(a)(vi) Loan Agreement.........................................
Exhibit 2.4(a)(vii) Shareholders Agreement................................
Exhibit 2.4(a)(vi) Option Agreement.......................................
v
AGREEMENT
This Agreement is entered into as of the _____ day of May, 1997 by and
between AMERICAN RESOURCES AND DEVELOPMENT COMPANY, a Utah corporation
(hereinafter "ARDCO"), and WILLIAM R. VOWELL (hereinafter "Vowell").
WHEREAS, the parties desire to organize a corporation for the purpose
of developing and selling vacation ownership interests in various resorts
initially located in the State of Arkansas;
NOW, THEREFORE, the parties hereto agree as follows:
1. ORGANIZATION OF CORPORATION.
A corporation shall be formed under the laws of the State of
Arkansas (hereinafter the "Corporation"). The name of the Corporation shall be
FINALLY COMMUNITIES, INC. or such other names as the parties shall mutually
agree upon. The initial directors of the Corporation shall be Vowell, Stephen
Spencer and Duane Marchant. ARDCO shall be the sole shareholder. The initial
officers of the Corporation shall be Vowell as President and Stephen Spencer as
Secretary. ARDCO shall contribute $1,000.00 to the capitalization of the
Corporation.
2. EMPLOYMENT CONTRACT FOR VOWELL.
The Corporation and Vowell shall enter into an Employment
Agreement substantially in the form of Exhibit "A" attached hereto and
incorporated herein by reference.
3. FINANCING OF CORPORATION.
ARDCO shall arrange for a loan of $50,000 to be made to the
Corporation. Upon the signing of this Agreement and the organization of the
Corporation, $35,000 of such loan shall be made and the balance shall be made 30
days thereafter. Vowell agrees to pledge Preferred Stock in ARDCO to secure such
loan. A portion of the loan proceeds shall be utilized to purchase 27 acres of
property to be utilized in the Corporation's business.
4. MANAGEMENT FEE.
The Corporation shall pay to ARDCO on a monthly basis $20,000
to reimburse ARDCO for management and consulting services to be provided to the
Corporation. During the first two months of operation of the Corporation such
amounts shall be accrued but not paid to ARDCO and shall be paid at such time as
cash flow of the Corporation warrants.
1
<PAGE>
5. CONSIDERATION TO VOWELL.
In consideration of Vowell's time and effort to develop the
business of the Corporation, ARDCO shall issue 500,000 shares of Series E
Convertible Preferred Stock to Vowell, or his designee. Twenty Five Thousand
Four Hundred (25,400) shares of the Series E Convertible Preferred Stock shall
be immediately convertible into 25,400 shares of Restricted Common Stock of
ARDCO. The balance of the Preferred Shares shall be convertible into ARDCO
Common Stock after June 30, 1999 and upon completion of the March 31st, 1999
Audited Financial Statements of the Corporation. The Preferred Stock shall have
those preferences, designations and rights as set forth on Exhibit "B" attached
hereto and incorporated herein.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the day and year first set forth above.
AMERICAN RESOURCES AND
DEVELOPMENT COMPANY
By:-------------------------------- -----------------------------
Karl Badger, President William R. Vowell
2
SUBSIDIARIES OF AMERICAN RESOURCES AND DEVELOPMENT
COMPANY
Golf Ventures, Inc.
Incorporated under the laws of the State of Utah.
(Formerly Sierra Tech, Inc.)
Fan-Tastic, Inc.
Incorporated under the laws of the State of Utah.
Finally Communities, Inc.
Incorporated under the laws of the State of Arkansas.
CONSENT OF INDEPENDENT AUDITORS
Board of Directors
American Resources and Development Company
102 West 500 South, Suite 400
Salt Lake City, Utah 84101
We consent to use in this Form 10-SB of American Resources and Development
Company of our report dated June 19, 1997 of American Resources and Development
Company for the year ended March 31, 1997, and to all references to our firm
included in this Form 10-SB.
Jones, Jensen & Company
/s/ Jones, Jensen & Company
Salt Lake City, Utah
July 9, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 47,850
<SECURITIES> 0
<RECEIVABLES> 41,349
<ALLOWANCES> 0
<INVENTORY> 932,439
<CURRENT-ASSETS> 1,336,961
<PP&E> 298,218
<DEPRECIATION> 97,965
<TOTAL-ASSETS> 13,323,105
<CURRENT-LIABILITIES> 3,486,633
<BONDS> 6,356,331
0
252
<COMMON> 1,835
<OTHER-SE> 3,055,621
<TOTAL-LIABILITY-AND-EQUITY> 13,323,105
<SALES> 274,000
<TOTAL-REVENUES> 274,000
<CGS> 158,066
<TOTAL-COSTS> 158,066
<OTHER-EXPENSES> 1,382,599
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,260
<INCOME-PRETAX> (1,024,802)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,024,802)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,024,802
<EPS-PRIMARY> (0.56)
<EPS-DILUTED> (0.56)
</TABLE>
