U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended March 31, 1998, or
Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Transition period from ________________ to ____________________
Commission file number 0-18865
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
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(Name of Small Business Issuer in Its Charter)
Utah 87-0401400
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
3855 S. 500 W., Salt Lake City, Utah 84115
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(Address of Principal Executive Offices) (Zip Code)
(801)363-8961
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Act:
Title of each class Name of each Exchange on which Registered
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None None
Securities registered under Section 12(g) of the Act:
Common Stock, $0.001 par value
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(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. [ ]
Issuer's revenues for its most recent fiscal year was $1,093,110.
The aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the average bid and asked prices
of such stock, as of July 24, 1998 was $841,187.
The number of shares outstanding of the issuer's common equity, as of
July 24, 1998 was 3,215,596.
Documents Incorporated by Reference: None
Transitional Small Business Disclosure Format: Yes No X
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TABLE OF CONTENTS
PART I
ITEM 1. DESCRIPTION OF BUSINESS 3
ITEM 2. DESCRIPTION OF PROPERTY 9
ITEM 3. LEGAL PROCEEDINGS 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 9
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION 11
ITEM 7. FINANCIAL STATEMENTS 13
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE 13
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT 13
ITEM 10. EXECUTIVE COMPENSATION 15
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 17
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 18
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K 18
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The information contained in this second amended Form 10-K for the
fiscal year ended March 31, 1998, is as of the latest practicable date except
for financial information which relates to the fiscal year.
PART I
Item 1. Description of Business.
GENERAL
American Resources and Development Company ("ARDCO" or the "Company")
was incorporated under the laws of the State of Utah on March 13, 1983, under
the name of Leasing Technology, Incorporated. In March, 1997 the Company changed
its name to American Resources and Development Company. The Company, through
various subsidiaries, owns a franchisor and owner of retail entertainment and
sports stores, a screen printing and embroidery company, a master licensee of
product using the U.S. Polo Association trademark and an apparel manufacturer
using the U.S. Polo Association trademark and an investment in a regional
developer and management provider of golf courses and related developments. When
used throughout this report, the Company shall include the subsidiaries of the
Company unless the context indicates otherwise. In addition to the above
businesses, the Company is actively reviewing other acquisition possibilities
wherein the Company could acquire an interest in products, properties,
technologies and/or businesses believed by management to hold potential for
profit. The nature of any acquisition and the manner of any acquisition cannot
be determined at the present time and will be subject to the business judgment
of management of the Company. There is no assurance that the Company will be
able to acquire an interest in any other product, property, technology, or
business.
The Company's present executive offices are located 3855 South 500
West, Suite R., Salt Lake City, Utah 84115 and its telephone number is (801)
363-8961. As of July 24, 1998, the Company had one hundred two (102) full
fulltime equivalent employees. On March 27, 1997, the Company effected a 1 for
20 reverse stock split of its common stock.
FAN-TASTIC, INC.
In March, 1997, the Company acquired 80% of the outstanding shares of
Fan-Tastic, Inc., a Utah Corporation ("Fan-Tastic") and acquired the remaining
20% in June 1998, effective March 31, 1998. Fan-Tastic is a franchisor and owner
of retail entertainment and sports stores, dba Fan-A-Mania, based in regional
shopping malls. As of July 24, 1998, Fan-Tastic owned 4 of its own stores with 1
in Utah and 3 in Oregon and 11 franchisees in the states of Utah, Wyoming,
Pennsylvania, Texas, and countries of Barbados, Canada and Japan. Fan-Tastic
opened its first Fan-A-Mania store in October 1995.
Fan-A-Mania stores carry a broad range of sports and entertainment
products purchased from national vendors who are licensed with various
organizations including the following entertainment and sports companies:
Disney, Warner Brothers, Public Television (Sesame Street), National Football
League, National Basketball Association, Major League Baseball, and National
Hockey League. Products carried range from apparel for ages ranging from
toddlers to adults, collectibles and souvenirs for fans 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:
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- Site evaluation and selection and lease negotiation.
- Store design and merchandising and display plans.
- Lower inventory costs from negotiated volume pricing and
simplified buying through a consolidated buying program.
- Inventory control through a consolidated point of sale
software and chain wide identification of hot selling
products.
- Four days of initial training at the 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 four
days of training at the opening of the store and on-going
follow-up training.
International Franchising
Fan-Tastic's marketing efforts have 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 opened its first store in December 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.
Seasonality
Approximately 36% of annual Fan-Tastic sales have occurred in the
months of November and December.
Suppliers
Fan-Tastic purchases product from a number of national licensed sports
and entertainment manufacturers including Starter, Inc., New Era, Champion,
Applause, Brazos Sportswear and Changes. Fan-Tastic is not dependent upon any
one supplier.
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 the marketing approach of Fan-A-Mania products from the
marketing approach of mass merchants. 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 malls with these stores, although direct competition exists with smaller
sports stores. Management believes that Fan-A-Mania has differentiated itself
for marketing purposes by selling both entertainment and sports products and by
having an attractive appearance.
Fan-Tastic also competes with other franchisers for prospective
franchisees. However, there is very little direct competition for prospective
franchisees since Fan-A-Mania is currently the only entertainment and sports
apparel, collectible and souvenir oriented franchisor known to management.
Fan-Tastic also competes for suitable store locations from a wide variety of
retailers.
Trademarks
Fan-Tastic owns the registered mark, "Fan-A-Mania" for retail stores
featuring entertainment and sports memorabilia and clothing.
Employees
As of July 24, 1998, Fantastic had 21 full time equivalent employees.
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PACIFIC PRINTING AND EMBROIDERY L.L.C.
In May 1998, the Company acquired approximately 83% of the outstanding shares of
Pacific Printing and Embroidery L.L.C. (PPW). Liabilities assumed in excess of
assets acquired was $532,582 and 258,782 shares of the Company's common stock
were issued to PPW shareholders with a guaranteed share value of $5.00.
Depending on PPW's performance over the next three years, up to 258,782
additional shares of the Company's common stock will be issued for this
acquisition if minimum earnings levels are met (See Note 2 to the financial
statements.) PPW is active in the contract screenprinting and embroidery
business and is based in Portland, Oregon.
Industry Trends
PPW performs contract screenprint, embroidery and finishing services for
customers, the majority of which are in the decorated sportswear market. The
decorated sportwear market, based upon industry data, accounted for
approximately $14.3 billion of retail level sales in the United States in 1996,
with a compounded annual growth rate of approximately 8.8% since 1991. PPW
believes growth in the decorated sportswear market has resulted from: (i) an
increased preference for comfortable apparel selections; (ii) more flexible
dress codes, including greater acceptance of casual clothes in the workplace;
(iii) a heightened emphasis on physical fitness, including increased
participation in sports; (iv) improved characteristics that have enhanced
consumer appeal, including improvements in fabric weight, blends and
construction, and increased offerings of size, color and style; (v) the
enhancement of screenprinted graphics and embroidered designs primarily
resulting from more advanced manufacturing equipment and processes; and (vi) the
increased use of "attitude" apparel. PPW believes that these trends should
continue to drive industry growth.
Business Strategy
PPW intends to increase its revenues and position itself as a leading national
screen print and embroidery contracter by continuing to pursue the following
business strategies:
Contract Services. PPW designs graphics for its larger apparel customers that
are sold under particular customers' labels. PPW will then screenprint or
embroidery these designs on blanks provided by the customers. PPW's new product
focus during the past six months has been on high-density printing. High-density
printing is a screenprinting term for a process that leaves a 3-D, sharp-edged
print with excellent detail. PPW hired an industry expert in March 1998, Michael
Beckman, PPW Vice President of Operations, who oversees PPW's high-desity
printing. Mr. Beckman has been honored by industry experts with significant
awards for his creative designs and inks. During the past six months PPW has
been creating high-density samples for its current customer as well as several
new customers. PPW has also been able to grow its business by specializing in
reflective inks, environmentally safe water based printing and puff inks.
Private Label Products. PPW manufactures private label products for certain of
its larger retail customers. PPW designs each private label product by working
closely with a customer, creating a unique decorated sportswear line that is
sold under that customer's label.
Other. Other products include printing on athletic uniforms for Nike, Inc's
organized sports. PPW also produces custom designed graphics and screenprinting
for corporate accounts.
Design And Sales Staff. PPW employs a staff of approximately 4 graphic design
artists who work closely with customers to create designs for its customers
sportswear lines. PPW employs six external and three internal sales people who
work closely with existing and new customers to ensure customer needs are met.
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Customers
PPW's primary sales are through national decorated sportswear companies
including: Nike, Columbia Sportswear, Dr. Martens, Speedo and Jantzen. In fiscal
1998, PPW's sales to major customers were as follows: Nike, Inc. 22%, Jantzen
21% and Columbia Sportswear 13%.
Sources of Raw Materials
PPW does not enter into long-term contracts with its suppliers. PPW buys its
inks and embroidery thread from approximately eight suppliers. PPW is not
dependent on any one supplier. The majority of blank apparel screen printed and
embroidered is provided by its customers.
Production and Manufacturing
PPW is committed to controlling costs and improving operating efficiencies. PPW
concentrates on the high value-added production processes of custom design,
screen printing and embroidery at its manufacturing facility. Production of
PPW's products requires applying garment decorations through screen printing or
embroidery.
Screen Printing. The screen printing process begins with the preparation of a
design by PPW's artists. PPW tests new designs for printability and color
dynamics and produces sales and production samples. PPW also stocks over 140
pigment colors and numerous ink bases, which allows for in-house development of
new ink applications and techniques. In the printing process, screens are
positioned in automatic printing presses where inks are pressed through the
screen to duplicate the design on the garment. Garments bearing designs on
different portions of the garment may move through the printing process several
times. Following printing, the garments are dried, making the printed design
permanent and washable.
PPW operates five automatic screen printing presses and seven manual screen
printing presses. Most of the automatic presses are color printing presses with
eight to fourteen color printing. Each press is operated by a team of employees.
PPW believes that this approach contributes to the flexibility, quality and
speed of its production process. PPW believes that its capacity is sufficient
for its needs and that during seasonal peaks sufficient sources of outside
production are available to PPW to meet its production needs, if necessary.
Embroidery. The embroidery process begins with the preparation of a design by
PPW's artists. PPW tests new designs for embroiderability as it relates
primarily to stitch count and color selection and produces sales and production
samples. After all designs are approved, the design that is to be embroidered is
formatted onto a computer disk, which is then programmed into the embroidery
machine. Each embroidery machine has multiple sewing heads, permitting two to
sixty-one garments to be embroidered at one time. Garments are trimmed, packed
in PPW's warehouse and shipped directly to the customer or to other Company
facilities for distribution to the customer. PPW operates seven fully automated,
multi-head embroidery machines.
Quality Control. PPW maintains several quality control checkpoints monitoring
all phases of production and ensuring that garments meet PPW's its customers
quality standards.
Product Shipment. PPW believes responding quickly to customer requirements and
meeting delivery schedules consistently are important factors in its business.
Customers generally select the specific art designs to be printed on ordered
garments periodically for delivery within as few as one week following the
design selection. PPW can place garments on hangers before shipping, affix price
tags and other product information, and can ship garments polybagged or folded.
These services reduce the time required to prepare the garments for display and
thereby enable customers to stock their racks and shelves more quickly. PPW's
customers generally bear all shipping costs.
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Regulation
PPW is subject to federal, state and local environmental laws and regulations,
including laws relating to employee knowledge of, exposure to, and disposal of
inks, dyes, photographic chemicals and cleaning solvents. PPW believes that its
operations comply in all material respects with applicable environmental laws
and regulations. Although PPW continues to make capital expenditures for
environmental protection, it does not anticipate that significant expenditures
will be required to remain in compliance with environmental requirements. There
can be no assurance, however, that future changes in such laws and regulations
will not have a material effect on PPW's operations.
Competition
The screen printing industry is highly competitive. PPW competes with numerous
screen printing and manufacturing vendors, including those with their own line
of licensed and branded product. PPW also competes through a combination of
graphics and decorating techniques. Competitive factors include product quality,
access to popular licenses, price, ability to meet delivery requirements and
other aspects of customer service, changes in styles and consumer preferences.
Employees
At July 24, 1998, PPW employed approximately 80 full-time employees. PPW
believes that its employee relations are good.
GOLF VENTURES, INC.
As of April 6, 1998, the Company owned 502,746 shares of common stock
of Golf Ventures, Inc. (hereinafter "GVI"), a publicly held Utah corporation. As
of April 6, 1998, such shares represented approximately 5.3% of the issued and
outstanding common stock of GVI. This percentage was prior to the conversion of
U.S. Golf Communities Preferred Stock into common stock, which conversion
occurred by July 1998 and reduced the Company's holdings to approximately 1.4%
of the issued and outstanding Common Stock of GVI. In connection with GVI's
merger with U.S. Golf Communities, Inc. described below, and to settle all
services provided by the Company to GVI, and for the assumption of certain
contingent liabilities by the Company, GVI, in July 1998, issued the Company
862,000 shares of common stock. As of July 24, 1998, the Company owned 1,277,000
shares of commons stock of Golf Ventures, Inc. which represents less than 3% of
the outstanding shares of GVI.
Until December, 1997, GVI's assets consisted of the Red Hawk
International Golf & Country Club (hereinafter "Red Hawk"), Cotton Manor, and
Cotton Acres, real estate developments located near St. George, Utah.
On November 25, 1997, GVI announced that it had completed a merger with
U.S. Golf Communities, Inc. ("U.S. Golf Communities"), an Orlando based group of
affiliated companies principally engaged in the acquisition, development and
operations management of public, private and resort golf properties and adjacent
residential real estate throughout the United States. The transaction was
structured as a reverse merger with the assets of U.S. Golf Communities being
merged into GVI in exchange for the issuance by GVI of convertible preferred
stock to the current owners of U.S. Golf Communities. GVI issued sufficient
shares of preferred stock to the shareholders of U.S. Golf Communities so that
when converted, such shareholders would own approximately 81% of the outstanding
common stock of GVI.
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Additional information regarding the business of GVI can be found in
GVI's reports filed with the Securities and Exchange Commission. Since the
Company has no control over GVI, its interest in GVI after November 25, 1997, is
that of a passive shareholder.
FINALLY COMMUNITIES, INC.
On May 20, 1997, the Company entered into an agreement with William R.
Vowell to organize and operate Finally Communities, Inc. Finally was organized
in order to develop and sell vacation ownership interests in various type
resorts initially located in Fairfield Bay, Arkansas. Mr. Vowell, who is
president of Finally, received 500,000 shares of the Company's Series E
convertible preferred stock. 25,400 shares of the Series E preferred stock was
immediately convertible into common stock. The remaining shares of Series E
preferred stock were convertible into the Company's common stock after June 30,
1999, and upon completion of the March 31st, 1999 audit of Finally with a
conversion rate based on a 2 year pre-tax income of Finally and the average
trading price of the Company's common stock.
Subsequent to the merger of GVI with U.S. Golf Communities the
Company's management made a decision to discontinue the remainder of its real
estate operations. On March 22, 1998, the Company sold its shares in Finally
Communities, Inc. to William R. Vowell in exchange for the return of the stock
previously issued to Mr. Vowell
QUADE, INC.
On March, 17, 1998, the Company signed a Letter of Intent to acquire
one hundred percent (100%) of the outstanding common stock of Quade, Inc. On
July 23, 1998 the Company completed its purchase of Quade, Inc. by issuing
213,333 shares of its common stock and by loaning Quade $115,000. These shares
include 32,000 shares that have a guarantee of $5.00 per share based on the
average asking price of the Company's common stock for the six months ended
March 31, 1999. The Company will also pay $100,000 to a former partner of Quade,
Inc. by December 31, 1998 and an additional $714,000.00 is payable to Quade's
former partner from guaranteed sub-licensee royalties, even in the event no
sub-licensee royalties are paid. Depending on Quade's performance over the next
three years, additional shares of the Company's common stock will be issued for
this acquisition if minimum earnings levels are met as follows:
<TABLE>
<CAPTION>
Fiscal Earnings Before Income Taxes Common Shares Issuable
Year Low High Minimum Maximum
<S> <C> <C> <C> <C>
1999 $27,671 $81,500 47,408 142,222
2000 $251,166 $754,000 47,376 142,222
2001 $499,900 $1,499,200 47,423 142,222
</TABLE>
The additional shares that are issued to Quade, Inc. also have a
guaranteed value of $5.00.
The Company is also obligated to provide an additional $125,000 to
Quade for working capital purposes and will provide a letter of credit for up to
$200,000 for Quade to make apparel blank purchases.
In 1997, Quade, Inc., acquired from the U.S. Polo Association ("US
Polo") the exclusive master licenses rights to the US Polo name for the United
States and Canada. For the last year Quade, Inc., has been developing this
property including signing agreements with four sub-licensees, and serving as
licensee for knit tops including t-shirts, fleece and polo shirts. Additional
information on the operations of Quade, Inc. will be forthcoming in the
Company's June 30, 1998 10-QSB.
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Item 2. Description of Property.
The Company's and Fan-Tastic's executive offices and warehouse space
are located at 3855 South 500 West, Suite R, Salt Lake City, Utah 84115 and is
approximately 4,000 square feet of combined space. Fan-Tastic leases retail mall
space for its four stores that average approximately 2,000 square feet. PPW
rents a 45,000 square foot office and screenprinting/embroidery facility in
Portland, Oregon. Lease commitments from fiscal 1998 through fiscal 2004 are
$368,885, $373,374, $380,097, $327,925, $112,001, and $30,216, respectively.
Item 3. Legal Proceedings.
No material legal proceeding is pending at this time.
On December 18, 1997, the Securities and Exchange Commission
(hereinafter the "Commission") filed a civil enforcement action complaint,
2:97CV 0963K in the United States District Court for the district of Utah,
Central Division, against George Badger, former president of the Company, Karl
Badger, president of the Company, and others, alleging violations of the general
anti-fraud provisions of the federal securities laws. The complaint alleges that
George Badger directed a scheme to manipulate the market for securities issued
by GVI through payments to various broker-dealers and registered
representatives. The complaint alleges that Mr. Karl Badger arranged for some of
these payments. The complaint seeks a permanent injunction against future
violations of the federal securities laws, a court order prohibiting the
defendants from future participation in offerings of penny stocks and
disgorgement of alleged profits. Mr. Karl Badger has filed an answer to the
complaint denying the material allegations thereof, and filed Motions to
Dismiss, and intends to vigorously defend the action. At the present time, the
Company has agreed to advance legal expenses for Karl Badger in connection with
this matter. On July 14, 1998, Karl Badger resigned as President of the Company
and accepted a position as Vice President.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
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 following
table sets forth for the respective period indicated, the high and low bid
quotations, as adjusted for stock splits of the Company's common stock, as
reported by the National Quotation Bureau and represents prices between dealers,
does not include retail markups, markdowns or commissions, and may not represent
actual transactions:
Calendar Quarters High Bid Low Bid
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1995
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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
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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
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1st Quarter 6.50 2.50
2nd Quarter 5.50 2.75
3rd Quarter 5.25 2.00
4th Quarter 1.75 .875
1998
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1st Quarter 3.00 1.00
2nd Quarter 2.625 1.0625
========================
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As of July 24, 1998, the Company had 2,931,487 shares of its common
stock issued and outstanding, and there were approximately 1,300 shareholders of
record.
As of the date hereof, the Company has not paid or declared any cash
dividends. 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 Fan-Tastic for 100,000 shares of the Company's Series D Convertible Preferred
Stock. These shares were issued to the 8 shareholders of Fan-Tastic, each of
which signed an investment letter. The Company believes that the issuance of
these shares was exempt from registration under the Securities Act of 1933
pursuant to Section 4(2). On May 29, 1998, the Company acquired the remaining
20% of Fan-Tastic and exchanged the 100,000 shares of Series D preferred stock
for 400,000 shares of its common stock.
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
500,000 shares of Series E Convertible Preferred Stock. The Company believes
that the issuance of these shares was exempt from registration under the
Securities Act of 1933 pursuant to Section 4(2). In connection with the
Company's sale of its shares in Finally Communities, Inc. in February, 1998,
these shares were returned to the Company.
In June 1997, the Company issued 16,000 shares to two consultants for
promotional and advertising services. Based on the knowledge, experience and
economic strength of these persons, the Company believes these two transactions
were exempt from registration under the Securities Act of 1933 pursuant to
Section 4(2).
On March 10, 1998, the Company sold 24,000 shares of its common stock
for $30,000 to an investor. The Company believes that the shares were exempt
from registration under the Securities Act of 1933 pursuant to Rule 505 of
Regulation D promulgated thereunder.
In April 1998, the Company sold 36,000 shares of its common stock for
$45,000 to an investor. The shares were exempt from registration under the
Securities Act of 1933 pursuant to Rule 505 of Regulation D promulgated
thereunder.
In May 1998, effective March 31, 1998, the Company acquired over 80% of
the outstanding shares of Pacific Printing and Embroidery, L.L.C., for 258,782
shares of the Company's common stock. The issance of these shares were exempt
from registration pursuant to Section 4 (2) of the Securities Act of 1933.
On July 14, 1998 the Company issued 300,000 shares to Mr. George Badger
for prior services. Based on the knowledge, experience and economic strength of
Mr. George Badger, the Company believes this transaction is exempt from
registration with the Commission under Section 4(2) of the Securities Act of
1933.
On July 14, 1998 the Company issued 56,000 shares to Mr. Don Pickett
for prior services. Based on the knowledge, experience and economic strength of
Mr. Pickett, the Company believes this transaction is exempt from registration
under the Securities Act of 1933 Section 4(2).
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Item 6. Management's Discussion & Analysis of Financial Condition & Results of
Operations.
The following information, on a fiscal year basis, is derived from the
consolidated financial statements of the Company. Such financial statements
include the Company and its subsidiaries.
RESULTS OF OPERATIONS
For the Fiscal Year Ended March 31, 1998, Compared to the Fiscal Year Ended
March 31, 1997.
Fan-Tastic, Inc. was acquired by the Company in March 1997 and
contributed $1,093,110 in merchandise and franchise fee revenue for the fiscal
year ended March 31, 1998. The Company's acquisition of Fan-Tastic, Inc. was
accounted as a purchase combination, and therefore no Fan-Tastic revenue was
recorded by the Company in fiscal 1997. Pro forma unaudited revenue for
Fan-Tastic for the fiscal year ended March 31, 1997 was $875,532. Fan-Tastic
revenue for the fiscal year ended March 31, 1998 consisted of $964,450 in retail
sales and $128,650 in franchise fees and royalties. Fan-Tastic pro forma
revenues for the comparable 1997 period were $696,866 in retail sales, product
wholesale sales of $131,166 and franchise fees and royalties of $47,500.
Management attributes approximately $97,000 of the increase in retail store
sales in 1998 to the inclusion of sales for the entire 1998 fiscal year from a
store which was open for only five months in fiscal 1997. Management attributes
approximately $170,000 of the increase in retail store sales to improvements in
store design and appearance and improved product mix. Franchise sales and
royalties increased in fiscal 1998 due to an increase in Fan-Tastic's
franchising marketing budget. The Company anticipates that its revenues from
franchise sales and royalties will be double or perhaps slightly more than
double the fiscal 1998 level in fiscal 1999 based on franchise sales recorded
through July 1998 and based on management expectations for the results of an
increase in Fan-Tastic's marketing budget. Management anticipates retail store
sales could decrease by approximately $150,000 due to closure of two stores in
June 1998. These stores were operated under temporary leases and will not be
replaced unless acceptable permanent locations in Utah or Oregon with favorable
lease terms can be found by October 1998.
In May 1998, the Company also acquired Pacific Print Works, effective
March 31, 1998. This contract screen printing and embroidery company had pro
forma revenue for the year ended March 31, 1998 of $2.4 million.
The Company's former subsidiary, Golf Ventures, Inc. (GVI) merged with
U.S. Golf Communities in November 1997, which resulted in GVI operations being
reflected as discontinued operations for the years ended March 31, 1998 and
1997. Actual sales of GVI increased in fiscal 1998 by $137,126 due to additional
real estate lot sales. The sales increase was primarily due to additional
inventory becoming available as a result of additional funds provided by a
lender.
Fan-Tastic had a gross profit of $318,705 or 29.2% of sales. Gross
profit from the GVI and Finally Community discontinued operations was $216,318
for the year ended March 31, 1998.
Total operating expenses from continuing operations increased from
$2,329,071 for the year ended March 31, 1998 as compared to $522,309 for the
year ended March 31, 1997. This increase was due primarily to 1) Fan-Tastic, the
Company's new subsidiary, incurring general and administrative expenses of
$671,134; 2) the Company writing down $756,797 of goodwill from the Fan-Tastic
purchase in what is a one time charge; and 3) recording expenses for the
issuance of stock options and stock that resulted in an expense of $441,315. The
expense for stock issuances included $267,000 for stock issued due to services
performed by a former Company President and is not expected to be recurring.
The Company's other income and expenses decreased by $161,466 primarily
due to a decrease of approximately $75,000 in the gain on sale of the Company's
investment in GVI and due to an increase of approximately $101,000 in interest
expense. The increase in interest expense was from debt incurred on Fan-Tastic
and the Company for fiscal 1998. Interest paid for the Company's discontinued
operations in GVI for fiscal 1998 and 1997 were capitalized as part of the
development costs.
11
<PAGE>
The Company's $1,720,387 gain on disposal of discontinued operations
was primarily due to the 862,000 of GVI shares received from the GVI settlement
in which a net gain of $1,029,000 was recognized. The remaining gain on disposal
of GVI was from the recognition of the merger of GVI with U.S. Golf Communities
of the approximately $690,000 value of GVI shares held prior to the GVI merger.
The Company had no basis in these GVI shares when GVI was included as a
consolidated subsidiary.
The Company experienced a net loss from continuing operations in fiscal
1998 of $1,988,407 as compared to $338,884 in fiscal 1997. The increase in the
net loss is primarily due to the increase in operating expanses as described
above.
The Company's net loss for the year ended March 31, 1998 was $440,748
as compared to a net loss of $1,024,802 for the comparable period in 1997. The
major difference between the loss from operations and the net loss in fiscal
1998 was the gain on disposal of GVI as discussed above.
The Pacific Print Works ("PPW") acquisition involves contingent
consideration that could result in PPW shareholders receiving an additional
258,782 shares over the next three years based on PPW achieving specified
earnings (see footnote 2 to the financial statements). For example, if PPW
achieves earnings of $300,000 in fiscal 1999, 48,083 shares of common stock
would be issued to PPW shareholders with a guaranteed value of $5.00 which would
result in $240,415 of additional goodwill. This goodwill would result in
additional amortization by the Company of $16,028 per year or $.005 per share
over 15 years.
The unaudited pro forma summary information combining the results of
operations of the Company and PPW is represented as if the acquisition had
occurred at the beginning of fiscal 1998 and 1997, after giving effect to
certain adjustments, including the amortization of $121,229 of goodwill over 15
years. This pro forma summary does not necessarily reflect the results of
operations as they would have been if the Company and PPW had constituted a
single entity during such periods.
Fiscal Years
1998 1997
---- ----
Net Revenue $ 3,483,080 $ 2,926,410
Net Loss (1,103,859) (1,456,461)
Net Loss per share (.80) (.97)
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had total assets of $5,436,635, total
liabilities of $4,126,181 and total stockholders equity of $1,310,454, compared
with total assets of $13,323,105, total liabilities of $10,265,397, and total
stockholders equity of $3,057,708 at March 31, 1997. The significant changes in
assets, liabilities and stockholders equity is due primarily to the merger of
the Company's former consolidated subsidiary, Golf Ventures, Inc., with U.S.
Golf Communities. As a result of this merger the Company no longer includes Golf
Ventures in its consolidation. The merger of the Company's former subsidiary,
GVI, provided substantial debt relief. At March 31, 1998 the Company's current
ratio was approximately .67 current assets to 1 current liabilities. The
Company's current ratio is expected to continue to improve as the Company's
862,000 restricted shares in GVI become a current asset. The restriction of sale
of these shares expires in July 1999. In addition, the Company will seek to
convert certain debt to equity which will improve its current ratio.
Management intends to improve its overall financial structure and
provide operating capital through seeking the conversion of debt and preferred
stock, private placement of the Company's common stock and sale of the Company's
investment in GVI. In addition, the Company will need to raise approximately
$125,000 of additional capital to fully fund the operations of its new
subsidiary, Quade, Inc.
12
<PAGE>
PLAN OF OPERATIONS
Statements made or incorporated in this report include a number of
forward-looking statements within the meaning of Section 27(a) of the Securities
Act of 1933 and Section 21(e) of the Securities Exchange Act of 1934.
Forward-looking statements include, without limitation, statements containing
the words anticipates, believes, expects, intends, future, and words of similar
import which express management's belief, expectations or intentions regarding
the Company's future performance or future events or trends. Forward-looking
statements may not reflect actual operations because they involve known and
unknown risks, uncertainties and other factors, which may cause actual results,
performance or achievements of the Company to differ materially from anticipated
future results, performance or achievements expressly or implied by such
forward-looking statements. In addition, the Company undertakes no obligation to
publicly update or revise any forward-looking statement, whether as a result of
new information, future events or otherwise.
Item 7. Financial Statements and Supplementary Data.
See Item 13. Exhibits and Reports on Form 8-K.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.
Directors and Executive Officers
The following table sets forth the name, age and office held by each
director and officer of the company, followed by a brief resume of each
individual.
NAME AGE POSITION HELD
- ---------------------------------------------------
B. Willes Papenfuss 40 President, Chief Executive Officer and
Director
Jeffrey S. Harden 53 Vice President and Director, President of
Pacific Print Works
Karl F. Badger 43 Vice-President
Barry L. Papenfuss 37 Vice President, President of Fan-Tastic, Inc.
Timothy Papenfuss 38 Secretary/Treasurer, Chief Financial Officer
and Director
Robert Mintz 52 Vice President and Director, President of
Quade, Inc.
B. WILLES PAPENFUSS, President and Director of the Company, was
appointed Executive Vice-President, of the Company in December, 1997. Mr.
Papenfuss joined Fan-Tastic, Inc. as Vice-President International in May, 1995.
He was Vice-President of U.S. Bank from 1991 to 1993, and Senior Vice-President
of U.S. Bank from 1993 to 1995. Mr. Papenfuss graduated from the University of
Washington with a Masters of Business Administration in 1985. Mr. Papenfuss is
the brother of Barry Papenfuss, Vice-President and Director of the Company, and
of Timothy Papenfuss, Chief Financial Officer and Director of the Company.
KARL F. BADGER, Vice President 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 and resigned from this position in July 1998. Prior to 1992,
Mr. Badger was a licensed broker/principle for Rocky Mountain Securities and
Investments. On December 18, 1997, the Securities and Exchange Commission filed
a civil enforcement action complaint against certain individuals including Mr.
Karl Badger (See Significant Employees and Consultants.)
13
<PAGE>
BARRY L. PAPENFUSS, Vice President and is the President of Fan-Tastic,
which position he has held since 1994, and has been with the Company since
Fan-Tastic was acquired by ARDCO in March, 1997. Was a Director of the Company
from March 1997 through July 14, 1998. From 1990-1994, Mr. Papenfuss was the
controller of The Pro Image, a sports apparel company and from 1985-1990, was a
consultant with Deloitte and Touche, an international accounting firm. Mr.
Papenfuss graduated from Brigham Young University. Mr. Barry Papenfuss is the
brother of Mr. Timothy Papenfuss, Secretary/Treasurer, Chief Financial Officer
and a director of the Company and of B. Willes Papenfuss, Executive
Vice-President of the Company.
TIMOTHY M. PAPENFUSS, chief financial officer and director of the
Company, is chief financial officer of Fan-Tastic, Inc., which position he has
held since April, 1994. Mr. Papenfuss was appointed chief financial officer and
a director of the Company in August, 1997. From 1990 to April, 1994, Mr.
Papenfuss was a manager and senior manager with Ernst and Young. Mr. Papenfuss
has 13 years of professional accounting experience. Mr. Papenfuss graduated from
Brigham Young University in 1983 with a bachelors degree in accounting. Mr.
Papenfuss is the brother of Barry Papenfuss, vice president and a director of
the Company and of B. Willes Papenfuss, Executive Vice-President of the Company.
ROBERT MINTZ, Director of the Company since July 23, 1998 upon the
Company's acquisition of Quade, Inc. President and founder of Quade, Inc. since
1996. Director of Women's Apparel at London Fog from 1994 to 1995. President of
Bugle Boy Womens from 1987 to 1993. Division President for Lizwear at Liz
Claibourne from 1984 to 1987. Mr. Mintz has a bachelors degree in anthropology
from the University of Pittsburg.
Significant Employees and Consultants
The following individual is a consultant to the Company.
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 1995. Mr. Badger is currently providing
consulting services to the Company primarily in providing background information
on transactions which took place or were begun when he was president of the
Company and in locating possible acquisitions. Mr. Badger was indicted on a
number of charges and was arraigned in the U.S. Federal District Court for the
Southern District of New York on October 9, 1996. The Company has been advised
that the indictment related to alleged unlawful and undisclosed compensation to
securities brokers and promoters to induce them to cause customers to purchase
securities issued by GVI and the Company. The Company has been advised that Mr.
Badger has pleaded guilty to counts of: (i) conspiracy to commit securities
fraud; (ii) securities fraud; (iii) criminal contempt; and (iv) perjury.
On December 18, 1997, the Securities and Exchange Commission
(hereinafter the "Commission") filed a civil enforcement action complaint,
2:97CV 0963K in the United States District Court for the district of Utah,
Central Division, against George Badger, former president of the Company, Karl
Badger, president of the Company, and others, alleging violations of the general
anti-fraud provisions of the federal securities laws. The complaint alleges that
George Badger directed a scheme to manipulate the market for securities issued
by GVI through payments to various broker-dealers and registered
representatives. The complaint alleges that Mr. Karl Badger arranged for some of
these payments. The complaint seeks a permanent injunction against future
violations of the federal securities laws, a court order prohibiting the
defendants from future participation in offerings of penny stocks and
disgorgement of alleged profits. Mr. Karl Badger has filed an answer to the
complaint denying the material allegations thereof, has filed Motions to Dismiss
the complaint, and intends to vigorously defend the action.
Compliance with Section 16(a) of the Securities Act of 1934 by Company
Officers, Directors and 10% Shareholders.
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's directors and executive officers, and persons who
own more than ten percent (10%) of a registered class of the Company's equity
securities to file with the Commission initial reports of beneficial ownership
14
<PAGE>
and reports of changes in beneficial ownership of Common Stock and other equity
securities of the Company. The rules promulgated by the Commission under Section
16(a) of the Exchange Act require those persons to furnish the Company with
copies of all reports filed with the Commission pursuant to Section 16(a).
Messrs. Karl Badger, Barry Papenfuss, Timothy Papenfuss and B. Willes
Papenfuss did not file Forms 3 within ten days of becoming officers and/or
directors of the Company. Messrs. Papenfuss, Papenfuss and Papenfuss did not
file Forms 3, 4, or 5, when they became directors, nor when they were granted
stock options. Messrs. Barry Papenfuss, Timothy Papenfuss and B. Willes
Papenfuss completed the requires filings pursuant to Section 16(a) on August 4,
1998. Based solely upon a review of Forms 3, Forms 4 and Forms 5 and amendments
thereto furnished to the Company pursuant to Rule 16a-3(e) during the fiscal
year ended March 31, 1998, and written representations of certain of its
directors and executive officers that no Forms 5 were required to be filed, all
other directors and executive officers have filed with the Commission on a
timely basis all reports required to be filed under Section 16(a) of the
Exchange Act.
Item 10. Executive Compensation.
The Company has not had a bonus, profit sharing, or deferred
compensation plan for the benefit of its employees, officers of directors.
The following table sets forth the annual compensation paid and accrued
by the Company for services rendered during the fiscal years ended March 31,
1998, 1997 and 1996 to (i) the Company's Chief Executive Officer and (ii) each
other executive officer of the Company or its subsidiary serving at the end of
the last completed fiscal year whose salary and bonus exceeded $100,000 during
the last fiscal year ("Named Executive Officer").
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
===================================================================================================================================
Annual Compensation Long-Term Compensation
--------------------------------------------- ---------------------------
Awards Payouts
------------- ----------
Name and Principal All Other Restricted All
Position Annual Stock Options/Fiscal Stock Options/ Other
Year Salary Bonus Compensation Award(s) SARs LTIP Compen-
Payouts sation
($) ($) ($) ($) (#) ($) ($)
=================== ===== ========== ========= ============= ========== ======== ======= ========
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Karl Badger, Chief 1998 $73,058 -0- -0- -0- -0- -0- -0-
Executive Officer(1) 1997 $73,058 -0- -0- -0- -0- -0- -0-
1996 $73,058 -0- -0- -0- -0- -0- -0-
George Badger(2) 1997 $50,400 -0- -0- -0- -0- -0-
1996 $50,400 -0- -0- -0- -0- -0-
=================== ===== ========== ========= ============= ========== ======== ======= ========
(1) CEO from January 1997 to July 14, 1998
(2) CEO from 1995 to December 31, 1996.
</TABLE>
15
<PAGE>
Employment Agreements.
None of the Company's officers or directors has any written employment
agreement with the Company. Messrs. Barry and Timothy Papenfuss have employment
agreements with Fan-Tastic.
Director Compensation
Directors of the Company have been partially reimbursed for expenses
incurred by them on behalf of the Company. No salary or fee has been paid to
directors. It is anticipated that the Company may establish some fees for
directors at such time as the Company has sufficient funds to pay fees to
directors.
Stock Options
Option/SAR Grants in Last Fiscal Year
The following table sets forth certain information for stock options
and stock appreciation rights granted to executive officers during fiscal 1998.
<TABLE>
<CAPTION>
No. of % of total
Shares Underlying Options Share Market
Options/SAR's Granted during Exercise Price on Expiration
Name Granted Fiscal Year 1998 Price Grant Date Date
---- ------------ ---------------- ----- ---------- ----
<S> <C> <C> <C> <C> <C>
Karl Badger 25,000 24.04% $2.00 $3.75 Oct-07
</TABLE>
Aggregated Option Exercises and Fiscal Year-End Option Values:
The following table sets forth certain information as to stock options
exercised in fiscal 1998 and the value of the stock options held at March 31,
1998 by each Named Executive Officer.
<TABLE>
<CAPTION>
Value of
Shares Unexercised
Acquired Value realized Options In-the-Money Options
Fiscal Year 1998 with at Fiscal Year End at Fiscal Year End
Name On Exercise Exercise Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Karl Badger - - 25,000/0 -
</TABLE>
16
<PAGE>
In October 1997 the Board of Directors ratified options for three
officers of the Company at $2.00 per share. The fair market value of the
Company's stock at the date of the October grant was approximately $3.75.
Pursuant to this action, Mr. Karl Badger was granted an option to purchase
100,000 shares of the Company's common stock at $2.00 per share. In July 1998,
the Board of Directors fully vested Mr. Badger's options to purchase 25,000
shares of common stock and cancelled his remaining options. Both Mr. Barry
Papenfuss and Mr. Timothy Papenfuss hold an option to purchase 20,000 shares of
the Company's common stock at $2.00 per share. Mr. Barry Papenfuss and Mr.
Timothy Papenfuss' options are fully vested as to 5,000 shares at the end of
each fiscal year. Mr. B. Willes Papenfuss was granted options to purchase 25,000
shares of common stock at $2.00 per share in December 1998. These options are
fully vested. Employee stock options to purchase 90,000 shares were held by
executive officers at July 17, 1998, which was 86.5% of all employee stock
options outstanding. In addition, Mr. Barry Papenfuss, Tim Papenfuss and B.
Willes Papenfuss were granted options to purchase 55,518, 29,679 and 866 shares
of common stock in connection with the Fan-Tastic, Inc. acquisition.
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 April 6, 1998, 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 848,362(1) 26.38%
P.O. Box 880
12111 Geneva 3, Switzerland
George H. Badger 592,237 18.42%
102 West 500 South, Suite 318
Salt Lake City, UT 84101
Don Pickett, agent for 181,860 6.2%
Mindon Investment and The Stella Trust
P. O. Box 58548
Salt Lake City, UT 84101
Karl F. Badger 71,320 (3) 1.43%
102 West 500 South, Suite 318
Salt Lake City, UT 84101
Barry L. Papenfuss 208,566 (4) 4.52%
3855 South 500 West #R
Salt Lake City, UT 84115
Timothy M. Papenfuss 113,823 (5) 2.43%
3855 South 500 West #R
Salt Lake City, UT 84115
B. Willes Papenfuss 78,974 (6) 1.64%
123 13 Southeast Wagoner Street
Portland, OR 97236
Jeffrey S. Harden 151,809 4.72%
17942 St. Clair Drive
Lake Oswego, OR 97034
Robert Mintz 213,333 6.63%
30 Otter Trail
West Port, CT 06880
All Officers and Directors as a
Group (3 persons) 624,492 18.58%
- ---------------------------
1 Banque SCS Alliance SA disclaims beneficial ownership but has provided no
additional information to the Company to identify the beneficial owners.
2 Mr. George Badger is the beneficial owner of 130,360 shares held by his wife
Lajuana Badger.
3 Mr. Karl Badger is the owner of vested options to purchase 25,000 shares of
the Company's common stock at $2.00 a share.
4 Mr. Barry Papenfuss is the owner of vested options to purchase 60,518 of the
Company's common stock at $2.00 a share. Messrs. Barry Papenfuss, Timothy
Papenfuss and B. Willes Papenfuss are brothers.
17
<PAGE>
5 Mr. Timothy Papenfuss is the owner of vested options to purchase 34,679 shares
of the Company's common stock at $2.00 a share.
6 Mr. B. Willes Papenfuss is the owner of vested options to purchase 25,866
shares of the Company's common stock at $2.00 a share. Mr. B. Willes Papenfuss
additionally can receive stock options as a finder's fee for company.
7 Mr. Jeffrey Harden's shares include 82,030 held by his wife, Lynn Harden, and
2,413 and 2,413 shares held by his children, Brittany and Blake Harden,
respectively.
Item 12. Certain Relationships and Related Transactions.
George Badger, a shareholder and former Company President, and father
to Company President Karl Badger, has loaned the Company $563,210.00 during the
last thirteen (13) months. The terms of these loans are as follows: Loan for
$358,000 which was refinanced by Banque SCS in July 1998 with payment of
interest and principal of $6,000 a month with the remaining principal due June
2001, secured by Company and GVI stock; Loan for $130,491 secured by Company
assets with interest payable monthly at 18% with no stated principal payments
required; The loan funds were used by the Company for working capital. On July
14, 1998 the Company issued 300,000 shares to Mr. George Badger for prior
services.
Item 13. Exhibits and Reports on Form 8-K.
The following financial statements, schedules, reports and exhibits are
filed with this Report:
(a) FINANCIAL STATEMENTS
(1) Report of Jones, Jensen & Company, Independent Public F-1
Accountants.
(2) Consolidated Balance Sheet as of March 31, 1998. F-2
(3) Consolidated Statements of Operation for the years ended F-4
March 31, 1998 and 1997.
(4) Statement of Stockholders' Equity for the period F-5
March 31, 1996 through March 31, 1998.
(5) Consolidated Statements of Cash Flows for years ended F-6
March 31, 1998 and 1997.
(6) Notes to Financial Statements. F-8
(b) FINANCIAL STATEMENT SCHEDULES
(1) Schedule VIII - Valuation and Qualifying Accounts.
(2) Schedule X - Supplementary Income Statement Information.
18
<PAGE>
(c) 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)
10.27 (7) Termination Agreement (Vowell/The Company)
10.28 Stock Exchange Agreement (Pacific Print Works)
10.29 Stock Exchange Agreement (Quade, Inc.)
10.30 Employee Stock Option Plan
10.31 Funding Fee Agreement (Badger)
16.1 (2) Letter Regarding Change in Certifying Public Accountant
21. Subsidiaries
23. Consent of Independent Auditor
27. 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)*
19
<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.
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
Dated: July 24, 1998
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.
20
<PAGE>
Signature Title Date
--------- ----- ----
/s/ B. Willes Papenfuss
- ------------------------- President, Chief Executive July 24, 1998
B. Willes Papenfuss Officer and Director
(Principal Executive
Officer)
/s/ Timothy M. Papenfuss
- -------------------------- Secretary / Treasurer and July 24, 1998
Timothy M. Papenfuss Director (Chief Financial
Officer, Chief Accounting
Officer and Controller)
21
<PAGE>
INDEPENDENT AUDITORS' REPORT
Shareholders and Board of Directors
American Resources and Development Company
Salt Lake City, Utah
We have audited the accompanying consolidated balance sheet of American
Resources and Development Company and subsidiaries at March 31, 1998 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years ended March 31, 1998 and 1997. 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 and subsidiaries at March 31, 1998 and the results of
their operations and their cash flows for the years ended March 31, 1998 and
1997 in conformity with generally accepted accounting principles.
Jones, Jensen & Company
Salt Lake City, Utah
July 13, 1998
F-1
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Balance Sheet
ASSETS
March 31,
1998
CURRENT ASSETS
Cash $ 14,663
Accounts receivable 221,875
Inventory (Note 1) 437,003
Marketable securities 622,182
Prepaid and other current assets 44,882
---------------
Total Current Assets 1,340,605
PROPERTY AND EQUIPMENT (NOTE 1)
Furniture, fixtures and equipment 383,638
Capital leases 859,185
Total depreciable assets 1,242,823
Less: accumulated depreciation (118,889)
--------------
Net Property and Equipment 1,123,934
OTHER ASSETS
Investments (Note 1) 1,077,500
Goodwill (Note 1) 1,826,492
Deposits 68,104
---------------
Total Other Assets 2,972,096
TOTAL ASSETS $ 5,436,635
============
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31,
1998
CURRENT LIABILITIES
<S> <C>
Accounts payable $ 688,021
Accrued expenses and other current liabilities 393,494
Current portion of notes payable (Note 3) 544,781
Current portion of notes payable, related parties (Note 4) 59,974
Current portion of capital lease obligations (Note 5) 303,475
-----------------
Total Current Liabilities 1,989,745
LONG-TERM DEBT
Reserve for discontinued operations 450,782
Notes payable (Note 3) 14,155
Capital lease obligations (Note 5) 579,963
Notes payable, related parties (Note 4) 1,091,536
-----------------
Total Long-Term Debt 2,136,436
Total Liabilities 4,126,181
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY
Preferred stock, par value $0.001 per share: 10,000,000
shares authorized; issued and outstanding: 94,953
Series B shares, 150,000 Series C shares 245
Common stock, par value $0.001 per share: 125,000,000
shares authorized; issued and outstanding: 2,929,263
shares issued and outstanding. (Note 8) 2,929
Additional paid-in capital 7,026,260
Accumulated deficit (5,718,980)
-----------------
Total Stockholders' Equity 1,310,454
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,436,635
=================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Operations
For the Years Ended
March 31,
1998 1997
----------------- -----------------
SALES
<S> <C> <C>
Merchandise and franchise fees $ 1,093,110 $ -
Cost of merchandise and franchise sales 774,405 -
----------------- -----------------
Gross Profit 318,705 -
----------------- -----------------
EXPENSES
General and administrative expenses 1,447,285 519,185
Writedown of goodwill 756,797 -
Sales and marketing expenses 93,175 -
Depreciation 31,814 3,124
----------------- -----------------
Total Expenses 2,329,071 522,309
----------------- -----------------
LOSS FROM OPERATIONS (2,010,366) (522,309)
----------------- -----------------
OTHER INCOME AND (EXPENSES)
Other revenue 15,387 -
Interest income 5 168
Gain on sale of assets 139,906 215,375
Interest expense (133,339) (32,118)
----------------- -----------------
Total Other Income and (Expenses) 21,959 183,425
----------------- -----------------
LOSS BEFORE INCOME TAXES AND
DISCONTINUED OPERATIONS (1,988,407) (338,884)
DISCONTINUED OPERATIONS
Loss from operations of GVI, FCC (172,728) (685,918)
Gain on disposal of GVI, FCC 1,720,387 -
----------------- -----------------
Total Discontinued Operations 1,547,659 (685,918)
----------------- -----------------
INCOME TAXES - -
----------------- -----------------
NET LOSS $ (440,748) $ (1,024,802)
================= =================
NET LOSS PER SHARE OF COMMON
STOCK-CONTINUING OPERATIONS $ (1,07) $ (0.18)
================= =================
NET INCOME (LOSS) PER SHARE OF COMMON STOCK -
DISCONTINUED OPERATIONS $ 0.83 $ (0.37)
================= =================
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 1,864,113 1,835,486
================= =================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCE AND DEVELOPMENT COMPANY
Consolidated Statement of Stockholders' Equity
March 31, 1998 and 1997
Additional
Common Stock Preferred Stock Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit
------------- ----------- ----------- ---------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
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)
Stock issuance of a subsidiary
for payment of interest - - - - 143,166 -
Preferred B stock conversion
into common stock 11,995 12 (7,267) (7) - -
Common stock issued for
services 399,000 399 - - 388,261 -
Expense recognized for
vested stock options - - - - 52,498 -
Eliminate GVI equity for
merger with U.S. Golf
Communities (Note 2) - - - - (8,406,498) 4,687,868
Stock issued for cash 24,000 24 - - 29,976 -
Stock issued for PPW
acquisition (Note 2) 258,782 259 - - 1,293,651 -
Stock issued to FTI
shareholders (Note 2) 400,000 400 - - 499,600 -
Stock options issued to FTI
shareholders - - - - 3,885 -
Net loss - - - - - (440,748)
------------- ----------- ----------- ---------- ------------ ---------------
Balance, March 31, 1998 2,929,263 $ 2,929 244,953 $ 245 $ 7,026,260 $ (5,718,980)
============= =========== =========== ========== ============ ===============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Cash Flows
For the Years Ended
March 31,
1998 1997
------------------- -----------------
OPERATING ACTIVITIES
<S> <C> <C>
Net (loss) $ (440,748) $ (1,024,802)
Adjustments to reconcile net (loss) to net cash
(used) by operating activities, net of effect of
mergers:
Depreciation 34,371 5,517
Write-down of goodwill 756,797 -
Stock option and stock for services 441,315 -
Gain on GVI settlement (1,699,682) -
Changes in operating assets and liabilities:
(Increase) in accounts receivable (10,095) -
Decrease in inventory, real estate 179,308 5,936
(Increase) decrease in inventory merchandise (30,763) 35,688
Decrease in other current assets 7,754 58,024
(Increase) in accounts payable and other current liabilities 355,969 708,273
------------------- --------------------
Net Cash (Used) by Operating Activities (405,774) (211,364)
------------------- --------------------
INVESTING ACTIVITIES
Purchases of property and equipment (50,925) (32,610)
Investment in land held for development (411,892) (3,796,686)
------------------- -------------------
Net Cash (Used) by Investing Activities (462,817) (3,829,296)
------------------- -------------------
FINANCING ACTIVITIES
Marketable securities from merger of GVI 622,182 -
Loan to acquired company prior to acquisition (115,000) -
Cash from acquisition on subsidiary 9,699 19,954
Payments on long-term debt and capital lease obligations (45,317) (1,045,324)
Long-term borrowings 333,840 3,246,497
Contributions from subsidiary - 1,076,639
Issuance of common stock for cash 30,000 -
--------------------- ---------------------
Net Cash Provided by Financing Activities 835,404 3,297,766
-------------------- -------------------
(DECREASE) IN CASH (33,187) (742,894)
CASH, BEGINNING OF YEAR 47,850 790,744
--------------------- --------------------
CASH, END OF YEAR $ 14,663 $ 47,850
==================== =====================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Consolidated Statements of Cash Flows (Continued)
For the Years Ended
March 31,
1998 1997
----------------- ------------------
CASH PAID FOR
<S> <C> <C>
Interest $ 135,644 $ 370,046
Income taxes $ - $ -
NON CASH FINANCING ACTIVITIES
Common stock issued for services $ 388,660 $ -
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.
F-7
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1998 and 1997
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 American 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 have been restated
to 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. Effective March 31, 1998, the Company
acquired the remaining 20% of the issued and outstanding common
stock of FTI. This acquisition has been accounted for using the
purchase method in the accompanying consolidated financial
statements. See Note 2 for further discussion regarding this
transaction.
Effective March 31, 1998, the Company acquired over 80% of the
issued and outstanding common stock of Pacific Printing and
Embroidery. As a result, its operations are not included in the
consolidated statement of operations for the year ending March 31,
1998.
b. Principles of Consolidation
The accompanying consolidated financial statements include
American Resources and Development Company and its subsidiaries,
Fan-Tastic, Inc. (FTI), Pacific Printing and Embroidery L.L.C.
(PPW). The operations of Golf Ventures, Inc. (GVI), and Finally
Communities, Inc. (FCC) are included in the statement of
operations and cash flows at March 31, 1997. (Note 2)
c. Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
d. 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.
F-8
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1998 and 1997
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
e. 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.
In the normal course of business, the Company extends credit to
its customers.
f. Inventories
Inventories are stated at the lower of cost or market using the
first-in, first-out method.
g. Property and Equipment
Property, equipment and capital leases are recorded at cost and
are depreciated or amortized over the estimated useful life of the
related assets, generally three to seven years. 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.
h. Financial Instruments
Statement of Financial Accounting Standards No. 107, " Disclosures
about Fair Value of Financial Instruments" requires disclosure of
the fair value of financial instruments held by the Company, SFAS
107 defines the fair value of a financial instrument as the amount
at which the instrument could be exchanged in a current
transaction between willing parties. The following methods and
assumptions were used to estimate fair value:
The carrying amount of cash equivalents, accounts receivable and
accounts payable approximate fair value due to their short-term
nature.
Marketable securities represent 497,746 shares of GVI unrestricted
stock at March 31, 1998, which are classified as trading
securities and are carried at market value. Any change in market
value from period to period will be included in earnings.
Investments represent 862,000 shares of GVI restricted stock at
March 31, 1998, which are classified as available for sale. Any
change in market value from period to period will be reported as a
separate component of stockholders' equity until realized.
There are no unrealized gains or losses in either trading
securities or available for sales securities at March 31, 1998.
F-9
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1998 and 1997
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
i. 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.
j. 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.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, (SFAS 128), which is
required to be adopted on December 31, 1997. SFAS 128 requires a
change in the method currently used to compute earnings per share
and to restate all prior periods to disclose diluted net income
per common share in addition to its current basic net income per
common share. Basic net loss from continuing operations per common
share and diluted net loss from continuing operations per common
share amounts, calculated in accordance with SFAS 128, were
($1.07) and ($0.18) for the years ended March 31, 1998 and 1997,
respectively. Basic net loss from discontinued operations per
common share and diluted net loss from discontinued operations per
common share was $0.83 and $(0.32), respectively. Weighted average
common shares outstanding were 1,864,113 and 1,835,486 for the
years ended March 31, 1998 and 1997, respectively.
k. Profit Recognition and Capitalization of Costs Related to Real
Estate
Income on the Company's former GVI subsidiary, 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.
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.
l. Revenue Recognition for Franchise Operations
Franchise fees are recognized as revenue when all material
services relating to the sale have been substantially performed by
FTI. Material services relating to the franchise sale include
assistance in the selection of a site and franchisee training.
F-10
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1998 and 1997
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
m. Goodwill
The excess of the Company's acquisition cost over the fair value
of the net assets of the FTI acquisition resulted in a write-down
of goodwill of $756,797 for the year ended March 31, 1998. On
March 31, 1998, the Company also recognized goodwill of $1,826,492
from the purchase of Pacific Print Works (aka Pacific Printing and
Embroidery LLC ). The Company recognizes goodwill from the excess
of the purchase price of its acquisitions over the fair value of
the net assets acquired.
The Company evaluates the recoverability of goodwill and reviews
the amortization period on an annual basis. Several factors are
used to evaluate goodwill, including but not limited to:
management's plans for future operations, recent operating results
and projected, undiscounted cash flows. The primary method is
projected, undiscounted cash flows.
NOTE 2 - MERGERS AND ACQUISITIONS
Golf Ventures, Inc.
In November 1997, Golf Ventures, Inc. merged with U.S. Golf
Communities. U.S. Golf Communities is the controlling company in
this merger and subsequent to the merger the combined company's
name will be changed to Golf Communities of America (GCA). This
merger resulted in a less than 20% American Resources' ownership
in GVI. Therefore, subsequent to the merger, the Company's
investment in GVI is reflected as an investment in accordance with
Financial Accounting Standards Board Statement No. 121. Pro forma
results of operations if the GVI merger would have occurred at the
beginning of fiscal 1997 would have resulted in a decrease in net
loss of$172,728 and $685,918 for the years ended March 31, 1998
and 1997, respectively, and $0.83 and ($0.37) per share for the
same periods. The following pro forma balance sheet reflects the
effect of this merger.
In connection with the Company's management services relating to
the merger of GVI with U.S. Golf Communities and to settle all
claims, and obligations with the Company, GVI issued 862,000
shares of its restricted common stock to the Company in July of
1998. A gain of $1,720,387, net of expenses, was recognized for
the year ended March 31, 1998. This gain was recognized for fiscal
1998 because it related to prior year activities.
F-11
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1998 and 1997
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
<TABLE>
<CAPTION>
Prior to GVI After
Merger Adjustments GVI Merger
------ ----------- ----------
CURRENT ASSETS
<S> <C> <C> <C>
Cash $ 86,213 $ (10,047) $ 76,166
Marketable securities - 692,886 692,886
Accounts receivable 131,522 - 131,522
Inventory, real estate 753,131 (753,131) -
Inventory, merchandise 581,169 - 581,169
Notes receivable 75,000 - 75,000
Prepaid and other current assets 33,130 - 33,130
Current portion of contract receivable 1,955 (1,955) -
------------------ ------------------ ------------------
Total Current Assets 1,662,120 (72,247) 1,589,873
------------------ ------------------ -----------------
PROPERTY AND EQUIPMENT
Model home and condominiums 180,988 (134,788) 46,200
Furniture, fixtures and equipment 197,284 (15,456) 181,828
Vehicles 43,252 - 43,252
------------------- ------------------ ----------------
Total depreciable assets 421,524 (150,244) 271,280
Less: accumulated depreciation (124,936) 4,435 (120,501)
------------------ ------------------- -----------------
Net property and equipment 296,588 (145,809) 150,779
------------------ ------------------- ----------------
OTHER ASSETS
Land held for development 12,132,098 (11,886,098) 246,000
Goodwill 240,407 - 240,407
Long-term portion of contract
receivable 55,993 (55,993) -
Deposit 1,970 - 1,970
------------------- ------------------- -----------------
Total Other Assets 12,430,468 (11,942,091) 488,377
------------------ ------------------- -----------------
TOTAL ASSETS $ 14,389,176 $ (12,160,147) $ 2,229,029
================== =================== =================
</TABLE>
F-12
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1998 and 1997
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
<TABLE>
<CAPTION>
Prior to GVI After
Merger Adjustments GVI Merger
------ ----------- ----------
CURRENT LIABILITIES
<S> <C> <C> <C>
Accounts payable $ 1,296,869 $ (898,265) $ 398,604
Accrued expenses and other current
liabilities 1,367,403 (707,474) 659,929
Current portion of notes payable 1,309,400 (903,924) 405,476
Current portion of notes payable, related
parties 377,337 - 377,337
Current portion of capital lease
obligations 14,556 - 14,556
-------------------- ------------------ -----------------
Total Current Liabilities 4,365,565 (2,509,663) 1,855,902
------------------ ----------------- -----------------
LONG-TERM DEBT
Notes payable 6,550,550 (6,550,550) -
Capital lease obligations 4,262 - 4,262
Notes payable, related parties 748,087 (75,000) 673,087
------------------ ----------------- ------------------
Total Long-Term Debt 7,302,899 (6,625,550) 677,349
------------------ ----------------- ------------------
STOCKHOLDERS' EQUITY
Preferred stock 252 - 252
Common stock 1,868 - 1,868
Additional paid-in capital 13,258,330 (8,406,498) 4,851,832
Accumulated deficit (10,539,738) 5,381,564 (5,158,174)
------------------ ----------------- ---------------
Total Stockholders' Equity 2,720,712 (3,024,934) (304,222)
------------------ ----------------- ---------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 14,389,176 $ (12,160,147) $ 2,229,029
================== ================= ===============
</TABLE>
F-13
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1998 and 1997
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
Fan-Tastic, Inc.
In March 1997, the Company acquired 80% of the issued and
outstanding common stock of FanTastic, 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. The FTI acquisition involved contingent consideration
based on FTI achieving specified earnings but was amended in June
1998, effective as of March 31, 1998, as the Company purchased
the remaining 20% of the issued and outstanding common stock of
FTI and eliminated the contingent consideration by issuing the
FTI shareholders 400,000 shares of the Company's common stock and
by vesting options to purchase 150,000 shares of the Company's
common stock at $2.00 a share. These stock options expire on June
30, 2000. The Company recognized $500,000 for the shares issued
to FTI shareholders and $3,855 for the value of the options. The
fair value for these options was estimated at the date of the
vesting using an option pricing model which was designed to
estimate the fair value of options which, unlike these stock
options, can be traded at any time and are fully transferable.
The assumptions as described in Note 9 were used to estimate the
fair value of these options in addition to a trading price on the
Company's stock of $1.25 per share. The $503,855 value for the
shares issued and the options was included in the $756,797
writedown of goodwill for fiscal 1998.
For the year ended March 31, 1997, FTI sustained net losses of
$(101,314) on gross revenues of $875,532.
Unaudited proforma summary information combining the results of
operations of the Company and FTI as if the acquisition had
occurred at the beginning of fiscal 1997, after giving effect to
certain adjustments, including amortization of goodwill. This
proforma summary does not necessarily reflect the results of
operations as they would have been if the Company and FTI had
constituted a single entity during such periods.
For the
Year ended
March 31, 1997
--------------
Net revenue $ 1,149,532
Net loss $ (1,142,977)
Net loss per share $ (0.62)
Finally Communities, Inc.
In May 1997, the Company issued 500,000 shares of Series E
preferred stock in exchange for 100% of the issued and outstanding
common stock of Finally Communities, Inc. (FCI). FCI was a new
corporation with no prior operations organized 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 seller of FCI remained as President after the
acquisition.
F-14
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1998 and 1997
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
Finally Communities, Inc. (Continued)
From May 1997 through December 31, 1997, FCI had real estate sales
of $67,772, cost of sales of $27,771, general expenses of $69,307
and interest expense of $1,081. In March 1998, the Company's Board
of Directors sold its shares in FCI to the original seller for the
return of the stock previously issued to the original seller. A
$30,387 gain was recorded from the disposal of FCI.
Pacific Print and Embroidery, LLC (aka Pacific Print Works)
In December 1997, the Company entered into a letter of intent for
the purchase of a contract screen printing and embroidery company,
Pacific Print Works (PPW). At March 31, 1998, $115,000 had been
advanced to PPW in the form of a note receivable. In May 1998, the
Company acquired over 80% of the outstanding shares of PPW. The
merger is effective as of March 31, 1998 as the Board of Directors
of PPW had agreed to transfer control of PPW effective March 31,
1998, except for restrictions based on significant changes to
operations. 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. Liabilities
assumed in excess of assets acquired was $532,582 and 258,782
shares of the Company's common stock were issued to PPW
shareholders with a guaranteed share value of $5.00 resulting in
goodwill of $1,826,492. Depending on PPW's performance over the
next three years, additional shares of the Company's common stock
will be issued for this acquisition if minimum earnings levels are
met.
Fiscal Earnings Before Income Taxes Common Shares Issuable
Year Low High Minimum Maximum
1999 $ 179,480 $ 538,200 28,754 86,261
2000 269,020 807,300 28,754 86,261
2001 357,900 1,073,700 28,754 86,261
Earnings before income taxes above the low level but below the
high level will result in common shares being issued based on the
percentage of actual earnings to the high earnings multiplied by
the maximum shares issuable for that year. For example, in fiscal
1999, earnings of $300,000 would result in 48,083 shares of common
stock being issued to the PPW shareholders.
The following tables set forth certain unaudited pro forma
condensed combined financial information for the Company and PPW
accounted for under the purchase method of accounting.
The pro forma condensed combined balance sheet was prepared using
the historical balance sheets of the Company and PPW as of March
31, 1998. The pro forma condensed combined statements of
operations for each of the two years ended March 31, 1998 and 1997
were prepared using the historical statements of operations of the
Company and PPW.
The pro forma condensed combined financial information was
included for comparative purposes only and does not purport to be
indicative of the results of operations or financial position that
actually would have been obtained if the merger had been effected
at the dates indicated of the financial position or results of
operations that may be obtained in the future.
F-15
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1998 and 1997
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
<TABLE>
<CAPTION>
American Resources and Development Company
Consolidated Pro Forma Combined Balance Sheets
March 31, 1998
American Pro Forma
Resources PPW Adjustments Combined
--------- --- ----------- --------
CURRENT ASSETS
<S> <C> <C> <C> <C>
Cash $ 4,962 $ 9,699 $ - $ 14,663
Marketable Securities 622,182 - - 622,182
Accounts receivable 51,444 170,431 - 221,875
Inventory, merchandise 321,934 115,071 - 437,003
Notes receivable 115,000 (115,000) - -
Prepaid and other current
assets 41,289 3,593 - 44,882
---------------- ----------------- ---------------- ---------------
Total Current Assets 1,156,811 183,794 - 1,340,605
---------------- ---------------- ---------------- ---------------
PROPERTY AND
EQUIPMENT
Furniture, fixtures and
equipment 158,242 271,413 (46,017) 383,638
Leased equipment 40,650 921,713 (103,178) 859,185
---------------- ---------------- --------------- ---------------
Total depreciable assets 198,892 1,193,126 (149,195) 1,242,823
Less: accumulated
depreciation (118,889) (149,195) 149,195 (118,889)
---------------- ---------------- ----------------- ---------------
Net Property and
Equipment 80,003 1,043,931 - 1,123,934
---------------- ---------------- -------------------------------------
OTHER ASSETS
Investments 1,077,500 - - 1,077,500
Goodwill 1,826,492 1,826,492
Deposit 1,970 66,134 - 68,104
----------------- ----------------- --------------- ---------------
Total Other Assets 1,079,470 66,134 1,826,492 2,972,096
---------------- ----------------- --------------- ---------------
TOTAL ASSETS $ 2,316,284 $ 1,293,859 $ 1,826,492 $ 5,436,635
================ ================ =============== ===============
</TABLE>
F-16
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1998 and 1997
NOTE 2- MERGERS AND ACQUISITIONS (Continued)
<TABLE>
<CAPTION>
American Resources and Development Company
Consolidated Pro Forma Combined Balance Sheets
March 31, 1998
American Pro Forma
Resources PPW Adjustments Combined
--------- --- ----------- --------
CURRENT LIABILITIES
<S> <C> <C> <C> <C>
Accounts payable $ 391,985 $ 296,036 $ - $ 688,021
Accrued expenses and
other current liabilities 288,415 105,079 - 393,494
Current portion of notes payable 382,635 162,146 - 544,781
Current portion of notes
payable - related parties 23,974 36,000 - 59,974
Current portion of capital
lease obligations 19,450 284,025 - 303,475
--------------- ------------- ------------ -------------
Total Current Liabilities 1,106,459 883,286 - 1,989,745
------------- --------------- ------------ -------------
LONG-TERM DEBT
Reserve For Discontinued Operations 138,000 - - 138,000
Long-term portion of notes payable 14,155 - - 14,155
Long-term portion of capital
lease obligations 13,638 566,325 - 579,963
Accrued interest on preferred stock 312,782 - - 312,782
Notes payable, related parties 714,699 376,837 - 1,091,536
-------------- -------------- ------------ -------------
Total Long-Term Debt 1,193,274 943,162 - 2,136,436
------------- -------------- ------------ -------------
STOCKHOLDERS' EQUITY
Preferred stock 245 - - 245
Common stock 2,670 13,080 (12,821) 2,929
Equity in investments 622,182 - - 622,182
Additional paid-in capital 5,732,609 - 1,293,644 7,026,253
Accumulated deficit (6,341,155) (545,669) 545,669 (6,341,155)
------------- ------------- -------------- -------------
Total Stockholders' Equity 16,551 (532,589) 1,826,492 1,310,454
--------------- ------------- ------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 2,316,284 $ 1,293,859 $ 1,826,492 $ 5,436,635
============= ============= ============= =============
</TABLE>
F-17
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1998 and 1997
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
<TABLE>
<CAPTION>
American Resources and Development Company
Consolidated Pro Forma Combined Statements of Operations
March 31, 1998
American Pro Forma
Resources PPW Adjustments Combined
SALES
<S> <C> <C> <C> <C>
Sales - screenprinting and embroidery $ - $ 2,389,970 $ - $ 2,389,970
Sales - merchandise and franchise fees 1,093,110 - - 1,093,110
------------- ------------- ------------- --------------
Total Sales 1,093,110 2,389,970 - 3,483,080
------------- ------------- ------------- --------------
COST OF SALES
Cost of sales - screenprinting and embroidery - 1,784,167 - 1,784,167
Cost of sales - merchandise 774,405 - - 774,405
-------------- ------------- ------------- -------------
Total Cost of Sales 774,405 1,784,167 - 2,558,572
-------------- -------------- ------------- -------------
Gross Profit 318,705 605,803 - 924,508
------------- ------------- ------------- --------------
EXPENSES
General and administrative expenses 1,447,285 771,624 121,229 2,340,138
Writedown of goodwill 756,797 - - 756,797
Sales and marketing expenses 93,175 - - 93,175
Depreciation 31,814 194,523 - 226,337
------------- ------------- ------------- --------------
Total Expenses 2,329,071 966,147 121,229 3,416,447
------------- ------------- ------------- --------------
Loss From Operations (2,010,366) (360,344) (121,229) (2,491,939)
------------- ------------- ------------- --------------
Other Income and (Expenses)
Other income 15,387 1,847 - 17,234
Interest revenue 5 - - 5
Gain on sale of assets 139,906 - - 139,906
Interest expense (133,339) (183,385) - (316,724)
------------- ------------- ------------- --------------
Total Other Income and Expenses 21,959 (181,538) - (159,579)
-------------- --------------- ------------- --------------
LOSS BEFORE INCOME TAXES AND
DISCONTINUED OPERATIONS
Loss from operations of GVI, FCC (172,728) - - (172,728)
Gain on disposal of GVI, FCC 1,720,387 - - 1,720,387
------------- ------------- ------------- --------------
Total Discontinued Operations 1,547,659 - - 1,547,659
------------- ------------- ------------- --------------
INCOME TAXES - - - -
------------- ------------- ------------- --------------
Net Loss $ (440,748) $ (541,882) $ (121,229) $ (1,103,859)
============= ============= ============= ==============
Loss Per Share $ (0.57) $ (2.07) $ - $ (0.80)
============= ============= ============= ==============
</TABLE>
F-18
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1998 and 1997
NOTE 2 - MERGERS AND ACQUISITIONS (Continued)
<TABLE>
<CAPTION>
American Resources and Development Company
Consolidated Pro Forma Combined Statements of Operations (Continued)
For the Year ended March 31, 1997
(Unaudited)
American Pro Forma
Resources PPW Adjustments Combined
SALES
<S> <C> <C> <C> <C>
Sales - screenprinting and embroidery $ - $ 2,926,410 $ - $ 2,926,410
------------ ------------ ------------- ------------
Total Sales - 2,926,410 - 2,926,410
------------ ------------ ------------- ------------
COST OF SALES
Cost of sales - screenprinting and embroidery - 2,209,410 - 2,209,410
------------ ------------ ------------- ------------
Total Cost of Sales - 2,209,410 - 2,209,410
------------ ------------ ------------- -----------
Gross profit - 717,000 - 717,000
------------ ------------ ------------- -----------
EXPENSES
General and administrative expenses 519,185 944,015 121,229 1,584,429
Writedown of goodwill - - - -
Sales and marketing expenses - - - -
Depreciation 3,124 74,815 - 77,939
------------- ------------- ------------- --------------
Total Expenses 522,309 1,018,830 121,229 1,662,368
------------- ------------- ------------- --------------
Loss from operations (522,309) (301,830) (121,229) (945,368)
-------------- ------------- ------------- --------------
Other income and (Expenses)
Other revenue - 49,750 - 49,750
Interest income 168 - - 168
Gain on sale of assets 215,375 - - 215,375
Interest expense (32,118) (58,350) - (90,468)
-------------- ------------- ------------- --------------
Total Other Income and Expenses 183,425 (8,600) - 174,825
------------- ------------- ------------- --------------
Loss before income taxes and discontinued
operations
Loss from discontinued operations (685,918) - - (685,918)
------------- ------------- ------------- --------------
Total Discontinued operations (685,918) - - (685,918)
------------- ------------- ------------- --------------
Income Taxes - - - -
------------- ------------- ------------- --------------
Net Loss $ (1,024,802) $ (310,430) $ (121,229) $ (1,456,461)
============= ============= ============= ==============
Net loss per Share $ (0.56 $ (1.20) $ (0.97)
============= ============= =============
</TABLE>
F-19
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1998 and 1997
<TABLE>
<CAPTION>
NOTE 3 - NOTES PAYABLE
Notes payable are comprised of the following:
March 31,
1998
--------------
<S> <C>
Note payable, unsecured, bearing interest at 12%, payable
in monthly installments of $7,000, including interest $ 69,316
Promissory notes, secured by GVI stock, bearing interest at 12%.
Interest due monthly with the entire balance due on April 24,
1998. Holder of note has agreed to sell GVI
stock securing note until note is paid in full. 125,000
Promissory note, secured by vehicle, bearing interest at
11%. Due in monthly installments of $405, including interest. 17,474
Convertible subordinated debentures, due June 30, 1996
bearing interest at 12% per annum. Interest payable
quarterly, secured by land. 185,000
Note payable to a bank with interest at 3% above prime per annum.
Secured by accounts receivable and due July 31, 1998. 162,146
--------------
Subtotal 558,936
Less current portion 544,781
Long-term portion $ 14,155
==============
Maturities of long-term debt are as follows:
March 31, 1999 $ 544,781
March 31, 2000 4,193
March 31, 2001 4,592
March 31, 2002 4,600
March 31, 2003 770
----------------
$ 558,936
</TABLE>
F-20
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1998 and 1997
<TABLE>
<CAPTION>
NOTE 4 - NOTES PAYABLE, RELATED PARTIES
March 31,
1998
<S> <C>
Note payable to a shareholder, secured by GVI common stock.
Interest at 14% with monthly principal and interest payments
of $6,000 with a final balloon payment July 2001. $ 358,000
Note payable to a shareholder, secured by assets of the Company.
Interest payable monthly at 18% with no stated principal
payments required. 130,491
Notes payable to the former owners of FTI (includes officers and
directors of the Company). Interest rates average 9.5%.
Unsecured due upon demand. 250,189
Notes payable to the former shareholders of PPW (includes an
officer and director of the Company). Interest rates average
12%. Unsecured due upon demand. 412,830
Subtotal 1,151,510
Less current portion 59,974
Long-term portion $ 1,091,536
==================
<CAPTION>
NOTE 5 - CAPITAL LEASES
Property and equipment payments under capital leases as of March
31, 1998 is summarized as follows:
Year End
March 31,
<S> <C>
1999 $ 368,389
2000 295,451
2001 253,347
2002 90,898
------------------
Total minimum lease payments 1,008,085
Less interest and taxes 124,647
Present value of net minimum lease payments 883,438
Less current portion 303,475
Long-term portion of capital lease obligations $ 579,963
==================
</TABLE>
F-21
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1998 and 1997
NOTE 6 - 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 $5,700,000 to offset future tax
liabilities. The loss carry-forwards will begin to expire in 2008.
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.
NOTE 7 - 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, 1998, there are 94,953 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,
1998, there is a total of $312,782 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 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. Effective March 31, 1998, the
Series D stock was converted into common stock (Note 2).
NOTE 8 - 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.
F-22
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1998 and 1997
NOTE 9 - STOCK OPTIONS
In August 1997, the Company's Board of Directors approved the 1997
American Resources and Development Company Stock Option Plan
(Option Plan). Under the Option Plan, 500,000 shares of the
Company's common stock are reserved for issuance to Directors and
employees. Options are granted at a price and with vesting terms
as determined by the Board of Directors. In October 1997, the
Board of Directors granted options to purchase 140,000 shares of
stock at $2.00. These options are exercisable beginning March 31,
1998, over staggered periods and expire after ten years.
Compensation expense of $1,458 per month will be recognized for
40,000 of the options issued over a 4 year vesting period and
$1,458 per month will be recognized for 100,000 of the options
over a 10 year vesting period. In July 1998, the Board of
Directors changed the terms of the 100,000 options vesting over 10
years. 25,000 of these options were fully vested and the remainder
of the options were canceled. As a result, compensation expense of
$52,498 was recognized for the year ended March 31, 1998 for the
vesting of these options.
In December 1997, the Board of Directors granted options to
purchase 39,000 shares of stock at $2.00. These options are
exercisable beginning March 31, 1998, are exercisable over
staggered periods and expire after ten years. No compensation
expense was recognized as the option price was greater than the
fair market value of the stock at the date of the option grant.
Pro forma net income and net income per common share was
determined as if the Company had accounted for its employee stock
options under the fair value method of Statement of Financial
Accounting Standards No. 123.
Pro forma expense in year 1 would be $30,904, and $5,646 in years
2 and 3, respectively, with an increase in pro forma expenses per
share of $0.016 in year 1 and $0.003 in years 2 and 3.
For the pro forma disclosures, the options' estimated fair value
was amortized over their expected ten-year life. The fair value
for these options was estimated at the date of grant using an
option pricing model which was designed to estimate the fair value
of options which, unlike employee stock options, can be traded at
any time and are fully transferable. In addition, such models
require the input of highly subjective assumptions, including the
expected volatility of the stock price. Therefore, in management's
opinion, the existing models do not provide a reliable single
measure of the value of employee stock options. The following
weighted-average assumptions were used to estimate the fair value
of these options.
1997
Expected dividend yield 0%
Expected stock price volatility 70%
Risk-free interest rate 6.5%
Expected life of options (in years) 10
F-23
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
Notes to the Consolidated Financial Statements
March 31, 1998 and 1997
NOTE 10 - COMMITMENTS AND CONTINGENCIES
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, 1999 through March 31,
2004 are $368,885, $373,374, $380,077, $112,011 and $30,216,
respectively.
NOTE 11 - 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 debt funding and plans to
continue making private stock and debt placements in addition to
selling its investment in GVI. 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.
F-24
STOCK PURCHASE
AGREEMENT
Print Works, Inc.
(Company)
American Resources and Development Corporation
(Buyer)
May 30, 1998
Date
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS.............................................................1
"Acquired Companies".......................................................1
"Adjustment Amount"........................................................1
"Applicable Contract"......................................................1
"Balance Sheet"............................................................1
"Best Efforts".............................................................1
"Breach"...................................................................1
"Buyer"....................................................................1
"Closing"..................................................................1
"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"......................................................2
"Environmental Law"........................................................3
"ERISA"....................................................................4
"Facilities".............................................................. 4
"GAAP".....................................................................4
"Governmental Authorization"...............................................4
"Governmental Body"........................................................4
"Hazardous Activity".......................................................4
"Hazardous Materials"......................................................5
"Intellectual Property Assets".............................................5
"IRC"......................................................................5
"IRS" ..................................................................5
"Knowledge"................................................................5
"Legal Requirement"........................................................5
"Occupational Safety and
Health Law"..............................................................5
"Order"....................................................................6
"Ordinary Course of Business"..............................................6
<PAGE>
"Organizational Documents".................................................6
"Person"...................................................................6
"Proceeding"...............................................................6
"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......................................................8
2.3 Closing.............................................................9
2.4 Closing Obligations.................................................9
3. REPRESENTATIONS AND WARRANTIES OF SELLERS..............................10
3.1 Organization and Good Standing.....................................10
3.2 Authority; No Conflict.............................................10
3.3 Capitalization.....................................................12
3.4 Financial Statements...............................................12
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 Authorizations......................................17
3.15 Legal Proceedings; Orders..........................................19
3.16 Absence of Certain Changes and Events............................. 20
<PAGE>
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
3.24 Disclosure........................................................ 32
3.25 Relationships with Related Persons................................ 32
3.26 Brokers or Finders................................................ 33
4. REPRESENTATIONS AND WARRANTIES OF BUYER............................... 33
4.1 Organization and Good Standing.................................... 33
4.2 Authority; No Conflict............................................ 33
4.3 Investment Intent................................................. 34
4.4 Certain Proceedings............................................... 34
4.5 SEC Filings........................................................34
4.6 Brokers or Finders................................................ 34
5. COVENANTS OF SELLERS PRIOR TO CLOSING DATE............................ 34
5.1 Access and Investigation.......................................... 34
5.2 Operation of the Businesses
of the Acquired Companies....................................... 35
5.3 Negative Covenant................................................. 35
5.4 Required Approvals................................................ 35
5.5 Notification...................................................... 36
5.6 Payment of Indebtedness by Related Persons........................ 36
5.7 No Negotiation.................................................... 36
5.8 Best Efforts...................................................... 36
6. COVENANTS OF BUYER PRIOR TO CLOSING DATE.............................. 37
6.1 Approvals of Governmental Bodies.................................. 37
6.2 Best Efforts...................................................... 37
7. CONDITIONS PRECEDENT TO BUYER'S
OBLIGATION TO CLOSE................................................. 37
7.1 Accuracy of Representations....................................... 37
<PAGE>
7.2 Sellers' Performance.............................................. 37
7.3 Consents.......................................................... 38
7.4 Additional Documents.............................................. 38
7.5 No Proceedings.................................................... 38
7.6 No Claim Regarding Stock Ownership or
Sale Proceeds................................................... 38
7.7 No Prohibition.................................................... 39
8. CONDITIONS PRECEDENT TO SELLERS'
OBLIGATION TO CLOSE.................................................. 39
8.1 Accuracy of Representations....................................... 39
8.2 Buyer's Performance............................................... 39
8.3 Consents.......................................................... 39
8.4 Additional Documents.............................................. 39
8.5 No Injunction..................................................... 40
9. TERMINATION........................................................... 40
9.1 Termination Events................................................ 40
9.2 Effect of Termination............................................. 40
10. INDEMNIFICATION; REMEDIES............................................ 41
10.1 Survival; Right to Indemnification
Not Affected by Knowledge...................................... 41
10.2 Indemnification and Payment of
Damages by Sellers............................................. 41
10.3 Indemnification and Payment
of Damages by Buyer............................................ 42
10.4 Time Limitations.................................................. 42
10.5 Limitations on Amount--Sellers.................................... 43
10.6 Limitations on Amount--Buyer...................................... 43
10.7 Procedure for Indemnification--
Third Party Claims............................................. 43
10.8 Procedure for Indemnification--
Other Claims................................................... 44
11. GENERAL PROVISIONS................................................... 45
11.1 Expenses.......................................................... 45
<PAGE>
11.2 Public Announcements.............................................. 45
11.3 Confidentiality................................................... 45
11.4 Notices........................................................... 45
11.5 Jurisdiction; Service of Process.................................. 46
11.6 Further Assurances................................................ 47
11.7 Waiver............................................................ 47
11.8 Entire Agreement and Modification................................. 47
11.9 Disclosure Letter................................................. 47
11.10 Assignments, Successors, and
No Third-Party Rights......................................... 48
11.11 Severability...................................................... 48
11.12 Section Headings, Construction.................................... 48
11.13 Time of Essence................................................... 48
11.14 Governing Law..................................................... 48
11.15 Counterparts...................................................... 49
SCHEDULES
Schedule A Sellers Information........................................... 51
<PAGE>
SCHEDULE A
SELLERS
Name Address # of Shares of Shares of Share Potential
PPW Owned ARDCO Stock to in Contingent
be Issued at Stock
Closing
- --------------- -------- -------------- -------------- ---------------
Jeffrey Harden 26,922 64,953 64,953
Lynn Harden 34,000 82,030 82,030
Brittany Harden 1,000 2,413 2,413
Blake Harden 1,000 2,413 2,413
Gary Lange 7,600 18,336 18,336
Charley Soneson 8,500 20,508 20,508
Patrick Estrada 4,000 9,651 9,651
Thomas Lundberg 3,500 8,444 8,444
Ronald Thornley 3,000 7,238 7,238
Lynn Braun 833 2,010 2,010
Cleon Braun 500 1,206 1,206
Allan Braun 2,166 5,226 5,226
Robert Pieters 2,405 5,802 5,802
Scott Newrones 1,000 2,413 2,413
Pamela Newrones 1,628 3,928 3,928
Gary Evans 1,000 2,413 2,413
The following EXHIBITS to the Print Works, Inc. Stock Purchase Agreement are
omitted and will be provided to the Commission upon request.
Exhibit 1 Disclosure Letter
Exhibit 2 Employment Agreement
Exhibit 3 Release Agreement
Exhibit 4 Investment Letter
Exhibit 5 Loan Agreement
Exhibit 6 Security Agreement
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is executed as of May 30, 1998, to
be effective as of April 1, 1998, by and between American Resources and
Development Corporation, 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, not less than eighty
percent (80%) and up to one hundred percent (100%) of the issued and outstanding
shares (the "Shares") of capital stock of Print Works, 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.
"Asking Price"--The closing Asking Price of Buyer's common stock for any
day shall he the last reported sale price or, in case no such reported sale
takes place on such day, the average of the 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 Buyer
for that purpose. In the absence of all of the foregoing, or if for any
other reason the current asking price per share cannot be determined
pursuant to the foregoing provisions of this paragraph, the asking market
price per share shall be the fair market value thereof as determined in
good faith by the Board of Directors of the Buyer.
<PAGE>
"Average Asking Price"--"Average asking price" of Buyer's common stock
shall be the average of the daily closing asking prices for the six month
period ending on the last full trading day on the exchange or market
specified in the succeeding sentence prior to March31, 1999. The closing
Asking Price of Buyer's common stock 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 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 Buyer for that purpose. In the absence
of all of the foregoing, or if for any other reason the current asking
price per share cannot be determined pursuant to the foregoing provisions
of this paragraph, the asking market price per share shall he the fair
market value thereof as determined in good faith by the Board of Directors
of the Buyer.
"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.
"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;
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(b) the execution, delivery, and performance of the Employment
Agreements, the Noncompetition Agreements, 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.
"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;
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(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;
(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
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(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.
"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
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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.
"Net Income"--Audited annual net income after interest and depreciation,
but before taxes have been deducted.
"Non-Management Sellers"--all Sellers except for Jeffrey Harden, Lynn
Harden, Brittany Harden and Blake Harden.
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"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:
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(a) each other member of such individual's Family;
(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.
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"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.
"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.
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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.
2.2 PURCHASE PRICE
The purchase price (the "Purchase Price") for the Shares will be the issuance of
517,564 shares of common stock of Buyer. The common stock shall be issued to
Sellers in the amounts set forth on Schedule A hereof. A portion of the Purchase
Price shall be paid at the Closing (258,782 shares) and a portion (258,782
shares) shall be contingent and paid pursuant to Section 2.3. On or before July
15, 1999, if the Average Asking Price of Buyer's common stock is not equal to or
greater than $5.00, Sellers shall be issued additional shares of common stock
equal to the number of shares previously issued to them pursuant to this Section
2.2 multiplied by 5 and divided by the Average Asking Price less the shares
previously issued to such Seller pursuant to this Section 2.2.
2.3 CONTINGENT CONSIDERATION
In addition to the shares of stock issued to Sellers at Closing, Sellers shall
have the right for a three year period to receive additional shares of common
stock of Buyer based upon the Net Income of the Company for each of the three
Fiscal Years ended March 31, 2001. Such additional shares shall be issued on or
before July 15 of each applicable year in accordance with the following
provisions:
(a)If the Net Income of the Company for the fiscal year ended March 31,
1999 is $179,400 or greater, Sellers shall he issued a number of
Buyer's common shares equal to 86,261 multiplied by the Net Income of
the Company for such period, divided by $538,200.
(b)If the Net Income of the Company for the two year period ending March
31, 2000 is $448,500 or greater, Sellers shall he issued a number of
Buyer's common shares equal to 172,521 multiplied by the Net Income of
the company for such period, divided by $1,345,500, minus the number of
shares issued pursuant to Section 2.3(a).
(c)If the Net Income of the Company for the three year period ending March
31, 2001 is $806,400 or greater, Sellers shall be issued a number of
Buyer's common shares equal to 258,782 multiplied by the Net Income of
the Company for such period, divided by $2,419,200, minus the number of
shares issued pursuant to Sections 2.3(a) and (b), provided, however,
the total number of Buyer's common shares to be issued to Sellers
pursuant to Section 2.3(a), (1,)and (c) (without considering any
increase as a result of Section 2.3(d)), shall not exceed 258,782
shares.
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(d)The number of Buyer's common shares issued pursuant to Sections 2.3(a),
(b) and (c) shall be increased, but not decreased by multiplying the
number of shares to he issued by $5.00 and dividing by the Average
Asking Price of Buyer's common stock. The total number of shares
issuable to Sellers pursuant to Sections 2.3(a), (b) and (c) shall not
exceed 862,607.
2.4 LENDING COMMITMENTS
Buyer and Sellers acknowledge that Buyer has loaned $445,000 to the Company as
of the date of this Agreement.
These loans shall be evidenced by a Loan Agreement and Promissory Note to be
signed at the Closing. Such Loan Agreement and Promissory Note shall be in the
form of exhibits 5 and 6 attached to this Agreement. Interest on fluids loaned
to the Company shall accrue at eight percent. Interest on the loan shall be paid
quarterly and all interest and principal shall be due and payable on or before
April 30, 2001, all as provided in the Loan Agreement and Promissory Note.
2.5 CLOSING
The exchange of shares (the "Closing") provided for in this Agreement will take
place at the offices of Parry Lawarence & Ward, 1270 Eagle Gate Tower, 60 East
South Temple, Salt Lake City, Utah 84111, at 9:30 a.m. (local time) on June 9,
1998 or at such other time and place as the parties may agree. The parties agree
that the acquisition of the Shares shall be deemed to have occurred and shall be
effective as of April 1, 1998. 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.
2.6 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 3 executed by Sellers
(collectively, "Sellers' Releases");
(iii) an employment agreement in the form of Exhibit 2, executed by
Jeffrey Harden ("Employment Agreement");
(iv) Subscription Agreements in the form of Exhibit 7 executed by
Sellers (collectively, the "Subscription Agreements");
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(v) investment letters in the form of Exhibit 4, executed by
Sellers (collectively, the "Investment Letters"); and
(vi) a certificate executed by Sellers 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
(vii) a Loan agreement and Promissory Note in the form of Exhibits 6
and 7, executed by the Company and guaranteed by certain
Sellers (the "Loan Agreement"); and
(b)Buyer will deliver to Sellers:
(i) certificates for common stock in Buyer totalling 258,782
shares of common stock; and
(ii) 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;
3. REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers 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, the
Sellers' Releases, and the Noncompetition Agreements (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 common 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 Acquired Company consist of ________
shares of common stock, ______ par value per share, of which 108,182 shares are
issued and outstanding and constitute the Shares. 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.
3.4 FINANCIAL STATEMENTS
Sellers have delivered to Buyer: (a) unaudited consolidated balance sheets of
the Acquired Companies as at March 31, 1998 (the "Balance Sheet") and the
related unaudited consolidated statements of income. Such financial statements
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and notes fairly present the financial condition and the results of operations
as at the respective dates of and for the periods referred to in such financial
statements, subject, 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
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 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
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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
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
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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 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.
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(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.
"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.
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"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 IRC ss. 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;
(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,
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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;
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(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;
(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
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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 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
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(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:
(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.
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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. 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, 1997;
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, 1997, no Acquired Company has been or is a party to any
collective bargaining or other labor Contract. Since December 31, 1997, 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.
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3.22 INTELLECTUAL PROPERTY
(a) Intellectual Property Assets--The term "Intellectual Property Assets"
includes:
(i) the name "Pacific Print", 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.
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(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 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.
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(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.
(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.
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(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.
(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.
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(c) There is no fact known to either Seller that has specific application
to either 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.
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 NON-MANAGEMENT SELLERS
Non-Management Sellers, 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
Subscription Agreement, Investment Letter, and the Sellers'
Releases (collectively, the Non-Management Sellers' Closing
Documents"), the Non-Management 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,
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authority, and capacity to execute and deliver this Agreement and
the Non-Management Sellers' Closing Documents and to perform their
obligations under this Agreement and the Non-Management Sellers'
Closing Documents.
(b) Sellers are acquiring the common 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
Each Seller is and will be on the Closing Date the record and beneficial owner
and holder of the Shares to be exchanged by him, free and clear of all
Encumbrances. Each Seller owns the number of shares set opposite his name on
Schedule A. No legend or other reference to any purported Encumbrance appears
upon Seller's certificate representing the Shares.
4.3 DISCLOSURE
(a) To the knowledge of Seller, no representation or warranty of
Sellers in this Agreement 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) To the knowledge of Seller, 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) To the knowledge of Seller, there is no fact known to any Seller
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 Seller 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.
4.4 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.
5. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as follows:
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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 4.2, 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 4.2, 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.
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.
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5.5 SEC FILINGS
Buyer has furnished Sellers with copies of Form 10-K and Forms 10-Q for all
period since March 31, 1997. 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;
(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;
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(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 4.2 (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 will promptly
notify Buyer of the occurrence of any Breach of any covenant of Sellers in this
Section 5 or of the occurrence of any event that may make the satisfaction of
the conditions in Section 7 impossible or unlikely.
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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 9,
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.
7.2 BEST EFFORTS
Except as set forth in the proviso to Section 6.1, 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.
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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, 3.24, 4.1, and 4.2 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.
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 7, or (iv) otherwise facilitating the
consummation or performance of any of the Contemplated Transactions.
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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):
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.
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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 8, 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.
9.6 TAX FREE EXCHANGE
The exchange of Shares pursuant to this Agreement is subject to Sellers
owning not less than eighty percent (80)%) of the Shares of the Company
exchanging their Shares pursuant to 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
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
June 30, 1998, or such later date as the parties may agree upon.
9.2 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.
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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 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
Sellers, 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 either Seller of any covenant or obligation of such
Seller in this Agreement;
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(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 part 3.15 or 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 either 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,
1999 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 December 31, 1997 Sellers notify Buyer of a claim
specifying the factual basis of that claim in reasonable detail to the extent
then known by Sellers.
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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 10.2 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 10.2 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 11.6 will not
apply to any Breach of any of Sellers' representations and warranties of which
either Seller had Knowledge at any time prior to the date on which such
representation and warranty is made or any intentional Breach by either Seller
of any covenant or obligation, and Sellers 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 11.4 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 11.7 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
11.4, 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 11.8(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
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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) 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.
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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.
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.
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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 (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: c/o Mr. Jeffrey Harden
Attention: 2035 N.E. 181st
Gresham, Oregon 97230
Facsimile #: (503) 665-1914
Buyer: American Resources And Development Corporation
Attention: Karl Badger
102 West 500 South, Suite 318
Salt Lake City, Utah 84101
Facsimile #: (801) 363-8487
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.
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.
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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 26, 1997) 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.
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
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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.
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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first written above.
Buyer: American Resources and Development Corporation
By: /s/ Karl Badger
------------------------
(Karl Badger, President)
Sellers:
/s/ Jeffrey Harden
- ----------------
Jeffrey Harden
/s/ Lynn Harden /s/ Brittany Harden
/s/ Blake Harden --------------- ------------------
- ------------------ Lynn Harden Brittany Harden
Blake Harden
/s/ Patrick Estrada
- ------------------
Patrick Estrada
/s/Thomas Lundberg /s/Ronald Thomley
/s/ Lynn Braun ---------------- ------------------
- ------------------ Thomas Lundberg Ronald Thomley
Lynn Braun
/s/Cleon Braun /s/Allan Braun
/s/ Robert Pieters ---------------- ------------------
- ------------------ Cleon Braun Allan Braun
Robert Pieters
/s/Scott Newrones /s/Pamela Newrones
---------------- ------------------
Scott Newrones Pamela Newrones
/s/ Pamela Carey
- ------------------
Pamela Carey
/s/ Cameron Smith
/s/ Elizabeth Dorr ----------------
- ------------------ Cameron Smith
Elizabeth Dorr
/s/Gary LaPointe /s/Sandra Lutz
/s/ Don Cox ----------------- -----------------
- ----------------- Gary LaPointe Sandra Lutz
Don Cox
53
STOCK EXCHANGE
AGREEMENT
Quade, Inc.
(Company)
American Resources and Development Company
(Buyer)
July 9, 1998
(Date)
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS ........................................................... 1
"Acquired Companies" ..................................................... 1
"Adjustment Amount" ...................................................... 1
"Applicable Contract" .................................................... 1
"Asking Price" ........................................................... 1
"Average Asking Price" ................................................... 2
"Balance Sheet" .......................................................... 2
"Best Efforts" ........................................................... 2
"Breach" ................................................................. 2
"Buyer" .................................................................. 2
"Closing" ................................................................ 2
"Closing Date" ........................................................... 2
"Company" ................................................................ 2
"Consent" ................................................................ 2
"Contemplated Transactions" .............................................. 2
"Contract" ............................................................... 3
"Damages" ................................................................ 3
"Disclosure Letter" ...................................................... 3
"Employment Agreements" .................................................. 3
"Encumbrance" ............................................................ 3
"Environment" ............................................................ 3
"Environmental, Health, and Safety Liabilities" .......................... 3
"Environmental Law" ...................................................... 4
"ERISA" .................................................................. 4
"Facilities" ............................................................. 5
"Fiscal Year" ............................................................ 5
"Governmental Authorization" ............................................. 5
"Governmental Body" ...................................................... 5
"Hazardous Activity" ..................................................... 5
"Hazardous Materials" ................................................... 5
"Intellectual Property Assets" ........................................... 5
"IRC" .................................................................... 6
"IRS" .................................................................... 6
"Knowledge" .............................................................. 6
"Legal Requirement" ...................................................... 6
"Net Income" ............................................................. 6
"Occupational Safety and Health Law" ..................................... 6
"Order" .................................................................. 6
"Ordinary Course of Business" ............................................ 6
"Organizational Documents" ............................................... 7
"Person" ................................................................. 7
"Proceeding" ............................................................. 7
"Related Person" ......................................................... 7
"Release" ................................................................ 8
"Representative" ......................................................... 8
"Securities Act" ......................................................... 8
"Seller" ................................................................. 8
"Seller's Release" ....................................................... 8
"Shares" ................................................................. 8
"Subsidiary" ............................................................. 8
"Tax Return" ............................................................. 9
"Threat of Release" ...................................................... 9
"Threatened" ............................................................. 9
<PAGE>
2. SALE AND TRANSFER OF SHARES; CLOSING .................................. 9
2.1 Shares ............................................................ 9
2.2 Purchase Price .................................................... 9
2.3 Additional Consideration .......................................... 9
2.4 Loan Commitment ................................................... 10
2.5 Closing ........................................................... 11
2.6 Closing Obligations ............................................... 11
3. REPRESENTATIONS AND WARRANTIES OF SELLER .............................. 12
3.1 Organization and Good Standing .................................... 12
3.2 Authority; No Conflict ............................................ 12
3.3 Capitalization .................................................... 13
3.4 Financial Statements .............................................. 13
3.5 Books and Records ................................................. 13
3.6 Title to Properties; Encumbrances ................................. 14
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 Authorizations ... 16
3.15 Legal Proceedings; Orders ......................................... 18
3.16 Absence of Certain Changes and Events ............................. 19
3.17 Contracts; No Defaults ............................................ 20
3.18 Insurance ......................................................... 22
3.19 Environmental Matters ............................................. 23
3.20 Employees ......................................................... 25
3.21 Labor Relations; Compliance ....................................... 26
3.22 Intellectual Property ............................................. 26
3.23 Certain Payments .................................................. 29
3.24 Disclosure ........................................................ 29
3.25 Relationships with Related Persons ................................ 30
3.26 Brokers or Finders ................................................ 30
4. REPRESENTATIONS AND WARRANTIES OF BUYER ............................... 30
4.1 Organization and Good Standing .................................... 30
4.2 Authority; No Conflict ............................................ 30
4.3 Investment Intent ................................................. 31
4.4 Certain Proceedings ............................................... 31
4.5 SEC Filings ....................................................... 31
4.6 Brokers or Finders ................................................ 31
5. COVENANTS OF SELLER PRIOR TO CLOSING DATE ............................. 32
5.1 Access and Investigation .......................................... 32
5.2 Operation of the Businesses of the Acquired Companies ............. 32
5.3 Negative Covenant ................................................. 32
5.4 Required Approvals ................................................ 32
5.5 Notification ...................................................... 33
5.6 Payment of Indebtedness by Related Persons ........................ 33
5.7 No Negotiation .................................................... 33
5.8 Best Efforts ...................................................... 33
6. COVENANTS OF BUYER PRIOR TO CLOSING DATE .............................. 33
6.1 Approvals of Governmental Bodies .................................. 33
6.2 Best Efforts ...................................................... 33
<PAGE>
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE ................... 34
7.1 Accuracy of Representations ....................................... 34
7.2 Seller's Performance .............................................. 34
7.3 Consents .......................................................... 34
7.4 Additional Documents .............................................. 34
7.5 No Proceedings .................................................... 34
7.6 No Claim Regarding Stock Ownership or Sale Proceeds ............... 35
7.7 No Prohibition .................................................... 35
8. CONDITIONS PRECEDENT TO SELLER OBLIGATION TO CLOSE .................... 35
8.1 Accuracy of Representations ....................................... 35
8.2 Buyer's Performance ............................................... 35
8.3 Consents .......................................................... 35
8.4 Additional Documents .............................................. 35
8.5 No Injunction ..................................................... 36
9. TERMINATION ........................................................... 36
9.1 Termination Events ................................................ 36
9.2 Effect of Termination ............................................. 36
10. INDEMNIFICATION; REMEDIES ............................................ 36
10.1 Survival; Right to Indemnification Not Affected by Knowledge ...... 36
10.2 Indemnification and Payment of Damages by Seller .................. 37
10.3 Indemnification and Payment of Damages by Buyer ................... 38
10.4 Time Limitations .................................................. 38
10.5 Limitations on Amount--Seller ..................................... 38
10.6 Limitations on Amount--Buyer ...................................... 38
10.7 Procedure for Indemnification--Third Party Claims ................. 39
10.8 Procedure for Indemnification--Other Claims ....................... 40
11. GENERAL PROVISIONS ................................................... 40
11.1 Expenses .......................................................... 40
11.2 Public Announcements .............................................. 40
11.3 Confidentiality ................................................... 40
11.4 Notices ........................................................... 41
11.5 Jurisdiction; Service of Process .................................. 41
11.6 Further Assurances ................................................ 41
11.7 Waiver ............................................................ 41
11.8 Entire Agreement and Modification ................................. 42
11.9 Disclosure Letter ................................................. 42
11.10 Assignments, Successors, and No Third-Party Rights ................ 42
11.11 Severability ..................................................... 42
11.12 Section Headings, Construction .................................... 42
11.13 Time of Essence .................................................. 42
11.14 Governing Law ..................................................... 43
11.15 Counterparts ...................................................... 43
The following exhibits are available to the Commission upon request
EXHIBITS
Exhibit 1 - Disclosure Letter
Exhibit 2 - Employment Agreement
Exhibit 3 - Release
Exhibit 4 - Investment Letter
Exhibit 5 - Loan Agreement
Exhibit 6 - Promissory Note
<PAGE>
STOCK EXCHANGE AGREEMENT
This Stock Exchange Agreement ("Agreement") is made as of July 23,
1998, by and between American Resources and Development Company, a Utah
corporation ("Buyer"), and Robert Mintz (hereinafter referred to as "Seller").
RECITALS
Seller desires to sell, and Buyer desires to purchase one hundred
percent (100%) of the issued and outstanding shares (the "Shares") of capital
stock of Quade, Inc., a Connecticut corporation (the "Company"), for the
consideration and on the terms set forth in this Agreement and pursuant to the
provisions of section 368 (a) (1) (B) of the IRC.
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.
"Asking Price"--The closing Asking Price of Buyer's common stock 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 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 Buyer for that purpose. In the absence of all of
the foregoing, or if for any other reason the current asking price per share
cannot be determined pursuant to the foregoing provisions of this paragraph, the
asking market price per share shall be the fair market value thereof as
determined in good faith by the Board of Directors of the Buyer.
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"Average Asking Price"--"Average asking price" of Buyer's common stock shall be
the average of the daily closing asking prices for the six month period ending
on the last full trading day on the exchange or market specified in the
succeeding sentence prior to March 31, 1999. The closing Asking Price of Buyer's
common stock 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 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 Buyer for that
purpose. In the absence of all of the foregoing, or if for any other reason the
current asking price per share cannot be determined pursuant to the foregoing
provisions of this paragraph, the asking market price per share shall be the
fair market value thereof as determined in good faith by the Board of Directors
of the Buyer.
"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.
"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;
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(b) the execution, delivery, and performance of the
Employment Agreement 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 10.2.
"Disclosure Letter"--the disclosure letter delivered by Sellers to Buyer
concurrently with the execution and delivery of this Agreement.
"Employment Agreement"--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.
"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
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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;
(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.
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"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.
"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.
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"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.
"Net Income"--Audited annual net income after interest and depreciation, but
before taxes have been deducted.
"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
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(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;
(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;
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(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.
"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.
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"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 exchange and transfer the Shares to Buyer, and Buyer will acquire
the Shares from Sellers.
2.2 PURCHASE PRICE
The purchase price (the "Purchase Price") for the Shares will be the
issuance of 213,333 shares of common stock of Buyer. On or before July 15, 1999,
if the Average Asking Price of Buyer's common stock is not equal to or greater
than $5.00, Buyer shall issue to Seller additional shares of common stock equal
to 32,000 shares issued to him pursuant to this Section 2.2 multiplied by 5 and
divided by the Average Asking Price less the 32,000 shares issued to such Seller
pursuant to this Section 2.2.
2.3 ADDITIONAL CONSIDERATION
In addition to the shares of stock issued to Sellers at Closing,
Sellers shall have the right for a three year period to receive additional
shares of common stock of Buyer based upon the Net Income of the Company for
each of the three Fiscal Years ended March 31, 2001. Such additional shares
shall be issued on or before July 15 of each applicable year in accordance with
the following provisions:
(a) If the Net Income of the Company for the fiscal year ended
March 31, 1999 is $27,167 or greater, Sellers shall be
issued a number of Buyer's common shares equal to 142,222
multiplied by the Net Income of the Company for such
period, divided by $81,500.
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(b) If the Net Income of the Company for the two year period
ending March 31, 2000 is $278,333 or greater, Sellers
shall be issued a number of Buyer's common shares equal to
284,444 multiplied by the Net Income of the company for
such period, divided by $835,500, minus the number of
shares issued pursuant to Section 2.3(a).
(c) If the Net Income of the Company for the three year period
ending March 31, 2001 is $778,233 or greater, Sellers
shall be issued a number of Buyer's common shares equal to
400,000 multiplied by the Net Income of the Company for
such period, divided by $2,334,700, minus the number of
shares issued pursuant to Sections 2.3(a) and (b),
provided, however, the total number of Buyer's common
shares to be issued to Sellers pursuant to Section 2.3(a),
(b) and (c) (without considering any increase as a result
of Section 2.3(d)), shall not exceed 426,667 shares.
(d) The number of Buyer's common shares issued pursuant to
Sections 2.3(a), (b) and (c) shall be increased, but not
decreased by multiplying the number of shares to be issued
by $5.00 and dividing by the Average Asking Price of
Buyer's common stock.
2.4 LOAN COMMITMENTS
Buyer and Sellers acknowledge that Buyer has loaned $40,000 to the
Company as of the date of this Agreement. In addition, Buyer has agreed to loan
an additional $200,000 to the Company pursuant to the following schedule:.
At Closing: $ 75,000
On or Before August 31, 1998: $125,000
Buyer shall also provide for a letter of credit for up to $200,000 for the
Company to make blank purchases.
These loans and lease amount shall be evidenced by a Loan Agreement and
Promissory Note to be signed at the Closing. Interest on funds loaned to the
Company shall accrue at eight percent. Interest on the loan shall be paid
quarterly and all interest and principal shall be due and payable on or before
July 31, 2001, all as provided in the Loan Agreement and Promissory Note.
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2.5 CLOSING
The exchange of shares (the "Closing") provided for in this Agreement
will take place at the offices of Parry Lawrence & Ward, 1270 Eagle Gate Tower,
60 East South Temple, Salt Lake City, Utah 84111, at 9:30 a.m. (local time) on
July 23, 1998 or at such other time and place as the parties may agree. Subject
to the provisions of Section 9, 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.
2.6 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) a release in the form of Exhibit 2.7(a)(ii)
executed by Seller (collectively, "Sellers'
Releases");
(iii) an employment agreement in the form of Exhibit
22.7(a)(iii), executed by Robert Mintz and the
Company ("Employment Agreement");
(iv) an investment letter in the form of Exhibit
2.7(a)(iv), executed by Seller (collectively, the
"Investment Letters").
(v) a certificate executed by Seller representing and
warranting to Buyer that each of Seller'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 (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 ( 5.5); and
(b) Buyer will deliver to Sellers:
(i) certificates for common stock in Buyer totalling
213,333 shares of common stock; and
(ii) 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.
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3. REPRESENTATIONS AND WARRANTIES OF SELLERS
Seller has delivered to Buyer copies of the Organizational documents of
each Acquired Company, as currently in effect.
(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.
(b) Seller 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 Seller, enforceable against Seller in
accordance with its terms. Upon the execution and delivery
by Seller of the Subscription Agreement, Investment
Letter, Loan Agreement, Promissory Note and Employment
Agreement, 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. Seller have the
absolute and unrestricted right, power, authority, and
capacity to execute and deliver this Agreement and the
Seller' Closing Documents and to perform their obligations
under this Agreement and the Seller' Closing Documents.
(b) 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 Seller, or
any of the assets owned or used by any Acquired
Company, may be subject;
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(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;
(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.
Neither Seller nor 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) Seller are acquiring the common 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 ______
shares of common stock, par value per share, of which __________ shares are
issued and outstanding and constitute the Shares. Seller are and will be on the
Closing Date the record and beneficial owners and holders of the Shares, free
and clear of all Encumbrances. With the exception of the Shares (which are owned
by Seller), 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.
3.4 FINANCIAL STATEMENTS
Seller have delivered to Buyer: (a) unaudited consolidated balance
sheets of the Acquired Companies as at March 31, 1998 (the "Balance Sheet").
Such Balance Sheet presents the financial condition of the Acquired Company as
at the respective date of such Balance Sheet.
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. 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.
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3.6 TITLE TO PROPERTIES; ENCUMBRANCES
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 Acquired Companies, including all of the properties
and assets reflected in the Balance Sheet and all of the properties and assets
purchased or otherwise acquired by the Acquired Companies since the date of the
Balance Sheet in the Ordinary Course of Business and consistent with past
practice. 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
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
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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
Seller or any Acquired Company.
(b) Neither Seller nor any 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.
(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.
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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.
"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 IRC ss. 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).
3.14 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS
(a) 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
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;
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(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;
(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
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(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 Seller 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. Seller 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;
(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 Seller 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.
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(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;
(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;
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(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 Seller 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;
(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;
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(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;
(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
(xiv) 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 Seller 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.
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(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 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 Seller 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) Seller 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
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(b) Except as set forth on Part 3.18(b) of the Disclosure
Letter:
(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, to Seller' knowledge, 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) to Seller' knowledge, 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. 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
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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 Seller 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 Seller, 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 Seller 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 Seller 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 Seller 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 Seller, 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 Seller and the
Acquired Companies, with respect to any other properties
and assets (whether real, personal, or mixed) in which
Seller 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.
(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 Seller and the
Acquired Companies, any other Person, has permitted or
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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 Seller 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 Seller
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 Seller or any Acquired
Company has or had an interest, or to the Knowledge of
Seller and the Acquired Companies any geologically or
hydrologically adjoining property, whether by Seller, any
Acquired Company, or any other Person.
(g) Seller have delivered to Buyer true and complete copies
and results of any reports, studies, analyses, tests, or
monitoring possessed or initiated by Seller or any
Acquired Company pertaining to Hazardous Materials or
Hazardous Activities in, on, or under the Facilities, or
concerning compliance by Seller, 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,
1997; 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.
(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
Seller or the Acquired Companies by any such employee or
director. To Seller' 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.
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3.21 LABOR RELATIONS; COMPLIANCE
Since December 31, 1997, no Acquired Company has been or is a party to
any collective bargaining or other labor Contract. Since December 31, 1997,
there has not been, there is not presently pending or existing, and to Seller'
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 Seller'
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 f 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:
(i) the name "Pacific Print", 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
Seller' Knowledge, no Threatened disputes or disagreements
with respect to any such agreement.
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(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
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 atents. 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 Seller' Knowledge, there is no
potentially interfering patent or patent
application of any third party.
(iv) No Patent is infringed or, to Seller' 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.
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(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.
(iii) No Mark has been or is now involved in any
opposition, invalidation, or cancellation and, to
Seller' Knowledge, no such action is Threatened
with the respect to any of the Marks.
(iv) To Seller' Knowledge, there is no potentially
interfering trademark or trademark application of
any third party.
(v) Except as set forth in Part 3.22(e)(v) of the
Disclosure Letter, no Mark is infringed or, to
Seller' 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 Seller' 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.
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(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.
(ii) Seller 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 Seller' 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 Seller' 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 Seller 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 5.5 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 either any Seller that has
specific application to either any Seller or any Acquired
Company (other than general economic or industry
conditions) and that materially adversely affects or, as
far as Seller 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 Seller 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 Seller 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 Seller 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
Seller 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 BUYER
Buyer represents and warrants to Seller as follows:
4.1 ORGANIZATION AND GOOD STANDING
Buyer is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Utah.
4.2 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 (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 4.2, 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) contravene, conflict with, or result in a violation
of (A) any provision of the Organizational
Documents of the Buyer, or (B) any resolution
adopted by the board of directors of the
stockholders of Buyer;
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(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 of any
Order to which Buyer or Seller, or any of the
assets owned or used by Buyer, 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 Buyer or
that otherwise relates to the business of, or any
of the assets owned or used by Buyer;
(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 Buyer to be
reassessed or revalued by any taxing authority or
other Governmental Body;
(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 material contract of Buyer; or
(vii) result in the imposition or creation of any
Encumbrance upon or with respect to any of the
assets owned or used by Buyer.
4.3 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.
4.4 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.
4.5 SEC FILINGS
Buyer has furnished Seller with copies of all Forms 10-KSB and Forms
10-QSB, which have been filed for all periods since December 31, 1996. All such
documents, as amended, 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, as amended, comply with all applicable rules and regulations of
the United States Securities and Exchange Commission.
4.6 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 Seller 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.
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5. COVENANTS OF SELLER PRIOR TO CLOSING DATE
5.1 ACCESS AND INVESTIGATION
Between the date of this Agreement and the Closing Date, Seller 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.
5.2 OPERATION OF THE BUSINESSES OF THE ACQUIRED COMPANIES
Between the date of this Agreement and the Closing Date, Seller will,
and will cause each Acquired Company to:
(a) conduct the business of such Acquired Company only in the
Ordinary Course of Business;
(b) use his 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.
5.3 NEGATIVE COVENANT
Except as otherwise expressly permitted by this Agreement, between the
date of this Agreement and the Closing Date, Seller 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.
5.4 REQUIRED APPROVALS
As promptly as practicable after the date of this Agreement, Seller
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, Seller 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 4.2 (including taking all actions requested by
Buyer to cause early termination of any applicable waiting period under the HSR
Act).
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5.5 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 Seller' 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, Seller will promptly deliver to Buyer a supplement to the
Disclosure Letter specifying such change. During the same period, each Seller
will promptly notify Buyer of the occurrence of any Breach of any covenant of
Seller in this Section 5 or of the occurrence of any event that may make the
satisfaction of the conditions in Section 7 impossible or unlikely.
5.6 PAYMENT OF INDEBTEDNESS BY RELATED PERSONS
Except as expressly provided in this Agreement, Seller 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.
5.7 NO NEGOTIATION
Until such time, if any, as this Agreement is terminated pursuant to
Section 9, Seller 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.
5.8 BEST EFFORTS
Between the date of this Agreement and the Closing Date, Seller will
use their Best Efforts to cause the conditions in Sections 7 and 8 to be
satisfied.
6. COVENANTS OF BUYER PRIOR TO CLOSING DATE
6.1 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 Seller with respect
to all filings that Seller are required by Legal Requirements to make in
connection with the Contemplated Transactions, and (ii) cooperate with Seller 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.
6.2 BEST EFFORTS
Except as set forth in the proviso to Section 6.1, between the date of
this Agreement and the Closing Date, Buyer will use its Best Efforts to cause
the conditions in Sections 7 and 8 to be satisfied.
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7. 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):
7.1 ACCURACY OF REPRESENTATIONS
(a) All of Seller' 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 Seller' 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.
7.2 SELLER'S PERFORMANCE
(a) All of the covenants and obligations that Seller 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
2.6 must have been delivered, and each of the other
covenants and obligations in Sections 5.4 and 5.8 must
have been performed and complied with in all respects.
7.3 CONSENTS
Each of the Consents identified in subpart b of Part 3.2 of the
Disclosure Letter, and each Consent identified in Schedule 4.2, must have been
obtained and must be in full force and effect.
7.4 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 Seller'
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 7, or (iv) otherwise facilitating the
consummation or performance of any of the Contemplated
Transactions.
7.5 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.
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7.6 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.
7.7 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.
8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE
Seller' obligation to exchange the Shares and to take the other actions
required to be taken by Seller 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 Seller, in whole or in part):
8.1 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.
8.2 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 2.7.
8.3 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.
8.4 ADDITIONAL DOCUMENTS
Buyer must have caused the following documents to be delivered to
Seller:
(a) such documents as Seller 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 8, or (iv)
otherwise facilitating the consummation of any of the
Contemplated Transactions.
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8.5 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 Seller to Buyer, and
(b) has been adopted or issued, or has otherwise become effective, since the
date of this Agreement.
9. TERMINATION
9.1 TERMINATION EVENTS
This Agreement may, by notice given prior to or at the Closing, be
terminated:
(a) By either Buyer or Seller 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 7
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 Seller, if any of the conditions in Section 8
has not been satisfied of the Closing Date or if
satisfaction of such a condition is or becomes
impossible (other than through the failure of
Seller to comply with their obligations under this
Agreement) and Seller have not waived such
condition on or before the Closing Date;
(c) by mutual consent of Buyer and Seller; or
(d) by either Buyer or Seller 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 August 31,
1998, or such later date as the parties may agree upon.
9.2 EFFECT OF TERMINATION
Each party's right of termination under Section 9.1 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 9.1, all further obligations of the parties
under this Agreement will terminate, except that the obligations in Sections
11.1 and 11.3 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.
10. INDEMNIFICATION; REMEDIES
10.1 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
or document delivered pursuant to this Agreement will survive the Closing. The
right to indemnification, payment of Damages or other remedy based on such
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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.
10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLER
Seller, 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
Seller them 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 Seller them
pursuant to this Agreement;
(b) any Breach of any representation or warranty made by
Seller them 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 2.7(a)(v) as having caused the condition specified
in Section 7.1 not to be satisfied;
(c) any Breach by either 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 3.15 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 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 10.2 will not be exclusive of or
limit any other remedies that may be available to Buyer or the other Indemnified
Persons.
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10.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER
Buyer will indemnify and hold harmless Seller, and will pay to Seller
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.
10.4 TIME LIMITATIONS
If the Closing occurs, Seller 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, 1999 Buyer notifies Seller 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, 1999 Seller notify Buyer of a
claim specifying the factual basis of that claim in reasonable detail to the
extent then known by Seller.
10.5 LIMITATIONS ON AMOUNT--SELLER
Seller 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 10.2 until the total of all Damages with respect to such matters
exceeds $5,000, and then only for the amount by which such Damages exceed
$5,000. Seller will have no liability (for indemnification or otherwise) with
respect to the matters described in clause (d) of Section 10.2 until the total
of all Damages with respect to such matters exceeds $5,000, and then only for
the amount by which such Damages exceed $5,000. However, this Section 10.5 will
not apply to any Breach of any of Seller's representations and warranties of
which Seller had Knowledge at any time prior to the date on which such
representation and warranty is made or any intentional Breach by Seller of any
covenant or obligation, and Seller, will be liable for all Damages with respect
to such Breaches.
10.6 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 10.4 until the
total of all Damages with respect to such matters exceeds $5,000, and then only
for the amount by which such Damages exceed $5,000. However, this Section 10.6
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.
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10.7 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS
(a) Promptly after receipt by an indemnified party under
Section 10.2 or 10.4, 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 10.7(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 10 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) 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.
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(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) Seller 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 Seller with
respect to such a claim anywhere in the world.
10.8 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.
11. GENERAL PROVISIONS
11.1 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.
11.2 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 Seller 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.
Seller 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.
11.3 CONFIDENTIALITY
Between the date of this Agreement and the Closing Date, Buyer and
Seller 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.
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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.
11.4 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
(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):
Seller: Quade, Inc.
Attention: Mr. Robert Mintz
Clubroom 1384 Broadway
New York, New York 10018
Facsimile: (212) 221-7210
With Copy To: Arthur ER. Rosenberg
Gilbert, Segall and Young, LLP
430 Park Avenue
New York, New York 10022
Facsimile #: (212) 644-4051
Buyer: American Resources and Development Company
Attention: Karl Badger
102 West 500 South, Suite 318
Salt Lake City, Utah 84101
Facsimile: (801) 363-8487
11.5 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.
11.6 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.
11.7 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
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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.
11.8 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
Seller dated March 16, 1998) 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.
11.9 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.
11.10 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.
11.11 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.
11.12 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.
11.13 TIME OF ESSENCE
With regard to all dates and time periods set forth or referred to in
this Agreement, time is of the essence.
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11.14 GOVERNING LAW
This Agreement will be governed by the laws of the State of Utah
without regard to conflicts of laws principles.
11.15 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.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
Buyer: American Resources and Development Company
/s/ Will Papenfuss
- ------------------------------
(Will Papenfuss, President)
Seller:
/s/ Robert Mintz
- ------------------------------
(Robert Mintz)
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American Resources and Development Company
1997 STOCK PLAN
1. Purpose of the Plan. The purpose of the American Resources and
Development Company (ARDCO or Company) 1997 Stock Plan is to enable ARDCO to
provide an incentive to its and its subsidiaries eligible employees,
consultants, officers and Board of Directors whose present and potential
contributions are important to the continued success of the Company, to afford
these individuals the opportunity to acquire a proprietary interest in the
Company, and to enable the Company to enlist and retain in its employment the
best available talent for the successful conduct of its business. It is intended
that this purpose will be effected through the granting of (a) stock options,
(b) stock purchase rights, (c) stock appreciation rights, and (d) long-term
performance award`.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or such of its Committees as
shall be administering the Plan, in accordance with Section 5 of the Plan.
(b) "Applicable Laws" means the legal requirements relating to
the administration of stock option plans under applicable securities laws, Utah
corporate law and the Code.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a Committee appointed by the Board in
accordance with Section 5 of the Plan.
(f) "Common Stock" means the Common Stock, $.001 par value, of
the Company.
(g) "Company" means American Resources and Development Company, a
Utah corporation.
(h) "Consultant" means any person, including an advisor, engaged
by the Company or a Parent or Subsidiary to render services and who is
compensated for such services.
(i) "Continuous Status as an Employee or Consultant" means that
the employment or consulting relationship is not interrupted or terminated by
the Company, any Parent or Subsidiary. Continuous Status as an Employee or
Consultant shall not be considered interrupted in the case of: (i) any leave of
absence approved by the Board, including sick leave, military leave, or any
other personal leave; provided, however, that for purposes of Incentive Stock
Options, any such leave may not exceed ninety (90) days, unless reemployment
upon the expiration of such leave is guaranteed by contract (including certain
Company policies) or statute; or (ii) transfers between locations of the Company
or between the Company, its Parent, its Subsidiaries or its successor.
(j) "Director" means a member of the Board.
(k) "Disability" means total and permanent disability as defined
in Section 22(e)(3) of the Code.
(l) "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
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(n) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
National Market System of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, the Fair Market Value of a Share of
Common Stock shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such system or exchange (or the
exchange with the greatest volume of trading in Common Stock) on the last market
trading day prior to the day of determination, as reported in The Wall Street
Journal or such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System
(but not on the National Market System thereof) or is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the last market trading day prior
to the day of determination,as reported in The Wall Street Journal or such other
source as the Administrator deems reliable;
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(o) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
(p) "Long-Term Performance Award" means an award under Section9
below. A Long-Term Performance Award shall permit the recipient to receive a
cash or stock bonus (as determined by the Administrator) upon satisfaction of
such performance factors as are set out in the recipient's individual grant.
Long-term Performance Awards will be based upon the achievement of
Company,Subsidiary and/or individual performance factors or upon such other
criteria asthe Administrator may deem appropriate.
(q) "Long-Term Performance Award Agreement" means a written
agreement between the Company and an Optionee evidencing the terms and
conditions of an individual Long-Term Performance Award grant. The Long-Term
Performance Award Agreement is subject to the terms and conditions of the Plan.
(r) "Nonstatutory Stock Option" means any Option that is not an
Incentive Stock Option.
(s) "Notice of Grant" means a written notice evidencing certain
terms and conditions of an individual Option, Stock Purchase Right, SAR or
Long-Term Performance Award grant. The Notice of Grant is part of the Option
Agreement, the SAR Agreement and the Long-Term Performance Award Agreement.
(t) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(u) "Option" means a stock option granted pursuant to the Plan.
(v) "Option Agreement" means a written agreement between the
Company and an Optionee evidencing the terms and conditions of an individual
Option grant. The Option Agreement is subject to the terms and conditions of the
Plan.
(w) "Option Exchange Program" means a program whereby outstanding
options are surrendered in exchange for options with a lower exercise price.
(x) "Optioned Stock" means the Common Stock subject to an Option
or Right.
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(y) "Optionee" means an Employee or Consultant who holds an
outstanding Option or Right.
(z) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(aa) "Plan" means this 1997 Stock Plan.
(bb) "Restricted Stock" means shares of Common Stock subject to a
Restricted Stock Purchase Agreement acquired pursuant to a grant of Stock
Purchase Rights under Section 8 below.
(cc) "Restricted Stock Purchase Agreement" means a written
agreement between the Company and the Optionee evidencing the terms and
restrictions applying to stock purchased under a Stock Purchase Right. The
Restricted Stock Purchase Agreement is subject to the terms and conditions of
the Plan and the Notice of Grant.
(dd) "Right" means and includes SARs, Long-Term Performance
awards and Stock Purchase Rights granted pursuant to the Plan.
(ee) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor rule thereto, as in effect when discretion is being exercised with
respect to the Plan.
(ff) "SAR" means a stock appreciation right granted pursuant to
Section 7 of the Plan.
(gg) "SAR Agreement" means a written agreement between the
Company and an Optionee evidencing the terms and conditions of an individual SAR
grant. The SAR Agreement is subject to the terms and conditions of the Plan.
(hh) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(ii) "Stock Purchase Right" means the right to purchase Common
Stock pursuant to Section 8 of the Plan, as evidenced by a Notice of Grant.
(jj) "Subsidiary" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. Eligibility. Nonstatutory Stock Options and Rights may be granted to
Employees and Consultants. Incentive Stock Options may be granted only to
Employees. If otherwise eligible, an Employee or Consultant who has been granted
an Option or Right may be granted additional Options or Rights.
4. Stock Subject to the Plan. The total number of Shares reserved and
available for issuance under the Plan is 500,000 Shares. If any Shares that have
been optioned under an Option cease to be subject to such Option (other than
through exercise of the Option), or if any Option or Right granted hereunder is
forfeited, or any such award otherwise terminates prior to the issuance of
Common Stock to the participant, the Shares that were subject to such Option or
Right shall again be available for distribution in connection with future Option
or right grants under the Plan. In addition, Shares that have been subject to
SARs exercised for cash, whether granted in connection with or independently of
options, shall again be available for distribution under the Plan. Shares that
have actually been issued under the Plan, whether upon exercise of an Option or
Right, shall ot in any event be returned to the Plan and shall not become
available for future distribution under the Plan, except that if Shares of
Restricted Stock were repurchased by the Company at their original purchase
price, and the original purchaser of such Shares did not receive any benefits of
ownership of such Shares, such Shares shall become available for future grant
under the Plan. For purposes of the preceding sentence, voting rights shall not
be considered a benefit of Share ownership.
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5. Administration.
(a) Composition of Administrator.
(i) Multiple Administrative Bodies. If permitted by
Rule 16b-3 and Applicable Laws, the Plan may (but need not) be administered by
different administrative bodies with respect to (A) Directors who are employees,
(B) Officers who are not Directors and (C) Employees who are neither Directors
nor Officers.
(ii) Administration with respect to Directors and
Officers. With respect to grants of Options and Rights to eligible participants
who are Officers or Directors of the Company, the Plan shall be administered by
(A) the Board, if the Board may administer the Plan in compliance with Rule
16b-3 as it applies to a plan intended to qualify thereunder as a discretionary
grant or award plan, or (B) a Committee designated by the Board to administer
the Plan, which Committee shall be constituted (1) in such a manner as to permit
the Plan to comply with Rule 16b-3 as it applies to a plan intended to qualify
thereunder as a discretionary grant or award plan and (2) in such a manner as to
satisfy the Applicable Laws.
(iii) Administration with respect to Other Persons. With
respect to grants of Options to eligible participants who are neither Directors
nor Officers of the Company, the Plan shall be administered by (A) the Board or
(B) a Committee designated by the Board, which Committee shall be constituted in
such a manner as to satisfy the Applicable Laws.
(iv) General. Once a Committee has been appointed pursuant
to subsection (ii) or (iii) of this Section 5(a), such Committee shall continue
to serve in its designated capacity until otherwise directed by the Board. From
time to time the Board may increase the size of any Committee and appoint
additional members thereof, remove members (with or without cause) and appoint
new members in substitution therefor, fill vacancies (however caused) and remove
all members of a Committee and thereafter directly administer the Plan, all to
the extent permitted by the Applicable Laws and, in the case of a Committee
appointed under subsection (ii), to the extent permitted by Rule 16b-3 as it
applies to a plan intended to qualify thereunder as a discretionary grant or
award plan.
(b) Powers of the Administrator. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value of the Common
Stock, in accordance with Section 2(n) of the Plan;
(ii) to select the Consultants and Employees to whom
Options and Rights may be granted hereunder;
(iii) to determine whether and to what extent Options
and Rights or any combination thereof, are granted hereunder;
(iv) to determine the number of shares of Common Stock
to be covered by each Option and Right granted hereunder;
(v) to approve forms of agreement for use under the
Plan;
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder. Such
terms and conditions include, but are not limited to, the exercise price, the
time or times when Options or Rights may be exercised (which may be based on
performance criteria), any vesting acceleration or waiver of forfeiture
restrictions, and any restriction or limitation regarding any Option or Right or
the shares of Common Stock relating thereto, based in each case on such factors
as the Administrator, in its sole discretion, shall determine;
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(vii) to construe and interpret the terms of the Plan;
(viii) to prescribe, amend and rescind rules and
regulations relating to the Plan;
(ix) to determine whether and under what circumstances
an Option or Right may be settled in cash instead of Common Stock or Common
Stock instead of cash;
(x) to reduce the exercise price of any Option or
Right;
(xi) to modify or amend each Option or Right (subject
to Section 13 of the Plan);
(xii) to authorize any person to execute on behalf of
the Company any instrument required to effect the grant of an Option or Right
previously granted by the Administrator;
(xiii) to institute an Option Exchange Program;
(xiv) to determine the terms and restrictions applicable
to Options and Rights and any Restricted Stock; and
(xv) to make all other determinations deemed necessary
or advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Rights.
6. Duration of the Plan. The Plan shall remain in effect until
terminated by the Board under the terms of the Plan, provided that in no event
may Incentive Stock Options be granted under the Plan later than 10 years from
the date the Plan was adopted by the Board.
7. Options and SARs.
(a) Options. The Administrator, in its discretion, may grant
Options to eligible participants and shall determine whether such Options shall
be Incentive Stock Options or Nonstatutory Stock Options. Each Option shall be
evidenced by a Notice of Grant which shall expressly identify the Options as
Incentive Stock Options or as Nonstatutory Stock Options, and be in such form
and contain such provisions as the Administrator shall from time to time deem
appropriate. Without limiting the foregoing, the Administrator may at any time
authorize the Company, with the consent of the respective recipients, to issue
new Options or Rights in exchange for the surrender and cancellation of
outstanding Options or Rights. Option agreements shall contain the following
terms and conditions:
(i) Exercise Price; Number of Shares. The per Share
exercise price for the Shares issuable pursuant to an Option shall be such price
as is determined by the Administrator; provided, however, that in the case of an
Incentive Stock Option, the price shall be no less than 100% of the Fair Market
Value of the Common Stock on the date the Option is granted, subject to any
additional conditions set out in Section 7(a)(iv) below.
The Notice of Grant shall specify the number of Shares to
which it pertains.
(ii) Waiting Period and Exercise Dates. At the time an
Option is granted, the Administrator will determine the terms and conditions to
be satisfied before Shares may be purchased, including the dates on which Shares
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subject to the Option may first be purchased. The Administrator may specify
thatan Option may not be exercised until the completion of the service period
specified at the time of grant. (Any such period is referred to herein as the
"waiting period.") At the time an Option is granted, the Administrator shall fix
the period within which the Option may be exercised, which shall not be earlier
than the end of the waiting period, if any, nor, in the case of an Incentive
Stock Option, later than ten (10) years, from the date of grant.
(iii) Form of Payment. The consideration to be paid for
the Shares to be issued upon exercise of an Option, including the method
ofpayment, shall be determined by the Administrator (and, in the case of
anIncentive Stock Option, shall be determined at the time of grant) and
mayconsist entirely of:
(1) cash;
(2) check;
(3) promissory note;
(4) other Shares which (1) in the case of
Shares acquired upon exercise of an option, have been owned by the Optionee for
more than six months on the date of surrender, and (2) have a Fair Market Value
on the date of surrender not greater than the aggregate exercise price of the
Shares as to which said Option shall be exercised;
(5) delivery of a properly executed exercise
notice together with such other documentation as the Administrator and
thebroker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price;
(6) any combination of the foregoing methods
of payment; or
(7) such other consideration and method of
payment for the issuance of Shares to the extent permitted by Applicable Laws.
(iv) Special Incentive Stock Option Provisions. In addition
to the foregoing, Options granted under the Plan which are intended to be
Incentive Stock Options under Section 422 of the Code shall be subject to the
following terms and conditions:
(1) Dollar Limitation. To the extent that the
aggregate Fair Market Value of (a) the Shares with respect to which Options
designated as Incentive Stock Options plus (b) the shares of stock of the
Company, Parent and any Subsidiary with respect to which other incentive stock
options are exercisable for the first time by an Optionee during any calendar
year under all plans of the Company and any Parent and Subsidiary exceeds
$100,000, such Options shall be treated as Nonstatutory Stock Options. For
purposes of the preceding sentence, (a) Options shall be taken into account in
the order in which they were granted, and (b) the Fair Market Value of the
Shares shall be determined as of the time the Option or other incentive stock
option is granted.
(2) 10% Stockholder. If any Optionee to whom
an Incentive Stock Option is to be granted pursuant to the provisions of the
Plan is, on the date of grant, the owner of Common Stock (as determined under
Section 424(d) of the Code) possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any Parent or Subsidiary
of the Company, then the following special provisions shall be applicable to the
Option granted to such individual:
(a) The per Share Option price of Shares
subject to such Incentive Stock Option shall not be less than 110% of the Fair
Market Value of Common Stock on the date of grant; and
(b) The Option shall not have a term in
excess of ten (10) years from the date of grant. Except as modified by the
preceding provisions of this subsection 7(a)(iv) and except as otherwise limited
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by Section 422 of the Code, all of the provisions of the Plan shall be
applicable to the Incentive Stock Options granted hereunder.
(v) Other Provisions. Each Option granted under the
Plan may contain such other terms, provisions, and conditions not inconsistent
with the Plan as may be determined by the Administrator.
(vi) Buyout Provisions. The Administrator may at any
time offer to buy out for a payment in cash or Shares, an Option previously
granted, based on such terms and conditions as the Administrator shall establish
and communicate to the Optionee at the time that such offer is made.
(b) SARs.
(i) In Connection with Options. At the sole
discretion of the Administrator, SARs may be granted in connection with all or
any part of an Option, either concurrently with the grant of the Option or at
any time thereafter during the term of the Option. The following provisions
apply to SARs that are granted in connection with Options:
(1) The SAR shall entitle the Optionee to
exercise the SAR by surrendering to the Company unexercised a portion of the
related Option. The Optionee shall receive in Exchange from the Company an
amount equal to the excess of (1) the Fair Market Value on the date of exercise
of the SAR of the Common Stock covered by the surrendered portion of the related
Option over (2) the exercise price of the Common Stock covered by the
surrendered portion of the related Option. Notwithstanding the foregoing, the
Administrator may place limits on the amount that may be paid upon exercise of
an SAR; provided, however, that such limit shall not restrict the exercisability
of the related Option.
(2) When an SAR is exercised, the related
Option, to the extent surrendered, shall cease to be exercisable.
(3) An SAR shall be exercisable only when and
to the extent that the related Option is exercisable and shall expire no later
than the date on which the related Option expires.
(4) An SAR may only be exercised at a time
when the Fair Market Value of the Common Stock covered by the related Option
exceeds the exercise price of the Common Stock covered by the related Option.
(ii) Independent of Options. At the sole discretion of the
Administrator, SARs may be granted without related Options. The following
provisions apply to SARs that are not granted in connection with Options:
(1) The SAR shall entitle the Optionee, by
exercising the SAR, to receive from the Company an amount equal to the excess of
(1) the Fair Market Value of the Common Stock covered by the exercised portion
of the SAR, as of the date of such exercise, over (2) the Fair Market Value of
the Common Stock covered by the exercised portion of the SAR, as of the last
market trading date prior to the date on which the SAR was granted; provided,
however, that the Administrator may place limits on the aggregate amount that
may be paid upon exercise of an SAR.
(2) SARs shall be exercisable, in whole or in
part, at such times as the Administrator shall specify in the Optionee's SAR
agreement.
(iii) Form of Payment. The Company's obligation arising
upon the exercise of an SAR may be paid in Common Stock or in cash, or in any
combination of Common Stock and cash, as the Administrator, in its sole
discretion, may determine. Shares issued upon the exercise of an SAR shall be
valued at their Fair Market Value as of the date of exercise.
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(c) Performance-Based Compensation Limitations. No Employee shall
be granted, in any fiscal year of the Company, Options or SARs to receive more
than 500,000 Shares of Common Stock, provided that the Company may make an
additional one-time grant of up to 1,000,000 Shares to newly-hired Employees.
The foregoing limitations shall adjust proportionately in connection with any
change in the Company's recapitalization as described in Section 11(a).
(d) Method of Exercise.
(i) Procedure for Exercise; Rights as a Stockholder.
Any Option or SAR granted hereunder shall be exercisable at such times and under
such conditions as determined by the Administrator and as shall be permissible
under the terms of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option or SAR shall be deemed to be exercised when
written notice of such exercise has been given to the Company in accordance with
the terms of the Option or SAR by the person entitled to exercise the Option or
SAR and full payment for the Shares with respect to which the Option is
exercised has been received by the Company. Full payment may, as authorized by
the Administrator (and, in the case of an Incentive Stock Option, determined at
the time of grant) and permitted by the Option Agreement consist of any
consideration and method of payment allowable under subsection 7(a)(iii) of
thePlan. Until the issuance (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company) of the
stock certificate evidencing such Shares, no right to vote or receive dividends
or any other rights as a stockholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. No adjustment will be made
for a dividend or other right for which the record date is prior to the date the
stock certificate is issued, except as provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a
decrease in the number of Shares which thereafter shall be available, both for
purposes of the Plan and for sale under the Option, by the number of Shares as
to which the Option is exercised. Exercise of an SAR in any manner shall, to the
extent the SAR is exercised, result in a decrease in the number of Shares which
thereafter shall be available for purposes of the Plan, and the SAR shall cease
to be exercisable to the extent it has been exercised.
(ii) Rule 16b-3. Options and SARs granted to
individuals subject to Section 16 of the Exchange Act ("Insiders") must comply
with the applicable provisions of Rule 16b-3 and shall contain such additional
conditions or restrictions as may be required thereunder to qualify for the
maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
(iii) Termination of Employment or Consulting
Relationship. In the event an Optionee's Continuous Status as an Employee or
Consultant terminates (other than upon the Optionee's death or Disability), the
Optionee may exercise his or her Option or SAR, but only within such period of
time as is determined by the Administrator at the time of grant, not to exceed
six (6) months (three (3) months in the case of an Incentive Stock Option) from
the date of such termination, and only to the extent that the Optionee was
entitled to exercise it at the date of such termination (but in no event later
than the expiration of the term of such Option or SAR as set forth in the Option
or SAR Agreement). To the extent that Optionee was not entitled to exercise an
Option or SAR at the date of such termination, and to the extent that the
Optionee does not exercise such Option or SAR (to the extent otherwise so
entitled) within the time specified herein, the Option or SAR shall terminate.
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(iv) Disability of Optionee. In the event an Optionee's
Continuous Status as an Employee or Consultant terminates as a result of the
Optionee's Disability, the Optionee may exercise his or her Option or SAR, but
only within twelve (12) months from the date of such termination, and only to
the extent that the Optionee was entitled to exercise it at the date of such
termination (but in no event later than the expiration of the term of such
Option or SAR as set forth in the Option or SAR Agreement). To the extent that
Optionee was not entitled to exercise an Option or SAR at the date of such
termination, and to the extent that the Optionee does not exercise such Option
or SAR (to the extent otherwise so entitled) within the time specified herein,
the Option or SAR shall terminate.
(v) Death of Optionee. In the event of an Optionee's
death, the Optionee's estate or a person who acquired the right to exercise the
deceased Optionee's Option or SAR by bequest or inheritance may exercise the
Option or SAR, but only within twelve (12) months following the date of death,
and only to the extent that the Optionee was entitled to exercise it at the date
of death (but in no event later than the expiration of the term of such Option
or SAR as set forth in the Option or SAR Agreement). To the extent that Optionee
was not entitled to exercise an Option or SAR at the date of death, and to the
extent that the Optionee's estate or a person who acquired the right to exercise
such Option does not exercise such Option or SAR (to the extent otherwise so
entitled) within the time specified herein, the Option or SAR shall terminate.
8. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing of the terms, conditions and restrictions related
to the offer, including the number of Shares that the offeree shall be entitled
to purchase, the price to be paid, and the time within which the offeree must
accept such offer, which shall in no event exceed thirty (30) days from the date
upon which the Administrator made the determination to grant the Stock Purchase
Right. The offer shall be accepted by execution of a Restricted Stock Purchase
Agreement in the form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's employment with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine.
(c) Other Provisions. The Restricted Stock Purchase Agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock Purchase Agreements need not be the
same with respect to each purchaser.
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(d) Rule 16b-3. Stock Purchase Rights granted to Insiders, and
Shares purchased by Insiders in connection with Stock Purchase Rights, shall be
subject to any restrictions applicable thereto in compliance with Rule 16b-3. An
Insider may only purchase Shares pursuant to the grant of a Stock Purchase
Right, and may only sell Shares purchased pursuant to the grant of a Stock
Purchase Right, during such time or times as are permitted by Rule 16b-3.
(e) Rights as a Stockholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
stockholder, and shall be a stockholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 11
of the Plan.
(f) Withholding Taxes. In accordance with any applicable
administrative guidelines it establishes, the Committee may allow a purchaser to
pay the amount of taxes required by law to be withheld as a result of a purchase
of Shares or a lapse of restrictions in connection with Shares purchased
pursuant to a Stock Purchase Right, by withholding from any payment of Common
Stock due as a result of such purchase or lapse of restrictions, or by
permitting the purchaser to deliver to the Company, Shares having a Fair Market
Value, as determined by the Committee, equal to the amount of such required
withholding taxes.
9. Long-Term Performance Awards.
(a) Administration. Long-Term Performance Awards are cash or
stock bonus awards that may be granted either alone or in addition to other
awards granted under the Plan. Such awards shall be granted for no cash
consideration. The Administrator shall determine the nature, length and starting
date of any performance period (the "Performance Period") for each Long-Term
Performance Award, and shall determine the performance or employment factors, if
any, to be used in the determination of Long-Term Performance Awards and the
extent to which such Long-Term Performance Awards are valued or have been
earned. Long-Term Performance Awards may vary from participant to participant
and between groups of participants and shall be based upon the achievement of
Company, Subsidiary, Parent and/or individual performance factors or upon such
other criteria as the Administrator may deem appropriate. Performance Periods
may overlap and participants may participate simultaneously with respect to
Long-Term Performance Awards that are subject to different Performance Periods
and different performance factors and criteria. Long-Term Performance Awards
shall be confirmed by, and be subject to the terms of, a Long-Term Performance
Award agreement. The terms of such awards need not be the same with respect to
each participant.
At the beginning of each Performance Period, the Administrator
may determine for each Long-Term Performance Award subject to such Performance
Period the range of dollar values or number of shares of Common Stock to be
awarded to the participant at the end of the Performance Period if and to the
extent that the relevant measures of performance for such Long-Term Performance
Award are met. Such dollar values or number of shares of Common Stock may be
fixed or may vary in accordance with such performance or other criteria as may
be determined by the Administrator.
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(b) Adjustment of Awards. The Administrator may adjust the
performance factors applicable to the Long-Term Performance Awards to take into
account changes in legal, accounting and tax rules and to make such adjustments
as the Administrator deems necessary or appropriate to reflect the inclusion or
exclusion of the impact of extraordinary or unusual items, events or
circumstances in order to avoid windfalls or hardships.
10. Non-Transferability of Options. Options and Rights may not be sold,
pledged, assigned, hypothecated, transferred or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee.
11. Adjustments Upon Changes in Capitalization, Dissolution, Merger,
Asset Sale or Change of Control.
(a) Changes in Capitalization. Subject to any required action by
the stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Right, and the number of shares of Common Stock
which have been authorized for issuance under the Plan but as to which no
Options or Rights have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option or Right, as well as the price per
share of Common Stock covered by each such outstanding Option or Right, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to an
Option or Right.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option or Right
has not been previously exercised, it will terminate immediately prior to the
consummation of such proposed action. The Board may, in the exercise of its sole
discretion in such instances, declare that any Option or Right shall terminate
as of a date fixed by the Board and give each Optionee the right to exercise his
or her Option or Right as to all or any part of the Optioned Stock, including
Shares as to which the Option or Right would not otherwise be exercisable.
(c) Merger or Asset Sale. Subject to the provisions of paragraph
(d) hereof, in the event of a merger of the Company with or into another
corporation, or the sale of substantially all of the assets of the Company, each
outstanding Option and Right shall be assumed or an equivalent Option or Right
substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. In the event that the successor corporation does not
agree to assume the Option or to substitute an equivalent option, the
Administrator shall, in lieu of such assumption or substitution, provide for the
Optionee to have the right to exercise the Option or Right as to all or a
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portion of the Optioned Stock, including Shares as to which it would not
otherwise be exercisable. If the Administrator makes an Option or Right
exercisable in lieu of assump tion or substitution in the event of a merger or
sale of assets, the Administrator shall notify the Optionee that the Option or
Right shall be exercisable for a period of fifteen (15) days from the date of
such notice, and the Option or Right will terminate upon the expiration of such
period. For the purposes of this paragraph, the Option or Right shall be
considered assumed if, immediately following the merger or sale of assets, the
Option or Right confers the right to purchase, for each Share of Optioned Stock
subject to the Option or Right immediately prior to the merger or sale of
assets, the consideration (whether stock, cash, or other securities or property)
received in the merger or sale of assets by holders of Common Stock for each
Share held on the effective date of the transaction (and if holders were offered
a choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares); provided, however, that if such
consideration received in the merger or sale of assets was not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation and the participant, provide for the
consideration to be received upon the exercise of the Option or Right, for each
Share of Optioned Stock subject to the Option or Right, to be solely common
stock of the successor corporation or its Parent equal in Fair Market Value to
the per share consideration received by holders of Common Stock in the merger or
sale of assets.
(d) Change in Control. In the event of a "Change in Control" of
the Company, as defined in paragraph (e) below, then the following acceleration
and valuation provisions shall apply:
(i) Except as otherwise determined by the Board, in
its discretion, prior to the occurrence of a Change in Control, any Options and
Rights outstanding on the date such Change in Control is determined to have
occurred that are not yet exercisable and vested on such date shall become fully
exercisable and vested;
(ii) Except as otherwise determined by the Board, in
its discretion, prior to the occurrence of a Change in Control, all outstanding
Options and Rights, to the extent they are exercisable and vested (including
Options and Rights that shall become exercisable and vested pursuant to
subparagraph (i) above), shall be terminated in exchange for a cash payment
equal to the Change in Control Price, (reduced by the exercise price, if any,
applicable to such Options or Rights). These cash proceeds shall be paid to the
Optionee or, in the event of death of an Optionee prior to payment, to the
estate of the Optionee or to a person who acquired the right to exercise the
Option or Right by bequest or inheritance.
(e) Definition of "Change in Control". For purposes of this
Section 11, a "Change in Control" means the happening of any of the following:
(i) When any "person," as such term is used in
Sections 13(d) and 14(d) of the Exchange Act (other than the Company, a
Subsidiary or a Company employee benefit plan, including any trustee of such
plan acting as trustee) is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing fifty percent (50%) or more of the combined voting power of
the Company's then outstanding securities entitled to vote generally in the
election of directors; or
12
<PAGE>
(ii) The stockholders of the Company approve a merger
or consolidation of the Company with any other corporation, other than a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve an agreement for the sale or disposition by the Company
of all or substantially all the Company's assets; or
(iii) A change in the composition of the Board of
Directors of the Company, as a result of which fewer than a majority of the
directors are Incumbent Directors. "Incumbent Directors" shall mean directors
who either (A) are directors of the Company as of the date the Plan is approved
by the stockholders, or (B) are elected, or nominated for election, to the Board
of Directors of the Company with the affirmative votes of at least a majority of
the Incumbent Directors at the time of such election or nomination (but shall
not include an individual whose election or nomination is in connection with an
actual or threatened proxy contest relating to the election of directors to the
Company).
(f) Change in Control Price. For purposes of this Section 11,
"Change in Control Price" shall be, as determined by the Board, (i) the highest
Fair Market Value of a Share within the 60-day period immediately preceding the
date of determination of the Change in Control Price by the Board (the "60-Day
Period"), or (ii) the highest price paid or offered per Share, as determined by
the Board, in any bona fide transaction or bona fide offer related to the Change
in Control of the Company, at any time within the 60-Day Period, or (iii) such
lower price as the Board, in its discretion, determines to be a reasonable
estimate of the fair market value of a Share.
12. Date of Grant. The date of grant of an Option or Right shall be, for
all purposes, the date on which the Administrator makes the determination
granting such Option or Right, or such other later date as is determined by the
Administrator. Notice of the determination shall be provided to each Optionee
within a reasonable time after the date of such grant.
13. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) Stockholder Approval. The Company shall obtain stockholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Rule 16b-3 or with Section 422 of the Code (or any successor rule or
statute or other applicable law, rule or regulation, including the requirements
of any exchange or quotation system on which the Common Stock is listed or
quoted). Such stockholder approval, if required, shall be obtained in such a
manner and to such a degree as is required by the applicable law, rule or
regulation.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
13
<PAGE>
14. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option or Right unless the exercise of such Option or Right and
the issuance and delivery of such Shares shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated thereunder,
Applicable Laws, and the requirements of any stock exchange or quotation system
upon which the Shares may then be listed or quoted, and shall be further subject
to the approval of counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of
an Option or Right, the Company may require the person exercising such Option or
Right to represent and warrant at the time of any such exercise that the Shares
are being purchased only for investment and without any present intention to
sell or distribute such Shares if, in the opinion of counsel for the Company,
such a representation is required.
15. Liability of Company.
(a) Inability to Obtain Authority. The inability of the Company
to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
(b) Grants Exceeding Allotted Shares. If the Optioned Stock
covered by an Option or Right exceeds, as of the date of grant, the number of
Shares which may be issued under the Plan without additional stockholder
approval, such Option or Right shall be void with respect to such excess
Optioned Stock, unless stockholder approval of an amendment sufficiently
increasing the number of Shares subject to the Plan is timely obtained in
accordance with Section 13(b) of the Plan.
16. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
17. Stockholder Approval. Continuance of the Plan shall be subject to
approval by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such stockholder approval shall be obtained
in the manner and to the degree required under applicable federal and state law.
14
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY
1997 STOCK PLAN
NONSTATUTORY STOCK OPTION
EXERCISE NOTICE
American Resources and Development Company
Attention: Shareholder Services Department
1. Exercise of Option. Effective as of today, , 199 , the undersigned
("Purchaser") hereby elects to purchase shares (the "Shares") of the Common
Stock of American Resources and Development Company (the "Company") under and
pursuant to the American Resources and Development Company 1997 Stock Plan (the
"Plan") and the Stock Option Agreement dated (the "Option Agreement").
2. Delivery of Payment. Purchaser herewith delivers to the Company the full
purchase price for the Shares and any and all required taxes.
3. Representations of Purchaser. Purchaser acknowledges that Purchaser has
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
4. Rights as Stockholder. Subject to the terms and conditions of this
Agreement, Purchaser shall have all of the rights of a stockholder of the
Company with respect to the Shares from and after the date the stock certificate
evidencing such Shares is issued, as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company.
5. Tax Consultation. Purchaser understands that Purchaser may suffer adverse
tax consequences as a result of Purchaser's purchase or disposition of the
Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
6. Entire Agreement; Governing Law. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties and supersede in their
entirety all prior undertakings and agreements of the Company and Purchaser with
respect to the subject matter hereof, and such agreement is governed by Delaware
law except for that body of law pertaining to conflict of laws.
Submitted by: Accepted by: AMERICAN RESOURCES AND
DEVELOPMENT COMPANY
By:
- ---------------------------- ----------------------------
Signature of Purchaser
Title:
- ---------------------------- -------------------------
Printed Name
- ----------------------------
Social Security Number
Mailing Address:
- ----------------------------
- ----------------------------
15
<PAGE>
AMERICAN RESOURCES AND DEVELOPMENT COMPANY 1997 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the American
Resources and Development Company 1997 Stock Plan (the "Plan") shall have the
same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
Employee ID:
----------------------
Name:
----------------------
Address:
----------------------
----------------------
----------------------
----------------------
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number:
---------------------------
Date of Grant:
---------------------------
Exercise Price per Share:
---------------------------
Total Number of Shares Granted:
---------------------------
Type of Option:
---------------------------
Term/Expiration Date:
---------------------------
Vesting Schedule: This Option will vest over four (4) years with 25%
vesting one year from grant date and thereafter 6.25% per quarter.
Termination Period: This Option may be exercised for 60 days after
termination of Optionee's employment or consulting relationship, or such
longer period as may be applicable upon death or Disability of Optionee
as provided in the Plan, but in no event later than the Term/Expiration
Date as provided above.
II. AGREEMENT
1. Grant of Option. The Plan Administrator of the Company hereby grants
to the Optionee named in the Notice of Grant attached as Part I of this
Agreement (the "Optionee") an option (the "Option") to purchase the number of
Shares set forth in the Notice of Grant at the exercise price per share set
forth in the Notice of Grant (the "Exercise Price"), subject to the terms and
conditions of the American Resources and Development Company 1997 Stock Plan,
which is incorporated herein by reference. Subject to Section 13(c) of the Plan,
in the event of a conflict between the terms and conditions of the Plan and the
terms and conditions of this Option Agreement, the terms and conditions of the
Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option, this
Option is intended to qualify as an Incentive Stock Option under Section 422 of
the Code.
16
<PAGE>
2. Exercise of Option.
(a) Right to Exercise. This Option is exercisable during its term
in accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement. In the event of
Optionee's death, Disability or other termination of Optionee's employment or
consulting relationship, the exercisability of the Option is governed by the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of
an exercise notice in the form attached as Exhibit A (the "Exercise Notice")
which shall state the election to exercise the Option, the number of Shares as
to which the Option is being exercised (the "Exercised Shares") and such other
representations and agreements as may be required by the Company pursuant to the
provisions of the Plan. The Exercise Notice shall be signed by the Optionee and
shall be delivered in person or by certified mail to the Shareholder Services
Department of the Company. The Exercise Notice shall be accompanied by payment
of the aggregate Exercise Price as to all Exercised Shares. This Option shall be
deemed to be exercised upon receipt by the Company of such fully executed
Exercise Notice accompanied by such aggregate Exercise Price and any required
withholding tax.
No Shares shall be issued pursuant to the exercise of this Option unless
such issuance and exercise complies with all relevant provisions of law and the
requirements of any stock exchange upon which the Shares are then listed.
Assuming such compliance, for income tax purposes the Exercised Shares shall be
considered transferred to the Optionee on the date the Option is exercised with
respect to such Exercised Shares.
3. Method of Payment. Payment of the aggregate Exercise Price shall be
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash; or
(b) check; or
(c) delivery of a properly executed Exercise Notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price; or
(d) surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii)have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares.
4. Non-Transferability of Option. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee. The terms
of the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
5. Term of Option. This Option will expire ten (10) years from the date
of its grant.
6. Tax Consequences. Some of the federal tax consequences relating to
this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES.
(a) Exercising the Option.
17
<PAGE>
(i) Nonqualified Stock Option ("NSO"). If this Option
does not qualify as an ISO, the Optionee may incur regular federal income tax
liability upon exercise. The Optionee will be treated as having received
compensation income (taxable at ordinary income tax rates) equal to the excess,
if any, of the fair market value of the Exercised Shares on the date of exercise
over their aggregate Exercise Price. If the Optionee is an employee or a former
employee, the Company will be required to withhold from his or her compensation
or collect from Optionee and pay to the applicable taxing authorities an amount
equal to a percentage of this compensation income at the time of exercise.
(ii) Incentive Stock Option ("ISO"). If this Option
qualifies as an ISO, the Optionee will have no regular federal income tax
liability upon its exercise, although the excess, if any, of the fair market
value of the Exercised Shares on the date of exercise over their aggregate
Exercise Price will be treated as an adjustment to the alternative minimum tax
for federal tax purposes and may subject the Optionee to alternative minimum tax
in the year of exercise.
(b) Disposition of Shares.
(i) NSO. If the Optionee holds NSO Shares for at least
one year, any gain realized on disposition of the Shares will be treated as
long-term capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at least
one year after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the fair market value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price.
(c) Notice of Disqualifying Disposition of ISO Shares. If the
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (i) two years after the grant date, or (ii) one
year after the exercise date, the Optionee shall immediately notify the Company
in writing of such disposition. The Optionee agrees that he or she may be
subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and governed
by the terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. It is agreed that this Option Agreement shall be
interpreted and construed in accordance with the laws of that jurisdiction in
which enforcement is sought. Should any portion of this Agreement be judicially
held to be invalid, unenforceable or void, such holding shall not have the
effect of invalidating the remainder of this Agreement or any other part
thereof, the parties hereby agreeing that the portion so held to be invalid,
unenforceable, or void shall, if possible, be deemed amended or reduced in
scope. This Option Agreement shall supersede the terms of any prior agreement or
understanding between Optionee and the Company regarding the subject matter
hereof, and constitutes the full and entire understanding and agreement between
Optionee and the Company regarding the subject matter hereof. This Option
Agreement may be modified or amended only in writing signed by an officer of the
Company and by Optionee. Optionee agrees and acknowledges the Company's "at
will" employment policy, which is that the Company reserves the right to
discontinue Optionee's employment at any time for any reason or no reason
without notice, and that the Company accords Optionee the right to discontinue
employment at any time for any reason or no reason without notice. The Company
18
<PAGE>
agrees and acknowledges that it's "at will" employment policy may not be
enforceable in the jurisdiction in which Optionee is domiciled. Optionee agrees
that nothing in this Agreement shall be construed as a limitation of the rights
of the Company to terminate Optionee's employment with the Company at any time
for any reason or no reason without notice.
OPTIONEE: AMERICAN RESOURCES AND DEVELOPMENT COMPANY:
AGREEMENT
THIS AGREEMENT is entered into this ___ day of June, 1998, between
George H. Badger with offices at 550 Northmont Way, Salt Lake City, UT 84103
(herein referred to as "Badger"), and American Resources & Development Company,
whose office is at 102 West 500 South, Suite 318, Salt Lake City, UT 84101
(herein referred to as "ARDCO").
WITNESSETH:
WHEREAS, Badger is aware, of financing opportunities that may be of
interest to ARDCO; and
WHEREAS, ARDCO desires to be put in contact with such persons and/or
companies;
NOW, THEREFORE, in consideration of the foregoing premises, the
agreements, covenants and promises set forth herein and other good and valuable
consideration the receipt and sufficiency of which are hereby acknowledged, the
undersigned parties hereby agree as follows:
1. Whenever Badger refers a prospect to ARDCO, Badger shall give ARDCO as much
preliminary information as is reasonably available to Badger about the prospect.
After reviewing such preliminary information furnished by Badger, ARDCO shall
advise Badger as to whether or not it intends to pursue the prospect.
2. In the event Badger refers ARDCO or its agents and/or others within the ARDCO
organization that results in any business being transacted between the Badger
referral and ARDCO or any of its company's or affiliates; Badger, or his
assignees will be paid the following transaction fee based on the amount
invested and/or loaned and/or from the profits derived from the transaction:
5% of the first $1 million (or less), plus 4% of the second
million (or fraction), plus 3% of the third million (or
fraction), plus 2% of the fourth million (or fraction), plus
1.5% of the amount in excess of $4 million.
3. The transaction fee shall be paid at the time of closing of any particular
transaction except that portion that may be related to deferred profits, and
will be paid as those profits are earned. ARDCO hereby assigns to Badger a
portion of the proceeds of any transaction equal to the fee payable to Badger,
and hereby authorizes and directs that said fee be paid directly to Badger from
the proceeds at the time of closing or payment.
4. ARDCO acknowledges and agrees that Badger has a proprietary interest in all
of the introductions and / or arrangements he makes; therefore, for a period of
36 months from the date ARDCO notifies Badger that it is no longer pursuing any
<PAGE>
particular referral prospect and / or investment or joint venture opportunity;
and, should anything develop with said referral within the 36 month period,
ARDCO agrees to pay or cause to be paid to Badger and / or his assigns the
transaction fees set forth in paragraph two.
5. ARDCO further agrees that it will not circumvent Badger in the pursuit,
development, investment, acquisition, merger, or joint venture of any prospect
referred to it, and should it do so ARDCO will pay or cause to be paid to Badger
the transaction fees set forth in paragraph two. ARDCO's obligations with
respect to non-circumvention and non-disclosure of contacts referred by Badger
shall survive the termination of this Agreement for at least 24 months.
6. This agreement shall be governed by the laws of the state of Utah. All
litigation pertaining to this agreement shall be only in the Courts of the State
of Utah, and ARDCO hereby consents that the Utah Courts shall have personal
jurisdiction over him in such litigation.. Any defaulting party agrees to pay
all costs of enforcement, including a reasonable attorney's fee. If any
provision or term of this Agreement shall be found by the action of any court of
competent jurisdiction to be void or unenforceable, the remaining provisions of
this Agreement shall remain in full force and effect as if such void or
unenforceable provision or term had not been a part hereof.
7. This Agreement constitutes the entire agreement between the Parties and
supersedes any and all oral or written promises, understandings, proposals or
communications, except as may be expressly incorporated herein; and the Parties
hereto have made no representations, warranties or promises one to the other
except as expressly contained herein.
THIS AGREEMENT shall inure to the benefit of and be binding upon the Parties
hereto and their respective heirs, executors, administrators, successors and
assignees.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
effective on the date first above written.
AMERICAN RESOURCES & DEVELOPMENT COMPANY
/s/ Karl F. Badger
------------------------------
By: Karl F. Badger, President
ATTEST:
- ------------------------
Secretary,
/s/ George H. Badger
------------------------
George H. Badger
INDEPENDENT AUDITORS' REPORT
Shareholders and Board of Directors
Print Works, Inc.
Salt Lake City, Utah
We have audited the statement of operations of Print Works, Inc. for the year
ended March 31, 1998. This financial statement is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the results of operations of Print Works, Inc. for the
year ended March 31, 1998 in conformity with generally accepted accounting
principles.
Jones, Jensen & Company
Salt Lake City, Utah
July 13, 1998
July 31, 1998
Shareholders and Board of Directors
American Resources and Development Company
Salt Lake City, Utah
We hereby consent to the incorporation of our audit report dated July 13, 1998
by reference in the Form 10-KSB of American Resources and Development Company.
Jones, Jensen & Company
Salt Lake City, Utah
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 14,663
<SECURITIES> 622,182
<RECEIVABLES> 221,875
<ALLOWANCES> 0
<INVENTORY> 437,003
<CURRENT-ASSETS> 1,340,605
<PP&E> 1,242,823
<DEPRECIATION> 118,889
<TOTAL-ASSETS> 5,436,635
<CURRENT-LIABILITIES> 1,989,745
<BONDS> 0
0
245
<COMMON> 2,929
<OTHER-SE> 1,307,280
<TOTAL-LIABILITY-AND-EQUITY> 5,436,635
<SALES> 1,093,110
<TOTAL-REVENUES> 1,093,110
<CGS> 774,405
<TOTAL-COSTS> 3,103,476
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (133,339)
<INCOME-PRETAX> (1,988,407)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,988,407)
<DISCONTINUED> 1,547,659
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (440,748)
<EPS-PRIMARY> (0.24)
<EPS-DILUTED> (0.24)
</TABLE>
