SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For fiscal year ended December 31, 1999
Commission file number 0-18389
WORLD WIDE STONE CORPORATION
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(Exact Name of Small Business Issuer in Its Charter)
NEVADA 33-0297934
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5236 South 40th Street, Phoenix, Arizona 85040 (602) 438-1001
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(Address, including zip code, and telephone number, including area code, of
issuer's executive offices)
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, par value $.001 per share
Preferred Stock, par value $.001 per share
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 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 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 revenue for its most recent fiscal year: $6,567,106.
As of March 20, 2000, there were outstanding 33,253,768 shares of the issuer's
common stock, par value $.001 per share. There are no shares of the issuer's
preferred stock outstanding. The aggregate market value of common stock held by
nonaffiliates of the issuer (9,722,323 shares) based on the closing price of the
registrant's common stock as reported in the National Quotation Bureau's "Pink
Sheets" on March 20, 2000, was $2,430,581. For purposes of this computation, all
executive officers, directors, and 10% beneficial owners of the registrant are
deemed to be affiliates. Such determination should not be deemed an admission
that such officers, directors, or 10% beneficial owners are, in fact, affiliates
of the registrant.
Documents incorporated by reference: None.
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WORLD WIDE STONE CORPORATION
ANNUAL REPORT ON FORM 10-KSB
FISCAL YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
PAGE
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PART I
ITEM 1. DESCRIPTION OF BUSINESS......................................... 1
ITEM 2. DESCRIPTION OF PROPERTY......................................... 14
ITEM 3. LEGAL PROCEEDINGS............................................... 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............. 14
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS........ 15
ITEM 6. SELECTED FINANCIAL DATA; MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS.... 16
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................... 19
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE........................... 19
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT............. 20
ITEM 10. EXECUTIVE COMPENSATION......................................... 21
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT............................................... 24
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................. 24
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K............................... 25
SIGNATURES ................................................................. 26
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.................................. F-1
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STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
THE STATEMENTS CONTAINED IN THIS REPORT ON FORM 10-KSB THAT ARE NOT PURELY
HISTORICAL ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF
1934, INCLUDING STATEMENTS REGARDING OUR "EXPECTATIONS," "ANTICIPATION,"
"INTENTIONS," "BELIEFS," OR "STRATEGIES" REGARDING THE FUTURE. FORWARD-LOOKING
STATEMENTS INCLUDE STATEMENTS REGARDING REVENUE, MARGINS, EXPENSES, AND EARNINGS
ANALYSIS FOR FISCAL 2000 AND THEREAFTER; FUTURE PRODUCTS OR PRODUCT DEVELOPMENT
EFFORTS; SPENDING FOR ACQUISITIONS OF ADDITIONAL EQUIPMENT OR EXPANSION OF
PRODUCTION FACILITIES; MARKETS FOR OUR PRODUCTS AND THE DIMENSIONAL STONE
INDUSTRY IN GENERAL; AND LIQUIDITY AND ANTICIPATED CASH NEEDS AND AVAILABILITY.
ALL FORWARD-LOOKING STATEMENTS INCLUDED IN THIS REPORT ARE BASED ON INFORMATION
AVAILABLE TO US AS OF THE FILING DATE OF THIS REPORT, AND WE ASSUME NO
OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS. IT IS IMPORTANT TO
NOTE THAT OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE IN THE
FORWARD-LOOKING STATEMENTS. AMONG THE FACTORS THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY ARE THE FACTORS DISCUSSED IN ITEM 1, "SPECIAL CONSIDERATIONS."
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
We quarry, manufacture, and market a wide variety of dimensional stone
products. Dimensional stone products consist of natural stone that is cut to
standard sizes or to sizes specified in architectural designs. Our products are
used for both interior and exterior applications in residential and commercial
buildings, primarily as
* floor, wall, and patio tiles;
* decorative trim and architectural accents;
* countertops and tabletops; and
* panels.
We market and distribute our products throughout the United States primarily on
a wholesale basis through approximately 45 authorized stocking distributors and
more than 350 wholesale distributors, as well as through architects, residential
and commercial developers, installation contractors, and designers.
Our company was originally incorporated in the state of Delaware in 1989
under the name "Tacitus Ventures, Inc." for the purpose of acquiring and
operating businesses. In November 1989, Tacitus Ventures, Inc. acquired World
Wide Stone Corporation, a privately-held Nevada corporation, and changed its
name to World Wide Stone Corporation. On November 30, 1989, we effected a change
of domicile to the state of Nevada by forming a new Nevada corporation and
dissolving the Delaware corporation. Our stone quarrying and manufacturing
operations are conducted through our wholly owned subsidiaries Cantera Stone,
Inc., a Nevada corporation; Marmoles Muguiro, S.A. de C.V., a Mexican
corporation; and Sociedad Piedra Sierra, S.A. de C.V., a Mexican corporation.
All references to our business operations include the operations of World Wide
Stone Corporation and its subsidiaries, predecessors, and operating divisions.
INDUSTRY
Stone has been used as a primary and decorative building material for
thousands of years. According to published reports, world production of stone
materials reached approximately 94.0 million tons in 1996. From January through
September 1999, approximately 55,000 tons of travertine were imported into the
United States, with a value of approximately $34.6 million. In addition,
approximately 145,550 tons of marble were imported into the United States from
January through September 1998, with a value of approximately $140.3 million.
Published reports also indicate that consumption of stone and marble is expected
to increase to 680.0 million square meters in 2000 and to almost 4.0 billion
square meters in 2025.
Published reports indicate that Italy produces the vast majority of
finished dimensional stone each year. A large proportion of current dimensional
stone industry production involves quarrying large blocks of stone and shipping
them to processing centers in Italy, Germany, Japan, Brazil, the United States,
and other countries. After processing, the finished stones are then shipped to a
final destination for installation. As a result, shipping costs and the time
factors associated with ocean transport become increasingly important factors
due to shorter building schedules and lack of advance planning by building
designers, contractors, and other consumers. The development of sophisticated,
high-capacity computer-controlled stone processing machinery in recent years has
enabled dimensional stone product manufacturers, including our company, to
increase output and control costs in spite of higher costs for transportation
and skilled workers.
PRODUCTS
We currently market a wide variety of dimensional stone products under the
"Durango Stone(TM)" brand name. We market several lines of dimensional stone
products that we produce in a variety of colors and finishes, as follows:
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* HONED AND POLISHED. We use traditional stone finishing techniques to
provide a highly polished surface to stone tiles, panels, and
countertops. We offer honed and polished dimensional stone products in
a wide variety of standard and irregular shapes and sizes, all of
which provide a highly elegant and luxurious appearance.
* DURANGO ANCIENT(TM). Instead of honing and polishing the finished
surface, we tumble unfinished stones in large drums in a process that
wears the surface to replicate hundreds of years of wear and
weathering. This process yields finished stones with an aged
appearance that is highly attractive in interior and exterior
applications where a highly weathered look is desired.
* DURANGO ANTIQUE(TM). We use a multi-step process that includes
sandblasting and acid washing to yield a highly textured surface with
more traction than a honed finish. This product is popular in wet
areas such as patios, walkways, and pool or spa decks. Durango
Antique(TM) provides extra traction and a cooler surface, even in hot
weather, similar to but much cooler than "cool deck" products often
used around swimming pools.
* DURANGO ACCENTS(TM). We offer an increasing variety of strips, tiles,
and panels that are designed to enhance and compliment our lines of
Durango Stone(TM). Architects and designers can select from various
sizes and shapes of Durango Accents(TM) for use as borders, back
splashes, and highlights and to create unique decorative mosaics of
pattern and color.
We manufacture and market Durango Stone(TM) products in a wide variety of
standard sizes ranging from 1" x 1" to 24" x 24" tiles for floors and walls. In
addition, we produce large stone slabs in two basic sizes. Large slabs are
typically 98" or more in length and 58" or more in width. Medium slabs are
typically between 93" and 98" in length and between 54" and 58" in width. We
produce slabs in a variety of colors and finishes. We or the fabrication and
installation contractor for a project cut these stone slabs to standard or
custom sizes for countertops, vanity tops, panels, furniture, and other
applications.
Our marble limestone products feature base colors that include ivory,
beige-taupe, peach, ivory-beige, brown, and gold. The base colors are accented
by black or white flecks and "flowerings" ranging from sandy beige to
pewter-gray. Our travertine products range in color from ivory to beige to a
combination of taupe and ivory, with occasional black or gray flecks or
flowering. Our stone products' wide range of colors, finishes, and sizes enables
architects, designers, and end users to create unique and distinctive
applications. Samples of certain of our stone products have been tested for
hardness, abrasion resistance (durability), water absorption, and coefficient of
friction.
SALES, MARKETING, AND DISTRIBUTION
We market our dimensional stone products primarily in the United States. We
employ an in-house sales force that markets our products primarily to
approximately 45 authorized stocking distributors and to more than 350 wholesale
distributors of dimensional stone products, as well as to architects,
residential and commercial developers, installation contractors, and designers.
As our business grows, we are generating more of our sales revenue through sales
into our authorized stocking distributor channel. In particular, much of our
revenue generated from sales of slab material occurs as a result of sales
through existing and new authorized stocking distributors.
Our representatives attend several domestic and international building
industry trade shows each year. In addition, we advertise our dimensional stone
products and we have been featured in recent articles in major industry
publications such as DIMENSIONAL STONE MAGAZINE, STONE WORLD MAGAZINE, and
CONTEMPORARY STONE DESIGN. We maintain a showroom at our headquarters in
Phoenix, Arizona, where our sales staff assists wholesale buyers, installation
contractors, architects, and designers to become familiar with our products and
their features and uses.
We utilize the services of independent freight forwarders in El Paso, Texas
to manage the importation and storage of our products at the United States
border with Mexico. These freight forwarders transload the
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products at the border, manage the customs process, and either store the
products in a bonded warehouse or ship the products to our warehouse in Phoenix,
Arizona or directly to the customer.
QUARRYING AND MANUFACTURING
QUARRYING
We currently extract marble limestone and travertine primarily from two
quarry sites in Coahuila, Mexico. During the first five months of 1999 and in
prior years, we paid the owners of the land on which our developed quarry sites
are located a royalty based upon the quantity of stone we extracted. In May
1999, we modified our arrangements and now pay the owners of the land a fixed
amount each month, regardless of the quantity of stone we extract.
We have engaged two independent contractors that employ approximately 15 to
30 workers to extract the stone from our quarry sites. We own a portion of the
equipment, tools, and supplies used by the contractors to extract stone from the
quarries. During 1999, we extracted an average of approximately 420 cubic meters
(approximately 14,840 cubic feet) of stone per month from our primary quarry
site. We increased the quantity of stone extracted from our primary quarry site
in each of the four quarters for the year ended December 31, 1999. Our raw
materials inventory at December 31, 1999, which consists of large quarry blocks,
was approximately $342,000, an increase of $325,000 over the balance of
approximately $17,000 at December 31, 1998. We increased the raw materials
inventory to serve the production capabilities of our new slab factory and to
ensure an uninterrupted supply of block for all of our factories.
The quarry workers drill pilot holes to define the large quarry blocks or
monoliths to be extracted. These blocks are the height of the quarry face, which
generally is 30 to 40 feet high. After drilling the pilot holes, the quarry
workers utilize diamond wire saws to free the monoliths from the quarry face.
The monoliths are then cut into three to five blocks of approximately five feet
by six feet by eight feet and weighing about 20,000 pounds each. The quarry
workers then use a front-end loader to load the blocks onto trucks for transport
to our facilities in Durango, Durango, Mexico.
MANUFACTURING AND FINISH PROCESSING
After the large stone blocks arrive at our manufacturing facilities, our
skilled workers utilize a variety of large machines that split and cut the
blocks into progressively smaller units. To produce honed and polished stone
products, our workers first utilize computer operated diamond saws and wire saws
to cut the blocks into "billets" measuring approximately 1.5 inches by 16 inches
by 8 feet in length. The billets are then split length-wise into two strips and
processed through a calibrating machine that grinds them to a thickness of
approximately 10 millimeters. Workers then fill holes and voids with a
cement-like material. After the filling material has dried, the workers hone,
polish, and cut the stone to finished sizes. Workers then bevel the edges of the
tiles, and the tiles are dried to reveal the natural color of the stone. The
workers then carefully examine and sort the tiles for color and character as
well as production defects. Tiles with defects are either repaired or rejected
and cut into smaller tiles that we can sell. Tiles without defects are packaged
according to their respective color categories and shipped to our warehouse in
Phoenix, Arizona, to a warehouse in El Paso, Texas, or directly to our customers
for installation at the end users' homes or businesses. During 1999, we produced
and shipped an average of 68,700 square feet of honed and polished tile per
month to the United States.
To produce Durango Ancient(TM) stone products, the workers place blocks of
stone into large drum-shaped tumblers and vibratories where the stones are
tumbled and vibrated together with abrasive materials of various sizes. This
process produces the appearance of several hundred years of wear and weathering
in as little as one hour. After tumbling, the workers split and cut the blocks
into finished dimensions, sort according to color and character, and package for
shipping. During 1999, we produced and shipped an average of 59,300 square feet
of Durango Ancient(TM) products per month to the United States.
We produce Durango Antique(TM) stone products through a process that
includes sandblasting and acid washing. This process produces a highly textured
surface with a variety of unique appearances. During 1999, we
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produced and shipped an average of approximately 8,000 square feet of Durango
Antique(TM) products per month to the United States.
Slab production begins with the selection and accumulation of large blocks
onto the gang saw block deck. The gang saw has space for up to 100 individual
saw blades. Workers set the saw blades to cut approximately 50 slabs of 2 and
3-centimeter thickness in one cutting shift. Cut slabs are transported from the
block deck to the finishing line, where robotic handling equipment loads each
slab onto the finishing line. The finishing line is completely automated with
the exception of the resin filling process. Workers fill holes and voids with a
resin material and set the slabs aside for drying. When dried, slabs are honed
and inspected for quality. Workers then inspect and sort the slabs based on
color, quality, and size.
During 1999, we continued to emphasize improving the quality as well as the
quantity of dimensional stone products that we produce. We believe that we will
be able to compete effectively with dimensional stone products imported from
Italy and other countries so long as we can deliver stone products of comparable
quality while taking advantage of the lower shipping costs and faster delivery
schedules from our facilities in Mexico. We strive to increase product quality
through increased training, improvements to production systems, and incentive
programs that include bonuses paid to employees who meet goals relating to
production and quality standards.
EQUIPMENT AND MACHINERY
Since 1993, we have invested approximately $5.5 million in equipment and
machinery that we use in our stone quarrying and finishing operations. This
amount includes approximately $2.1 million that we invested in equipment for our
new slab factory, which we completed during 1999. The equipment that we use to
dimension and surface the finished stone products is highly complex and
therefore the most capital intensive. Recent advances in quarrying technologies
have resulted in increased costs for quarry equipment.
BACKLOG
We strive to ship our products as quickly as possible after receipt of
purchase orders from our customers. We do not maintain a material backlog of
orders.
TRADEMARKS AND PATENT RIGHTS
Although our business historically has not depended on trademark or patent
protection, we recognize the increasing value of our various trade names and
marks. We are taking steps designed to protect, maintain, and increase the value
of our trade names and marks. There can be no assurance, however, that we will
be able to obtain legal or other protection for our trade names and marks or
that any protections that we obtain will be adequate to maintain or enhance the
value of our trade names or marks.
COMPETITION
The dimensional stone industry is highly fragmented and extremely
competitive. We compete with many domestic and international companies, some of
which have greater market recognition and substantially greater financial,
technical, marketing, distribution, and other resources than we possess. We
believe that our primary competitors are dimensional stone product manufacturers
with quarry sources and production operations in Mexico, as well as
manufacturers that obtain their stone from quarries in Italy and Turkey. All of
these competitors market stone products that compete with our products in terms
of appearance, quality, and price. We also compete indirectly with manufacturers
of other products, such as ceramic tile, carpet, or wood flooring products and
plastic laminate or Corian(TM) countertops, which are sold for use as flooring,
countertops, and other installations in which dimensional stone products may be
used. We compete principally on the basis of
* the increasing popularity of dimensional stone products;
* the color, quality, and appeal of our products;
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* product design;
* the prices and availability of our products; and
* our ability to deliver products to market on shorter notice than
overseas manufacturers of competing products.
We believe that the geographical proximity of our Mexican processing facilities
to our markets in the United States provides a competitive advantage by enabling
us to fill orders on much shorter lead times than our overseas competitors. We
cannot provide assurance, however, that we will continue to compete successfully
in the future.
SEASONALITY
We historically have experienced lower sales in the fourth calendar quarter
as a result of production declines during the holiday season as well as seasonal
declines in homebuilding and remodelling. We increased sales and marketing
efforts during fiscal 1999 in an effort to improve sales during the fourth
quarter. As a result of these efforts and increased demands for our products, we
did not experience a decline in sales in the fourth quarter of 1999. In the
future, we may be subject to periodic declines experienced by the building
industry in general. See Item 1, "Special Considerations - The cyclical nature
of the United States construction industry may adversely impact our business."
NATURE OF OUR MARKETS
We design and market dimensional stone products primarily in those styles
and colors that historically have not been subject to frequent fluctuations in
demand. The markets for our products, however, may be subject to changing
customer tastes, a high level of competition, and a constant need to create and
market new products. Demand for dimensional stone products is influenced by the
popularity of certain types of stone as well as architectural styles, cultural
and demographic trends in society, marketing and advertising expenditures, and
general economic conditions. Because these factors can change, customer demand
also can shift. Certain of our dimensional stone products may be successfully
marketed for only a limited time. We may not always be able to respond to
changes in customer demand because of the amount of time and financial resources
that may be needed to bring new products to market. The inability to respond to
market changes would have an adverse impact on our business.
SOURCES AND AVAILABILITY OF RAW MATERIALS AND SUPPLIES
We currently obtain most of our marble limestone and travertine from two
quarry sites in Coahuila, Mexico. Based upon the exposed quarry face as well as
the length, depth, and spacing of various quarry holes drilled in the course of
our quarry operations, we currently estimate that our primary quarry contains at
least 2.0 million cubic meters of marble limestone and travertine. During 1999,
we consumed approximately 3,600 cubic meters of stone. We plan to extract
approximately 5,500 cubic meters of stone during 2000 in anticipation of the
quantities of stone that will be required to supply our existing factories as
well as our new slab factory, which began operations in the fourth quarter of
1999. We believe that this quarry will be sufficient to meet our requirements
for this stone for an indefinite period at our currently anticipated levels of
production. Although we have a long-term lease for our primary quarry, the
inability to obtain stone from this site for even a short period of time could
have a material adverse effect on our business. We continually seek other quarry
sites that contain stone with distinctive color and quality characteristics that
will enable us to produce unique and attractive dimensional stone products. We
cannot provide assurance, however, that we will be able to locate additional
quarry sites. See Item 1, " Special Considerations - We obtain stone from a
limited number of desirable quarry sites" and "Special Considerations - We
depend upon third parties to operate our quarries." During 1999, we also
purchased small quantities of stone from other quarry sites in southern Mexico.
We utilize a variety of supplies for our dimensional stone quarrying and
finishing operations. These supplies include industrial diamond segments for saw
blades, diamond wires, diamond tooling, and various abrasives. We believe that
all of the supplies necessary to produce our dimensional stone products are
readily available from multiple sources.
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GOVERNMENT REGULATION; ENVIRONMENTAL MATTERS
We are subject to various federal and state governmental laws and
regulations of the United States and Mexico related to occupational safety and
health, labor, and wage practices as well as federal, state, and local
governmental regulations relating to the use, storage, discharge, handling,
emission, generation, manufacture, and disposal of toxic, volatile, or other
hazardous substances used to produce our products. The processing of dimensional
stone products utilizes significant amounts of fresh water and produces certain
inert materials, primarily calcium carbonate, as by-products. We believe that
these by-products are harmless to the environment. In addition, we have
installed a water purification system at our stone processing facility in
Mexico. This system reclaims approximately 90% of the water used in our stone
processing operations. The waste created by the stone processing operations is
transported off-site on a regular basis by a third-party waste hauler. During
1999 we completed construction of a state-of-the-art water treatment system for
our entire Mexican stone processing facility. This system recycles all of the
waste water from the stone production processes and provides a more advantageous
method of compacting and recycling the calcium carbonate and other production
by-products.
Failure to comply with current or future laws and governmental regulations
could result in the imposition of substantial fines on our company, suspension
of production, alteration of our production processes, cessation of operations,
or other actions that could materially and adversely affect our business,
financial condition, and results of operations. We believe that we currently are
in material compliance with environmental and other laws applicable to our
quarrying and dimensional stone manufacturing operations.
INSURANCE
We maintain a variety of insurance policies with third-party carriers. We
maintain a $2.0 million general liability policy, a $1.0 million commercial
automobile policy, an aggregate of $2.0 million in international coverage, a
$500,000 worker compensation policy, $1.0 million in directors and officers'
coverage, and an additional $1.0 million in commercial umbrella liability
coverage. We also purchase land cargo and ocean cargo policies from time to time
when transporting equipment or material that would otherwise not be insured over
land or sea. In addition, we maintain insurance on our vehicles in Mexico.
Otherwise, we are self-insured for losses incurred in connection with our
Mexican operations and facilities. We believe our insurance coverage is adequate
given the nature of our operations and the size of our company.
EMPLOYEES
As of March 20, 2000, we had 220 full-time employees. Of the total number
we employ, 203 were engaged in factory operations and administration, five in
sales and marketing, three in warehouse functions, and nine in administrative
functions, including our executive officers. All of our factory employees are
located in Mexico. We have experienced no work stoppages and are not a party to
a collective bargaining agreement. We believe that we maintain good relations
with our employees.
SPECIAL CONSIDERATIONS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS, IN ADDITION TO THOSE
DISCUSSED ELSEWHERE IN THIS REPORT, IN EVALUATING OUR COMPANY AND OUR BUSINESS.
A VARIETY OF FACTORS COULD ADVERSELY AFFECT OUR OPERATING RESULTS.
A wide variety of factors could adversely impact our net sales and
operating results. These factors, many of which are beyond our control, include
the following:
* our ability to identify trends in markets that we target and to
introduce products that take advantage of those trends;
* our ability to locate and obtain the quarry rights to new sources of
stone;
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* our ability to build or acquire additional facilities and equipment
necessary to quarry and produce finished stone products in a timely
manner and at competitive prices;
* our ability to design and arrange for timely production and delivery
of our products;
* market acceptance of our products;
* the level and timing of orders placed by our customers;
* seasonality;
* the popularity and life cycles of our products;
* customer satisfaction with products we design and market;
* the timing of expenditures in anticipation of orders;
* the cyclical nature of the markets we serve; and
* competition and competitive pressures on prices.
Our ability to increase our sales and marketing efforts to increase the
visibility of our products in order to stimulate customer demand and our ability
to monitor and control manufacturing processes in order to maintain satisfactory
delivery schedules are important factors in our long-term prospects. A slowdown
in demand for our products as a result of changing consumer tastes and spending
patterns, economic conditions, or other broad-based factors could adversely
affect our operating results.
WE MAY NEED ADDITIONAL CAPITAL TO EXPAND OUR BUSINESS.
We believe that our existing capital resources, cash flow from operations,
and financing commitments will be sufficient to satisfy our capital requirements
during the next 12-month period. However, we may require additional equity or
debt financing to
* finance future acquisitions of quarry rights;
* construct or acquire additional facilities or equipment;
* develop new product lines; or
* provide funds to take advantage of other business opportunities.
We cannot predict the timing or amount of any such capital requirements at this
time. Although we have been able to obtain adequate financing on acceptable
terms in the past, we cannot provide assurance that such financing will continue
to be available on acceptable terms. In particular, in the past potential
lenders have encountered difficulties or uncertainties associated with using our
equipment and facilities located in Mexico as security for loans. These
difficulties or uncertainties may make it more difficult or costly for us to
obtain purchase or lease financing in the future. If additional financing is not
available on satisfactory terms, we may not be able to expand our business at
the rate desired and our operating results may suffer. Debt financing increases
expenses and must be repaid regardless of operating results. Equity financing
could result in additional dilution to existing shareholders.
WE FACE RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS, INTERNATIONAL TRADE, AND
CURRENCY EXCHANGE.
We currently obtain all of our dimensional stone products from Mexico and
our dimensional stone processing facilities are located in Mexico. We have
capital investments in facilities, tools, and equipment in Mexico that amounted
to approximately $5.5 million as of December 31, 1999. We believe that final
production of our dimensional stone products at factories in Mexico enables us
to obtain these items on a cost basis that allows us to market our products
profitably. Our dependence on foreign personnel and our maintenance of equipment
and inventories abroad expose us to certain economic and political risks,
including the following:
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* risks associated with establishing and maintaining satisfactory
production standards and internal controls at our Mexican operations;
* compliance with local laws and regulatory requirements, as well as
changes in such laws and requirements;
* employment and severance issues;
* overlap of tax issues;
* political and economic conditions abroad; and
* the possibility of
- expropriation,
- supply disruption,
- currency controls,
- exchange rate fluctuations, and
- changes in tax laws, tariffs, and freight rates.
Protectionist trade legislation in either the United States or foreign
countries, such as a change in the current tariff structures, export or import
compliance laws, or other trade policies, could adversely affect our ability to
manufacture our products outside the United States or the price at which we can
obtain those products. We have not experienced any significant interruptions in
obtaining our dimensional stone products to date.
All of our purchases from our Mexican subsidiaries are denominated in U.S.
dollars. Because we maintain operations in Mexico, we may be subject to risks
associated with fluctuations in the value of the Mexican peso in the future.
These risks include the potential for inflationary pressures and the disruptive
effects on the employees of our Mexican subsidiaries that may occur as a result
of any devaluations of the peso that may occur in the future. The devaluation of
the peso in December 1994 resulted in a short-term decrease in our costs to
produce dimensional stone products in Mexico. However, we increased wages paid
to employees of our Mexican subsidiaries in order to reduce the negative impact
that the currency devaluation had on the workers' standards of living. Because
of the factors described above, any devaluations of the Mexican peso in the
future could have an adverse effect on our operating results.
To date, we have made limited sales of our dimensional stone products in
Canada and other foreign countries. Sales in foreign countries currently do not
represent a material portion of our revenue. All sales outside the United States
are denominated in United States dollars. As a result, we do not bear any risks
that may be associated with exchange rate fluctuations in connection with those
sales.
WE OBTAIN STONE FROM A LIMITED NUMBER OF DESIRABLE QUARRY SITES.
Although we possess rights to two quarry sites, we currently obtain
substantially all of our stone blocks from one quarry site in Coahuila, Mexico.
We located this quarry site after extensive geological searches by our
management. We believe that the stone extracted from this site possesses
distinctive characteristics in terms of color and quality that make this
particular type of marble limestone unique and attractive. We extract stone from
this quarry pursuant to existing contractual arrangements with the owners of the
land. The inability to continue to extract sufficient quantities of stone from
this site for even a short period of time may have a material adverse effect on
our financial condition and results of operations. We may not be able to locate
an alternative source of stone with desirable characteristics on a timely basis
in the event that we are unable to obtain stone from our primary quarry site. We
continually seek other quarry sites that contain stone with distinctive color
and quality characteristics that will enable us to produce unique and attractive
dimensional stone products. We cannot provide assurance, however, that we will
be able to locate additional quarry sites. If we do locate additional quarry
sites, we cannot provide assurance that we will be able to enter into
arrangements to extract stone from such sites on terms that will be acceptable
to us.
8
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WE DEPEND UPON THIRD PARTIES TO OPERATE OUR QUARRIES.
We depend upon third-party contractors to extract stone blocks from our
quarry sites in Mexico. Although we own some of the tools, equipment, and
supplies the contractors use in the quarrying process, we have limited control
over the quarrying processes themselves. As a result, any difficulties
encountered by the third-party contractors that result in production delays or
the inability to fulfill orders on a timely basis could have a material adverse
effect on our business. We do not have long-term contracts with our third-party
contractors. We have experienced short-term interruptions in services from our
third-party contractors in the past and were able to take temporary measures to
avoid prolonged disruption to our quarrying operations. Although we believe we
would be able to secure other third-party contractors that could conduct
quarrying operations for us, our operations could be adversely affected if we
lost our relationship with any of our current contractors.
WE RELY UPON INDEPENDENT DISTRIBUTORS AND OTHERS TO SELL OUR PRODUCTS.
We market and distribute our products throughout the United States
primarily through a network of authorized stocking distributors and wholesale
buyers as well as architects, developers, installation contractors, and
designers. Stocking distributors generally stock inventories only in quantities
that they consider sufficient to fill anticipated short-term orders. As a
result, they may cancel orders and change or delay volume levels on short notice
to us. We may not be able to replace cancelled, delayed, or reduced orders in a
timely manner. We depend upon our network of independent distributors,
wholesalers, and others to sell our products to end users, to perform
installation services, and to perform other services after the sale. Most of
these distributors, wholesalers, and other purchasers of stone products carry
products that compete directly with our products and other dimensional stone
manufacturers compete intensely for their attention. We may not be able to
maintain favorable relationships with the distributors, wholesalers, and others
that currently carry or sell our product lines in order to encourage them to
promote and sell our products instead of those of our competitors. We also
cannot provide assurance that we will be able to develop similar relationships
with additional distributors, wholesalers, and others in the future. We may face
increased levels of risks associated with sales through stocking distributors as
we increase the percentage of our total sales through that distribution channel
in the future.
WE MUST EFFECTIVELY MANAGE OUR GROWTH.
Since 1993, our business operations have undergone significant changes and
growth, including the following:
* locating, obtaining the rights to develop, and developing our sources
of stone;
* emphasis on and expansion of our dimensional stone product lines; and
* significant investments in facilities, equipment, and tooling.
Our ability to effectively manage any significant future growth will require us
to
* further enhance our operational, financial, management, and internal
control systems;
* expand our facilities and equipment;
* produce and receive products on a timely basis; and
* successfully hire, train, and motivate additional employees.
The failure to manage our growth on an effective basis could have a material
adverse effect on our operations. For example, we have experienced production
delays and quality control issues at our new slab factory in Mexico. We
anticipate that these delays and product defects will result in unanticipated
expenses and lower than anticipated revenue during the first two quarters of
fiscal 2000, which will have an adverse impact on our operating results.
We may be required to increase staffing and incur other expenses as well as
to make expenditures on capital equipment and manufacturing facilities in order
to meet the anticipated demand of our customers. Changing consumer tastes can
significantly affect sales of our dimensional stone products, and customers for
our
9
<PAGE>
products generally do not commit to firm orders for more than a short time in
advance. Our profitability would be adversely affected if we increased our
expenditures in anticipation of future orders that did not materialize. Certain
customers also may increase orders for our products on short notice, which could
place an excessive short-term burden on our resources.
WE MUST RAPIDLY RESPOND TO MARKET CHANGES.
We design and market dimensional stone products primarily in those styles
and colors that historically have not been subject to frequent fluctuations in
demand. The markets for our products, however, may be subject to rapidly
changing customer tastes, a high level of competition, and a constant need to
create and market new products. Demand for dimensional stone products is
influenced by a wide variety of factors, including the following:
* the popularity of certain types of stone;
* architectural styles;
* cultural and demographic trends;
* marketing and advertising expenditures; and
* general economic conditions.
Because these factors can change, customer demand also can shift. Certain of our
new dimensional stone products may be successfully marketed for only a limited
time. We may not always be able to respond to changes in customer taste and
demand because of the amount of time and financial resources that may be
required to bring new products to market. The inability to respond to market
changes could have an adverse impact on our operations.
WE DEPEND ON NEW PRODUCTS.
We historically have focused on producing dimensional stone products in
traditional colors, styles, and finishes. Our operating results will depend to a
significant extent on our ability to continue to develop and introduce new
dimensional stone products on a timely basis. Those products must compete
effectively on the basis of price and must address customer requirements. The
success of new product introductions depends on various factors, including the
following:
* proper new product selection;
* successful sales and marketing efforts;
* timely production and delivery of new products; and
* consumer acceptance of new products.
New products may not receive or maintain substantial market acceptance. Our
future operating results could be adversely affected if we are unable to design,
develop, and introduce competitive products on a timely basis.
WE FACE INTENSE COMPETITION.
The dimensional stone products markets are highly fragmented and extremely
competitive. We compete with many domestic and international companies, some of
which have greater market recognition and substantially greater financial,
technical, marketing, distribution, and other resources than we possess.
We believe that our relationships with many of the leading dimensional
stone processing equipment manufacturers, importers, and distributors represent
a significant advantage over our competitors in the dimensional stone products
industry. Accordingly, we strive to develop and strengthen these relationships.
Our ability to compete successfully depends on a number of factors both within
and outside our control. These factors include the following:
10
<PAGE>
* the quality, appearance, uniqueness, pricing, and diversity of our
products;
* the continued popularity of our available stone products;
* the quality of our customer services;
* our ability to recognize industry trends and anticipate shifts in
consumer demands;
* our success in designing and marketing new products;
* the availability of adequate sources of manufacturing capacity and our
ability to meet delivery schedules;
* our efficiency in filling customer orders;
* our ability to develop and maintain effective marketing programs that
enable us to sell our products;
* product introductions by our competitors;
* the number, nature, and success of our competitors in a given market;
and
* general market and economic conditions, including trends in the
residential and commercial building industries in the United States
and other countries.
We currently compete principally on the basis of
* the increasing popularity of dimensional stone products;
* the color, quality, and appeal of our products;
* product design;
* the prices and availability of our products; and
* our ability to deliver products to market sooner than overseas
manufacturers of competing products.
We cannot provide assurance that we will continue to be able to compete
successfully in the future.
THE CYCLICAL NATURE OF THE UNITED STATES CONSTRUCTION INDUSTRY MAY ADVERSELY
IMPACT OUR BUSINESS.
Our dimensional stone products are installed primarily in new and remodeled
luxury residences, upscale commercial buildings, and hotels throughout the
United States. The level of construction activity in the United States has
remained at a relatively high level in recent years, which has contributed
significantly to the demand for our products and growth of our business since
1995. The U.S. construction industry, however, is extremely cyclical. A variety
of factors influence the construction industry and therefore indirectly
influence demand for our products. These factors, all of which are outside our
control, include the following:
* housing demand;
* commercial real estate and hotel vacancy and absorption rates;
* affordability of housing and commercial real estate;
* Interest rates and availability of financing; and
* general economic conditions, including
-- growth in gross domestic product;
-- regional and local economic trends and outlook;
-- shifting demographic trends;
-- levels of unemployment; and
-- consumer confidence.
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<PAGE>
Construction activity may fluctuate or decline significantly from time to time
in the future as a result of these factors. A decrease in demand for our
products as a result of downturns in construction activity could have a material
adverse effect on our financial condition and results of operations.
WE EXPERIENCE SEASONAL FLUCTUATIONS IN SALES.
The second and third calendar quarters of each year generally are
characterized by higher sales of dimensional stone products because of the
increased level of residential construction activities during those months.
Seasonal fluctuations in quarterly sales may require us to take temporary
measures, including increased personnel, borrowings, and other operational
changes, and could result in unfavorable quarterly earnings comparisons.
WE DEPEND ON KEY PERSONNEL.
Our development and operations to date have been, and our proposed
operations will be, substantially dependent upon the efforts and abilities of
our senior management, including Franklin Cunningham, our Chairman of the Board,
President, and Chief Executive Officer. The loss of services of one or more of
our key employees, particularly Mr. Cunningham, could have a material adverse
effect on our business. We do not maintain key person life insurance on the life
of Mr. Cunningham or any of our other officers.
OUR MANAGEMENT OWNS A MAJORITY OF OUR COMMON STOCK.
Our directors and executive officers and the officers of our Mexican
subsidiaries currently own 70.8% of our outstanding common stock. Accordingly,
these shareholders collectively have the power to elect all of the members of
our board of directors and thereby to control the business and policies of our
company.
OUR STOCK IS THINLY TRADED AND MAY EXPERIENCE PRICE VOLATILITY.
Our common stock currently is quoted in the National Quotation Bureau's
"Pink Sheets." The trading volume of our common stock historically has been
limited, and there can be no assurance that an active public market for our
common stock will be developed or sustained. The trading price of our common
stock in the past has been, and in the future could be, subject to wide
fluctuations. See Item 5, "Market for Common Equity and Related Stockholder
Matters." These fluctuations may be caused by a variety of factors, including
the following:
* quarterly variations in our operating results;
* actual or anticipated announcements of new products by us or our
competitors;
* changes in analysts' estimates of our financial performance;
* general conditions in the markets in which we compete; and
* worldwide economic and financial conditions.
The stock market in general also has experienced extreme price and volume
fluctuations that have particularly affected the market prices for many rapidly
expanding companies and often have been unrelated to the operating performance
of such companies. These broad market fluctuations and other factors may
adversely affect the market price of our common stock.
PENNY STOCK RULES MAY MAKE BUYING OR SELLING OUR COMMON STOCK DIFFICULT.
Our common stock in the past has been, and from time to time in the future
may be, subject to the "penny stock" rules as promulgated under the Securities
Exchange Act of 1934. In the event that no exclusion from the definition of a
"penny stock" under the Exchange Act is available, then any broker engaging in a
transaction in our common stock will be required to provide each customer with
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<PAGE>
* a risk disclosure document,
* disclosure of market quotations, if any,
* disclosure of the compensation of the broker-dealer and its
salesperson in the transaction, and
* monthly account statements showing the market values of our securities
held in the customer's accounts.
The bid and offer quotation and compensation information must be provided
prior to effecting the transaction and must be contained on the customer's
confirmation. Certain brokers are less willing to engage in transactions
involving "penny stocks" as a result of the additional disclosure requirements
described above, which may make it more difficult for holders of our common
stock to dispose of their shares.
SALES OF LARGE NUMBERS OF SHARES COULD ADVERSELY AFFECT THE PRICE OF OUR COMMON
STOCK.
Sales of substantial amounts of our common stock by shareholders, or even
the potential for such sales, are likely to have a depressive effect on the
market price of our common stock and could impair our ability to raise capital
through the sale of our equity securities. Of the 33,253,768 shares of common
stock outstanding as of March 20, 2000, approximately 3,600,000 shares are
eligible for resale in the public market without restriction unless held by an
"affiliate" of our company, as that term is defined under applicable securities
laws. The approximately 29,653,800 remaining shares of common stock currently
outstanding are "restricted securities," as that term is defined in Rule 144
under the securities laws, and may be sold only in compliance with Rule 144,
pursuant to registration under the securities laws, or pursuant to an exemption
from the securities laws. Affiliates also are subject to certain of the resale
limitations of Rule 144.
Generally, under Rule 144, each person who beneficially owns restricted
securities with respect to which at least one year has elapsed since the later
of the date the shares were acquired from our company or an affiliate of our
company may, every three months, sell in ordinary brokerage transactions or to
market makers an amount of shares equal to the greater of 1% of our
then-outstanding common stock or, if the shares are quoted on a stock exchange
or Nasdaq, the average weekly trading volume for the four weeks prior to the
proposed sale of such shares. Sales under Rule 144 also are subject to certain
manner-of-sale provisions and notice requirements and to the availability of
current public information about our company. A person who is not an affiliate,
who has not been an affiliate within three months prior to sale, and who
beneficially owns restricted securities with respect to which at least two years
have elapsed since the later of the date the shares were acquired from us or
from an affiliate of our company is entitled to sell such shares under Rule
144(k) without regard to any of the volume limitations or other requirements
described above. An aggregate of 20,081,445 shares held by our officers and
directors currently are available for sale under Rule 144.
WE DO NOT PLAN TO PAY CASH DIVIDENDS.
We have never paid any cash dividends on our common stock and do not
currently anticipate that we will pay dividends in the foreseeable future.
Instead, we intend to apply earnings to the expansion and development of our
business.
CHANGE IN CONTROL PROVISIONS MAY ADVERSELY AFFECT EXISTING STOCKHOLDERS.
Our articles of incorporation and Nevada law contain provisions that may
have the effect of making more difficult or delaying attempts by others to
obtain control of our company, even when those attempts may be in the best
interests of our shareholders. Our articles of incorporation also authorize our
board of directors, without shareholder approval, to issue one or more series of
preferred stock, which could have voting, liquidation, dividend, conversion, or
other rights that adversely affect or dilute the voting power of the holders of
our common stock.
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ACTUAL RESULTS MAY DIFFER FROM FORWARD-LOOKING STATEMENTS IN THIS REPORT.
Certain statements and information contained in this Report that are not
historical facts are forward-looking statements, as such term is defined in the
securities laws. Forward-looking statements include statements concerning
* our future, proposed, and anticipated activities;
* certain trends with respect to our revenue, operating results, capital
resources, and liquidity; and
* certain trends with respect to the markets in which we compete or the
dimensional stone industry in general.
Forward-looking statements, by their very nature, include risks and
uncertainties, many of which are beyond our control. Accordingly, actual results
may differ, perhaps materially, from those expressed in or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially from those forward-looking statements include those discussed under
this Item 1, "Special Considerations" and elsewhere in this Report.
ITEM 2. DESCRIPTION OF PROPERTY
We lease a facility in Phoenix, Arizona, containing approximately 10,000
square feet. The lease term expires in November 2000. We use approximately 3,000
square feet of the facility for our corporate offices and showroom and
approximately 7,000 square feet for warehouse space. Franklin E. Cunningham, our
Chairman of the Board, President, and Chief Executive Officer, acquired this
building in January 1999. In March 2000, Mr. Cunningham transferred this
property to Lee M. Cunningham, a director of our company. See Item 13, "Certain
Relationships and Related Transactions."
We own approximately 5.4 acres of land in Durango, Durango, Mexico where
our dimensional stone processing facilities are located. We own five buildings,
containing an aggregate of approximately 90,000 square feet, located on this
property. We utilize these facilities for our stone processing, finishing,
selection, and warehousing operations and for offices.
ITEM 3. LEGAL PROCEEDINGS
In September 1998, we, through one of our Mexican subsidiaries, initiated
litigation with Multibanco Comermex S.A. and Banca Serfin S.A. ("Banca Serfin")
for the release of the lien against certain trust assets. The lawsuit alleges
that the debt owed by us to Banca Serfin is much less than the bank has claimed.
The bank claims that we owe approximately $900,000. We are vigorously litigating
our position that we have repaid all borrowings owed to Banca Serfin. We
established a reserve of approximately $900,000 in 1997 to cover any damages
resulting from the lawsuit and are no longer accruing interest related to the
balance on our financial statements. Although we believe that the expected
outcome of this matter will not have a material adverse effect on our results of
operations or financial condition, there can be no assurance that we will
achieve a favorable outcome in this litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock currently is quoted in the National Quotation Bureau's
"Pink Sheets" under the symbol "WWST." We have no shares of preferred stock
outstanding. The following table sets forth the quarterly high and low closing
sale prices of our common stock for the calendar periods indicated.
COMMON STOCK
---------------
HIGH LOW
---- ---
1997:
First Quarter ............................ $0.34 $0.06
Second Quarter ........................... 0.34 0.06
Third Quarter ............................ 0.50 0.03
Fourth Quarter ........................... 0.50 0.03
1998:
First Quarter ............................ $0.22 $0.03
Second Quarter ........................... 0.63 0.03
Third Quarter ............................ 0.21 0.03
Fourth Quarter ........................... 0.06 0.03
1999:
First Quarter ............................ $0.10 $0.02
Second Quarter ........................... 0.15 0.02
Third Quarter ............................ 0.15 0.12
Fourth Quarter ........................... 0.15 0.09
2000:
First Quarter (through March 20, 2000) ... $0.25 $0.13
As of March 20, 2000, there were approximately 500 holders of record of our
common stock. On March 20, 2000, the closing sales price of our common stock on
the National Quotation Bureau's "Pink Sheets" was $.25 per share.
We have not declared or paid any cash dividends on our common stock and do
not intend to declare or pay any cash dividends in the foreseeable future. The
payment of dividends, if any, is within the discretion of our board of directors
and will depend on our earnings, if any, our capital requirements and financial
condition, and such other factors as the board of directors may consider.
On July 21, 1999, we issued (a) 50,000 shares of our common stock to
Timothy L. Ligget, our Chief Accounting Officer and a director at the time, and
(b) 50,000 shares of our common stock to Murray Peck in connection with
accounting services that he provided to our company. We issued these shares
without registration under the Securities Act of 1933 in reliance on the
exemptions provided by Section 4(2) of that act.
On March 15, 2000, our Board of Directors approved a 1-for-30 reverse stock
split, subject to approval by our stockholders at a meeting to be held during
calendar 2000.
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ITEM 6. SELECTED FINANCIAL DATA; MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table summarizes certain selected consolidated financial data
and is qualified in its entirety by the more detailed Consolidated Financial
Statements and Notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
Report. The data has been derived from our financial statements, which
statements have been audited by Arthur Andersen LLP, independent public
accountants.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS:
Revenue ....................................... $ 3,111,918 $ 4,267,938 $ 6,567,106
Cost and expenses:
Cost of goods sold .......................... 1,679,015 2,042,064 3,489,307
Selling, general and administrative ......... 1,015,835 1,290,600 1,674,229
Depreciation and amortization ............... 21,385 42,276 49,558
------------ ------------ ------------
Operating income .............................. 395,683 892,998 1,354,012
Other income (expense), net ................... 63,980 (62,379) 36,518
------------ ------------ ------------
Income before (provision for) benefit
from income taxes ............................ 459,663 830,619 1,390,530
(Provision for) benefit from income taxes ..... 300,000 -- (497,000)
------------ ------------ ------------
Net income .................................... $ 759,663 $ 830,619 $ 893,530
============ ============ ============
Basic and diluted earnings per common share
and common share equivalent (1) .............. $ 0.02 $ 0.02 $ 0.03
============ ============ ============
Basic and diluted weighted average number of
common shares and common share equivalents
outstanding (1) ............................. 35,073,683 34,687,330 32,748,700
CONSOLIDATED BALANCE SHEET DATA
(AT END OF PERIOD):
Cash .......................................... $ 221,660 $ 279,167 $ 151,147
Working capital(2) ............................ (294,750) 283,376 708,989
Total assets .................................. 5,086,418 5,818,209 8,220,443
Notes payable to banks, lines of credit, and
long-term debt ............................... 305,889 204,459 1,335,238
Total stockholders' equity .................... 3,571,384 4,399,742 5,325,473
</TABLE>
- ----------
(1) Because we have no outstanding convertible securities or other common stock
equivalents, the amounts reported for basic and diluted earnings per share
are the same and the amounts reported for basic and diluted weighted
average common shares are the same.
(2) The decrease in working capital in fiscal 1997 was primarily attributable
to a reclassification of debt on our financial statements from long-term to
current liabilities as a result of our dispute with Banca Serfin over the
amounts owed. See Item 3, "Legal Proceedings."
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
We quarry, manufacture, and market a wide variety of dimensional stone
products. We extract marble limestone and travertine blocks from quarries
located in Mexico. We then transport the blocks to plants operated by our wholly
owned Mexican subsidiaries in Durango, Durango, Mexico, where the blocks are
cut, honed, polished or tumbled, then dimensioned and packaged. We market our
dimensional stone products primarily in the United States through distributors,
dealers, and designers. We also sell a small quantity of our products in Canada
and Europe.
We began producing and marketing our current line of Durango Stone(TM)
products in 1994. We have concentrated on expanding our facilities, upgrading
our equipment, and training our employees to produce larger quantities of
high-quality dimensional stone products at reduced costs per square foot. We
introduced our Durango Ancient(TM) products in November 1996. We initiated
marketing efforts for this new product during 1997 and have achieved successful
levels of sales to date. We believe that production of this product will
continue to be profitable due to economies of scale and further utilization of
existing machinery.
During 1998, we upgraded some of the equipment at our existing factories as
production at those facilities approached capacity. During 1999 we completed
construction of a third production facility adjacent to our first two factories.
The new facility began producing large marble limestone slabs during the fourth
quarter of 1999. We market these slabs to wholesale distributors, contractors,
and other end-users as partially finished slabs, which can be cut to finished
size prior to installation, and as fully finished slabs cut to standard or
custom dimensions and shipped as ready-to-install panels. The new facility also
produces slabs that we use for processing into tiles in our other factories. Our
total cost to build and equip this facility was approximately $2.1 million We
funded approximately $1.0 million of the costs of the facility from operations
and financed the remaining $1.1 million through borrowings. See "Liquidity and
Capital Resources," below. We believe that there is significant demand for the
type of products that the new facility will produce and that sales of these
products will contribute significantly to our revenue and profitability in
future periods. These expectations for sales and profitability may not be met,
however, for a variety of reasons. See Item 1, "Special Considerations."
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
REVENUE. Our revenue for the year ended December 31, 1999 totaled
$6,567,106, which represents a 53.9% increase over revenue of $4,267,938 for the
year ended December 31, 1998. We attribute the increase in revenue to (a)
greater market acceptance and demand for our products as a result of expanded
sales and marketing efforts and the increase in our customer base of authorized
stocking distributors and wholesale distributors; (b) increased productivity and
production volume due to improved utilization of factory capacity through
expanded work shifts, upgrades and enhancements to existing machinery, and the
installation of new machinery; and (c) sales of slabs produced at our new
factory, beginning in December 1999.
COST OF GOODS SOLD; GROSS PROFIT. Cost of goods sold increased to
$3,489,307 during the year ended December 31, 1999 from $2,042,064 during the
year ended December 31, 1998. We attribute this increase to the corresponding
increase in sales during the same period. Gross profit increased to $3,077,799,
or 46.9% of revenue, in fiscal 1999 from $2,225,874, or 52.2% of revenue, in
fiscal 1998. The decrease in gross profit as a percentage of revenue was due to
increased sales through our authorized stocking distributor channel, which
typically provide lower margins, and higher production costs incurred during the
second quarter to fulfill a special customer order.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE. Selling, general, and
administrative expense increased 29.7% to $1,674,229 in the year ended December
31, 1999 from $1,290,600 in the year ended December 31, 1998. The majority of
this increase is attributable to increased salary, wage, and sales commissions
expense due to the addition of several new administrative and sales personnel as
$(increased sales activity. We also incurred increased expenditures for
advertising and promotional activities and consulting services.
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DEPRECIATION AND AMORTIZATION. Total depreciation and amortization was
$393,910 for the year ended December 31, 1999 and $331,534 for the year ended
December 31, 1998. Depreciation expense included in cost of goods sold as
indirect overhead amounted to $344,352 for the year ended December 31, 1999 and
$289,258 for the year ended December 31, 1998. Depreciation and amortization of
$49,558 in 1999 and $42,276 in 1998 was allocated and directly related to other
costs and expenses for those fiscal years. We anticipate depreciation expense
will increase significantly in fiscal 2000 and beyond as a result of
depreciation of plant and equipment purchased during 1999 for our new slab
factory. Depreciation expense will increase further as we expand our operations
by purchasing additional property, plant, and equipment during 2000 and
subsequent years.
OTHER INCOME (EXPENSE), NET. Other income, net, in fiscal 1999 was $36,518,
as compared with other expense, net, of $62,379 in fiscal 1998. In fiscal 1999,
interest expense was $44,971 due to interest charges on borrowings we made
during 1999 to purchase equipment installed in our new slab factory. We
experienced a gain on currency remeasurement of $69,482 during 1999 as a result
of a stronger Mexican peso, as compared with a loss on currency remeasurement of
$38,399 due to the devaluation of the Mexican peso during 1998.
PROVISION FOR INCOME TAXES. We used our remaining net operating loss
carryforwards during fiscal 1999, reduced our deferred tax asset by $300,000,
and recorded a related provision for income taxes of $497,000 for the year ended
December 31, 1999. We utilized a portion of our net operating loss carryforwards
in 1998, and therefore recorded no provision for income taxes in 1998.
NET INCOME. Net income for fiscal 1999 increased to $893,530, or $.03 per
share of common stock, over net income of $830,619, or $.02 per share of common
stock, in fiscal 1998 as a result of the factors described above.
SEASONALITY
We historically have experienced lower sales in the fourth calendar quarter
as a result of production declines during the holiday season as well as seasonal
declines in homebuilding and remodelling. We increased sales and marketing
efforts during fiscal 1999 to improve sales during the fourth quarter. As a
result of these efforts and increased demands for our products, we did not
experience a decline in sales in the fourth quarter of 1999. In the future, we
may be subject to periodic declines experienced by the building industry in
general.
LIQUIDITY AND CAPITAL RESOURCES
Our working capital increased to $708,989 at December 31, 1999 from
$283,376 at December 31, 1998. Current assets increased to $2,548,551 at
December 31, 1999 from $1,598,945 at December 31, 1998. These increases were due
to (a) increased sales, which resulted in increased accounts receivable, and (b)
increased block purchases and finished goods production, which resulted in
increased inventory.
Our operating activities provided net cash of $772,046 during the year
ended December 31, 1999. Net operating cash flow increased from 1998, even with
increased net income, due to increases in accounts receivable and inventories.
We invested approximately $1.7 million during fiscal 1999 to enhance our
factories and to purchase equipment and machinery, primarily in Mexico. We
intend to acquire additional property, plant, and equipment during 2000 and in
future years in order to continue our current sales volume increases and to
accommodate anticipated increases in demand for our products.
On April 13, 1999, we obtained a loan of $1,080,000 for equipment that we
installed in our new slab factory. The loan bears interest at the rate of 9.53%
per annum and matures on April 13, 2004. The loan is secured by quarry block,
quarry equipment, and the building structure and equipment purchased and
installed specifically from these loan proceeds at the new factory. Our company
and our subsidiary, Sociedad Piedra Sierra, S.A. de C.V., have guaranteed the
loan under the terms and conditions of the loan agreement. Loan fees incurred in
connection with obtaining the loan were deferred and are being amortized over
the life of the loan.
18
<PAGE>
We used cash flows from operations of approximately $1.0 million to finance the
balance of the costs to build and equip the new facility.
On August 13, 1999, we obtained a $500,000 revolving line of credit from
Bank One, Arizona NA. Interest on amounts borrowed under the line of credit is
payable monthly at the bank's prime rate plus 1.5%, or 10.0% at December 31,
1999. The line of credit expires on August 13, 2000, and is secured by our
inventory, accounts receivable, and intangible assets. Franklin E. Cunningham,
our Chairman of the Board, President, and Chief Executive Officer, also has
personally guaranteed our obligations under the line of credit. At December 31,
1999, we had outstanding borrowings of $250,000 and $250,000 available to us
under the line of credit.
In January 2000, we entered into a capital lease agreement with a bank in
order to refinance the balance outstanding on the line of credit at December 31,
1999. The capital lease has a five-year term and bears interest at a rate of
9.29% per annum. The monthly payment is $4,730 and we have the option to
purchase the equipment for a nominal amount at the end of the lease term.
Although the amount outstanding on the line of credit at December 31, 1999, was
converted to a capital lease, we retain the line of credit for our short-term
financing needs.
We anticipate that our current cash resources, expected cash flow from
operations, and the equipment financing described above will be sufficient to
fund our capital needs during the next 12 months at our current level of
operations, apart from capital needs resulting from construction of new
facilities or acquisitions of additional equipment or additional business
operations. We may, however, be required to obtain additional capital to fund
our planned growth during the next 12 months and beyond, particularly for
expansion of our facilities and operations in Mexico. Potential sources of any
additional capital may include the proceeds from bank financing, strategic
alliances, and offerings of our equity or debt securities. We cannot provide
assurance that additional capital will be available from these or other
potential sources, and the lack of additional capital could have a material
adverse effect on our business.
YEAR 2000 COMPLIANCE
Many existing computer programs and systems use only two digits to identify
a year in the date field. These programs and systems were designed and developed
without considering the impact of the recent change in the century.
During 1999, we upgraded our internal computer networks at our headquarters
in Phoenix, Arizona. These upgrades were intended to integrate management
information systems, as well as to ensure compliance with Year 2000
requirements. During fiscal 1999, we also completed upgrades to our computer
systems and equipment located in Mexico during 1999 to address Year 2000 issues,
as well as to improve the content, quality, and flow of information throughout
our company. As of the date of this Report, we have not experienced any material
disruption to our operations as a result of any failure of any of our systems to
function properly as of January 1, 2000. We also have not experienced any Year
2000 failures related to any of our significant vendors or suppliers.
Year 2000 compliance has many elements and potential consequences, some of
which may not be foreseeable or may be realized in future periods. In addition,
unforeseen circumstances may arise, and we may not in the future identify
equipment or systems that are not Year 2000 compliant.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Consolidated Financial Statements, the Notes
thereto, and the reports thereon commencing at page F-1 of this Report, which
financial statements, notes, and reports are incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
19
<PAGE>
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 certain information regarding our directors
and executive officers.
NAME AGE POSITION HELD
---- --- -------------
Franklin E. Cunningham 47 Chairman of the Board, President, and
Chief Executive Officer
Spencer W. Cunningham 50 Executive Vice President, Treasurer, and
Director
Aaron T. Macneil 30 Chief Financial Officer
Michael D. Nafziger 44 Director of National Sales, Secretary, and
Director
Lee M. Cunningham 48 Director
L. Ernest Whitesel 62 Director
FRANKLIN E. CUNNINGHAM founded our company and has served as our President
and Chief Executive Officer since August 1989 and as Chairman of the Board since
November 1991. Mr. Cunningham served as our Treasurer from August 1989 to March
1998. From 1983 to 1989, Mr. Cunningham served as a consultant and agent to
various architectural stone and ceramic tile materials and equipment suppliers,
manufacturers, manufacturer representatives, distributors, architects, and
designers in the United States, Italy, Germany, Taiwan, Spain, Portugal, India,
Turkey, and Indonesia. Mr. Cunningham has been involved in various aspects of
the architectural stone and ceramic tile industry since 1973. Mr. Cunningham is
the brother of Spencer W. Cunningham and the former spouse of Lee M. Cunningham.
SPENCER W. CUNNINGHAM has served as our Executive Vice President and as a
director of our company since August 1994. Mr. Cunningham served as our Chief
Financial Officer from November 1998 until September 1999. Mr. Cunningham also
served as our Vice President from August 1989 until May 1991. From January 1985
to November 1991, Mr. Cunningham operated a real estate construction company and
served as an independent business development consultant in Ohio and Arizona.
Mr. Cunningham is the brother of Franklin E. Cunningham and the brother-in-law
of Lee M. Cunningham.
AARON T. MACNEIL has served as our Chief Financial Officer since September
1999. Mr. Macneil was employed as an audit manager with Arthur Andersen LLP from
September 1995 to September 1999, where he was primarily engaged in auditing
publicly held companies. He is a Certified Public Accountant in the state of
Arizona.
MICHAEL D. NAFZIGER has served as our Director of National Sales and as a
director of our company since August 1996, and as our Secretary since November
1998. Mr. Nafziger served as our Director of Operations from November 1995 to
August 1996. Prior to joining our company, Mr. Nafziger served as Vice President
- - Marketing for Genesis Technology Group from 1981 to 1983 and as President of
Ultraset/Profinish from 1983 to 1991. Mr. Nafziger was self-employed as a
consultant from 1991 until November 1995.
LEE M. CUNNINGHAM has served as a director of our company since September
1990. Ms. Cunningham served as our Secretary from September 1990 to November
1998 and as our Vice President from November 1998 until April 1999. Ms.
Cunningham also served as our Secretary from October 1989 to March 1990. Ms.
Cunningham currently serves as the Human Resource Manager for The Del Webb
Corporation. Ms. Cunningham is a licensed general contractor in the State of
Arizona and has been engaged in various aspects of the interior design and
furnishings, building products and building construction, and importing
industries since 1973. Ms.
20
<PAGE>
Cunningham also is active as a consultant in human resources and leadership, and
facilitates seminars for professional growth. Ms. Cunningham is the former
spouse of Franklin E. Cunningham.
L. ERNEST WHITESEL has served as a director of our company since November
1992. Mr. Whitesel has engaged in business investing activities as President of
Hallmark Enterprises, Inc. since March 1991. Mr. Whitesel served as the
principal partner in a general insurance agency from 1981 to 1990.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors, officers, and
persons who own more than 10% of a registered class of our equity securities to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission. SEC regulations require directors, officers, and greater
than 10% stockholders to furnish our company with copies of all Section 16(a)
forms that they file. Based solely upon our review of the copies of such forms
for the year ended December 31, 1999 received by us and written representations
that no other reports were required, we believe that each person who was a
director, officer, or beneficial owner of more than 10% of our common stock
complied with all Section 16(a) filing requirements during such fiscal year,
except that Aaron Macneil timely filed a report on Form 5 disclosing his
beneficial ownership of our securities as of the date on which he became an
officer of our company, which was required to have been reported earlier on Form
3.
ITEM 10. EXECUTIVE COMPENSATION
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The following table sets forth certain information concerning the
compensation earned by our Chief Executive Officer for the fiscal years ended
December 31, 1997, 1998, and 1999. No other executive officer of our company
received compensation of $100,000 or more during fiscal 1999.
SUMMARY COMPENSATION TABLE
ALL OTHER
ANNUAL COMPENSATION COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($)(1) BONUS($) ($)(2)
- --------------------------- ---- ------------- -------- ------------
Franklin E. Cunningham 1999 $ 100,000 $ 0 $962
Chairman of the Board, and 1998 83,333 0 962
President and Chief Executive 1997 72,000 0 962
Officer
- ----------
(1) Mr. Cunningham also received certain perquisites, the value of which did
not exceed 10% of his salary and bonus during fiscal 1999.
(2) Amounts shown for fiscal 1999 represent premium payments for term life
insurance.
We offer our employees, including directors who also are employees of our
company, medical, dental, and life insurance benefits. We currently have no
stock option plan or other incentive or long-term compensation plans for or
agreements with our directors, officers, or other key employees.
DIRECTORS' COMPENSATION
Our directors historically did not receive compensation for serving as
members of our board of directors and were not reimbursed for their expenses in
attending meetings of the board of directors. In November 1998, our board of
directors approved a program under which directors receive $200 for each meeting
attended in person or by telephone. In addition, we now reimburse directors for
expenses related to out-of-town travel to attend board of directors meetings.
21
<PAGE>
CONSULTING AGREEMENT
During April 1999, we entered into a Separation and Consulting Agreement
with Lee M. Cunningham, a director of our company, in connection with her
resignation as an officer of our company. Under the agreement, Ms. Cunningham
has agreed to provide consulting services and advice to us with respect to
various human resources issues that we encounter in connection with our
business. We have agreed to pay Ms. Cunningham $2,080 per month for 81 months,
beginning in April 1999, in consideration of services that Ms. Cunningham
previously provided to us, for the consulting services she provides under the
agreement, and for certain releases given by Ms. Cunningham in the agreement. We
also agreed to indemnify Ms. Cunningham with respect to any losses she may incur
as a result of her personal guarantees of our indebtedness to third parties
prior to her resignation.
We do not have any employment or consulting agreements with any of our
other directors, officers, or other employees.
2000 INCENTIVE STOCK PLAN
On March 15, 2000, our Board of Directors adopted our 2000 Incentive Stock
Plan, subject to approval by our stockholders at a meeting to be held within 12
months. The incentive plan provides for the grant of incentive and nonqualified
stock options to acquire common stock, the direct grant of common stock, the
grant of stock appreciation rights, or SARs, and grants of other stock-based
awards to key personnel, directors, consultants, independent contractors, and
others who provide valuable services to our company. The incentive plan provides
these individuals with an opportunity to acquire a proprietary interest in our
company and thereby align their interests with the interests of our other
stockholders and to give these individuals an additional incentive to use their
best efforts for our long-term success. We believe that the incentive plan will
represent an important factor in attracting and retaining executive officers and
other key employees, directors, and consultants and may constitute a significant
part of our compensation program.
We may issue up to a maximum of 30,000,000 shares of our common stock under
the incentive plan. That number will be automatically adjusted to 1,000,000
shares upon stockholder approval of the proposed 1-for-30 reverse stock split.
The maximum number of shares of stock with respect to which options or other
awards may be granted to any individual employee, including officers, during the
term of the incentive plan may not exceed 50% of the shares of common stock
covered by the incentive plan. As of March 20, 2000, we have not granted any
options or other awards under the incentive plan.
The incentive plan will terminate on March 15, 2010, and options may be
granted at any time during the life of the incentive plan. The power to
administer the incentive plan with respect to our executive officers and
directors and all persons who own 10% or more of our issued and outstanding
stock rests exclusively with the Board of Directors or a committee consisting of
two or more non-employee directors. The power to administer the incentive plan
with respect to other persons rests with the Board of Directors or a committee
of the Board of Directors. The plan administrator will determine the persons to
whom options or other awards will be granted, when options become exercisable,
the exercise prices of options, and the expiration dates of options and other
awards. If an option is intended to be an incentive stock option, the exercise
price may not be less than 100% (110% if the option is granted to a stockholder
who at the time of grant owns stock possessing more than 10% of the total
combined voting power of all classes of our stock) of the fair market value of
the common stock at the time of grant, and the term may not exceed 10 years (5
years if the option is granted to a stockholder who possesses more than 10% of
the voting power of our stock).
The incentive plan is not intended to be the exclusive means by which we
may issue options or warrants to acquire our common stock, stock awards, or any
other type of award. To the extent permitted by applicable law, we may issue
additional options, warrants, or stock-based awards other than pursuant to the
incentive plan without stockholder approval.
22
<PAGE>
LIMITATION OF DIRECTORS' LIABILITY; INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES, AND AGENTS
Our articles of incorporation provide that no director or officer of our
company shall be personally liable to our company or its stockholders for
monetary damages for any breach of fiduciary duty by such person as a director
or officer, except that a director or officer shall be liable, to the extent
provided by applicable law, (a) for acts or omissions which involve intentional
misconduct, fraud or a knowing violation of law, or (b) for the payment of
dividends in violation of restrictions imposed by Nevada laws. The effect of
this provision in the articles of incorporation is to eliminate the rights of
our company and our stockholders, either directly or through stockholders'
derivative suits brought on behalf of our company, to recover monetary damages
from a director or officer for breach of the fiduciary duty of care as a
director or officer except in those instances provided under Nevada law.
Our bylaws require us to indemnify any person who incurs liability or
expense by reason of such person acting as a director or officer of our company,
to the fullest extent allowed by Nevada law, except that indemnification is not
permitted in relation to any matter in which such person is found to be liable
for negligence or misconduct. In the event that an action, suit, or proceeding
is settled, we may indemnify such person only in connection with such matters
covered by the settlement as to which we are advised by counsel that the person
to be indemnified did not commit such a breach of duty. Our bylaws define
"expenses" to include, but not to be limited to, amounts of judgments, penalties
or fines and interest thereon, costs, attorneys' fees, expert witness fees, and
amounts paid in settlement, provided that such settlement is approved by our
board of directors before we indemnify a person determined to be entitled to
such indemnification.
Section 78.751 of the Nevada General Corporation Law provides that a
corporation may indemnify its directors and officers against expenses, including
attorneys' fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by the director or officer in connection with an action,
suit or proceeding in which the director or officer has been made or is
threatened to be made a party, if the director or officer acted in good faith
and in a manner that the director or officer reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal proceeding, had no reason to believe that his or her conduct was
unlawful. Any such indemnification may be made by the corporation only as
ordered by a court or as authorized by the corporation's stockholders or board
of directors in a specific case upon a determination made in accordance with the
Nevada GCL that such indemnification is proper in the circumstances. Under the
Nevada GCL, indemnification may not be made for any claim, issue or matter as to
which the director or officer has been adjudged by a court of competent
jurisdiction, after exhaustion of all appeals, to be liable to the corporation
or for amounts paid in settlement by the corporation, unless and only to the
extent that the court in which the action or suit was brought or other court of
competent jurisdiction determines that in view of all the circumstances of the
case, the director or officer is fairly and reasonably entitled to indemnity for
such expenses as the court deems proper. Under the Nevada GCL, to the extent
that a director or officer of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding or in defense of any
claim, issue or matter therein, the director or officer must be indemnified by
the corporation against expenses, including attorneys' fees, actually and
reasonably incurred by the director or officer in connection with the defense.
23
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the shares of
our common stock beneficially owned as of March 20, 2000 (a) by each of our
directors and executive officers; (b) by all of our directors and executive
officers as a group; and (c) by each person who is known by us to own
beneficially or exercise voting or dispositive control over more than 5% of our
common stock.
SHARES BENEFICIALLY
OWNED(2)
----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER PERCENT
- --------------------------------------- ------ -------
DIRECTORS AND EXECUTIVE OFFICERS
Franklin E. Cunningham 15,119,695 45.5%
Spencer W. Cunningham 4,138,000 12.4%
Aaron T. Macneil 0 *
Michael D. Nafziger 0 *
Lee M. Cunningham 450,000 1.4%
L. Ernest Whitesel 23,750 *
Jaime Muguiro Munos(3) 2,280,000 6.9%
Alejandro Muguiro Munos(4) 1,520,000 4.6%
All directors and executive officers
as a group (eight persons) 23,531,445 70.8%
OTHER 5% SHAREHOLDERS
- ---------------------
Allyson Cunningham(5) 1,906,975 5.7%
Alfredo Santiesteban Escalante(6) 1,790,024 5.4%
*Less than 1% of outstanding shares of common stock.
(1) Except as otherwise indicated, each person named in the table has sole
voting and investment power with respect to all common stock beneficially
owned by him or her, subject to applicable community property law. Except
as otherwise indicated, each of these persons may be reached through our
company at 5236 South 40th Street, Phoenix, Arizona 85040.
(2) Based on 33,253,768 shares of common stock outstanding as of March 20,
2000. The numbers and percentages shown include the shares of common stock
actually owned as of March 20, 2000 and the shares of common stock that the
person or group had the right to acquire within 60 days of that date. In
calculating the percentage of ownership, all shares of common stock that
the identified person had the right to acquire within 60 days of March 20,
2000 are deemed to be held by such person for the purpose of computing the
percentage of the shares of common stock owned by such person.
(3) Mr. Munos is an officer and director of our wholly owned subsidiary,
Marmoles Muguiro, S.A. de C.V. Mr. Munos' address is c/o Marmoles Muguiro,
S.A. de C.V., Boulevard Francisco Villa, Km 2 CD. Industrial, Durango,
Durango, Mexico.
(4) Mr. Munos is an officer and director of our wholly owned subsidiary,
Marmoles Muguiro, S.A. de C.V. Mr. Munos' address is c/o Marmoles Muguiro,
S.A. de C.V., Boulevard Francisco Villa, Km 2 CD. Industrial, Durango,
Durango, Mexico.
(5) Ms. Cunningham is the daughter of Franklin and Lee Cunningham.
(6) Mr. Escalante's address is Avenue 20 de Noviembre # 320 Ote. 3er. Piso,
Durango, Durango, Mexico.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In January 1999, Franklin E. Cunningham, our Chairman of the Board,
President, and Chief Executive Officer, acquired the building in Phoenix,
Arizona, that we lease for our corporate offices, showroom, and warehouse space.
Our lease for this building expires in November 2000. We paid rental payments to
Mr. Cunningham of approximately $59,000 during fiscal 1999. In connection with
the dissolution of their marriage, in March 2000 Mr. Cunningham transferred this
building to Lee M. Cunningham, who also is a director of our
24
<PAGE>
company. Because we entered into this lease with a third party prior to Mr.
Cunningham's acquisition of the building, we believe that the terms of the lease
are no less favorable to our company than we could obtain from non-affiliated
parties.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit
Number Exhibit
- ------ -------
3.1 Articles of Incorporation of the Registrant(1)
3.2 Bylaws of Registrant, as amended to date(1)
4.1 Form of Certificate of Common Stock(1)
10.1 Pledge and Deposit Agreement dated April 12, 1999 between World Wide
Stone Corporation, First Capital Group, Inc., Sociedad Piedra Sierra,
S.A. de C.V., and Jaime Muguiro Munoz(2)
10.2 Equipment Loan and Security Agreement dated April 13, 1999 between
World Wide Stone Corporation and First Capital Group, Inc.(2)
10.3 Promissory Note in the principal amount of $1,080,000 dated April 13,
1999 issued by World Wide Stone Corporation and guaranteed by Sociedad
Piedra Sierra, S.A. de C.V., payable to First Capital Group, Inc.(2)
10.4 Separation and Consulting Agreement dated April 15, 1999 between World
Wide Stone Corporation and Lee M. Cunningham
10.5 Promissory Note dated August 13, 1999, between World Wide Stone
Corporation, as Borrower, and Bank One, Arizona NA, as Lender
10.6 Commercial Security Agreement dated August 13, 1999, between World
Wide Stone Corporation, as Borrower, and Bank One, Arizona NA, as
Lender
10.7 Commercial Guaranty dated August 13, 1999, by Frank Cunningham as
Guarantor
27.1 Financial Data Schedule
- ----------
(1) Incorporated by reference to the Registrant's Form 10-KSB for the year
ended December 31, 1997, as filed with the Securities and Exchange
Commission on November 19, 1998.
(2) Incorporated by reference to the Registrant's Form 10-QSB for the quarter
ended June 30, 1999, as filed with the Securities and Exchange Commission
on August 16, 1999.
(b) REPORTS ON FORM 8-K.
None
25
<PAGE>
SIGNATURES
In accordance with 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.
WORLD WIDE STONE CORPORATION
Date: March 24, 2000 /s/ Franklin E. Cunningham
----------------------------------------
Franklin E. Cunningham, Chairman of the
Board, President, and Chief Executive
Officer
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the date indicated.
Signature Capacity Date
- --------- -------- ----
/s/ Franklin E. Cunningham Chairman of the Board, March 24, 2000
- --------------------------- President, and Chief
Franklin E. Cunningham Executive Officer
(Principal Executive Officer)
/s/ Aaron T. Macneil Chief Financial Officer March 24, 2000
- --------------------------- (Principal Financial
Aaron T. Macneil and Accounting Officer)
/s/ Spencer W. Cunningham Executive Vice President March 24, 2000
- --------------------------- and Director
Spencer W. Cunningham
/s/ Michael D. Nafziger Director of National Sales, March 24, 2000
- --------------------------- Secretary, and Director
Michael D. Nafziger
/s/ Lee M. Cunningham Director March 24, 2000
- ---------------------------
Lee M. Cunningham
/s/ L. Ernest Whitesel Director March 24, 2000
- ---------------------------
L. Ernest Whitesel
26
<PAGE>
WORLD WIDE STONE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Public Accountants................................... F-2
Consolidated Balance Sheet as of December 31, 1999......................... F-3
Consolidated Statements of Operations and Other Comprehensive Income
for the Years Ended December 31, 1999 and 1998......................... F-4
Consolidated Statements of Shareholders' Equity for the Years
Ended December 31, 1999 and 1998....................................... F-5
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1999 and 1998....................................... F-6
Notes to Consolidated Financial Statements................................. F-7
F-1
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To World Wide Stone Corporation:
We have audited the accompanying consolidated balance sheet of WORLD WIDE STONE
CORPORATION (a Nevada corporation) and subsidiaries as of December 31, 1999, and
the related consolidated statements of operations and other comprehensive
income, stockholders' equity and cash flows for each of the two years in the
period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of World Wide Stone Corporation
and subsidiaries as of December 31, 1999 and the results of their operations and
their cash flows for each of the two years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States.
/s/ Arthur Andersen LLP
Phoenix, Arizona,
March 15, 2000.
F-2
<PAGE>
WORLD WIDE STONE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, 1999
ASSETS
CURRENT ASSETS:
Cash $ 151,147
Accounts receivable 805,052
Inventories (Note 2) 1,519,767
Prepaid expenses and other 72,585
-----------
Total current assets 2,548,551
PROPERTY, PLANT AND EQUIPMENT, net (Notes 2, 4 and 6) 5,159,297
COST IN EXCESS OF NET ASSETS ACQUIRED, net of
accumulated amortization of $118,555 (Note 2) 155,034
OTHER ASSETS:
Other receivables (Note 9) 299,308
Deferred loan fees, net 47,505
Prepaid taxes 10,748
-----------
Total assets $ 8,220,443
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 228,286
Accrued liabilities 319,353
Income taxes payable 94,093
Current portion of long-term debt (Note 4) 297,830
Other (Note 7) 900,000
-----------
Total current liabilities 1,839,562
DEFERRED TAX LIABILITY 18,000
REVOLVING LINE OF CREDIT (Note 5) 250,000
LONG-TERM DEBT, net of current portion (Note 4) 787,408
-----------
Total liabilities 2,894,970
-----------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 100,000,000
shares authorized, 34,803,768 issued,
32,803,768 outstanding at December 31, 1999 34,804
Additional paid-in capital 8,039,436
Accumulated deficit (2,643,707)
Cumulative foreign currency remeasurement adjustment 14,940
Treasury stock, at cost, 2,000,000 shares (120,000)
-----------
Total stockholders' equity 5,325,473
-----------
Total liabilities and stockholders' equity $ 8,220,443
===========
The accompanying notes are an integral part of this consolidated balance sheet.
F-3
<PAGE>
WORLD WIDE STONE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations and Other Comprehensive Income
For the Years Ended December 31, 1999 and 1998
1999 1998
------------ ------------
REVENUE $ 6,567,106 $ 4,267,938
COST OF GOODS SOLD 3,489,307 2,042,064
------------ ------------
Gross profit 3,077,799 2,225,874
COST AND EXPENSES:
Selling, general and administrative 1,674,229 1,290,600
Depreciation and amortization 49,558 42,276
------------ ------------
Income from operations 1,354,012 892,998
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 12,007 7,645
Interest expense (44,971) (31,625)
Gain (loss) on foreign currency
remeasurement (Note 2) 69,482 (38,399)
------------ ------------
36,518 (62,379)
------------ ------------
INCOME BEFORE INCOME TAXES 1,390,530 830,619
PROVISION FOR INCOME TAXES (Note 8) 497,000 --
------------ ------------
Net income 893,530 830,619
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Foreign currency remeasurement
adjustment (Note 2) 17,201 (2,261)
------------ ------------
Comprehensive income $ 910,731 $ 828,358
============ ============
EARNINGS PER SHARE
Basic and diluted:
Net income per share (Note 2) $ .03 $ .02
============ ============
Weighted average number of common
shares outstanding 32,748,700 34,687,330
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
WORLD WIDE STONE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Common Stock
-------------------- Additional Cumulative
Shares Paid-in Accumulated Remeasurement Treasury
Issued Amount Capital Deficit Adjustment Stock Total
---------- ------- ---------- ----------- -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 34,703,768 $34,704 $7,904,536 $(4,367,856) $ -- $ -- $3,571,384
Acquisition of treasury
stock (Note 3) -- -- 120,000 -- -- (120,000) --
Remeasurement loss (Note 2) -- -- -- -- (2,261) -- (2,261)
Net income -- -- -- 830,619 -- -- 830,619
---------- ------- ---------- ----------- -------- --------- ----------
BALANCE, December 31, 1998 34,703,768 34,704 8,024,536 (3,537,237) (2,261) (120,000) 4,399,742
Common stock issued for
services received 100,000 100 14,900 -- -- -- 15,000
Remeasurement gain (Note 2) -- -- -- -- 17,201 -- 17,201
Net income -- -- -- 893,530 -- -- 893,530
---------- ------- ---------- ----------- -------- --------- ----------
BALANCE, December 31, 1999 34,803,768 $34,804 $8,039,436 $(2,643,707) $ 14,940 $(120,000) $5,325,473
========== ======= ========== =========== ======== ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
WORLD WIDE STONE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 893,530 $ 830,619
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 393,910 331,534
Amortization of deferred loan fees 8,160 --
(Gain) loss on foreign currency remeasurement (69,482) 38,399
Common stock issued for services received 15,000 --
Changes in certain assets and liabilities:
Increase in accounts receivable (539,467) (128,164)
Increase in inventories (634,289) (259,377)
Decrease (increase) in prepaid expenses and other 96,130 (146,486)
Decrease in deferred tax asset 300,000 --
Decrease in prepaid taxes 3,117 5,048
(Increase) decrease in other receivables (40,287) 62,993
Increase in accounts payable 103,992 31,720
Increase (decrease) in accrued liabilities 129,639 (26,857)
Increase in income taxes payable 94,093 --
Increase in deferred tax liability 18,000 --
----------- -----------
Net cash provided by operating activities 772,046 739,429
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant, and equipment, net (1,975,180) (580,492)
----------- -----------
Net cash used in investing activities (1,975,180) (580,492)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from long-term debt 880,779 (101,430)
Net proceeds from line of credit 250,000 --
Deferred loan fees (55,665) --
----------- -----------
Net cash provided by (used in) financing activities 1,075,114 (101,430)
----------- -----------
NET (DECREASE) INCREASE IN CASH (128,020) 57,507
CASH, beginning of year 279,167 221,660
----------- -----------
CASH, end of year $ 151,147 $ 279,167
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest including amounts capitalized $ 79,071 $ 31,625
=========== ===========
Cash paid for income taxes $ 84,900 $ --
=========== ===========
Noncash financing activities:
Acquisition of treasury stock through
additional paid-in capital $ -- $ 120,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
WORLD WIDE STONE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(1) ORGANIZATION AND SPECIAL CONSIDERATIONS:
World Wide Stone Corporation, a Nevada corporation, and its subsidiaries
(collectively, the Company) quarry, manufacture and market a wide variety of
dimensional stone products. Stone is cut, finished and packaged at its three
factories which operate in Durango, Mexico. Dimensional stone products consist
of natural stone that is cut to standard sizes or to sizes specified in
architectural designs. The Company's products are used for both interior and
exterior applications in residential and commercial buildings, primarily as
floor, wall, and patio tiles, decorative trim and architectural accents,
countertops and tabletops, and panels. The Company markets and distributes its
products throughout the United States, and on occasion in Canada and Europe,
primarily on a wholesale basis through approximately 45 authorized stocking
distributors and more than 350 wholesale distributors, as well as architects,
residential and commercial developers, installation contractors, and designers.
The Company currently obtains substantially all of its stone blocks from
two quarry sites in Coahuila, Mexico. The Company believes that the stone
extracted from these sites possesses distinctive characteristics in terms of
color and quality that make this particular type of marble limestone unique. The
Company extracts stone from these quarries pursuant to existing lease
arrangements with the owners of the land. During 1998 and the first five months
of 1999, the Company paid a royalty based upon the number of cubic meters of
stone extracted from these sites. In May 1999, the Company modified its lease
arrangement and now pays a fixed amount each month regardless of the quantity of
stone extracted from these sites. The Company believes that these quarry sites
will be sufficient to meet the Company's requirements for this type of marble
limestone for an indefinite period of time at management's anticipated levels of
production. Although the Company currently has secured long-term leases for its
primary quarry sites, the inability to continue to extract sufficient quantities
of stone from these sites for even a short period of time would have a material
adverse effect on the Company's financial condition and results of operations.
There can be no assurance that the Company would be able to locate an
alternative source of stone with desirable characteristics on a timely basis in
the event that it is unable to obtain stone from its primary quarry sites.
The Company depends upon third-party contractors to extract stone blocks from
the Company's leased quarry sites in Mexico. Although the Company owns some of
the tools, equipment, and supplies utilized in the quarrying process, the
Company has limited control over the quarrying process. As a result, any
difficulties encountered by the third-party contractors that result in
production delays or the inability to fulfill orders on a timely basis could
have a material adverse effect on the Company. The Company does not have
long-term contracts with its third-party contractors. The Company has
experienced short-term interruptions in services from its third-party
contractors in the past and was able to take temporary measures to avoid
prolonged disruption to its operations. Although the Company believes it would
be able to secure other
F-7
<PAGE>
third-party contractors that could conduct quarrying operations for the Company,
the Company's operations could be adversely affected if it lost its relationship
with any of its current contractors.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of World Wide Stone
Corporation and its wholly owned subsidiaries, Cantera Stone, Inc. (a Nevada
corporation), Marmoles Muguiro, S.A. de C.V., (a Mexican corporation) and
Sociedad Piedra Sierra, S.A. de C.V (a Mexican corporation). All material
intercompany transactions, accounts, and balances have been eliminated.
SEGMENT REPORTING
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND
RELATED INFORMATION. SFAS No. 131 superseded SFAS No. 14, FINANCIAL REPORTING
FOR SEGMENTS OF A BUSINESS ENTERPRISE. SFAS No. 131 establishes standards for
reporting information about operating segments, products and services,
geographic areas, and major customers. The adoption of SFAS No. 131 did not
affect the Company's results of operations or financial position, and does not
affect the reporting requirements of the Company as it operates in one
reportable segment under the criteria outlined in SFAS No. 131.
INVENTORIES
Inventories are stated at the lower of cost or market with cost being determined
under the specific identification method. Market is the lower of replacement
cost or net realizable value. Inventories and cost of goods sold include all
operating expenses incurred at the two plants in
Mexico. Inventories as of December 31, 1999 were located at the manufacturing
facilities in Durango, Mexico, at a warehouse in Phoenix, Arizona, and at a
bonded warehouse in El Paso, Texas.
Inventories at December 31, 1999 consist of the following:
Finished goods $ 1,177,924
Raw materials 341,843
-----------
$ 1,519,767
===========
Finished goods inventory amounts include the costs of raw materials, capitalized
labor costs and capitalized overhead costs of the production factory in Mexico.
COST IN EXCESS OF NET ASSETS ACQUIRED
The cost in excess of net assets acquired is being amortized on a straight-line
basis over 15 years. Amortization expense for the years ended December 31, 1999
and 1998 amounted to $18,239 for each period.
F-8
<PAGE>
PROPERTY, PLANT AND EQUIPMENT
Major renewals or betterments are capitalized while maintenance costs and
repairs are expensed in the period incurred. Upon retirement or disposal of
depreciable assets, the cost and related accumulated depreciation are removed
from the accounts and the resulting gain or loss is reflected in operations.
Depreciation expense included in cost of goods sold as indirect overhead for the
years ended December 31, 1999 and 1998 amounted to $344,352 and $289,258,
respectively.
LONG-LIVED ASSETS
The Company periodically evaluates the carrying value of long-lived assets in
accordance with SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. Under SFAS No. 121, long-lived
assets and certain identifiable intangible assets to be held and used in
operations are reviewed for impairment whenever events or circumstances indicate
that the carrying amount of an asset may not be fully recoverable. An impairment
loss is recognized if the sum of the expected long-term undiscounted cash flows
is less than the carrying amount of the long-lived assets being evaluated.
REVENUE RECOGNITION
Revenue is recognized upon product shipment to the customer from the warehouses
in Arizona or Texas, or the factory in Durango, Durango, Mexico.
USE OF 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 and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has been determined by the
Company using available market information and valuation methodologies.
Considerable judgment is required in estimating fair values. Accordingly, the
estimates may not be indicative of the amounts the Company could realize in a
current market exchange.
The carrying amounts of cash, receivables and accounts payable approximate fair
values since they are short-term in nature. The carrying amounts of the
Company's borrowings under the long-term debt instruments approximate fair
value. The fair value of the Company's long-term debt is estimated using
discounted cash flow analyses, based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.
DEFERRED LOAN FEES
Included in other assets are deferred loan fees of $47,505, net of $8,160 of
accumulated amortization at December 31, 1999. These costs of obtaining
financing are being amortized
F-9
<PAGE>
over the term of the related debt, using the straight-line method. The
difference between amortizing the deferred loan fees using the straight-line
method and amortizing such costs using the effective interest method is not
material.
EARNINGS PER SHARE
The Company utilizes SFAS No. 128, EARNINGS PER SHARE, to compute basic and
diluted earnings per share. Pursuant to SFAS No. 128, basic earnings per common
share is computed by dividing net income by the weighted average number of
shares of common stock outstanding during the year. Diluted earnings per common
share is determined assuming that common stock equivalents, including options
and/or warrants, were exercised at the beginning of each year or at the time of
issuance. Because the Company has no outstanding convertible securities or other
common stock equivalents, there is no difference between amounts reported for
weighted average common shares and earnings per share for basic and diluted
amounts.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially expose the Company to concentrations of
credit risk, as defined by SFAS No. 105, DISCLOSURE OF INFORMATION ABOUT
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND FINANCIAL INSTRUMENTS WITH
CONCENTRATION OF CREDIT RISK, consist primarily of receivables. Concentration of
credit risk with respect to trade receivables is limited due to the large number
of customers spread over a large geographic area. The Company's trade
receivables are not secured.
FOREIGN CURRENCY TRANSLATION
The Company's wholly-owned Mexican subsidiaries maintain their books and records
in Mexican pesos. Their functional currency, however, is the U.S. dollar.
Therefore, these subsidiaries utilize the remeasurement method of foreign
currency translation when consolidated.
The remeasurement method of foreign currency translation converts all monetary
assets and liabilities from Mexican pesos to U.S. dollars at the current rate of
exchange at the balance sheet date. All nonmonetary assets and liabilities are
converted at the historical rates that were present when the particular
transaction took place. Revenue and expenses from the statements of operations
are converted from Mexican pesos to U.S. dollars at a weighted average
conversion rate. Depreciation, amortization, and similar historical-cost-based
expenses use a historical-based rate. Remeasurement gains or losses resulting
from transactions that are short-term in nature are reported in the Company's
consolidated statements of operations. Remeasurement gains or losses resulting
from intercompany transactions that are long-term in nature are reported as a
separate component of stockholders' equity.
(3) RELATED PARTY TRANSACTIONS:
On December 3, 1995, the Company acquired the rights to mine a deposit of green
quartzite in the state of Chihuahua, Mexico. The Company exchanged 2,000,000
shares of its restricted common stock for these rights. Because the stock was
issued to an officer of one of the Company's subsidiaries, the purchase of the
lease rights was expensed in 1995. The entire transaction was rescinded in
December 1998 and the shares of stock issued to the officer were
F-10
<PAGE>
returned to the Company and placed in treasury stock. The returned shares were
valued using the closing price of the Company's stock as quoted in the National
Quotation Bureau's "Pink Sheets" at the date of recission.
In January 1999, an officer of the Company acquired the building that the
Company leases for its corporate offices in Phoenix, Arizona. Because the
Company entered into the lease with a third party prior to the officer's
acquisition of the building, the Company believes that the terms of the lease
are no less favorable to the Company than could be obtained from non-affiliated
parties.
During April 1999, the Company entered into a Separation and Consulting
Agreement (the Agreement) with a director of the Company in connection with the
director's resignation as an officer and employee. Under the Agreement, the
director has agreed to provide consulting services to the Company. The Agreement
requires the Company to pay $2,080 per month for 81 months for consulting
services to be provided. The Company began making these payments in April 1999.
(4) LONG-TERM DEBT:
Long-term debt at December 31, 1999, consists of the following:
Loan from bank, interest at 9.53%, principal and interest
payments of $22,517 due monthly through April 2004, Secured
by machinery and equipment $ 941,314
Loan from bank, interest at prime (8.25% at December 31,
1999) plus 2% per annum, principal and interest payments of
$6,175 due monthly through December 2000, secured by
equipment 67,879
Various loans, interest ranging from 6.9% to 10.7% per
annum, principal and interest payments ranging from $432 to
$616 due monthly through September 2001, secured by vehicles
and equipment 76,045
-----------
1,085,238
Less - current portion (297,830)
-----------
Total long-term portion $ 787,408
===========
Future maturities are as follows:
Years Ending
December 31,
------------
2000 $ 297,830
2001 225,715
2002 234,508
2003 257,665
2004 69,520
-----------
$ 1,085,238
===========
F-11
<PAGE>
(5) LINE OF CREDIT:
At December 31, 1999, the Company had a $500,000 line of credit from Bank One of
Arizona (the Line of Credit). The Company can borrow amounts under the Line of
Credit at the bank's prime rate plus 1.5%, or 10.0% at December 31, 1999, with
interest payable monthly. The Line of Credit expires August 13, 2000, and is
secured by inventory, accounts receivable, and intangible assets. The Company's
president and chief executive officer also has personally guaranteed the
obligations under the Line of Credit. At December 31, 1999, there were
outstanding borrowings of $250,000 and $250,000 available to the Company under
the Line of Credit.
In January 2000, the Company entered into a capital lease agreement with a bank
in order to refinance the balance outstanding on the Line of Credit at December
31, 1999. The capital lease has a five-year term and bears interest at a rate of
9.29% per annum. The monthly payment is $4,730 and the Company has the option to
purchase the equipment at a nominal amount at the end of the lease term.
Although the amount outstanding on the Line of Credit at December 31, 1999 was
converted to a capital lease, the Company retains the line of credit for its
short-term financing needs.
(6) PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are stated at cost. Depreciation is being provided
by use of the straight-line method over the estimated useful lives of the
assets.
Property, plant and equipment at December 31, 1999 is comprised of the
following:
Useful
Lives Amount
----- ------
Land located in Mexico N/A $ 780,000
Property, plant and specialty manufacturing
systems located in Mexico 40 years 1,308,578
Machinery, equipment and various vehicles
located in Mexico 5-12 years 4,265,088
Machinery, equipment and vehicles located
in the U.S. 5-12 years 428,502
-----------
6,782,168
Accumulated depreciation (1,622,871)
-----------
Net property, plant and equipment $ 5,159,297
===========
All land, property, plant and specialty manufacturing systems located in Mexico
are held in a Mexican land trust in Durango, Mexico. The trust is administered
by Multibanco Comerex, S.A. for the benefit of Cantera Stone, Inc. The trust was
established in 1991 in accordance with Mexican laws and regulations governing
transactions involving Mexican real property purchased by foreign investors.
Under the trust agreement, the Company is granted full rights of ownership
(rights to construct, lease, sell, etc.) and, therefore, these amounts are
reflected in the consolidated financial statements as assets owned by the
Company.
F-12
<PAGE>
(7) COMMITMENTS AND CONTINGENCIES:
LITIGATION
In September 1998, Marmoles Muguiro S.A. de C.V. filed a lawsuit against Banca
Serfin S.A. in Durango, Mexico. The lawsuit alleges that monies owed on the
Company's line of credit are significantly less than the bank alleges. The bank
has claimed the Company owes U.S. $900,000 (plus penalties and interest, which
the bank has offered to waive) but the Company contends that the actual amount
owed is substantially less. The debt is secured by property and land that are
held in the Mexican trust (see Note 6). Under that agreement, assets held in
trust secure the debt up to 1,400,000 pesos (approximately U.S. $152,000 at
December 31, 1999).
Under the advisement of legal counsel, the Company recorded a liability
(reflected in other current liabilities in the accompanying consolidated balance
sheet) to cover the maximum potential loss resulting from the Bank's claim. The
Company is no longer accruing interest related to the balance alleged by the
bank. It is the opinion of management and its legal counsel that the expected
outcome of this matter will not have a material adverse effect on the results of
operations or on the financial condition of the Company. There can be no
assurance, however, that the Company will obtain a favorable result to this
lawsuit.
OPERATING LEASES
The Company leases its corporate offices (see Note 3), vehicles and other
properties under operating leases. Rent expense under these arrangements was
approximately $71,000 and $65,000 for the years ended December 31, 1999 and
1998, respectively. Total future commitments under these noncancellable
agreements for the years ending December 31, are as follows:
2000 $ 64,767
2001 3,969
--------
$ 68,736
========
ROYALTIES
In May 1999, the Company modified its quarry lease arrangement. The new
arrangement requires the Company to pay the third party a fixed amount of 60,000
pesos per month (approximately $6,520 at December 31, 1999), regardless of the
cubic meters of stone extracted. During the first five months of 1999 and all 12
months of 1998, the Company paid 120 pesos (approximately $13 and $12 at
December 31, 1999 and 1998, respectively) per cubic meter of stone extracted. In
total, these arrangements amounted to approximately $75,000 and $31,000 in U.S.
dollars for the years ended December 31, 1999 and 1998, respectively. These
payments are included in cost of goods sold and inventory in the accompanying
statements of operations and balance sheet as applicable. The new arrangement
expires in 2009, with a 10-year extension at the mutual agreement of both
parties.
F-13
<PAGE>
(8) INCOME TAXES:
The Company accounts for income taxes in accordance with SFAS No. 109,
ACCOUNTING FOR INCOME TAXES. SFAS No. 109 requires the use of an asset and
liability approach in accounting for income taxes. Deferred tax assets and
liabilities are recorded based on the differences between the financial
statement and tax bases of assets and liabilities at the tax rates in effect
when these differences are expected to reverse.
The provision for income taxes for the years ended December 31, 1999 and 1998
consisted of the following:
1999 1998
---- ----
Current $479,000 $ --
Deferred 18,000 --
-------- -------
Total $497,000 $ --
======== =======
A reconciliation of the federal statutory rate to the Company's effective tax
rate for the years ended December 31 are as follows:
1999 1998
---- ----
Statutory federal rate 34% 34%
State taxes, net of federal benefit 6 6
Net operating loss carryforward utilized (4) (40)
---- ----
Total 36% --%
==== ====
The components of the Company's deferred taxes at December 31, 1999, consisted
of the difference between the financial statement and tax bases in fixed assets.
The Company recorded a valuation allowance to reserve its gross deferred tax
assets in situations when it is not "more likely than not" that the asset will
be realized. At December 31, 1998, the Company determined that it was more
likely than not that it would utilize available net operating loss carryforwards
in the future.
During 1999, the Company utilized approximately $1,102,000 of its net operating
loss carryforwards. As of December 31, 1999, the Company has completely utilized
its net operating loss carryforwards.
(9) IVA TAXES RECEIVABLE:
Under Mexican law, a value-added tax (IVA tax) is levied on the value added to
goods and services by each business entity at each level in the production and
distribution chain. Under normal business conditions, each business in the
process collects tax on its sales, takes a credit for the tax it has paid on
purchases, and remits or receives the net amount to/from the government. Only
the final consumer is not entitled to a refund for the tax paid. Because the
Company is an exporter of its products out of Mexico, no IVA tax is collected by
the Company from the end purchaser. However, the Company pays substantial
amounts of IVA tax for raw materials and services related to its Mexican
operations. As of December 31, 1999, the
F-14
<PAGE>
Company was entitled to an IVA tax refund amounting to approximately U.S.
$299,000. The Company believes, based upon written confirmation received from
the Mexican government, that all of the IVA taxes due back to it will be
collected in the first quarter of 2000.
(10) SUBSEQUENT EVENT:
In March 2000, the Company's Board of Directors approved a 1-for-30 reverse
stock split of the Company's common stock. The transaction is pending the
approval of the stockholders. If approved, each 30 shares of the Company's
common stock outstanding prior to the reverse stock split will represent one
share of common stock following the reverse stock split. Stockholders will
receive consideration for fractional shares created as a result of the reverse
stock split. If approved, the Company's net income per share would be restated
as $0.82 and $0.72 for the years ended December 31, 1999 and 1998, respectively.
F-15
SEPARATION AND CONSULTING AGREEMENT
THIS SEPARATION AND CONSULTING AGREEMENT ("Agreement") is made and entered
into as of April 15, 1999, by and between WORLD WIDE STONE CORPORATION, a Nevada
corporation ("WWS"), and LEE M. CUNNINGHAM ("LMC").
RECITALS:
A. LMC has provided consulting and other valuable services to WWS from time
to time and has served as an officer and/or director of WWS since its formation
in 1989. LMC currently serves as a Vice President and as a director of WWS.
B. WWS and LMC desire to terminate their current relationship and enter
into a new agreement for LMC to provide consulting services to WWS. Accordingly,
WWS and LMC have agreed to the terms and conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants set forth in this Agreement, the parties hereto agree as follows:
1. RESIGNATION. LMC hereby resigns as an officer of WWS, effective as
of the date of this Agreement. LMC shall remain a director of WWS, subject to
re-election as a director by the stockholders of WWS in accordance with Nevada
law.
2. SEVERANCE PAYMENTS. WWS shall pay to LMC a severance and consulting
amount equal to $168,480.00, payable in 81 equal monthly installments of
$2,080.00 each, on the fifteenth day of each month beginning on April 15, 1999.
Each of LMC and WWS agrees that this payment has been calculated in
consideration of services previously provided to WWS, in anticipation of the
consulting services to be provided by LMC under Section 3 of this Agreement, and
in consideration of the release given by LMC in Section 5. Accordingly, (a) LMC
agrees that this payment constitutes consideration in addition to anything of
value to which she is already entitled, will adequately compensate her for the
anticipated consulting services to be provided under Section 3, and is
sufficient to support the release given by LMC in Section 5 hereof, and (b) WWS
agrees that such amounts shall be due and payable in full whether or not LMC
actually provides such consulting services to WWS and whether or not such
services are satisfactory to WWS. All payments pursuant to this Section 2 shall
be made consistent with WWS's existing payroll procedures, and, to the extent
required by law, after deducting all applicable federal and state payroll, FICA,
unemployment, and other taxes.
1
<PAGE>
3. CONSULTING ENGAGEMENT.
a. The Engagement. WWS hereby engages LMC and LMC hereby accepts
such engagement as an independent contractor to perform the duties set forth in
this Section 3.
b. Duties of LMC. During LMC's engagement by WWS pursuant to this
Agreement, LMC shall render such advice and recommendations to WWS as WWS may
reasonably request with respect to human resources issues encountered in
connection with WWS's business.
c. Compensation.
(i) Fixed Compensation. LMC and WWS agree that the payments
required pursuant to Section 2 of this Agreement shall constitute the only fixed
compensation to LMC for consulting services provided under this Section 3, and
that such payments shall be due and payable in full whether or not LMC actually
provides such consulting services and whether or not such services are
satisfactory to WWS.
(ii) Reimbursement. WWS shall reimburse LMC for all travel
and entertainment expenses and other ordinary and necessary business expenses
incurred by LMC at the request of WWS and in connection with the business of WWS
and LMC's duties under this Agreement; provided, however, that Consultant shall
not incur such expenses in an amount in excess of $1000.00 during any month
without written authorization from WWS. The term "business expenses" shall not
include any item not deductible by WWS for federal income tax purposes. To
obtain reimbursement, LMC shall submit to WWS receipts, bills or sales slips for
the expenses incurred. Reimbursements shall be made by WWS on or before the
tenth day of each month following the month in which LMC submits evidence of the
expenses incurred.
e. Term of Engagement.
(i) Engagement Term. The term of LMC's engagement hereunder
shall commence on the date of this Agreement and shall continue until December
15, 2006 or LMC's death, whichever occurs first.
f. Competition and Confidential Information.
(i) Confidential Information. LMC shall maintain in strict
secrecy all confidential or trade secret information, whether patentable or not,
relating to the business of WWS (the "Confidential Information") obtained by LMC
in the course of LMC's engagement, and LMC shall not, unless first authorized in
writing by WWS, disclose to, or use for LMC's benefit or for the benefit of any
person, firm or entity at any time either during or subsequent to the term of
LMC's engagement, any Confidential Information, except as required in the
performance of LMC's duties on behalf of WWS. For purposes hereof, Confidential
Information shall include without limitation any written materials, drawings, or
2
<PAGE>
other reproductions or materials of any kind; any trade secrets, knowledge or
information with respect to processes, inventions, formulae, machinery,
manufacturing techniques or know-how; any business methods or forms; any names
or addresses of employees, customers, or suppliers or data on employees,
customers, or suppliers; and any business policies or other information relating
to or dealing with the human resources, purchasing, production, sales or
distribution policies or practices of WWS.
(ii) Return of Books and Papers. Upon the termination of
LMC's engagement with WWS for any reason, LMC shall deliver promptly to WWS all
employee, customer, and supplier information; all samples or demonstration
models, catalogues, manuals, memoranda, drawings, formulae, and specifications;
all cost, pricing, and other financial data; all other written or printed
materials which are the property of WWS (and any copies of them); and all other
materials which may contain Confidential Information relating to the business of
WWS, which LMC may then have in her possession whether prepared by LMC or not.
(iii) Disclosure of Information. LMC shall disclose promptly
to WWS, or its nominee, any and all ideas, designs, processes, and improvements
of any kind relating to the business of WWS, whether patentable or not,
conceived or made by LMC, either alone or jointly with others, during working
hours or otherwise, during the entire period of LMC's engagement with WWS, or
within six (6) months thereafter.
(iv) Assignment. LMC hereby assigns to WWS or its nominee,
the entire right, title and interest in and to all inventions, discoveries, and
improvements, whether patentable or not, which LMC may conceive or make during
LMC's engagement with WWS, or within six (6) months thereafter, and which relate
to the business of WWS. Whenever requested to do so by WWS, whether during the
period of LMC's engagement or thereafter, LMC shall execute any and all
applications, assignments or other instruments which WWS shall deem necessary or
appropriate to protect the interest of WWS therein.
g. Equitable Relief. In the event a violation of any of the
restrictions contained in this Section 3 is established, WWS shall be entitled
to preliminary and permanent injunctive relief as well as damages and an
equitable accounting of all earnings, profits and other benefits arising from
such violation, which right shall be cumulative and in addition to any other
rights or remedies to which WWS may be entitled. In the event of a violation of
any provision of Sections 3(f)(iii) or (iv), the period for which those
provisions would remain in effect shall be extended for a period of time equal
to that period beginning when such violation commenced and ending when the
activities constituting such violation shall have been finally terminated in
good faith.
4. PERSONAL GUARANTEES. WWS hereby agrees to indemnify and hold LMC
harmless for, from, and against any and all liabilities, suits, actions,
proceedings, claims, demands, losses, damages, fees, costs, taxes, penalties,
and expenses (including, but not limited to, reasonable attorneys' fees) caused
by, arising out of, or otherwise related to LMC's
3
<PAGE>
personal guarantees of any of the Company's indebtedness to third parties prior
to the date of this Agreement.
5. MUTUAL RELEASE. Except for those obligations set forth in this
Agreement, WWS hereby releases LMC and LMC hereby releases WWS from any and all
actions, causes of action, suits, debts, controversies, contracts, agreements,
promises, and claims (collectively, "claims"), of every nature, character, and
description, in law or in equity, known or unknown, which they own or hold, or
have at any time heretofore owned or held, or which they hereafter can, shall,
or may own or hold against the other, and each of them, arising out of or
relating to any acts or omissions occurring on or before the date of this
Agreement (but not including claims which arise as a result of events occurring
after the date of execution of this Agreement), including, but not limited to,
any and all claims arising out of or in any way related to the employment of LMC
by WWS, or the termination of said employment. Without limitation, this release
includes any and all claims under Title VII of the Civil Rights Act of 1964, the
Americans With Disabilities Act, the Fair Labor Standards Act, the Age
Discrimination in Employment Act, ERISA, COBRA, state and local civil rights
laws, the Arizona Worker's Compensation Act, or under any other provision or
theory of law, both in tort and in contract, and both statutory and under the
common law. As used in this paragraph, WWS shall include all subsidiaries,
affiliates, directors, officers, attorneys, and agents of WWS, and their
respective heirs, executors, administrators, successors, and assigns, and as
used in this paragraph, LMC shall include her heirs, executors, administrators,
attorneys, agents, successors, assigns, and each of them.
6. MISCELLANEOUS.
a. Notices. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given, made and received (i) if personally delivered,
on the date of delivery, (ii) if mailed, three days after deposit in the United
States mail, registered or certified, return receipt requested, postage prepaid
and addressed as provided below, or (iii) if by a courier delivery service
providing overnight or "next-day" delivery, on the next business day after
deposit with such service addressed as follows:
(i) If to WWS:
World Wide Stone Corporation
5236 S. 40th Street
Phoenix, Arizona 85040
Attention: President
with a copy to:
O'Connor, Cavanagh, Anderson, Killingsworth & Beshears, P.A.
One East Camelback Road
4
<PAGE>
Suite 1100
Phoenix, Arizona 85012
Attention: Jere M. Friedman, Esq.
(ii) If to LMC:
Lee Cunningham
716 E. North Lane #3
Phoenix, Arizona 85254
Either party may alter the address to which communications or copies are to be
sent by giving notice of such change of address in conformity with the
provisions of this paragraph for the giving of notice.
b. Indulgences; Waivers. Neither any failure nor any delay on the
part of either party to exercise any right, remedy, power or privilege under
this Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, power or privilege preclude any other or
further exercise of the same or of any other right, remedy, power or privilege,
nor shall any waiver of any right, remedy, power or privilege with respect to
any occurrence be construed as a waiver of such right, remedy, power or
privilege with respect to any other occurrence. No waiver shall be binding
unless executed in writing by the party making the waiver.
c. Controlling Law. This Agreement and all questions relating to
its validity, interpretation, performance and enforcement, shall be governed by
and construed in accordance with the laws of the state of Arizona,
notwithstanding any Arizona or other conflict-of-interest provisions to the
contrary.
d. Binding Nature of Agreement. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective heirs,
personal representatives, successors and assigns except that no party may assign
or transfer such party's rights or obligations under this Agreement without the
prior written consent of the other party.
e. Execution in Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed to be an original as
against each party whose signature appears thereon, and all of which shall
together constitute one and the same instrument. This Agreement shall become
binding when one or more counterparts hereof, individually or taken together,
shall bear the signatures of the parties reflected hereon as the signatories.
f. Entire Agreement. This Agreement contains the entire
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior and contemporaneous agreements and
understandings, inducements and conditions, express or implied, oral or written,
except as herein contained. The express terms hereof control and supersede any
course of performance and/or usage of the trade inconsistent
5
<PAGE>
with any of the terms hereof. This Agreement may not be modified or amended
other than by an agreement in writing.
g. Paragraph Headings. The paragraph headings in this Agreement
are for convenience only; they form no part of this Agreement and shall not
affect its interpretation.
h. Restrictions Separable. If the scope of any provision of this
Agreement is found by a court to be too broad to permit enforcement to its full
extent, then such provision shall be enforced to the maximum extent permitted by
law. The parties agree that the scope of any provision of this Agreement may be
modified by a judge in any proceeding to enforce this Agreement, so that such
provision can be enforced to the maximum extent permitted by law. Each and every
provision set forth in this Agreement is independent and severable from the
others, and no such provision shall be rendered unenforceable by virtue of the
fact that, for any reason, any other or others of them may be unenforceable in
whole or in part.
i. Consultation with Attorney; Construction. LMC acknowledges
that she has been advised to consult with an attorney prior to executing this
Agreement. The parties hereto acknowledge and agree that each party has
participated in the drafting of this Agreement and that each party has had this
document reviewed, or has had the opportunity to have this document reviewed, by
the respective legal counsel for the parties hereto. Accordingly, each of the
parties hereto acknowledges and agrees that the normal rule of construction to
the effect that any ambiguities are to be resolved against the drafting party
shall not be applied to the interpretation of this Agreement and that no
inference in favor of, or against, any party shall be drawn from the fact that
one party has drafted any portion hereof.
7. CONSIDERATION AND REVOCATION PERIODS. LMC acknowledges that she has been
given up to 21 days within which to consider whether to sign this Agreement;
that she understands that, after signing, she has a period of an additional
seven days to revoke this Agreement, which revocation must be in writing and
received by WWS, in accordance with Section 5(a) hereof, within said seven-day
revocation period; and that this Agreement shall not become enforceable until
said revocation period has expired.
IN WITNESS WHEREOF, the parties have executed this Agreement, or caused
this Agreement to be executed as of the date first written above.
WORLD WIDE STONE CORPORATION,
a Nevada corporation
/s/ Lee M. Cunningham By: /s/ Frank Cunningham
- ---------------------------- ----------------------------------------
Lee M. Cunningham Its: President
6
[BANK ONE LOGO]
PROMISSORY NOTE
================================================================================
Borrower: WORLD WIDE STONE CORPORATION Lender: BANK ONE, ARIZONA, NA
5236 S 40TH STREET EAST VALLEY BBC
PHOENIX, AZ 85040 AZ1-0311
20 E UNIVERSITY, STE 308
TEMPE, AZ 85281
================================================================================
Principal Amount: $500,000.00 Date of Note: August 13, 1999
PROMISE TO PAY. FOR VALUE RECEIVED, WORLD WIDE STONE CORPORATION ("BORROWER")
PROMISES TO PAY TO BANK ONE, ARIZONA, NA ("LENDER"), OR ORDER, IN LAWFUL MONEY
OF THE UNITED STATES OF AMERICA, THE PRINCIPAL AMOUNT OF FIVE HUNDRED THOUSAND &
00/100 DOLLARS ($500,000.00) ("TOTAL PRINCIPAL AMOUNT") OR SO MUCH AS MAY BE
OUTSTANDING, TOGETHER WITH INTEREST ON THE UNPAID OUTSTANDING PRINCIPAL BALANCE
FROM THE DATE ADVANCED UNTIL PAID IN FULL.
PAYMENT. THIS NOTE SHALL BE PAYABLE AS FOLLOWS: INTEREST SHALL BE DUE AND
PAYABLE MONTHLY AS IT ACCRUES, COMMENCING ON SEPTEMBER 13, 1999 AND CONTINUING
ON THE SAME DAY OF EACH MONTH THEREAFTER DURING THE TERM OF THIS NOTE, AND THE
OUTSTANDING PRINCIPAL BALANCE OF THIS NOTE, TOGETHER WITH ALL ACCRUED BUT UNPAID
INTEREST, SHALL BE DUE AND PAYABLE ON AUGUST 13, 2000. The annual interest rate
for this Note is computed on a 365/360 basis; that is, by applying the ratio of
the annual interest rate over a year of 360 days, multiplied by the outstanding
principal balance, multiplied by the actual number of days the principal balance
is outstanding. Borrower will pay Lender at the address designated by Lender
from time to time in writing. If any payment of principal of or interest on this
Note shall become due on a day which is not a Business Day, such payment shall
be made on the next succeeding Business Day. As used herein, the term "BUSINESS
DAY" shall mean any day other than a Saturday, Sunday or any other day on which
national banking associations are authorized to be closed. Unless otherwise
agreed to, in writing, or otherwise required by applicable law, payments will be
applied first to accrued, unpaid interest, then to principal, and any remaining
amount to any unpaid collection costs, late charges and other charges, provided,
however, upon delinquency or other default, Lender reserves the right to apply
payments among principal, interest, late charges, collection costs and other
charges at its discretion. The books and records of Lender shall be prima facie
evidence of all outstanding principal of and accrued but unpaid interest on this
Note. If this Note is governed by or is executed in connection with a loan
agreement, this Note is subject to the terms and provisions thereof.
VARIABLE INTEREST RATE. THE INTEREST RATE ON THIS NOTE IS SUBJECT TO FLUCTUATION
BASED UPON THE PRIME RATE OF INTEREST IN EFFECT FROM TIME TO TIME (THE "INDEX")
(WHICH RATE MAY NOT BE THE LOWEST, BEST OR MOST FAVORABLE RATE OF INTEREST WHICH
LENDER MAY CHARGE ON LOANS TO ITS CUSTOMERS). "PRIME RATE" SHALL MEAN THE RATE
ANNOUNCED FROM TIME TO TIME BY LENDER AS ITS PRIME RATE. EACH CHANGE IN THE RATE
TO BE CHARGED ON THIS NOTE WILL BECOME EFFECTIVE WITHOUT NOTICE ON THE SAME DAY
AS THE INDEX CHANGES. EXCEPT AS OTHERWISE PROVIDED HEREIN, THE UNPAID PRINCIPAL
BALANCE OF THIS NOTE WILL ACCRUE INTEREST AT A RATE PER ANNUM WHICH WILL FROM
TIME TO TIME BE EQUAL TO THE SUM OF THE INDEX, PLUS 1.500%. NOTICE: UNDER NO
CIRCUMSTANCES WILL THE INTEREST RATE ON THIS NOTE BE MORE THAN THE MAXIMUM RATE
ALLOWED BY APPLICABLE LAW.
PREPAYMENT. Borrower may pay without fee all or a portion of the principal
amount owed hereunder earlier than it is due. All prepayments shall be applied
to the indebtedness owing hereunder in such order and manner as Lender may from
time to time determine in its sole discretion.
LATE CHARGE. If a payment is 10 DAYS OR MORE LATE, Borrower will be charged
5.000% OF THE REGULARLY SCHEDULED PAYMENT OR $25.00, WHICHEVER IS GREATER.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment of principal or interest when due under this
Note or any other indebtedness owing now or hereafter by Borrower to Lender; (b)
failure of Borrower or any other party to comply with or perform any term,
obligation, covenant or condition contained in this Note or in any other
promissory note, credit agreement, loan agreement, guaranty, security agreement,
mortgage, deed of trust or any other instrument, agreement or document, whether
now or hereafter existing, executed in connection with this Note (the Note and
all such other instruments, agreements, and documents shall be collectively
known herein as the "RELATED DOCUMENTS"); (c) Any representation or statement
made or furnished to Lender herein, in any of the Related Documents or in
connection with any of the foregoing is false or misleading in any material
respect; (d) Borrower or any other party liable for the payment of this Note,
whether as maker, endorser, guarantor, surety or otherwise, becomes insolvent or
bankrupt, has a receiver or trustee appointed for any part of its property,
makes an assignment for the benefit of its creditors, or any proceeding is
commenced either by any such party or against it under any bankruptcy or
insolvency laws; (e) the occurrence of any event of default specified in any of
the other Related Documents or in any other agreement now or hereafter arising
between Borrower and Lender; (f) the occurrence of any event which permits the
acceleration of the maturity of any indebtedness owing now or hereafter by
Borrower to any third party; or (g) the liquidation, termination, dissolution,
death or legal incapacity of Borrower or any other party liable for the payment
of this Note, whether as maker, endorser, guarantor, surety, or otherwise.
LENDER'S RIGHTS. Upon default, Lender may at its option, without further notice
or demand (i) declare the entire unpaid principal balance on this Note, all
accrued unpaid interest and all other costs and expenses for which Borrower is
responsible for under this Note and any other Related Document immediately due,
(ii) refuse to advance any additional amounts under this Note, (iii) foreclose
all liens securing payment hereof, (iv) pursue any other rights, remedies and
recourses available to the Lender, including without limitation, any such
rights, remedies or recourses under the Related Documents, at law or in equity,
or (v) pursue any combination of the foregoing. Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, do one or both of the following: (a) increase the variable
interest rate on this Note to 4.500 percentage points over the Index, and (b)
add any unpaid accrued interest to principal and such sum will bear interest
therefrom until paid at the rate provided in this Note (including any increased
rate). The interest rate will not exceed the maximum rate permitted by
applicable law. Lender may hire an attorney to help collect this Note if
Borrower does not pay and Borrower will pay Lender's reasonable attorneys' fees
and all other costs of collection, unless prohibited by applicable law. This
Note has been delivered to Lender and accepted by Lender in the State of
Arizona. Subject to the provisions on arbitration, this Note shall be governed
by and construed in accordance with the laws of the State of Arizona without
regard to any conflict of laws or provisions thereof.
PURPOSE. Borrower agrees that no advances under this Note shall be used for
personal, family, or household purposes and that all advances hereunder shall be
used solely for business, commercial, agricultural or other similar purposes.
JURY WAIVER. THE BORROWER AND LENDER (BY ITS ACCEPTANCE HEREOF) HEREBY
VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE
A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT
OR OTHERWISE) BETWEEN OR AMONG THE BORROWER AND LENDER ARISING OUT OF OR IN ANY
WAY RELATED TO THIS NOTE, ANY OTHER RELATED DOCUMENT, OR ANY RELATIONSHIP
BETWEEN LENDER AND BORROWER. THIS PROVISION IS A MATERIAL INDUCEMENT TO LENDER
TO PROVIDE THE FINANCING EVIDENCED BY THIS NOTE.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $25.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
RIGHT OF SETOFF. Unless a lien would be prohibited by law or would render a
nontaxable account taxable, Borrower grants to Lender a contractual security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or any other account), including without
limitation all accounts held jointly with someone else and all accounts Borrower
may open in the future, Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any and
all such accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Borrower may
request advances and make payments hereunder from time to time, provided that it
is understood and agreed that the aggregate principal amount outstanding from
time to time hereunder shall not at any time exceed the Total Principal Amount.
The unpaid principal balance of this Note shall increase and decrease with each
new advance or payment hereunder, as the case may be. Subject to the terms
hereof, Borrower may borrow, repay and reborrow hereunder. Advances under this
Note, as well as directions for payment from Borrower's accounts, may be
requested orally or in writing by Borrower or by an authorized person. Lender
may, but need not, require that all oral requests be confirmed in writing.
Borrower agrees to be liable for all sums either: (a) advanced in accordance
with the instructions of an authorized person or (b) credited to any of
Borrower's accounts with Lender.
ARBITRATION. Lender and Borrower agree that upon the written demand of either
party, whether made before or after the institution of any legal proceedings,
but prior to the rendering of any judgment in that proceeding, all disputes,
claims and controversies between them, whether individual, joint, or class in
nature, arising from this Note, any Related Document or otherwise, including
without limitation contract disputes and tort claims, shall be resolved by
binding arbitration pursuant to the Commercial Rules of the American Arbitration
Association ("AAA"). Any arbitration proceeding held pursuant to this
arbitration provision shall be conducted in the city nearest the Borrower's
address having an AAA regional office, or at any other place selected by mutual
agreement of the parties. No act to take or dispose of any collateral shall
constitute a waiver of this arbitration agreement or be prohibited by this
arbitration agreement. This arbitration provision shall not limit the right of
either party during any dispute, claim or controversy to seek, use, and employ
ancillary, or preliminary rights and/or remedies, judicial or otherwise, for the
purposes of realizing upon, preserving, protecting, foreclosing upon or
proceeding under forcible entry and detainer for possession of, any
<PAGE>
08-13-1999 PROMISSORY NOTE PAGE 2
LOAN NO. (CONTINUED)
real or personal property, and any such action shall not be deemed an election
of remedies. Such remedies include, without limitation, obtaining injunctive
relief or a temporary restraining order, invoking a power of sale under any deed
of trust or mortgage, obtaining a writ of attachment or imposition of a
receivership, or exercising any rights relating to personal property, including
exercising the right of set-off, or taking or disposing of such property with or
without judicial process pursuant to the Uniform Commercial Code. Any disputes,
claims, or controversies concerning the lawfulness or reasonableness of an act,
or exercise of any right or remedy, concerning any collateral, including any
claim to rescind, reform, or otherwise modify any agreement relating to the
collateral, shall also be arbitrated; provided, however that no arbitrator shall
have the right or the power to enjoin or restrain any act of either party.
Judgment upon any award rendered by any arbitrator may be entered in any court
having jurisdiction. The statute of limitations, estoppel, waiver, laches and
similar doctrines which would otherwise be applicable in an action brought by a
party shall be applicable in any arbitration proceeding, and the commencement of
an arbitration proceeding shall be deemed the commencement of any action for
these purposes. The Federal Arbitration Act (Title 9 of the United States Code)
shall apply to the construction, interpretation, and enforcement of this
arbitration provision.
ADDITIONAL PROVISION REGARDING LATE CHARGES. In the "Late Charge" provision set
forth above, the following language is hereby added after the word "greater":
"up to the maximum amount of Two Hundred Fifty Dollars ($250.00) per late
charge".
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this Note, or
release any party or guarantor or collateral; or impair, fail to realize upon or
perfect Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All such
parties also agree that Lender may modify this Note without the consent of or
notice to anyone other than the party with whom the modification is made.
EFFECTIVE RATE. Borrower agrees to an effective rate of interest that is the
rate specified in this Note plus any additional rate resulting from any other
charges in the nature of interest paid or to be paid in connection with this
Note.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
WORLD WIDE STONE CORPORATION
COPY
By: /s/ Spencer Cunningham
-----------------------------------
SPENCER CUNNINGHAM, Vice President
================================================================================
[BANK ONE LOGO]
COMMERCIAL SECURITY AGREEMENT
Borrower: WORLD WIDE STONE CORPORATION LENDER: BANK ONE, ARIZONA, NA
5236 S 40TH STREET EAST VALLEY BBC
PHOENIX, AZ 85040 AZ1-0311
20 E UNIVERSITY, STE 308
TEMPE, AZ 85281
THIS COMMERCIAL SECURITY AGREEMENT IS ENTERED INTO BY WORLD WIDE STONE
CORPORATION (REFERRED TO BELOW AS "GRANTOR") FOR THE BENEFIT OF BANK ONE,
ARIZONA, NA (REFERRED TO BELOW AS "LENDER"). FOR VALUABLE CONSIDERATION, GRANTOR
GRANTS TO LENDER A SECURITY INTEREST IN THE COLLATERAL TO SECURE THE
INDEBTEDNESS AND AGREES THAT LENDER SHALL HAVE THE RIGHTS STATED IN THIS
AGREEMENT WITH RESPECT TO THE COLLATERAL, IN ADDITION TO ALL OTHER RIGHTS WHICH
LENDER MAY HAVE BY LAW.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code as adopted in
the State of Arizona ("Code"). All references to dollar amounts shall mean
amounts in lawful money of the United States of America.
AGREEMENT. The word "Agreement" means this Commercial Security Agreement,
as this Commercial Security Agreement may be amended or modified from time
to time, together with all exhibits and schedules attached to this
Commercial Security Agreement from time to time.
COLLATERAL. The word "Collateral" means the following described property of
Grantor, whether now owned or hereafter acquired, whether now existing or
hereafter arising, and wherever located:
ALL INVENTORY, CHATTEL PAPER, ACCOUNTS AND GENERAL INTANGIBLES
In addition, the word "Collateral" includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising, and
wherever located:
(a) All attachments, accessions, accessories, tools, parts, supplies,
increases, and additions to and all replacements of and substitutions
for any property described above.
(b) All products and produce of any of the property described in this
Collateral section.
(c) All proceeds (including, without limitation, insurance proceeds)
from the sale, lease, destruction, loss, or other disposition of any
of the property described in this Collateral section.
(d) All records and data relating to any of the property described in
this Collateral section, whether in the form of a writing, photograph,
microfilm, microfiche, or electronic media, together with all of
Grantor's right, title, and interest in and to all computer software
required to utilize, create, maintain, and process any such records or
data on electronic media.
EVENT OF DEFAULT. The words "Event of Default" mean and include any of the
Events of Default set forth below in the section titled "Events of
Default."
GRANTOR. The word "Grantor" means WORLD WIDE STONE CORPORATION, its
successors and assigns (which is a debtor under the Code).
GUARANTOR. The word "Guarantor" means and includes without limitation, each
and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by
the Note, including all principal and accrued interest thereon, together
with all other liabilities, costs and expenses for which Grantor is
responsible under this Agreement or under any of the Related Documents. In
addition, the word "Indebtedness" includes all other obligations, debts and
liabilities, plus any accrued interest thereon, owing by Grantor, or any
one or more of them, to Lender of any kind or character, now existing or
hereafter arising, as well as all present and future claims by Lender
against Grantor, or any one or more of them, and all renewals, extensions,
modifications, substitutions and rearrangements of any of the foregoing;
whether such Indebtedness arises by note, draft, acceptance, guaranty,
endorsement, letter of credit, assignment, overdraft, indemnity agreement
or otherwise; whether such Indebtedness is voluntary or involuntary, due or
not due, direct or indirect, absolute or contingent, liquidated or
unliquidated; whether Grantor may be liable individually or jointly with
others; whether Grantor may be liable primarily or secondarily or as
debtor, maker, comaker, drawer, endorser, guarantor, surety, accommodation
party or otherwise.
LENDER. The word "Lender" means BANK ONE, ARIZONA, NA, its successors and
assigns (which is a secured party under the Code).
NOTE. The word "Note" means the promissory note dated August 13, 1999, in
the principal amount of $500,000.00 from WORLD WIDE STONE CORPORATION to
Lender, together with all renewals of, extensions of, modifications of,
refinancings of, consolidations of and substitutions for such promissory
note.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation the Note and all credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Note.
OBLIGATIONS OF GRANTOR. Grantor represents, warrants and covenants to Lender as
follows:
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Grantor will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Grantor hereby irrevocably appoints Lender as its
attorney-in-fact for the purpose of executing any documents necessary to
perfect or to continue the security interest granted in this Agreement.
Lender may at any time, and without further authorization from Grantor,
file a carbon, photographic or other reproduction of any financing
statement or of this Agreement for use as a financing statement. Grantor
will reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in the
Collateral. Grantor has disclosed to Lender all tradenames and assumed
names currently used by Grantor, all tradenames and assumed names used by
Grantor within the previous six (6) years and all of Grantor's current
business locations. Grantor will notify Lender in writing at least thirty
(30) days prior to the occurrence of any of the following: (i) any changes
in Grantor's name, tradename(s) or assumed name(s), or (ii) any change in
Grantor's business location(s) or the location of any of the Collateral.
NO VIOLATION. The execution and delivery of this Agreement will not violate
any law or agreement, governing Grantor or to which Grantor is a party, and
its certificate or articles of incorporation and bylaws do not prohibit any
term or condition of this Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
accounts, chattel paper, or general
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08-13-1999 COMMERCIAL SECURITY AGREEMENT PAGE 2
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intangibles, the Collateral is enforceable in accordance with its terms, is
genuine, and complies with applicable laws concerning form, content and
manner of preparation and execution, and all persons appearing to be
obligated on the Collateral have authority and capacity to contract and are
in fact obligated as they appear to be on the Collateral. At the time any
account becomes subject to a security interest in favor of Lender, the
account shall be a good and valid account representing an undisputed, bona
fide indebtedness incurred by the account debtor, for merchandise held
subject to delivery instructions or theretofore shipped or delivered
pursuant to a contract of sale, or for services theretofore performed by
Grantor with or for the account debtor; Grantor will not adjust, settle,
compromise, amend or modify any account, except in good faith and in the
ordinary course of business; provided, however, this exception shall
automatically terminate upon the occurrence of an Event of Default or upon
Lender's written request.
LOCATION OF THE COLLATERAL. Grantor, upon request of Lender, will deliver
to Lender in form satisfactory to Lender a schedule of real properties and
Collateral locations relating to Grantor's operations, including without
limitation the following: (a) all real property owned or being purchased by
Grantor; (b) all real property being rented or leased by Grantor; (c) all
storage facilities owned, rented, leased, or being used by Grantor; and (d)
all other properties where Collateral is or may be located. Except in the
ordinary course of its business, Grantor shall not remove the Collateral
from its existing locations without the prior written consent of Lender.
REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the extent
the Collateral consists of intangible property such as accounts, the
records concerning the Collateral) at Grantor's address shown above, or at
such other locations as are acceptable to Lender. Except in the ordinary
course of its business, including the sales of inventory, Grantor shall not
remove the Collateral from its existing locations without the prior written
consent of Lender. To the extent that the Collateral consists of vehicles,
or other titled property, Grantor shall not take or permit any action which
would require application for certificates of title for the vehicles
outside the State of Arizona, without the prior written consent of Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral.
While Grantor is not in default under this Agreement, Grantor may sell
inventory, but only in the ordinary course of its business and only to
buyers who qualify as a buyer in the ordinary course of business. A sale in
the ordinary course of Grantor's business does not include a transfer in
partial or total satisfaction of a debt or any bulk sale. Grantor shall not
pledge, mortgage, encumber or otherwise permit the Collateral to be subject
to any lien, security interest, encumbrance, or charge, other than the
security interest provided for in this Agreement, without the prior written
consent of Lender. This includes security interests even if junior in right
to the security interests granted under this Agreement. Unless waived by
Lender, all proceeds from any disposition of the Collateral (for whatever
reason) shall be held in trust for Lender and shall not be commingled with
any other funds; provided however, this requirement shall not constitute
consent by Lender to any sale or other disposition. Upon receipt, Grantor
shall immediately deliver any such proceeds to Lender.
TITLE. Grantor represents and warrants to Lender that it is the owner of
the Collateral and holds good and marketable title to the Collateral, free
and clear of all liens and encumbrances except for the lien of this
Agreement. No financing statement covering any of the Collateral is on file
in any public office other than those which reflect the security interest
created by this Agreement or to which Lender has specifically consented.
Grantor shall defend Lender's rights in the Collateral against the claims
and demands of all other persons.
COLLATERAL SCHEDULES AND LOCATIONS. As often as Lender shall require, and
insofar as the Collateral consists of accounts and general intangibles,
Grantor shall deliver to Lender schedules of such Collateral, including
such information as Lender may require, including without limitation names
and addresses of account debtors and agings of accounts and general
intangibles. Insofar as the Collateral consists of inventory Grantor shall
deliver to Lender, as often as Lender shall require, such lists,
descriptions, and designations of such Collateral as Lender may require to
identify the nature, extent, and location of such Collateral.
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not commit
or permit damage to or destruction of the Collateral or any part of the
Collateral. Lender and its designated representatives and agents shall have
the right at all reasonable times to examine, inspect, and audit the
Collateral wherever located. Grantor shall immediately notify Lender of all
cases involving the return, rejection, repossession, loss or damage of or
to any Collateral; of any request for credit or adjustment or of any other
dispute arising with respect to the Collateral; and generally of all
happenings and events affecting the Collateral or the value or the amount
of the Collateral.
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and governmental charges or levies upon the Collateral and
provide Lender evidence of such payment upon its request. Grantor may
withhold any such payment or may elect to contest any lien if Grantor is in
good faith conducting an appropriate proceeding to contest the obligation
to pay and so long as Lender's interest in the Collateral is not
jeopardized in Lender's sole opinion. If the Collateral is subjected to a
lien which is not discharged within fifteen (15) days, Grantor shall
deposit with Lender cash, a sufficient corporate surety bond or other
security satisfactory to Lender in an amount adequate to provide for the
discharge of the lien plus any interest, costs, attorneys' fees or other
charges that could accrue as a result of foreclosure or sale of the
Collateral. In any contest Grantor shall defend itself and Lender and shall
satisfy any final adverse judgment before enforcement against the
Collateral. Grantor shall name Lender as an additional obligee under any
surety bond furnished in the contest proceedings.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor is conducting and will
continue to conduct Grantor's businesses in material compliance with all
federal, state and local laws, statutes, ordinances, rules, regulations,
orders, determinations and court decisions applicable to Grantor's
businesses and to the production, disposition or use of the Collateral,
including without limitation, those pertaining to health and environmental
matters such as the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986 (collectively, together with any subsequent
amendments, hereinafter called "CERCLA"), the Resource Conservation and
Recovery Act of 1976, as amended by the Used Oil Recycling Act of 1980, the
Solid Waste Disposal Act Amendments of 1980, and the Hazardous Substance
Waste Amendments of 1984 (collectively, together with any subsequent
amendments, hereinafter called "RCRA"). Grantor represents and warrants
that (i) none of the operations of Grantor is the subject of a federal,
state or local investigation evaluating whether any material remedial
action is needed to respond to a release or disposal of any toxic or
hazardous substance or solid waste into the environment; (ii) Grantor has
not filed any notice under any federal, state or local law indicating that
Grantor is responsible for the release into the environment, the disposal
on any premises in which Grantor is conducting its businesses or the
improper storage, of any material amount of any toxic or hazardous
substance or solid waste or that any such toxic or hazardous substance or
solid waste has been released, disposed of or is improperly stored, upon
any premises on which Grantor is conducting its businesses; and (iii)
Grantor otherwise does not have any known material contingent liability in
connection with the release into the environment, disposal or the improper
storage, of any such toxic or hazardous substance or solid waste. The terms
"hazardous substance" and "release", as used herein, shall have the
meanings specified in CERCLA, and the terms "solid waste" and "disposal",
as used herein, shall have the meanings specified in RCRA; provided,
however, that to the extent that the laws of the State of Arizona establish
meanings for such terms which are broader than that specified in either
CERCLA or RCRA, such broader meanings shall apply. The representations and
warranties contained herein are based on Grantor's due diligence in
investigating the Collateral for hazardous wastes and substances. Grantor
hereby (a) releases and waives any future claims against Lender for
indemnity or contribution in the event Grantor
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becomes liable for cleanup or other costs under any such laws, and (b)
agrees to indemnify and hold harmless Lender against any and all claims and
losses resulting from a breach of this provision of this Agreement. This
obligation to indemnify shall survive the payment of the Indebtedness and
the termination of this Agreement.
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain all
risk insurance, including without limitation fire, theft and liability
coverage together with such other insurance as Lender may require with
respect to the Collateral, in form, amounts, coverages and basis reasonably
acceptable to Lender and issued by a company or companies reasonably
acceptable to Lender. Grantor, upon request of Lender, will deliver to
Lender from time to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverages will not be
cancelled or diminished without at least thirty (30) days' prior written
notice to Lender and not including any disclaimer of the insurer's
liability for failure to give such a notice. Each insurance policy also
shall include an endorsement providing that coverage in favor of Lender
will not be impaired in any way by any act, omission or default of Grantor
or any other person. In connection with all policies covering assets in
which Lender holds or is offered a security interest, Grantor will provide
Lender with such loss payable or other endorsements as Lender may require.
If Grantor at any time fails to obtain or maintain any insurance as
required under this Agreement, Lender may (but shall not be obligated to)
obtain such insurance as Lender deems appropriate, including if it so
chooses "single interest insurance," which will cover only Lender's
interest in the Collateral.
APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender of
any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed Collateral,
Lender shall, upon satisfactory proof of expenditure, pay or reimburse
Grantor from the proceeds for the reasonable cost of repair or restoration.
If Lender does not consent to repair or replacement of the Collateral,
Lender shall retain a sufficient amount of the proceeds to pay all of the
Indebtedness, and shall pay the balance to Grantor. Any proceeds which have
not been disbursed within six (6) months after their receipt and which
Grantor has not committed to the repair or restoration of the Collateral
shall be used to prepay the Indebtedness. Application of insurance proceeds
to the payment of the Indebtedness will not extend, postpone or waive any
payments otherwise due, or change the amount of such payments to be made
and proceeds may be applied in such order and such amounts as Lender may
elect.
SOLVENCY OF GRANTOR. As of the date hereof, and after giving effect to this
Agreement and the completion of all other transactions contemplated by
Grantor at the time of the execution of this Agreement, (i) Grantor is and
will be solvent, (ii) the fair salable value of Grantor's assets exceeds
and will continue to exceed Grantor's liabilities (both fixed and
continent), (iii) Grantor is paying and will continue to be able to pay its
debts as they mature, and (iv) if Grantor is not an individual, Grantor has
and will have sufficient capital to carry on Grantor's businesses and all
businesses in which Grantor is about to engage.
LIEN NOT RELEASED. The lien, security interest and other security rights of
Lender hereunder shall not be impaired by any indulgence, moratorium or
release granted by Lender, including but not limited to, the following: (a)
any renewal, extension, increase or modification of any of the
Indebtedness; (b) any surrender, compromise, release, renewal, extension,
exchange or substitution granted in respect of any of the Collateral; (c)
any release or indulgence granted to any endorser, guarantor or surety of
any of the Indebtedness; (d) any release of any other collateral for any of
the Indebtedness; (e) any acquisition of any additional collateral for any
of the Indebtedness; and (f) any waiver or failure to exercise any right,
power or remedy granted herein, by law or in any of the Related Documents.
REQUEST FOR ENVIRONMENTAL INSPECTIONS. Upon Lender's reasonable request
from time to time, Grantor will obtain at Grantor's expense an inspection
or audit report(s) addressed to Lender of Grantor's operations from an
engineering or consulting firm approved by Lender, indicating the presence
or absence of toxic and hazardous substances, underground storage tanks and
solid waste on any premises in which Grantor is conducting a business;
provided, however, Grantor will be obligated to pay for the cost of any
such inspection or audit no more than one time in any twelve (12) month
period unless Lender has reason to believe that toxic or hazardous
substance or solid wastes have been dumped or released on any such
premises. If Grantor fails to order or obtain an inspection or audit within
ten (10) days after Lender's request, Lender may at its option order such
inspection or audit, and Grantor grants to Lender and its agents,
employees, contractors and consultants access to the premises in which it
is conducting its business and a license (which is coupled with an interest
and is irrevocable) to obtain inspections and audits. Grantor agrees to
promptly provide Lender with a copy of the results of any such inspection
or audit received by Grantor. The cost of such inspections and audits by
Lender shall be a part of the Indebtedness, secured by the Collateral and
payable by Grantor on demand.
CHATTEL PAPER. To the extent a security interest in the chattel paper of
Grantor is granted hereunder, Grantor represents and warrants that all such
chattel paper have only one original counterpart and no other party other
than Grantor or Lender is in actual or constructive possession of any such
chattel paper. Grantor agrees that at the option of and on the request by
Lender, Grantor will either deliver to Lender all originals of the chattel
paper which is included in the Collateral or will mark all such chattel
paper with a legend indicating that such chattel paper is subject to the
security interest granted hereunder.
LANDLORD'S WAIVERS. Grantor agrees that upon the request of Lender, Grantor
shall cause each landlord of real property leased by Grantor at which any
of the Collateral is located from time to time to execute and deliver
agreements satisfactory in form and substance to Lender by which such
landlord waives or subordinates any rights it may have in the Collateral.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except
as otherwise provided below with respect to accounts, Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner not inconsistent with this
Agreement or the Related Documents, provided that Grantor's right to possession
and beneficial use shall not apply to any Collateral where possession of the
Collateral by Lender is required by law to perfect Lender's security interest in
such Collateral. Until otherwise notified by Lender, Grantor may collect any of
the Collateral consisting of accounts. At any time and even though no Event of
Default exists, Lender may collect the accounts, notify account debtors to make
payments directly to Lender for application to the Indebtedness and to verify
the accounts with such account debtors. Lender also has the right, at the
expense of Grantor, to enforce collection of such accounts and adjust, settle,
compromise, sue for or foreclose on the amount owing under any such account, in
the same manner and to the same extent as Grantor. If Lender at any time has
possession of any Collateral, whether before or after an Event of Default,
Lender shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral if Lender takes such action for that purpose as
Grantor shall request or as Lender, in Lender's sole discretion, shall deem
appropriate under the circumstances, but failure to honor any request by Grantor
shall not of itself be deemed to be a failure to exercise reasonable care.
Lender shall not be required to take any steps necessary to preserve any rights
in the Collateral against prior parties, nor to protect, preserve or maintain
any security interest given to secure the Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the Indebtedness and be payable on demand by
Lender.
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Such right shall be in addition to all other rights and remedies to which Lender
may be entitled upon the occurrence of an Event of Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Grantor to make any payment when due on
the Indebtedness.
OTHER DEFAULTS. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in this Agreement, the
Note, any of the other Related Documents or in any other agreement now
existing or hereafter arising between Lender and Grantor.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender under this Agreement, the Note or any of the other
Related Documents is false or misleading in any material respect.
DEFAULT TO THIRD PARTY. The occurrence of any event which permits the
acceleration of the maturity of any indebtedness owing by Grantor or any
Guarantor to any third party under any agreement or undertaking.
BANKRUPTCY OR INSOLVENCY. If the Grantor or any Guarantor: (i) becomes
insolvent, or makes a transfer in fraud of creditors, or makes an
assignment for the benefit of creditors, or admits in writing its inability
to pay its debts as they become due; (ii) generally is not paying its debts
as such debts become due; (iii) has a receiver, trustee or custodian
appointed for, or take possession of, all or substantially all of the
assets of such party or any of the Collateral, either in a proceeding
brought by such party or in a proceeding brought against such party and
such appointment is not discharged or such possession is not terminated
within sixty (60) days after the effective date thereof or such party
consents to or acquiesces in such appointment or possession; (iv) files a
petition for relief under the United States Bankruptcy Code or any other
present or future federal or state insolvency, bankruptcy or similar laws
(all of the foregoing hereinafter collectively called "APPLICABLE
BANKRUPTCY LAW") or an involuntary petition for relief is filed against
such party under any Applicable Bankruptcy Law and such involuntary
petition is not dismissed within sixty (60) days after the filing thereof,
or an order for relief naming such party is entered under any Applicable
Bankruptcy Law, or any composition, rearrangement, extension,
reorganization or other relief of debtors now or hereafter existing is
requested or consented to by such party; (v) fails to have discharged
within a period of sixty (60) days any attachment, sequestration or similar
writ levied upon any property of such party; or (vi) fails to pay within
thirty (30) days any final money judgment against such party.
LIQUIDATION, DEATH AND RELATED EVENTS. If Grantor or any Guarantor is an
entity, the liquidation, dissolution, merger or consolidation of any such
entity or, if any of such parties is an individual, the death or legal
incapacity of any such individual.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral securing
the Indebtedness.
VIOLATION OF LAW. Any of the Real Property and/or Improvements, or any use
of any of the Real Property and/or Improvements violates any law,
ordinance, regulation or rule (Federal, state or local).
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the Code. In addition and without limitation, Lender may exercise
any one or more of the following rights and remedies:
ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to pay,
immediately due and payable, without notice.
ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender all or
any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the Collateral. If the
Collateral contains other goods not covered by this Agreement at the time
of repossession, Grantor agrees Lender may take such other goods, provided
that Lender makes reasonable efforts to return them to Grantor after
repossession.
SELL THE COLLATERAL. Lender shall have full power to sell, lease, transfer,
or otherwise dispose of the Collateral or the proceeds thereof in its own
name or that of Grantor. Lender may sell the Collateral (as a unit or in
parcels) at public auction or private sale. Lender may buy the Collateral,
or any portion thereof, (i) at any public sale, and (ii) at any private
sale if the Collateral is of a type customarily sold in a recognized market
or is of a type which is the subject of widely distributed standard price
quotations. Lender shall not be obligated to make any sale of Collateral
regardless of a notice of sale having been given. Lender may adjourn any
public or private sale from time to time by announcement at the time and
place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned. Unless the Collateral is
perishable or threatens to decline speedily in value or is of a type
customarily sold on a recognized market, Lender will give Grantor
reasonable notice of the time and place of any public sale thereof or of
the time after which any private sale or any other intended disposition of
the Collateral is to be made. The requirements of reasonable notice shall
be met if such notice is given at least ten (10) days prior to the date any
public sale, or after which a private sale, of any of such Collateral is to
be held. All expenses relating to the disposition of the Collateral,
including without limitation the expenses of retaking, holding, insuring,
preparing for sale and selling the Collateral, shall become a part of the
Indebtedness secured by this Agreement and shall be payable on demand, with
interest at the Note rate from date of expenditure until repaid.
APPOINT RECEIVER. To the extent permitted by applicable law, Lender shall
have the following rights and remedies regarding the appointment of a
receiver: (a) Lender may have a receiver appointed as a matter of right,
(b) the receiver may be an employee of Lender and may serve without bond,
and (c) all fees of the receiver and his or her attorney shall become part
of the Indebtedness secured by this Agreement and shall be payable on
demand, with interest at the Note rate from date of expenditure until
repaid.
COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may transfer any Collateral into its own name or that of
its nominee and receive the payments, rents, income, and revenues therefrom
and hold the same as security for the Indebtedness or apply it to payment
of the Indebtedness in such order of preference as Lender may determine.
Insofar as the Collateral consists of accounts, general intangibles,
insurance policies, instruments, chattel paper, choses in action, or
similar property, Lender may demand, collect, receipt for, settle,
compromise, adjust, sue for, foreclose, or realize on the Collateral as
Lender may determine. For these purposes, Lender may, on behalf of and in
the name of Grantor, receive, open and dispose of mail addressed to
Grantor; change any address to which mail and payments are to be sent; and
endorse notes, checks, drafts, money orders, documents of title,
instruments and items pertaining to payment, shipment, or storage of any
Collateral. To facilitate collection, Lender may notify account debtors and
obligors on any Collateral to make payments directly to Lender.
OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining
on the Indebtedness due to Lender after application of all amounts received
from the exercise of the rights provided in this Agreement. Grantor shall
be liable for a deficiency even if the transaction described in this
subsection is a sale of accounts or chattel paper.
OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and remedies of
a secured creditor under the provisions of the Code, as may be amended from
time to time. In addition, Lender shall have and may exercise any or all
other rights and remedies it may have available at law, in equity, or
otherwise. Grantor waives any right to require Lender to proceed against
any third party, exhaust any other security for the
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Indebtedness or pursue any other right or remedy available to Lender.
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether evidenced
by this Agreement or the Related Documents or by any other writing, shall
be cumulative and may be exercised singularly or concurrently. Election by
Lender to pursue any remedy shall not exclude pursuit of any other remedy,
and an election to make expenditures or to take action to perform an
obligation of Grantor under this Agreement, after Grantor's failure to
perform, shall not affect Lender's right to declare a default and to
exercise its remedies.
MISCELLANEOUS PROVISIONS.
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement and supercedes all prior written and
oral agreements and understandings, if any, regarding same. No alteration
of or amendment to this Agreement shall be effective unless given in
writing and signed by the party or parties sought to be charged or bound by
the alteration or amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and accepted by
Lender in the State of Arizona. Subject to the provisions on arbitration in
any Related Document, this Agreement shall be governed by and construed in
accordance with the laws of the State of Arizona without regard to any
conflict of laws or provisions thereof.
JURY WAIVER. THE UNDERSIGNED AND LENDER (BY ITS ACCEPTANCE HEREOF) HEREBY
VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO
HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON
CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG THE UNDERSIGNED AND LENDER
ARISING OUT OF OR IN ANY WAY RELATED TO THIS DOCUMENT, AND ANY OTHER
RELATED DOCUMENT, OR ANY RELATIONSHIP BETWEEN LENDER AND THE BORROWER. THIS
PROVISION IS A MATERIAL INDUCEMENT TO LENDER TO PROVIDE THE FINANCING
DESCRIBED HEREIN OR IN THE OTHER RELATED DOCUMENTS.
ATTORNEYS' FEES; EXPENSES. Grantor will upon demand pay to Lender the
amount of any and all costs and expenses (including without limitation,
reasonable attorneys' fees and expenses) which Lender may incur in
connection with (i) the perfection and preservation of the collateral
assignment and security interests created under this Agreement, (ii) the
custody, preservation, use or operation of, or the sale of, collection
from, or other realization upon, the Collateral, (iii) the exercise or
enforcement of any of the rights of Lender under this Agreement, or (iv)
the failure by Grantor to perform or observe any of the provisions hereof.
TERMINATION. Upon (i) the satisfaction in full of the Indebtedness and all
obligations hereunder, (ii) the termination or expiration of any commitment
of Lender to extend credit that would become Indebtedness hereunder, and
(iii) Lender's receipt of a written request from Grantor for the
termination hereof, this Agreement and the security interests created
hereby shall terminate. Upon termination of this Agreement and Grantor's
written request, Lender will, at Grantor's sole cost and expense, return to
Grantor such of the Collateral as shall not have been sold or otherwise
disposed of or applied pursuant to the terms hereof and execute and deliver
to Grantor such documents as Grantor shall reasonably request to evidence
such termination.
INDEMNITY. Grantor hereby agrees to indemnify, defend and hold harmless
Lender, and its officers, directors, shareholders, employees, agents and
representatives (each an "INDEMNIFIED PERSON") from and against any and all
liabilities, obligations, claims, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
(collectively, the "CLAIMS") which may be imposed on, incurred by or
asserted against, any Indemnified Person (whether or not caused by any
Indemnified Person's sole, concurrent or contributory negligence) arising
in connection with the Related Documents, the Indebtedness or the
Collateral (including, without limitation, the enforcement of the Related
Documents and the defense of any Indemnified Person's action and/or
inactions in connection with the Related Documents), except to the limited
extent that the Claims against the Indemnified Person are proximately
caused by such Indemnified Person's gross negligence or willful misconduct.
The indemnification provided for in this Section shall survive the
termination of this Agreement and shall extend and continue to benefit each
individual or entity who is or has at any time been an Indemnified Person
hereunder.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, and shall be effective when actually delivered or when
deposited with a nationally recognized overnight courier or deposited in
the United States mail, first class, postage prepaid, addressed to the
party to whom the notice is to be given at the address shown above. Any
party may change its address for notices under this Agreement by giving
formal written notice to the other parties, specifying that the purpose of
the notice is to change the party's address. To the extent permitted by
applicable law, if there is more than one Grantor, notice to any Grantor
will constitute notice to all Grantors. For notice purposes, Grantor will
keep Lender informed at all times of Grantor's current address(es).
POWER OF ATTORNEY. Grantor hereby irrevocably appoints Lender as its true
and lawful attorney-in-fact, such power of attorney being coupled with an
interest, with full power of substitution to do the following in the place
and stead of Grantor and in the name of Grantor: (a) to demand, collect,
receive, receipt for, sue and recover all sums of money or other property
which may now or hereafter become due, owing or payable from the
Collateral; (b) to execute, sign and endorse any and all claims,
instruments, receipts, checks, drafts or warrants issued in payment for the
Collateral; (c) to settle or compromise any and all claims arising under
the Collateral, and, in the place and stead of Grantor, to execute and
deliver its release and settlement for the claim; and (d) to file any claim
or claims or to take any action or institute or take part in any
proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary or
advisable. This power is given as security for the Indebtedness, and the
authority hereby conferred is and shall be irrevocable and shall remain in
full force and effect until renounced by Lender.
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
SUCCESSOR INTERESTS. Subject to the limitations set forth above on transfer
of the Collateral, this Agreement shall be binding upon and inure to the
benefit of the parties, their successors and assigns; provided, however,
Grantor's, rights and obligations hereunder may not be assigned or
otherwise transferred without the prior written consent of Lender.
TIME IS OF THE ESSENCE. Time is of the essence in the performance of this
Agreement.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right to thereafter demand strict compliance with that provision
or any other provision of this Agreement. No prior waiver by Lender, nor
any course of dealing between Lender and Grantor, shall constitute a waiver
of any of Lender's rights or of
<PAGE>
08-13-1999 COMMERCIAL SECURITY AGREEMENT PAGE 6
LOAN NO. (CONTINUED)
================================================================================
any of Grantor's obligations as to any future transactions. Whenever the
consent of Lender is required under this Agreement, the granting of such
consent by Lender in any instance shall not constitute continuing consent
to subsequent instances where such consent is required and in all cases
such consent may be granted or withheld in the sole discretion of Lender.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AUGUST 13,
1999.
GRANTOR:
WORLD WIDE STONE CORPORATION
By: /s/ Spencer Cunningham
--------------------------------------
SPENCER CUNNINGHAM, Vice President
COMMERCIAL GUARANTY
================================================================================
Borrower: WORLD WIDE STONE CORPORATION Lender: BANK ONE, ARIZONA, NA
5236 S 40TH STREET EAST VALLEY BBC
PHOENIX, AZ 85040 AZ1-0311
20 E UNIVERSITY, STE 308
TEMPE, AZ 85281
Guarantor: FRANK CUNNINGHAM
5236 S 49TH STREET
PHOENIX, AZ 85040
CONTINUING UNLIMITED GUARANTY. FOR GOOD AND VALUABLE CONSIDERATION, FRANK
CUNNINGHAM ("GUARANTOR") ABSOLUTELY AND UNCONDITIONALLY GUARANTEES AND PROMISES
TO PAY TO BANK ONE, ARIZONA, NA ("LENDER") OR ITS ORDER, IN LEGAL TENDER OF THE
UNITED STATES OF AMERICA, THE INDEBTEDNESS (AS THAT TERM IS DEFINED BELOW) OF
WORLD WIDE STONE CORPORATION ("BORROWER") TO LENDER ON THE TERMS AND CONDITIONS
SET FORTH IN THIS GUARANTY. UNDER THIS GUARANTY, THE LIABILITY OF GUARANTOR IS
UNLIMITED AND THE OBLIGATIONS OF GUARANTOR ARE CONTINUING.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty:
BORROWER. The word "Borrower" means WORLD WIDE STONE CORPORATION.
GUARANTOR. The word "Guarantor" means FRANK CUNNINGHAM.
GUARANTY. The word "Guaranty" means this Guaranty made by Guarantor for the
benefit of Lender dated August 13, 1999.
INDEBTEDNESS. The word "Indebtedness" means and includes any and all of
Borrower's liabilities, obligations, debts, and indebtedness to Lender, now
existing or HEREINAFTER incurred or created, including, without limitation,
all loans, advances, interest, costs, debts, overdraft indebtedness, credit
card indebtedness, lease obligations, other obligations, and liabilities of
Borrower, or any of them, any present or future judgments against Borrower,
or any of them, and all renewals, extensions, modifications, substitutions
and rearrangements of the foregoing; and whether any such Indebtedness is
voluntarily or involuntarily incurred, due or not due, absolute or
contingent, direct or indirect, liquidated or unliquidated, determined or
undetermined; whether Borrower may be liable individually or jointly with
others, or primarily or secondarily, or as debtor, maker, comaker, drawer,
endorser, guarantor or surety; whether such Indebtedness arises by note,
draft, acceptance, guaranty, endorsement, letter of credit, assignment,
overdraft, indemnity agreement or otherwise; whether recovery on the
Indebtedness may be or may become barred or unenforceable against Borrower
for any reason whatsoever; and whether the Indebtedness arises from
transactions which may be voidable on account of infancy, insanity, ultra
vires, or otherwise.
LENDER. The word "Lender" means BANK ONE, ARIZONA, NA, its successors and
assigns.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
NATURE OF GUARANTY. This is a guaranty of payment and not of collection.
Guarantor's liability under this Guaranty shall be open and continuous for so
long as this Guaranty remains in force. Guarantor intends to guarantee at all
times the performance and prompt payment when due, whether at maturity or
earlier by reason of acceleration or otherwise, of all Indebtedness.
Accordingly, no payments made upon the Indebtedness will discharge or diminish
the continuing liability of Guarantor in connection with any remaining portions
of the Indebtedness or any of the Indebtedness which subsequently arises or is
thereafter incurred or contracted. Any married person who signs this Guaranty
hereby expressly agrees that recourse under this agreement may be had against
both his or her separate property and community property, whether now owned or
hereafter acquired.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or
to Borrower, and will continue in full force until all Indebtedness incurred or
contracted before receipt by Lender of any notice of revocation shall have been
fully and finally paid and satisfied and all other obligations of Guarantor
under this Guaranty shall have been performed in full. If Guarantor elects to
revoke this Guaranty, Guarantor may only do so in writing. Guarantor's written
notice of revocation must be delivered to Lender at the address of Lender listed
above or such other place as Lender may designate in writing. This Guaranty may
be revoked only with respect to Indebtedness incurred or contracted by Borrower,
or acquired or committed to by Lender after the date on which written notice of
revocation is actually received by Lender. No notice of revocation hereof shall
be effective as to any Indebtedness: (a) existing at the date of receipt of such
notice; (b) incurred or contracted by Borrower, or acquired or committed to by
Lender, prior to receipt of such notice; (c) now existing or hereafter created
pursuant to or evidenced by a loan agreement or commitment in existence prior to
receipt of such notice under which Borrower is or may become obligated to
Lender; or (d) renewals, extensions, consolidations, substitutions, and
refinancings of the foregoing. Guarantor waives notice of revocation given by
any other guarantor of the Indebtedness. If Guarantor is an individual, this
Guaranty shall bind the estate of Guarantor as to Indebtedness created both
before and after the death or incapacity of Guarantor, regardless of Lender's
actual notice of Guarantor's death or incapacity. Subject to the foregoing,
Guarantor's executor or administrator or other legal representative may
terminate this Guaranty in the same manner in which Guarantor might have
terminated it and with the same effect. Guarantor shall be liable, jointly and
severally, with Borrower and any other guarantor of all or any part of the
Indebtedness and release of any other guarantor of the Indebtedness, or
termination or revocation of any other guaranty of the Indebtedness, shall not
affect the liability of Guarantor under this Guaranty. IT IS ANTICIPATED THAT
FLUCTUATIONS MAY OCCUR IN THE AGGREGATE AMOUNT OF INDEBTEDNESS COVERED BY THIS
GUARANTY, AND IT IS SPECIFICALLY ACKNOWLEDGED AND AGREED BY GUARANTOR THAT
REDUCTIONS IN THE AMOUNT OF INDEBTEDNESS, EVEN TO ZERO DOLLARS ($0.00), SHALL
NOT CONSTITUTE A TERMINATION OF THIS GUARANTY.
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, either before
or after any revocation hereof, WITHOUT NOTICE OR DEMAND AND WITHOUT LESSENING
GUARANTOR'S LIABILITY UNDER THIS GUARANTY, FROM TIME TO TIME: (A) TO MAKE ONE OR
MORE ADDITIONAL SECURED OR UNSECURED LOANS TO BORROWER, TO LEASE EQUIPMENT OR
OTHER GOODS TO BORROWER, OR OTHERWISE TO EXTEND ADDITIONAL CREDIT TO BORROWER;
(B) TO ALTER, COMPROMISE, RENEW, EXTEND, ACCELERATE, OR OTHERWISE CHANGE ONE OR
MORE TIMES THE TIME FOR PAYMENT OR OTHER TERMS OF THE INDEBTEDNESS OR ANY PART
OF THE INDEBTEDNESS, INCLUDING INCREASES AND DECREASES OF THE RATE OF INTEREST
ON THE INDEBTEDNESS; EXTENSIONS MAY BE REPEATED AND MAY BE FOR LONGER THAN THE
ORIGINAL LOAN TERM; (C) TO TAKE AND HOLD SECURITY FOR THE PAYMENT OF THIS
GUARANTY OR THE INDEBTEDNESS, AND EXCHANGE, ENFORCE, WAIVE, FAIL OR DECIDE NOT
TO PERFECT, AND RELEASE ANY SUCH SECURITY, WITH OR WITHOUT THE SUBSTITUTION OF
NEW COLLATERAL; (D) TO RELEASE, SUBSTITUTE, AGREE NOT TO SUE, OR DEAL WITH ANY
ONE OR MORE OF BORROWER'S SURETIES, ENDORSERS, OR OTHER GUARANTORS ON ANY TERMS
OR IN ANY MANNER LENDER MAY CHOOSE; (E) TO DETERMINE HOW, WHEN AND WHAT
APPLICATION OF PAYMENTS AND CREDITS SHALL BE MADE ON THE INDEBTEDNESS; (F) TO
APPLY ANY PROCEEDS IT RECEIVES AS A RESULT OF THE FORECLOSURE OR OTHER
REALIZATION ON ANY COLLATERAL FOR THE INDEBTEDNESS TO THAT PORTION, IF ANY, OF
THE INDEBTEDNESS NOT GUARANTEED HEREUNDER OR TO ANY OTHER INDEBTEDNESS SECURED
BY SUCH COLLATERAL, AS LENDER IN ITS DISCRETION MAY DETERMINE; (G) TO SELL,
TRANSFER, ASSIGN, OR GRANT PARTICIPATIONS IN ALL OR ANY PART OF THE
INDEBTEDNESS; AND (H) TO ASSIGN OR TRANSFER THIS GUARANTY IN WHOLE OR IN PART.
GUARANTOR'S REPRESENTATIONS, WARRANTIES, AND COVENANTS. Guarantor represents,
warrants and covenants to Lender that (a) no representations or agreements of
any kind have been made to Guarantor which would limit or qualify in any way the
terms of this Guaranty; (b) this Guaranty is executed at Borrower's request and
not at the request of Lender; (c) Guarantor has full power, right and authority
to enter into this Guaranty; (d) the provisions of this Guaranty do not
conflict with or result in a default under any agreement or other instrument
binding upon Guarantor and do not result in a violation of any law, regulation,
court decree or order applicable to Guarantor; (e) Guarantor has not and will
not, without the prior written consent of Lender, sell, lease, assign, encumber,
hypothecate, transfer, or otherwise dispose of all or substantially all of
Guarantor's assets, or any interest therein; (f) Lender has made no
representation to Guarantor as to the creditworthiness of Borrower; (g)
Guarantor will provide to Lender financial statements and other financial
information regarding Guarantor as Lender may request from time to time, in form
and detail acceptable to Lender, and all such financial information heretofore
and hereafter provided to Lender is and shall be true and correct in all
material respects and fairly presents the financial condition of Guarantor as of
the dates thereof, and no material adverse change has occurred in the financial
condition of Guarantor since the date of the most current financial statements
provided to Lender; (h) Guarantor is familiar with the current financial
condition of Borrower and has established adequate means of obtaining from
Borrower on a continuing basis information regarding Borrower's future financial
condition and is not relying on Lender to provide such information to Guarantor;
(i) as of the date hereof, and after giving effect to this Guaranty, (1)
Guarantor is and will be solvent, (2) the fair saleable value of Guarantor's
assets exceeds and will continue to exceed Guarantor's liabilities (both fixed
and contingent), (3) Guarantor is and will continue to be able to pay
Guarantor's debts as they mature, and (4) if Guarantor is not an individual,
Guarantor has and will continue to have sufficient capital to carry on its
business and all businesses in which it is about to engage; and (j) Guarantor
has the power and authority to execute, deliver and perform this Guaranty and
the other Related Documents executed by Guarantor. Guarantor agrees to keep
adequately informed from such means of any facts, events, or circumstances which
might in any way affect Guarantor's risks under this Guaranty, and Guarantor
further agrees that Lender shall have no obligation to disclose to Guarantor any
information or documents acquired by Lender in the course of its relationship
with Borrower.
GUARANTOR'S WAIVERS. Guarantor waives any right to require Lender (a) to
continue lending money or to extend other credit to Borrower;
<PAGE>
08-13-1999 COMMERCIAL GUARANTY Page 2
Loan No (Continued)
(b) to make any presentment, protest, demand, or notice of any kind, including
notice of any nonpayment of the Indebtedness or of any nonpayment related to any
collateral, or notice of any action or nonaction on the part of Borrower,
Lender, any surety, endorser, or other guarantor in connection with the
Indebtedness or in connection with the creation of new or additional loans or
obligations; (c) to notify Guarantor of any change in the manner, place, time or
terms of payment of any of the Indebtedness (including, without limitation, any
renewal, extension or other modification of any of the Indebtedness); or (d) to
notify Guarantor of any change in the interest rate accruing on any of the
Indebtedness (including, without limitation, any periodic change in such
interest rate that occurs because such Indebtedness accrues interest at a
variable rate which may fluctuate from time to time). Should Lender seek to
enforce the obligations of Guarantor hereunder, Guarantor waives any right to
require Lender to first (a) resort for payment or to proceed directly or at once
against any person, including Borrower or any other guarantor of the
Indebtedness; (b) to proceed directly against, marshall, enforce, or exhaust any
collateral held by Lender from Borrower, Guarantor, any other guarantor, or any
other person; or (c) to pursue any other remedy within Lender's power.
Guarantor also waives any and all rights or defenses arising by reason of (a)
any election of remedies by Lender which destroys or otherwise adversely affects
Guarantor's subrogation rights or Guarantor's rights to proceed against Borrower
for reimbursement, including without limitation, any loss of rights Guarantor
may suffer by reason of any law limiting, qualifying, or discharging the
Indebtedness; (b) any disability or other defense of Borrower, of any other
guarantor, or of any other person, or by reason of the cessation of Borrower's
liability from any cause whatsoever, other than payment in full in legal tender,
of the Indebtedness; (c) any right to claim discharge of the Indebtedness on the
basis of unjustified impairment of any collateral for the Indebtedness; or (d)
any defenses given to guarantors at law or in equity other than actual payment
and performance of the Indebtedness. This Guaranty shall continue to be
effective or be reinstated, as the case may be, if at any time any payment of
all or any part of the Indebtedness is rescinded or must otherwise be returned
by Lender upon the insolvency, bankruptcy or reorganization of Borrower,
Guarantor, any other guarantor of all or any part of the Indebtedness, or
otherwise, all as though such payment had not been made.
Guarantor further waives and agrees not to assert or claim at any time any
deductions to the amount guaranteed under this Guaranty for any claim of setoff,
counterclaim, counter demand, recoupment or similar right, whether such claim,
demand or right may be asserted by the Borrower, the Guarantor, or both.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and agrees
that each of the waivers set forth above is made with Guarantor's full knowledge
of its significance and consequences and that, under the circumstances, the
waivers are reasonable and not contrary to public policy or law. If any such
waiver is determined to be contrary to any applicable law or public policy, such
waiver shall be effective only to the extent permitted by law or public policy.
LENDER'S RIGHT OF SETOFF. Unless a lien would be prohibited by law or would
render a nontaxable account taxable, Guarantor hereby grants Lender a
contractual security interest in and hereby assigns, conveys, delivers, pledges
and transfers all of Guarantor's right, title, and interest in and to
Guarantor's accounts with Lender (whether checking, savings, or any other
account), including all accounts held jointly with someone else and all accounts
Guarantor may open in the future. Guarantor authorizes Lender, to the extent
permitted by applicable law, to charge or setoff all Indebtedness against any
and all such accounts.
ACTIONS AGAINST AND PAYMENTS BY GUARANTOR. In the event of a default in the
payment or performance of all or any part of the Indebtedness when such
Indebtedness becomes due, whether by its terms, by acceleration or otherwise,
Guarantor shall, without notice or demand, promptly pay the amount due thereon
by Guarantor to Lender, in lawful money of the United States. The exercise by
Lender of any right or remedy under this Guaranty or under any other agreement
or instrument, at law, in equity or otherwise, shall not preclude concurrent or
subsequent exercise of any other right or remedy. Whenever Guarantor pays any
sum which is or may become due under this Guaranty, written notice must be
delivered to Lender contemporaneously with such payment. In the absence of such
notice to Lender by Guarantor, any sum received by Lender on account of the
Indebtedness shall be conclusively deemed paid by Borrower.
MISCELLANEOUS PROVISIONS.
AMENDMENTS. This Guaranty, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Guaranty and supercedes all prior written and oral agreements
and understandings, if any, regarding same. No alteration of or amendment
to this Guaranty shall be effective unless given in writing and signed by
the party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. This Guaranty has been delivered to Lender and accepted by
Lender in the State of Arizona. Subject to the provisions on arbitration,
this Guaranty shall be governed by and construed in accordance with the
laws of the State of Arizona without regard to any conflict of laws or
provisions thereof.
JURY WAIVER. THE UNDERSIGNED AND LENDER (BY ITS ACCEPTANCE HEREOF) HEREBY
VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO
HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON
CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG THE UNDERSIGNED AND LENDER
ARISING OUT OF OR IN ANY WAY RELATED TO THIS DOCUMENT, AND ANY OTHER
RELATED DOCUMENT, OR ANY RELATIONSHIP BETWEEN LENDER AND THE BORROWER. THIS
PROVISION IS A MATERIAL INDUCEMENT TO LENDER TO PROVIDE THE FINANCING
DESCRIBED HEREIN OR IN THE OTHER RELATED DOCUMENTS.
ARBITRATION. Lender and Guarantor agree that upon the written demand of
either party, whether made before or after the institution of any legal
proceedings, but prior to the rendering of any judgment in that proceeding,
all disputes, claims and controversies between them, whether individual,
joint, or class in nature, arising from this Guaranty, any Related Document
or otherwise, including without limitation contract disputes and tort
claims, shall be resolved by binding arbitration pursuant to the Commercial
Rules of the American Arbitration Association ("AAA"). Any arbitration
proceeding held pursuant to this arbitration provision shall be conducted
in the city nearest the Borrower's address having an AAA regional office,
or at any other place selected by mutual agreement of the parties. No act
to take or dispose of any collateral shall constitute a waiver of this
arbitration agreement or be prohibited by this arbitration agreement. This
arbitration provision shall not limit the right of either party during any
dispute, claim or controversy to seek, use, and employ ancillary, or
preliminary rights and/or remedies, judicial or otherwise, for the purposes
of realizing upon, preserving, protecting, foreclosing upon or proceeding
under forcible entry and detainer for possession of, any real or personal
property, and any such action shall not be deemed an election of remedies.
Such remedies include, without limitation, obtaining injunctive relief or a
temporary restraining order, invoking a power of sale under any deed of
trust or mortgage, obtaining a writ of attachment or imposition of a
receivership, or exercising any rights relating to personal property,
including exercising the right of set-off, or taking or disposing of such
property with or without judicial process pursuant to the Uniform
Commercial Code. Any disputes, claims, or controversies concerning the
lawfulness or reasonableness of an act, or exercise of any right or remedy,
concerning any collateral, including any claim to rescind, reform, or
otherwise modify any agreement relating to the collateral, shall also be
arbitrated; provided, however that no arbitrator shall have the right or
the power to enjoin or restrain any act of either party. Judgment upon any
award rendered by any arbitrator may be entered in any court having
jurisdiction. The statute of limitations, estoppel, waiver, laches and
similar doctrines which would otherwise be applicable in an action brought
by a party shall be applicable in any arbitration proceeding, and the
commencement of an arbitration proceeding shall be deemed the commencement
of any action for these purposes. The Federal Arbitration Act (Title 9 of
the United States Code) shall apply to the construction, interpretation,
and enforcement of this arbitration provision.
COSTS AND EXPENSES. Guarantor shall also pay on demand by Lender all costs
and expenses, including, without limitation, all reasonable attorneys'
fees, incurred by Lender in connection with the enforcement and/or
collection of this Guaranty and with the collection and/or sale of any
collateral securing this Guaranty. This convenant shall survive the payment
of the Indebtedness.
NOTICES. All notices required to be given by either party to the other
under this Guaranty shall be in writing and except for revocation notices
by Guarantor, shall be effective when actually delivered or when deposited
with a nationally recognized overnight courier, or when deposited in the
United States mail, first class postage prepaid, addressed to the party to
whom the notice is to be given at the address shown above or to such other
addresses as either party may designate to the other in writing. All
revocation notices by Guarantor shall be in writing and shall be effective
only upon delivery to Lender as provided above in the section titled
"DURATION OF GUARANTY." For notice purposes, Guarantor agrees to keep
Lender informed at all times of Guarantor's current address. In the event
that Guarantor is entitled to receive any notice under the Uniform
Commercial Code, as it exists in the state governing any such notice, of
the sale or other disposition of any collateral securing all or any part of
the Indebtedness or this Guaranty, reasonable notice shall be deemed given
when such notice is given pursuant to the terms of this Subsection ten (10)
days prior to the date any public sale, or after which any private sale, of
any such collateral is to be held.
INTERPRETATION. In all cases where there is more than one Borrower, then
all words used in this Guaranty in the singular shall be deemed to have
been used in the plural where the context and construction so require; and
where there is more than one Borrower named in this Guaranty, the word
"Borrower" shall mean all and any one or more of them. This Guaranty is for
the benefit of Lender, its successors and assigns. This Guaranty is binding
upon Guarantor and Guarantors's heirs, executors, administrators, personal
representatives and successors. Caption headings in this Guaranty are for
convenience purposes only and are not to be used to interpret or define the
provisions of this Guaranty. If a court of competent jurisdiction finds any
provision of this Guaranty to be invalid or unenforceable as to any person
or circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances, and all provisions
of this Guaranty in all other respects shall remain valid and enforceable.
If any one or more of Borrower or Guarantor are corporations or
partnerships, it is not necessary for Lender to inquire into the powers of
Borrower or Guarantor or of the officers, directors,
<PAGE>
08-13-1999 COMMERCIAL GUARANTY PAGE 3
LOAN NO (CONTINUED)
partners, or agents acting or purporting to act on their behalf, and any
Indebtedness made or created in reliance upon the professed exercise of such
powers shall be guaranteed under this Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights under this Guaranty
unless such waiver is given in writing and signed by Lender, and then only in
the specific instance and for the purpose given. No delay or omission on the
part of Lender in exercising any right shall operate as a waiver of such right
or any other right. A waiver by Lender of a provision of this Guaranty shall not
prejudice or constitute a waiver of Lender's right to thereafter demand strict
compliance with that provision or any other provision of this Guaranty. No prior
waiver by Lender, nor any course of dealing between Lender and Guarantor, shall
constitute a waiver of any of Lender's rights or of any of Guarantor's
obligations as to any future transactions. Whenever the consent of Lender is
required under this Guaranty, the granting of such consent by Lender in any
instance shall not constitute continuing consent to subsequent instances where
such consent is required and in all cases such consent may be granted or
withheld in the sole discretion of Lender.
ANNUAL TAX RETURNS OF GUARANTOR. So long as this Guaranty is in effect,
Guarantor shall provide Lender, within ninety (90) days of the filing thereof
each year, a true and complete copy of his/her Federal Income Tax return,
including all exhibits and schedules attached and being signed and dated.
ANNUAL FINANCIAL STATEMENTS OF GUARANTOR. So long as this Guaranty is in effect,
Guarantor shall provide Lender, on or before October 19th, each year within
ninety (90) days, a financial statement, said financial statements to be in form
and with such detail as reasonably acceptable to Lender.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY". NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS GUARANTY
IS DATED AUGUST 13, 1999.
GUARANTOR:
X /s/ Frank Cunningham
------------------------------
================================================================================
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF WORLD WIDE STONE CORPORATION FOR THE YEAR
ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS. THIS EXHIBIT SHALL NOT BE DEEMED FILED FOR THE PURPOSE OF
SECTION 11 OF THE SECURITIES ACT OF 1933 AND SECTION 18 OF THE SECURITIES
EXCHANGE ACT OF 1934, OR OTHERWISE SUBJECT TO THE LIABILITY OF SUCH SECTIONS,
NOR SHALL IT BE DEEMED A PART OF ANY OTHER FILING WHICH INCORPORATES THIS REPORT
BY REFERENCE, UNLESS SUCH OTHER FILING EXPRESSLY INCORPORATES THIS EXHIBIT BY
REFERENCE.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 151,147
<SECURITIES> 0
<RECEIVABLES> 805,052
<ALLOWANCES> 0
<INVENTORY> 1,519,767
<CURRENT-ASSETS> 2,548,551
<PP&E> 6,782,168
<DEPRECIATION> 1,622,871
<TOTAL-ASSETS> 8,220,443
<CURRENT-LIABILITIES> 1,839,562
<BONDS> 1,037,408
0
0
<COMMON> 34,804
<OTHER-SE> 5,290,669
<TOTAL-LIABILITY-AND-EQUITY> 8,220,443
<SALES> 6,567,106
<TOTAL-REVENUES> 6,567,106
<CGS> 3,489,307
<TOTAL-COSTS> 3,489,307
<OTHER-EXPENSES> 1,723,787
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,971
<INCOME-PRETAX> 1,390,530
<INCOME-TAX> 497,000
<INCOME-CONTINUING> 893,530
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 893,530
<EPS-BASIC> .03
<EPS-DILUTED> .03
</TABLE>
