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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number: 33-25126-D
SEPTIMA ENTERPRISES, INC.
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(Name of small business issuer in its charter)
Colorado 85-0368333
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(State or other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
600 Sandtree Drive, Suite 212, Lake Park, Florida 33403
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(Address of principal executive offices) (zip code)
(561) 624-7299
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Registrant's telephone number, including area code
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
None
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
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The issuer's revenues for the fiscal year ended June 30, 1997, were
$474,723.
As of August 29, 1997, the aggregate market value of the registrant's
Common Stock held by non-affiliates computed by reference to the average bid and
asked price of such stock as of such date was $2,959,671.
As of August 29, 1997, there were 8,635,629 shares of Common Stock
issued and outstanding.
Transitional Small Business Disclosure Format: Yes No X
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TABLE OF CONTENTS
PART I
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Page Number
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Item 1. Description of Business........................................... 4
Item 2. Description of Property........................................... 9
Item 3. Legal Proceedings................................................. 9
Item 4. Submission of Matters to a Vote of Security Holders............... 9
PART II
Item 5. Market for Common Equity and Related Stockholder
Matters........................................................... 10
Item 6. Management's Discussion and Analysis or Plan of Operation.. 11
Item 7. Financial Statements.............................................. 15
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................... 15
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange
Act............................................................... 16
Item 10. Executive Compensation............................................ 18
Item 11. Securities Ownership of Certain Beneficial Owners and
Management........................................................ 21
Item 12. Certain Relationships and Related Transactions.................... 23
Item 13. Exhibits, List and Reports on Form 8-K............................ 25
Signatures..................................................................... 27
Financial Statements........................................................... F1 - F21
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Presently, the Company is a manufacturer and marketer of a unique new
patented high-power capacitor that dramatically increases the performance of
spark initiated internal combustion engines. The current primary market for this
pulsed power technology product is the global automotive market, although the
product also can be used in yachts, motorcycles and all other combustion
engines.
Septima Enterprises, Inc. (the "Company" or "Septima") was
incorporated under the laws of the State of Colorado on September 12, 1988. The
Company was formed for the purpose of creating a corporate vehicle to locate and
acquire by merger, acquisition or otherwise, an interest or interests in private
business entities seeking a relationship with a public company. The Company
became operational during the second quarter ended December 31, 1996, and began
making sales on October 16, 1996.
In 1995, Septima was a company whose only assets were laboratory
equipment and licenses. During 1995, Spark Management Corporation ("Spark"), a
Pennsylvania corporation, negotiated control of Septima. Under the leadership of
Spark, Septima has been brought current on all legal and financial requirements.
In addition, problems involving base material and manufacturing process problems
surrounding the product were solved with the assistance of Amoco Polymers, Inc.
and Sandia National Laboratories.
The Company began marketing its product, Direct Hits/TM/, in 1996, and
on August 23, 1996, a Manufacturing and Distribution Agreement for the territory
of Mexico was signed with Klaire International, Ltd., an international company
with operations in the United States and Mexico. Klaire, through their Mexican
affiliate, Urvana International, tested the product in August 1996 at Consa Ford
in Mexico City, where the emission test results were immediate and conclusive.
On February 10, 1997, a Manufacturing and Distribution Agreement for
the territory of China, Taiwan, Macao and Hong Kong was signed with S. W. R.
Industries, Ltd., an international company established in manufacturing and
distributing automotive products in these markets.
On June 11, 1997, the Moviemiento Ecologista Mexicano, A. C. (MEM)
held a press conference to announce its endorsement of the Direct Hits/TM/,
which is known as "Avispon" in Mexico. In extensive testing by MEM at the
Institute of Ecology, and for six months on vehicles operated by MEM, Avispon
caused significantly reduced emissions and fuel consumption.
On September 4, 1996, the Company entered into an exclusive
Manufacturing Agreement with Carrera Corporation ("Carrera"), Latrobe,
Pennsylvania, to manufacture the Direct Hits/TM/. Under the terms of the
Agreement, Carrera is designated as the exclusive producer for the Company's
entire requirements for products produced in the United States for an initial
term of four years. Carrera currently has five plants in the United States and
Europe and is a "preferred supplier" to General Motors.
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Products and Services
The product, Direct Hits/TM/, is a bipolar, coaxial, high-voltage
capacitor derived from electromagnetic and pulsed power technology. By design,
the capacitor is efficient over a large range of frequencies and temperatures
and is matched to the ignition energy resident in the ignition systems of spark
ignited internal combustion engines. The dielectric material used in the
manufacture of the current products was developed with the assistance of Amoco
Performance Polymers over a period of 36 months beginning with the first
injection trials in August 1992 and concluding with the first high volume
production in September 1995. Amoco currently supplies the material to the
Company and has a non-disclosure agreement with Septima regarding the material.
During the 36-month development program, manufacturing process technology was
also developed to enable the manufacture of a voltage hardened capacitor. This
process technology is subject to a non-disclosure agreement with Carrera
Corporation, the exclusive manufacturer of the products for Septima.
The Direct Hits/TM/ attaches to and surrounds the standard non-
resistor spark plug. A 40,000 volt ignition pulse from the coil arrives at the
Direct Hits/TM/ and non-resistor spark plug gap at the same time. In order to
make a spark, the electrons of the ignition pulse must jump the spark gap and
flow to ground. To do that, the electrons must first overcome the resistance of
the spark gap. As the resistance of the spark plug gap is infinite, the coil
must build up enough electrical pressure at the gap to overcome the resistance.
Once enough pressure is achieved, ionization of the gap occurs providing a
bridge between the electrodes of the spark plug for the electrons to flow
across.
During the pressure buildup period, called "rise time", the electrons
in the pulse collect in the Direct Hits/TM/. Spark gap ionization triggers the
Direct Hits/TM/ to discharge the stored electrons across the spark plug gap in 5
billionths of a second creating a "hard discharge" spark.
The hard discharge of electrons stored in the Direct Hits/TM/ produces
a very high-pressure energy-density spark at the gap which results in a plasma
ball of electrons completely encasing the spark gap. This ball has
significantly more area of influence than the normal spark channel which is a
simple tube between the electrodes of the spark plug. The hard discharge spark
contains 10,000 times more peak current than a normal spark and ignites more
fuel particles during the 5 nanoseconds discharge which creates a larger flame
kernel in the cylinder. This raises energy transfer efficiency of the ignition
system from less than 1% to over 50%.
The current product line includes two different models. The Model S-
100 is intended for the automotive market, while the S-80 is marketed to the
recreation vehicle markets such as motorcycles, marine outboards, and jet skis.
There are a number of automotive aftermarket products claiming to
improve the operation of the ignition system and thereby improve the performance
of the automobile. While all of these products are ignition and spark related,
only Septima has a patented technology that improves the electrodynamics of the
spark. The difference that separates Direct Hits/TM/ from the competition is
the product's distinct ability to substantially increase the peak power and
performance of the spark.
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Intellectual Property
On September 26, 1995, the Company entered into an Agreement for
Assignment of Technology and Patents with Hensley Plasma Plug Partnership (HP3),
a Colorado general partnership. While the agreement was dated September 26,
1995, the Company regards the effective date as January 18, 1996, the day monies
were received by the partnership as settlement of the mediation which took place
in November 1995. The Company could not proceed with any business utilizing the
technology or patents until the partnership agreed to the disposition of the
patents. These patents and technology all related to Hard Discharge Ignition
("HDI"), the technology on which Direct Hits/TM/ is based. The technology was
first developed by members of the Hensley family who were awarded several
patents, both foreign and domestic, for portions of the technology, all of which
are now assigned to and owned by Septima, along with the global marketing and
manufacturing rights. The patents now owned by the Company include six United
States patents, seven international patents and two international patent
applications for the HDI pulsed power technology. These patents cover the base
technology, application of the technology, and devices or products to apply the
technology. The Company will file new patent applications in those countries
where it does not have patent protection and has plans to enter that market with
a local company desirous of distributing the Company's products there.
During the fiscal year from July 1, 1996, through June 30, 1997, the
Company incurred expenses of $37,962 to keep the patents and patent filings
current.
The competitive position of the Company will be based on technology
protected by the Company's patents. The patent coverage is divided into three
main categories: technology, devices, and manufacturing methods.
The Company entered into a Master Licensing Agreement dated September
10, 1996, with Spark Management Corporation ("Spark") which culminated an
understanding between the parties reached in September 1995. The Company
acquired developments, information, proprietary rights and trade secrets
collectively referred to as Ignition Systems and Processes. The agreement will
terminate ten years following the last expired patent acquired by Spark. Also,
this agreement is subject to termination or cancellation by both parties based
upon various circumstances explained in the agreement. In consideration of the
Agreement, Spark received 450,000 shares of common stock. The Company will pay
Spark $1 for each Direct Hits/TM/ product sold up to 1,000,000 units; $.50 for
each Direct Hits/TM/ product on the next million aggregate units sold, and $.25
for each Direct Hits/TM/ product sold thereafter.
The Company regards its patents, trademarks, trade secrets, licenses
and similar intellectual property as critical to its success and attempts to
protect such property with registered patents, restrictions on disclosure and
other actions to forestall infringement. There can be no assurance that third
parties will not infringe or misappropriate the Company's patents or similar
proprietary rights. The cost of enforcement by the Company of its patents, if
required, could be significant regardless of the outcome of the enforcement
proceedings. Further, while the Company's patents and licenses
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protect the general design of the Company's products, there is no assurance that
the patents and licenses are broad enough to prevent competitors from
introducing similar devices or that such patents, if challenged, will be upheld
by courts.
Research and Development
During the fiscal year from July 1, 1996, through June 30, 1997, the
Company spent $0 on research and development of HDI technology and $39,615 on
the acquisition and protection of trademarks and patent rights to the HDI
technology. During the fiscal year June 1, 1995, to May 31, 1996, and the one
month period from June 1, 1996, through June 30, 1996, the Company spent $0 on
research and development of HDI and $80,589 on the acquisition and protection of
trademarks and patent rights to the HDI technology.
Sales and Marketing
In the United States, Direct Hits/TM/ will be marketed through
numerous channels of distribution; however, the primary channel for the product
will be aftermarket retail distribution based on this channel's delivery of the
"do-it-yourself" (DIY) customer base who will be most likely to try the product.
The concept of the product and its advertising message will be delivered in
regional editions of national auto enthusiast magazines, Hot Rod, Car Craft, and
National Dragster, beginning with their September issues and running through
their December issues.
The Company's marketing strategy for the United States is a
combination "pull" approach for the automotive customer and a "push" approach
for other markets. The "pull" marketing strategy is a multi medial approach
utilizing radio, television, and magazine advertising to cause the customer to
buy. The product will be sold through retail automotive stores and service
shops. The "push" strategy to the performance market, owners of stationary
engines and agricultural vehicles, and original equipment manufacturers will be
done through a combination of Septima market managers and a nationwide network
of independent sales representative companies.
International sales will be accomplished as relationships are
developed with business entities within those countries. Septima does not plan
to sell its products directly outside the United States.
The method used to estimate sales of Direct Hits/TM/ in the first two
years of its introduction in the United States is first to estimate penetration
of retail automotive outlets, primarily chain stores, and factor this
penetration by estimated turnover, awareness achieved, and change in these
variables over time. The approach to deriving sales projections for
distributors and installers is to estimate the dynamics of the marketing process
- -- attitude, awareness and usage measures. This is a causal relationship
forecasting method, which is harder to derive without using historical or
parallel data. In the case of Direct Hits/TM/, the product is not only a new
concept, but it is a dramatic change in improving engine performance. The
method used in estimating sales of the "Avispon"/Direct Hits/TM/ in the country
of Mexico is to examine the points of sale, estimate the effectiveness of the
outlet to push the product, and combine the impact of advertising.
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The sales projections for China, Hong Kong, Taiwan and Macao are based
on the current distribution network and penetration of Septima's distributor in
these countries, S. W. R. Industries, Ltd. There are approximately 10 million
automobiles and light duty commercial vehicles in these countries as well as
over 50 million motorcycles and scooters. The target penetration planned for
these markets is 5% of the automobiles and motorcycles by the end of 1999.
The Company is not aware of any governmental regulation of or approval
required for the manufacture or sale of Direct Hits/TM/ products nor does the
Company anticipate that compliance with federal, state or local environmental
laws will significantly add to the cost of manufacturing Direct Hits/TM/
products.
Competition
The Company's principal competition in the primary market and
aftermarket for HDI based products will be those products related to the
ignition system for gasoline combustion engines. These products include high
performance spark plugs, ignition coils, and high voltage cables. The Company
believes the Direct Hits/TM/ products will create an additional aftermarket
category as the Direct Hits/TM/ products being developed by the Company do not
fall within the description of the competitive products currently on the market.
The Direct Hits/TM/ products attach to the conventional spark plugs and add a
pulse-power derived electrical device to the ignition circuit, as such, the
Company believes that there are currently no direct competitors for the
Company's products.
Employees
All employees working for Septima are paid through Septima. During
the fiscal year from July 1, 1996, through June 30, 1997, the Company had three
compensated, full-time employees.
Forward-Looking Statements
The Company has incurred recurring losses and has experienced cash
flow problems. These factors raise substantial doubt about the Company's
ability to continue as a going concern without new capital investment to
complete the development, manufacture and marketing of its products.
In order to secure additional working capital, on April 14, 1995, the
Company entered into a financing agreement (the "Financing Agreement") with
Spark Management Corporation ("Spark"), a corporation organized under the laws
of the State of Pennsylvania, which, among other things, provided that Spark
would loan the Company up to $1,300,000 for research, development and production
of HDI products and for general operating purposes. The Financing Agreement
expired by its own terms in July 1995. On September 9, 1996, the Company
entered into a new loan arrangement with Spark, pursuant to which Spark would
loan Septima up to $500,000 for research, development and production of HDI
products and general operating purposes. Spark has loaned $337,209 to Septima
under this agreement as of June 30, 1997. The majority of the $337,209 loaned
was to implement the manufacturing process and none of the funds loaned were
expended for
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research and development. There can be no assurances that the Company will be
able to raise sufficient capital should Spark cease loaning funds to the
Company. A failure by the Company to secure additional capital for operations
and other purposes would have a material adverse effect on the Company and its
operations.
ITEM 2. DESCRIPTION OF PROPERTY
The Company is headquartered in Lake Park, Florida. As of June 30,
1997, the Company leased approximately 2,250 square feet of office space in Lake
Park, Florida. The current lease will expire September 30, 1997, and the
Company has renewed the lease for a one-year term.
The Company believes that its facilities are adequate to meet the
Company's current business requirements and that suitable additional space will
be available as needed to accommodate further physical expansion of its
operations and for additional sales and support offices in the U. S.
ITEM 3. LEGAL PROCEEDINGS
As of June 30, 1997, there were no pending or threatened legal
proceedings against the Company.
On June 17, 1996, the Company filed a demand for arbitration with the
American Arbitration Association in Phoenix, Arizona, relating to an Agreement
dated May 27, 1994, with Worldwide Associates, Inc., a New Jersey corporation
("Worldwide"). A Settlement Agreement was reached on December 2, 1996, whereby
Septima paid Worldwide the sum of $15,000, and Septima and Worldwide declared
the Distributor Agreement appointing Worldwide as the exclusive worldwide
distributor for Septima products null, void and of no effect since its
inception.
On September 11, 1996, a Complaint for Declaratory Judgment was filed
by the Company in Second Judicial District Court, County of Bernalillo, State of
New Mexico, relating to disputed consulting fees from Construction Analysis &
Management, Inc. ("CAMI"). A court appointed arbitrator found in favor of the
Company and against CAMI, the defendant, finding that no consulting fees were
payable by the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There was no shareholder meeting and no matters were submitted to the
security holders for a vote during the fourth quarter of the fiscal year ended
June 30, 1997.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Description of Market for Securities
As of August 29, 1997, there were 8,635,629 shares of no par value
common stock ( the "Common Stock") of the Company outstanding owned of record
by 187 shareholders. Since May 1995, the Company's Common Stock has been
publicly traded on the National Association of Securities Dealers electronic
bulletin board system (the "NASD-EBB") under the symbol "SEPP." An average of
24,408 shares per month of the Company's stock was traded on the NASD-EBB during
FY 1996-1997 at a low of $.125 per share and a high price of $3.00 per share.
The following table sets forth the range of high and low prices per
share of Common Stock for each of the periods indicated, as reported by the
NASD-EBB.
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High Low
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FY 1995-1996 by quarter:
Quarter Ended September 30, 1995 .5625 .125
Quarter Ended December 31, 1995 .625 .25
Quarter Ended March 31, 1996 2.125 .625
Quarter Ended June 30, 1996 3.00 1.25
FY 1996-1997 by quarter:
Quarter Ended September 30, 1996 1.75 .75
Quarter Ended December 31, 1996 1.50 .75
Quarter Ended March 31, 1997 1.50 .625
Quarter Ended June 30, 1997 1.50 .75
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These quotations reflect inter-dealer prices without retail mark-up,
mark-down or commissions and may not represent actual transactions.
In a written action in lieu of a special meeting, the Board of
Directors on September 9, 1996, granted a former Board member an option to
purchase 200,000 shares of the Company's stock at an exercise price of $1.00 per
share exercisable any time prior to October 1, 2001.
The 312,500 stock options issued to R. Edwin Morgan and Louis S.
Camilli on September 9, 1996, for $.20 per share were issued based upon a
previous understanding reached in FY 1995-1996 when the stock price was
approximately $.20 per share. The shares are exercisable at any time prior to
September 9, 2006.
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Additionally, on September 9, 1996, and December 13, 1996, the Board
granted to each of the independent members of the Company's Board of Directors
options to purchase 20,000 shares of common stock at the exercise price of $1.00
per share. These options vest one year after the date of grant.
Dividends
Holders of the Company's Common Stock are entitled to share equally in
dividends when, as and if declared by the Board of Directors of the Company, out
of funds legally available therefor. The Company has not paid dividends in the
past, and it is unlikely that any such dividends will be declared in the
foreseeable future.
Private Placement
On December 5, 1996, the Company completed and issued a Private
Placement Memorandum pursuant to Regulation D promulgated under the Securities
Act of 1933, as amended (the "Securities Act"), in which it offered to
accredited investors 1,100,000 shares at a price of $2.00 per share. Under the
Private Placement Memorandum, the Company offered to sell a minimum of 400,000
and a maximum of 1,100,000 newly issued shares at a price of $2.00 per share.
The minimum investment per investor for the Offering was 10,000 shares for an
aggregate minimum purchase price of $20,000. On November 27, 1996, the Company
executed an Underwriting Agreement with Harrison Douglas, Inc. ("Harrison
Douglas") of Denver, Colorado, whereby Harrison Douglas would serve as
underwriter for the Private Placement offering. The shares available under the
Private Placement Memorandum were offered and sold directly by Harrison Douglas,
officers and directors of the Company and selected brokers or dealers.
Before any shares were sold, management revised the offering on April
1, 1997, to 2,200,000 shares at a price of $1.00 per share. The Company broke
escrow on May 30, 1997, and issued a total of 400,000 additional shares of
common stock at a price of $1.00 per share as of June 30, 1997. Costs associated
with this private offering amount to $53,164 at June 30, 1997, and have been
recorded as a charge to Common Stockholders' Equity.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Except for the historical information contained herein, the matters
discussed in the Form 10-KSB include forward-looking statements that involve
risks and uncertainties, including, but not limited to, the ability to raise
sufficient capital to continue the Company's operations and other risks detailed
from time to time in the Company's Securities and Exchange Commission filings.
Actual results may differ materially from management expectations.
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Plan of Operation
The Company has embarked on an ambitious growth plan using the
proceeds from the Private Placement offering. Using these proceeds, the Company
intends to pursue the following media objectives: (1) in the initial targeted
markets, generate brand and advertising awareness in the first 12 months, (2)
maintain 50% reach of the target and 3X frequency (messages delivered) per
quarter, (3) support retail outlets where possible, (4) deliver alternative
response devices, like 800 or 888 numbers, to the consumer and the customers,
(5) seek out media opportunities and events which offer "free" media coverage,
and (6) identify and build sales goals around media boundaries as the Company's
management structure for sales development takes shape; and (7) maintain the
knowledge base of brand sales on a by-market basis as the Company launches the
product locally and regionally through market expansion.
There can be no assurance that any delay or modification of the
Company's plan would not adversely affect the Company's development. If the
Company requires additional funds to produce and market its products, such funds
may not be available on terms acceptable to the Company, or at all.
In addition to the proceeds from the Private Placement offering, the
Company, during fiscal year 1996-97, has obtained working capital through loans
from Spark Management Corporation and from a line of credit with 1/st/ United
Bank. Should loans not be available to the Company in the future, there is no
assurance that the Company will be able to raise sufficient capital from other
sources to adequately fund the continuing operations of the Company.
Ongoing tests include the Company's monitored test fleet which
currently totals over fifty vehicles, one to seventeen years old. The test
fleet is used to monitor fuel economy enhancement, general driveability,
performance change and durability. The information received from the vehicle
owners as a result of installing the capacitors on their vehicles is being
monitored and assembled for detailed analysis of long-term effects.
The Company does not foresee any expected purchase or sale of plant
and significant equipment during the fiscal year 1997-98.
The Company's success depends to a significant extent upon the
continued services of R. Edwin Morgan, President and Chairman of the Board, and
Louis S. Camilli, Science and Technology Advisor, and the loss of either could
have a material adverse effect on the Company's business or results of
operations. The Company has an employment contract with Mr. Morgan and a
consulting agreement with Spark Management Corporation, of which Mr. Camilli is
President. The employment agreement with Mr. Morgan is for a 12-month period
and renewable on an annual basis. Further, the success and growth of the Company
depends on its ability to identify, recruit and retain key management personnel.
For the fiscal year 1997-98, the Company will add employees as needed to support
the planned sales growth. Since June 30, 1997, two employees have been added
for customer support.
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Results of Operations
Sales for the fiscal year ended June 30, 1997, were $474,723. The
sales occurred in the second, third and fourth quarters of the fiscal year ended
June 30, 1997, and were to customers for resale of the Company's primary product
in the United States, Mexico, Asia and Australia. The majority of the Company's
sales for the fiscal year were in Mexico. There were no sales in the month of
June 1996 or in the fiscal year ended May 31, 1996.
Sales for FY 1996-1997 were below management's expectations due to a
change in the manufacturing process resulting in premature electrical failure of
the product. The processing problem did not affect the Company's inventory, and
the manufacturer replaced the product at no cost to the Company. The original
process was restored, more rigorous specifications and testing procedures were
implemented and reliable production results were achieved during the quarter
ended June 30, 1997. Management of the Company does not anticipate having
additional manufacturing problems with the product in the future.
The Company's gross profit in FY 1996-1997 was $149,137 or 31.4% of
sales. There was no gross profit in the month of June 1996 or in the fiscal
year ended May 31, 1996.
The Company experienced total expenses of $596,786 for the twelve
months ended June 30, 1997. Included in these expenses are nonrecurring costs
of legal fees and settlement of the Worldwide Associates, Inc. dispute, legal
fees and costs to win a declaratory judgement in a disputed payables matter, and
relocation of the corporate headquarters to Lake Park, Florida. Total expenses
for the month of June 1996 and for the fiscal year ended May 31, 1996, were
$27,389 and $192,786, respectively. The Company reported other income of $134
in the month of June 1996 and $20,482 in the fiscal year ended May 31, 1996.
The Company experienced a net loss of $447,649 for the twelve months
ended June 30, 1997, as a result of certain nonrecurring expenses and below
forecast sales during the fiscal year ended June 30, 1997. There were no sales
during the first four months of FY 1996-1997. The Company reported a net loss
of $27,255 for the month of June 1996 and a net loss of $172,304 for the fiscal
year ended May 31, 1996.
Manufacturing
The Company entered into a Manufacturing Agreement with Carrera
Corporation dated September 4, 1996. The Company engaged the manufacturer as
its exclusive producer for the entire requirements for the product produced in
the United States. The initial term is for four (4) years automatically
renewable for one (1) year periods.
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Marketing and Distribution
On August 23, 1996, a Manufacturing and Distribution Agreement for the
territory of Mexico was signed with Klaire International, Ltd., an international
company with operations in the United States and Mexico. The company is
required to order a minimum number of Products/Inserts per year from Septima.
Sales through June 30, 1997, pursuant to this Manufacturing and Distribution
Agreement, are just over $439,000.
On February 10, 1997, a Manufacturing and Distribution Agreement for
the territory of China, Taiwan, Macao and Hong Kong was signed with S.W.R.
Industries, Ltd., an international company established in manufacturing and
distributing automotive products in these markets. The company is required to
order a minimum number of products per year from Septima in the second year and
beyond. Sales through June 30, 1997, pursuant to this Manufacturing and
Distribution Agreement are just over $32,000.
Liquidity and Capital Resources
The Company's operations for the fiscal year ended June 30, 1997, were
financed by revenues from sales, a $100,000 line of credit from 1/st/ United
Bank, Lake Park, Florida, and loans from Spark Management to the Company.
Should loans not be available to the Company in the future, there is no
assurance that the Company will be able to raise sufficient capital from other
sources to adequately fund the continuing operations of the Company.
As of June 30, 1997, current liabilities exclusive of short term
borrowing and accrued interest totaled $462,474. Included in this amount is
$100,000 in accrued salary for the President and Chief Executive Officer.
As of June 30, 1997, the balance due to Spark was $337,209 in
principal and $48,948 in accrued interest, and Septima had drawn $80,383 of the
$100,000 line of credit with 1/st/ United Bank.
On December 5, 1996, the Board of Directors authorized a private
placement of 1,100,000 shares of Septima common stock at a price of $2.00 per
share, the proceeds of which are to be used for product manufacture, advertising
and marketing in the United States. The private placement was revised on April
1, 1997, to sell 2,200,000 shares of Septima common stock at a price of $1.00
per share to reflect current market value and is being made by the Company in
reliance upon Rule 506 of Regulation D promulgated under the Securities Act.
The Company broke escrow on May 30, 1997, and issued to purchasers 400,000
shares of common stock at a price of $1.00 per share on June 30, 1997.
14
<PAGE>
Forward-Looking Statements
The foregoing Description of Business and Management's Discussion and
Analysis or Plan of Operation contains various "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which represent
the Company's expectations or beliefs concerning future events, including
without limitation the following: methods of and plans for conducting future
operations; changes in the Company's sales, costs, expenses and other financial
information; changes or adjustments in the Company's marketing and business
strategies; the Company's ability to raise additional capital or secure
additional credit facilities or other future sources of financing, if necessary
for the Company to do so; and the sufficiency of the Company's cash provided by
operating, investing and financing activities for the Company's future
liquidity and capital resource needs.
The Company cautions that these statements are further qualified by
important factors that could cause actual results to differ materially from
those contained in the forward-looking statements, including without limitation
the following: general economic conditions; specific economic conditions
relating to the production of automotive parts that implement HDI technology;
the demand for the Company's products; the size and timing of future orders and
new contracts; effects of fluctuations in the value of foreign currencies in
relation to the U. S. dollar; production delays or manufacturing inefficiencies;
management decisions to commence or discontinue product lines; the Company's
ability to design and introduce new products or product enhancements on a cost-
effective and timely basis; the amount and timing of research and development
expenditures; the maintenance of present and the availability of future
strategic alliances and joint marketing or servicing agreements; the
introduction of new products and product enhancements by competitors; the
budgeting cycle of customers; changes in the level of operating expenses; and
the present and future level of competition in the industry. As a result of
these and other important factors, the results actually achieved may differ
materially from expected results included in these statements.
ITEM 7. FINANCIAL STATEMENTS
The Company's balance sheets as of June 30, 1997, June 30, 1996 and
May 31, 1996, and the Company's Statements of Operations, Stockholders' Deficit
and Cash Flows for the years ended June 30, 1997, and May 31, 1996, and for the
one month ended June 30, 1996, are included herein beginning on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
By letter dated January 7, 1997, the Company notified the accounting
firm of Delisi, Henninger and Associates that the Company would no longer be
retaining such accounting firm as the Company's principal independent
accountant. On January 8, 1997, the Company retained the accounting firm of
McGladrey & Pullen, LLP as its principal independent accountant.
15
<PAGE>
For a complete response to this Item 8, see Item 4 of the Company's
Current Report on Form 8-K dated January 7, 1997, as filed with the Securities
and Exchange Commission (the "Commission") on January 17, 1997 (File No. 33-
25126-D). Item 4 of such Form 8-K is hereby incorporated by reference in this
Annual Report.
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 information with respect to
the executive officers and directors of the Company:
<TABLE>
<CAPTION>
Name Age Positions
- ---- --- ---------
<S> <C> <C>
R. Edwin Morgan 60 Director, Chairman of the Board, President,
Chief Executive Officer, and Treasurer
Louis S. Camilli 50 Director
Darryl J. Dillenback 50 Director
Ronald J. Costello 55 Director
Roy H. Davidson 46 Director
Charlotte Darling 54 Secretary
</TABLE>
R. Edwin Morgan was appointed as a Director of the Company on
---------------
September 26, 1995. On January 18, 1996, Mr. Morgan was formally elected as a
member of the Company's Board of Directors at a Special Meeting of Shareholders.
Following the election, Mr. Morgan was appointed Chairman of the Board of
Directors and elected President and Chief Executive Officer of the Company. He
was elected Treasurer of the Company on February 5, 1997. From 1967 until
August of 1992, Mr. Morgan was an employee of Kennametal, Inc., a Fortune 500
company and a global leader in industrial tools and supplies. His experience
path was Manufacturing Engineer, Sales Representative, Sales Management, Vice
President Marketing, Vice President and Division General Manager, Director of
Operations with global responsibility for three business groups consisting of 13
divisions, and Subsidiary President. Mr. Morgan was retired until he became
associated with Septima in 1995. Mr. Morgan was awarded a B.A. degree in
Business from St. Louis University.
16
<PAGE>
Louis S. Camilli was elected to the Company's Board of Directors at a
----------------
Special Meeting of Shareholders held on January 18, 1996. Since April 1995, Mr.
Camilli has been an Advisor of Science and Technology for the Company and for
Spark Management Corporation. From May 1991 to April 1995, Mr. Camilli was the
owner and principal officer of HDI Systems, the company that developed and
engineered the design and manufacturing processes for the current Septima
products. He is a former investment advisor and Series 7 stockbroker. Prior to
May 1991, Mr. Camilli served as a product manager for Summa Medical Corporation,
a high-tech medical company. Mr. Camilli holds a B. A. degree in mathematics
from Texas A&M University.
Darryl J. Dillenback was appointed to the Company's Board of Directors
--------------------
at a Special Meeting of the Board of Directors held on September 9, 1996. In
March 1997, Mr. Dillenback became President and General Manager, Construction &
Mining Group Sales, The Americas, for Ingersoll-Rand Company in Bethlehem,
Pennsylvania, a $7 billion company that manufactures industrial equipment and
components in over 100 locations around the world. From 1991 to March 1997, Mr.
Dillenback was with Explosives Technologies International Inc. where he served
as President and Chief Executive Officer. Explosives Technologies is a $150
million privately owned commercial explosives manufacturer and distributor
serving the mining, aggregate, construction and seismic industries. Mr.
Dillenback received a B. S. degree in Industrial Distribution from Clarkson
University.
Ronald J. Costello was appointed to the Company's Board of Directors
------------------
at a Special Meeting of the Board of Directors held on December 13, 1996. Mr.
Costello was President of Versachem Corporation, which, prior to its merger with
Illinois Tool Works Inc., was one of the leading companies in supplying sealants
and adhesives to the automotive aftermarket worldwide. Prior to starting
Versachem twenty years ago, Mr. Costello was Vice President International for
Loctite Corporation. Mr. Costello studied Chemistry at St. John's University in
New York.
Roy H. Davidson was appointed to the Company's Board of Directors at
---------------
a Special Meeting of the Board of Directors held on December 13, 1996. Mr.
Davidson was appointed President of BallenIsles Development Company in June
1993. BallenIsles's operations include real estate development, country club
facilities, real estate sales and other development interests in northern Palm
Beach County. From September 1992 to June 1993, Mr. Davidson was Executive Vice
President of John C. Bills Enterprises, a real estate development, commercial
brokerage and property management company. Mr. Davidson was elected Chairman of
Septima's Audit Committee on December 13, 1996. He received a BSBA in
Accounting from The University of Central Florida.
Charlotte Darling has been with the Company since October 1996 and was
-----------------
appointed Secretary of the Company on February 5, 1997. Mrs. Darling is a
graduate of the University of Memphis with a BBA degree in Business
Administration. From January 1973 to October 1996, Mrs. Darling was employed by
Cook International, Inc., a diversified financial services company, where she
was corporate secretary, director of cash management, and assistant to the
chairman of the corporation.
17
<PAGE>
All directors of the Company hold office for a term of one year and
until their successors are elected and qualified.
There are no familial relationships between any of the Company's
executive officers and directors.
Section 16(a) Beneficial Ownership Reporting Compliance
Because the Company does not have a class of securities registered
under Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Company's executive officers, directors, and 10% or greater
shareholders are not subject to the beneficial ownership reporting requirements
under Section 16 of the Exchange Act.
ITEM 10. EXECUTIVE COMPENSATION
Compensation of Executive Officers
The following table sets forth as of June 30, 1997, all compensation
paid during the Company's last three fiscal years to the Company's Chief
Executive Officer. No other executive officers received total annual
compensation in excess of $100,000 during the last fiscal year.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation(1) Awards
---------------------- ----------
Number of
Securities
Underlying
Position Year Salary(2) Options(3)
- -------------------------- ---- -------- ----------
<S> <C> <C> <C>
R. Edwin Morgan, 1997 $100,000 250,000
President, Chief Executive 1996(4) $ -0- -0-
Officer, and Treasurer of 1995 $ -0- -0-
the Company
</TABLE>
(1) In accordance with the rules of the Commission, the compensation described
in this table does not include medical group life insurance or other
benefits received by the named executive officer which are available
generally to all salaried employees of the Company, and certain perquisites
and other personal benefits, securities or property received by the
executive which do not exceed the lesser of $50,000 or 10% of any such
named executive officer's salary and bonus disclosed in this table.
18
<PAGE>
(2) Under Mr. Morgan's employment agreement dated September 1, 1996, his annual
salary is $120,000. For the fiscal year ending June 30, 1997, Mr. Morgan
had earned $100,000 which has been accrued by the Company but not yet paid
to Mr. Morgan.
(3) The value of these options are detailed in the "Option Grants in Last
Fiscal Year" table below.
(4) For the 1996 fiscal year, the Company changed its fiscal year end from May
31 to June 30. For purposes of this table, these amounts reflect Mr.
Morgan's compensation for both the 1996 fiscal year ended June 30 (as
changed) and the 1996 fiscal year ended May 31 (as if no change had taken
place).
The following table sets forth information regarding options to purchase
the Company's Common Stock granted by the Company during the last fiscal year to
the executives named in the Summary Compensation Table.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Number of
Securities % of Total
Underlying Options Granted Per Share
Options to Employees in Exercise Expiration
Name Granted Fiscal Year(1) Price Date
- -------------- ----------- ----------------- ----------- ------------
<S> <C> <C> <C> <C>
R. Edwin Morgan 250,000 98.23% $0.20 September 2006
</TABLE>
(1) Options to purchase a total of 254,500 shares were granted to employees of
the Company in fiscal year 1997. This number does not include options to
purchase a total of 360,000 shares which were granted to current and former
non-employee directors and consultants in fiscal year 1997.
During 1997, no options were exercised by the named executive officer. The
following table sets forth information with respect to such executive officer
concerning unexercised options held as of June 30, 1997.
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-the-
Options at FY-End Money Options at FY-End
------------------------- --------------------------------
Not Not
Name Exercisable Exercisable Exercisable Exercisable
- --------------------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
R. Edwin Morgan 250,000(1) -0- $200,000.00(2) $ -0-
</TABLE>
19
<PAGE>
(1) These options have an exercise price of $0.20 per share and are exercisable
during the period from 1997 to 2006.
(2) These values represent potential gains on exercisable options based on the
closing price of the underlying Common Stock as of June 30, 1997 ($1.00),
less the exercise price of the options ($0.20).
Compensation of Directors
Darryl J. Dillenback, Ronald J. Costello and Roy H. Davidson were appointed
to the Board of Directors during FY 1996-1997. In fiscal 1997, the Company did
not pay a director's fee; however, Messrs. Dillenback, Costello and Davidson
each received an option to purchase 20,000 shares of Septima common stock at an
option price of $1.00 per share that vest in full upon completion of one year of
service. Non-employee directors were reimbursed for their reasonable expenses
incurred in connection with such service.
Employment Agreement
The Company is a party to an Employment Agreement with R. Edwin Morgan,
pursuant to which Mr. Morgan serves as President and Chief Executive Officer of
the Company. The initial term of the agreement is for one year, commencing on
September 1, 1996, and the agreement will automatically renew for successive one
year periods unless either party gives the other party written notice of
termination at least sixty (60) days prior to the end of each calendar year.
Pursuant to the Employment Agreement, Mr. Morgan will receive an annual
base salary in an amount no less than $120,000. The salary provided for under
the agreement shall be in addition to any profit sharing, pension or retirement
benefits, stock options, life insurance, hospital and medical, disability,
bonuses, incentive payments, vacation, and other benefits made generally
available by the Company to its executive officers. Also under the agreement,
the Company will provide to Mr. Morgan an automobile for his use in connection
with its business at the Company's sole cost, and the Company will reimburse Mr.
Morgan for travel, entertainment and other out-of-pocket expenses and
disbursement which may be incurred in furtherance of the Company's business.
The agreement provides that upon the termination of employment, other than
for cause (as defined in the agreement), the Company shall pay to Mr. Morgan all
his vested benefits on the date of termination, and the Company shall be
obligated to continue to pay to him for the remaining term of the agreement (i)
his salary in an annual amount equal to his annual salary during the year in
which such termination occurs and (ii) other compensation as designated in the
agreement.
20
<PAGE>
ITEM 11. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Beneficial Ownership of Common Stock
The following table sets forth information with respect to the shares of
Common Stock beneficially owned as of September 15, 1997, by (i) those persons
who were beneficial owners of more than 5% of the Company's outstanding shares
of Common Stock, (ii) each of the Company's directors and certain of its
executive officers, and (iii) all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
Name and Address Amount and Nature
of Beneficial Owner(1) of Beneficial Owner Percent of Class
- ---------------------- ------------------- ----------------
<S> <C> <C>
Louis S. Camilli 4,819,770(2) 55.41%
8280 Bob O'Link
West Palm Beach FL 33412
Ronald J. Costello -0-(3)
14346 Cypress Island Court
Palm Beach Gardens FL 33410
Roy H. Davidson -0-(4)
11990 South Edgewater Drive
Palm Beach Gardens FL 33410
Darryl J. Dillenback 50,000(5) 0.58%
3747 Washington Street
Allentown PA 18104
George Hensley 918,688(6) 10.64%
4520 Montgomery, NE
Albuquerque NM 87109
R. Edwin Morgan 4,557,270(7) 51.29%
105 Emerald Key Lane
Palm Beach Gardens FL 33418
Francisco Urrea, Jr. 983,150(8) 10.76%
901 Rio Grande NW, G-250
Albuquerque NM 87104
</TABLE>
21
<PAGE>
<TABLE>
<S> <C> <C>
All directors and executive officers 5,124,270(9) 57.11%
As a group (6 persons)
</TABLE>
(1) Unless otherwise indicated, the Company believes that all persons named in
the table set forth above have sole voting and investment power with
respect to all shares of Common Stock beneficially owned by them. A person
is deemed to be the beneficial owner of securities that can be acquired by
such person within 60 days of September 15, 1997, upon the exercise of
options that have already vested or will vest within such 60 day period.
(2) Includes (i) 450,000 shares owned directly, of which Mr. Camilli has sole
voting and investment control, (ii) 62,500 shares of Common Stock which may
be acquired at any time prior to September 9, 2006, upon the exercise of an
option granted by the Company to Mr. Camilli, and (iii) 4,307,270 shares of
Common Stock of which Mr. Camilli shares indirect voting control pursuant
to a voting trust (the "Voting Trust"), established pursuant to that
certain Voting Trust Agreement (the "Voting Trust Agreement"), by and among
Cottonbloom, Inc., a New Mexico corporation ("Cottonbloom"), Spark, and
David Norvell, as trustee, dated September 26, 1995. Cottonbloom does not
exercise any voting or investment control over the shares of Common Stock
subject to the Voting Trust. See "Voting Trust Agreement."
(3) On December 13, 1996, the Company granted Mr. Costello an option to
purchase 20,000 shares of Common Stock that fully vests on December 13,
1997. No portion of this option shall vest, and Mr. Costello does not have
any right to exercise the option while in whole or in part, until such
date.
(4) On December 13, 1996, the Company granted Mr. Davidson an option to
purchase 20,000 shares of Common Stock that fully vests on December 13,
1997. No portion of this option shall vest, and Mr. Davidson does not have
any right to exercise the option in whole or in part, until such date.
(5) Includes (i) 20,000 shares of Common Stock which may be acquired upon the
exercise of an option granted by the Company to Mr. Dillenback on September
9, 1996, that vested in full on September 9, 1997, and (ii) 30,000 shares
owned directly, of which Mr. Dillenback has sole voting and investment
control.
(6) These shares are indirectly owned by Mr. Hensley through Cottonbloom, of
which Mr. Hensley is President.
(7) Includes (i) 250,000 shares of Common Stock which may be acquired at any
time prior to September 9, 2006, upon the exercise of options granted by
the Company to Mr. Morgan, and (ii) 4,307,270 shares of Common Stock of
which Mr. Morgan shares indirect voting control under the Voting Trust. See
"Voting Trust Agreement."
(8) Includes (i) 500,000 shares of Common Stock which may be acquired at any
time prior to May 1, 1999, upon the exercise of an option granted by the
Company to Mr. Urrea, and (ii) 483,150 shares of Common Stock owned
indirectly through Septima Partnership, of which Mr. Urrea is a partner.
(9) Includes (i) 4,500 shares of Common Stock which may be acquired by an
executive officer not named in the table set forth above upon the exercise
of an option granted by the Company to such executive officer, and (ii)
4,307,270 shares of Common Stock owned by the Voting Trust over which
Messrs. Morgan and Camilli have indirect and shared voting control.
22
<PAGE>
Voting Trust Agreement
On September 26, 1995, Cottonbloom, Spark and David Norvell, as trustee
(the "Trustee"), entered into that certain Voting Trust Agreement pursuant to
which 4,307,270 shares of Common Stock formerly owned of record by Cottonbloom
are currently deposited in the Voting Trust. The Trustee is located at 901 Rio
Grande NW, Suite D-222A, Albuquerque, New Mexico 87104. George Hensley, the
President of Cottonbloom, is presently the beneficial owner of 10% or more of
the Company's Common Stock. The Voting Trust was established to hold the shares
of Common Stock subject to that certain Option Agreement dated September 26,
1995, by and between Cottonbloom and Spark (the "Option Agreement"), pursuant to
which Cottonbloom granted Spark an option to purchase such shares at a purchase
price of $935,000 to be paid in eight quarterly installments. On or about
September 22, 1997, Spark exercised its option to purchase such shares, and the
first installment is scheduled to be made on December 26, 1997.
The Trustee is empowered to distribute to Cottonbloom dividends or
distributions, if any, made on the Common Stock while such stock is subject to
the Voting Trust. Spark, of which Messrs. Camilli and Morgan each own a 50%
voting interest, has the right to vote the shares of Common Stock deposited in
the Voting Trust while the Voting Trust Agreement is in effect. The Voting Trust
Agreement cannot be terminated by Cottonbloom unless and until (i) the option
described above is canceled, or (ii) in the event that such option is exercised,
the first to occur of (a) a date two years after the date of exercise of such
option, or (b) the date that payment in full for the shares covered by such
option is received. Upon exercise of the option, shares shall be released from
the Voting Trust in proportion to the amount of payments made by Spark pursuant
to the Option Agreement, as such payments are made.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Related Transactions
On August 23, 1996, the Company entered into a Manufacturing and
Distribution Agreement with Klaire International, Ltd., a New Mexico corporation
("Klaire"). Francisco Urrea, Jr., a beneficial owner of greater than 5% of the
Company's Common Stock, is the President and the beneficial owner of a majority
of the voting stock of Klaire.
Pursuant to this agreement, the Company appointed Klaire as the Company's
exclusive manufacturer and distributor of the Company's S-80 and S-100 product
models in Mexico. To prevent termination of the agreement, Klaire is required to
order a minimum of 100,000 of the Company's products or sub-assemblies each
year. The initial term of this agreement expired on August 31, 1997, and was
automatically renewed for an additional one-year term. Subsequent one-year
renewals shall occur so long as Klaire continues to meet or exceed its minimum
order requirement. The agreement provides for automatic termination if the
Company is in default under its Agreement for Assignment of Technology and
Patents with Hensley Plasma Plug Partnership, described hereinbelow. The
agreement may also be terminated by Klaire upon 90 days prior written notice.
23
<PAGE>
Spark Management Corporation ("Spark") entered into a Master Licensing
Agreement with the Company dated September 10, 1996, which culminated an
understanding between the parties reached in September 1995. Spark is owned by
two directors of the Company. The Company acquired exclusive developments,
information, proprietary rights and trade secrets collectively referred to as
Ignition Systems and Processes. The Agreement will terminate ten years following
the last expired patent acquired by Spark. Also, the Agreement is subject to
termination or cancellation by both parties based upon various circumstances
explained in the Agreement. In consideration of the Agreement, Spark has
received 450,000 shares of common stock. The Company has recorded the License
Agreement as an asset based upon the estimated fair market value of the common
stock at the time the understanding was reached. Also, the Company will pay
Spark $1.00 for each Product/Insert sold up to 1,000,000 units, $.50 for each
Product/Insert on the next million aggregate units sold, and $.25 for each
Product/Insert sold thereafter.
The Company entered into a Consulting Agreement with Spark Management
Corporation ("Spark"). Spark will provide services to the Company as a
consultant for a five year period commencing September 10, 1996. Spark will be
compensated on a cost plus 10 percent basis for the first year. During the final
four years, the compensation will be $250,000 annually, paid quarterly.
On September 9, 1996, Spark Management Corporation ("Spark") entered into a
loan agreement with the Company. Spark is owned by R. Edwin Morgan, executive
officer and director of the Company, and Louis S. Camilli, a director of the
Company. This loan agreement allows for borrowings by the Company up to
$500,000. This note bears an interest rate of ten percent and interest only
payments are due annually on September 1. Also, principal and interest payments
are due quarterly based upon a certain amount per product unit sold. The note
payable is in default and, therefore, is due on demand and has been reflected as
a current liability at June 30, 1997. All unpaid principal and interest is due
September 1, 2000. The note is secured by a security interest in substantially
all of the Company's assets. As of June 30, 1997, 1996, and May 31, 1996, the
principal balance due to Spark by Septima was $337,209, $227,992, and $217,638,
respectively. Also, $48,948, $16,965, and $14, 685 of accrued interest was due.
Under an Agreement for Assignment of Technology and Patents, entered into
September 26, 1995, the Company is to make royalty payments to Hensley Plasma
Plug Partnership, a partnership related to Cottonbloom through common ownership,
for as long as one or more patents remain in effect according to the schedule
set forth in the Agreement. While the agreement was dated September 26, 1995,
the Company regards the effective date as January 18, 1996, the day monies were
received by the partnership as settlement of the mediation which took place in
November 1995. During the first two years of the agreement, there are no minimum
royalty payments. The minimum royalty payment for year three is $100,000 and the
minimum for years four and beyond is $150,000. The agreement is cancelable if
Spark does not execute the option agreement with Cottonbloom. As of the filing
date of this Annual Report, Spark has elected to exercise its option with
Cottonbloom.
24
<PAGE>
<TABLE>
<CAPTION>
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
Exhibit Index
<S> <C>
3.1 Articles of Incorporation of the Company, as amended(1)
3.2 Bylaws of the Company, as amended(1)
4.1 Form of Common Stock Certificate(1)
9.1 Voting Trust Agreement dated September 26, 1995, by and between Cottonbloom, Inc. And Spark(2)
9.2 Irrevocable Proxy dated May 1, 1995(2)
10.1 Management and Operating Agreement dated April 14, 1995, by and among Spark, the Company and
George Hensley(2)
10.2 Option Agreement dated September 26, 1995, by and among Cottonbloom, Inc. and Spark(2)
10.3 Agreement for Assignment of Technology and Patents dated September 26, 1995, by and among Hensley
Plasma Plug Partnership and the Company(2)
10.4 Settlement Memorandum dated November 16, 1995, by and among Cottonbloom, Inc., Spark, Hensley
Plasma Plug Partnership, Pulsed Power Technologies Co., Ltd., Allan J. Hisey, George Hensley,
James Robert Hensley, Raymond Hensley, Francisco Urrea, Jr., David Norvell, Samuel Francis
and the Company(2)
10.5 Mutual Release in Full dated December 4, 1995, by and among Cottonbloom, Inc., Spark, Hensley
Plasma Plug Partnership, Pulsed Power Technologies Co. Ltd., Allan J. Hisey, George Hensley,
James Robert Hensley, Raymond Hensley, Ronald Hensley, Francisco Urrea, Jr., David Norvell,
Samuel Francis and the Company(2)
10.6 Manufacturing and Distribution Agreement dated August 23, 1996, by and between the Company and
Klaire International, Ltd.(3)
10.7 Manufacturing and Distribution Agreement dated September 4, 1996, by and between the Company
and Carrera Corporation(4)
10.8 Manufacturing and Distribution Agreement dated February 10, 1997, by and between the Company
and S.W.R. Industries, Ltd.(6)
10.9 Consulting Agreement dated September 10, 1996, by and between the Company and Spark(5)
10.10 Promissory Note and Security Agreement dated September 9, 1996, by and between the Company
and Spark(1)
10.11 Master Licensing Agreement dated September 10, 1996, by and between the Company and Spark(1)
10.12 Employment Agreement dated September 1, 1996, by and between the Company and R. Edwin Morgan(1)
11.1 Statement Regarding Computation of Per Share Earnings(1)
27.1 Financial Data Schedule for year ended June 30, 1997(1)
27.2 Financial Data Schedule for one month ended June 30, 1996(1)
27.3 Financial Data Schedule for year ended May 31, 1996(1)
- ------------------------------------
</TABLE>
(1) Filed as an exhibit hereto.
25
<PAGE>
(2) Previously filed as an exhibit to the Company's Annual Report to
Shareholders on Form 10-KSB for the year ended May 31, 1996, as filed with
the Commission on August 29, 1996 (File No. 33-25126-D).
(3) Previously filed as an exhibit to the Company's Form 8-K, as filed with the
commission on September 23, 1996, and as amended by Form 8-K-A, as filed
with the commission on September 27, 1996.
(4) Previously filed as an exhibit to the Company's Quarterly Report to
Shareholders on Form 10-QSB for the quarter ended September 30, 1996, as
filed with the Commission on November 14, 1996, as amended by Amendment No.
1 on Form 10-QSB/A, as filed with the Commission on December 3, 1996, and
as amended by Amendment No. 2 on Form 10-QSB/A, as filed with the
Commission on May 23, 1997 (File No. 33-25126-D).
(5) Previously filed as an exhibit to the Company's Quarterly Report to
Shareholders on Form 10-QSB for the quarter ended December 31, 1996, as
filed with the Commission on February 14, 1997, and as amended by Amendment
No. 1 on Form 10-QSB-A, as filed with the Commission on May 22, 1997 (File
No. 33-25126-D).
(6) Previously filed as an exhibit to the Company's Quarterly Report to
Shareholders on Form 10-QSB for the quarter ended March 31, 1997, as filed
with the Commission on May 14, 1997 (File No. 33-25126-D).
Reports on Form 8-K
The Company did not file any reports on Form 8-K during the fourth quarter
of the fiscal year ended June 30, 1997.
26
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
SEPTIMA ENTERPRISES, INC.
-------------------------
(Registrant)
DATE: September 19, 1997 By: /s/ R. Edwin Morgan
------------------------------
R. Edwin Morgan
Principal Executive, Financial
and Accounting Officer
In accordance with the Securities Exchange Act of 1934, as amended, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
DATE: September 19, 1997 By: /s/ R. Edwin Morgan
------------------------------
R. Edwin Morgan
Director, President and Chief
Executive Officer
(Principal Executive Officer)
DATE: September 19, 1997 By: /s/ Louis S. Camilli
------------------------------
Louis S. Camilli
Director
DATE: September 19, 1997 By: /s/ Ronald J. Costello
------------------------------
Ronald J. Costello
Director
DATE: September 19, 1997 By: /s/ Roy H. Davidson
------------------------------
Roy H. Davidson
Director
DATE: September 19, 1997 By: /s/ Darryl J. Dillenback
------------------------------
Darryl J. Dillenback
Director
</TABLE>
27
<PAGE>
Septima Enterprises, Inc.
Financial Report
June 30, 1997
Contents
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
<S> <C>
INDEPENDENT AUDITORS' REPORTS F2-F3
- ---------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS
Balance sheets as of June 30, 1997, 1996 and May 31, 1996 F4
Statements of operations for the years ended June 30, 1997 and May 31, 1996,
and the one month ended June 30, 1996 F5
Statements of stockholders' deficit for the years ended June 30, 1997,
and May 31, 1996, and the one month ended June 30, 1996 F6
Statements of cash flows for the years ended June 30, 1997 and May 31, 1996,
and the one month ended June 30, 1996 F7-F8
Notes to financial statement F9-F21
</TABLE>
F1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Septima Enterprises, Inc.
Lake Park, Florida
We have audited the accompanying balance sheet of Septima Enterprises, Inc. as
of June 30, 1997 and 1996, and the related statements of operations,
stockholders' deficit, and cash flows for the year ended June 30, 1997 and the
month ended June 30, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Septima Enterprises, Inc. as of
June 30, 1997 and 1996, and the results of its operations and its cash flows for
the year ended June 30, 1997 and the month ended June 30, 1996, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 14 to the
financial statements, the Company has suffered recurring losses from operations.
This raises substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 14. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ McGladrey & Pullen, LLP
West Palm Beach, Florida
August 15, 1997, except for Note 6
as to which the date is September 23, 1997
F2
<PAGE>
[LETTERHEAD OF DELISI, HENNINGER AND ASSOCIATES APPEARS HERE]
Board of Directors and Shareholders
Septima Enterprises, Inc.
We have audited the accompanying balance sheet of Septima Enterprises, Inc. (a
development stage company) as of May 31, 1996, and the related statements of
operations, stockholders' equity, and cash flows for the two years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit. The financial statements of Septima Enterprises, Inc., (a
development stage company) for the period September 12, 1988, (inception) to May
31, 1994, were audited by other auditors whose report dated October 5, 1994, on
those statements included an explanatory paragraph that described recurring
losses from operation and cash flow problems that raise substantial doubt about
its ability to continue operations.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Septima Enterprises, Inc., (a
development stage company) as of May 31, 1996, and the results of its operations
and its cash flows for the two years then ended in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note B to the
financial statements, the Company has suffered recurring losses from operations
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note B. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Delisi, Henninger and Associates
------------------------------------
Delisi, Henninger and Associates
Greensburg, Pennsylvania
July 22, 1996, except for Note L, as to which the date is
March 7, 1997
MEMBER PENNSYLVANIA AND AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
F3
<PAGE>
SEPTIMA ENTERPRISES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, June 30, May 31,
ASSETS (Note 6) 1997 1996 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current Assets
Cash and cash equivalents $ 64,287 $ 5,397 $ 6,730
Accounts receivable (Note 2) 233,395 -- --
Inventories 90,935 -- --
Prepaid expenses 135,519 6,573 6,573
Other current assets -- 250 20,250
----------------------------------------------
Total current assets 524,136 12,220 33,553
Equipment, net of accumulated depreciation
June 30, 1997 $62,108; June 30, 1996
$51,884; May 31, 1996 $50,482 (Note 3) 42,829 32,260 33,662
Other Assets 31,498 -- --
Technology License, net of accumulated
amortization $6,750 83,250 -- --
----------------------------------------------
$ 681,713 $ 44,480 $ 67,215
==============================================
LIABILITIES AND STOCKHOLDERS'
DEFICIT
Current Liabilities
Note payable, bank (Note 4) $ 80,383 $ -- $ --
Accounts payable (Note 6) 241,589 53,690 61,754
Accrued expenses (Note 6) 269,833 17,139 14,909
Note payable to related party (Note 6) 337,209 227,992 217,638
----------------------------------------------
Total current liabilities 929,014 298,821 294,301
==============================================
Commitments (Notes 6, 8 and 9)
Stockholders' Deficit (Note 5)
Preferred stock, no par value, 10,000,000
shares authorized, no shares issued
Common stock, no par value, 25,000,000 shares authorized, issued and
outstanding June 30, 1997 8,635,629 shares; June 30, 1996
and May 31, 1996 7,785,629 shares 1,466,128 1,029,292 1,029,292
Contributed capital (Note 6) 203,608 172,008 172,008
Deferred compensation (13,747) -- --
Accumulated deficit (1,903,290) (1,455,641) (1,428,386)
----------------------------------------------
(247,301) (254,341) (227,086)
----------------------------------------------
$ 681,713 $ 44,480 $ 67,215
==============================================
</TABLE>
See Notes to Financial Statements.
F4
<PAGE>
SEPTIMA ENTERPRISES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Month Ended Year Ended
June 30, June 30, May 31,
1997 1996 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales (Note 2) $ 474,723 $ -- $ --
Cost of products sold 325,586 -- --
---------------------------------------------------------
Gross profit 149,137 -- --
---------------------------------------------------------
Expenses:
General and administrative 582,060 25,987 175,957
Depreciation and amortization 14,726 1,402 16,829
---------------------------------------------------------
596,786 27,389 192,786
---------------------------------------------------------
Loss before other income (447,649) (27,389) (192,786)
Other income -- 134 20,482
---------------------------------------------------------
Net loss $ (447,649) $ (27,255) $ (172,304)
=========================================================
Loss per common share:
Primary $ (0.05) $ * $ (0.02)
=========================================================
Fully diluted $ (0.05) $ * $ (0.02)
=========================================================
Weighted average common shares outstanding:
Primary 8,185,218 7,785,629 7,785,629
=========================================================
Fully diluted 8,185,218 7,785,629 7,785,629
=========================================================
</TABLE>
*Less than $.01 per share.
See Notes to Financial Statements.
F5
<PAGE>
SEPTIMA ENTERPRISES, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
Years Ended June 30, 1997 and May 31, 1996 and the One Month Ended June 30, 1996
<TABLE>
<CAPTION>
Common Stock
----------------------- Contributed Deferred Accumulated
Shares Amount Capital Compensation Deficit Total
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1995 7,785,629 $ 1,029,292 $ -- $ -- $(1,256,082) $ (226,790)
Contributed capital -- -- 172,008 -- -- 172,008
Net loss, year ended
May 31, 1996 -- -- -- -- (172,304) (172,304)
-------------------------------------------------------------------------------------------------
Balance, May 31, 1996 7,785,629 1,029,292 172,008 -- (1,428,386) (227,086)
Net loss, month ended
June 30, 1996 -- -- -- -- (27,255) (27,255)
-------------------------------------------------------------------------------------------------
Balance, June 30, 1996 7,785,629 1,029,292 172,008 -- (1,455,641) (254,341)
Issuance of common stock
for technology license 450,000 90,000 -- -- -- 90,000
Issuance of common stock
in connection with
Regulation D offering,
net of issuance costs
of $53,164 400,000 346,836 -- -- -- 346,836
Issuance of stock options
to nonemployees (Note 5) -- -- 31,600 (13,747) -- 17,853
Net loss, year ended
June 30, 1997 -- -- -- -- (447,649) (447,649)
-------------------------------------------------------------------------------------------------
Balance, June 30, 1997 8,635,629 $ 1,466,128 $ 203,608 $ (13,747) $(1,903,290) $ (247,301)
=================================================================================================
</TABLE>
See Notes to Financial Statements.
F6
<PAGE>
SEPTIMA ENTERPRISES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Month Ended Year Ended
June 30, June 30, May 31,
1997 1996 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net loss $(447,649) $ (27,255) $(172,304)
Adjustments to reconcile net loss
to net cash used in operating activities:
Compensation expense related to
nonemployee stock options 17,853 -- --
Depreciation 10,224 1,402 16,829
Amortization 6,750 -- --
Forfeited purchase option -- -- 20,000
Write-off of payables and inventories -- -- (31,602)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (233,395) -- --
Inventories (90,935) -- --
Prepaid expenses (128,946) -- 21,375
Deposits 250 20,000 (18,343)
Increase (decrease) in:
Accounts payable 187,899 (8,064) (22,212)
Accrued expenses 252,694 2,230 14,685
-----------------------------------------------------
Net cash used in operating activities (425,255) (11,687) (171,572)
-----------------------------------------------------
Cash Flows From Investing Activities
Increase in other assets (31,498) -- --
Disbursements for equipment (20,793) -- --
-----------------------------------------------------
Net cash used in investing activities (52,291) -- --
-----------------------------------------------------
Cash Flows From Financing Activities
Proceeds from note payable, bank 80,383 -- --
Proceeds from related parties 109,217 10,354 176,304
Proceeds from stock issuance 346,836 -- --
-----------------------------------------------------
Net cash provided by financing activities 536,436 10,354 176,304
-----------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 58,890 (1,333) 4,732
Cash and cash equivalents:
Beginning 5,397 6,730 1,998
-----------------------------------------------------
Ending $ 64,287 $ 5,397 $ 6,730
=====================================================
</TABLE>
(Continued)
F7
<PAGE>
SEPTIMA ENTERPRISES, INC.
STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Year Ended Month Ended Year Ended
June 30, June 30, May 31,
1997 1996 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental Schedule of Noncash Investing
and Financing Activities
Technology license exchanged for common stock $ 90,000 $ - $ -
Deferred compensation related to nonemployee
stock options 13,747 - -
</TABLE>
See Notes to Financial Statements.
F8
<PAGE>
SEPTIMA ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Nature of Business and Significant Accounting Policies
Nature of business: Septima Enterprises, Inc., was incorporated on September 12,
- ------------------
1988, for the purpose of acquiring interests in other business entities and
commercial technologies. Operations to date have consisted of acquiring capital,
evaluating investment opportunities, acquiring interests in other businesses and
technologies, establishing a business concept, conducting research and
development activities, and manufacturing. The Company began making sales on
October 16, 1996 and became operational during the year ended June 30, 1997.
The Company's operations consist primarily of the sale of Ultra High Power Spark
Amplifiers. Sales to date have been primarily to distributors for retail sales
to the Mexican and Asian markets on credit terms that the Company establishes
for individual customers. The Company has begun a marketing campaign to retail
customers in the United States.
A summary of the Company's significant accounting policies follows:
Change of fiscal year: The Company changed its fiscal year from June 1
---------------------
through May 31 of each calendar year to July 1 through June 30 of each
calendar year commencing with the fiscal year ended June 30, 1997.
Accounting 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 revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Inventories: Inventories are comprised of finished goods and are stated at
-----------
the lower of cost or market. Cost is determined using the first-in,
first-out method.
Equipment: Equipment is stated at cost. Depreciation is calculated on the
---------
straight-line method over the estimated useful lives of 5-7 years.
Amortization: Amortization is computed on the straight-line basis using an
estimated life for the technology license of five years.
Impairments: The Company assesses long-lived assets for impairment under
-----------
FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of. Under those rules, the
technology license is included in impairment evaluations when events or
circumstances exist that indicate the carrying amount of that asset may not
be recoverable.
F9
<PAGE>
SEPTIMA ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Nature of Business and Significant Accounting Policies (Continued)
Revenue recognition: The Company recognizes revenue when the product is
-------------------
manufactured and shipped to the customer.
Research and development: Research and development costs are charged to
------------------------
expense as incurred.
Advertising costs: The Company follows the policy of charging advertising
-----------------
costs to expense as incurred.
Stock-based compensation: In October 1995, the Financial Accounting
------------------------
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 123, Accounting for Stock-Based Compensation, which
establishes a fair value based method for financial accounting and
reporting for stock-based employee compensation plans and for transactions
in which an entity issues its equity instruments to acquire goods and
services from nonemployees. However, the new standard allows compensation
to employees to continue to be measured by using the intrinsic value based
method of accounting prescribed by Accounting Principles Board Opinion
("APBO") No. 25, Accounting for Stock Issued to Employees, but requires
expanded disclosures. The Company has elected to continue to apply to the
intrinsic value based method of accounting for stock options issued to
employees. Accordingly, compensation cost for stock options is measured as
the excess, if any, of the estimated market price of the Company's stock at
the date of grant over the amount an employee must pay to acquire the
stock. No compensation expense has been recorded in the accompanying
statements of operations related to stock options issued to employees.
All transactions in which goods or services are the consideration received
for the issuance of equity instruments are accounted for based on the fair
value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably measurable.
Income taxes: Deferred income taxes are provided on a liability method
------------
whereby deferred tax assets are recognized for deductible temporary
differences and operating loss and tax credit carryforwards and deferred
tax liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely
than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects
of changes in tax laws and rates on the date of enactment.
F10
<PAGE>
SEPTIMA ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Nature of Business and Significant Accounting Policies (Continued)
Net (loss) per common share: The net (loss) per common share amounts are
---------------------------
computed using the weighted average number of common shares outstanding and
dilutive common stock equivalents during the period. No dilutive common
stock equivalents are included in the fully diluted net (loss) per common
share computation because the effect would have reduced the loss per share
amounts.
Preferred stock: The Company has authorized 10,000,000 shares of no par
---------------
value preferred stock. No terms are stated as to dividend, liquidation or
other rights applicable to these shares.
Note 2. Major Customer
Sales for the year ended June 30, 1997 include sales of $440,436 to a major
customer. Accounts receivable from this customer was $232,350 at June 30, 1997.
Subsequent to year-end an additional $75,000 was received from this customer.
Realization of this accounts receivable is dependent upon the customer
generating sufficient cash flow. Although realization is not assured, management
believes it is more likely than not that all of the accounts receivable will be
realized. The amount of the receivable considered realizable, however, could be
impaired in the near term if estimates of future cash flows are reduced.
Note 3. Equipment
The major classifications of equipment as of June 30, 1997, 1996 and May 31,
1996 are:
<TABLE>
<CAPTION>
June 30, June 30, May 31,
1997 1996 1996
----------------------------------------------
<S> <C> <C> <C>
Office equipment $ 15,350 $ -- $ --
Manufacturing and testing equipment 89,587 84,144 84,144
----------------------------------------------
104,937 84,144 84,144
Less accumulated depreciation 62,108 51,884 50,482
----------------------------------------------
$ 42,829 $ 32,260 $ 33,662
==============================================
</TABLE>
Note 4. Financing Arrangements
The Company has a line of credit agreement with a bank, providing borrowing up
to $100,000 at the bank's prime rate plus 1% (9.5%) at June 30, 1997. The note
is payable on demand or on April 4, 1998 and accrued interest is payable
monthly. Interest expense of $1,908 was incurred for the year ended June 30,
1997. The agreement is collateralized by certain assets of an officer of the
Company. The balance outstanding on this agreement as of June 30, 1997 was
$80,383.
F11
<PAGE>
SEPTIMA ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 5. Stock Options
Nonemployees: Using stock bonuses and awards, 75,000 shares of the Company's
- ------------
common stock, valued at $1.00 per share, were issued to a marketing company and
related parties during the fiscal year ended May 31, 1996. Under stock options,
related parties were granted or resolved to be granted five year options to
acquire 735,000 shares of the Company's common stock at $1.00 per share.
The Company has developed a compensation arrangement whereby a marketing
consultant will be granted (upon quarterly review by Septima) the option to
purchase 160,000 total shares at $1.00/share for fiscal quarters ending July 1,
1996 until January 1, 1999. The grant is for 25,000 shares for each of the first
four quarters and 7,500 shares for each of the subsequent eight quarters. The
Company has estimated the fair value of these options at $25,000. At June 30,
1997, $8,203, has not yet been earned by the consultant, and accordingly has
been reflected as a reduction of stockholders' equity. The Company recognized
expense associated with these options of $16,797 for the year ended June 30,
1997.
The Company has developed a compensation arrangement with a manufacturing
consultant. The Company has granted options to purchase 25,000 total shares at
$1.00/share. These options vest monthly starting June 1, 1997 at 4,000 shares
per month until November 1, 1997 at which date the final 5,000 shares vest. The
Company has estimated the fair value of these options at $6,600. At June 30,
1997, $5,544 has not yet been earned by the consultant, and accordingly has been
reflected as a reduction of stockholders' equity. The Company recognized expense
associated with these options of $1,056 for the year ended June 30, 1997.
Employees and directors: A former director of the Company was previously granted
- -----------------------
250,000 options at $1.00 per share on May 1, 1994. In an agreement dated
September 26, 1995, the former director released and quit claimed all interest
in the options.
In written action in lieu of a special meeting of the Board of Directors, a
former director of the Company was granted, during the year ended June 30, 1997,
an option to purchase 200,000 shares of stock at an exercise price of $1.00 per
share exercisable at any time prior to October 1, 2001.
In a written action in lieu of a special meeting, the Board of Directors during
the year ended June 30, 1997, granted to two Board members options to purchase
312,500 shares of the Company's stock at an exercise price of $.20 per share
based on a previous understanding reached in fiscal year 1996 when the stock
price was approximately $.20 per share. The options are exercisable at any time
prior to September 9, 2006.
Additionally, the Board authorized the issuance to three members of the
Company's Board of Directors options to purchase 20,000 shares (each) of common
stock at the exercise price of $1.00 per share. These options vest one year
after date of issuance.
F12
<PAGE>
SEPTIMA ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 5. Stock Options (Continued)
In September 1996, the Company granted 17,000 options to purchase common stock
for $.50/share to two employees at any time prior to September 2001. These
options are fully vested as of grant date.
A summary of the options outstanding as of June 30, 1997, 1996 and May 31, 1996,
and changes during the periods then ended is presented below. The fair value of
each option grant is estimated on the date of grant using the present value of
the exercise price with the following weighted-average assumptions used for
grants in 1997 and 1996: risk-free interest rates of 7.5 percent; expected lives
of 5 to 10 years, no dividends and price volatility of 30%. The weighted average
remaining life of the options outstanding is 6 years as of June 30, 1997.
A reconciliation of the Company's stock option activity, and related
information, for the years ended June 30, 1997, and May 31, 1996, follows:
<TABLE>
<CAPTION>
1997 1996
----------------------------------------------------------------
Exercise Exercise
Number Price Number Price
of Weighted of Weighted
Options Average Options Average
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 870,000 $ 1.00 660,000 $ 1.00
Granted 614,500 0.58 210,000 1.00
Exercised -- -- -- --
Forfeited -- -- -- --
--------- -------
Outstanding, end of year 1,484,500 $ 0.83 870,000 $ 1.00
================================================================
Exercisable at end of year 1,351,000 $ 1.00 735,000 $ 1.00
================================================================
</TABLE>
There was no stock option activity during the month ended June 30, 1996.
The Company applies APB Opinion 25 and related Interpretations in accounting for
its options. Accordingly, no compensation cost has been recognized for the stock
options issued to employees discussed above. Had compensation cost for the
Company's stock options issued to employees been determined based on the fair
value at the grant dates for awards under the Plan, the Company's reported net
loss for the years ended June 30, 1997, May 30, 1996 and the one month ended
June 30, 1996 would have been increased to the pro forma amounts shown below:
F13
<PAGE>
SEPTIMA ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Note 5. Stock Options (Continued)
Year Ended Month Ended Year Ended
June 30, June 30, May 31,
1997 1996 1996
------------------------------------------
<S> <C> <C> <C>
Net loss:
As reported $ (447,649) $(27,255) $ (172,304)
Pro forma (576,907) (27,255) (172,304)
Net loss per share:
As reported (0.05) * (0.02)
Pro forma (0.07) * (0.02)
</TABLE>
The following table summarizes information about the stock options at June 30,
1997:
<TABLE>
<CAPTION>
June 30, 1997
Exercise Number Number
Expiration Date Price Outstanding Exercisable
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
September 2006 $ 0.20 312,500 312,500
September 2001 0.50 17,000 17,000
Various from February 1999 to January 2004 1.00 1,155,000 1,021,500
-----------------------------
1,484,500 1,351,000
=============================
</TABLE>
Note 6. Related Party Transactions
Note payable: Spark Management Corporation ("Spark") has entered into a loan
- ------------
agreement with the Company. Spark is owned by two directors of the Company. This
loan agreement allows for borrowings up to $500,000. This note bears an interest
rate of ten percent and interest only payments are due annually on September 1.
Also, principal and interest payments are due quarterly based upon a certain
amount per product unit sold. The note payable is in default and therefore is
due on demand and has been reflected as a current liability at June 30, 1997.
All unpaid principal and interest is due September 1, 2000. The note is secured
by secured interest in substantially all of the Company's assets. As of June 30,
1997, 1996 and May 31, 1996, the balance due to Spark by Septima was $337,209,
$227,992, $217,638, respectively. Also, $48,948, $16,965 and $14,685 of accrued
interest was due.
F14
<PAGE>
SEPTIMA ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 6. Related Party Transactions (Continued)
Consulting Agreement with Spark Management Corporation: The Company entered into
- ------------------------------------------------------
a Consulting Agreement with Spark Management Corporation. Spark will provide
services to the Company as a consultant for a five year period commencing
September 10, 1996. Spark will be compensated on a cost plus 10 percent basis
for the first year. During the final four years, the compensation will be
$250,000 annually, paid quarterly. Included in accounts payable is approximately
$113,000 related to this agreement.
Receivables: Certain receivables from related parties were written off during
- -----------
the year ended May 31, 1996. These amounts were recorded as contributions of
capital.
<TABLE>
<CAPTION>
Related Party Amount
- --------------------------------------------------------------------------------
<S> <C>
Amarillo Valley Ridge $ 13,013
CAMI 13,234
Cottonbloom 66,081
Ecologics 3,736
HDI Partner/CB 10,255
HDI Partnership 7,939
George Hensley 57,750
-----------------
Total $ 172,008
=================
</TABLE>
Option Agreement: On September 26, 1995, Spark Management Corporation filed a
- ----------------
13-D Registration Statement related to the common stock, no par value per share
of Septima Enterprises, Inc.
Cottonbloom, Inc., a New Mexico Corporation and controlling stockholder of
Septima, executed an option Agreement on September 26, 1995, granting Spark the
option to acquire at least 51 percent of the outstanding stock of Septima.
F15
<PAGE>
SEPTIMA ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 6. Related Party Transactions (Continued)
The option is presently exercisable and will expire on September 26, 1997. While
the option remains outstanding, the option stock is held in a voting trust,
pursuant to the terms of a Voting Trust Agreement dated September 26, 1995. On
or about September 22, 1997, Spark exercised its option, and the first payment
is scheduled to be made on December 26, 1997. Spark possesses the right to vote
all the option stock prior to the expiration of the option.
Pursuant to the Option Agreement and the Voting Trust Agreement, Spark possesses
the right to vote 4,307,270 shares of Septima common stock, representing what is
presently approximately 50 percent of the outstanding shares of Septima common
stock.
Assignment of technology and patents: Under an Agreement for Assignment of
- ------------------------------------
Technology and Patents, entered into September 26, 1995, Septima Enterprises,
Inc. is to make royalty payments to Hensley Plasma Plug Partnership, a
partnership related to Cottonbloom through common ownership, for as long as one
or more patents remain in effect according to the following schedule:
a. A royalty of four percent (4%) of adjusted gross revenues
realized from the sale of products which first total one
(1) million dollars; plus
b. A royalty of three percent (3%) of adjusted gross revenues
realized from the sale of products which next total one (1)
million dollars; plus
c. A royalty of two percent (2%) of adjusted gross revenues
realized from the sale of products which next total one (1)
million dollars; plus
d. A royalty of one percent (1%) of all adjusted gross
revenues realized form the sale of products thereafter.
During the first two years of the agreement, there are no minimum royalty
payments. The minimum royalty payment for year three is $100,000 and the minimum
for years four and beyond is $150,000. The agreement is cancelable if Spark does
not execute the option agreement with Cottonbloom.
Royalty expense for the year ended June 30, 1997 amounted to $18,989. There was
no royalty expense in 1996.
Master Licensing Agreement: Spark entered into a Master Licensing Agreement
- --------------------------
dated September 10, 1996, with the Company which culminated an understanding
between the parties reached in September 1995. The Company acquired
developments, information, proprietary rights and trade secrets collectively
referred to as Ignition Systems and Processes. The Agreement will terminate ten
years following the last expired patent acquired by Spark. Also, this Agreement
is subject to termination or cancellation by both parties based upon various
circumstances explained
F16
<PAGE>
SEPTIMA ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 6. Related Party Transactions (Continued)
in the Agreement. In consideration of the Agreement, Spark has received 450,000
shares of common stock. The Company has recorded the License Agreement as an
asset based upon the estimated fair market value of the common stock at the time
the understanding was reached. Also, the Company will pay Spark $1 for each
Product/Insert sold up to 1,000,000 units; $.50 for each Product/Insert on the
next million aggregate units sold, and $.25 for each Product/Insert sold
thereafter. Included in accrued expenses is approximately $94,000 related to
this agreement at June 30, 1997.
Note 7. Income Taxes
Temporary differences between the financial statement carrying amounts and tax
bases of assets and liabilities that give rise to the deferred tax assets and
liabilities relate to the following as of June 30, 1997, 1996 and May 31, 1996:
<TABLE>
<CAPTION>
June 30, June 30, May 31,
1997 1996 1996
--------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Research and development expenditures
capitalized for tax purpose $ 37,795 $ 82,243 $ 84,543
Net operating loss carryforwards 367,975 283,419 283,111
--------------------------------------
405,770 365,662 367,654
Deferred tax liability:
Equipment (9,674) (7,116) (7,116)
--------------------------------------
Net deferred tax asset 396,096 358,546 360,538
Less valuation allowance (396,096) (358,546) (360,538)
--------------------------------------
$ - $ - $ -
======================================
</TABLE>
The Company has available for tax reporting purposes net operating loss
carryforwards of $1,058,298 which expires as follows:
<TABLE>
<CAPTION>
Year Ending
June 30, Amount
- --------------------------------------------------------------------------------
<S> <C>
2008 $ 90,933
2009 185,068
2010 249,748
2012 532,549
----------
$1,058,298
==========
</TABLE>
F17
<PAGE>
SEPTIMA ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 7. Income Taxes (Continued)
The amount and availability of the net operating loss carryforwards may be
subject to limitations set forth by the Internal Revenue Code. Factors such as
the number of shares ultimately issued within a three year look-back period;
whether there is a deemed more than 50 percent change in control; the applicable
long-term tax exempt bond rate; continuity of historical business; and
subsequent income of the Company all enter into the annual computation of
allowable annual utilization of the carryforwards.
Note 8. Leases
The Company occupies office space under noncancelable operating leases which
expire on September 30, 1997. Initial base rent is $2,062 payable monthly. The
lease contains a renewal option for one year.
Rent expense for office space (including the Company's share of common area
expenses, real estate and sales taxes) amounted to $18,459 for the year ended
June 30, 1997. The Company incurred rent expense of $5,178 for the year ended
May 31, 1996 on a previous lease which has expired. There was no rent expense
recognized for the month ended June 30, 1996.
Note 9. Commitments
The Company entered into a Manufacturing Agreement dated September 4, 1996. The
Company engaged the manufacturer as its exclusive producer for the entire
requirements for the product produced in the United States. Under this
agreement, the manufacturer is responsible for defects in workmanship. The
initial term is for four (4) years automatically renewable for one (1) year
periods.
The Company entered into a Manufacturing and Distribution Agreement dated August
23, 1996, with a company for the territory of Mexico.
The Company entered in a Distribution Agreement dated February 10, 1996, with a
company for the territories of China and Taiwan. The Company is required to
order a minimum number of products per year from Septima Enterprises in the
second year and beyond.
Note 10. Private Placement
The Company issued 400,000 shares of common stock at $1 per share in May, 1997
in connection with a private placement memorandum dated December 5, 1996. Net
proceeds from the offering were $400,000, less related costs of $53,164. The
expiration date of this memorandum is December 5, 1997.
F18
<PAGE>
SEPTIMA ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 11. Reclassifications
Various revenues and expenses for the year ended May 31, 1996 have been
reclassified, without any effect on net (loss) for that year, to conform to the
classifications used for the current year when the Company became an operating
Company as explained further in Note 1.
During the year ended June 30, 1997, the Company changed its method of
presenting the statement of cash flows for operating activities from the direct
method (which showed principal components of operating cash receipts and
payments) to the indirect method (which adjusts net (loss) to remove the effects
of noncash operating transactions). This change has been applied retroactively
to the 1996 statement of cash flows.
Note 12. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
Cash, accounts receivable and accounts payable: The carrying amounts
----------------------------------------------
approximate fair value because the demand nature of these instruments.
Notes payable, bank: The carrying amounts approximate fair value as the
-------------------
rates and maturities of the notes are similar to market value for similar
notes with similar collateral requirements.
Note payable to related party: It is not practicable to estimate the fair
-----------------------------
value of the note payable to related party due to the relationship of the
parties involved.
Note 13. Issued But Not Effective Accounting Standards
Earnings per share: The FASB has issued SFAS No. 128, Earnings Per Share, which
- ------------------
supersedes APB Opinion No. 15. SFAS No. 128 requires the presentation of
earnings per share by all entities that have common stock or potential common
stock, such as options, warrants and convertible securities, outstanding that
trade in a public market. Those entities that have only common stock outstanding
are required to present basic earnings per-share amounts. All other entities are
required to present basic and diluted per-share amounts. Diluted per-share
amounts assume the conversion, exercise or issuance of all potential common
stock instruments unless the effect is to reduce a loss or increase the income
per common share from continuing operations. All entities required to present
per-share amounts must initially apply SFAS No. 128 for annual and interim
periods ending after December 15, 1997. Earlier application is not permitted.
F19
<PAGE>
SEPTIMA ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 13. Issued But Not Effective Accounting Standards (Continued)
Because the Company has potential common stock outstanding (stock options as
discussed in Note 5), the Company will be required to present basic and diluted
earnings per share. If the Company had applied SFAS No. 128 in the accompanying
financial statements, the result would not differ from the present calculation
in the statement of operations, because the effect of including the potentially
issuable common stock would have reduced the loss per share amounts and,
accordingly, would not have been included.
The FASB has issued SFAS No. 130, Reporting Comprehensive Income, which
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements. This Statement requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements.
This Statement requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position.
This Statement is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The Company has no components of other
comprehensive income at June 30, 1997.
The FASB has issued SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information, which establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
stockholders. It also establishes standards for related disclosures about
products and services, geographic areas, and a major customers. This Statement
supersedes FASB Statement No. 14, Financial Reporting for Segments of a Business
Enterprise, but retains the requirement to report information about major
customers.
This Statement requires that a public business enterprise report financial and
descriptive information about its reportable operating segments. Generally,
financial information is required to be reported on the basis that it is used
internally for evaluating segment performance and deciding how to allocate
resources to segments.
This Statement is effective for periods beginning after December 15, 1997. The
Company does not believe this Statement will have a material effect on the
reporting of its financial statements.
F20
<PAGE>
Note 14. Management's Plan With Respect to Continued Existence
The Company has incurred recurring losses and has experienced cash flow
problems. These factors raise substantial doubt about the Company's ability to
continue as a going concern without new capital investment to complete the
development, manufacture and marketing of its products.
The Company is currently obtaining its working capital through loans from Spark
Management and from a line of credit with 1st United Bank. Should loans not be
available to the Company in the future, there is no assurance that the Company
will be able to raise sufficient capital from other sources to adequately fund
the continuing operations of the Company.
The viability of the Company as a going concern depends upon the willingness of
Spark to continue to advance funds to the Company through a series of loans or
the Company's ability to obtain sufficient funds elsewhere until the Company is
able to generate revenues from the sale of its products. There can be no
assurances that the Company will be able to raise sufficient capital should
Spark cease loaning funds to the Company.
Note 15. Geographical Information
The Company had sales to the following geographical areas for the year ended
June 30, 1997:
<TABLE>
<CAPTION>
United Latin
States America Asia Total
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 1,741 $ 440,436 $32,546 $ 474,723
</TABLE>
All of the Company's identifiable assets are held in the United States.
F21
<PAGE>
[SEAL OF STATE OF COLORADO APPEARS HERE]
STATE OF COLORADO
DEPARTMENT OF
STATE
CERTIFICATE
I, NATALIE MEYER, Secretary of State of the State of Colorado hereby
certify that the prerequisites for the issuance of this certificate have been
fulfilled in compliance with law and are found to conform to law.
Accordingly, the undersigned, by virtue of the authority vested in me by
law, hereby issues A CERTIFICATE OF INCORPORATION TO SEPTIMA ENTERPRISES, INC.
Dated: SEPTEMBER 12, 1988
/s/ Natalie Meyer
----------------------------------
SECRETARY OF STATE
<PAGE>
ARTICLES OF INCORPORATION
OF
SEPTIMA ENTERPRISES, INC.
KNOW ALL MEN BY THESE PRESENTS: That the undersigned incorporator being a
natural person of the age of eighteen years or more and desiring to form a body
corporate under the laws of the State of Colorado does hereby sign, verify and
deliver in duplicate to the Secretary of State of the State of Colorado, these
Articles of Incorporation:
ARTICLE I
---------
NAME
----
The name of the Corporation shall be: Septima Enterprises, Inc.
ARTICLE II
----------
PERIOD OF DURATION
------------------
The Corporation shall exist in perpetuity, from and after the date of
filing these Articles of Incorporation with the Secretary of State of the State
of Colorado unless dissolved according to law.
<PAGE>
ARTICLE III
-----------
PURPOSES AND POWERS
-------------------
1. Purposes. Except as restricted by these Articles of Incorporation, the
--------
Corporation is organized for the purpose of transacting all lawful business for
which corporations may be incorporated pursuant to the Colorado Corporation
Code.
2. General Powers. Except as restricted by these Articles of
--------------
Incorporation, the Corporation shall have and may exercise all powers and rights
which a corporation may exercise legally pursuant to the Colorado Corporation
Code.
3. Issuance of Shares. The board of directors of the Corporation may
------------------
divide and issue any class of stock of the Corporation in series pursuant to a
resolution properly filed with the Secretary of State of the State of Colorado.
ARTICLE IV
----------
CAPITAL STOCK
-------------
The aggregate number of shares which this Corporation shall have authority
to issue One Billion (1,000,000,000) shares of no par value each, which shares
shall be designated "Common Stock"; and Ten Million (10,000,000) shares of no
par value each, which shares shall be designated "Preferred Stock" and which may
be issued in one or more series at the discretion of the Board of Di-
-2-
<PAGE>
rectors. In establishing a series the Board of Directors shall give to it a
distinctive designation so as to distinguish it from the shares of all other
series and classes, shall fix the number of shares in such series, and the
preferences, rights and restrictions thereof. All shares of any one series shall
be alike in every particular except as otherwise provided by these Articles of
Incorporation or the Colorado Corporation Code.
1. Dividends. Dividends in cash, property or shares shall be paid upon
---------
the Preferred Stock for any year on a cumulative or noncumulative basis as
determined by a resolution of the Board of Directors prior to the issuance of
such Preferred Stock, to the extent earned surplus for each such year is
available, in an amount as determined by a resolution of the Board of Directors.
Such Preferred Stock dividends shall be paid pro rata to holders of Preferred
Stock in any amount not less than nor more than the rate as determined by a
resolution of the Board of Directors prior to the issuance of such Preferred
Stock. No other dividend shall be paid on the Preferred Stock.
Dividends in cash, property or shares of the Corporation may be paid upon
the Common Stock, as and when declared by the Board of Directors, out of funds
of the Corporation to the extent and in the manner permitted by law, except that
no Common Stock dividend shall be paid for any year
-3-
<PAGE>
unless the holders of Preferred Stock, if any, shall receive the maximum
allowable Preferred Stock dividend for such year.
2. Distribution in Liquidation. Upon any liquidation, dissolution or
---------------------------
winding up of the Corporation, and after paying or adequately providing for the
payment of all its obligations, the remainder of the assets of the Corporation
shall be distributed, either in cash or in kind, first pro rata to the holders
of the Preferred Stock until an amount to be determined by a resolution of the
Board of Directors prior to issuance of such Preferred Stock, has been
distributed per share, and, then, the remainder pro rata to the holders of the
Common Stock.
3. Redemption. The Preferred Stock may be redeemed in whole or in part
----------
as determined by a resolution of the Board of Directors prior to the issuance of
such Preferred Stock, upon notice to the holders of record of the Preferred
Stock, published, mailed and given in such manner and form and on such other
terms and conditions as may be prescribed by the Bylaws or by resolution of the
Board of Directors, by payment in cash or Common Stock for each share of the
Preferred Stock to be redeemed, as determined by a resolution of the Board of
Directors prior to the issuance of such Preferred Stock. Common Stock used to
redeem Preferred Stock shall be valued as determined by a resolution of the
-4-
<PAGE>
Board of Directors prior to the issuance of such Preferred Stock. Any rights to
or arising from fractional shares shall be treated as rights to or arising from
one share. No such purchase or retirement shall be made if the capital of the
Corporation would be impaired thereby.
If less than all the outstanding shares are to be redeemed, such redemption
may be made by lot or pro rata as may be prescribed by resolution of the Board
of Directors; provided, however, that the Board of Directors may alternatively
invite from shareholders offers to the Corporation of Preferred Stock at less
than an amount to be determined by a resolution of the Board of Directors prior
to issuance of such Preferred Stock, and when such offers are invited, the Board
of Directors shall then be required to buy at the lowest price or prices
offered, up to the amount to be purchased.
From and after the date fixed in any such notice as the date of redemption
(unless default shall be made by the Corporation in the payment of the
redemption price), all dividends on the Preferred Stock thereby called for
redemption shall cease to accrue and all rights of the holders thereof as
stockholders of the Corporation, except the right to receive the redemption
price, shall cease and terminate.
Any purchase by the Corporation of the shares of its Preferred Stock shall
not be made at prices in excess of said redemption price.
-5-
<PAGE>
4. Voting Rights; Cumulative Voting. Each outstanding share of Common
--------------------------------
Stock shall be entitled to one vote and each fractional share of Common Stock
shall be entitled to a corresponding fractional vote on each matter submitted to
a vote of shareholders. A majority of the shares of Common Stock entitled to
vote, represented in person or by proxy, shall constitute a quorum at a
meeting of shareholders. Except as otherwise provided by these Articles of
Incorporation or the Colorado Corporation Code, if a quorum is present, the
affirmative vote of a majority of the shares represented at the meeting and
entitled to vote on the subject matter shall be the act of the shareholders.
When, with respect to any action to be taken by shareholders of this
Corporation, the laws of Colorado require the vote or concurrence of the holders
of two-thirds of the outstanding shares, of the shares entitled to vote thereon,
or of any class or series, such action may be taken by the vote or concurrence
of a majority of such shares or class or series thereof. Cumulative voting shall
not be allowed in the election of directors of this Corporation.
Shares of Preferred Stock shall only be entitled to such vote as is
determined by the Board of Directors prior to the issuance of such stock, except
as required by law, in which case each share of Preferred Stock shall be
entitled to one vote.
-6-
<PAGE>
5. Denial of Preemptive Rights. No holder of any shares of the
---------------------------
Corporation, whether now or hereafter authorized, shall have any preemptive or
preferential right to acquire any shares or securities of the Corporation,
including shares or securities held in the treasury of the Corporation.
6. Conversion Rights. Holders of shares of Preferred Stock may be granted
-----------------
the right to convert such Preferred Stock to Common Stock of the Corporation on
such terms as may be determined by the Board of Directors prior to issuance of
such Preferred Stock.
ARTICLE V
---------
TRANSACTIONS WITH INTERESTED DIRECTORS
--------------------------------------
No contract or other transaction between the Corporation and one or more of
its directors or any other corporation, firm, association, or entity in which
one or more of its directors are directors or officers or are financially
interested shall be either void or voidable solely because of such relationship
or interest or solely because such directors are present at the meeting of the
board of directors or a committee thereof which authorizes, approves, or
ratifies such contract or transaction or solely because their votes are counted
for such purpose if:
-7-
<PAGE>
(a) The fact of such relationship or interest is disclosed or known
to the board of directors or committee which authorizes, approves, or ratifies
the contract or transaction by a vote or consent sufficient for the purpose
without counting the votes or consents of such interested directors; or
(b) The fact of such relationship or interest is disclosed or known
to the shareholders entitled to vote and they authorize, approve, or ratify such
contract or transaction by vote or written consent; or
(c) The contract or transaction is fair and reasonable to the
corporation.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the board of directors or a committee thereof which
authorizes, approves, or ratifies such contract or transaction.
ARTICLE VI
----------
CORPORATE OPPORTUNITY
---------------------
The officers, directors and other members of management of this Corporation
shall be subject to the doctrine of "corporate opportunities" only insofar as it
applies to business opportunities in which this Corporation has expressed an
interest as determined from time to time by this Corporation's board of
directors as evidenced by resolutions
-8-
<PAGE>
appearing in the Corporation's minutes. Once such areas of interest are
delineated, all such business opportunities within such areas of interest which
come to the attention of the officers, directors, and other members of
management of this Corporation shall be disclosed promptly to this Corporation
and made available to it. The board of directors may reject any business
opportunity presented to it and thereafter any officer, director or other member
of management may avail himself of such opportunity. Until such time as this
Corporation, through its board of directors, has designated an area of interest,
the officers, directors and other members of management of this Corporation
shall be free to engage in such areas of interest on their own and this doctrine
shall not limit the rights of any officer, director or other member of
management of this Corporation to continue a business existing prior to the time
that such area of interest is designated by the Corporation. This provision
shall not be construed to release any employee of this Corporation (other than
an officer, director or member of management) from any duties which he may have
to this Corporation.
-9-
<PAGE>
ARTICLE VII
-----------
INDEMNIFICATION
---------------
The Corporation may indemnify any director, officer, employee, fiduciary,
or agent of the Corporation to the full extent permitted by the Colorado
Corporation Code as in effect at the time of the conduct by such person.
ARTICLE VIII
------------
AMENDMENTS
----------
The Corporation reserves the right to amend its Articles of Incorporation
from time to time in accordance with the Colorado Corporation Code.
ARTICLE IX
----------
ADOPTION AND AMENDMENT OF BYLAWS
--------------------------------
The initial Bylaws of the Corporation shall be adopted by its board of
directors. Subject to repeal or change by action of the shareholders, the power
to alter, amend or repeal the Bylaws or adopt new Bylaws shall be vested in the
board of directors. The Bylaws may contain any provisions for the regulation and
management of the affairs of the Corporation not inconsistent with law or these
Articles of Incorporation.
-10-
<PAGE>
ARTICLE X
---------
REGISTERED OFFICE AND REGISTERED AGENT
--------------------------------------
The address of the initial registered office of the Corporation is 511
Sixteenth Street, Suite 400, Denver, Colorado 80202, and the name of the initial
registered agent at such address is Jon D. Sawyer. Either the registered office
or the registered agent may be changed in the manner permitted by law.
ARTICLE XI
----------
INITIAL BOARD OF DIRECTORS
--------------------------
The number of directors of the Corporation shall be fixed by the Bylaws of
the Corporation, with the provision that there need be only as many directors as
there are shareholders in the event that the outstanding shares are held of
record by fewer than three shareholders. The initial board of directors of the
Corporation shall consist of three (3) directors. The names and addresses of the
persons who shall serve as directors until the first annual meeting of
shareholders and until their successors are elected and shall qualify are as
follows:
Name Address
---- -------
Francisco Urrea, Jr. 4255 Balloon Park Road, N.E.
Albuquerque, NM 87109
Francisco Urrea, III 4255 Balloon Park Road, N.E.
Albuquerque, NM 87109
-11-
<PAGE>
Thomas Urrea 4255 Balloon Park Road, N.E.
Albuquerque, NM 87109
ARTICLE XII
-----------
LIMITATION OF LIABILITY OF
--------------------------
DIRECTORS TO CORPORATIONS AND SHAREHOLDERS
------------------------------------------
No director shall be liable to the Corporation or any shareholder for
monetary damages for breach of fiduciary duty as a director, except for any
matter in respect of which such director (a) shall be liable under C.R.S.
Section 7-5-114 or any amendment thereto or successor provision thereto; (b)
shall have breached the director's duty of loyalty to the Corporation or its
shareholders; (c) shall have not acted in good faith or, in failing to act,
shall not have acted in good faith; (d) shall have acted or failed to act in a
manner involving intentional misconduct or a knowing violation of the law; or
(e) shall have derived an improper personal benefit. Neither the amendment nor
repeal of this Article, nor the adoption of any provision in the Articles of
Incorporation inconsistent with this Article, shall eliminate or reduce the
effect of this Article in respect of any matter occurring prior to such
amendment, repeal or adoption of an inconsistent provision. This Article shall
apply to the full extent now permitted by Colorado law or as may be permitted in
the future by changes or enactments in Colorado law, including without
limitation C.R.S. Section 7-2-102 and/or C.R.S. Section 7-3-101.
-12-
<PAGE>
ARTICLE XIII
------------
INCORPORATOR
------------
The name and address of the incorporator is as follows:
Name Address
---- -------
Jon D. Sawyer 511 Sixteenth Street
Suite 400
Denver, CO 80202
IN WITNESS WHEREOF, the above-named incorporator has signed these
Articles of Incorporation this 12th day of September, 1988,
/s/ Jon D. Sawyer
----------------------------------
Jon D. Sawyer
-13-
<PAGE>
[LETTERHEAD OF THAD HOWARD TURK ATTORNEY AT LAW APPEARS HERE]
December 4, 1992
Department of State
Corporation Division
1560 Broadway, Suite 200
Denver, Colorado 80202
Re: Articles of Amendment to Articles of Septima Enterprises, Inc.
Ladies and Gentlemen:
Enclosed for filing on behalf of Septima Enterprises, Inc., are three
manually signed copies of Articles of Amendment to its Articles of
Incorporation. This amendment was approved by the Company's shareholders at a
duly called meeting held on October 23, 1992.
Also enclosed is a check in the amount of $25 in payment of the filing fee.
Sincerely,
Thad H. Turk
cc: Septima Enterprises, Inc.
<PAGE>
ARTICLES OF AMENDMENT OF ARTICLES OF INCORPORATION
OF
SEPTIMA ENTERPRISES, INC.
Pursuant to the provisions of the Colorado Corporation Code, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is SEPTIMA ENTERPRISES, INC.
SECOND: The following amendment to Article IV of the Articles of
Incorporation of Septima Enterprises, Inc., was adopted on October 23, 1992, as
prescribed by the Colorado Corporation Code, by a vote of shareholders
sufficient for approval of the Amendment:
ARTICLE IV, CAPITAL STOCK, is amended to be as follows:
-------------------------
The first paragraph of Article IV is amended to be as follows:
"The aggregate number of shares which this Corporation shall have authority
to issue is Twenty-Five Million (25,000,000) shares of no par value each, which
shares shall be designated "Common Stock"; and 10,000,000 shares of no par value
each, which shall be designated "Preferred Stock" and which may be issued in one
or more series at the discretion of the Board of Directors. In establishing a
series the Board of Directors shall give to it a distinctive designation so as
to distinguish it from the shares of all other series and classes, shall fix the
number of shares in such series, and the preferences, rights and restrictions
thereof. All shares of any one series shall be alike in every particular except
as otherwise provided by these Articles of Incorporation or the Colorado
Corporation Code."
The following paragraphs of such Article IV were not amended and are
incorporated herein by reference to the Articles of Incorporation September 12,
1988: 1. Dividends., 2. Distribution in Liquidation., 3. Redemption., 4. Voting
---------- ---------------------------- ----------- ------
Rights; Cumulative Voting., 5. Denial of Preemptive Rights. and 6. Conversion
- -------------------------- ---------------------------- ----------
Rights.
- -------
THIRD: The manner in which any exchange, reclassification, or cancellation
of issued shares provided for in the Amendment shall be effected, is as follows:
Each certificate representing shares of the corporation's currently issued and
outstanding no par
<PAGE>
value Common Stock must be returned to the corporation or its transfer agent for
cancellation and reissue of a certificate representing shares of the
Corporation's no par value common stock created by this Amendment on the basis
of one (1) common share authorized by this Amendment for each two hundred (200)
shares now issued and outstanding.
FOURTH: This Amendment does not change the amount of stated capital.
Dated: November 30, 1992.
SEPTIMA ENTERPRISES, INC.
By /s/ George Hensley
-------------------------------
George Hensley, President
By /s/ Francisco Urrea, Jr.
-------------------------------
Francisco Urrea, Jr., Secretary
Under penalty of perjury, the undersigned declares that the foregoing
document was executed by the Corporation and that the statements contained
therein are true and correct to the best of his knowledge.
By /s/ George Hensley
-------------------------------
George Hensley, President
By /s/ Francisco Urrea, Jr.
-------------------------------
Francisco Urrea, Jr., Secretary
STATE OF NEW MEXICO )
) ss.
COUNTY OF BERNALILLO )
Subscribed and sworn to before me this 30th day of November, 1992, by
George Hensley and Francisco Urrea, Jr., known by me to be the President and
Secretary, respectively, of Septima Enterprises, Inc.
/s/ Lillian Werntz
----------------------------------
Notary Public
My Commission Expires: July 8, 1993
--------------------
<PAGE>
BYLAWS
OF
SEPTIMA ENTERPRISES, INC.
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE I - OFFICES................................................ 1
1.1 Business Office.......................................... 1
1.2 Registered Office........................................ 1
ARTICLE II SHARES AND TRANSFER THEREOF............................. 1
2.1 Regulation............................................... 1
2.2 Certificates for Shares.................................. 1
2.3 Cancellation of Certificates............................. 2
2.4 Lost, Stolen, or Destroyed Certificates.................. 2
2.5 Transfer of Shares....................................... 2
2.6 Transfer Agent........................................... 3
2.7 Close of Transfer Book and Record Date................... 3
ARTICLE III - SHAREHOLDERS AND MEETINGS THEREOF.................... 4
3.1 Shareholders of Record................................... 4
3.2 Meetings................................................. 4
3.3 Annual Meeting........................................... 4
3.4 Special Meetings......................................... 4
3.5 Notice................................................... 5
3.6 Meeting of all Shareholders.............................. 5
3.7 Voting Record............................................ 5
3.8 Quorum................................................... 6
3.9 Manner of Acting......................................... 6
3.10 Proxies.................................................. 6
3.11 Voting of Shares......................................... 6
3.12 Voting of Shares by Certain Holders...................... 6
3.13 Informal Action by Shareholders.......................... 7
3.14 Voting by Ballot......................................... 7
3.15 Cumulative Voting........................................ 8
ARTICLE IV - DIRECTORS, POWERS AND MEETINGS........................ 8
4.1 Board of Directors....................................... 8
4.2 Regular Meetings......................................... 8
4.3 Special Meetings......................................... 8
4.4 Notice................................................... 8
4.5 Participation by Electronic Means........................ 9
4.6 Quorum and Manner of Acting.............................. 9
4.7 Organization............................................. 9
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TABLE OF CONTENTS
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(Continued)
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4.8 Presumption of Assent ......................................... 9
4.9 Informal Action by Directors .................................. 10
4.10 Vacancies ..................................................... 10
4.11 Compensation .................................................. 10
4.12 Removal of Directors .......................................... 10
4.13 Resignations .................................................. 10
4.14 General Powers ................................................ 11
ARTICLE V - OFFICERS ..................................................... 11
5.1 Term and Compensation ......................................... 11
5.2 Powers ........................................................ 11
5.3 Compensation .................................................. 13
5.4 Delegation of Duties .......................................... 13
5.5 Bonds ......................................................... 13
5.6 Removal ....................................................... 13
ARTICLE VI - FINANCE ..................................................... 13
6.1 Reserve Funds ................................................. 13
6.2 Banking ....................................................... 13
ARTICLE VII - DIVIDENDS .................................................. 14
ARTICLE VIII - CONTRACTS, LOANS AND CHECKS ............................... 14
8.1 Execution of Contracts ........................................ 14
8.2 Loans ......................................................... 14
8.3 Checks ........................................................ 14
8.4 Deposits ...................................................... 14
ARTICLE IX - FISCAL YEAR ................................................. 15
ARTICLE X - CORPORATE SEAL ............................................... 15
ARTICLE XI - AMENDMENTS .................................................. 15
ARTICLE XII - EXECUTIVE COMMITTEE ........................................ 15
12.1 Appointment ................................................... 15
12.2 Authority ..................................................... 15
12.3 Tenure and Qualifications ..................................... 15
12.4 Meetings ...................................................... 16
12.5 Quorum ........................................................ 16
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TABLE OF CONTENTS
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(Continued)
Page
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12.6 Informal Action by Executive Committee............ 16
12.7 Vacancies......................................... 16
12.8 Resignations and Removal.......................... 16
12.9 Procedure......................................... 16
ARTICLE XIII - EMERGENCY BYLAWS............................. 17
CERTIFICATE................................................. 18
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ARTICLE I
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OFFICES
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1.1 Business Office. The principal office and place of business of
---------------
the corporation shall be at 3009 Charleston, N.E., Albuquerque, New Mexico
87110. Other offices and places of business may be established from time to time
by resolution of the Board of Directors or as the business of the corporation
may require.
1.2 Registered Office. The registered office of the corporation,
-----------------
required by the Colorado Corporation Code to be maintained in the State of
Colorado, may be, but need not be, identical with the principal office in the
State of Colorado, and the address of the registered office may be changed from
time to time by the Board of Directors.
ARTICLE II
----------
SHARES AND TRANSFER THEREOF
---------------------------
2.1 Regulation. The Board of Directors may make such rules and
----------
regulations as it may deem appropriate concerning the issuance, transfer and
registration of certificates for shares of the corporation, including the
appointment of transfer agents and registrars.
2.2 Certificates for Shares. Certificates representing shares of the
-----------------------
corporation shall be respectively numbered serially for each class of shares, or
series thereof, as they are issued, shall be impressed with the corporate seal
or a facsimile thereof, and shall be signed by the Chairman or Vice Chairman of
the Board of Directors or by the President or Vice-President and by the
Treasurer or an Assistant Treasurer or by the Secretary or an Assistant
Secretary; provided that any or all of the signatures may be facsimilies if the
certificate is countersigned by a transfer agent, or registered by a registrar,
other than the corporation itself or its employee. Each certificate shall state
the name of the corporation, the fact that the corporation is organized or
incorporated under the laws of the State of Colorado, the name of the person to
whom issued, the date of issue, the class (or series of any class), the number
of shares represented thereby and the par value of the shares represented
thereby or a statement that such shares are without par value. A statement of
the designations, preferences, qualifications, limitations, restrictions and
special or relative rights of the shares of each class shall be set forth in
full or summarized on the face or back of the certificates which the corporation
shall issue, or in lieu
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thereof, the certificate may set forth that such a statement or summary will be
furnished to any shareholder upon request without charge. Each certificate shall
be otherwise in such form as may be prescribed by the Board of Directors and as
shall conform to the rules of any stock exchange on which the shares may be
listed. The corporation shall not issue certificates representing fractional
shares and shall not be obligated to make any transfers creating a fractional
interest in a share of stock. The corporation may, but shall not be obligated
to, issue scrip in lieu of any fractional shares, such scrip to have terms and
conditions specified by the Board of Directors.
2.3 Cancellation of Certificates. All certificates surrendered to the
----------------------------
corporation for transfer shall be cancelled and no new certificates shall be
issued in lieu thereof until the former certificate for a like number of shares
shall have been surrendered and cancelled, except as herein provided with
respect to lost, stolen or destroyed certificates.
2.4 Lost, Stolen or Destroyed Certificates. Any shareholder claiming that
--------------------------------------
his certificate for shares is lost, stolen or destroyed may make an affidavit or
affirmation of the fact and lodge the same with the Secretary of the
corporation, accompanied by a signed application for a new certificate.
Thereupon, and upon the giving of a satisfactory bond of indemnity to the
corporation not exceeding an amount double the value of the shares as
represented by such certificate (the necessity for such bond and the amount
required to be determined by the President and Treasurer of the corporation), a
new certificate may be issued of the same tenor and representing the same
number, class and series of shares as were represented by the certificate
alleged to be lost, stolen or destroyed.
2.5 Transfer of Shares. Subject to the terms of any shareholder agreement
------------------
relating to the transfer of shares or other transfer restrictions contained in
the Articles of Incorporation or authorized therein, shares of the corporation
shall be transferable on the books of the corporation by the holder thereof in
person or by his duly authorized attorney, upon the surrender and cancellation
of a certificate or certificates for a like number of shares. Upon presentation
and surrender of a certificate for shares properly endorsed and payment of all
taxes therefor, the transferee shall be entitled to a new certificate or
certificates in lieu thereof. As against the corporation, a transfer of shares
can be made only on the books of the corporation and in the manner hereinabove
provided, and the corporation
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shall be entitled to treat the holder of record of any share as the owner
thereof and shall not be bound to recognize any equitable or other claim to or
interest in such share on the part of any other person, whether or not it shall
have express or other notice thereof, save as expressly provided by the statutes
of the State of Colorado.
2.6 Transfer Agent. Unless otherwise specified by the Board of Directors
--------------
by resolution, the Secretary of the corporation shall act as transfer agent of
the certificates representing the shares of stock of the corporation. He shall
maintain a stock transfer book, the stubs in which shall set forth among other
things, the names and addresses of the holders of all issued shares of the
corporation, the number of shares held by each, the certificate numbers
representing such shares, the date of issue of the certificates representing
such shares, and whether or not such shares originate from original issue or
from transfer. Subject to Section 3.7, the names and addresses of the
shareholders as they appear on the stubs of the stock transfer book shall be
conclusive evidence as to who are the shareholders of record and as such
entitled to receive notice of the meetings of shareholders; to vote at such
meetings; to examine the list of the shareholders entitled to vote at meetings;
to receive dividends; and to own, enjoy and exercise any other property or
rights deriving from such shares against the corporation. Each shareholder shall
be responsible for notifying the Secretary in writing of any change in his name
or address and failure so to do will relieve the corporation, its directors,
officers and agents, from liability for failure to direct notices or other
documents, or pay over or transfer dividends or other property or rights, to a
name or address other than the name and address appearing on the stub of the
stock transfer book.
2.7 Close of Transfer Book and Record Date. For the purpose of
--------------------------------------
determining shareholders entitled to notice of or to vote at any meeting of
shareholders, or any adjournment thereof, or entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the Board of Directors may provide that the stock transfer books
shall be closed for a stated period, but not to exceed, in any case, fifty days.
If the stock transfer books shall be closed for the purpose of determining
shareholders entitled to notice of, or to vote at a meeting of shareholders,
such books shall be closed for at least ten days immediately preceding
such meeting. In lieu of closing the stock transfer books, the Board of
Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to
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be not more than fifty days and, in case of a meeting of shareholders, not less
than ten days prior to the date on which the particular action requiring such
determination of shareholders is to be taken. If the stock transfer books are
not closed and no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or shareholders
entitled to receive payment of a dividend, the date on which notice of the
meeting is mailed or the date on which the resolution of the Board of Directors
declaring such dividend is adopted, as the case may be, shall be the record date
for such determination of shareholders. When a determination of shareholders
entitled to vote at any meeting of shareholders has been made as provided in
this section, such determination shall apply to any adjournment thereof.
ARTICLE III
-----------
SHAREHOLDERS AND MEETINGS THEREOF
---------------------------------
3.1 Shareholders of Record. Only shareholders of record on the books of
----------------------
the corporation shall be entitled to be treated by the corporation as holders in
fact of the shares standing in their respective names, and the corporation shall
not be bound to recognize any equitable or other claim to, or interest in, any
shares on the part of any other person, firm or corporation, whether or not it
shall have express or other notice thereof, except as expressly provided by the
laws of Colorado.
3.2 Meetings. Meetings of shareholders shall be held at the principal
--------
office of the corporation, or at such other place as specified from time to
time by the Board of Directors. If the Board of Directors shall specify another
location such change in location shall be recorded on the notice calling such
meeting.
3.3 Annual Meeting. The annual meeting of shareholders of the corporation
--------------
for the election of directors, and for the transaction of such other business as
may properly come before the meeting, shall be held at such time as may be
determined by the Board of Directors by resolution in conformance with Colorado
law. If the election of Directors shall not be held on the day designated herein
for any annual meeting of the shareholders, the Board of Directors shall cause
the election to be held at a special meeting of the shareholders as soon
thereafter as may be convenient.
3.4 Special Meeting. Special meetings of shareholders, for any purpose or
---------------
purposes, unless otherwise pre-
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scribed by statute, may be called by the President, the Board of Directors, the
holders of not less than one-tenth of all the shares entitled to vote at the
meeting, or legal counsel of the corporation as last designated by resolution of
the Board of Directors.
3.5 Notice. Written notice stating the place, day and hour of the meeting
------
and, in case of a special meeting, the purpose or purposes for which the meeting
is called, shall be delivered unless otherwise prescribed by statute not less
than ten days nor more than fifty days before the date of the meeting, either
personally or by mail, by or at the direction of the President, the Secretary,
or the officer or person calling the meeting to each shareholder of record
entitled to vote at such meeting; except that, if the authorized shares are to
be increased, at least thirty days' notice shall be given, and if the sale of
all or substantially all of the corporation's assets is to be voted upon, at
least twenty days' notice shall be given. Any shareholder may waive notice of
any meeting. Notice to shareholders of record, if mailed, shall be deemed given
as to any shareholder of record, when deposited in the United States mail,
addressed to the shareholder at his address as it appears on the stock transfer
books of the corporation, with postage thereon prepaid, but if three successive
letters mailed to the last-known address of any shareholder of record are
returned as undeliverable, no further notices to such shareholder shall be
necessary, until another address for such shareholder is made known to the
corporation.
3.6 Meeting of All Shareholders. If all of the shareholders shall meet at
---------------------------
any time and place, either within or without the State of Colorado, and consent
to the holding of a meeting at such time and place, such meeting shall be valid
without call or notice, and at such meeting any corporate action may be taken.
3.7 Voting Record. The officer or agent having charge of the stock transfer
-------------
books for shares of the corporation shall make, at least ten days before such
meeting of shareholders, a complete record of the shareholders entitled to vote
at each meeting of shareholders or any adjournment thereof, arranged in
alphabetical order, with the address and the number of shares held by each. The
record, for a period of ten days prior to such meeting, shall be kept on file at
the principal office of the corporation, whether within or without the State of
Colorado, and shall be subject to inspection by any shareholder for any purpose
germane to the meeting at any time during usual business hours. Such record
shall be produced and kept open at the
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time and place of the meeting and shall be subject to the inspection of any
shareholder for any purpose germane to the meeting during the whole time of the
meeting for the purposes thereof. The original stock transfer books shall be the
prima facie evidence as to who are the shareholders entitled to examine the
record or transfer books or to vote at any meeting of shareholders.
3.8 Quorum. A majority of the outstanding shares of the corporation
------
entitled to vote, represented in person or by proxy, shall constitute a quorum
at any meeting of shareholders, except as otherwise provided by the Colorado
Corporation Code and the Articles of Incorporation. In the absence of a quorum
at any such meeting, a majority of the shares so represented may adjourn the
meeting from time to time for a period not to exceed sixty days without further
notice. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed. The shareholders present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum.
3.9 Manner of Acting. If a quorum is present, the affirmative vote of the
----------------
majority of the shares represented at the meeting and entitled to vote on the
subject matter shall be the act of the shareholders, unless the vote of a
greater proportion or number or voting by classes is otherwise required by
statute or by the Articles of Incorporation or these Bylaws.
3.10 Proxies. At all meetings of shareholders a shareholder may vote in
-------
person or by proxy executed in writing by the shareholder or by his duly
authorized attorney-in-fact. Such proxy shall be filed with the Secretary of
the corporation before or at the time of the meeting. No proxy shall be valid
after eleven months from the date of its execution, unless otherwise provided in
the proxy.
3.11 Voting of Shares. Unless otherwise provided by these Bylaws or the
----------------
Articles of Incorporation, each outstanding share entitled to vote shall be
entitled to one vote upon each matter submitted to a vote at a meeting of
shareholders, and each fractional share shall be entitled to a corresponding
fractional vote on each such matter.
3.12 Voting of Shares by Certain Holders. Shares standing in the name of
-----------------------------------
another corporation may be voted by such officer, agent or proxy as the bylaws
of such corpora-
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<PAGE>
tion may prescribe, or, in the absence of such provision, as the Board of
Directors of such other corporation may determine. Shares standing in the name
of a deceased person, a minor ward or an incompetent person, may be voted by his
administrator, executor, court appointed guardian or conservator, either in
person or by proxy without a transfer of such shares into the name of such
administrator, executor, court appointed guardian or conservator. Shares
standing in the name of a trustee may be voted by him, either in person or by
proxy, but no trustee shall be entitled to vote shares held by him without a
transfer of such shares into his name. Shares standing in the name of a
receiver may be voted by such receiver, and shares held by or under the control
of a receiver may be voted by such receiver without the transfer thereof into
his name if authority so to do be contained in an appropriate order of the court
by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither shares of its own stock belonging to this corporation, nor shares of its
own stock held by it in a fiduciary capacity, nor shares of its own stock held
by another corporation if the majority of shares entitled to vote for the
election of directors of such corporation is held by this corporation may be
voted, directly or indirectly, at any meeting and shall not be counted in
determining the total number of outstanding shares at any given time.
Redeemable shares which have been called for redemption shall not be entitled to
vote on any matter and shall not be deemed outstanding shares on and after the
date on which written notice of redemption has been mailed to shareholders and a
sum sufficient to redeem such shares has been deposited with a bank or trust
company with irrevocable instruction and authority to pay the redemption price
to the holders of the shares upon surrender of certificates therefor.
3.13 Informal Action by Shareholders. Any action required or permitted to
-------------------------------
be taken at a meeting of the shareholders may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the shareholders entitled to vote with respect to the subject matter thereof.
3.14 Voting by Ballot. Voting on any question or in any election may be
----------------
by voice vote unless the presiding officer shall order or any shareholder shall
demand that voting be by ballot.
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3.15 Cumulative Voting. No shareholder shall be permitted to cumulate
-----------------
his votes by giving one candidate as many votes as the number of such directors
multiplied by the number of his shares shall equal, or by distributing such
votes on the same principal among any number of candidates.
ARTICLE IV
----------
DIRECTORS, POWERS AND MEETINGS
------------------------------
4.1 Board of Directors. The business and affairs of the corporation shall
------------------
be managed by a board of not less than three (3) nor more than seven (7)
directors; except that there shall be only as many directors as there are
shareholders in the event the outstanding shares are held of record by fewer
than three shareholders. Directors need not be shareholders of the corporation
or residents of the State of Colorado and who shall be elected at the annual
meeting of shareholders or some adjournment thereof. Directors shall hold office
until the next succeeding annual meeting of shareholders and until their
successors shall have been elected and shall qualify. The Board of Directors may
increase or decrease, to not less than three (3) nor more than seven (7), the
number of directors by resolution.
4.2 Regular Meetings. A regular, annual meeting of the Board of Directors
----------------
shall be held at the same place as, and immediately after, the annual meeting of
shareholders, and no notice shall be required in connection therewith. The
annual meeting of the Board of Directors shall be for the purpose of electing
officers and the transaction of such other business as may come before the
meeting. The Board of Directors may provide, by resolution, the time and place,
either within or without the State of Colorado, for the holding of additional
regular meetings without other notice than such resolution.
4.3 Special Meetings. Special meetings of the Board of Directors may be
----------------
called by or at the request of the President or any two directors. The person or
persons authorized to call special meetings of the Board of Directors may fix
any place, either within or without the State of Colorado, as the place for
holding any special meeting of the Board of Directors called by them.
4.4 Notice. Written notice of any special meeting of directors shall be
------
given as follows:
(a) By mail to each director at his business address at least three
days prior to the meeting; or
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(b) By personal delivery or telegram at least twenty-four hours
prior to the meeting to the business address of each director, or in the event
such notice is given on a Saturday, Sunday or holiday, to the residence address
of each director. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, so addressed, with postage thereon prepaid.
If notice be given by telegram, such notice shall be deemed to be delivered when
the telegram is delivered to the telegraph company. Any director may waive
notice of any meeting. The attendance of a director at any meeting shall
constitute a waiver of notice of such meeting, except where a director attends a
meeting for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
Board of Directors need be specified in the notice or waiver of notice of such
meeting.
4.5 Participation by Electronic Means. Except as may be otherwise
---------------------------------
provided by the Articles of Incorporation or Bylaws, members of the Board of
Directors or any committee designated by such Board may participate in a meeting
of the Board or committee by means of conference telephone or similar
communications equipment by which all persons participating in the meeting can
hear each other at the same time. Such participation shall constitute presence
in person at the meeting.
4.6 Quorum and Manner of Acting. A quorum at all meetings of the Board of
---------------------------
Directors shall consist of a majority of the number of directors then holding
office, but a smaller number may adjourn from time to time without further
notice, until a quorum is secured. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors, unless the act of a greater number is required by the laws of the
State of Colorado or by the Articles of Incorporation or these Bylaws.
4.7 Organization. The Board of Directors shall elect a chairman to
------------
preside at each meeting of the Board of Directors. The Board of Directors shall
elect a Secretary to record the discussions and resolutions of each meeting.
4.8 Presumption of Assent. A director of the corporation who is present
---------------------
at a meeting of the Board of Directors at which action on any corporate matter
is taken shall be presumed to have assented to the action taken unless his
dissent shall be entered in the minutes of the meeting or
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unless he shall file his written dissent to such action with the person acting
as the Secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered mail to the Secretary of the corporation immediately
after the adjournment of the meeting. Such right to dissent shall not apply to a
director who voted in favor of such action.
4.9 Informal Action By Directors. Any action required or permitted to be
----------------------------
taken by the Board of Directors, or a committee thereof, at a meeting may be
taken without a meeting if a consent in writing, setting forth the action so
taken, shall be signed by all the directors or all the committee members
entitled to vote with respect to the subject matter thereof.
4.10 Vacancies. Any vacancy occurring in the Board of Directors may be
---------
filled by the affirmative vote of a majority of the remaining directors though
less than a quorum of the Board of Directors. A director elected to fill a
vacancy shall be elected for the unexpired term of his predecessor in office,
and shall hold such office until his successor is duly elected and shall
qualify. Any directorship to be filled by reason of an increase in the number of
directors shall be filled by the affirmative vote of a majority of the directors
then in office or by an election at an annual meeting, or at a special meeting
of shareholders called for that purpose. A director chosen to fill a position
resulting from an increase in the number of directors shall hold office only
until the next election of directors by the shareholders.
4.11 Compensation. By resolution of the Board of Directors and irrespective
------------
of any personal interest of any of the members, each director may be paid his
expenses, if any, of attendance at each meeting of the Board of Directors, and
may be paid a stated salary as director or a fixed sum for attendance at each
meeting of the Board of Directors or both. No such payment shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor.
4.12 Removal of Directors. Any director or directors of the corporation may
--------------------
be removed at any time, with or without cause, in the manner provided in the
Colorado Corporation Code.
4.13 Resignations. A director of the corporation may resign at any time by
------------
giving written notice to the Board of Directors, President or Secretary of the
corporation. The
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resignation shall take effect upon the date of receipt of such notice, or at any
later period of time specified therein. The acceptance of such resignation shall
not be necessary to make it effective, unless the resignation requires it to be
effective as such.
4.14 General Powers. The business and affairs of the corporation shall be
--------------
managed by the Board of Directors which may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or by
the Articles of Incorporation or by these Bylaws directed or required to be
exercised or done by the shareholders. The directors shall pass upon any and all
bills or claims of officers for salaries or other compensation and, if deemed
advisable, shall contract with officers, employees, directors, attorneys,
accountants, and other persons to render services to the corporation.
ARTICLE V
---------
OFFICERS
--------
5.1 Terms and Compensation. The elective officers of the corporation
----------------------
shall consist of at least a President, a Secretary and a Treasurer, each of whom
shall be eighteen years or older and who shall be elected by the Board of
Directors at its annual meeting. Unless removed in accordance with procedures
established by law and these Bylaws, the said officers shall serve until the
next succeeding annual meeting of the Board of Directors and until their
respective successors are elected and shall qualify. Any number of offices, but
not more than two, may be held by the same person at the same time, except that
one person may not simultaneously hold the offices of President and Secretary.
The Board may elect or appoint such other officers and agents as it may deem
advisable, who shall hold office during the pleasure of the Board.
5.2 Powers. The officers of the corporation shall exercise and perform
------
the respective powers, duties and functions as are stated below, and as may be
assigned to them by the Board of Directors.
(a) The President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. He shall preside, when present, at all meetings of the shareholders
and of the Board of Directors unless a different chairman of such meetings is
elected by the Board of Directors.
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(b) In the absence or disability of the President, the Vice-President or
Vice-Presidents, if any, in order of their rank as fixed by the Board of
Directors, and if not ranked, the Vice-Presidents in the order designated by the
Board of Directors, shall perform all the duties of the President, and when so
acting shall have all the powers of, and be subject to all the restrictions on
the President. Each Vice-President shall have such other powers and perform such
other duties as may from time to time be assigned to him by the President or the
Board of Directors.
(c) The Secretary shall keep accurate minutes of all meetings of the
shareholders and the Board of Directors unless a different Secretary of such
meetings is elected by the Board of Directors. He shall keep, or cause to be
kept a record of the shareholders of the corporation and shall be responsible
for the giving of notice of meetings of the shareholders or the Board of
Directors. The Secretary shall be custodian of the records and of the seal of
the corporation and shall attest the affixing of the seal of the corporation
when so authorized. The Secretary or Assistant Secretary may sign all stock
certificates, as described in Section 2.2 hereof. The Secretary shall preform
all duties commonly incident to his office and such other duties as may from
time to time be assigned to him by the President or the Board of Directors.
(d) An Assistant Secretary may, at the request of the Secretary, or in
the absence or disability of the Secretary, perform all of the duties of the
Secretary. He shall preform such other duties as may be assigned to him by the
President or by the Secretary.
(e) The Treasurer, subject to the order of the Board of Directors, shall
have the care and custody of the money, funds, valuable papers and documents of
the corporation. He shall keep accurate books of accounts of the corporation's
transactions, which shall be the property of the corporation, and shall render
financial reports and statements of condition of the corporation when so
requested by the Board of Directors or President. The Treasurer shall perform
all duties commonly incident to his office and such other duties as may from
time to time be assigned to him by the President or the Board of Directors. In
the absence or disability of the President and Vice-President or Vice-
Presidents, the Treasurer shall perform the duties of the President.
(f) An Assistant Treasurer may, at the request of the Treasurer, or in
the absence or disability of the Treasurer, perform all of the duties of the
Treasurer. He shall
-12-
<PAGE>
perform such other duties as may be assigned to him by the President or by the
Treasurer.
5.3 Compensation. All officers of the corporation may receive
------------
salaries or other compensation if so ordered and fixed by the Board of
Directors. The Board of Directors shall have authority to fix salaries in
advance for stated periods or render the same retroactive as the Board may deem
advisable.
5.4 Delegation of Duties. In the event of absence or inability
--------------------
of any officer to act, the Board of Directors may delegate the powers or duties
of such officer to any other officer, director or person whom it may select.
5.5 Bonds. If the Board of Directors by resolution shall so
-----
require, any officer or agent of the corporation shall give bond to the
corporation in such amount and with such surety as the Board of Directors may
deem sufficient, conditioned upon the faithful performance of their respective
duties and offices.
5.6 Removal. Any officer or agent may be removed by the Board of
-------
Directors or by the executive committee, if any, whenever in its judgement the
best interest of the corporation will be served thereby, but such removal shall
be without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not, of itself, create
contract rights.
ARTICLE VI
----------
FINANCE
-------
6.1 Reserve Funds. The Board of Directors, in its uncontrolled
-------------
discretion, may set aside from time to time, out of the net profits or earned
surplus of the corporation, such sum or sums as it deems expedient as a reserve
fund to meet contingencies, for equalizing dividends, for maintaining any
property of the corporation, and for any other purpose.
6.2 Banking. The moneys of the corporation shall be deposited in
-------
the name of the corporation in such bank or banks or trust company or trust
companies, as the Board of Directors shall designate, and may be drawn out only
on checks signed in the name of the corporation by such person or persons as the
Board of Directors, by appropriate resolution, may direct. Notes and commercial
paper, when authorized by the Board, shall be signed in the name of the
corporation by such officer or officers or agent or agents as shall thereunto be
authorized from time to time.
-13-
<PAGE>
ARTICLE VII
-----------
DIVIDENDS
---------
Subject to the provisions of the Articles of Incorporation and the laws
of the State of Colorado, the Board of Directors may declare dividends whenever,
and in such amounts, as in the Board's opinion the condition of the affairs of
the corporation shall render such advisable.
ARTICLE VIII
------------
CONTRACTS, LOANS AND CHECKS
---------------------------
8.1 Execution of Contracts. Except as otherwise provided by statute or
----------------------
by these Bylaws, the Board of Directors may authorize any officer or agent of
the corporation to enter into any contract, or execute and deliver any
instrument in the name of, and on behalf of the corporation. Such authority may
be general or confined to specific instances and, unless so authorized, no
officer, agent or employee shall have any power to bind the corporation for any
purpose, except as may be necessary to enable the corporation to carry on its
normal and ordinary course of business.
8.2 Loans. No loans shall be contracted on behalf of the corporation
-----
and no negotiable paper shall be issued in its name unless authorized by the
Board of Directors. When so authorized, any officer or agent of the corporation
may effect loans and advances at any time for the corporation from any bank,
trust company or institution, firm, corporation or individual. An agent so
authorized may make and deliver promissory notes or other evidence of
indebtedness of the corporation and may mortgage, pledge, hypothecate or
transfer any real or personal property held by the corporation as security for
the payment of such loans. Such authority, in the Board of Directors'
discretion, may be general or confined to specific instances.
8.3 Checks. Checks, notes, drafts and demands for money or other
------
evidence of indebtedness issued in the name of the corporation shall be signed
by such person or persons as designated by the Board of Directors and in the
manner the Board of Directors prescribes.
8.4 Deposits. All funds of the corporation not otherwise employed
--------
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies or other depositories as the Board of Directors may
select.
-14-
<PAGE>
ARTICLE IX
----------
FISCAL YEAR
-----------
The fiscal year of the corporation shall be the year adopted by
resolution of the Board of Directors.
ARTICLE X
---------
CORPORATE SEAL
--------------
The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the corporation
and the state of incorporation and the words "CORPORATE SEAL".
ARTICLE XI
----------
AMENDMENTS
----------
These Bylaws may be altered, amended or repealed and new Bylaws may be
adopted by a majority of the Directors present at any meeting of the Board of
Directors of the corporation at which a quorum is present.
ARTICLE XII
-----------
EXECUTIVE COMMITTEE
-------------------
12.1 Appointment. The Board of Directors by resolution adopted by a
-----------
majority of the full Board, may designate two or more of its members to
constitute an executive committee. The designation of such committee and the
delegation thereto of authority shall not operate to relieve the Board of
Directors, or any member thereof, of any responsibility imposed by law.
12.2 Authority. The executive committee, when the Board of Directors is
---------
not in session shall have and may exercise all of the authority of the Board of
Directors except to the extent, if any, that such authority shall be limited by
the resolution appointing the executive committee and except also that the
executive committee shall not have the authority of the Board of Directors in
reference to amending the Articles of Incorporation, adopting a plan of merger
or consolidation, recommending to the shareholders the sale, lease or other
disposition of all or substantially all of the property and assets of the
corporation otherwise than in the usual and regular course of its business,
recommending to the shareholders a voluntary dissolution of the corporation or a
revocation thereof, or amending the Bylaws of the corporation.
12.3 Tenure and Qualifications. Each member of the executive committee
-------------------------
shall hold office until the next regular
-15-
<PAGE>
annual meeting of the Board of Directors following his designation.
12.4 Meetings. Regular meetings of the executive committee may be held
--------
without notice at such time and places as the executive committee may fix from
time to time by resolution. Special meetings of the executive committee may be
called by any member thereof upon not less than one day's notice stating the
place, date and hour of the meeting, which notice may be written or oral, and if
mailed, shall be deemed to be delivered when deposited in the United States
mail addressed to the member of the executive committee at his business address.
Any member of the executive committee may waive notice of any meeting and no
notice of any meeting need be given to any member thereof who attends in person.
The notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
12.5 Quorum. A majority of the members of the executive committee shall
------
constitute a quorum for the transaction of business at any meeting thereof, and
action of the executive committee must be authorized by the affirmative vote of
a majority of the members present at a meeting at which a quorum is present.
12.6 Informal Action by Executive Committee. Any action required or
--------------------------------------
permitted to be taken by the executive committee at a meeting may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the members of the committee entitled to vote with
respect to the subject matter thereof.
12.7 Vacancies. Any vacancy in the executive committee may be filled by a
---------
resolution adopted by a majority of the full Board of Directors.
12.8 Resignations and Removal. Any member of the executive committee may
------------------------
be removed at any time with or without cause by resolution adopted by a majority
of the full Board of Directors. Any member of the executive committee may resign
from the executive committee at any time by giving written notice to the
President or Secretary of the corporation, and unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
12.9 Procedure. The executive committee shall elect a presiding officer
---------
from its members and may fix its own rules of procedure which shall not be
inconsistent with these Bylaws. It shall keep regular minutes of its proceedings
and report the same to the Board of Directors for its in-
-16-
<PAGE>
formation at the meeting thereof held next after the proceedings shall have been
taken.
ARTICLE XIII
------------
EMERGENCY BYLAWS
----------------
The Emergency Bylaws provided for in this Article shall be operative during
any emergency in the conduct of the business of the corporation resulting from
an attack on the United States or any nuclear or atomic disaster,
notwithstanding any different provision in the preceding articles of the Bylaws
or in the Articles of Incorporation of the corporation or in the Colorado
Corporation Code. To the extent not inconsistent with the provisions of this
Article, the Bylaws provided in the preceding articles shall remain in effect
during such emergency and upon its termination the Emergency Bylaws shall cease
to be operative.
During any such emergency:
(a) A meeting of the Board of Directors may be called by any officer
or director of the corporation. Notice of the time and place of the meeting
shall be given by the person calling the meeting to such of the directors as it
may be feasible to reach by any available means of communication. Such notice
shall be given at such time in advance of the meeting as circumstances permit in
the judgment of the person calling the meeting.
(b) At any such meeting of the Board of Directors, a quorum shall
consist of the number of directors in attendance at such meeting.
(c) The Board of Directors, either before or during any such
emergency, may, effective in the emergency, change the principal office or
designate several alternative principal offices or regional offices, or
authorize the officers so to do.
(d) The Board of Directors, either before or during any such
emergency, may provide, and from time to time modify, lines of succession in the
event that during such an emergency any or all officers or agents of the
corporation shall for any reason be rendered incapable of discharging their
duties.
(e) No officer, director or employee acting in accordance with these
Emergency Bylaws shall be liable except for willful misconduct.
-17-
<PAGE>
(f) These Emergency Bylaws shall be subject to repeal or change by
further action of the Board of Directors or by action of the shareholders, but
no such repeal or change shall modify the provisions of the next preceding
paragraph with regard to action taken prior to the time of such repeal or
change. Any amendment of these Emergency Bylaws may make any further or
different provision that may be practical and necessary for the circumstances of
the emergency.
CERTIFICATE
-----------
I hereby certify that the foregoing Bylaws, consisting of 18 pages,
including this page, constitute the Bylaws of Septima Enterprises, Inc. adopted
by the Board of Directors of the corporation as of the 12th day of September,
1988.
[SIGNATURE APPEARS HERE)
----------------------------
Secretary
-18-
<PAGE>
ARTICLE XIV
-----------
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
------------------------------------------------------------
14.1 Insurance. The Board of Directors of the corporation, in its
---------
discretion, shall have authority on behalf of the corporation to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
the corporation as a director, partner, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would have the
power to indemnify him against such liability under the provisions of this
Article. The provisions of the following sections of this Article XIV shall
apply only in the event that no such insurance is in effect or, if such
insurance is in effect, only to the extent that matters for which
indemnification by the corporation is permitted by such sections are not within
the coverage of such insurance.
14.2 Action Against a Party Because of Corporation Position. The
------------------------------------------------------
corporation shall indemnify each officer or director, and may indemnify, in its
sole discretion, any employee or agent who was or is a party, or is threatened
to be made a party, to any threatened, pending, or completed claim, action,
suit, or proceeding, whether civil, criminal, administrative, or investigative
(other than an action by, or in the right of, the corporation) by reason of the
fact that he is or was a director, officer, employee, or agent of the
corporation, or is or was serving at the request of the corporation as a
director, partner, officer, employee, or agent of another corporation, a
partnership, joint venture, trust, or other enterprise against expenses
(including attorneys' fees), judgments, fines, and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding, including any appeal thereof, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
claim, action, suit or proceeding by judgment, order, settlement or conviction,
or upon a plea of nolo contendere or its equivalent shall not, of itself, create
a presumption that such person did not act in good faith and in a manner which
he reasonably believed to be in, or not opposed to, the best interests of the
corporation or, with respect to any criminal action or proceeding, had
reasonable cause to believe that
<PAGE>
his conduct was unlawful.
14.3 Action by or in the Right of Corporation. The corporation shall
----------------------------------------
indemnify any officer or director, and may indemnify, at its sole discretion,
any employee or agent who was or is a party, or is threatened to be made a
party, to any threatened, pending, or completed claim, action or suit by or in
the right of the corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, partner, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such claim, action, or suit,
including any appeal thereof, if he acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made in respect of any
claim, issue, or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
corporation unless, and only to the extent that, the court in which such claim,
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
such court shall deem proper.
14.4 Reimbursement if Successful. To the extent that the director,
---------------------------
officer, employee, or agent of the corporation has been successful on the merits
or otherwise in defense of any claim, action, suit, or proceeding referred to in
Section 14.2 or Section 14.3 of this Article XIV, or in defense of any claim,
issue, or matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith, notwithstanding that he had not been successful (on the merits or
otherwise) on any other claim, issue, or matter in any such claim, action, suit
or proceeding.
14.5 Authorization. Any indemnification under Section 14.2 or Section 14.3
-------------
of this Article XIV (unless ordered by a court of competent jurisdiction) shall
be made by the corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because he met the applicable standard of conduct
set forth in Section 14.2 or Section 14.3 of this
<PAGE>
Article XIV. Such determination shall be made:
(a) By a majority vote of a quorum of the Board of Directors;
however, for the purposes of this Subsection, a quorum shall consist of
directors who are or were not parties to such action, suit or proceeding; or
(b) If such quorum is not obtainable, or even if obtainable, by a
majority vote of a committee duly designated by the Board of Directors (in which
directors who are parties may participate) consisting soley of two or more
directors who were not at the time parties to the proceeding;
(c) By independent legal counsel who are (i) selected by the Board of
Directors prescribed in paragraph (a) or the committee prescribed in paragraph
(b); or (ii) if a quorum of the directors cannot be obtained for paragraph (a)
and the committee cannot be designated under paragraph (b), selected by majority
vote of the full Board of Directors (in which directors who are parties may
participate);
(d) By the shareholders by a majority vote of a quorum consisting of
shareholders who are or were not parties to such action, suit or proceeding, or,
if no such quorum is obtainable, by a majority vote of shareholders who were not
parties to such action, suit or proceeding.
14.6 Advance Reimbursement. Expenses, including attorneys' fees, incurred
---------------------
in defending a civil or criminal action, suit, or proceeding shall be paid to
officers and directors, and, in its sole discretion, may be paid to agents and
employees by the corporation in advance of the final disposition of such action,
suit or proceeding, upon a preliminary determination, following one of the
procedures set forth in Section 14.5 of this Article XIV, that the director,
officer, employee or agent met the applicable standard of conduct set forth in
Section 14.2 or Section 14.3 of this Article XIV, or as authorized by the Board
of Directors in the specific case and, in either event, upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to repay
such amount unless it shall ultimately be determined that he is entitled to be
indemnified by the corporation as authorized in this Article.
14.7 Further Indemnification. Indemnification as provided in this Article
-----------------------
shall not be deemed exclusive. The corporation shall
<PAGE>
make any other further indemnification of any of its directors, officers,
employees or agents that may be authorized under any statute, rule or law,
provision of Articles of Incorporation, agreement, vote of shareholders or
disinterested directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, except
an indemnification against gross negligence or willful misconduct. Where such
other provision provides broader rights of indemnification than these Bylaws,
such other provision shall control.
14.8 Continuing Right of Indemnification. Indemnification as provided in
-----------------------------------
this Article shall continue as to a person who has ceased to be a director,
officer, employee, or agent, and shall inure to the benefit of the heirs,
executors, and administrators of such a person.
14.9 Limitation on Indemnity and Reimbursement. Notwithstanding any other
-----------------------------------------
provisions of this Article, in the event that the Board of Directors determines
in good faith that the action giving rise to a claim for indemnity or expense
reimbursement is the result of gross negligence or willful misconduct upon the
part of the claimant, no such indemnity or expense reimbursement shall be
provided by the corporation.
<PAGE>
- --------------------------------------------------------------------------------
[PICTURE APPEARS HERE]
NOT VALID UNLESS COUNTERSIGNED BY TRANSFER AGENT
INCORPORATED UNDER THE LAWS OF THE STATE OF COLORADO
CUSIP NO. 817319 30 4
[SEAL APPEARS HERE]
Septima Enterprises, Inc.
AUTHORIZED COMMON STOCK: 25,000,000 SHARES
NO PAR VALUE
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
- Shares of Septima Enterprises, Inc. common stock -
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid until countersigned by the Transfer Agent and registered by the
Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
---------------------------
[COLORADO CORPORATE SEAL OF SEPTIMA ENTERPRISES, INC.]
/s/ [SIGNATURE APPEARS HERE] /s/ [SIGNATURE APPEARS HERE]
- ------------------------------ ------------------------------
SECRETARY PRESIDENT
INTERWEST TRANSFER CO. INC. P.O. BOX 17136/SALT LAKE CITY, UTAH 84117
COUNTERSIGNED & REGISTERED
---------------------------------------------------
COUNTERSIGNED Transfer Agent Authorized Signature
<PAGE>
NOTICE: Signature must be guaranteed by a firm which is a member of a
registered national stock exchange, or by a bank (other than a saving
bank), or a trust company. The following abbreviations, when used in
the inscription on the face of this certificate, shall be construed as
though they were written out in full according to applicable laws or
regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship
and not as tenants in common
UNIF GIFT MIN ACT -- .................Custodian..............
(Cust) (Minor)
under Uniform Gifts to Minors
Act..........................
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, ________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
--------------------------------------
--------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
__________________________________________________________________________Shares
of the capital stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
-------------------
---------------------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER
<PAGE>
NOTE
----
$500,000.00 Albuquerque, New Mexico
September 9, 1996
FOR VALUE RECEIVED, SEPTIMA ENTERPRISES, INC., a Colorado corporation,
hereinafter called the "Undersigned", promises to pay to the order of SPARK
MANAGEMENT CORPORATION, a Pennsylvania corporation, hereinafter called "Lender",
its successors and assigns, in lawful money of the United States of America, the
principal sum of FIVE HUNDRED THOUSAND and 00/100 ($500,000.00) DOLLARS or such
lesser amount as may be outstanding, together with interest at the rate of ten
(10%) percent per annum, payable as follows:
Interest only at the rate of ten (10%) percent per annum upon the
unpaid principal balance, payable annually on the 1st day of
September, 1997, and upon the 1st day of September each and every
year thereafter until the 1st day of September, 2000, when the entire
balance owing shall become due and payable, with the privilege to the
Undersigned of making any payments upon the unpaid principal balance
or of paying the entire balance owing at any time, without penalty.
Any such prepayments shall not postpone the due date of any
subsequent installments or change the amount of such installments
unless the Lender shall otherwise agree in writing. Provided further,
that in the event of default as defined in the Loan Agreement as of
even date herewith, all sums due hereunder will immediately become
due and payable at Lender's option.
The Undersigned empowers any attorney of any court of record within
the United States of America, or elsewhere, after default, and after adequate
notice to the undersigned of all proceedings to appear for the Undersigned, and
after one or more declarations filed, confess judgement against the Undersigned
as of any term, for the above sum with costs of suit and attorney's commission
of ten percent (10%) for collection and releases of all errors, and without stay
of execution and inquisition and extension upon any levy on real estate is
hereby waived, and condemnation agreed to and the exemption of personal property
from levy and sale on any execution herein is also hereby expressly waived, and
no benefit of exemption be claimed under and by virtue of any exemption under
law now in force or which may be hereafter passed.
SEPTIMA ENTERPRISES, INC.
By: /s/ R. Edwin Morgan
------------------------------------
Name: R. Edwin Morgan
-------------------------------
Title: President
------------------------------
Notary: Lillian G. Werntz
Commission Expires: July 23, 1997
<PAGE>
SECURITY AGREEMENT
This SECURITY AGREEMENT ("the Agreement") is given this 9th day of
September, 1996, by SEPTIMA ENTERPRISES, INC., a Colorado corporation ("Debtor")
in favor of SPARK MANAGEMENT CORPORATION, a Pennsylvania corporation ("Lender").
Preliminary Statements
----------------------
Debtor and Lender have entered into a Loan Agreement dated as of the date
of this Agreement (the "Loan Agreement") pursuant to which Lender has agreed to
loan, in its sole judgment and discretion, up to $500,000.00 to Debtor. To
secure payment and performance of all of its obligations under the Loan
Agreement, Debtor has agreed to grant a continuing security interest to Lender
in all of its assets and properties as described in this Agreement. Capitalized
terms used in this Agreement but not otherwise defined herein shall have the
meanings given them in the Loan Agreement.
Agreement
---------
In consideration of the financial accommodations provided by the Lender in
favor of Debtor, Debtor hereby agrees as follows:
1. Security Interest. For value received, and in consideration of
-----------------
financial accommodations made by Lender, Debtor hereby pledges, assigns and
grants to Lender a security interest in all Accounts, Inventory, Equipment, and
General Intangibles (all as defined below) of Debtor, whether now owned or
existing or hereafter acquired or arising, and any modifications, amendments,
extensions or renewals thereof, wherever located, and all cash and non-cash
proceeds thereof (the "Collateral") to secure all of Debtor's Obligations (as
defined below). For the purposes hereof, the following terms shall have the
following meanings in addition to any meanings ascribed to such terms by the
Uniform Commercial Code in effect in the State of Florida ("UCC"):
1.1 "Accounts" means all accounts, accounts receivable,
receivables, amounts due or to become due under contracts (whether earned or to
be earned by further performance), all rights to the payment for goods or
services sold or leased, all rights to the payment or receipt of money or other
form of consideration of any kind, guarantees, letters of credit and the rights
to receive payment thereunder, tax refunds, insurance proceeds, contract rights,
notes, drafts, chattel paper, instruments, documents, bills, acceptances,
chooses in action, and all other debts, obligations, and liabilities in whatever
form now or hereafter owing to Debtor, now existing or hereafter acquired or
arising, or in which Debtor has or hereafter acquires any rights, and all cash
and non-cash proceeds of the foregoing (including all returned and repossessed
goods and rights of stoppage in transit and of recovering possession by
proceedings including replevin and reclamation), together with all customer
lists, books and records, ledger and account cards, computer tapes, computer
software, disks, printouts and records, whether now existing or hereafter
created, relating to Accounts. "Account Debtor" means the person obligated to
pay an
<PAGE>
Account (whether comprised of an account, instrument, document, chattel paper,
general intangible, or otherwise).
1.2 "Inventory" means any and all goods held for sale or lease or
furnished under contract for service, or being processed for sale or lease or
furnishing under contract for service whether now owned or hereafter acquired by
Debtor, or in which Debtor has or hereafter acquires any rights, wherever
located, and whether or not in Debtor's possession or held by others for
Debtor's account, including without limitation parts, products, wares,
materials, piece goods, raw materials, work in process, finished merchandise,
and supplies, goods, incidentals, office supplies, packaging materials and items
of every nature and description which might be used or consumed in the
manufacture, packing, shipping, advertising, selling, leasing or furnishing of
finished goods, or otherwise used or consumed in Debtor's business, all finished
goods and other tangible property now owned or hereafter acquired (including
acquisitions by return, repossession, or otherwise) and held for sale or lease
or furnished under contracts for service or used or consumed in Debtor's
business, supplies customarily classified as inventory, all returned or
repossessed goods, all products of and accessions to Inventory and all documents
(including documents of title under the UCC) covering Inventory, and all cash
and non-cash proceeds of the foregoing (including insurance proceeds).
1.3 "Equipment" means all goods of Debtor other than Inventory,
including; without limitation, all equipment, machinery, furniture, furnishings,
fixtures, whether now owned or hereafter acquired, or in which Debtor has or
hereafter acquires any rights, wherever located, including without limitation
supplies customarily classified as equipment, trade fixtures and all other
tangible personal property utilized in the conduct of Debtor's business
(regardless of whether the same is subject to Article 9 of the UCC or whether
the same constitutes a "fixture"), parts, supplies, apparatus, appliances,
tools, patterns, molds, dies, blueprints, fittings and accessories related
thereto, all replacements or substitutions therefor, and improvements,
accessories and appurtenances thereto, and all cash and non-cash proceeds of the
foregoing (including insurance proceeds), including motor vehicles.
1.4 "General Intangibles" means all "general intangibles" as that
terms is defined in the UCC, regardless of whether also included in other types
of Collateral or constituting proceeds of other Collateral, whether now owned or
hereafter acquired or arising, or in which Debtor now has or hereafter acquires
any rights, including without limitation all causes of action, corporate or
business records, goodwill, inventions, designs, patents, patent applications,
copyrights, copyright applications, trademarks, service marks, trade names,
trademark and service mark registrations and applications, and including all
income, royalties, damages and payments with respect thereto (including without
limitation damages for past or future infringements thereof and the right to sue
or otherwise recover for any present or future infringements thereof, together
in each case with the goodwill of the business connected with and symbolized by
such trademark or service mark) (such patents, copyrights, trademarks, service
marks, trade names, and related intangibles collectively, the "Intellectual
Property Collateral"), licenses, permits, franchises, customer and subscriber
lists, computer programs, computer software, partnership interests, claims under
guaranties, tax refund claims, rights and claims
2
<PAGE>
against carriers and shippers, leases, claims under insurance policies, rights
to indemnification and all other intangible personal property of every kind and
nature other than Accounts.
2. Obligations Secured. The term "Obligation" or "Obligations" as used
-------------------
herein shall include, without limitation, all liabilities and obligations of
Debtor to Lender arising under or relating to this Agreement, the Loan Agreement
or any other loan document, however and whenever incurred or evidenced, whether
primary, secondary, direct, indirectly incurred in connection with enforcing or
collecting any of the Obligations or Lender's rights under the Obligations,
absolute, contingent, sole, joint or several, arising prior to the date hereof
or in connection herewith, or which may be hereafter contracted or acquired, or
incurred directly or indirectly in respect thereof, and all extensions or
renewals thereof and all sums payable under or by virtue thereof, including,
without limitation, all amounts of principal and interest and all expenses
incurred or paid by Lender in enforcing the Obligations or this Agreement or
preserving any right of Lender thereunder or hereunder including, without
limitation, all costs of collection and attorneys' fees and disbursements.
3. Representations and Warranties. Debtor represents and warrants, and
------------------------------
as long as any Obligations remain outstanding shall be deemed to continuously
represent and warrant, to Lender that:
3.1 Debtor is the owner of the Collateral free and clear of all
liens, encumbrances, security interests and adverse claims whatsoever, except in
respect of the security interest granted herein, and all Collateral is located
at Debtor's place of business.
3.2 No financing statement or other lien instrument covering all or
any part of the Collateral is on file or of record in any public office, except
as set forth on Exhibit "A" attached hereto (the "Permitted Encumbrances"), or
as any be filed in connection herewith.
3.3 To the best knowledge of Debtor: (i) the Accounts represent,
and each Account arising hereafter will represent, the valid and legally
enforceable indebtedness of a bona fide Account Debtor, (ii) each agreement,
instrument, document or item of chattel paper evidencing an Account is in full
force and effect without amendment or modification and is binding upon and
enforceable against the obligor thereon in accordance with its terms and (iii)
no set off, counterclaim, or defense to the Accounts exists and no agreement has
been made with any person under which any deduction or discount may be claimed,
except regular discounts allowed by Debtor for prompt payments or payments in
cash.
3.4 With respect to the Intellectual Property Collateral, to the
best knowledge of Debtor, Debtor owns or has the right to use, and holds free
from burdensome restrictions or conflicts with the rights of others, the
Intellectual Property Collateral necessary to conduct its business as now
conducted, and is in full compliance with the terms and conditions thereof and
any agreements relating thereto.
4. Covenants. Debtor hereby agrees that:
---------
3
<PAGE>
4.1 Debtor will not, without the prior written consent of Lender,
borrow from anyone except Lender on the security of the Collateral, or otherwise
permit any liens, encumbrances, security interests or adverse claims to exist
against or with respect to the Collateral.
4.2 Debtor will not, without the prior written consent of Lender,
assign, transfer, sell, rent or otherwise dispose of all or any part of the
Collateral (other than Inventory, which may be sold only in the ordinary course
of business).
4.3 Debtor will promptly notify Lender of any change in its corporate
name, the name under which it does business (if different), the location of its
chief executive office or the location of the office where Debtor's books and
records are kept, and of all new locations of any portion of the Collateral.
4.4 Debtor will keep accurate and complete records of the Accounts.
4.5 Debtor will collect and enforce payment of the Accounts in the
ordinary course of business consistent with its prior business practices. Upon
the occurrence of an Event of Default, Debtor will fully and promptly cooperate
with and assist Lender (or any other person Lender shall designate) in the
collection of the Accounts and shall follow the direction of Lender with respect
thereto. Upon the occurrence of an Event of Default, any proceeds of Accounts
collected by Debtor will, upon the request of Lender, be immediately delivered
to Lender in the form received except for necessary endorsements to permit
collection.
4.6 Upon reasonable request of Lender, Debtor will promptly:(i) mark
its records evidencing its Accounts in a manner satisfactory to Lender so as to
show the same have been assigned to Lender; (ii) upon the occurrence of an
Event of Default give Lender separate assignments, in form acceptable to Lender,
of specific Accounts or groups of Accounts, and of monies due or to become due
under specific contracts; and (iii) furnish Lender with a schedule (in such form
and content as Lender may from time to time specify or require) of Debtor's
Inventory and Accounts, together with such other information relating thereto as
Lender may specify or require;
4.7 Debtor will promptly pay and discharge when due all taxes, levies,
assessments, license fees and other charges on the Collateral.
4.8 Debtor will provide immediate notice to Lender of the occurrence of
any event which would materially and adversely affect the value of the
Collateral.
4.9 Upon the occurrence of an Event of Default, at Lender's request,
Debtor shall deliver to Lender any and all Collateral.
4.10 Debtor will keep and maintain the Collateral in good operating
condition and repair, so that the value and operating efficiency thereof shall
at all times be maintained and
4
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preserved (excepting only obsolescence through normal wear and tear) and will
give prompt written notice to Lender of any loss or damage to the Collateral.
4.11 Debtor shall have and maintain with financially sound and reputable
insurers, with reasonable deductibles, insurance reasonably satisfactory to the
Lender covering the Collateral against loss due to fire, theft and such other
risks and hazards as are customarily insured against and as required by Lender.
4.12 Debtor will permit, and will instruct any third party having
possession of or maintaining any of the Collateral to permit Lender or its
nominee to inspect and examine the Collateral and check and test the same as
Lender may reasonably request from time to time, all at Debtor's expense.
4.13 Debtor will use its best efforts to defend the Collateral against the
claims and demands of all persons other than Lender at any time claiming the
same or any interest therein.
4.14 Debtor authorizes Lender to file, in jurisdictions where this
authorization will be given effect, a financing statement signed only by Lender
in its own name or on Debtor's behalf describing the Collateral in the same or
similar manner as it is described herein, and from time to time at the request
of Lender, Debtor will execute one or more financing statements and such other
documents (and pay the cost of recording the same in all public offices deemed
necessary or desirable by Lender) and do such other acts and things, all as
Lender may request, to establish and maintain a valid perfected first priority
security interest in the Collateral (free of all other liens and claims
whatsoever except for Permitted Encumbrances), and shall deposit with Lender any
certificates of title issuable with respect to the Collateral with notation
thereon of the security interest of Lender hereunder.
5. Events of Default. The following shall constitute events of default
-----------------
("Events of Default") hereunder:
5.1 The occurrence of any Event of Default as defined in the Loan
Agreement.
5.2 The loss, theft, damage or destruction of any material portion of the
Collateral for which there is either no insurance coverage or for which, in the
reasonable opinion of Lender, there is insufficient insurance coverage.
5.3 The making of any levy, seizure or attachment upon any of the
Collateral which is material to the operation of Debtor's business and which has
not been discharged, stayed, bonded or reserved for in accordance with United
States generally accepted accounting principles on Debtor's balance sheets
within 20 days after the imposition of such levy, seizure or attachment.
5
<PAGE>
5.4 Any representation or warranty made by Debtor in this Agreement
or any report, certificate, financial statement or other information provided by
or on behalf of Debtor to Lender in connection herewith that is false or
misleading in any material respect.
6. Rights and Remedies. Lender shall have, in addition to any other
-------------------
rights and remedies contained in this Agreement, the Loan Agreement or any other
agreements, instruments or documents executed by Debtor and delivered to Lender,
all the rights and remedies of a secured party under the UCC or any other
applicable law in force in the State of Florida as of the date hereof, or as
subsequently amended, all of which rights and remedies shall be cumulative and
nonexclusive. Lender shall have the right to exercise any or all of its rights
and remedies, at its option, from time to time. Without limiting the generality
of the foregoing:
6.1 Upon the occurrence of an Event of Default or any event which
with notice or lapse of time or both would constitute an Event of Default,
Lender, and any officer or agent of Lender, may, unless otherwise provided
herein, at any time and from time to time exercise any of the following rights,
and in connection therewith, is hereby constituted and appointed as true and
lawful attorney-in-fact of Debtor with powers to do so:
6.1.1 Notify or require Debtor to notify any and all Account
Debtors or other parties against which Debtor has a claim under the
Collateral that such Collateral has been assigned by Debtor and that Lender
has a security interest therein and, if desired by Lender, that all
payments should be made to Lender;
6.1.2 Endorse the name of Debtor upon any instruments of
payment (including payments made under any policy of insurance) that may
come into the possession of Lender in full or part payment of any amount
owing to Lender;
6.1.3 Sell, assign, demand, sue for, collect, compromise or
settle payment of all or any part of the Collateral in the name of Debtor
or in its own name, or make any other disposition of the Collateral or any
part thereof, which disposition may be for cash, credit or any combination
thereof, or make exchanges, substitutions, surrenders or discharges of any
of the Collateral;
6.1.4 Purchase all or any part of the Collateral at public or,
if permitted by law, private sale, and in lieu of actual payment of such
purchase price, set off the amount of such price against the Obligations;
and
6.1.5 Do all things necessary to carry out this Agreement.
Debtor hereby grants to Lender, as the attorney-in-fact of Debtor,
full power of substitution and full power to do any and all things necessary to
be done in and about the premises as fully and effectually as Debtor might or
could do but for this appointment, and hereby ratifies all that said
attorney-in-fact shall lawfully do or cause to be done by virtue hereof.
Neither Lender nor its agents shall be liable for any acts or omissions or for
any error of
6
<PAGE>
judgment or mistake of fact or law in its capacity as such attorney-in-fact,
except for its gross negligence or willful misconduct. This power of attorney is
coupled with an interest and shall be irrevocable until the Obligations have
been paid in full and all commitments to lend have been terminated.
6.2 Upon the occurrence of an Event of Default, Lender may at any
time thereafter, declare any or all Obligations to be due and payable.
6.3 Upon the occurrence of an Event of Default, Lender may direct
the disposition of the Collateral and any other collateral for the Obligations,
and the enforcement of any guaranties of the Obligations, in such order or
manner as Lender may in its sole discretion determine.
6.4 Upon the occurrence of an Event of Default, Lender shall have
the right to enter and remain upon the premises of Debtor, without any
obligation to pay rent to Debtor or others, or any other place or places where
any of the Collateral is located or kept, and; (i) remove Collateral therefrom
to the premises of Lender or any agent of Lender, for such time as Lender may
desire, in order to maintain, sell, collect and liquidate the Collateral; or
(ii) use such premises, together with materials, supplies, books and records of
Debtor, to maintain possession of and the condition of the Collateral, and to
prepare the Collateral for sale, liquidation or collection.
6.5 Upon the occurrence of an Event of Default, Lender may require
Debtor, at Debtor's expense, to assemble the Collateral and make it available to
Lender at a place to be designated by Lender.
7. Setoff. Debtor hereby grants to Lender a continuing lien and security
------
interest for the Obligations upon any and all monies, securities and other
property of Debtor, and the proceeds thereof, now or hereafter held or received
by or coming into the possession of Lender. Upon the occurrence of an Event of
Default, Lender is hereby authorized at any time and from time to time, without
notice to Debtor, to set off, appropriate and apply any or all items hereinabove
referred to against the Obligations, pursuant to such continuing lien.
8. Costs and Expenses. Debtor shall pay or reimburse Lender for all of
------------------
its reasonable costs and expenses incurred in connection with the perfection of
the security interest granted herein, any costs and expenses incurred by Lender
upon an Event of Default or an event which with notice or the passage of time
would constitute an Event of Default, and any costs and expenses incurred in the
collection, enforcement or preservation of any rights under this Agreement,
including without limitation, the reasonable fees and disbursements of counsel
for Lender, including attorneys' fees and expenses at all tribunal levels.
7
<PAGE>
9. Miscellaneous.
-------------
9.1 Lender shall have no duty with respect to the collection or
protection of the Collateral or the proceeds thereof, nor with respect to the
preservation of any related rights, beyond the use of reasonable care in the
custody and preservation of any Collateral in the possession of Lender. Debtor
shall take all steps necessary to preserve rights against prior parties with
respect to any of Debtor's property in the possession of Lender. Without
limiting the generality of the foregoing, Debtor releases Lender from all claims
for loss or damage caused by any failure to collect any Account or by any act
or omission on the part of Lender, its officers, agents and employees, except
willful misconduct or gross negligence.
9.2 This Agreement shall be governed by, and construed and
interpreted in accordance with, the laws of the State of Florida, excluding
those laws relating to the resolution of conflicts between laws of different
jurisdictions.
9.3 In the event that any one or more of the provisions of this
Agreement is determined to be invalid, illegal or unenforceable in any respect
as to one or more of the parties, all remaining provisions nevertheless shall
remain effective and binding on the parties and the validity, legality and
enforceability thereof shall not be affected or impaired thereby.
9.4 No delay or omission by Lender in exercising any right or
remedy under this Agreement or otherwise afforded by law or equity shall operate
as a waiver of that right or remedy or of any other right or remedy and no
single or partial exercise of any right or remedy shall preclude any other or
further exercise of that or any other right or remedy.
9.5 All rights and remedies of Lender hereunder, under the Loan
Agreement and under any other loan documents are cumulative, and are not
exclusive of any rights or remedies provided by law or in equity, may be pursued
singularly, successively, or together, and may be exercised as often as the
occasion therefor shall arise.
9.6 This Agreement may not be modified or amended nor shall any
provision hereof be waived except by a written instrument signed by the party
against whom such action is sought to be enforced.
9.7 This Agreement shall be binding upon and inure to the benefit
of Lender, its successors and assigns, and shall be binding upon Debtor and its
respective heirs, legal
8
<PAGE>
representatives, successors and assigns; provided, however, that no rights or
obligations of Debtor hereunder may be assigned without the prior written
consent of Lender.
IN WITNESS WHEREOF, the undersigned has duly executed this Agreement
through its authorized officers as of the date first written above.
WITNESSES: SEPTIMA ENTERPRISES, INC.
[SIGNATURE APPEARS HERE] By: /s/ R. Edwin Morgan
- --------------------------------- ---------------------------------
R. Edwin Morgan
Commission Expires July 23, 1997 President
- ---------------------------------
9
<PAGE>
MASTER LICENSING AGREEMENT
--------------------------
THIS AGREEMENT dated this 10th day of September, 1996, by and between Spark
Management Corporation (hereafter referred to as "LICENSOR"), a Pennsylvania
corporation having its principal place of business as 600 Depot St., Latrobe,
Pennsylvania 15650, and Septima Enterprises, Inc. (hereafter referred to as
"LICENSEE"), a Colorado corporation having a registered office c/o Corporation
Service Company, 1560 Broadway, Denver, Colorado 80202.
WITNESSETH
----------
WHEREAS LICENSOR is the owner of certain developments, information,
proprietary rights and trade secrets relating to certain ignition systems for
initiating the combustion of fuel, including various component parts thereof,
(collectively referred to as IGNITION SYSTEMS AND PROCESSES); is possessed of
valuable research experience, technical data, confidential information and
know-how relating to the IGNITION SYSTEMS AND PROCESSES (hereafter collectively
referred to as the "IGNITION TECHNOLOGY"); is the owner of patent applications
for United States and foreign patent applications relating to the IGNITION
TECHNOLOGY that are listed on the appended Exhibit "A" hereto (hereafter
collectively referred to as the "PATENT RIGHTS"); and
WHEREAS LICENSEE desires to acquire, and LICENSOR is willing to grant, the
rights and licenses hereinafter described upon the terms and conditions
hereinafter set forth;
NOW THEREFORE, in consideration of the promises, grants, covenants and
obligations hereinafter set forth and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, LICENSOR AND
LICENSEE do hereby mutually agree as follows:
ARTICLE I
DEFINITIONS
-----------
The following terms, when used, shall have the following respective
meanings in the Agreement:
Section 1.1 Terms Defined:
-------------
In the terms defined herein and used throughout this Agreement, the
singular shall include the plural and vice versa.
Section 1.2 IGNITION SYSTEMS AND PROCESSES:
------------------------------
The term "IGNITION SYSTEMS AND PROCESS" shall mean the process of
developing an electrical are channel and/or the systems and devices which are
designed to efficiently transfer electrical source energy to a combustion
source, including various component parts thereof, including, but not limited
to, high voltage capacitors and methods for producing ignition systems.
Section 1.3 IGNITION TECHNOLOGY:
-------------------
The term "IGNITION TECHNOLOGY" shall mean those methods and applications
having to do with pulse power transmissions, development and usage with ignition
systems and processes.
1
<PAGE>
Section 1.4 Products:
--------
The term "Products" means (1) those Products manufactured by LICENSEE, and
(2) unless the context indicates otherwise, all spare and replacement parts for
those Products.
Section 1.5 Inserts:
-------
The term "Inserts" means each Products sub-assembly as manufactured by
LICENSEE.
Section 1.6 Know-How:
--------
The term "Know-How" shall in general have its usual and accepted meaning.
Section 1.7 Licensed Know-How:
-----------------
The term "Licensed Know-How" shall mean all know-how relating to the
technology, including the IGNITION SYSTEMS AND PROCESSES and IGNITION
TECHNOLOGY, which know-how is:
(a) Existent now, or
(b) During the period starting at the effective date of this Agreement and
is in the possession of the LICENSOR or licensed to the LICENSEE with the right
to grant further sublicenses.
Section 1.8 Licensed Patents Rights:
-----------------------
The term "Licensed Patents Rights" shall mean the worldwide rights obtained
under any and all patents and patent applications throughout the world covering
inventions, which inventions, at the effective date of this Agreement, are
owned or controlled by the LICENSOR and licensed to the LICENSEE with the right
to grant further sublicenses in the field; said inventions being directed to the
making, using or selling of the product or products in the field, as well as,
any and all divisions, continuations, continuations-in-part, re-examination and
reissues, of all such patents and patent applications as well as patents of
addition and importation and registration patents of all such patents and patent
applications. These patents and patent applications specifically include, but
are not limited to, those listed in Schedule "A" attached hereto. The Licensed
Patents Rights shall also include the worldwide rights to any and all patents
and patent applications directed to inventions which during the period
commencing at the effective date of this Agreement and continuing during the
life of this Agreement. Said inventions being directed to the making, using or
selling of the product or products in the field, as well as any and all
divisions, continuations, continuations-in-part, reexamination and reissues of
all such patents and patent applications as well as patents of addition, and
importation and registration patents of all such patents and patent
applications.
Section 1.9 Valid Claim:
-----------
The term "Valid Claim" shall mean a claim in an unexpired patent or a claim
in a patent application included within the Licensed Patent Rights hereunder and
which claim has not been disclaimed or held invalid by an unappealable decision
of a court or other authority of competent jurisdiction.
Section 1.10 Gross Sales:
-----------
The term "Gross Sales" shall mean the adjusted gross invoice price billed
by LICENSEE or related companies or sublicensees thereof.
2
<PAGE>
Section 1.11 Sublicensee:
-----------
The term "Sublicensee" shall mean any company and/or individual which has
obtained a right under the license of the LICENSEE to either manufacture and/or
market the product or products on either a territorial or a worldwide basis.
ARTICLE II
WARRANTIES
----------
Section 2.1
LICENSOR hereby warrants and represents that is has the right to grant the
licenses herein granted under the Licensed Patent Rights and Licensed Know-How;
that to the best of its knowledge, there are no known outstanding claims or
licenses or other encumbrances upon such patents and Licensed Know-How which
would prevent such grants; that the current patents or patent applications,
presently constituting the Licensed Patent Rights are those listed in Schedule
"A" attached hereto and that the LICENSOR is not in the possession of any
information which would, in its opinion, render any of the claims of any of
these patents or patent applications invalid and/or unenforceable.
Section 2.2
LICENSOR hereby warrants and represents that it has no knowledge of any
patents, other than those included in the Licensed Patent Rights and those
currently owned by LICENSEE, which would prevent the LICENSEE from making, using
or marketing the product or products in the field.
Section 2.3
LICENSOR hereby warrants and represents that it has the full right and
authority to grant to the LICENSEE the licenses granted herein under Licensed
Know-How and to grant to the LICENSEE the rights herein granted to use said
existing Licensed Know-How, and further warrants and represents that it is aware
of no claim in or to the License Know-How, nor any impediment to its agreement
to disclose and to grant to the LICENSEE the rights herein granted to use
existing and further Licensed Know-How.
Section 2.4
Each of the parties hereto warrants and represents to the other that is has
the full right and authority to enter into this Agreement, and that is not aware
of any impediment which would inhibit its ability to perform the terms and
conditions imposed upon it by this Agreement.
Section 2.5
Each party warrants and represents that it has disclosed to the best of its
ability information in its possession or control which would be material to the
other party entering into this Agreement, and to the best of its knowledge such
information does not contain any untrue statements of a material fact or omit to
state a material fact. In particular, LICENSOR warrants and represents that to
the best of its knowledge and ability, it has supplied to LICENSEE with any and
all information in its possession and control concerning the current patents,
patent applications, manufacturing plans, costs associated with manufacturing,
sales and marketing information and any other material and/or documents
3
<PAGE>
relevant to the product and/or products.
ARTICLE III
GRANT OF RIGHTS
---------------
Section 3.1 Grant:
-----
In return for 450,000 shares of Septima Enterprises, Inc. common stock, no
par value, LICENSOR hereby grants and assigns to LICENSEE during the entire term
of this Agreement, unless sooner terminated as hereinafter provided, all rights
and licenses to (i) receive disclosure of and use the IGNITION TECHNOLOGY, and
the methods and processes included in the IGNITION SYSTEMS AND PROCESSES, in
connection with the manufacture, sale and use of the product and/or products
included in the IGNITION SYSTEMS AND PROCESSES, and (ii) make, have made, use
and sell said ignition system and practice and methods and processes included in
the IGNITION SYSTEMS AND PROCESSES, under the patent rights, to the extent that
the latter cover the same and within the field of use for which a license is
granted under this Agreement.
Section 3.2 Reimbursement Costs:
-------------------
In addition to other payments set forth herein and as additional
consideration, LICENSEE hereby agrees to reimburse LICENSOR for any and all
out-of-pocket costs associated with the transfer of technology, as agreed upon
between the LICENSEE and the LICENSOR. These costs would include but not be
limited to salary costs, transportation, per diem, etc. These costs will be
billed monthly and due within thirty (30) days of billing.
Section 3.3 Scope of License:
----------------
The rights and licensed granted to LICENSEE under Section 3.1 hereof shall
extend to and therein be exclusive for any and all applications and markets
involving the IGNITION TECHNOLOGY, IGNITION SYSTEMS AND PROCESSES.
Section 3.4 Past Due Payments:
-----------------
In addition to the requirements of Section 12.1, this Agreement may only be
assigned upon payment of any past due royalties and reimbursements.
Section 3.5 Licensed Territory:
------------------
The rights and licenses granted herein to LICENSEE under Section 3.1 hereof
shall be worldwide.
Section 3.6 Sublicenses:
-----------
LICENSEE shall (as long as all payments are current) have the exclusive
right to grant sublicenses under this Agreement, without the written permission
of the LICENSOR, except that sublicenses to manufacture IGNITION SYSTEMS AND
PROCESSES require the written permission of LICENSOR. In the event that the
LICENSEE grants a sublicense to a third party(s), then all of the terms and
conditions of this Agreement shall apply to such sublicensee to the same extent
as they apply to the LICENSEE. The LICENSEE assumes responsibility for the
performance of all obligations so imposed on any sublicensees under this
Agreement and will itself pay and account to LICENSOR for any and all royalties
due under this Agreement which may accrue by reason of the action or operations
of such sublicensees thereof.
Upon termination of this Agreement, all sublicenses shall be terminated.
Every
4
<PAGE>
sublicensing agreement will contain a provision that the sublicense is
immediately terminated, without notice, upon termination of this Agreement.
ARTICLE IV
GRANT BACK TO LICENSOR
----------------------
Section 4.1 Technical Information and Improvements:
--------------------------------------
LICENSEE agrees, during the term of this Agreement, to provide LICENSOR in
writing with all technical information developed or acquired by LICENSEE
relating to the IGNITION TECHNOLOGY and IGNITION SYSTEMS AND PROCESSES and the
improvements or enhancements thereof, and to communicate to LICENSOR all of such
information and data obtained therefrom and thereby, including all new
inventions conceived during the life of this Agreement.
Section 4.2 Developments and/or Improvements Made:
-------------------------------------
LICENSEE agrees to disclose to LICENSOR any developments or improvements
which it may make in the IGNITION SYSTEMS AND PROCESSES or IGNITION TECHNOLOGY
designed or suggested either by LICENSOR or LICENSEE, to permit the LICENSOR to
have the exclusive right to use such technical information, improvements and/or
developments of Section 4.1 hereof throughout the world. LICENSEE agrees to
cooperate with LICENSOR in obtaining a patent or patents on any such
improvements and/or developments which may be patentable during the term of this
Agreement.
Section 4.3 Cost of Patent Protection:
-------------------------
As additional consideration, LICENSEE agrees to pay any and all costs
associated with applying for, prosecuting and obtaining patents covering
licensed IGNITION SYSTEMS AND PROCESSES and IGNITION TECHNOLOGY. If LICENSEE
does not approve reimbursement for enhancements, then this license will exclude
those enhancements and LICENSOR shall be free to license those enhancements to
others.
Section 4.4 Annual Fee for Maintaining Patent(s):
------------------------------------
LICENSEE agrees to pay any and all costs associated with the annual
maintenance fees covering said patents developed during the term of this
Agreement on a worldwide basis.
ARTICLE V
ROYALTIES
---------
Section 5.1 Royalty Fees:
------------
LICENSEE shall pay LICENSOR every three months during the life of this
Agreement, a sum equal to:
a. One Dollar ($1.00) for each Product and/or Insert sold which LICENSEE
manufactures, has made for it, uses or sells and which forms a part of the
IGNITION SYSTEMS AND PROCESSES or which incorporates IGNITION TECHNOLOGY, until
one (1) million aggregate Products and/or Inserts are sold; fifty cents ($.50)
for each Product and/or Insert sold on the next million aggregate units, and
twenty five cents ($.25) for each Product and/or Insert sold thereafter.
5
<PAGE>
ARTICLE VI
RECORDS AND REPORTS
-------------------
Section 6.1 Records
-------
LICENSEE agrees to keep accurate records in sufficient detail to enable
the royalties payable by LICENSEE hereunder to be determined, and agrees to
permit said records to be examined, at LICENSOR's expense, from time-to-time
during the life of this Agreement, and for one year after the expiration and
termination thereof, by authorized representatives of LICENSOR at reasonable
intervals, during usual business hours to the extent necessary to verify the
reports and payments hereunder. LICENSEE also agrees to be responsible to make
available the record of all sublicensees.
Section 6.2 Reports and Payments:
--------------------
LICENSEE agrees to furnish written reports to LICENSOR at its offices at
600 Depot St., Latrobe, Pennsylvania 15650 within ninety days after the first of
January, April, July and October of every calendar year during the life of this
Agreement, setting forth the number (by category) and selling prices (including
total gross sales) or Products and/or Inserts thereof either made or sold
hereunder during the preceding quarter and the royalties due thereon. Each
report shall separately state: (1) the number and type of Products and/or
Inserts manufactured and (2) the number and type of Products and/or Inserts
billed, and gross sales for each type of Products and/or Inserts and total gross
sales. Each report shall be accompanied with remittance as provided for in
Section 5.1 hereof covering the royalties then due.
ARTICLE VII
SECRECY
-------
Section 7.1 Secrecy
-------
All information made available hereunder shall be kept confidential by
the recipient hereof and by its subsidiaries and, without the prior written
consent of the party furnishing the same, shall not be divulged to others unless
it is published or otherwise in the public domain. Nothing herein contained,
however, shall be construed as preventing LICENSEE from conducting visitors
through its plants.
LICENSEE shall keep secret LICENSOR IGNITION SYSTEMS AND PROCESSES and
IGNITION TECHNOLOGY in any way communicated by LICENSOR to LICENSEE.
ARTICLE VIII
INFRINGEMENT AND LITIGATION
---------------------------
Section 8.1
If during the term of this Agreement there be any substantial and
continuing infringement of any of the LICENSED PATENTS by a third party who
makes, uses, leases or sells a product covered by a claim within LICENSEE's
commercial activities which directly compete with LICENSEE's commercial
activities under this Agreement, the LICENSEE shall have the right to institute
and prosecute promptly and with due diligence any and all such actions against
infringers of any LICENSED PATENT. Said costs of any such actions to prosecute
infringers of any of the LICENSED PATENTS under this Agreement shall be shared
equally between both the LICENSOR and the LICENSEE. Should the LICENSOR not be
in
6
<PAGE>
a position to financially assist in the prosecution of any such actions of
infringement, at the time any such infringements occur, then the LICENSEE shall
have the sole and separate right to prosecute such actions and be reimbursed
from the Royalty payments due to LICENSOR under this Agreement (unless
reimbursed from proceeds of litigation as set forth below). Any proceeds of
such litigation will be divided equally between the parties after reimbursement
for costs of litigation to the party advancing said costs. The equal division
will be made regardless of the characterization of the settlement of damages so
that the damages will be divided equally after reimbursement of expenses
regardless of whether the damages or settlement involve lost profit, royalties,
etc.
ARTICLE IX
TERMINATION
-----------
Section 9.1 General
-------
Unless terminated or canceled as otherwise provided herein, this
Agreement shall terminate ten (10) years following the expiration of the last to
expire patent included in THE PATENT RIGHTS, including any subsequently issuing
patents covering IGNITION SYSTEMS AND PROCESSES or IGNITION TECHNOLOGY acquired
by LICENSOR.
Section 9.2 Termination by LICENSOR:
-----------------------
LICENSOR shall have the right to terminate this Agreement, at any time,
by giving LICENSEE prior written notice as provided in paragraph 9.5 of its
intent to do so in the event of the following:
Inability or failure of LICENSEE to meet its obligations hereunder;
Section 9.3 Termination by LICENSEE:
-----------------------
LICENSEE shall have the right to terminate this Agreement, at any time,
by giving LICENSOR prior written notice as provided in paragraph 9.5 of its
intent to do so in the event of the following:
Inability or failure or LICENSOR to meet its obligations hereunder.
Section 9.4 Cancellation and/or Termination:
-------------------------------
Such cancellation and/or termination of this Agreement will release the
parties hereto form all liabilities under this Agreement, but shall not release
the LICENSEE from any obligation to pay royalties or other payments that may
have accrued prior to the effective date of termination of this Agreement.
Section 9.5 Failure to Comply with Obligations:
----------------------------------
Failure by one party to comply with any of the respective obligations and
conditions in this Agreement shall entitle the other party to give the party in
default written notice requiring it to make good such default. If such default
is not remedied in all material respects within thirty (30) days after receipt
of such notice of default, the notifying party shall be entitled, without
prejudice to any of the other rights conferred on it by this Agreement, to
terminate this Agreement by giving written notice to take effect immediately,
provided, however, that there shall be no default hereunder, if failure to
perform an obligation results from Force Majeure as provided for in this
Agreement. That right of either party to terminate this Agreement shall not be
affected in any way by its waiver of or failure to take action with respect to
any previous default.
7
<PAGE>
Section 9.6 Failure of Either Party:
-----------------------
The failure of either party to exercise or enforce any right granted to it
in this Agreement shall not be deemed to be a waiver of such right or operate to
bar the exercise of enforcement thereof at any time or times thereafter.
Section 9.7 Failure of Other Agreements:
---------------------------
This Agreement shall terminate immediately and without notices in the event
that;
a. LICENSEE loses its claim that the Distribution Agreement between
Worldwide Associates and LICENSEE is null and void; or
b. LICENSOR does not exercise its option pursuant to the Option Agreement
between LICENSOR and Cottonbloom, Inc.; or
c. the Note between LICENSOR and Douglas J. Wood and Daniel S. Wood is in
default and LICENSOR becomes totally owned by Douglas J. Wood and Daniel S.
Wood.
ARTICLE X
LIMITATIONS
-----------
Section 10.1 Disclaimer:
----------
Except as otherwise provided, nothing contained in this Agreement shall be
construed as a warranty or representation by LICENSOR as to the validity or
scope of any patent. This Agreement shall be construed as an admission by
LICENSEE of the validity of the patents including THE PATENT RIGHTS during the
term of this Agreement.
ARTICLE XI
PATENT MARKING
--------------
Section 11.1 Patent Marking:
--------------
LICENSEE agrees to affix to each device or apparatus made, used or sold by
it, or to the package containing such device or apparatus, an appropriate notice
indicating the license by LICENSOR, and the number of any patents falling within
THE PATENTS which covers such device or apparatus.
ARTICLE XII
ASSIGNMENT
----------
Section 12.1 Assignment
----------
This Agreement may be assigned without restriction by LICENSOR. This
Agreement may be assigned by LICENSEE, upon ten (10) days prior written notice
to and written approval of LICENSOR, to a financially responsible person or
entity as long as all payments herein are current.
8
<PAGE>
ARTICLE XIII
DISCLAIMER OF LIABILITY
-----------------------
Section 13.1 Disclaimer of Liability:
-----------------------
The sole obligation of LICENSOR with respect to the IGNITION SYSTEMS AND
PROCESSES and IGNITION TECHNOLOGY shall be to furnish such information to the
LICENSEE, except as otherwise provided herein. LICENSOR shall have no
responsibility for the ability of the LICENSEE to use such information, the
quality or performance of the license to materially produce therefrom by
LICENSEE or the claims of third parties arising from the use of such material or
information.
ARTICLE XIV
NON WAIVER PROVISION
--------------------
Section 14.1 Non Waiver Provision:
--------------------
The waiver by either party hereto of any right hereunder or failure to
perform or breach by the other party shall not be deemed as a waiver of any
other right hereunder or of any other breach or failure by said other party
whether of a similar nature or otherwise.
ARTICLE XV
FORCE MAJEURE
-------------
Section 15.1 Force Majeure:
-------------
If either party shall be delayed, interrupted in or prevented from the
performance of any obligation hereunder by reason of Force Majeure, including an
Act of God, fire, flood, war (declared or undeclared), public disaster, strike
or labor differences, governmental enactment, rule or regulation, or any other
cause beyond such party's control, such party shall not be liable to the other
therefore; and the time for performance of such obligation shall be extended for
a period equal to the duration of the contingency which occasioned the delay,
interruption or prevention. The party invoking such Force Majeure rights of this
Agreement must notify the other party by registered letter within a period of
fifteen (15) days, from the first and the last day of the Force Majeure unless
the Force Majeure renders such notification impossible in which case
notification will be made as soon as possible. If the delay resulting from the
Force Majeure exceeds three (3) months, the injured party may terminate the
contract as per the conditions stipulated in this Agreement.
ARTICLE XVI
NOTICE
------
Section 16.1 Notice:
------
Unless required under this Agreement to be hand delivered, all notices
required or authorized to be given hereunder shall be served by registered mail,
postage prepaid, or by telex or cable or facsimile, charges prepaid to the
addresses set forth below or such other addresses as any of the parties hereto
may, from time-to-time, designate by notice in writing to others. Any notice so
served shall be deemed to have been received on the day next following the day
on which such notice is telexed, cabled or facsimilied, or in three (3) days
after such notice is dispatched by mail:
9
<PAGE>
LICENSOR: LICENSEE:
Spark Management Corporation Septima Enterprises, Inc.
600 Depot St. c/o Corporation Service Company
Latrobe, Pennsylvania 15650 1560 Broadway
Denver, Colorado 80202
ARTICLE XVII
ARBITRATION
-----------
Section 17.1 Arbitration:
-----------
Any controversy or claim arising out of or relating to this Agreement, or
the breach thereof, shall be settled by arbitration in Florida, in accordance
with then current Commercial Arbitration Rules of the American Arbitration
Association. Arbitration shall be by one arbitrator. The Association is
authorized to make arrangements for this arbitration, to be held under these
rules in Florida or as otherwise agreed upon by the parties. This Agreement
shall be enforceable and judgement upon any award rendered by all the
arbitrator may be entered in any court having jurisdiction thereof.
In any controversy involving the termination of this Agreement, demand for
arbitration must be made by the aggrieved party within thirty (30) days of the
termination of the Agreement or the right to object to the termination shall be
waived.
ARTICLE XVIII
LIABILITY INSURANCE COVERAGE/HOLD HARMLESS
------------------------------------------
Section 18.1 Liability Insurance Coverage/Hold-Harmless:
------------------------------------------
LICENSEE shall purchase (or provide through a sub-license) at its sole
expense a broad form of liability insurance with limits of liability of not
less than $5,000,000 per occurrence. Said insurance policy shall be of broad
form but to specifically include coverage for products liability.
LICENSEE hereby agrees to purchase (or provide through a sub-license) and
provide, as soon as possible after the date of this Agreement, a copy of said
liability insurance coverage to LICENSOR. Said policy of liability insurance
will also name LICENSOR as a co-insured. LICENSEE further agrees to defend and
hold harmless the LICENSOR from any and all liability for defects of said
product and/or products manufactured in accordance with the IGNITION SYSTEMS AND
PROCESSES and the IGNITION TECHNOLOGY.
ARTICLE XIX
MISCELLANEOUS
-------------
Section 19.1 Entire Agreement:
----------------
This Agreement constitutes the entire agreement between the parties hereto
with respect to the within subject matter and supersedes all previous
agreements, whether written or oral. This Agreement shall not be changed or
modified orally.
10
<PAGE>
Section 19.2 Nothing in this Agreement:
-------------------------
Nothing in this Agreement shall be construed to constitute, create, give
effect or otherwise imply a joint venture, partnership or formal business
organization of any kind between the parties.
Section 19.3 No Partnership Created:
----------------------
No employee or representative of either party shall have any authority to
bind or obligate the other party for any sum whatsoever, or to create or impose
any contractual or other liability on said other party, without said other
party's authorized written approval. Nothing contained in this Agreement, or
otherwise, shall constitute the parties as partners with one another or render
either liable for the debts or accounts of the other party. The fact that the
parties may share facilities or other resources for mutual benefit shall not be
construed to establish a partnership.
Section 19.4 Agreement Binding:
-----------------
This Agreement and the rights and licenses herein granted shall be binding
upon and shall inure to the benefit of the parties hereto. This Agreement
constitutes the entire Agreement between the parties hereto with respect to the
subject matter contained herein.
Section 19.5 Governing Law:
-------------
This Agreement will be construed and interpreted in accordance with the
laws of the State of Florida.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
in triplicate by their duly authorized representatives on the day and year first
above written.
SPARK CORPORATION SEPTIMA ENTERPRISES, INC.
By: /s/ Louis S. Camilli By: /s/ R. Edwin Morgan
------------------------------- -------------------------------
Louis S. Camilli, President R. Edwin Morgan, President
STATE OF NEW MEXICO )
) ss.
COUNTY OF BERNALILLO )
On this the 10th day of September, 1996, before me the undersigned,
personally appeared Louis S. Camilli and R. Edwin Morgan, known to me to be the
person whose name is subscribed to in this instrument and acknowledged to me
that he executed the foregoing instrument for the purposes therein contained.
/s/ [SIGNATURE APPEARS HERE]
-------------------------------
Notary Public
My commission expires:
July 23, 1997
- -----------------------------
11
<PAGE>
EXHIBIT "A"
Patent Application Number 95119282.5 as filed with the CCPIT Patent Office
in Beijing, China.
Patent Applications in process in Mexico City DF at the Mexico PTO. Patent
Application titled "Current Peaking and RFI Choke Device."
Any Patent Application with the United States Patent & Trademark Office
derived from and substantially identical to the Chinese Application No.
95119282.5 titled, "Current Peaking and RFI Choke Device."
Process technology relating to the design requirement of the tooling
necessary to injection mold the base polymer around and encasing the central
positive plate of the capacitive ignition device as referred to in the above
patent applications.
12
<PAGE>
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT made as of the 1/st/ day of September 1996 by and between Septima
Enterprises, Inc., a Colorado corporation (hereinafter called the "Company"),
and R. Edwin Morgan (hereinafter called the "Employee").
WHEREAS, the Company has determined that it would be desirable and in the
best interests of the Company to retain the services of the Employee and to
promote stability among key officers, and the Employee wishes to continue to be
employed by the Company;
NOW, THEREFORE, in consideration of the mutual promises herein contained,
and for other good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the Company and the Employee agree as follows:
1. Employment. The Company agrees to continue to employ the Employee as
----------
its President and Chief Executive Officer, and the Employee agrees to continue
such employment, upon the terms and conditions hereinafter set forth.
2. Term. The term of this Agreement shall be for a period of one (1)
----
year, commencing on September 1, 1996, and concluding on August 30, 1997, and
shall be deemed to be automatically renewed for additional successive one (1)
year periods unless either party gives the other party written notice of
termination at least sixty (60) days prior to the end of each calendar year.
3. Compensation.
------------
(a) As compensation for the services hereunder, the Company shall pay
and the Employee shall accept an annual salary in an amount no less than
$120,000. Subsequent increases in base compensation or the implementation of
incentive compensation during the term of this Agreement shall not be considered
a modification of this Agreement. All amounts owing under this Section 3(a)
shall be payable at such times as the Company customarily pays its executive
officers.
(b) The compensation provided for in Section 3(a) shall be in addition
to any profit sharing, pension or retirement benefits, stock options, life
insurance, hospital and medical, disability, bonuses, incentive payments,
vacation, and other benefits made generally available by the Company now and/or
in the future to its executive officers. The Company shall also provide to the
Employee an automobile for his use in connection with its business at the
Company's sole cost. It is understood that the Employee shall be entitled to
all such additional benefits, and the existence of this Agreement shall neither
be deemed to preclude him from receiving them nor shall the termination of
employment during the term hereof or any extension of this Agreement be deemed
to deprive the Employee from said accrued right or rights to which the Employee
is otherwise entitled.
1
<PAGE>
4. Duties. The services to be rendered by the Employee during the term of
------
this Agreement shall be the normal duties of a president and chief executive
officer of a corporation in the Company's business. The Employee agrees to
devote his best efforts to perform his duties.
5. Expenses. The Company shall reimburse the Employee for travel,
--------
entertainment and other out-of-pocket expenses and disbursements which may be
incurred by the Employee in furtherance of the businesses of the Company upon
presentation by the Employee of expense statements or vouchers and such other
supporting information as the Company may request.
6. Termination by Company.
----------------------
(a) This Agreement may be terminated by the Company for due cause at
any time during the term of this Agreement. In that event, the Company shall be
obligated only to continue to pay to the Employee his compensation and vested
benefits (including, without limitation, vested retirement benefits) up to the
date of termination. For all purposes of this Agreement, "due cause" shall mean
personal dishonesty, willful misconduct, willful violation of any law, rule or
regulation (other than a law, rule or regulation relating to a traffic violation
or similar offense) or material breach of any provision of this Agreement.
(b) This Agreement may be terminated at any time by decision of the
Board of Directors of the Company for conduct not constituting due cause upon
thirty (30) days' written notice to the Employee. In that event, the Company
shall pay to the Employee all of his vested benefits (including, without
limitation, vested retirement benefits) on the date of termination, and the
Company shall be obligated to continue to pay the Employee for the remaining
term of this Agreement (i) his salary in an annual amount equal to the
Employee's annual salary during the year in which such termination occurs and
(ii) all other compensation referred to in Section 3(b) hereof (including,
without limitation, profit sharing, bonuses and insurance, but the Employee
shall not be entitled to any additional stock options or pension or retirement
benefits after the termination) in an annual amount equal to the aggregate
amount of such compensation received by the Employee during the twelve (12)
months immediately preceding the termination, such salary and other compensation
amounts to be paid in equal installments on the same schedule as if this
Agreement had not been terminated. In lieu thereof, the Employee may elect to
receive a lump sum payment of the outstanding amounts, such lump sum being
computed to present value by use of the interest rate payable on a 90 day
certificate of deposit which is in effect on the date of the termination of this
Agreement.
7. Termination by the Employee. This Agreement may be terminated by the
---------------------------
Employee at any time upon thirty (30) days' written notice to the Company, and
in that event the Company shall be obligated only to pay the Employee his base
compensation and vested benefits (including, without limitation, vested
retirement benefits) up to the date of
2
<PAGE>
termination, and all vested compensation and benefits shall be paid to the
Employee on the effective date of termination.
8. Change in Control of the Company. The Employee's rights under this
--------------------------------
Agreement shall not be prejudiced by the change in control, sale,
reorganization, merger, consolidation, liquidation, or other similar conditions
affecting the Company. The Company shall not transfer substantially all of its
stock or assets to or merge or consolidate with another organization unless such
organization either specifically assumes or ratifies in writing all of the
Company's duties and obligations under this Agreement. For all purposes under
this Agreement, the term "control" shall refer to the acquisition of ten (10)
percent or more of the voting securities of the Company by any person or persons
acting as a group within the meaning of Section 13(d) of the Securities Exchange
Act of 1934. The Term "person" refers to an individual, corporation, company or
other entity.
9. Agreement Authorized. The Company represents and warrants that this
--------------------
Agreement has been duly authorized by all necessary corporate action by the
Company.
10. Entire Agreement. This Agreement represents the entire understanding
----------------
and agreement between the parties with respect to the subject matter hereof and
supersedes all other negotiations, understandings and representations (if any)
made by and between such parties.
11. Amendments. The provisions of this Agreement may not be amended,
----------
supplemented, waived or changed orally but only by a writing signed by the party
as to whom enforcement of any such amendment, supplement, waiver or modification
is sought and making specific reference to this Agreement.
12. Binding Effect. All of the terms and provisions of this Agreement,
--------------
whether so expressed or not, shall be binding upon, inure to the benefit of, and
be enforceable by the parties and their respective administrators, executors,
legal representatives, heirs, successors and permitted assigns.
13. Notices. Any notice required or permitted to be given under this
-------
Agreement shall be deemed properly made if in writing and if delivered by hand
or if addressed and mailed by certified mail, return receipt requested, to its
principal office in the case of the Company or to the Employee's residence in
the case of the Employee or at such other address as either party may hereafter
designate by notice.
14. Headings. The headings contained in this Agreement are for convenience
--------
of reference only and shall not limit or otherwise affect in any way the meaning
or interpretation of this Agreement.
15. Severability. If any part of this Agreement or any other Agreement
------------
entered into
3
<PAGE>
pursuant hereto is contrary to, prohibited by or deemed invalid under applicable
law or regulation, such provision shall be inapplicable and deemed omitted to
the extent so contrary, prohibited or invalid, but the remainder hereof shall
not be invalidated thereby and shall be given full force and effect so far as
possible.
16. Governing Law and Venue. This Agreement and all transactions
-----------------------
contemplated by this Agreement shall be governed by and construed and enforced
in accordance with the internal laws of the State of Florida without regard to
principles of conflicts of laws. Venue of all proceedings in connection
herewith shall be in Palm Beach County, Florida.
17. Assignments. The Company shall not assign its rights under this
-----------
Agreement without the prior written consent of the Employee.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
Witnesses: SEPTIMA ENTERPRISES, INC.
/s/ Charlotte Darling
- -------------------------
By: /s/ Louis S. Camilli
- ------------------------- -------------------------------------
Louis S. Camilli, Director
/s/ Charlotte Darling /s/ R. Edwin Morgan
- ------------------------- -------------------------------------
R. Edwin Morgan
- -------------------------
4
<PAGE>
SEPTIMA ENTERPRISES, INC. EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Year Ended Month Ended Year Ended
June 30, June 30, May 31,
1997 1996 1996
--------------------------------------------------
<S> <C> <C> <C>
Net (loss) $ (447,649) $ (27,255) $ (172,304)
==================================================
Determination of shares:
Weighted average number of common
shares outstanding 8,185,218 7,785,629 7,785,629
Shares issuable on exercise of stock
options, net of shares assumed to
be repurchased * * *
--------------------------------------------------
Average common shares outstanding
for fully diluted computation 8,185,218 7,785,629 7,785,629
==================================================
Earnings per common share:
Primary $ (.05) $ (A) $ (.02)
Fully diluted (.05) (A) (.02)
</TABLE>
- ------------------------------------
*Shares not included in computation since effect is anti-dilutive.
(A) Less than $.01 per share.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 64,287
<SECURITIES> 0
<RECEIVABLES> 233,395
<ALLOWANCES> 0
<INVENTORY> 90,935
<CURRENT-ASSETS> 524,136
<PP&E> 0
<DEPRECIATION> 10,224
<TOTAL-ASSETS> 681,713
<CURRENT-LIABILITIES> 929,014
<BONDS> 0
0
0
<COMMON> 1,466,128
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 681,713
<SALES> 474,723
<TOTAL-REVENUES> 474,723
<CGS> 325,586
<TOTAL-COSTS> 149,137
<OTHER-EXPENSES> 596,786
<LOSS-PROVISION> (447,649)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (447,649)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (447,649)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 5,397
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,220
<PP&E> 0
<DEPRECIATION> 1,402
<TOTAL-ASSETS> 44,480
<CURRENT-LIABILITIES> 298,821
<BONDS> 0
0
0
<COMMON> 1,029,292
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 44,480
<SALES> 0
<TOTAL-REVENUES> 134
<CGS> 0
<TOTAL-COSTS> 27,389
<OTHER-EXPENSES> 27,389
<LOSS-PROVISION> (27,389)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,255)
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> MAY-31-1996
<CASH> 6,730
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 33,553
<PP&E> 0
<DEPRECIATION> 16,829
<TOTAL-ASSETS> 67,215
<CURRENT-LIABILITIES> 294,301
<BONDS> 0
0
0
<COMMON> 1,029,292
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 67,215
<SALES> 0
<TOTAL-REVENUES> 20,482
<CGS> 0
<TOTAL-COSTS> 192,786
<OTHER-EXPENSES> 192,786
<LOSS-PROVISION> (192,786)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (172,304)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
