FORM 10-QSB
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
--------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-18344
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SOONER HOLDINGS, INC.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Oklahoma 73-1275261
- --------------------------------------- -----------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2680 W. I-40, Oklahoma City, OK 73108
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(Address of principal executive offices)
Issuer's telephone number, including area code: (405) 236-8332
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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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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by court.
YES NO
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APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date: 7,471,350 shares of
common stock as of November 13, 1997.
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SOONER HOLDINGS, INC.
Consolidated Balance Sheet
(unaudited)
<TABLE>
<CAPTION>
Sept. 30,
1997
-----------
<S> <C>
ASSETS
Current assets:
Cash $ 5,251
Accounts receivable 3,724
Inventories, net 5,093
Prepaid expenses and deposits 1,780
-----------
Total current assets 15,848
Property and equipment, net 2,295,917
Other assets, net 29,815
===========
$ 2,341,580
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 26,669
Real estate taxes payable 17,099
Accrued liabilities to related parties 71,710
Accrued liabilities 32,266
Current portion of notes payable 374,053
-----------
Total current liabilities 521,797
-----------
Notes payable, less current portion 1,899,452
Commitments and contingencies --
-----------
Stockholders' deficit:
Preferred stock; undesignated, authorized 10,000,000 shares, no shares
issued and outstanding --
Common stock; $.001 par value, authorized 100,000,000 shares,
7,471,350 shares issued and outstanding 7,471
Additional paid-in-capital 5,497,907
Accumulated deficit (5,585,047)
-----------
Total stockholders' deficit (79,669)
-----------
$ 2,341,580
===========
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
2
<PAGE>
SOONER HOLDINGS, INC.
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
For the quarter ended For the nine months ended
September 30, September 30,
1997 1996 1997 1996
---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues $ 91,539 $170,821 $363,789 $436,310
---------------- --------------- ---------------- ---------------
Operating expenses:
Cost of products sold 279 1,391 899 3,039
General and administrative 41,069 81,272 127,485 171,952
Depreciation and amortization 15,001 24,296 44,853 62,805
Interest expense 51,249 57,476 176,352 171,644
---------------- --------------- ---------------- ---------------
Total operating expenses 107,598 164,435 349,589 409,440
---------------- --------------- ---------------- ---------------
Income (loss) from operations (16,059) 6,386 14,200 26,870
Other income (loss) 39,000 (17,370) 43,801 (17,370)
---------------- --------------- ---------------- ---------------
Income (loss) from continuing operations
22,941 (10,984) 58,001 9,500
Loss from discontinued operations - (561) - (47,757)
---------------- --------------- ---------------- ---------------
Net income (loss) $ 22,941 $ (11,545) $ 58,001 $ (38,257)
================ =============== ================ ===============
Net income (loss) per common share:
Income (loss) from continuing operations
* (*) * *
Loss from discontinued operations - (*) - (*)
================ =============== ================ ===============
Net income (loss) per common share $ * $ (*) $ * $ (*)
================ =============== ================ ===============
Weighted average common shares outstanding 7,471,350 6,412,528 7,471,350 6,412,528
================ =============== ================ ===============
</TABLE>
* less than $.01
The accompanying notes are an integral part of these
consolidated financial statements.
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<PAGE>
SOONER HOLDINGS, INC.
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
For the nine months ended
September 30,
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 58,001 $ (38,257)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 44,853 62,805
Loss on repossession of land -- 17,370
Stock received for payment of fees (39,000) --
Changes in assets and liabilities:
Accounts receivable (988) (151)
Inventories 362 1,429
Prepaid expenses and deposits (1,200) 1,127
Bank overdraft -- (5,500)
Accounts payable 5,062 37,975
Real estate taxes payable 10,200 11,251
Real estate taxes payable recourse to land -- 13,157
Accrued liabilities to related parties 67,895 65,101
Accrued liabilities 7,019 716
Deferred revenue (99,830) 195,027
Net liabilities of discontinued operations -- 43,799
--------- ---------
Net cash provided by operating activities 52,374 405,849
--------- ---------
Cash flows from investing activities:
Sale of land 1 --
Advances to Dynamicorp -- (30,000)
Purchases of property and equipment (8,875) (60,502)
--------- ---------
Net cash used in investing activities (8,874) (90,502)
--------- ---------
Cash flows from financing activities:
Repayments of notes payable (54,198) (334,157)
Borrowings on notes payable to related parties 13,300 20,499
--------- ---------
Net cash used in financing activities (40,898) (313,658)
--------- ---------
Net increase in cash 2,602 1,689
Cash at beginning of year 2,649 3,490
--------- ---------
Cash at end of period $ 5,251 $ 5,179
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 141,043 $ 140,967
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE>
SOONER HOLDINGS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 1997
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization and operations
Sooner Holdings, Inc., an Oklahoma corporation (Company), through its
subsidiaries, conducts business in several industries. Charlie O Business Park
Incorporated (Business Park) is engaged in the ownership and rental of a
business park in Oklahoma City, Oklahoma. Charlie O Beverages, Inc. (Beverages)
is engaged in the distribution of an in-home soda fountain appliance and
supplies for the preparation of carbonated beverages. SD Properties, Inc. (SDPI)
solicits and manages construction activities. New Directions Acquisitions Corp.
(NDAC), a newly formed subsidiary of the company, acquired an option to purchase
certain assets (see Note 2).
Basis of presentation
The unaudited consolidated financial statements presented herein have been
prepared by the Company, without audit, pursuant to the rules and regulations
for interim financial information and the instructions to Form 10-QSB and
Regulation S-B. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted. These unaudited consolidated
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1996 (1996 Form 10-KSB). In the opinion of
management, the unaudited consolidated financial statements reflect all
adjustments (consisting of normal recurring accruals only) which are necessary
to present fairly the consolidated financial position, results of operations,
and changes in cash flow of the Company. Operating results for interim periods
are not necessarily indicative of the results which may be expected for the
entire year.
Reclassifications
Certain reclassifications have been made in the 1996 financial statements to
conform with the 1997 presentation. These reclassifications do not have a
material effect on the consolidated financial statements.
Management Plans
For the past four fiscal years, the independent auditor's report included an
explanatory paragraph calling attention to a going concern issue. The
accompanying consolidated financial statements have been prepared contemplating
continuation of the Company as a going concern. The Company has sustained
recurring operating losses in recent years and is expected to need additional
amounts of working capital for its operations. At September 30, 1997, the
Company has a shareholders' deficit of $79,669 and has a working capital
deficiency of $505,949. In view of these matters, realization of a major portion
of the assets is dependent upon continued operations of the Company, which in
turn is dependent upon the Company's ability to meet its financing requirements
and the success of its future operations.
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Management of the Company is pursuing merger and/or acquisition opportunities.
Management believes it can successfully complete an acquisition or merger that
will enable the Company to continue as a going concern; however, there can be no
assurance that it will be successful in this endeavor.
NOTE 2 - OPTION TO ACQUIRE ASSETS
In September 1997, NDAC entered into an Option Agreement (the "Option") to
purchase all the assets of New Direction Centers of America, L.L.C. (NDA) and
Horizon Lodges of America, Inc. (HLA) (together the "Sellers"). The Sellers'
assets relate to a community corrections facility, or "halfway" house, operated
in Oklahoma City, Oklahoma. As consideration for the grant of the Option, NDAC
agreed to lend the Sellers $325,000 for costs directly related to the
rehabilitation of the facility. Pursuant to the Option Agreement, the exercise
price of the Option will be $1,725,000, plus (i) the assumption of a "royalty"
fee for the next 20 years of at least $6,000 per month due to the original
permitting owner, (ii) the assumption of the rehabilitation loan, and (iii)
1,000,000 shares of common stock of the Company. The president and chairman of
the Company, is a major lender to HLA and a major investor and lender in NDA.
The Option expires on January 31, 1998.
If the Company exercises the Option, it will provide the Company diversification
into a new business; however, there can be no assurance that the Company will be
successful in this endeavor or whether the Company can raise the capital
necessary to acquire the assets in accordance with the terms of the Option.
NOTE 3 - RELATED PARTY OBLIGATIONS
Related parties are more fully described in the 1996 Form 10-KSB. The table
below reflects the related party obligations as of September 30, 1997. In
addition, the president and chairman of the Company has personally guaranteed
$1,686,662 of the Company's notes payable.
L.T. Notes Accrued
Payable Liabilities
------- -----------
President and chairman $144,004 $ 32,827
Aztore and affiliates 287,430 38,883
-------- --------
Total related party liabilities $431,434 $ 71,710
======== ========
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NOTE 4 - COMMITMENTS AND CONTINGENCIES
In connection with the Option Agreement (see Note 2), NDAC has committed to lend
$325,000 to the Sellers. In addition, NDAC has entered into a contingent
contract with Mr. Ron Alexander, the current General Manager of NDA, who has
agreed to become the president of NDAC. The contract with Mr. Alexander, only if
NDAC exercises its Option, includes the grant of stock options for the purchase
of up to 1,200,000 shares of common stock of the Company at an exercise price of
$.05 per share. These options would vest over three years.
Item 2. Management's Discussion and Analysis or Plan of Operation
The following discussion should be read in conjunction with the Company's
financial statements and notes thereto included elsewhere in this Form 10-QSB
report. In addition, the discussion of the Company's expected Plan of Operation,
included in the 1996 Form 10-KSB, is incorporated herein in its entirety as the
discussion of the Plan of Operation as required by Item 303(a) of Regulation
S-B.
Liquidity and Capital Resources - September 30, 1997 (unaudited) compared to
September 30, 1996 (unaudited).
The Company has had severe liquidity problems for the last several years. The
Company's liquidity is reflected in the table below, which shows comparative
deficiencies in working capital. Current working capital has been primarily
supplied by the Company's chairman and president, by Aztore Holdings, Inc.
(Aztore), a Phoenix, Arizona investment company or by Aztore's other affiliated
companies.
September 30, Dec. 31, 1996
1997 1996 (audited)
---- ---- ---------
Deficiency in working capital $ (505,949) $ (500,249) $(686,011)
=========== =========== =========
Since December 31, 1996, the Company has been attempting to sell Beverages as a
going concern in order to yield a return on the Company's investment in tooling
and intellectual property. In anticipation of this sale, the Company wrote down
Beverage's inventory and assets to their estimated net realizable value as of
December 31, 1996.
Exclusive of funds required for debt repayment, the Company believes that it can
borrow any additional funds from its related parties to maintain its operations,
although there can be no assurance that such funds will be available when
needed. In the event that the Company cannot refinance, or obtain forbearance on
its current liabilities or on its long-term liabilities as they come due, the
Company will undoubtedly face further severe liquidity problems which may lead
to litigation, the inability to transact business, and/or foreclosure actions
being initiated against a majority of the Company's assets.
For the past few years, management has been pursuing merger and/or acquisition
opportunities. In September 1997, New Directions Acquisition Corp. (NDAC), a
newly formed subsidiary of the Company, entered into an Option Agreement (the
"Option") to purchase all the assets of New Direction Centers of America, L.L.C.
(NDA) and Horizon Lodges of America, Inc. (HLA) (together the "Sellers"). The
Sellers' assets relate to a community corrections facility, or "halfway" house,
operated in Oklahoma City, Oklahoma. As consideration for the grant of the
Option, NDAC agreed to lend the Sellers $325,000 for costs directly related to
the rehabilitation of the facility.
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Pursuant to the Option Agreement, the exercise price of the Option will be
$1,725,000, plus (i) the assumption of a "royalty" fee for the next 20 years of
at least $6,000 per month due to the original permitting owner, (ii) the
assumption of the rehabilitation loan, and (iii) 1,000,000 shares of common
stock of the Company. The president and chairman of the Company, is a major
lender to HLA and a major investor and lender in NDA. The Option expires on
January 31, 1998. If the Company exercises the Option, it will provide the
Company diversification into a new business; however, there can be no assurance
that the Company will be successful in funding this acquisition or whether the
Company can provide sufficient funding to maintain its Option.
NDA currently houses between 60 and 100 women under the control of the Oklahoma
Department of Corrections (ODOC). NDA recently expanded its available beds to
155. The $325,000 loan will be used for costs directly related to the
rehabilitation of the facility to qualify it for American Correctional
Association (ACA) accreditation and for expansion to accommodate 300 clients,
the maximum number for which the HLA facility is permitted by the ODOC.
The Company is still evaluating the structure of the acquisition since not all
of the NDA members agreed to the Option Agreement. Although NDAC believes that a
sufficient percent of the members (more than 50%) agreed to the grant of the
Option to sell the assets, there have been ongoing discussions with the NDA
members who did not sign. The fact that less than 100% of NDA members signed the
Option Agreement may make raising the amount of financing required to execute
the Option Agreement more difficult.
Results of Operations - The quarter and nine months ended September 30, 1997
(unaudited) compared to the quarter and nine months ended September 30, 1996
(unaudited)
The following table illustrates the Company's revenue mix.
Quarter ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
Business Park revenue $ 84,053 $ 83,021 $257,634 $239,733
SDPI revenue 7,000 86,202 104,830 192,834
Beverages revenue 486 1,598 1,325 3,743
-------- -------- -------- --------
Total revenue $ 91,539 $170,821 $363,789 $436,310
======== ======== ======== ========
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As a result of increases in occupancy related to rehabilitation of its
facilities, Business Park revenues rose $1,032 (1%) and $17,901 (7%) for the
quarter and nine months ended September 30, 1997, compared to the same quarter
and nine-month periods in 1996. At the end of the quarter the Business Park was
100% occupied. However, 35% of the Business Park leases expire during the next
twelve months. During the quarter, the Company successfully renegotiated eight
leases (or 25%) to three-year leases. Subsequent to September 30, 1997, the
Company lost one tenant that accounted for 24% of total revenues for Business
Park. This change in the Company's current tenants may have a negative impact on
the Company's profitability in the fourth quarter. Losses of tenants in the
future could affect future operations and financial position because of the cost
of new leasehold improvements and lower revenue due to any prolonged vacancy.
There is no assurance the Company's historically high occupancy rate will
continue.
SDPI revenues decreased by $79,202 (92%) and $88,004 (46%) for the quarter and
nine months ended September 30, 1997, compared to the same quarter and
nine-month periods in 1996. SDPI, a marketing representative for construction
contractors, had revenue growth during fiscal 1996 and early 1997 attributable
to entry into this new business. Although SDPI continues to evaluate
opportunities related to this business, additional revenues related to this
business are unlikely.
Total operating expenses for the quarter and nine months ended September 30,
1997 were $107,598 and $349,589, respectively, as compared to total expenses for
the comparable 1996 periods of $164,435 and $409,440, respectively. The decrease
in the 1997 expenses for the quarter and nine months was due primarily to a
decrease in general and administrative (G&A) expenses, consisting primarily of
professional and management fees. Also, in the 1996 periods there were costs
associated with the rehabilitation of the Business Park facilities that did not
occur in the comparable 1997 periods. In addition, in 1996 the Company wrote
down the Beverages assets to their estimated net realizable value, which
resulted in a decrease in depreciation expense in 1997. This decrease in
depreciation expense was offset by an increase in interest expense due to
increased borrowings.
Other income (loss) consists of gains totaling $43,801 for the 1997 periods.
These gains arose from the sale of the Company's interest in the land trust held
by SDPI ($4,801) and the sale of stock in On TV Incorporated (ONTV) acquired in
1994 ($39,000). The loss for the 1996 periods relates to the loss of certain of
SDPI's lots due to tax foreclosure sales. Loss from discontinued operations for
the 1996 periods relate to the divestiture of two of the Company's subsidiaries
in 1996 including the majority ownership of ONTV.
The Company recorded net income from continuing operations for the nine-month
period of 1997 of $58,001 as compared to net income of $9,500 for the comparable
1996 period. The increase in net income from continuing operations in 1997 was
due primarily to the sale of the land trust held by SDPI in 1997 thus
eliminating losses resulting from lots lost due to tax foreclosure sales.
9
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Capital Expenditures and Commitments
During the quarter and nine months ending September 30, 1997, the Company had
modest capital expenditures primarily for leasehold improvements at the Business
Park.
In order to consummate the NDAC Option Agreement as currently structured, the
Company will have to raise approximately $2,100,000 by January 31, 1998. Such
funds are expected to be raised by a combination of debt and equity. As
consideration for the Option, the Company has an interim-funding requirement of
$325,000, which is included in the above amount. This funding will only be
available for pre-approved rehabilitation expenses related to the facility.
There can be no assurance that the Company will be successful in this endeavor
or whether the Company can provide sufficient funding to maintain its Option.
Forward-looking statements
This Form 10-QSB, including all documents incorporated by reference, includes
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. All statements other than statements of
historical facts included in this Form 10-QSB (and in documents incorporated by
reference), including without limitation, statements under "Management's
Discussion and Analysis or Plan of Operation" regarding the Company's financial
position, business strategy and plans and objectives of management of the
Company for future operations, are forward-looking statements. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by this section.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not aware of any litigation either pending, asserted,
unasserted or threatened to which the Company or any of is subsidiaries is a
party or of which any of their property is the subject, except as follows:
During 1996, the Company was named as a defendant in a lawsuit. The
Company answered the suit in August 1996 and there has been no further activity.
The plaintiff alleges damages of approximately $100,000. The Company believes it
has no liability under this claim due to various defenses which it intends to
vigorously assert. However, such defense will likely cost the Company legal fees
and expenses which it may be unable to recover from the plaintiff.
The Company's Business Park operation occasionally has disputes with
tenants regarding its lease agreements. In the opinion of management, such
matters will be resolved without material effect on the Company's results of
operations or financial condition.
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Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
On July 3, 1997, Mr. David B. Talbot, Jr. resigned as a member of the
board of directors and as secretary of the Company. Mr. Talbot's resignation was
not the result of any disagreement on accounting principles or corporate
policies. Mr. R. C. Cunningham, III, 33, a mortgage broker in Washington, D.C.
and the son of the president and chairman, was appointed to succeed Mr. Talbot
on the board and was elected by the board to serve as secretary of the Company.
Item 6. Exhibits and Reports on Form 8-K
Page
----
10.1 Option Agreement by and between Sooner Holdings, Inc., New
Directions Acquisition Corp., New Direction Centers of
America, L.L.C., and Horizon Lodges of America, Inc. dated
September 9, 1997 E-1
11
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
SOONER HOLDINGS, INC.
----------------------------------------
(Registrant)
Dated: November 13, 1997
------------------------
By: /s/ R.C. Cunningham
----------------------------------------
R. C. Cunningham II, Chairman and
President
By: /s/ Lanny R. Lang
----------------------------------------
Lanny R. Lang, Treasurer
(Chief Accounting Officer)
12
OPTION AGREEMENT
----------------
(New Direction - Horizon Lodges - Sooner - Sooner Sub)
THIS OPTION AGREEMENT (the "Agreement") is entered into effective
September 9, 1997, by and among SOONER HOLDINGS, INC. ("Sooner"), an Oklahoma
corporation; N D ACQUISITION CORP. ("Sooner Sub"), an Oklahoma corporation; NEW
DIRECTION CENTERS OF AMERICA, A LIMITED LIABILITY COMPANY ("New Direction"), an
Oklahoma limited liability company; and HORIZON LODGES OF AMERICA, INC.
("Horizon Lodges"), an Oklahoma corporation.
IN CONSIDERATION of the representations, promises, undertakings, and
covenants set forth herein, the parties agree as follows:
This Agreement is not assignable and transferable by ND Acquisitions.
1. Representation by New Direction. New Direction represents as
follows:
1.1 New Direction is the permittee of a permit (the "Permit")
granted by the Oklahoma Department of Corrections ("ODOC") to operate a
pre-release program (the "Program") for up to 300 criminal offenders subject to
the authority of the ODOC and referred by ODOC to New Direction (the "Clients").
The Permit restricts the Program to activities conducted at and from a certain
facility (the "Facility") located on approximately 2.8 acres of land with
frontage of approximately 280 feet on North Lincoln Boulevard in Oklahoma City,
Oklahoma. The Facility is presently able to accommodate only 155 Clients, is not
accredited by the American Correctional Association (the "ACA"), and must be
rehabilitated at a cost of approximately $478,000 (i) to expand to accommodate
300 Clients and (ii) to obtain ACA accreditation.
1.2 New Direction leases the Facility from Horizon Lodges at a
monthly rental of $8,500.
1.3 New Direction's sole manager is Ron Alexander of Norman,
Oklahoma.
1.4 Attached as Schedule 1.4 is a true and complete list (i)
of New Direction's and Horizon Lodges' liabilities as of the date set forth
therein and (ii) of the ownership interests of all of New Direction's members
except certain employees who hold minor interests. Liabilities are variable due
to operations, subsequently a true and correct accounting will be
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issued on the day of closing. Ordinary expenditures creating liability will be
incurred only nominal offsetting.
1.5 Among the liabilities listed in Schedule 1.4 is an
obligation owed to Hal Rupert, a previous owner of the Permit, which obligation
is a one-month's portion of a 20-year obligation which is, itself, a continuing
participation in the revenues obtained through the exercise of the rights
granted by the Permit (the "Royalty Obligation").
2. Representations of Horizon Lodges. Horizon Lodges represents
as follows:
2.1 Horizon Lodges is the owner in fee simple of the Facility.
2.2 Attached as Schedule 2.2 is a true and complete list of
all mortgages, liens and other encumbrances attached to or operating as charges
on the Facility as of the date set forth therein.
2.3 Horizon Lodges leases the Facility to New Direction for a
monthly rental of $8,500.
3. Representations of Sooner. Sooner represents as follows:
3.1 Sooner has issued and there are outstanding approximately
7,400,000 shares of its Common Stock. Its Common Stock trades on the NASD OTC
Bulletin Board under the symbol "SOON".
3.2 Sooner Sub is a wholly owned subsidiary of Sooner.
4. Option. New Direction and Horizon Lodges (collectively, the
"Sellers") grant to Sooner Sub an option (the "Option") to acquire the Permit,
the Facility, and all other assets of the Sellers, real and personal, tangible
and intangible, related in any way to the enjoyment of the Permit and the
Facility.
5. Expiration of Option. The Option expires at 5:00 P.M.,
Oklahoma City time, on January 31, 1998, unless earlier exercised. Exercised
shall be interpreted as closing of the purchase. The transaction must be closed
on or before January 31, 1998.
6. Purchase Price for the Option. As consideration for the grant
of the Option, Sooner Sub agrees to lend $325,000, less $25,000 in prepaid
interest, to the Sellers (the "Rehabilitation Loan") subject to the following
provisions:
6.1 The Rehabilitation Loan shall:
6.1.1 have a three year term commencing on January
31, 1998;
6.1.2 bear interest at 10% per annum;
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6.1.3 be amortized starting on January 31, 1998 using
a ten year amortization schedule; requiring quarterly payments;
6.2 The principal amount of the Rehabilitation Loan shall be
advanced only for costs directly related to the rehabilitation of the Facility
to qualify it for ACA accreditation and for expansion to accommodate 300
Clients. The Sellers shall incur costs, in the respect, only after obtaining the
prior written approval of Sooner Sub to incur such costs, which approval shall
not be unreasonably withheld.
6.3 Said loan shall be secured by a second mortgage on the
property. Said loan shall be executed by the LLC, non-recourse to LLC Members
and no liability other than the property to the manager of the LLC.
7. Exercise Price of the Option. The exercise price of the Option
is as follows:
7.1 Assumption of the Rehabilitation loan.
7.2 Assumption of the Royalty Obligation.
7.3 $1,725,000.
7.4 1,000,000 shares of Common Stock of Sooner.
8. Closing. Should Sooner Sub exercise the Option, the closing of
this transaction (the "Closing") shall occur as follows:
8.1 The Closing shall occur in the office of Fuller, Tubb &
Pomeroy, 800 Bank of Oklahoma Plaza, Oklahoma City, Oklahoma 73102, and in the
Oklahoma County Courthouse at a time or times designated by Sooner Sub. Closing
shall be concluded on or before January 31, 1998. The closing shall be concluded
in the offices of a designated title company.
8.2 The parties shall first examine and approve the form of
the following documents:
8.2.1 Horizon Lodges' deed of the Facility to Sooner
Sub (the "Deed").
8.2.2 New Direction's assignment to Sooner Sub of the
Permit, approved by the Oklahoma Department of Corrections (the "Permit
Assignment").
8.2.3 The Sellers' assignments to Sooner Sub of all
other assets of the Sellers (the "Other Assignments").
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<PAGE>
8.2.4 Sooner Sub's cashier's checks (the "Cashier's
Checks") aggregating $1,725,000, for the extinguishment of all debt of the
Sellers and payments to members in accordance with Schedule 1.4(ii).
8.2.5 Sooner Sub's written evidence of its assumption
of the Royalty Obligation.
8.2.6 Evidence that Sooner's debt, denominated as
"L.T. Notes Payable" and in the amount of $462,693 as of June 30, 1997, either
(i) has been paid partially or in full, (ii) has been assumed by Sooner's real
estate subsidiary corporation, Charlie O Business Park, Inc., or (iii) has been
converted to Common Stock of Sooner at a conversion rate equal to the lower of
$0.20 a share or the market bid price of Sooner's Common Stock on the day before
the Closing.
8.3 A representative of each of the parties shall be stationed
in the Oklahoma County Courthouse in each of (i) the office of the Recorder of
Deeds and (ii) the office of the County Clerk, which representatives shall be in
cellular telephone contact with representatives of the parties in the offices of
Fuller, Tubb & Pomeroy.
8.4 At such time as the representatives of the parties can
ascertain that no mortgages, liens, or security interests have been filed as
charges on the Permit, the Facility, or the Sellers not acceptable to Sooner Sub
or to Sooner, the parties shall exchange the documents and instruments described
in paragraph 8.2 herein and the Deed and the Security Interest shall be filed
for recording in the offices of the Oklahoma County Recorder of Deeds and County
Clerk.
8.5 The parties agree that R.C. Cunningham II shall receive
back his $227,000 certificate of deposit pledged to support the loan from First
Enterprise Bank as soon as that bank is paid from the proceeds of the sale. The
parties will execute any documentation to effect this agreement.
9. Pre-Closing. Sellers agree to make available to Sooner, during
business hours, its books and records and access to the Facility and its
employees in order that Sooner can satisfy itself concerning the assets,
liabilities and business of New Directions.
10. Post-Closing. Subsequent to the Closing:
10.1 The parties shall each cooperate with the others to do
all acts and execute any required documents to carry out the intention of this
Agreement and to achieve the enjoyment by the parties of the fruits of their
bargains, which includes a requirement that the
4
<PAGE>
Sellers obtain an audit of their financial statements as required by Regulation
S-B of the Securities and Exchange Commission.
10.2 Sooner shall indemnify Ron Alexander and David Talbot,
Jr. for their legal fees up to $10,000 related to defending any claims asserted
regarding a note executed between Alexander and Tabot (as borrowers) and P.J.K.
Inc. as lender. Such claims are for reimbursement of reasonable legal fees.
N D ACQUISITION CORP SOONER HOLDINGS, INC.
By: /s/ R. C. Cunningham, II By: R. C. Cunningham, II
- ------------------------------------ -------------------------------------
R.C. Cunningham, II President R.C. Cunningham, II President
HORIZON LODGES OF AMERICA, INC. NEW DIRECTION CENTERS OF AMERICA, A
LIMITED LIABILITY COMPANY
By: /s/ Tim Moore By: /s/ Ron Alexander
- ------------------------------------ -------------------------------------
Tim Moore, President Ron Alexander, Manager
5
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Sep-30-1997
<EXCHANGE-RATE> 1
<CASH> 5,251
<SECURITIES> 0
<RECEIVABLES> 3,724
<ALLOWANCES> 0
<INVENTORY> 5,093
<CURRENT-ASSETS> 15,848
<PP&E> 2,715,597
<DEPRECIATION> 419,680
<TOTAL-ASSETS> 2,341,580
<CURRENT-LIABILITIES> 521,797
<BONDS> 0
0
0
<COMMON> 5,505,378
<OTHER-SE> (5,585,047)
<TOTAL-LIABILITY-AND-EQUITY> 2,341,580
<SALES> 363,789
<TOTAL-REVENUES> 363,789
<CGS> 899
<TOTAL-COSTS> 173,237
<OTHER-EXPENSES> (43,801)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 176,352
<INCOME-PRETAX> 58,001
<INCOME-TAX> 0
<INCOME-CONTINUING> 58,001
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 58,001
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
