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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
(Mark One)
[ ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee Required)
For the fiscal year ended ______________ or
[X] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from January 1, 1996 to June 30, 1996
Commission File No. 33-55254
ESSENTIAL RESOURCES, INC.
(Exact Name of Small Business Issuer in Its Charter)
Nevada 87-0485317
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
412 Pleasant Valley Way, Suite 205, West Orange, New Jersey 07052
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (201) 669-2809
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class Name of Each Exchange on Which Registered
___________________ _________________________________________
___________________ _________________________________________
___________________ _________________________________________
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter prior that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes No X
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Check if there is no disclosure of delinquent filers in response to
Item 405 of the Regulation S-B contained in this Form, and no disclosure will
be contained, to the best of issuer's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB |_|
The issuer's revenues for the transitional six-month fiscal year were
$2,340,671.
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock as of October 25, 1996 was $6,201,510.
As of October 25, 1996, there were 2,258,884 shares of Common Stock,
par value $.001 per share, outstanding.
Certain exhibits listed in Part IV have been incorporated by
reference. The index to exhibits appears on page 22.
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PART I
Item 1. Business
General
Essential Resources, Inc., through its wholly-owned
subsidiaries Collage International Health Pty Ltd. ("Collage International
Health"), Essential Nature Products Pty Ltd. ("Essential Nature Products") and
Essential Care USA, Inc. ("Essential Care USA") (collectively referred to
hereinafter as the "Company"), develops, markets and distributes a wide variety
of health, nutritional, beauty-aid and lifestyle products derived from the
extracts and tissues of Asian-Pacific region plants, flowers and animals. The
Company's products are sold primarily in Duty-Free and Specialty Tax-Free
Stores in the countries of Australia, New Zealand, Korea, Japan, Egypt, Qatar
in the Middle East and the United Kingdom under the trade names Mother
Nature(TM), Nature's Nest, Nature's Green and Munda. Recently, the Company has
expanded its marketing efforts to sell its products into additional geographic
markets, specifically the United States and to other distribution channels
including: chain drug stores, mass merchandisers, health, nutritional and
specialty food stores. The Company also seeks to sell to additional Duty-Free
and Specialty Tax-Free Stores in all countries in which such stores are
located.
The Company commenced active business operations in January
1996, having formed Collage International Health, an Australian corporation, to
acquire certain assets from Collage International Pty Ltd. ("Collage"),
consisting of inventories, receivables, plant and equipment and trade names in
exchange for the issuance of shares of the Company's common stock, $.001 par
value (the "Common Stock"). In January 1996, the Company also formed Essential
Nature Products, an Australian corporation, to formulate, market and distribute
certain of its newly-developed products. In September 1996, the Company created
Essential Care USA, a Nevada corporation, for the purpose of expanding the
development, marketing, promotion and sales of the Company's products in the
United States. Essential Nature Products also maintains an investment of 11.1%
in Queensland Essential Oils Ltd., an Australian corporation ("Queensland
Oils"), which grows, harvests and produces tea tree oil ("Tea Tree Oil") on
246.8 acres of leased land located in Queensland, Australia. Tea Tree Oil is an
essential ingredient in certain of the Company's newly developed products.
The Company's strategy for continued growth incorporates the
following key aspects: (i) the expansion of distribution through Duty-Free and
Specialty Tax-Free Stores, as well as the airline market worldwide; (ii)
broadening the Company's existing product line with complimentary and related
products which add value to the retailer and provide marketplace
differentiation; (iii) leveraging existing product lines by expanding
distribution channels; (iv) utilizing advanced technology to enhance product
quality and create marketplace advantages; (v) strategic raw material
acquisitions through, among other things, management and ownership of Tea Tree
Oil plantations; and (iv) recruiting talented, experienced executives, employees
and consultants.
The Company was incorporated in the State of Nevada on March
14, 1990, under the name Altara International, Inc., which was renamed
Zygon Corporation on July 25, 1995. In January 1996, the Company
changed its name to Essential Resources, Inc. and changed its fiscal
year end from December 31 to June 30. Its U.S. headquarters are
currently located at 412 Pleasant Valley Way, Suite 205, West Orange,
New Jersey 07052 and its U.S. telephone number is (201) 669-2809.
All dollar amounts referred to herein are in U.S. dollars and
all share amounts reflect a two-for-one forward split of the Common Stock
declared on August 26, 1996.
Products
All of the Company's current products are derived from
bee-related, fish-oil and flower-oil related formulations. Bee-related products
include (i) Royal Jelly, a specialized "food" produced in the glands of bees
which contains amino acids, vitamins, minerals, enzymes and other organic
elements; and (ii) Propolis Tincture, a beehive liquid product with
antibacterial properties which is used to accelerate the healing of burns,
wounds and skin infections. Fish-oil related products include (i) Squalene, a
natural substance produced in the
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livers of deep sea sharks which is used in cosmetics to soften skin, reduce
small facial wrinkles and as an antibacterial agent; (ii) EPA and DHA, two
fatty acids derived from aquatic plants and the fish that feed off such plants
which are used as dietary supplements to improve the functioning of human
cells; and (iii) Omega-3 Fish Oils. The Company also sells Evening Primrose
Oil, a flower-oil related product, used as a dietary supplement to relieve
symptoms relating to prostaglandin deficiency, including pre-menstrual syndrome
and to help in the healing of certain skin conditions.
Since January 1996, the Company, through its subsidiary
Essential Nature Products, has also been developing more than 72 formulations
for products utilizing Tea Tree Oil, an extract distilled from the Melaleuca
alternifolia plant which the Company believes has antiseptic, antibacterial and
antifungal properties. Tea Tree Oil is utilized in numerous consumer products
including household, pharmaceutical, cosmetics, toiletries and veterinary and
pet care products.
For the transitional six-month fiscal year ended June 30,
1996, substantially all of the Company's revenues were derived from the sale of
bee-related products, primarily Royal Jelly. The Company anticipates that the
number of products other than Royal Jelly sold by the Company, as a percentage
of total sales, will increase in Fiscal 1997 as a result of the marketing of
Tea Tree Oil products anticipated to commence in the Fall of 1996.
Bee-Related Products
Royal Jelly
The Company markets a wide variety of Royal Jelly products in
the Asian-Pacific region under the trade names Mother Nature(TM), Nature's
Nest, Nature's Green and Munda.
Royal Jelly is derived exclusively from the glands of worker
bees; it may not be duplicated by any human chemical processes. Each worker bee
has three glands: one which produces honey; another which converts honey into
wax: and a third which manufactures a milk-like secretion called Royal Jelly
(so named because it is the food of the Queen Bee throughout her life). For
three days after bee larvae hatch from their eggs, they consume Royal Jelly.
The egg which is to be the Queen Bee is placed in a large acorn-shaped cell,
while the egg which is to be a worker bee is placed in a cell about one-fifth
inch long. On the fourth day after hatching, the supply of Royal Jelly is cut
off from the larvae in the worker bees' cells. They continue to be reared on a
combination of pollen and nectar, while Royal Jelly is supplied to the Queen
Bee's cells throughout the larval stage and then, her entire life. As a result
of the steady diet of Royal Jelly, certain larvae which were initially
identical to all others become Queen Bees. According to industry experts, the
Queen Bee is much larger and heavier than the worker bee (the Queen Bee
measures 17 millimeters and weighs 200 milligrams as compared to 12 millimeters
and 125 milligrams for the worker bee). In addition, the Queen Bee has
significantly greater reproduction capacity and life expectancy (depending on
the season, the Queen Bee will lay from 2,000 to 2,400 eggs each day and will
live four to five years as compared to the 40 to 50 day life span of the
ordinary worker bee).
The Company believes, as do doctors and nutritionists who
advocate the ingestion of Royal Jelly, that Royal Jelly is an exceptional
nutritional supplement which can relieve stress, soothe digestive ailments,
strengthen the liver, alleviate insomnia, eliminate fatigue and increase
vitality. Its health-enhancing nutrients include pantothenic acid, a B-vitamin
which acts as a stress reducer; plentiful amounts of vitamins B-1, B-2, B-3,
B-6, B-12, biotin, folic acid and inositol; an ample supply of vitamins A, C, D
and E; the minerals calcium,
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copper, iron, phosphorous, potassium, silicon and sulphur; acetylcholine, a
compound required by nerve cells to function properly; protein in the form of
eight essential amino acids required by humans (which are not manufactured by
the body and can only be supplied by food); and antibiotic and antibacterial
properties. Research demonstrating the nutritional effects upon humans who
consume Royal Jelly has been noted in a number of international publications
and journals, including the Journal of Agriculture Research, American Bee
Journal and Proceedings of the XVII International Beekeeping Congress.
Royal Jelly is sold by the Company in a number of different
product forms and strengths; including softgel capsules (ranging from 500
milligrams to 1500 milligrams); freeze-dried powder (ranging from 75 grams to
150 grams); fresh Royal Jelly (up to 1 kilogram); frozen Royal Jelly; and
children's chewable "Koala Bear" tablets, as well as frozen Royal Jelly. The
Company also sells Royal Jelly cosmetic products such as face and hand creams
and lotions.
Propolis Tincture
The Company markets and sells Propolis Tincture, a
bee-related liquid antibiotic product which has been used as an antibiotic and
stimulant of the immune system to reduce the occurrence and severity of colds,
flu and throat infections. The Company believes that Propolis, which is derived
from the beehive, boosts immune systems thereby increasing resistance to
infection and illnesses and is a preventive supplement.
Propolis has also been recommended by practitioners of
natural medicine to treat conditions such as sore and irritated throats, gum
and teeth disorders, tonsillitis, colds, acne, skin irritations and
gastrointestinal infections. The Company believes that the antibacterial
properties of Propolis accelerate the healing of burns, wounds, broken bones
and skin infections, and helps arthritis and rheumatism. Propolis Tincture is
sold in 25 milliliter and 50 milliliter bottles under the trade name Mother
Nature(TM).
Fish-Oil Products
The Company's fish-oil related products consist of Squalene-based and
Omega-3 based products.
Squalene
Squalene is contained in deep-sea sharks, three species of
which live off the southern sea of Australia. Deep-sea sharks produce Squalene
in their livers which enable them to generate enough oxygen to overcome low
temperature, lack of oxygen and poor visibility in the deep sea. Squalene is
the mainspring of a shark's survival under a harsh and stressful deep-sea
environment.
The human body contains 5% to 8% of the Squalene substance
which helps to keep the skin moist and free of dryness. Insufficient Squalene
can often lead to rough skin susceptible to aging and dryness. Squalene is used
in cosmetic preparations to soften skin, reduce small facial wrinkles and as a
bacteriocidal agent. The Company also believes that a few drops of Squalene
applied to the skin will keep skin moist and wrinkle-free. Squalene has also
been used for accelerating the healing of wounds.
The Company believes that Squalene is valuable in the
prevention and treatment of arteriosclerosis and to improve the functioning of
kidneys and liver. Squalene is a 100% unsaturated fatty acid, rich in Vitamins
A and D, which the Company believes can lead to improved eyesight. It may also
provide oxygen to the brain, thus improving memory capacity and may be a good
nutrient for offsetting the strains of
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overwork and stress. Squalene is sold in 250 milligram and 1,000 milligram
bottles under the Mother Nature(TM) brand name.
EPA, DHA and Omega-3
Eicosapentaenoic acid ("EPA"), docosahexaeonoic acid ("DHA")
and Omega-3 are fatty acids found in high concentrations in deep-sea fish such
as salmon and mackerel. Such acids are part of a family of polyunsaturated
fatty acids which also include linolic acid, linolenic acid and arachidic acid.
The Company believes that these fatty acids reduce blood fat levels and protect
against heart disease and stroke. Linolic acid and linolenic acid are required
for normal growth and functioning of tissues. They cannot be produced in the
body from other fatty acids, and they are therefore referred to as "essential
fatty acids" in that they are necessary to the human diet.
The Company believes that these fatty acids are important to
the structure of body cells and in the production of prostaglandins,
hormone-like chemicals which control many body functions. Polyunsaturated fatty
acids are also important molecules in the structure of cell walls (membranes)
which help to regulate the movement of nutrients into the cells. The Company
believes that fatty acids retard blood clotting, platelet aggregation and spasm
of the arterial wall, and reduce blood cholesterol and triglycerides. EPA may
also reduce the stiffness, pain and swelling of rheumatoid arthritis and
relieve menstrual cramps. EPA and DHA are sold in tablet form under the trade
names Mother Nature(TM) and Munda. Omega-3 is sold in 1000 milligram bottles
under the trade names Mother Nature(TM) and Munda.
Evening Primrose Oil Product
Primrose Oil is a seed oil which is extracted from the
Evening Primrose Flower and is a rich natural source of biologically active
polyunsaturates. Evening Primrose Oil contains gamma-linoleic acid, a nutrient
usually found in mother's milk, which may prevent or reduce pre-menstrual
tension and lower cholesterol triglyceride levels and high blood pressure.
Evening Primrose Oil may also be helpful in the treatment of acne, eczema, mild
arthritis, hyperactive children and premature aging. Evening Primrose Oil is
sold in 1000 milligram bottles under the trade names Mother Nature(TM) and
Munda.
Tea Tree Oil Products
Essential Nature Products was formed by the Company in
January 1996 to develop and market health, nutritional, beauty-aid and
lifestyle products which contain Tea Tree Oil as their essential ingredient.
Currently, Essential Nature Products is in the process of developing more than
72 different formulations, at least twelve of which are intended to be
introduced to the international market in the Fall of 1996. Such products
include hair care, deodorants, antifungal foot spray, body wash, soap and
toothpaste, among others.
Tea Tree Oil is a common name for the therapeutic essential
oil steam distilled from the foliage of Melaleuca alternifolia tree commonly
known as "tea trees" which are found in abundance in the natural environment of
the north coast of New South Wales, Australia, as well as in other parts of the
Asian-Pacific region. The oil derived from tea trees is a complex naturally
occurring mixture of oils historically believed to have effective antiseptic,
antibacterial and antifungal properties. Tea Tree Oil is utilized in numerous
consumer products including household products, pharmaceutical, cosmetics,
toiletries and veterinary and pet care. All of the Company's Tea Tree Oil
consumer products are intended to be marketed internationally under the
Company's Australiana brand Munda.
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Until the mid 1980's, supply of Tea Tree Oil was normally
from trees harvested in their natural environment, but as demand for Tea Tree
Oil expanded, plantations in the Asian-Pacific territories were specially
developed to meet the demand for Tea Tree Oil products. The Company believes
that a dramatic shortage exists for Tea Tree Oil since, according to industry
sources, the current market for Tea Tree Oil may be in excess of 400,000
kilograms (400 metric tons) annually, compared to approximately 150,000
kilograms (150 metric tons) in 1994 and 4,000 kilograms (4 metric tons) in
1984.
Investment in Queensland Oils
In January 1996, the Company acquired from Tambruin Pty.
Ltd., an Australian corporation ("Tambruin"), 390,000 shares of Queensland Oils
(11.1% of the total number of outstanding shares of Queensland) in exchange for
70,910 shares of the Company's Common Stock.
Queensland Oils leases 246.8 acres from the Australian
Melaleuca Estate located at Leadingham Creek Rd, Mutchilba in the far north of
Queensland, Australia where trees producing Tea Tree Oil are grown. The Company
has an oral agreement with Australian Melaleuca Estates to acquire such
property and other assets for approximately $1,000,000, which agreement
terminates in April 1997. Closing is subject to execution of an agreement
satisfactory to the Company, delivery of clear title to the property and the
securing of Australian Government Foreign Investment Review Board approval
(Australian law prohibits ownership of land by foreign corporations without
government approval). The Company does not currently possess sufficient funds
for the purchase of these assets and is currently seeking equity and/or asset
based financing to purchase the property. There can be no assurance that the
Company will be able to obtain such funding.
In June 1996, the Company also entered into an oral agreement
with Queensland Oils pursuant to which the Company provides plantation
management and operational services for 13 months for an aggregate fee of
$1,185,000. The Company has agreed to accept payment from the proceeds of the
sale of Tea Tree Oil which will be received through August 1997. It is projected
that the costs of plantation management and operational support will be
approximately $680,000 for the 13 month period. The agreement also requires that
the Company plant 150 acres of tea tree seedlings during the term of the
contract.
New Product Strategy
In addition to the Company's current and proposed products,
the Company is developing additional personal care products containing Tea Tree
Oil, including topical ointments to soothe minor arthritis pain and relieve
muscle soreness, first-aid topical gels, shampoos, conditioners, toothpastes,
skin cleansers, acne creams, athlete's foot treatments and cold sore and burn
creams. In addition, men's products such as conditioning shave gel, an
after-shave balm and cologne are under development.
New products are being developed to meet the demands of
customers in the Company's target markets. Providing these products
meets the Company's current channels of distribution philosophy.
International Sales and Marketing
For the six month transitional year ended June 30, 1996,
almost all of the Company's products were sold outside the United States and
approximately 80% of such sales were made through the more than forty-five
Duty-Free and Specialty Retail Tax-Free Stores which feature the Company's
products. The remaining 20%
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of sales were of the Company's premium brand Mother Nature(TM)
products which are featured in a number of airline magazines, including Qantas
Airlines (Spirit Inflight Magazine), Korean Airlines (The Korean Air Inflight
Magazine), Air New Zealand (Pacific Way Inflight Magazine) and Australia-Asian
Airlines (Southern Sky Inflight Magazine) and are sold to airline passengers
inflight as part of the airlines' on-board Duty-Free sales and product
promotions. The Company's products are also advertised in a number of specialty
tourist magazines.
The Company maintains sales offices in Sydney, Australia, New
Zealand, Korea, the United States and the United Kingdom, directly or through
independent sales agents. In addition the Company sells its products in Japan,
Egypt and Qatar in the Middle East.
The Company employs five persons internally to market its
products directly to the Duty-Free and Specialty Retail Tax-Free shops. The
Company also employs independent sales agents who are paid on a commission
basis based upon volume of sales, as well as independent sales distributors
(particularly in Asia), who purchase products directly from the Company
against letters of credit. As of the transitional six-month fiscal year ended
June 30, 1996, approximately 50% of the Company's sales were made by its
internal sales force. Additional distribution agreements with distributors and
individual Duty-Free Store chains are also being negotiated for other
countries in the Asian/Pacific and European regions. In addition, the Company
is assisted in its sales and marketing efforts through an agreement between
Essential Nature Products and Vines Investment Services ("Vines Investment"),
a Hong Kong based corporation, pursuant to which Vines Investment provides
services and advice pertaining to the marketing and sales of the Company's
existing and proposed products.
The Company creates customized merchandising programs for the
Duty-Free and Specialist Tax-Free Stores which sell its products consisting of
point-of-purchase displays with selections of branded products in a variety of
product categories. In this regard, the Company develops uniform packaging with
branded product identification. The Company has found this approach to be
particularly appealing to the buyers in such channels of distribution, who
would otherwise need to work with multiple suppliers. This avoids an otherwise
fragmented product presentation. This approach to "program sales" with
packaging uniformity assists in the development of brand recognition that is an
integral part of the Company's marketing and product development plan. The
Company believes that brand name product recognition has resulted in
significant opportunities for sales of related or complimentary products.
Seasonality of products is generally not a factor affecting
the Company's sales, although certain of its products are derived from plants,
flowers and trees whose harvest is dependent upon weather and other climatic
conditions which may affect the yield of oil produced from a particular crop.
The Company has endeavored to mitigate such risk by contracting to buy its oils
from plantations in different regions with varying weather and climatic
conditions and from farms and plantations with diverse plant stock and maturity
levels. The Company believes that such variety in purchasing will provide
levels of oil production within predictable and identifiable ranges.
Sales and Marketing - United States
The Company formed Essential Care USA in September 1996 to
explore opportunities to expand the manufacturing, marketing and distribution
of the Company's products in the United States. In connection therewith,
Essential Care USA entered into an agreement with TDI Pharmaceutical Systems,
Inc. ("TDI Pharmaceutical"), a New Jersey based sales and marketing company,
for the development, manufacturing, marketing, promotion and distribution of
the Company's products in the United States. The Company, through TDI
Pharmaceutical anticipates that channels of distribution will include U.S.
Duty-Free and Specialty Tax-Free Stores, chain
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drug stores, mass merchandisers, health, natural food and other beauty-aid and
lifestyle specialty stores. TDI Pharmaceutical has also agreed to provide
sales materials and promotional packages; explore opportunities to manufacture
the Company's products and source raw materials in the United States; and
develop promotional opportunities through, among other media, radio and
television advertisements. The agreement with TDI Pharmaceutical terminates on
March 1, 1997 and is automatically renewable for continuous six month periods
thereafter, unless either party gives six months prior written notice of
termination. In addition, Essential Care USA entered into a one-year sales and
marketing agreement with BPM Marketing Services Group, Inc. ("BPM Marketing")
for services relating to the marketing of certain of its products in
Northeastern United States. Among other services performed, BPM Marketing
assists the Company in developing, studying and evaluating sales and marketing
proposals, pricing of products and assisting in discussions pertaining to
marketing matters respecting the Company.
The Duty-Free and Specialty Tax-Free Industry
The Company currently sells its products in more than 45
Duty-Free and Specialty Tax-Free Stores, most of which are located in the
Asian/Pacific region. Duty-Free goods are sold wherever international travel
takes place: at airports; on international flights; on cruise lines; and at
international land border crossings. Since its beginnings more than 50 years
ago, the retailing of Duty-Free and Tax-Free goods has become increasingly
sophisticated and is now an important source of income for airports, airlines
and ferry operators, as well as a significant market for manufacturers and
suppliers of Duty-Free and Tax-Free goods. Today, Duty-Free shops are found at
virtually every international airport, border crossing, cruise line and airline.
According to the 1996-1997 Duty-Free Database and Directory
published by Duty-Free News (the "Duty-Free Database"), sales by Duty-Free and
Specialty Tax-Free stores in 1996 are expected to exceed $22.0 billion, an
increase from $20.5 billion in 1995. Among the continents, the strongest region
is Asian/Pacific which had sales of $6.25 billion in 1995, an increase of 18.7%
over the prior year, adding almost $1.0 billion in sales. The Duty-Free
Database also reported that the Asian/Pacific share of the world market in
general grew from 29.3% to 30.5% in 1995.
Airports are the main beneficiaries of Duty-Free spending,
which has had a significant influence on operational changes and investments in
the airport industry. Airlines also benefit from in-flight Duty-Free sales. The
continued growth of Duty-Free spending in airports and on airlines is generally
believed to be based upon availability and accessibility; there is usually a
higher degree of involvement by the airport landlord; and Duty-Free customers in
airports and on airlines are a captive base for retailers. As a result,
according to the Duty-Free Database, airports remained one of the largest
Duty-Free distribution channels. Duty-Free sales in airports grew 12.8% in 1995
to $8.2 billion and its share of world Duty-Free sales was 40.1%.
Historically dominated by liquor, tobacco and fragrances,
Duty-Free shopping has emerged as the global home of a wide variety of premium
luxury goods and upscale products. They encompass liquor, cigarettes,
cosmetics, confectioneries, electronics and jewelry. Virtually every major
brand name is now available in Duty-Free stores.
Industry sources believe that the largest growth area in the
airport product retailing sector is confectionery and luxury goods (including
cosmetics), the categories which include the Company's products. The desire to
purchase gifts and souvenirs by travellers has also stimulated the production
of specialty packaged products in the Duty-Free and Specialty Tax-Free
industry. Availability of Duty-Free products is constantly changing and is
determined by the retail shop operator who matches his assortment to reflect
the tastes of the
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passenger mix passing through his store. As new travel destinations are added
and itineraries change, the assortment of products found within the Duty-Free
shop change as well.
Customers
For the transitional six-month fiscal year ended June 30,
1996, one customer, Korean Airlines Limited, accounted for 21.6% of the
Company's revenues. No other customer of the Company represented more than 10%
of the total revenues.
Manufacturing and Raw Materials
The Company obtains its source of supply of Royal Jelly,
Propolis Tincture, Squalene, EPA, DHA, Omega-3 Fish Oils and Evening Primrose
Oil exclusively from within the Asian-Pacific region. The Company anticipates
that it will obtain its source of supply of Tea Tree Oil from a number of
independent sellers in the Asian-Pacific region, the largest of which, ANC
Resources Pty Limited ("ANC"), has a contract to supply the Company with not
less than 200,000 kilograms (200 metric tons) of Tea Tree Oil annually for a
period of five years commencing October 1996. The contract is renewable at the
option of the Company for an additional five year period. In addition, the
Company has an 11.1% ownership interest in Queensland Oils, a producer of Tea
Tree Oil located in North Queensland, Australia.
The Company ships its raw materials to contract manufacturers
around the world who process and package the Company's products to its
specifications. In the case of Royal Jelly capsules, the processed goods are
shipped to the Company's 30,000 square foot manufacturing, warehouse and
distribution facilities, located in Silverwater, Australia, a suburb of Sydney,
where the Company's products are labelled and shipped to customers. These
facilities have been approved by the Government of Australia under the
Therapeutic Goods Administration Act as a facility suitable for the manufacture
and repackaging of therapeutic goods. Quality control and inspection procedures
are performed at the Company's facilities upon receipt of the goods. The
Company's products are also tested through chemical analysis performed at
independent testing laboratories to ensure compliance with the Company's
standards and specifications. Products are manufactured on a fixed price basis.
All export sales are sold in U.S. dollars in order to limit transaction risk
relating to fluctuations in foreign currency.
Other than its contract with ANC, the Company does not have
long-term agreements with any of the manufacturers or suppliers of its
products. Therefore, any of these companies could terminate their relationships
with the Company at any time. The Company believes that alternative
manufacturing sources and suppliers could be located for all of its products
should any termination occur, or in the event that the Company's requirements
for products exceed the capacity of its current suppliers. As of the six-month
transitional fiscal year ended June 30, 1996, none of the Company's
manufacturers or suppliers produced more than 10% of the Company's products and
the loss of any one supplier or manufacturer would not, the Company believes,
have an adverse material effect upon its business operations. Nevertheless,
there can be no assurance that such alternative sources will be available, or
that the output from existing manufacturers will be sufficient to meet the
Company's future demands for product, or, if available, that they will be
provided on a cost-effective basis.
Competition
The health food, nutritional, beauty-aid and lifestyle
product industries are extremely competitive both internationally and in the
United States. The Company faces substantial competition in each of its product
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lines. The Company competes in a variety of segments within these product
areas, including the categories of antiseptic, antibacterial and antifungal
products, as well as the intensely competitive consumer product categories of
shampoos, face scrubs and cleansers, cold sore creams, burn creams, toothpaste,
hair care, deodorants, foot sprays, body washes, soaps, nutritional supplements
and vitamins. Competitive factors include quality, price, style, name
recognition and service. Although the Company believes that it can compete
favorably in these areas, there can be no assurance thereof.
The Company will primarily compete in the sale of its
products internationally and in the United States with pharmaceutical
companies, beauty and health-aid companies, specialty retailers, mass
merchandisers, chain drug stores, health food stores and supermarkets. Many of
such companies have trademarked products known worldwide. In addition, a
substantial number of the Company's competitors have substantially greater
financial, distribution, marketing and other resources than the Company and
have achieved significant name recognition and good will for their brand names.
The Company also competes with companies which manufacture and distribute
non-branded (generic) health, beauty-aid and lifestyle products. There can be
no assurance that the Company will be able to successfully compete with these
companies when marketing its products.
Governmental Regulation and Health Issues
Distribution and sales of the Company's products in Australia
is regulated under the Australian Therapeutic Goods Act of 1989 (the
"Therapeutic Act") and the Code of Good Wholesaling Practice for Therapeutic
Goods for Human Use (the "Code of Therapeutic Goods"), which regulates
wholesalers in the safe handling, storage and distribution of therapeutic
products. Each of the Company's current products has received a "Certificate of
Listing" from the Australian Therapeutic Goods Administration which grants
listing in the Australian Register of Therapeutic Goods for approval of the
sale of therapeutic goods. Similar laws exist in other countries in which the
Company's products are sold. The Company believes that it is in compliance with
all such regulations or qualifies for an exemption therefrom as a result of its
compliance under Australian laws.
With respect to distribution of the Company's products in the
United States, the processing, formulation, packaging, labeling and advertising
of the Company's products will be subject to regulation by one or more federal
agencies, including the Food and Drug Administration ("FDA"), the Federal Trade
Commission ("FTC"), and the Consumer Product Safety Commission, among others.
These activities will also be regulated by the Hatch-Harkin Dietary Supplement
Health and Education Act of 1994 and by various agencies of the states and
localities in which the Company's products will be sold. The Company believes
that it will comply with these laws and regulations in all material respects.
Federal and state regulations are designed to protect consumers, govern the
promotion and advertising activities of the Company and other sellers of the
Company's products.
Changes in laws and regulations internationally or in the
United States could materially affect the Company and any costs of compliance
associated with such laws and regulations. There can be no assurance that the
Company can continue to comply with all such rules and regulations.
Trademarks
The Company depends upon the development of brand recognition
for its current and proposed products. Currently, the Company utilizes the
following trade names in the sale of its products: Mother Nature(TM), Nature's
Nest, Nature's Green and Munda. The Company acquired its Mother Nature(TM)
trademark from Collage which registered such trademark for protection in
Australia in 1990 and New Zealand in 1992; registration is
9
<PAGE>
pending in Singapore, Japan, the United States, Canada, China and Taiwan. The
Company has not yet applied for trademark protection for any of its other brand
names, however, the Company intends to make such applications in the near
future.
The Company believes that brand name identification
differentiates the Company's products from its competitors and reflects the
Company's marketing strategy of providing customers with high-quality,
value-oriented products. There can be no assurance that any of the Company's
trademarks will be registered or that if registered, such trademarks will not
violate the proprietary rights of others, or that they would be upheld if
challenged, or that the Company would, in such event, not be prevented from
using such trademarks, any of which may have an adverse effect on the Company.
In addition, there can be no assurance that the Company will have the financial
resources necessary to enforce or defend its rights in and to its trademarks.
In the event that it became necessary to establish recognition of alternative
trademarks, the costs of such development could be substantial.
Product Liability
The Company currently has an aggregate of $5,000,000 of
product liability insurance for its current products with an umbrella policy up
to $5,000,000. The Company intends to obtain additional product liability
coverage for products to be manufactured and/or sold in the United States.
There can be no assurance that the Company can obtain such additional coverage,
or that its existing coverage will be sufficient to cover any liability
resulting from any product liability claims, or that the Company would have
funds available to pay any claims over the limit of its insurance. Either an
underinsured or an uninsured claim could have a material adverse effect on the
Company.
Employees
As of October 28, 1996, the Company had 30 full-time
employees. Of such employees, three act in executive capacities, five are
full-time sales and marketing personnel, two are customer service
representatives and 20 are administrative and warehouse personnel. The Company
also employs up to ten part-time employees in the production area on an
as-needed basis. None of the Company's employees are covered by a collective
bargaining agreement. The Company considers its relations with the employees to
be good.
Item 2. Properties
The Company leases approximately 30,000 square feet of
manufacturing, warehouse, distribution and office space located in an
industrial complex at 43 Egerton Street, Silverwater, New South Wales,
Australia, a suburb of Sydney. The Company pays $2.50 per square foot, per
annum, payable monthly, which amount increases by the lower of 5% or market
rate each year. The lease expires August 14, 1999. The Company believes that
such facilities are adequate for its needs for the foreseeable future.
The Company also subleases rent-free, on a month-to-month
basis, approximately 150 square feet of office space for its U.S. headquarters
located at 412 Pleasant Valley Way, Suite 205, West Orange, New Jersey 07052,
pursuant to an oral agreement with Lancaster Consulting, Inc. ("LCI"), the
Company's promotional, marketing and financial consulting firm. The Company is
currently seeking an expanded location for its U.S. headquarters in the New York
metropolitan area. See "Certain Relationships - Related Transactions."
10
<PAGE>
The Company believes that its properties are adequate for
current planned operations and that the properties are adequately covered by
insurance. The Company also believes that other suitable facilities are
available at competitive prices and terms.
Item 3. Legal Proceedings
No proceedings to which the Company is a party, or to which
any of its properties are subject, are pending, or are known to be
contemplated, and the Company knows of no legal proceedings, pending or
threatened, or judgments entered against any director or officer of the Company
in his capacity as such.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of the fiscal year covered by this
report, the Company did not submit any matters to a vote of security holders.
PART II
Item 5. Market for the Common Equity and Related Stockholder Matters
As of October 25, 1996, the Company had 2,258,884 shares of
Common Stock outstanding. The principal market for the Common Stock is the
over-the-counter market on the Electronic Bulletin Board maintained by Nasdaq
under the symbol ESRS (since January 16, 1996). The Company commenced trading
on the Electronic Bulletin Board under the symbol ZYGN on May 24, 1995. The
Company declared a two-for-one forward split of its Common Stock, which had a
record date of August 26, 1996.
The following table sets forth the closing high and low bid
prices for the Common Stock for each calendar quarter since May 24, 1995. The
prices represent inter-dealer quotations without adjustment for retail markups,
markdowns or commissions and may not represent actual transactions. Such prices
also reflect the Company's two-for-one forward split of its Common Stock.
Quotations do not assume that the market for the Company's securities will be
sustained.
High Low
For Fiscal Year Ending
June 30, 1997
First Quarter (to 5-1/4 3-1/8
September 30, 1996
For the Fiscal Year Ending
June 30, 1996 (1)
First Quarter 2-1/2 2
Second Quarter 5-3/4 2-1/4
Third Quarter 2-1/2 2-1/4
Fourth Quarter 4 2-1/2
11
<PAGE>
For Fiscal Year Ending
December 30, 1995
First Quarter 2 3/4
(1) In January, 1996, the Company changed its fiscal year end from December
31 to June 30.
On October 25, 1996, the closing bid price for the Common
Stock was $3.375 and there were 400 holders of record of the Common Stock.
DIVIDEND POLICY
The Company paid cash dividends on its Common Stock of $.025
per share for the quarters ended June 30, 1996 (paid July 15, 1996) and
September 30, 1996 (to be paid October 30, 1996). The number of shares of
Common Stock outstanding on June 30, 1996 and September 30, 1996 was 2,280,396
and 2,254,884, respectively. The number of shares outstanding reflects the
Company's two-for-one forward stock split and any options/warrants issued and
shares cancelled.
There can be no assurance that the Company will continue to
pay dividends in the future. The Company may determine to retain any earnings
to finance the growth of the Company.
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operation
General
The Company develops, markets and distributes a wide variety
of health, nutritional, beauty-aid and lifestyle products derived from the
extracts and tissues of Asian-Pacific region plants, flowers and animals. The
Company's products are sold primarily in Duty-Free and Specialty Tax-Free
Stores in the countries of Australia, New Zealand, Korea, Japan, Egypt, Qatar
in the Middle East and the United Kingdom under the trade names Mother
Nature,(TM) Nature's Nest, Nature's Green and Munda. Recently, the Company's
marketing efforts have been expanded to sell its products into additional
geographic markets, specifically the United States and to to other distribution
channels including: chain drug stores, mass merchandisers, health, nutritional
and specialty food stores. The Company also seeks to sell to additional
Duty-Free and Specialty Tax-Free Stores in all countries in which such stores
are located.
The Company commenced active business operations in January
1996, having completed a reverse merger with Zygon Corporation, a publicly-held
company, and having acquired assets from Collage consisting of inventories,
receivables, plant and equipment and trade names in exchange for the issuance
of 448,148 shares of the Company's Common Stock. In January 1996, the Company
also formed Essential Nature Products to formulate, market and distribute
certain of its new products and to manage and operate Tea Tree Oil plantations.
In September 1996, the Company created Essential Care USA for the purpose of
expanding the development, manufacturing, marketing, promotion and sales of the
Company's products in the United States. The Company also maintains an
investment of 11.1% of Queensland Oils, a producer of Tea Tree Oil, an
essential ingredient contained in certain of the Company's newly developed
products.
12
<PAGE>
The Company's strategy for continued growth incorporates the
following key aspects: (i) the expansion of distribution through Duty-Free and
Specialty Tax-Free Stores, as well as the airline market worldwide; (ii)
broadening the existing product line with complimentary and related products
which add value to the retailer and provide marketplace differentiation; (iii)
leveraging existing product lines by expanding distribution channels; (iv)
utilizing advanced technology to enhance product quality and create marketplace
advantages; (v) strategic raw material acquisitions through, among other things,
management and/or ownership of Tea Tree Oil plantations; and (vi) recruiting
talented, experienced employees and consultants.
Results of Operations
Effective January 1, 1996 the Company acquired certain assets of
Collage in a transaction accounted for as a reverse acquisition. The following
discussion and analysis of financial condition and results of operations are
for the transitional six-month period ending June 30, 1996 ("Fiscal 1996")
(post acquisition) combined with the period July 1, 1995 to December 31, 1995
(pre-acquisition), and then are compared to fiscal year ended June 30, 1995
("Fiscal 1995").
Fiscal Year 1996 Compared to Fiscal Year 1995
(dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Year 1996
------------------------------------------------ Fiscal Year
Six Six 1995
Months Months Combined -------------
Ending Ending Year Ending Year Ending
Dec. 31, 1995 June 30, 1996 June 30, 1996 June 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Total Revenues $1,456 $2,341 $3,797 $2,316
Total Cost of Revenues 478 1,083 1,561 1,169
----- ----- ----- -----
Gross Profit 978 1,258 2,236 1,146
----- ----- ----- -----
Operating Expenses 800 871 1,671 1,109
----- ----- ----- -----
Operating Income 178 387 565 36
Other Income/(Expenses) (7) 76 69 (26)
----- ----- ----- ------
Net Income Before Taxes 171 463 634 11
Income Taxes 59 170 229 4
----- ----- ----- -----
Net Income $ 112 $ 293 $ 405 $ 7
===== ===== ===== =====
</TABLE>
Substantially all of the Company's sales in Fiscal 1996 were
of its Royal Jelly products. The Company anticipates that this percentage will
decrease as new products are introduced in fiscal 1997. Sales in Fiscal 1996
increased by approximately $1,481,000 (63.9%) as compared to Fiscal 1995, due
to additional customers, in particular Korean Airlines, which accounted for
$610,000 of such amount, and other new customers as a result of increased sales
and marketing efforts.
13
<PAGE>
Sales were made to the following geographic areas in Fiscal
Year 1996:
Australia and New Zealand 38.8%
Southeast Asia 24.9%
Mid-Asia 17.8%
North Africa 9.3%
Japan 8.2%
United Kingdom and Other 1.0%
-----
100.0%
=====
Gross margin increased in Fiscal 1996 by approximately
$1,090,000 (95.1%) due to an increase in sales and a decrease in the cost of
goods as a percentage of sales. The gross margin percentage increased from
49.5% to 58.9%, due to a reduction in cost of raw materials and packaging. The
Company anticipates additional cost reductions as a result of the termination
of its purchasing contract with Collage which required the payment of a 10%
procurement fee totalling $66,150 for the six month period ended June 30, 1996.
The Company expects further cost reductions resulting from the planned
packaging of certain of its products in the United States where packaging costs
are significantly lower than Australia.
Selling, general and administrative expenses increased in
Fiscal 1996 by approximately $562,000 (50.6%) as compared to Fiscal 1995, due
to an increase in sales and marketing expenses of $674,000 to support
additional sales and marketing, which was offset by a reduction in bad debt
expense of $112,000. Bad debt expense was reduced to approximately $3,000 for
Fiscal 1996 due to better management of accounts receivable collection. Sales
and marketing expenses in Fiscal 1996 increased by approximately
$255,000 (33.5%) as compared to Fiscal 1995 and the Company anticipates that
such expenses will continue to increase as the Company expends funds for
advertising and promotion of new products and expanded promotion of its current
products to broader markets and distribution channels.
The Company anticipates that selling, general and
administrative expenses as a percentage of sales will increase over the
first three quarters of fiscal 1997 as the Company employs additional
staff and increases its data processing capabilities and other necessary
infrastructure costs to support the growth of the Company. Such increase
will also be due to the commencement of operations in the United States
in September 1996, through Essential Care USA, a wholly-owned subsidiary
of the Company. The Company expects to sustain charges of approximately
$250,000 per quarter for fiscal 1997 in connection with promotion and
marketing expenses associated with the introduction of the Company
and its products in the United States. Such expenses will cause the
results of operations to vary, on a quarter-by-quarter basis, to vary
while the gross profits resulting from additional sales and marketing
activity are realized to offset these increases in expenses. The Company
will be striving to obtain cost savings by more efficient purchasing
and manufacturing processes. In addition, the Company intends to invest
approximately $75,000 in research and development on its new Tea Tree
Oil products per quarter for fiscal 1997.
Queensland Essential Oils Ltd. Management Agreement
In June 1996, the Company entered into an oral agreement with
Queensland Oils to provide plantation management and operational services for
13 months for an aggregate fee of $1,185,000. The Company has agreed to accept
payment from the proceeds of the sale of Tea Tree Oil which will be received
through August 1997. It is projected that the costs of plantation management
and operational support will be approximately $680,000 for the 13 month period.
The agreement also requires that the Company plant 150 acres of Tea Tree
seedlings during the term of the contract. The Company will recognize revenue
from this transaction as the oil is sold.
14
<PAGE>
Other Events
In January 1996, the Company entered into an agreement with
Fame Decorator Agency Pty Ltd ("FDA") to acquire 66,125 shares of
Jeffries Industries Limited ("Jeffries Industries"), in consideration of
the issuance of 180,422 shares of the Company's Common Stock. The
understanding of the parties was that the Jeffries Industries shares
were to be publicly tradeable on the Australian stock exchange. However, in
the interim, Jeffries Industries filed for the Australian equivalent of
bankruptcy reorganization, which, under Australian law, renders the
shares of Jeffries Industries stock not publicly tradeable. Inasmuch as
the agreement between the Company and FDA was to effectuate the exchange
of the Company's shares for cash and such option became unavailable to
the Company, the Company and FDA determined to rescind the agreement.
Accordingly, in June 1996, the Company returned the Jeffries Industries
shares to FDA and FDA returned the 180,422 shares of the Company's
Common Stock, which shares were cancelled.
In January 1996, the Company issued 290,912 shares of its
Common Stock to Petra Bonita in exchange for the acquisition of assets
consisting primarily of certain formulations (the "Asset Acquisition"). In June
1996, the Company and Petra Bonita agreed to rescind the Asset Acquisition
because of a mutual misunderstanding between the Company and Petra Bonita based
upon a lack of research and development of certain tea tree oil formulations by
Petra Bonita believed by the Company to have been further developed at the time
the Company acquired such formulations from Petra Bonita. Accordingly, Petra
Bonita returned 290,912 shares of Common Stock to the Company, which shares
were cancelled and the Company returned the assets to Petra Bonita.
Liquidity
For the transitional six-months ending June 30,
1996, the Company financed its operations primarily through profits from
operations and from loans from related parties of $525,113. Net cash provided by
operations for the transitional six-months ended June 30, 1996 was $216,949.
Such funds were used for working capital of the Company. The affiliate loans
bear interest from July 1, 1996 at the rate of 10% per annum and are payable
either from the proceeds of an equity offering or at the discretion of the
Board of Directors.
In accordance with the terms of the factoring arrangement,
the Company receives 80% of eligible receivables upon presentation of invoice
and the balance upon payment less interest charges payable to the factor.
It is the Company's intention to raise additional capital
through debt and/or equity financing and to establish bank lines of credit to
enable it to finance its growth and provide for working capital. There can be
no assurance that the Company can raise additional capital or obtain working
capital lines of credit. In the event the Company does not raise the additional
capital or obtain working capital lines of credit it will modify its strategic
plans to grow utilizing existing cash flow.
Subsequent to June 30, 1996, the Company borrowed an
additional $284,000 from stockholders. In addition, in August 1996, LCI loaned
the Company $150,000, which is repayable the sooner of the closing of any public
or private debt or equity offering of the Company's securities or February 27,
1997. The loan bears interest at the rate of 10% per annum.
15
<PAGE>
Export Market Development Grant
Collage International Health recorded $93,713 in income from
an export trade incentive program offered by the Australian Government. This
program offers approximately 50% of approved export expenses to exporters who
qualify.
Item 7. Financial Statements and Supplementary Data
The response to this Item is submitted as a separate
section of this report commencing on page F-1.
Item 8. Changes in Registrant's Certifying Accountant
On October 1, 1996, the Company, by action of the Board of
Directors, dismissed Smith & Company from its engagement as the Company's
principal accountant.
The report of Smith & Company on the Company's financial
statements for the years ended December 31, 1995 and 1994 did not contain an
adverse opinion or a disclaimer of opinion, and was not qualified or modified
as to uncertainty, audit scope, or accounting principles. There had been no
disagreement at any time during the engagement of Smith & Company through
October 1, 1996, on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreement, if
not resolved to Smith & Company's satisfaction, would have caused Smith &
Company to make reference in connection with its reports to the subject matter
of the disagreement.
On October 1, 1996, the Company appointed BDO Seidman LLP as
its principal accountant to audit the Company's financial statements for the
transitional six-months ended June 30, 1996.
PART III
Item 9. Directors and Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act
Directors, Executive Officers and Key Employees
The directors, executive officers and key employees of the
Company are as follows:
Name Age Position
- ---- --- --------
Phillip Cook 42 Chief Executive Officer, President
Chairman of the Board and a Director
Harry J. Kobritz 48 Proposed Executive Vice President - Finance, Chief
Operating Officer and Chief Financial Officer
Thomas Gaines 57 Vice President - Australian/Asian Operations and a
Director
Raynor Goldsmith 54 Controller - Australian/Asian Operations and
Secretary
16
<PAGE>
PHILLIP COOK has served as the Company's Chief Executive
Officer, President, Chairman of the Board of Directors and a director since
January 1996. From 1988 until January 1996 Mr. Cook has operated a number of
multi-national companies specializing in the marketing of products in the
Asian/Pacific region. He was also a director of several Australian public
companies. During that time he also served as a business consultant specializing
in the reorganization of small industrial companies. Mr. Cook currently serves
as an officer and director of the following Australian corporations: Evencall
Pty Ltd. and Marter Australia Pty Ltd., which are family-owned corporations.
HARRY J. KOBRITZ has acted as a consultant to the Company on
certain financial and operating matters since October 1, 1996 and has agreed to
serve as its Executive Vice President--Finance, Chief Operating Officer and
Chief Financial Officer commencing January 2, 1997. Prior to joining the Company
as a consultant, Mr. Kobritz was the Executive Vice President and Chief
Operating Officer of Charivari Holding Corp. from August 1994 to August 1996, a
specialty apparel retail chain and wholesale company. From April 1993 to July
1994, Mr. Kobritz was Vice President - Finance for Cutlery World Inc., a
national specialty retail chain selling gifts and cutlery. Prior to April 1993,
Mr. Kobritz was a Vice President for Valufinder Group, Inc., a boutique
investment banking firm specializing in mergers and acquisitions. Mr. Kobritz is
a Certified Public Accountant and is a member of the American Institute of
Certified Public Accountants and the New York State Society of Certified Public
Accountants.
THOMAS GAINES has served as Vice President -
Australian/Asian Operations since July 1, 1996 and as a director since January
1996. Prior to such time, he was employed with Human Resources Consulting in
the field of senior management, human resources and project management. Mr.
Gaines has received a BA, MBA and LLB degrees.
RAYNOR GOLDSMITH has served as Controller - Australian/Asian
Operations since July 1996. Prior to joining the Company, Mr. Goldsmith was the
Controller for Plutonic Resources Limited, a gold mining company, from December
1993 to June 1996. From October 1991 to December 1993, he was an independent
financial consultant specializing in accounting, tax and installation of
computerized accounting systems.
Directors of the Company are elected for one year terms or
until their successors are elected, and officers serve at the pleasure of the
Board of Directors.
Key Employees
Name Age Position
- ---- --- --------
Marc Higgins 28 Sales Manager - Collage International Health
Lindsay Morgan 49 Production and Manufacturing Manager
MARC HIGGINS, has been Sales Manager of Collage from 1988
until December 31, 1995 and has been Sales Manager of Collage International
Health since January 1, 1996.
LINDSAY MORGAN has been employed at Collage International
Health since October 1994, where he is the Production and Manufacturing
Manager. Prior to his employment with Collage International Health, Mr. Morgan
was employed for ten years with Beckman Instruments in Australia, a subsidiary
of
17
<PAGE>
Beckman, an American Clinical Diagnostic Company. Mr. Morgan received a
Bachelor of Applied Sciences degree, having majored in the Chemistry of Drugs.
Item 10. Executive Compensation
The Company did not pay any cash compensation to its Chief
Executive Officer or to any executive officer in excess of $100,000 for the
year ended June 30, 1996.
<TABLE>
<CAPTION>
===================================================================================================================================
Annual Compensation Long-Term Compensation
--------------------------------------------------------------------------------------------------
Awards Payouts
------------------------------ -------
Securities
Other Underly-
Annual Restricted ing All Other
Name and Compen Stock Options/ LTIP Compen-
Principal Year Salary(1) Bonus(1) -sation Award(s) SARS Payouts sation
Position ($) ($) ($) ($) (#) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Phillip Cook 1996 -0- -0- ____(1) ____ 2,000,000 - -
Chief
Executive
Officer
</TABLE>
(1) The Company did not issue any bonuses, stock appreciation rights or
long term incentive plan payouts to the individual named in the
Summary Compensation Table for the transitional six-month fiscal year
ended June 30, 1996
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
- ---------------------------------------------------------------------------------------------------
Percent of
Number of Total
Securities Options/SARs Exercise
underlying Granted to of Base
option/SARs Employees in Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date
(a) (b) (c) (d) (e)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Phillip Cook, 2,000,000 63.4% $2.50 3/31/06
Chief
Executive
Officer
18
<PAGE>
Employment and Related Agreements
As of June 30, 1996, the Company had not entered into any written
employment agreements with any of its employees. Subsequent to June 30, 1996,
the Company intends to enter into written employment contracts with Messrs.
Cook, Kobritz and Gaines.
Stock Option Plan
In April 1996, the Company created The Essential Resources, Inc.
Stock Option Plan (the "Stock Option Plan") which provides for the issuance of
up to 3,850,000 shares of Common Stock upon exercise of incentive and
non-qualified stock options and is intended to qualify under Section 422 of the
Internal Revenue Code of 1986, as amended ("Code").
The Stock Option Plan may be administered by the Board of Directors
or by a stock option committee of the Board of Directors (the "Committee").
Stock options are granted under the Stock Option Plan to employees generally on
the basis of the recipient's responsibilities and the achievement of performance
objectives. Subject to the limitations set forth in the Stock Option Plan, the
Board or the Committee has the authority to determine when the options may be
exercised and vest. Under the Stock Option Plan, the per share exercise price
for incentive stock options may not be less than 100% of the fair market value
of the shares on the date of grant. With respect to any participant who owns
stock possessing more than 10% of the voting rights of the Company's
outstanding capital stock, the per share exercise price must be at least 110%
of the fair market value on the date of grant and the term may not be longer
than five years. As of October 21, 1996, the Company had issued the following
options to current and proposed executive officers:
Number Exercise Expiration
Name of Options Price Date
- ---- ---------- -------- ----------
Phillip Cook
Chief Executive Officer 2,000,000 $2.50 March 31, 2001
Harry J. Kobritz 350,000 $3.25 October 7, 2001
Proposed Executive
Vice President, Chief
Operating Officer and
Chief Financial Officer
Thomas Gaines 350,000 $2.62 July 9, 2001
Vice President - Australian/
Asian Operations
The Company's Certificate of Incorporation and Bylaws also
provide for indemnification of all officers and directors of the Company to the
fullest extent permitted by law. Insofar as indemnification for liabilities
arising under the Securities Act of 1933 (the "Act") may be permitted to
directors, officers and controlling persons of the Company pursuant to the
foregoing provisions, or otherwise, the Company has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
19
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding
beneficial ownership of the Company's Common Stock, as of October 25, 1996, by
(i) each shareholder known by the Company to be the beneficial owner of more
than five percent of the outstanding Common Stock, (ii) each director of the
Company, and (iii) all directors and officers as a group. Except as otherwise
indicated, the Company believes that the beneficial owners of the Common Stock
listed below, based on information furnished by such owners, have sole
investment and voting power with respect to such shares.
Name and Address Number of Percentage
of Shareholder Shares Owned Beneficially Owned (1)
- ---------------- ------------ ----------------------
Phillip Cook (2)(3) 2,259,666 53.1%
Thomas Gaines (2)(4) 350,000 13.4%
Raynor Goldsmith (2) - 0 - -
Petra Bonita Limited 227,358 10.1%
16F on Hing Building
1 on Hing Terrace
Central Hong Kong
All officers and
directors as a group
(3 persons) (3)(4) 2,609,666 56.6%
- -------------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock
issuable upon conversion of outstanding preferred stock, or subject to
options, or warrants currently exercisable or convertible, or
exercisable or convertible within 60 days, are deemed outstanding for
computing the percentage of the person holding such securities but are
not deemed outstanding for computing the percentage of any other
person.
(2) The address for all such individuals is c/o Essential Resources, Inc.,
412 Pleasant Valley Way, Suite 205, West Orange, New Jersey 07052.
(3) Represents (i) 129,833 shares held by Mr. Cook and 129,833 shares held
by his wife, of which he disclaims beneficial ownership; and (ii)
options to purchase 2,000,000 shares of Common Stock, granted pursuant
to the Stock Option Plan, all of which are immediately exercisable
until March 31, 2001, at a price of $2.50 per share. See "Executive
Compensation - Stock Option Plan."
(4) Represents shares underlying options to purchase 350,000 shares of
Common Stock granted in July 1996 pursuant to the Stock Option Plan,
all of which are immediately exercisable until July 9, 2001, at a
price of $2.62 per share. See "Executive Compensation - Stock Option
Plan."
20
<PAGE>
Item 12. Certain Relationships and Related Transactions
The Company commenced active operations in January 1996 at
which time it (i) merged with Zygon Corporation, a publicly-held company and
(ii) acquired assets consisting of inventories, receivables, plant equipment
and trade names from Collage in consideration of the issuance of 448,148 shares
of Common Stock. In June 1996, Collage agreed to transfer 238,662 of such shares
to the Company in consideration of the Company's assumption of payment of
certain trade payables of Collage totalling approximately $480,000. In
addition, in July 1996, Collage pledged the balance of 185,338 shares of the
Company's Common Stock as security for monies owed by Collage to the Company
for purchases of goods totalling $488,000. Under the agreement
between Collage and the Company, the Company is entitled to 1/7 of the 185,338
shares pledged each month commencing September 1, 1996, for each month in which
Collage fails to pay the Company for the indebtedness. Collage failed to pay the
Company on September 1, 1996 and October 1, 1996, and accordingly, the Company
is entitled to 52,954 of such shares to date.
In January 1996, the Company acquired 390,000 shares of
Queensland Oils (11.1% of the total number of shares outstanding of Queensland
Oils), from Tambruin in consideration of the issuance of 70,910 shares of
Common Stock. In June 1996, the Company entered into a management agreement
with Queensland Oils pursuant to which the Company provides plantation
management and operational support services for 13 months commencing June 1996.
The aggregate fees to be earned by the Company under the terms of the contract
is $1,185,000. It is projected that the costs of plantation management and
operational support will be approximately $680,000. The Company has agreed to
accept payment from the proceeds of the sale of Tea Tree Oil produced. The
agreement also provides for the Company to manage, operate and plant Tea Tree
seedlings on 150 acres by June 30, 1997.
In January 1996, the Company entered into an agreement with
FDA to acquire 66,125 shares of Jeffries Industries in consideration of the
issuance of 180,422 shares of the Company's Common Stock. The understanding of
the parties was that the Jeffries Industries shares were to be publicly
tradeable on the Australian stock exchange. However, in the interim, Jeffries
Industries filed for the Australian equivalent of bankruptcy reorganization,
which, under Australian law, renders the shares of Jeffries Industries, not
publicly tradeable. Inasmuch as the agreement between the Company and FDA was to
effectuate the exchange of the Company's shares for cash and such option became
unavailable to the Company, the Company and FDA determined to rescind the
agreement. Accordingly, in June 1995, the Company returned the Jeffries
Industries shares to FDA and FDA returned the 180,422 shares of the Company's
Common Stock, which shares were cancelled.
In January 1996, the Company issued 290,912
shares of its Common Stock to Petra Bonita in exchange for the acquisition of
certain assets (the "Asset Acquisition"). In June 1996, the Company and Petra
Bonita agreed to rescind the Asset Acquisition because of a mutual
misunderstanding between the Company and Petra Bonita based upon a lack of
research and development of certain tea tree oil formulations by Petra Bonita
believed by the Company to have been further developed at the time the Company
acquired such formulations from Petra Bonita. Accordingly, Petra Bonita
returned 290,912 shares of Common Stock to the Company, which shares were
cancelled and the Company returned the assets to Petra Bonita.
In July 1996, the Company entered into a one year financial
consulting agreement with LCI. The Company also leases executive office
space, rent-free for
21
<PAGE>
its U.S. headquarters pursuant to an oral month-to-month sublease with
Lancaster. Under the consulting agreement, LCI provides services and
advice pertaining to potential merger and acquisitions for the Company and
other business affairs of the Company, particularly transactions arising in the
United States. In this regard, LCI assists the Company in developing,
studying and evaluating merger and acquisition proposals and in negotiations
and discussions pertaining to potential acquisitions. LCI will receive
$12,500 per month until July 31, 1997 for such services. In addition, the
Company and LCI entered into a 12 month promotional and marketing agreement
for an aggregate fee of approximately $370,000, of which $270,000 was paid
prior to June 30, 1996. The services to be provided by whereby LCI are to
secure distributors of the Company's products; obtain bulk distributors of
Tea Tree Oil; promote the Company's products to industry groups; and develop
marketing opportunities for Tea Tree Oil commencing July 1, 1996 to August
31, 1997. In August 1996, LCI loaned the Company $150,000, which is
repayable the sooner of the closing of any public or private debt or equity
offering of the Company's securities or February 27, 1997. The loan bears
interest at the rate of 10% per annum. In consideration of the loan, the
Company granted LCI warrants to purchase 150,000 shares of Common Stock
at a price equal to the price of any warrants issued in connection with any
public offering. In the event of Mr. Cook's death while the loan is
outstanding, LCI is entitled to appoint two designees to the Board of
Directors.
During the six months ended June 30, 1996, the Company
received a loan from a stockholder of $179,364. In addition, two companies
related to members of the family of the Company's Chief Executive Officer loaned
$184,760 and $160,989, respectively. Each of such loans are repayable from the
proceeds of any equity offering or, earlier, at the discretion of the Board of
Directors. The loans bear interest at 10% per annum.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits (numbered in accordance with Item 601 of Regulation S-B).
</TABLE>
<TABLE>
<CAPTION>
Exhibit
Nos. Description
<S> <C>
3a Certificate of Incorporation, as amended(1)
3b By-laws(1)
4 Form of Common Stock Certificate(1)
10a Agreement between the Company and Collage International Pty Limited(2)
10b Stock Purchase Agreement between the Company and Fame Decorator Agencies
Pty Limited(2)
10c Stock Purchase Agreement between the Company and Tambruin Pty Limited(2)
10d Asset Purchase Agreement between the Company and Petra Bonita Limited(2)
10e Rescission Agreement between the Company and Petra Bonita Limited(1)
10f Rescission Agreement between the Company and Fame Decorator Agencies Pty
Limited(1)
10g Supply Agreement between ANC and Collage International Pty Limited(1)
10h Stock Option Plan(3)
10n Lease - Collage(1)
</TABLE>
- -----------------
22
<PAGE>
(1) Filed herewith.
(2) Incorporated by reference to Essential Resources, Inc. Report on Form
8-K filed January 30, 1996.
(3) Incorporated by reference to Essential Resources, Inc. Registration
Statement on Form S-8 filed August 2, 1996.
(b) Reports on Form 8-K.
Form 8-K filed on October 4, 1996.
Item 24. List of Subsidiaries
Name of Subsidiary Place of Incorporation
Essential Nature Products Pty Ltd. New South Wales, Australia
Collage International Health Pty Ltd. New South Wales, Australia
Essential Care USA, Inc. Nevada
Winegums Pty Ltd. New South Wales, Australia
(presently non-operating)
Nature's Green Health Products New South Wales, Australia
(Australia) Pty Limited (presently non-operating)
23
<PAGE>
Essential Resources, Inc.
and Subsidiaries
Consolidated Financial Statements
Six Months Ended June 30, 1996
F-1
<PAGE>
Essential Resources, Inc.
and Subsidiaries
Contents
Report of independent certified public accountants F-3
Consolidated financial statements:
Balance sheet F-4
Statement of operations F-5
Statement of stockholders' equity F-6
Statement of cash flows F-7
Summary of accounting policies F-8 - F-11
Notes to consolidated financial statements F-12 - F-20
F-2
<PAGE>
Report of Independent Certified Public Accountants
Essential Resources, Inc.
West Orange, New Jersey
We have audited the accompanying consolidated balance sheet of Essential
Resources, Inc. and subsidiaries (the "Company") as of June 30, 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the six months then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Essential
Resources, Inc. and subsidiaries as of June 30, 1996, and the results of their
operations and their cash flows for the six months then ended in conformity
with generally accepted accounting principles.
BDO Seidman, LLP
New York, New York
October 15, 1996
F-3
<PAGE>
Essential Resources, Inc.
and Subsidiaries
Consolidated Balance Sheet
<TABLE>
<CAPTION>
June 30, 1996
- -----------------------------------------------------------------------------------------------
<S> <C>
Assets
Current:
Cash $ 218,195
Receivables from factors (Note 1) 73,601
Accounts receivable 148,496
Inventories (Note 2) 329,597
Prepaid expenses (Note 6(d)) 456,608
Deferred plantation management costs (Note 9(c)) 62,299
Other current assets 94,237
- -----------------------------------------------------------------------------------------------
Total current assets 1,383,033
Property, plant and equipment, at cost less accumulated depreciation (Note 3) 76,291
Investment in Queensland Essential Oils Limited (Note 4) 133,250
Other assets 62,813
- -----------------------------------------------------------------------------------------------
$1,655,387
- -----------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable, accruals and other $ 477,152
Income taxes payable 91,000
Loans payable to related parties (Note 9(a)) 525,113
Dividends payable (Note 5) 52,376
Deferred income taxes (Note 11) 79,000
- -----------------------------------------------------------------------------------------------
Total current liabilities 1,224,641
Accounts payable, long-term (Note 9(b)) 98,680
- -----------------------------------------------------------------------------------------------
Total liabilities 1,323,321
- -----------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 4, 6 and 7(c))
Stockholders' equity (Notes 5, 7 and 8):
Common stock, $.001 par value - shares authorized 25,000,000; issued
2,519,058 2,519
Additional paid-in capital 863,960
Retained earnings 370,182
Foreign currency translation adjustment 63,778
Receivable from Collage (Note 9(b)) (488,548)
- -----------------------------------------------------------------------------------------------
811,891
Less: Treasury stock, 238,662 shares at cost (Note 9(b)) (479,825)
- -----------------------------------------------------------------------------------------------
Total stockholders' equity 332,066
- -----------------------------------------------------------------------------------------------
$1,655,387
- -----------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies
and notes to consolidated financial statements.
F-4
<PAGE>
Essential Resources, Inc.
and Subsidiaries
Consolidated Statement of Operations
Six months ended June 30, 1996
- ------------------------------------------------------------------------
Sales (Note 10) $2,340,671
Cost of sales 1,082,687
- ------------------------------------------------------------------------
Gross profit 1,257,984
- ------------------------------------------------------------------------
Operating expenses:
Selling, general and administrative (Note 9(f)) 847,997
Depreciation 22,737
- ------------------------------------------------------------------------
Total operating expenses 870,734
- ------------------------------------------------------------------------
Operating income 387,250
Other income (expense):
Export grant 93,713
Gain on foreign currency transactions 6,954
Interest expense (24,721)
- ------------------------------------------------------------------------
Net income before income taxes 463,196
Income taxes (Note 11) 170,000
- ------------------------------------------------------------------------
Net income $ 293,196
- ------------------------------------------------------------------------
Earnings per common share - primary and fully
diluted (post-split) $ .10
- ------------------------------------------------------------------------
Weighted average common shares outstanding (post-split) 2,479,280
Weighted Common stock equivalents outstanding (options)
(post-split) 771,961
- ------------------------------------------------------------------------
Weighted average common shares outstanding and weighted
common stock equivalents outstanding (post-split) 3,251,241
- ------------------------------------------------------------------------
See accompanying summary of accounting policies
and notes to consolidated financial statements.
F-5
<PAGE>
Essential Resources, Inc.
and Subsidiaries
Consolidated Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Six months ended June 30, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Foreign
Common stock Additional Retained currency Receivable Total
----------------- paid-in earnings translation from Treasury stockholders'
Shares Amount capital (deficit) adjustment Collage stock equity
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 448,148 $ 448 $729,512 $129,362 $ 3,363 $ $ $ 862,685
Reorganization 2,000,000 2,000 (2,000) - - - - -
Issuance of shares (Note 4) 70,910 71 136,448 - - - - 136,519
Net income for the period - - - 293,196 - - - 293,196
Dividends (Note 5) - - - (52,376) - - - (52,376)
Foreign currency translation
adjustment - - - - 60,415 - - 60,415
Receivable from Collage - - - - - (488,548) - (488,548)
- -------------------------------------------------------------------------------------------------------------------------------
2,519,058 2,519 863,960 370,182 63,778 (488,548) - 811,891
Purchase of treasury stock - - - - - - (479,825) (479,825)
- -------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1996 2,519,058 $2,519 $863,960 $370,182 $63,778 $(488,548) $(479,825) $332,066
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies
and notes to consolidated financial statements.
F-6
<PAGE>
Essential Resources, Inc.
and Subsidiaries
Consolidated Statement of Cash Flows
(Note 12)
Six months ended June 30, 1996
- ------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 293,196
- ----------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 22,737
Gain on foreign currency transactions (6,954)
Deferred income taxes 79,000
Foreign currency translation adjustment and other 70,638
(Increase) decrease in:
Receivable from factors (73,601)
Accounts receivable 176,203
Receivable from Collage (488,548)
Inventories 153,403
Prepaid expenses (456,608)
Deferred plantation management costs (62,299)
Other current assets (94,237)
Other assets (62,813)
Increase (decrease) in:
Accounts payable, accruals and other 575,832
Income taxes payable 91,000
- -------------------------------------------------------------------------------
Total adjustments (76,247)
- -------------------------------------------------------------------------------
Net cash provided by operating activities 216,949
- -------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisition of property, plant and equipment (44,042)
Purchase of treasury stock (479,825)
- -------------------------------------------------------------------------------
Net cash used in investing activities (523,867)
- -------------------------------------------------------------------------------
Cash flows from financing activities:
Loans payable to related parties 525,113
- -------------------------------------------------------------------------------
Net increase in cash and cash equivalents 218,195
Cash and cash equivalents, beginning of period -
- -------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 218,195
- -------------------------------------------------------------------------------
See accompanying summary of accounting policies
and notes to consolidated financial statements.
F-7
<PAGE>
Essential Resources, Inc.
and Subsidiaries
Summary of Accounting Policies
Organization and Business Essential Resources, Inc. ("Essential"), through its
wholly-owned subsidiaries, Collage International
Health Pty Ltd. ("Collage International Health") and
Essential Nature Products Pty Ltd. ("Essential Nature
Products"), collectively referred to hereinafter as
the "Company", develops, markets and distributes a
wide variety of health, nutritional, beauty-aid and
lifestyle products derived from the extracts and
tissues of Asian-Pacific region plants, flowers and
animals. The Company's products are sold primarily in
duty-free and tax-free stores in Australia, New
Zealand, Korea, Japan, Egypt, Qatar and the United
Kingdom.
Business Acquisition Effective January 1, 1996, Essential, which had no
assets and liabilities nor any previous operations,
acquired certain assets, primarily inventories,
receivables and fixed assets, and the operations of
Collage International Pty Ltd. ("Collage"), an
Australian company, for 448,148 shares (on a
post-split basis) of its common stock with a fair
value equal to the historical cost of the assets
acquired. For financial reporting purposes, Collage
was deemed to be the acquiring entity and the
transaction is accounted for as a recapitalization of
Collage.
Since the Company had no operations prior to its
acquisition by Collage, pro forma revenues and net
income as if the acquisition had occurred at earlier
dates would be the same as Collage's historical
operations results. However, based on the 448,148
shares issued in the acquisition accounted for as a
recapitalization, Collage's earnings per share for
the six months ended December 31, 1995 and the year
ended June 30, 1995 should be computed based on
448,148 shares outstanding. Accordingly, earnings per
common share for the six months ended December 31,
1995 and the year ended June 30, 1995 were $.25 and
$.01, respectively.
Principles of
Consolidation The consolidated financial statements include the
accounts of Essential, and its wholly-owned
Australian subsidiaries, Essential Nature Products
and Collage International Health. All significant
intercompany balances and transactions have been
eliminated on consolidation.
F-8
<PAGE>
Essential Resources, Inc.
and Subsidiaries
Summary of Accounting Policies
Change in Fiscal Year In January 1996, the Company elected to change from a
December 31 to a June 30 year-end to correspond to
the fiscal year of its Australian subsidiaries.
Earnings Per
Common Share Primary and fully diluted earnings per common share
are computed using the treasury stock method,
modified for stock options outstanding in excess of
20% of the total outstanding shares of common stock.
Under this method, the aggregate number of shares
outstanding reflects the assumed use of proceeds from
the hypothetical exercise of the outstanding options
and warrants, unless the effect on earnings is
anti-dilutive. The assumed proceeds are used to
repurchase shares of common stock at the average
market value during the period to a maximum of 20% of
the shares outstanding. The balance of the proceeds,
if any, is used to reduce outstanding debt and invest
in treasury bills with the assumed interest expense
savings and interest income being added to the
results of operations for the reported period.
Fully diluted earnings per share also reflects the
assumed use of proceeds from the hypothetical
exercise of options to purchase common stock at the
ending market price for the reported period.
Use of Estimates The preparation of financial statements in conformity
with generally accepted accounting principles
requires management to make estimates and assumptions
that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements
and the reported amounts of revenues and expenses
during the reporting period. Actual results could
differ from those estimates.
Inventories Inventories are valued at the lower of cost or
market. Cost for raw materials and finished goods are
determined by the first-in, first-out (FIFO) method.
F-9
<PAGE>
Essential Resources, Inc.
and Subsidiaries
Summary of Accounting Policies
Property, Plant and
Equipment Assets are stated at cost. Depreciation and
amortization is computed over the estimated useful
lives of the assets on the straight-line method for
financial reporting purposes.
Foreign Currency
Translation The Company's subsidiaries in Australia use the
Australian dollar as the functional currency and
translate all assets and liabilities at year-end
exchange rates, all income and expense accounts at
average rates and record adjustments resulting from
the translation as a separate component of
stockholders' equity titled, "Foreign currency
translation adjustments."
Export Grants Grants received from the Australian government
relating to expenses incurred in connection with
export market development are recognized as income
when conditions for receipt are met.
Taxes on Income The Company accounts for income taxes in accordance
with the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income
Taxes" ("Statement 109"). Under the asset and
liability method of Statement 109, deferred tax
assets and liabilities are recognized for the future
tax consequences attributable to differences between
the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases
and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities, if any, are
measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary
differences are expected to be recovered or settled.
Under Statement 109, the effect on deferred tax
assets and liabilities of a change in tax rates is
recognized in income in the period that includes the
enactment date.
The Company does not provide taxes on unremitted
earnings of its Australian subsidiaries since the
Company's intention is to indefinitely reinvest these
earnings.
F-10
<PAGE>
Essential Resources, Inc.
and Subsidiaries
Summary of Accounting Policies
Fair Value of Financial
Instruments The carrying value of financial instruments at June
30, 1996, including cash, trade and other
receivables, accounts payable, other payables and
loans payable to related parties, approximate fair
value due to the timing of expected settlement of
these financial instruments.
Recent Accounting
Pronouncements In March 1995, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial
Accounting Standards ("Statement No. 121"),
"Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of." The
Company will adopt Statement No. 121 as of July 1,
1996 and its implementation is not expected to have a
material effect on the consolidated financial
statements.
In October 1995, FASB issued Statement of Financial
Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("Statement No. 123") which
establishes a fair value method for accounting for
stock-based compensation plans either through
recognition or disclosure. The Company intends to
adopt the employee stock-based compensation
provisions of Statement No. 123 by disclosing the pro
forma net income and pro forma net income per share
amounts, assuming the fair value method was adopted
July 1, 1996. The adoption of this standard will not
impact the Company's consolidated results of
operations, financial position or cash flows.
F-11
<PAGE>
Essential Resources, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
1. Receivables from
Factors The Company factors a significant portion of its
trade accounts receivable, with recourse, up to
maximums established by the factors for individual
accounts.
2. Inventories Inventories are summarized as follows:
June 30, 1996
- -------------------------------------------------------
Raw materials $117,141
Packaging and supplies 108,140
Finished goods 104,316
- -------------------------------------------------------
Total $329,597
- -------------------------------------------------------
3. Property, Plant
and Equipment Property, plant and equipment are summarized by major
classifications as follows:
June 30, 1996
- ------------------------------------------------------------
Plant and equipment $40,765
Display equipment 31,978
Office equipment 10,065
Furniture and fixtures 7,703
Motor vehicles 2,066
- ------------------------------------------------------------
92,577
Less: Accumulated depreciation 16,286
- ------------------------------------------------------------
$76,291
- ------------------------------------------------------------
F-12
<PAGE>
Essential Resources, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
4. Investment in
Queensland
Essential Oils
Limited During January 1996, the Company acquired 390,000
shares of Queensland Essential Oils Limited
("Queensland Oils"), representing an 11.1% interest
in exchange for 70,910 shares (on a post-split basis)
of the Company's common stock. Queensland Oils, an
Australian company, is a producer of tea tree oil.
The investment is carried at cost.
In June 1996, the Company entered into an agreement
to acquire an additional 27% interest in Queensland
Oils for approximately $537,000, payable over a
period of approximately two years. Since the
acquisition of the 27% interest is subject to
approval by Queensland Oils' stockholders and such
approval has not yet been obtained, the additional
investment and the $537,000 payable, not reflected
in the accompanying consolidated balance sheet.
5. Dividends Payable The Company declared dividends on June 14, 1996,
payable on July 15, 1996, of $.025 per share of
common stock (on a post-split basis) for the quarter
ended June 30, 1996. On September 12, 1996, dividends
payable on October 30, 1996 of $.05 per share of
common stock (on a post-split basis) were declared.
6. Commitments and
Contingencies
(a) In August 1996, the Company entered into an
agreement to purchase 200,000 kilograms of
tea tree oil annually for a period of ten
years.
(b) The Company has an oral agreement (which
terminates in April 1997) to purchase for
approximately $1,000,000 the 246.8 acres of
plantation land currently being leased by
Queensland Oils. Closing is subject to
execution of an agreement satisfactory to the
Company, delivery of clear title to the
property and the securing of Australian
Government Foreign Investment Review Board
approval (Australian law prohibits ownership
of land by foreign corporations without
government approval). The Company does not
currently possess sufficient funds for this
purchase and is currently seeking equity
and/or asset based financing to purchase the
property. There can be no assurance that the
Company will be able to obtain such funding.
F-13
<PAGE>
Essential Resources, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(c) The Company leases approximately 30,000
square feet of manufacturing, warehouse,
distribution and office space in New South
Wales, Australia. The lease expires in 1999.
Future minimum annual rental payments for the
Australian properties are approximately as
follows:
Year ended June 30,
- -------------------------------------------------------------------
1997 $105,000
1998 110,000
1999 112,000
- -------------------------------------------------------------------
Rent expense for the six months ended June
30, 1996 amounted to approximately $66,000.
(d) The Company has entered into several
agreements which provide for consulting,
marketing, promotional and advertising
services. The agreements are primarily for a
period of one year commencing July 1, 1996
and provide for total fees of approximately
$790,000. Approximately $375,000 has been
prepaid at June 30, 1996.
One of the consultants, who received $270,000
of prepayments, loaned the Company $150,000
in August 1996, repayable the earlier of the
closing of any public or private debt or
equity offering of the Company's securities
or February 27, 1997. The loan bears interest
at the rate of 10% per annum. The Company
granted the consultant warrants to purchase
150,000 shares of common stock at a price
equal to the price of any warrants issued in
connection with any public offering.
F-14
<PAGE>
Essential Resources, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
7. Stockholders'
Equity Stock Split
On August 14, 1996, the Company's Board of Directors
approved a two-for-one split of the common stock. The
additional shares resulting from the stock split were
distributed on September 23, 1996, to all
stockholders of record at the close of business on
August 26, 1996. The consolidated balance sheet as of
June 30, 1996 and the consolidated statement of
stockholders' equity for the six months ended June
30, 1996 reflect the recording of the stock split as
if it had occurred on January 1, 1996. Further, all
references in the consolidated financial statements
to average number of shares outstanding and related
prices, per share amounts and stock option data have
been restated for all periods to reflect the stock
split.
8. Stock Option Plan
In April 1996, the Company established The Essential
Resources, Inc. Stock Option Plan (the "Stock Option
Plan") which provides for the issuance of up to
3,850,000 shares of common stock upon exercise of
incentive and nonqualified stock options. The Stock
Option Plan may be administered by the Board of
Directors or by a stock option committee of the Board
of Directors (the "Committee"). Incentive stock
options are granted under the Stock Option Plan to
employees generally on the basis of the recipient's
responsibilities and the achievement of performance
objectives. Subject to the limitations set forth in
the Stock Option Plan, the Board or the Committee has
the authority to determine when the options may be
exercised and vest. Under the Stock Option Plan, the
per share exercise price may not be less than 100% of
the fair market value of the shares on the date of
grant. With respect to any participant who owns stock
possessing more than 10% of the voting rights of the
Company's outstanding capital stock, the per share
exercise price must be at least 110% of the fair
market value on the date of grant and the term may
not be longer than five years. As of June 30, 1996,
options to purchase 2,000,000 shares at $2.50 per
share, exercisable through March 31, 2001, were
outstanding. Subsequent to June 30, 1996, options of
directors and of current and proposed directors and
officers to purchase 700,000 shares (350,000 shares
at $2.62 per share and 350,000 shares at $3.25 per
share exercisable through July 9 and October 7, 2001,
respectively,) have been granted.
F-15
<PAGE>
Essential Resources, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
9. Related Party
Transactions (a) At June 30, 1996, the Company has loans
payable of $525,113 to stockholders with
interest at 10% per annum. The loans are
repayable on the earlier of any public or
private offering of the Company's securities
or at the discretion of the Board of
Directors. Subsequent to June 30, 1996, the
Company borrowed an additional $254,000 from
the stockholders.
(b) In January 1996, the Company acquired assets
consisting of inventories, receivables, plant
and equipment from Collage in consideration
of the issuance of 448,148 shares of common
stock. In June 1996, Collage agreed to
transfer 238,662 of such shares to the
Company in consideration of the Company's
assumption of payment of certain trade
payables of Collage totalling approximately
$479,825 which has been classified as
treasury stock at June 30, 1996. At June 30,
1996, $98,860 of such payables are classified
as long-term since certain vendors have
agreed to accept payment from the proceeds of
sale of the treasury shares. In addition, in
July 1996, Collage pledged the balance
(185,338) of its shares of the Company's
common stock as security for monies owed by
Collage to the Company for purchases of goods
totalling $488,548. The $488,548 receivable
from Collage, a stockholder, has been
classified as a reduction of stockholders'
equity at June 30, 1996. Under the agreement
the Company is entitled to 1/7 of the 185,338
shares pledged each month commencing
September 1996, for each month in which
Collage fails to pay the Company for the
indebtedness. Collage failed to pay the
Company in September and October 1996 and,
accordingly, the Company is entitled to
52,954 of such shares to date.
F-16
<PAGE>
Essential Resources, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(c) In June 1996, the Company entered into an
oral agreement to provide plantation
management and operational support services
to Queensland Oils for a period of 13 months
from June 1, 1996 for an aggregate fee of
$1,185,000. The agreement calls for the
Company to plant 150 acres of tea tree plant
seedlings by June 30, 1997. The oil will be
produced during the fifteen months ending
August 1997. The Company has agreed to accept
payment from the proceeds of the sale of oil
produced. The fee will be recognized as the
fee is collected but not in excess of the
amount recognizable under the percentage of
completion method of accounting. Direct costs
are being deferred and will be charged to
operations based on dollar-for-dollar of the
management fee recognized, with all costs
charged to operations by June 30, 1997. At
June 30, 1996, $62,299 of direct costs has
been deferred. The costs of plantation
management and operational support are
expected to approximate $680,000 for this
period.
(d) In January 1996, the Company acquired from a
stockholder certain tea tree oil consumer
product formulations for 290,912 shares of
the Company's common stock. Upon review of
the formulations provided, the Company
considered that the representations as to the
level of research and development required to
bring them to market were greater than
previously agreed. The Company and the
stockholder agreed to rescind the agreement
and negotiate a royalty agreement for the
Company to pay approximately 5% on the lowest
wholesale selling price. The royalty
agreement is currently under negotiation.
F-17
<PAGE>
Essential Resources, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(e) In January 1996, the Company entered into an
agreement with Fame Decorator Agency Pty Ltd.
("FDA") to acquire 66,125 shares of Jeffries
Industries Limited ("Jeffries Industries"),
in consideration of the issuance of 360,844
shares of the Company's common stock. The
understanding of the parties was that the
Jeffries Industries shares were to be
publicly tradeable on the Australian
exchange. However, in the interim, Jeffries
Industries filed for the Australian
equivalent of bankruptcy reorganization,
which, under Australian law, renders the
shares of Jeffries Industries stock not
publicly tradeable. Inasmuch as the agreement
between the Company and FDA was to effectuate
the exchange of the Company's shares for cash
and such option became unavailable to the
Company, the Company and FDA determined to
rescind the agreement. Accordingly, in June
1996, the Company returned the Jeffries
Industries shares to FDA and FDA returned the
360,844 shares of the Company's common stock,
which shares were cancelled.
(f) The accompanying consolidated statement of
operations for the six months ended June 30,
1996 does not include any compensation to any
of the Company's executive officers since the
Company did not pay and it did not accrue any
compensation to them since it was not
obligated to do so. Employment agreements for
periods subsequent to June 30, 1996 are
currently being negotiated.
10. Major Customer
and Geographic
Area Data During the six months ended June 30, 1996, sales to
one customer in Southeast Asia amounted to
approximately $506,000 or 21.6% of total sales
with no other customer representing more than 10% of
total sales.
F-18
<PAGE>
Essential Resources, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Sales by geographic area for the six months ended
June 30, 1996 were as follows:
- ------------------------------------------------------------------
Australia and New Zealand 38.8%
Southeast Asia 24.9
Mid-Asia 17.8
North Africa 9.3
Japan 8.2
United Kingdom and other 1.0
- ------------------------------------------------------------------
100.0%
- ------------------------------------------------------------------
All identifiable assets at June 30, 1996 were located
in Australia.
11. Taxes on Income
Six months ended June 30, 1996
- -----------------------------------------------------------------
Current $ 91,000
Deferred 79,000
- -----------------------------------------------------------------
Total $170,000
- -----------------------------------------------------------------
Since the Company derived all of its income in
Australia, it is not subject to significant United
States Federal taxes for the period ended June 30,
1996. A reconciliation of the provision for income
taxes to the statutory U.S. rate is as follows:
- ------------------------------------------------------------------------------
Income taxes computed at the U.S.
statutory rate $162,000 35.0%
Effect of Australian tax rate 5,000 1.1
Permanent differences 3,000 .6
- ------------------------------------------------------------------------------
$170,000 36.7%
- ------------------------------------------------------------------------------
F-19
Essential Resources, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
Deferred income tax liabilities at June 30, 1996 are
comprised of the following:
- -----------------------------------------------------------------
Export grants $34,000
Inventories 45,000
- -----------------------------------------------------------------
$79,000
- -----------------------------------------------------------------
At June 30, 1996, unremitted earnings of the
Australian subsidiaries were approximately $293,000.
Since it is the Company's intention to indefinitely
reinvest these earnings, no taxes have been provided
in respect of remittance of these earnings. Upon
distribution of these earnings in the form of
dividends or otherwise, the Company would be subject
to both U.S. income taxes and Australian withholding
taxes. Determination of the related amount of
unrecognized deferred U.S. income tax liability is
not practicable. Australian withholding taxes of
approximately $44,000 would be payable if the
unremitted earnings as of June 30, 1996 were remitted
to the Company.
12. Statements of Supplemental Disclosures of Cash Flow Information
Cash Flows
- ------------------------------------------------------------------------------
Cash paid during the six months ended June 30,
1996 for:
Interest $24,721
Taxes -
- -----------------------------------------------------------
Supplemental Schedule of Noncash Investing and
Financing Activities
During January 1996, the Company acquired an 11.1%
investment in Queensland Oils in exchange for 70,910
shares of common stock.
F-20
<PAGE>
COLLAGE INTERNATIONAL
PTY LIMITED
FINANCIAL STATEMENTS
December 31, 1995
<PAGE>
CONTENTS
REPORT OF CHARTERED ACCOUNTANTS . . . . . . . . . . . . . . F-3
STATEMENTS OF OPERATIONS. . . . . . . . . . . . . . . . . . F-4
STATEMENTS OF CASH FLOWS. . . . . . . . . . . . . . . . . . F-5
NOTES TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . F-6 - F-8
<PAGE>
Report of Independent Chartered Accountants
The Directors
Essential Resources, Inc.
West Orange, New Jersey 07052
We have audited the accompanying statements of income and cash flows of Collage
International Pty Limited (the "Company") for the six months ended December 31,
1995 and the year ended June 30, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Australia which do not differ in any significant respect from
United States 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 results of operations and cash flows of Collage
International Pty Limited for the six months ended December 31, 1995 and the
year ended June 30, 1995, in conformity with accounting principles generally
accepted in the United States.
Hudson Croft Thomas
Chartered Accountants
Partner: Richard H. Hudson
Sydney, Australia
April 11, 1996
<PAGE>
COLLAGE INTERNATIONAL PTY LIMITED
STATEMENTS OF OPERATIONS
Six Months Year
Ended Ended
12/31/95 6/30/95
----------- -----------
Sales (Note 2 and 3) $ 1,456,183 $ 2,315,586
Cost of sales 477,549 1,169,962
----------- -----------
GROSS PROFIT 978,634 1,145,624
Expenses:
Sales and marketing 157,091 503,593
General and administrative 329,709 396,596
Bad debts 306,111 194,108
Depreciation 7,586 15,025
----------- -----------
800,497 1,109,322
----------- -----------
OPERATING INCOME 178,137 36,302
OTHER INCOME (EXPENSE)
Interest income 490 0
Interest expense (7,020) (25,658)
----------- -----------
(6,530) (25,658)
----------- -----------
NET INCOME BEFORE INCOME TAXES 171,607 10,644
Income taxes (Note 5) 59,311 4,311
----------- -----------
NET INCOME $ 112,296 $ 6,333
=========== ===========
See Accompanying Notes to Financial Statements.
F-4
<PAGE>
COLLAGE INTERNATIONAL PTY LIMITED
STATEMENTS OF CASH FLOWS
Six Months Year
Ended Ended
12/31/95 6/30/95
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 112,296 $ 6,333
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 7,586 15,025
Changes in assets and liabilities:
Accounts receivable (58,032) (78,679)
Inventory (309,211) (95,783)
Accounts payable 351,969 78,308
Accrued expenses 72,927 74,956
Current portion of long-term debt 1,415 41,866
Deferred tax benefit (7,904) (63,662)
--------- ---------
TOTAL ADJUSTMENTS 58,750 (27,969)
--------- ---------
Net cash provided by (required for)
operating activities 171,046 (21,636)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (2,739) (22,588)
Proceeds from borrowing 0 26,396
Repayment of debt (133,847) 0
--------- ---------
Net cash provided by (required for) investing
activities (136,586) 3,808
EFFECT OF EXCHANGE RATE CHANGES
ON CASH 1,256 530
--------- ---------
NET INCREASE (DECREASE) IN CASH 35,716 (17,298)
CASH AT BEGINNING OF PERIOD 2,445 19,743
--------- ---------
CASH AT END OF PERIOD $ 38,161 $ 2,445
========= =========
See Accompanying Notes to Financial Statements.
F-5
<PAGE>
COLLAGE INTERNATIONAL PTY LIMITED
NOTES TO FINANCIAL STATEMENTS
Note 1 Summary of Accounting Policies
Business Activity
Collage International Pty Limited (the "Company") is a proprietary
limited company chartered in the State of New South Wales, Australia,
for the purpose of manufacturing and distributing health products.
Revenue Recognition
Revenue is recognized upon shipment of products.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
Foreign Currency Exchange Translation
The Company operates from its headquarters in Sydney, Australia, with
sales in many areas of the world. The accounting records are maintained
using Australian dollars as the base currency. For purposes of these
financial statements, cash and stockholders' equity amounts have been
translated into US dollars at a published rate of exchange at the end
of the fiscal periods presented. Revenue and expense amounts have been
translated at a weighted average of published rates of exchange over
the course of the periods presented.
The applicable rates of exchange (United States cents per Australian
Dollar) are as follows:
December 31, 1995 .7436
June 30, 1995 .7103
June 30, 1994 .7295
Weighted average for six months ended
December 31, 1995 .7270
Weighted average for year ended June 30, 1996 .7199
Bad Debts
Bad debts are accounted for using the direct write-off method. Expense
is recognized only when a specific account is determined to be
uncollectible. The effects of using this method approximate those of
the allowance method.
Inventories
Inventories consist primarily of health product raw materials, finished
goods and packaging materials; they are valued at the lower of cost
(first-in, first-out basis) or market. Costs include materials, labor,
and overhead.
F-6
<PAGE>
COLLAGE INTERNATIONAL PTY LIMITED
NOTES TO FINANCIAL STATEMENTS (continued)
Property and Equipment
Property and equipment are recorded at cost, expenditures for additions
and major improvements are capitalized. Expenditures for repairs and
maintenance and minor improvements are charged to expense as incurred.
When property or equipment is retired or otherwise disposed of, the
related cost and accumulated depreciation are removed from the
accounts. Gains or losses from retirements and disposals are recorded
as other income or expense. Property and equipment are depreciated over
their estimated useful lives. Leasehold improvements and assets
financed under capital leases are amortized over their estimated useful
lives or the lease term, whichever is shorter. Depreciation and
amortization are computed using straight-line and accelerated methods
over the following useful lives:
Years
-----
Plant and equipment . . . . . . . . 5-10
Furniture and fixtures. . . . . . . 7
Transportation equipment. . . . . . 5-10
Income Taxes
The Company utilizes the liability method of accounting for income
taxes as set forth in Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" (SFAS 109). Under the liability
method, deferred taxes are determined based on the difference between
the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the differences are
expected to reverse. An allowance against deferred tax assets is
recorded when it is more likely than not that such tax benefits will
not be realized.
Note 2 Major Customer and Geographic Area Data
Revenue from shipments in the six months ended December 31, 1995 and
the year ended June 30, 1995 to the largest customer represented 14.9%
and 21.0% respectively, of total revenue. Revenue from shipments in the
six months ended December 31, 1995 and the year ended June 30, 1995 to
the second largest customer represented 14.0% and 13.8% respectively,
of total revenue.
Sales by geographical area are as follows:
Six months Year
Ended Ended
12/31/95 6/30/95
---------- ----------
Australia $ 408,841 $ 340,678
Other 1,047,342 804,946
---------- ----------
$1,456,183 $1,145,624
========== ==========
All identifiable assets at December 31, 1995 and June 30, 1995 were
located in Australia.
F-7
<PAGE>
COLLAGE INTERNATIONAL PTY LIMITED
NOTES TO FINANCIAL STATEMENTS (continued)
Note 3 Related Party Transactions
The Company sold the following amounts of products to duty free shops
operated by a related party:
Six months Year
Ended Ended
12/31/95 6/30/95
----------- -----------
$ 382,276 $ 804,629
=========== ===========
Percentage of Total Sales 34.8% 20.2%
Note 4 Leases
Operating leases
The Company conducts a portion of its operations in leased facilities
under noncancelable operating leases expiring through August 15, 1999.
In addition, the Company leases equipment under noncancelable operating
leases expiring through December 2, 1999. The minimum future rental
commitments under operating leases are as follows:
Year ending
June 30, Facilities Equipment Total
----------- ---------- --------- --------
1996 ........... $ 85,844 $ 8,913 $ 94,762
1997 ........... 90,755 15,306 106,061
1998 ........... 95,290 15,306 110,596
1999 ........... 100,055 12,795 112,850
Thereafter ......... 16,948 5,132 22,080
---------- --------- --------
$388,897 $ 57,452 $446,349
========== ========= ========
Rental expense for all operating leases is $45,987 and $60,991 for the
six months ended December 31, 1995 and the year ended June 30, 1995,
respectively.
Note 5 Income Taxes
A reconciliation of the provision for income taxes to the Australian
statutory rate is as follows:
<TABLE>
<S> <C> <C> <C> <C>
Income taxes computed at
the Australian statutory rate $ 61,779 36.0% $ 3,832 36.0%
Other (2,468) (1.4)% 478 4.0%
-------- ---- -------- ----
$ 59,311 34.6% $ 4,311 40.0%
======== ========
</TABLE>
F-8
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this Annual
Report on Form 10-KSB/A to be signed on its behalf by the undersigned,
thereunto duly authorized.
ESSENTIAL RESOURCES, INC.
By: /s/ Phillip Cook
----------------------------------
Phillip Cook
President, Chief Executive
Officer and Chairman of the Board
Dated: October 28, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons, which include the
Principal Executive Officer, the Principal Financial Officer and a majority of
the Board of Directors, on behalf of the Registrant and in the capacities and
on the dates indicated:
Name Title Date
- ---- ----- ----
/s/ Phillip Cook President, Chief Executive Officer, Chief October 28, 1996
- ----------------- Financial Officer and Chairman of the
Phillip Cook Board and a Director (Principal Executive
and Financial Officer)
/s/ Thomas Gaines Director October 28, 1996
- -----------------
Thomas Gaines
<PAGE>
EXHIBIT 3a.
Articles of Incorporation
Of
Altara International, Inc.
I THE UNDERSIGNED natural person of the age of 21 years or more, as acting
incorporator of a corporation under the Private Corporations provisions Section
78-010, et. seq., NEVADA REVISED STATUTES, (hereinafter referred to as the
"N.R.S."), adopt the following Articles of Incorporation for such corporation
ARTICLE I
NAME
The name of the Corporation is ALTARA INTERNATIONAL, INC.
ARTICLE II
PRINCIPAL OFFICE
The initial principal office of the Corporation shall be located at 8 South
Forth Street, Las Vegas, Nevada, 89106, and/or such other
place as the directors shall designate.
ARTICLE III
DURATION
The period of duration of the Corporation is perpetual.
ARTICLE IV
PURPOSES AND POWERS
The purposes for which the Corporation is organized are to engage in any
activity or business not in conflict with the laws of the State of Nevada or of
the United States of America, and without limiting the generality of the
foregoing, specifically, to have and to exercise all the powers now or hereafter
conferred by the laws of the State of Nevada upon corporations organized and any
and all acts amendatory thereof and supplemental thereto.
ARTICLE V
AUTHORIZED SHARES
The aggregate number of shares which the Corporation shall have authority to
issue is 25,000,000 shares, having a par value of $0.001 per share. The
stock shall be designated as Class "A" voting common stock and shall have the
same rights and preferences. The common stock shall not be divided into classes
and may not be issued in series. Fully paid stock of this Corporation shall not
be liable for any further call or assessment. The total capitalization of the
Corporation shall be $25,000.
<PAGE>
ARTICLE VI
PRE-EMPTIVE RIGHTS
No stockholder of the Corporation shall, because of his ownership of stock, have
a pre-emptive or other right to purchase, subscribe for or take part of any of
the notes, debentures, bonds or other securities convertible into or carrying
options for warrants to purchase stock of the Corporation issued, optioned or
sold by it after its incorporation, except as may be otherwise stated in these
Articles of Incorporation or by an amended certificate of said Articles duly
filed, may at any time be issued, auctioned for sale and sold or disposed of by
the Corporation pursuant to the resolution of its Board of Directors to such
person, persons or organizations and upon such terms as may to such Board of
Directors seem proper, without first offering such stock or securities or any
part thereof to existing stockholders, except as required in Article V of these
Articles of Incorporation.
ARTICLE VII
VOTING OF SHARES
Each outstanding share of the class "A" common stock of the Corporation shall be
entitled to one vote on each matter submitted to a vote at a meeting of the
stockholders. Each shareholder shall be entitled to vote his or its shares in
person or by proxy, executed in writing by such shareholder or by its duly
authorized attorney in fact. At each election for directors, every shareholder
entitled to vote at such election shall have the right to vote in person or by
proxy, the number of shares owned by his or it for as many persons as there are
directors to be elected and for whose election he or it has the right to vote,
but the shareholder shall have no right, whatsoever, to accumulate his or its
votes with regard to such election.
ARTICLE VIII
DIRECTORS
The governing board of this Corporation shall be called directors, and the
number of directors may from time to time be specified by the By-laws of the
Corporation at not less than one, nor more than fifteen. When the By-laws do not
specify the number of directors, the number of directors shall be three (3), or
equal to the number of shareholders should there be less than three initial
shareholders. The name of the initial director, being also the incorporator and
sole shareholder, is:
Name Address
Leslie H. Shaw 3760 So. Highland Dr., #300, Salt Lake City,
UT 84106
<PAGE>
which director shall hold office until the first meeting of the shareholders
of the Corporation and until his or her successors have been duly elected and
qualified. Directors need not be residents of the State of Nevada or
shareholders of the Corporation.
ARTICLE IX
INCORPORATOR
The name and address of the sole incorporator and sole initial shareholder of
this Corporation is:
Name Address
Leslie H. Shaw 3760 So. Highland Dr., #300, Salt Lake City,
UT 84106
Dated this 8th day of February 1990.
/s/Leslie H. Shaw
Incorporator
State of Utah )
)ss:
County of Salt Lake )
Personally appeared before me this 8th day of February 1990, Leslie H. Shaw,
signer of the foregoing instrument who being by me first duly sworn, declared
that she is the person who signed the foregoing as incorporator and that the
statements contained therein are true.
/s/NOTARIAL SIGNATURE
[ SEAL ] Notary Public residing in
Salt Lake
<PAGE>
Amendment To The
Articles of Incorporation
of
Zygon Corporation
(Name Changed Herein to Essential Resources, Inc.)
WHEREAS, there was issued by the Secretary of State a Charter dated
March 14, 1990, constituting and creating ALTARA INTERNATIONAL, INC., a
corporation organized under the laws of this state with its principal place of
business in Las Vegas, Nevada, and changed its name to Zygon Corporation on July
27, 1995, and a capital stock of Twenty-Five Thousand Dollars ($25,000.00),
divided into Twenty-Five Million (25,000,000) shares of a par value of one mill
(1/10 cent) each, empowering it to engage in any activity or business not in
conflict with the laws of the State of Nevada or of the United States of
America.
The undersigned, President and Secretary of Zygon Corporation hereby
certify that by resolutions duly adopted unanimously by the Board of Directors
of the Company pursuant to written action effective as of January 10, 1996, and
by resolutions duly adopted by a majority of the shareholders of all classes of
stock outstanding and entitled to vote thereon of the Company pursuant to
written action effective as of January 10, 1996, amending the Articles of
Incorporation as follows:
That Article I, be amended and changed to read as follows:
Name: The name of the Corporation is Essential Resources, Inc.
WHEREFORE, they pray that the Articles of Incorporation of Zygon
Corporation be so amended.
DATED this 12th day of January, 1996.
/s/Jerry Peterson
Jerry Peterson, President
/s/David R. Yeaman
David R. Yeaman, Secretary
STATE OF UTAH )
:ss
County of Salt Lake )
On this 12th day of January, 1996, before me, a notary public,
<PAGE>
personally appeared Jerry Peterson and David R. Yeaman, known to me to be the
persons whose names are subscribed to the within document, and acknowledge that
they executed the same.
/s/NOTARIAL SIGNATURE
Notary Public
[ SEAL ]
<PAGE>
AMENDMENT TO THE
ARTICLES OF INCORPORATION
OF
ALTARA INTERNATIONAL, INC.
(NAME CHANGED HEREIN TO ZYGON CORPORATION)
WHEREAS, there was issued by the Secretary of State a Charter dated
March 14, 1990, constituting and creating ALTARA INTERNATIONAL, Inc., a
corporation organized under the laws of the state with its principal place of
business in Las Vegas, Nevada, and a capital stock of Twenty-Five Thousand
Dollars ($25,000.00), divided into Twenty-Five Million (25,000,000) shares of a
par value of one mill (1/10 cent) each, empowering it to engage in any activity
or business not in conflict with the laws of the State of Nevada or of the
United States of America.
The undersigned, President and Secretary of ALTARA INTERNATIONAL, Inc.
hereby certify that the special meeting of shareholders was held on July 18,
1995. At the time of the meeting there were 1,400,00 shares outstanding and
entitled to vote, 1,360,400 shares present in person or by proxy and the
1,360,400 shares voted in favor of no shares voting against, amending the
Articles of Incorporation as follows:
That Article I, be amended and changed to read as follows:
Name: The name of the Corporation is ZYGON CORPORATION
WHEREFORE, they [ ] that the Articles of Incorporation of
ALTARA INTERNATIONAL, INC. be so amended.
<PAGE>
DATED this 18th day of July, 1995.
/s/JERRY PETERSON
Jerry Peterson, President
/s/ David R. Yeaman
David R. Yeaman, Secretary
STATE OF UTAH )
):
County of Salt Lake )
On this 18th day of July, 1995, before me, a notary public, personally
appeared Jerry Peterson and David R. Yeaman, known to me to be the persons whose
names are subscribed to the within document, and acknowledge that they executed
the same.
/s/NOTARIAL SIGNATURE
Notary Public [ SEAL ]
<PAGE>
EXHIBIT 3b
BY-LAWS
OF
ESSENTIAL RESOURCES, INC.
(A Nevada Corporation)
ARTICLE 1
STOCKHOLDERS
1.1 Place of Meetings. Every meeting of stockholders shall be held at
the office of the Corporation or at such other place within or without the State
of Nevada as shall be specified or fixed in the notice of such meeting.
1.2 Annual Meeting. A meeting of stockholders shall be held for the
election of directors and the transaction of other business at such hour and on
such business day as shall be determined each year by the Board of Directors of
the Corporation (the "Board") and designated in the notice of meeting. If the
annual meeting is not held as herein prescribed, a special meeting for the
election of directors may be called as provided by law.
1.3 Special Meetings of Stockholders. A special meeting of
stockholders, unless otherwise prescribed by statute, may be called at any time
by the Chairman, President, Secretary or the Board. At any special meeting of
stockholders only such business may be transacted as is related to the purpose
of purposes of such meeting set forth in the notice thereof given pursuant to
Section 1.5 of the By-laws.
1.4 Fixing Record Date for Determination of Stockholders of
Record.
1.4.1 In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the Board may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted by the Board, and which record date shall not be more than sixty nor
less than ten days before the date of such meeting. If no record date is fixed
by the Board, the record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
providing, however, that the Board may fix a new
<PAGE>
record date for the adjourned meeting.
1.4.2 In order that the Corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the Board may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board, and which date shall not be more than ten days after the date upon which
the resolution fixing the record date is adopted by the Board. If no record date
has been fixed by the Board, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting, when no
prior action by the Board is required by applicable law, shall be the first date
on which a signed written consent setting forth the action taken or proposed to
be taken is delivered to the Corporation by delivery to its registered office in
the State of Nevada, its principal place of business, or an officer or agent of
the Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board and prior action by the Board is
required by applicable law, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be at
the close of business on the day on which the Board adopts the resolution taking
such prior action.
1.4.3 In order that the Corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board adopts the resolution relating thereto.
1.5 Notice of Meetings of Stockholders.
1.5.1 Except as otherwise provided in Sections 1.4 and 1.6 of
the By-laws, whenever under applicable law or the Certificate of Incorporation
or the By-laws, stockholders are required or permitted to take any action at a
meeting, written notice of the meeting shall be given stating the place, date
and hour of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called.
1.5.2 Unless otherwise provided by applicable law, written
notice of any meeting shall be given, personally or by
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mail, not less than ten nor more than 60 days before the date of the meeting, to
each stockholder entitled to vote at such meeting. If mailed, such notice
shall be deemed to be given when deposited in the United States mail, postage
prepaid, directed to the stockholder at his address as it appears on the
records of the Corporation. An affidavit of the Secretary or an Assistant
Secretary or of the transfer agent of the Corporation that the notice required
by this section has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.
1.5.3 When a meeting is adjourned to another time or place,
notice need not be given of the adjourned meeting if the time and place thereof
are announced at the meeting at which the adjournment is taken. At the adjourned
meeting any business may be transacted that might have been transacted at the
original meeting. If the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
1.6 Waiver of Notice.
1.6.1 Whenever notice is required to be given to any
stockholder under any provision of applicable law or the Certificate of
Incorporation or the By-laws, a written waiver, signed by the stockholder
entitled to notice, whether before or after the time stated therein, shall be
deemed equivalent to notice. Attendance of a stockholder at a meeting shall
constitute a waiver of notice of such meeting, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, 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 stockholders need be specified in any
written waiver of notice.
1.6.2 Whenever notice is required to be given, under any
provision of applicable law or the Certificate of Incorporation or By-laws of
the Corporation, to any stockholder to whom (a) notice of two consecutive annual
meetings, and all notices of meetings or of the taking of action by written
consent without a meeting to such person during the period between such two
consecutive annual meetings, or (b) all, and at least two, payments (if sent by
first class mail) of dividends or interest on securities during a twelve month
period, have been mailed addressed to such person at his address as shown on the
records of the Corporation and have been returned undeliverable, the giving of
such notice to such person shall not be required. Any action or meeting which
shall be taken or held without notice to such person shall have the same force
and effect as if such notice had been duly given. If any such person shall
deliver to the Corporation a written notice setting forth his then current
address, the requirement that notice be given to such
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person shall be reinstated.
1.7 List of Stockholders. The Secretary shall prepare and make, or
cause to be prepared and made, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
1.8 Quorum of Stockholders; Adjournment; Required Vote.
1.8.1 At all meetings of the stockholders, the holders of
shares representing a majority of the votes entitled to be cast at the meeting
shall constitute a quorum for the transaction of any business, except when
stockholders are required to vote by class, in which event the holders of shares
representing a majority of the votes entitled to be cast at the meeting by such
class shall constitute a quorum of such class, except as otherwise provided by
statute or in the Certificate of Incorporation. The holders of shares
representing a majority of the votes entitled to be cast by those present in
person or represented by proxy at any meeting of stockholders, including an
adjourned meeting, whether or not a quorum is present, may adjourn such meeting
to another time and place.
1.8.2 Except as otherwise provided by applicable law, the
Certificate of Incorporation, or the By-laws, the affirmative vote of the
holders of shares representing a majority of the votes entitled to be cast on
the subject by stockholders present in person or represented by proxy at the
meeting shall be the act of the stockholders.
1.9 Voting; Proxies.
1.9.1 Every stockholder of record shall be entitled at every
meeting of stockholders to the number of votes specified in the Certificate of
Incorporation for each share of capital stock standing in his name on the record
of stockholders determined in accordance with Section 1.4 of the By-laws.
1.9.2 Elections of directors need not by written ballot unless the
chairman of the meeting shall deem it desirable. In voting on any other
question on which a vote by ballot is required
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by law or the chairman of the meeting shall deem is desirable, the voting shall
be by ballot. Each ballot shall be signed by the stockholder voting or by his
proxy, and shall state the number of shares voted. On all other questions, the
voting may be via voice.
1.9.3 Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy.
1.10 Selection and Duties of Inspectors at Meetings of Stockholders.
The Board, in advance of any meeting of stockholders, may appoint one or more
inspectors to act at the meeting or any adjournment thereof. If inspectors are
not so appointed, the person presiding at such meeting may, and on the request
of any stockholder entitled to vote thereat shall, appoint one or more
inspectors. In case any person appointed fails to appear or act, the vacancy may
be filled by appointment made by the Board in advance of the meeting or at the
meeting by the person presiding thereat. Each inspector, before entering upon
the discharge of his duties, shall take and sign an oath faithfully to execute
the duties of inspector at such meeting with strict impartiality and according
to the best of his ability. The inspector or inspectors shall determine the
number of shares outstanding and the voting power of each, the shares
represented at the meeting, the existence of a quorum, the validity and effect
of proxies, and shall receive votes, ballots or consents, hear and determine all
challenges and questions arising in connection with the right to vote, count and
tabulate all votes, ballots or consents, determine the result, and do such acts
as are proper to conduct the election or vote with fairness to all stockholders.
On request of the person presiding at the meeting or any stockholder entitled to
vote thereat, the inspector or inspectors shall make a report in writing of any
challenge, question or matter determined by him or them and execute a
certificate of any fact found by him or them. Any report or certificate made by
the inspector or inspectors shall be prima facie evidence of the facts stated
and of the vote as certified by him or them. No director or candidate for office
of director shall act as inspector at an election of directors. Inspectors need
not be stockholders.
1.11 Organization. At every meeting of stockholders, the Chairman of
the Board (the "Chairman") shall act as chairman of such meeting. In the absence
of the Chairman, or if there be none the President or in the absence of the
President, a Vice President, and in case more than one Vice President shall be
present, that Vice President designated by the Board (or in the absence of any
such designation, the Vice President most senior) shall act as chairman of the
meeting. The secretary, or in his absence one of the Assistant Secretaries,
shall act as secretary of the meeting. In case none of the officers so
designated to act as chairman or secretary of the meeting, respectively, shall
be present, a chair-
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man or secretary of the meeting, as the case may be, shall be chosen by the
stockholders.
1.12 Order of Business. The order of business at all meetings of
stockholders shall be as determined by the chairman of the meeting, but the
order of business to be followed at any meeting at which a quorum is present may
be changed by act of the stockholders.
1.13 Written Consent of Stockholders Without a Meeting. Unless
otherwise provided in the Certificate of Incorporation, any action required to
be taken at any annual or special meeting of stockholders of the Corporation, or
any action which may be taken at any annual or special meeting of such
stockholders, may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Each written consent shall bear the date of signature of each stockholder
who signs the consent. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing and who were entitled to vote.
ARTICLE 2
DIRECTORS
2.1 General Powers. Except as otherwise provided in the Certificate of
Incorporation or applicable law, the business and affairs of the Corporation
shall be managed by or under the direction of the Board. The Board may adopt
such rules and regulations, not inconsistent with the Certificate of
Incorporation or the By-laws or applicable law, as it may deem proper for the
conduct of its meetings and the management of the Corporation. In addition to
the powers expressly conferred by the By-laws, the Board may exercise all powers
and perform all acts which are not required, by the By-laws or the Certificate
of Incorporation or by law, to be exercised and performed by the stockholders.
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2.2 Number. The Board of the Corporation shall consist of one or more
directors, the exact total number of directors to be such number as may be fixed
from time to time by vote of a majority of the entire Board.
2.3 Term of Office of Directors. Each director shall hold office until
the next annual meeting of stockholders and until his successor has been elected
and qualified; provided however, that a director may resign at any time.
Directors need not be stockholders.
2.4 Vacancies. Any vacancy occurring in the Board caused by death,
resignation, or removal, and any newly created directorship resulting from an
increase in the number of directors may be filled by a majority of the directors
in office, although less than a quorum, or by the sole remaining director. Each
director chosen to fill a vacancy or newly created directorship shall hold
office until his successor shall be elected and qualified.
2.5 Election. Directors shall, except as otherwise required by law or
by the Certificate of Incorporation, be elected by a plurality of the votes cast
at a meeting of stockholders by the holders of shares entitled to vote in the
election.
2.6 Certain Vacancies. Except as otherwise provided in the Certificate
of Incorporation, when one of more directors shall resign from the Board,
effective at a future date, a majority of the directors then in office,
including those who have so resigned, shall have power to fill such vacancy or
vacancies, the vote thereon to take effect when such resignation or resignations
shall become effective and each director so chosen shall hold office as provided
in this Article in the filling of other vacancies.
2.7 Resignations. Any director may resign at any time by written notice
to the Corporation. Such resignation shall take effect at the time therein
specified, and, unless otherwise specified, the acceptance of such resignation
shall not be necessary to make it effective.
2.8 Removal of Directors or of the Entire Board. Any director may be
removed with or without cause by vote or consent of holders of shares
representing a majority of the votes then entitled to be cast at an election of
directors.
2.9 Compensation. Each director, in consideration of his services as
such, shall be entitled to receive from the Corporation such amount per annum or
such fees for attendance at directors' meetings or both, as the Board may from
time to time determine, together with reimbursement for the reasonable expenses
incurred by
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him in connection with the performance of his duties. Each director who shall
serve as a member of any committee of directors in consideration of his serving
as such shall be entitled to such additional amount per annum or such fees for
attendance at committee meetings, or both, as the Board may from time to time
determine, together with reimbursement for the reasonable expenses incurred by
him in the performance of his duties. Nothing contained in this section shall
preclude any director from serving the Corporation or its subsidiaries in any
other capacity and receiving proper compensation therefor.
2.10 Place and Time of Meetings of the Board. Meetings of the Board,
regular or special, may be held at any place within or without the State of
Nevada. The times and places for holding meetings of the Board may be fixed from
time to time by resolution of the Board or (unless contrary to resolution of the
Board) in the notice, or waiver of notice, of the meeting.
2.11 Annual Meetings. On the day when and at the place where the annual
meeting of stockholders for the election of directors is held, and as soon as
practicable thereafter, the Board may hold its annual meeting, without notice of
such meeting, for the purposes of organization, the election of officers and the
transaction of other business. The annual meeting of the Board may be held at
any other time and place specified in a notice given as provided in Section 2.13
of the By-laws for special meetings of the Board or in a waiver of notice
thereof.
2.12 Regular Meetings. Regular meetings of the Board may be held at
such times and places as may be fixed from time to time by the Board. Unless
otherwise required by the Board, regular meetings of the Board may be held
without notice. If any day fixed for a regular meeting of the Board shall be a
Saturday or Sunday or a legal holiday at the place where such meeting is to be
held, then such meeting shall be held at the same hour at the same place on the
first business day thereafter which is not a Saturday, Sunday or legal holiday.
2.13 Special Meetings. Special meetings of the Board shall be held
whenever called by the Chairman or by the President or by the Secretary, any
Assistant Secretary or by any two or more directors. Notice of each special
meeting of the Board shall, if mailed, be addressed to each director at the
address designated by him for that purpose or, if none is designated, at his
last known address at least two days before the date on which the meeting is to
be held; or such notice shall be sent to each director at such address by
telegraph, cable, telecopier, or wireless, or be delivered to him personally,
not later than the day before the date on which such meeting is to be held.
Every such notice shall state the time and place of the meeting but need not
state the purposes of the meeting, except to the extent required by law. If
mailed, each notice shall be deemed given when deposited, with postage
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thereon prepaid, in a post office or official depository under the exclusive
care and custody of the United States post office department. Such mailing shall
be by first class mail.
2.14 Adjourned Meetings. A majority of the directors present at any
meeting of the Board, including an adjourned meeting, whether or not a quorum is
present, may adjourn such meeting to another time and place. Notice of any
adjourned meeting of the Board need not be given to any director whether or not
present at the time of the adjournment. Any business may be transacted at any
adjourned meeting that might have been transacted at the meeting as originally
called.
2.15 Waiver of Notice. Whenever notice is required to be given to any
director or member of a committee of directors under any provision of applicable
law or of the Certificate of Incorporation or By-laws, a written waiver, signed
by the person entitled to notice, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, 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 directors, or members of a
committee of directors, need be specified in any written waiver of notice.
2.16 Organization. At each meeting of the Board, the Chairman or in the
absence of the Chairman, the President, or in the absence of the President, a
chairman chosen by a majority of the directors present, shall preside. The
Secretary shall act as secretary at each meeting of the Board. In case the
Secretary shall be absent from any meeting of the Board, an Assistant Secretary
shall perform the duties of secretary at such meeting; and in the absence from
any such meeting of the Secretary and all Assistant Secretaries, the person
presiding at the meeting may appoint any person to act as secretary of the
meeting. With the concurrence of a majority of the Board, any person present at
a meeting of the Board may act as chairman or secretary of the meeting,
notwithstanding the presence thereat of the Chairman, President, Secretary, or
an Assistant Secretary, as the case may be.
2.17 Quorum of Directors. A majority of the total number of directors
shall constitute a quorum for the transaction of business or of any specified
item of business at any meeting of the Board.
2.18 Action by the Board. All corporate action taken by the Board or of
any committee thereof shall be taken at a meeting of the Board, or of such
committee, as the case may be, except that any action required or permitted to
be taken at any meeting of the Board, or of any committee thereof, may be taken
without a meeting
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if all members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board or committee. Members of the Board, or any committee designated by
the Board, may participate in a meeting of the Board, or of such committee, as
the case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this sentence shall
constitute presence in person at such meeting. Except as otherwise provided by
the Certificate of Incorporation or By Law, the vote of a majority of the
directors present (including those who participate by means of conference
telephone or similar communications equipment) at the time of the vote, if a
quorum is present at such time, shall be the act of the Board.
ARTICLE 3
COMMITTEES OF THE BOARD
The Board may, by resolution passed by a majority of the whole
Board, designate one or more committees, each committee to consist of one or
more of the directors of the Corporation. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board to
act at the meeting in the place of any such absent or disqualified member. Any
such committee, to the extent provided in the resolution of the Board, shall
have and may exercise all the powers and authority of the Board in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority in reference to amending the
Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the Board of Directors, fix the designations and any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the Corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
Corporation or fix the number of shares of any series of stock or authorize the
increase or decrease of the shares of any series), adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all of substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending the Bylaws; and, unless the resolution
designating it expressly so provides, no such committee shall have the power or
authority to
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declare a dividend or to authorize the issuance of stock or to adopt a
certificate of ownership and merger.
ARTICLE 4
OFFICERS
4.1 Officers, Title, Elections, Terms.
4.1.1 The Corporation shall have a President and a Secretary and
may have a Chairman, one or more Executive Vice Presidents, Senior Vice
Presidents, Vice Presidents, or Assistant Vice Presidents, a Treasurer, a
Controller, each of whom shall be elected by the Board at its annual meeting
following the annual meeting of the stockholders, to hold office until the
meeting of the Board next following the next annual meeting of stockholders and
until his successor has been elected and qualified.
4.1.2 Any number of offices may be held by the same person unless
the Certificate of Incorporation otherwise provides.
4.1.3 Any vacancy in any office may be filled for the unexpired
portion of the term by the Board.
4.1.4 Any officer elected by the Board may be removed with or
without cause at any time by the Board.
4.1.5 Any officer may resign his office at any time by delivering
his resignation to the Chairman, if any, the President, or the Secretary. Such
resignation shall take effect at the time specified therein, or, if no time is
specified, at the time of its receipt by the Corporation. The acceptance of a
resignation shall not be necessary to make it effective, unless expressly so
provided in the resignation.
4.1.6 The salaries of all officers of the Corporation shall be
fixed by the Board.
4.2 Powers and Duties of the Chairman.
The Chairman, if one shall be elected, shall be the chief
executive officer of the Corporation and, subject to the control and direction
of the Board, shall supervise, manage and direct the business of the Corporation
and shall communicate to the Board and any committee thereof reports, proposals,
and recommendations for their respective consideration or action. The Chairman
shall preside at all meetings of the stockholders and of the Board and shall
have and perform such other duties as from time to time may be assigned to him
by the Board.
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4.3 Powers and Duties of President.
The President shall be the chief operating officer of the Corporation
and, subject to the control and direction of the Board and the Chairman, shall
do and perform all other acts and things incident to the position of President,
including the signing of contracts and other documents in the name of the
Corporation, except as may be otherwise provided in these by-laws or ordered by
the Board. If no Chairman shall be elected, or if elected, in his absence, the
President shall perform all duties and exercise all powers of the Chairman. The
President is empowered to appoint Assistant Secretaries or Assistant Treasurers
of the Corporation to serve at his convenience, removable at any time, with or
without, cause by the President.
4.4 Powers and Duties of Executive Vice Presidents,
Senior Vice Presidents, Vice Presidents and
Assistant Vice Presidents.
Each Vice President shall have such powers and perform such duties as
the Board, the Chairman, if any, or the President may from time to time
prescribe, and shall perform such other duties as may be prescribed in these
By-Laws. In the absence of the President, unless the Board shall otherwise
determine, the Vice President most senior in service shall perform all duties
and exercise all powers of the President. In addition, in the absence of the
President, each Vice President shall have the power to appoint Assistant
Treasurers or Assistant Secretaries of the Corporation, removable at any time,
with or without cause, by the President or appointing Vice President.
4.5 Powers and Duties of Treasurer and Assistant Treasurers.
(a) The Treasurer, if one shall be elected, shall have the care and
custody of all the funds and securities of the Corporation except as may be
otherwise ordered by the Board, and shall cause such funds to be deposited to
the credit of the Corporation in such banks or depositories as may be designated
by the Board, and shall cause such securities to be placed in safekeeping in
such manner as may be designated by the Board.
(b) The Treasurer or an Assistant Treasurer or such other person or
persons as may be designated for such purpose by the Board, may endorse in the
name and on behalf of the Corporation all instruments for the payment of money,
bills of lading, warehouse receipts, insurance policies and other commercial
documents requiring such endorsement.
(c) The Treasurer or an Assistant Treasurer or such other person or
persons as may be designated for such purpose by the Board may sign all receipts
and vouchers for payments made to the Corporation; if no Controller shall be
elected, or if elected, in
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his absence, the Treasurer or an Assistant Treasurer shall perform all duties
and exercise all the powers of the Controller.
(d) The Treasurer shall perform such other duties as may be prescribed
in these by-laws or assigned to him by the President and all other acts incident
to the position of Treasurer. Each Assistant Treasurer shall perform such duties
as may from time to time be assigned to him by the Treasurer or by the Board. In
the event of the absence of the Treasurer, then any Assistant Treasurer may
perform any of the duties and may exercise any of the powers of the Treasurer.
If no Treasurer shall be elected, his duties and functions shall be performed by
such person or persons as the Board shall determine.
4.6 Powers and Duties of the Controller.
The Controller, if one shall be elected, shall be in charge of the
accounts of the Corporation; he shall render statements of accounts of the
Corporation to the Board as often as it shall require the same; he shall enter
regularly in books to be kept by him for that purpose, full and accurate account
of all moneys received and paid on account of the Corporation, and of all
securities received and delivered by the Corporation.
4.7 Powers and Duties of Secretary and Assistant Secretaries.
(a) The Secretary shall keep the minutes of all proceedings of the
stockholders, the Board and any committees of the Board in proper books provided
for that purpose. The Secretary shall attend to the giving and serving of all
notices of the Corporation, in accordance with the provisions of the By-Laws and
as required by law. The Secretary shall be the custodian of the seal of the
Corporation. The Secretary may, with the Chairman, President, a Vice President,
or other authorized officer, sign all contracts and other documents in the name
of the Corporation, and shall affix or cause to be affixed the seal of the
Corporation to such contracts and other documents requiring the seal of the
Corporation, and when so affixed may attest the same. He shall perform such
other duties as may be prescribed in these By-Laws or assigned to him by the
President and all other acts incident to the position of Secretary.
(b) Each Assistant Secretary shall perform such duties as may from time
to time be assigned to him by the Secretary or by the Board. In the event of the
absence of the Secretary, then any Assistant Secretary may perform any of the
duties and may exercise any of the powers of the Secretary.
ARTICLE 5
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
5.1 Execution of Contracts. The Board may authorize any
officer, employee or agent, in the name and on behalf of the Cor-
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poration, to enter into any contract or execute and satisfy any instrument, and
any such authority may be general or confined to specific instances, or
otherwise limited.
5.2 Loans. The Chairman, President, the Treasurer, or any other
officer, employee or agent authorized by the By-laws or by the Board may effect
loans and advances at any time for the Corporation from any bank, trust company
or other institutions or from any firm, corporation or individual and for such
loans and advances may make, execute and deliver promissory notes, bonds or
other certificates or evidences of indebtedness of the Corporation, and, when
authorized by the Board or these By-laws so to do, may pledge and hypothecate or
transfer any securities or other property of the Corporation as security for any
such loans or advances. Such authority as conferred by the Board may be general
or confined to specific instances or otherwise limited.
5.3 Checks, drafts, Etc. All checks, drafts and other orders for the
payment of money out of the funds of the Corporation and all notes or other
evidences of indebtedness of the Corporation shall be signed on behalf of the
Corporation in such manner as shall from time to time be determined by
resolution of the Board.
5.4 Deposits. The funds of the Corporation not otherwise employed shall
be deposited from time to time to the order of the Corporation in such banks,
trust companies or other depositories as the Board may select or as may be
selected by an officer, employee or agent to the Corporation to whom such power
may from time to time be delegated by the Board.
ARTICLE 6
STOCK AND DIVIDENDS
6.1 Certificates Representing Shares. The shares of capital stock of
the Corporation shall be represented by certificates in such form (consistent
with the provisions of applicable law) as shall be approved by the Board. Such
certificates shall be signed by the Chairman or the President or a Vice
President and by the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer, and may be sealed with the seal of the Corporation or a
facsimile thereof. The signatures of the officers upon a certificate may be
facsimiles, if the certificate is countersigned in facsimile, or otherwise, by a
transfer agent or registrar other than the Corporation itself or its employee.
In case any officer, transfer agent or registrar who has signed or who facsimile
signature has been placed upon any certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, such
certificate may be issued by the Corporation with the same effect as if such
person was such officer, transfer agent or registrar at the date of issue.
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6.2 Transfer of Shares. Transfers of shares of capital stock of the
Corporation shall be made only on the books of the Corporation by the holder
thereof or by his duly authorized attorney appointed by his power of attorney
duly executed and filed with the Secretary or a transfer agent of the
Corporation, and on surrender of the certificate or certificates representing
such shares of capital stock properly endorsed for transfer (or accompanied by a
properly executed instrument of transfer) and upon payment of all necessary
transfer taxes. Every certificate exchanged returned or surrendered to the
Corporation shall be marked "Cancelled", with the date of cancellation, by the
Secretary or an Assistant Secretary or the transfer agent of the Corporation. A
persons in whose name shares of capital stock shall stand on the books of the
Corporation shall be deemed the owner thereof to receive dividends, to vote as
such owner and for all other purposes as respects the Corporation. No transfer
of shares of capital stock shall be valid as against the Corporation, its
stockholders and creditors for any purpose until such transfer shall have been
entered on the books of the Corporation by an entry showing from and to whom
transferred.
6.3 Transfer and Registry Agents. The Corporation may from time to time
maintain one or more transfer offices or agents and registry offices or agents
at such place or places as may be determined from time to time by the Board.
6.4 Lost, Destroyed, Stolen and Mutilated Certificates. The holder of
any shares of capital stock of the Corporation shall immediately notify the
Corporation of any loss, destruction, theft or mutilation of the certificate
representing such shares, and the Corporation may issue a new certificate to
replace the certificate alleged to have been lost, destroyed, stolen or
mutilated. The Board may, in its discretion, as a condition to the issue of any
such new certificate, require the owner of the lost, destroyed, stolen or
mutilated certificate, or his legal representatives, to make proof satisfactory
to the Board of such loss, destruction, theft or mutilation and to advertise
such fact in such manner as the Board may require, and to give the Corporation
and its transfer agents and registrars, or such of them as the Board may
require, a bond in such form, in such sums and with such surety or sureties as
the Board may direct, to indemnify the Corporation and its transfer agents and
registrars against any claim that may be made against any of them on account of
the continued existence of any such certificate so alleged to have been lost,
destroyed, stolen or mutilated and against any expense in connection with such
claim.
6.5 Regulations. The Board may make such rules and regulations as it
may deem expedient, not inconsistent with the By-laws or with the Certificate of
Incorporation, concerning the issue, transfer and registration of certificates
representing shares of its capital stock.
6.6 Restriction on Transfer of Stock. A written restriction
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<PAGE>
on the transfer or registration of transfer of capital stock of the Corporation,
if permitted by law and noted conspicuously on the certificate representing such
capital stock, may be enforced against the holder of the restricted capital
stock or any successor or transferee of the holder including an executor,
administrator, trustee, guardian or other fiduciary entrusted with like
responsibility for the person or estate of the holder. A restriction on the
transfer or registration of transfer of capital stock of the Corporation may be
imposed either by the Certificate of Incorporation or the By-laws or by an
agreement among any number of stockholders or among such stockholders and the
Corporation. No restriction so imposed shall be binding with respect to capital
stock issued prior to the adoption of the restriction unless the holders of such
capital stock are parties to an agreement or voted in favor of the restriction.
ARTICLE 7
INDEMNIFICATION
7.1 Indemnification of Officers, Directors, Employees or Agents. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he is or was a director, officer, employee or agent of the
Corporation (the "Indemnitee"), or is or was serving at the request of the
Corporation as a director, officer, Trustee, employee or agent of another
corporation, 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 to the fullest extent and in the manner set forth in
and permitted by law, and any other applicable law, as from time to time in
effect. Such right of indemnification shall not be deemed exclusive of any other
rights to which the Indemnitee may be entitled apart from the provisions of this
Article 7. The foregoing provisions of this Section 7.1 shall be deemed to be a
contract between the Corporation and each director, officer, employee or agent
who serves in such capacity at any time while this Article 7 and the relevant
provision of applicable law, if any, are in effect, and any repeal or
modification thereof shall not affect any rights or obligations then existing
with respect to any state of facts then or theretofore existing or any action,
suit or proceeding theretofore or thereafter brought or threatened based in
whole or in part upon any such state of facts. The indemnification and
advancement of expenses provided by or granted pursuant to this Article 7 shall,
unless otherwise provided when authorized or granted, 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.
7.2 Advancement of Expenses. Expenses incurred by an offi-
16
<PAGE>
cer, director, employee, or agent in defending a civil or criminal action, suit
or proceeding may be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director, officer, employee or agent to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified by the
Corporation as authorized in this Article.
7.3 Insurance. The Corporation shall have power 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, 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 this Article 7 or any other provision
of law.
7.4 Definitions. For purposes of this Article 7:
7.4.1 References to "the Corporation" shall include, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
this Article with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
7.4.2 References to "other enterprises" shall include employee
benefit plans.
7.4.3 References to "fines" shall include any excise taxes assessed
on a person with respect to any employee benefit plan.
7.4.4 References to "serving at the request of the Corporation"
shall include any service as a director, officer, trustee, employee or agent of
the Corporation which imposes duties on or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants or beneficiaries.
7.5 Limitation on Indemnification. Notwithstanding any other provision
of these By-laws, no person shall be indemnified by the
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<PAGE>
Corporation in connection with any action, suit, or proceeding in which he is a
plaintiff, unless the Board shall otherwise determine.
ARTICLE 8
BOOKS AND RECORDS
8.1 Books and Records. The Corporation shall keep correct and complete
books and records of account and shall keep minutes of the proceedings of the
stockholders, the Board and any committee of the Board. The Corporation shall
keep at the office designated in the Certificate of Incorporation or at the
office of the transfer agent or registrar of the Corporation, a record
containing the names and addresses of all stockholders, the number and class of
shares held by each and the dates when they respectively became the owners of
record thereof.
8.2 Form of Records. Any records maintained by the Corporation in the
regular course of its business, including its stock ledger, books of account,
and minute books, may be kept on, or be in the form of, punch cards, magnetic
tape, photographs, microphotographs, or any other information storage device,
provided that the records so kept can be converted into clearly legible written
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
ARTICLE 9
SEAL
The Board may adopt a corporate seal which shall be in the form of a
circle and shall bear the full name of the Corporation, the earliest year of
incorporation of the constituent corporations and the word "Nevada."
ARTICLE 10
FISCAL YEAR
The fiscal year of the Corporation shall commence on January 1 unless
otherwise determined by resolution of the Board.
ARTICLE 11
SECURITIES HELD BY THE CORPORATION
11.1 Voting. Unless otherwise provided by resolution of the Board, the
Chairman, President, any Vice President, Secretary or the Treasurer shall be,
and each hereby is, authorized and empowered, on behalf of the Corporation, (a)
to attend, act, and vote at any meeting of the stockholders or holders of other
securities or interests of any corporation or other entity in which the
Corporation may hold stock or other security or interest, or to consent in
writing to or dissent in writing from, any action to be
18
<PAGE>
taken by any such stockholders or holders of other securities or interests; (b)
to appoint one or more attorneys in fact or agents of the Corporation, on behalf
of the Corporation, so to attend, act and vote at any such meeting, or so to
consent to dissent in writing; (c) in the discretion of any such officer, to
instruct any attorney in fact or agent so appointed as to the manner of
attending, acting or voting or consenting or dissenting in writing, as to any
matter; and (d) to execute or cause to be executed such written proxies or other
instruments as any officer may deem appropriate to effectuate any of the
foregoing. The Board may from time to time confer any of the foregoing authority
and power upon any other person or persons.
11.2 General Authorization to Transfer Securities Held by the
Corporation.
11.2.1 The Chairman, the President, any Vice President,
Secretary and the Treasurer of the Corporation shall each be, and each hereby
is, authorized and empowered to endorse, transfer, sell, assign, set over,
pledge, or hypothecate, or convert, exchange, or exercise, or tender or withdraw
from tender, and deliver or surrender any and all shares of stock, bonds,
debentures, notes, evidences of indebtedness, warrants or rights, or other
securities of other corporations or entities now or hereafter standing in the
name of or owned by the Corporation, and to make, execute and deliver, any and
all written instruments of assignment and transfer, or conversion, exchange,
exercise, or transmittal, or other documents or instruments necessary or proper
to effectuate the authority hereby conferred.
11.2.2 Whenever there shall be annexed to any endorsement or
instrument of transfer, sale, assignment, transfer, pledge, or hypothecation or
conversion, exchange, or exercise, or tender or withdrawal from tender, executed
pursuant to and in accordance with Section 11.2.1, a certificate of the
Secretary or an Assistant Secretary of the Corporation in office at the date of
such certificate setting forth the provisions of this Section 11.2 and stating
that they are in full force and effect and setting forth the names of persons
who are then officers of the Corporation, then all persons to whom such
instrument and annexed certificate shall thereafter come, shall be entitled,
without further inquiry or investigation and regardless of the date of such
certificate, to assume and to act in reliance upon the assumption that the
shares of stock or other securities named in such instrument were theretofore
duly and properly endorsed, transferred, sold, assigned, set over, pledged, or
hypothecated, or converted, exchanged, or exercised, or tendered or withdrawn
from tender, and delivered or surrendered by the Corporation, and that with
respect to such securities the authority of these provisions of the By-laws and
of such officers is in full force and effect.
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<PAGE>
ARTICLE 12
AMENDMENTS
The By-laws may be altered, amended, supplemented or repealed, or new
By-laws may be adopted, by vote of the holders of the shares entitled to vote in
the election of directors; provided, however that the Corporation may, in its
Certificate of Incorporation, confer the power to adopt, amend or repeal By-Laws
upon the Board. Any By-laws adopted, altered, amended, or supplemented by the
Board may be altered, amended, or supplemented or repealed by the stockholders
entitled to vote thereon.
20
<PAGE>
EXHIBIT 4
NUMBER SHARES
ER
ESSENTIAL RESOURCES, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA SEE
REVERSE FOR CERTAIN DEFINITIONS
CUSIP 29668k 10 7
THIS CERTIFIES that
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, OF THE PAR VALUE
$.001 PER SHARE, OF THE COMMON STOCK
of ESSENTIAL RESOURCES, INC. transferable on the books of the
Corporation by the holder hereof in person or by duly authorized attorney, on
surrender of this certificate properly endorsed.
This certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated: [ ]
[ ]
[ CORPORATE SEAL ]
[ ]
[ ]
/s/PHILLIP G. COOK
/s/THOMAS GAINES PRESIDENT
SECRETARY SECRETARY
<PAGE>
The Corporation will furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights. Such request may be addressed to the Secretary of the Corporation
or to the Transfer Agent and Registrar named on the face of this Certificate.
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:
<TABLE>
<S> <C>
TEN COM -as tenants in common UNIF GIFT MIN ACT - _______ Custodian________
TEN ENT -as tenants by the entireties (Cust) (Minor)
JT TEN -as joint tenants with the right of under Uniform Gifts to Minors
survivorship and not as tenants Act____________
in common (State)
</TABLE>
Additional abbreviations may also be used though no 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
-----------
X
------------------------------------
--------------------------------------
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.
Signature(s) Guaranteed:
By
The signature(s) should be guaranteed by an eligible guarantor institution,
(Banks, Stockbrokers, Savings and Loan Associations and Credit Unions with
membership in an approved signature guarantee Medallion Program), pursuant to
S.E.C. Rule 17Ad-15.
<PAGE>
Exhibit 10e
RESCISSION AGREEMENT
AGREEMENT made as of the 27thof June, 1996, by and between
Essential Resources, Inc. (formerly known as Zygon Corporation), a Nevada
corporation (the "Company") and Petra Bonita Limited, corporation formed under
the laws of the Cayman Islands ("Petra Bonita") (the "Agreement").
W-I-T-N-E-S-S-E-T-H
WHEREAS, Petra Bonita owned an interest in certain assets (the
"Assets") of Formulations, an Australian company ("Formulations"); and
WHEREAS, on or about January 30, 1996, the Company and Petra
Bonita entered into an agreement pursuant to which the Company acquired certain
Assets of Formulations (the "Asset Acquisition"); and
WHEREAS, in connection with the Asset Acquisition, Petra Bonita
was issued Two Hundred and Ninety Thousand Nine Hundred and Twelve (290,912)
shares of the common stock, $001 par value (the "Common Stock") of the Company
(the "Petra Bonita Shares"); and
WHEREAS, the parties hereto have agreed that the Asset Acquisition
transaction should be rescinded in view of certain mutual misunderstandings
between such parties.
NOW, THEREFORE, in consideration of the mutual premises and
covenants contained herein, the parties agree as follows.
<PAGE>
RESCISSION OF ASSET ACQUISITION
1. The Company and Petra Bonita hereby acknowledge that there has
been a mutual misunderstanding between the parties as a result of a lack of
research and development of certain tea tree oil formulations by Petra Bonita
believed by the Company to have been further developed at the time the Company
acquired such formulations from Petra Bonita. Accordingly, the parties agree
that the Asset Acquisition shall hereby be rescinded effective as of the date
hereof. The transaction shall hereinafter be deemed null and void in all
respects, as if such transaction shall never have occurred.
2. The Company hereby returns all right, title and interest to the
Assets to Petra Bonita. The Company hereby warrants and represents, upon which
warranties and representations Petra Bonita relies, that Petra Bonita, upon
tender of the Assets by the Company: (i) will be the lawful owner of the Assets;
and (ii) will have good and marketable title to the Assets, free and
clear of all claims, encumbrances, security interests or liens of any kind of
nature whatsoever, except as to any claims, encumbrances, security interests or
liens existing upon the transfer of the Assets from Petra Bonita to the Company.
3. Petra Bonita hereby tenders the Petra Bonita Shares to the
Company. Petra Bonita hereby warrants and represents, upon which warranties and
representations the Company relies, that upon delivery of the Petra Bonita
Shares from Petra Bonita: (i) the Company will be the lawful owner, of record
and beneficially, of
2
<PAGE>
the Petra Bonita Shares and will have good and marketable title to the Petra
Bonita Shares, free and clear of all claims, encumbrances, security interests or
liens of any kind of nature whatsoever, and with no restriction on the voting
rights and other incidents of record and beneficial ownership pertaining
thereto; and (ii) there are no agreements or understandings between Petra Bonita
and any other person, firm, corporation, or other entity respecting the voting
of any of the Petra Bonita Shares.
4. Petra Bonita hereby tenders the Petra Bonita Shares by delivery
of the stock certificates evidencing the same together with executed stock
powers.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
5. The Company further represents and warrants, upon which
representations and warranties Petra Bonita relies as follows:
(a) The Company is a corporation duly organized, validly existing,
and in good standing under the laws of Nevada and has all requisite power and
authority (corporate and other) to own, lease and operate its properties and
carry on its business as it is now being conducted and to enter into this
Agreement and to consummate the transactions contemplated hereunder;
(b) The Company has the full, absolute and unrestricted right,
power, legal capacity and authority to enter into this Agreement, to transfer
the Assets to Petra Bonita and to carry out the transactions contemplated
hereby; the execution and consummation of this Agreement will not violate any
statute, law,
3
<PAGE>
regulation, rule, court or administrative judgment, order or decree which is
applicable to the Company. All actions of the Company necessary to authorize it
to execute, deliver and consummate this Agreement and to transfer the Assets to
Petra Bonita have been duly and validly authorized and taken, and no further
actions or authorizations are required. This Agreement constitutes the valid,
legally binding obligation of the Company and is enforceable in accordance with
its terms; and
(c) The execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement will not:
(i) result in any breach of, or constitute a default under,
the Certificate or Articles of Incorporation or Bylaws of the Company, or any
instrument or obligation to which the Company is a party or by which it is
bound, or;
(ii) violate any existing statute, order, writ, injunction or
decree of any court, administrative agency or governmental body.
REPRESENTATIONS AND WARRANTIES OF PETRA BONITA
6. Petra Bonita further represents and warrants, upon which
representations and warranties the Company relies, as follows:
(a) Petra Bonita is a corporation duly organized, validly
existing, and in good standing under the laws of the Cayman Islands and has all
requisite power and authority (corporate and
4
<PAGE>
other) to own, lease and operate its properties and carry on its business as it
is now being conducted and to enter into this Agreement and to consummate the
transactions contemplated hereunder;
(b) Petra Bonita has the full, absolute and unrestricted right,
power, legal capacity and authority to enter into this Agreement, to transfer
the Petra Bonita Shares to the Company and to carry out the transactions
contemplated hereby; the execution and consummation of this Agreement will not
violate any statute, law, regulation, rule, court or administrative judgment,
order or decree which is applicable to Petra Bonita. All actions of Petra Bonita
necessary to authorize it to execute, deliver and consummate this Agreement and
to transfer the Petra Bonita Shares to the Company have been duly and validly
authorized and taken, and no further actions or authorizations are required.
This Agreement constitutes the valid, legally binding obligation of Petra Bonita
and is enforceable in accordance with its terms; and
(c) The execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement will not:
(i) result in any breach of, or constitute a default under,
the Certificate or Articles of Incorporation or Bylaws of Petra Bonita, or any
instrument or obligation to which Petra Bonita is a party or by which it is
bound, or;
(ii) violate any existing statute, order, writ, injunction or
decree of any court, administrative agency or
5
<PAGE>
governmental body.
MISCELLANEOUS
7. All notices hereunder shall be in writing and shall be mailed
by first class registered or certified mail, postage prepaid, return receipt
requested, or by prepaid telegram or telex and all communications shall be
addressed to the addresses of the parties hereto as such parties shall designate
by notice to the other party.
8. This Agreement contains the final, complete and exclusive
understanding of the parties with respect to its subject matter and all prior
negotiations, discussions, commitments and understandings heretofore had between
them with respect thereto are merged herein. Except as otherwise expressly
provided herein, all the terms and conditions of this Agreement shall bind and
inure to the benefit of, and be enforceable by, the heirs and the respective
successors and assigns of the parties hereto. This Agreement may not be modified
or amended except by an instrument in writing signed by the Company and Petra
Bonita
9. The titles and headings of the sections of this Agreement are
included for the convenience of the parties only and are not part of this
Agreement.
10. Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable under any applicable
6
<PAGE>
law or rule in any jurisdiction, provided such provision does not go to the very
essence of this Agreement, such provision will be ineffective only to the extent
of such invalidity, illegality or unenforceability in such jurisdiction, without
invalidating the remainder of this Agreement in such jurisdiction or any
provision hereof in any other jurisdiction.
11. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, and all of which shall
constitute but one and the same document.
12. At any time, and from time to time, each party agrees, at its,
his or their expense, to take such actions and to execute and deliver such
documents as may be reasonably necessary to effectuate the purposes of this
Agreement.
13. This Agreement shall be governed in all respects, whether as
to validity, construction, interpretation, capacity, performance or otherwise,
by the laws of the State of New Jersey.
IN WITNESS WHEREOF, the parties have duly executed this Agreement
as of the date first written above.
ESSENTIAL RESOURCES, INC.
By:__________________________
Phillip Cook
Chief Executive Officer
PETRA BONITA LIMITED
By:__________________________
7
<PAGE>
Exhibit 10f
RESCISSION AGREEMENT
AGREEMENT made as of the 29th day of June, 1996, by and
between Essential Resources, Inc. (formerly known as Zygon Corporation), a
Nevada corporation (the "Company") and Fame Decorator Agencies Pty Limited, a
corporation formed under the laws of New South Wales, Australia ("Fame") (the
"Agreement").
W-I-T-N-E-S-S-E-T-H
WHEREAS, Fame owned Sixty-Six Thousand One Hundred and
Twenty-Five (66,125) converting preference shares of Jeffries
Industries Limited ("Jeffries"), an Australian company (the
"Jeffries Shares"); and
WHEREAS, on or about January 30, 1996, the Company and Fame
entered into an agreement pursuant to which the Company acquired the Jeffries
Shares (the "Jeffries Share Acquisition"); and
WHEREAS, in consideration of the Jeffries Share Acquisition,
Fame was issued Ninety Thousand Two Hundred and Eleven (180,422) shares of the
common stock, $001 par value (the "Common Stock") of the Company (the "Fame
Shares"); and
WHEREAS, the parties hereto have agreed that the Jeffries
Share Acquisition transaction should be rescinded in view of certain mutual
misunderstandings between such parties.
NOW, THEREFORE, in consideration of the mutual premises and
covenants contained herein, the parties agree as follows.
<PAGE>
RESCISSION OF THE JEFFRIES SHARE ACQUISITION
1. The Company and Fame hereby agree that there has
been a mutual misunderstanding between the parties in that the Jeffries Shares
were to be publicly tradeable on the Australian Exchange. However, in the
interim, Jeffries filed for the Australian equivalent of bankruptcy
reorganization, which, under Australian law, renders the shares of Jeffries
Shares of Common Stock not publicly tradeable. Inasmuch as the agreement between
the Company and FDA was to exchange the Company's shares for cash and such
option became unavailable to the Company, the Company and Fame hereby rescind
the agreement. The transaction shall hereinafter be deemed null and void in all
respects, as if such transaction shall never have occurred.
2. The Company hereby returns all right, title and interest to
the Jeffries Shares to Fame. The Company hereby warrants and represents, upon
which warranties and representations Fame relies, that upon tender of the
Jeffries Shares by the Company: (i) Fame will be the lawful owner, of record and
beneficially, of the Jeffries Shares and will have good and marketable title to
the Jeffries Shares, free and clear of all claims, encumbrances, security
interests or liens of any kind of nature whatsoever, and with no restriction on
the voting rights and other incidents of record and beneficial ownership
pertaining thereto; and (ii) there are no agreements or understandings between
the Company and any other person, firm, corporation, or other entity respecting
the voting of any of the Jeffries Shares.
2
<PAGE>
3. The Company hereby tenders the Jeffries Shares by delivery of
the stock certificates evidencing the same together with executed stock powers.
4. Fame hereby returns all right, title and interest to the
Fame Shares to the Company. Fame hereby warrants and represents, upon which
warranties and representations the Company relies, that upon tender of the Fame
Shares by Fame: (i) the Company will be the lawful owner, of record and
beneficially, of the Fame Shares and will have good and marketable title to the
Fame Shares, free and clear of all claims, encumbrances, security interests or
liens of any kind of nature whatsoever, and with no restriction on the voting
rights and other incidents of record and beneficial ownership pertaining
thereto; and (ii) there are no agreements or understandings between Fame and any
other person, firm, corporation, or other entity respecting the voting of any of
the Fame Shares.
5. Fame hereby tenders the Fame Shares by delivery of
the stock certificates evidencing the same together with executed
stock powers.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
6. The Company further represents and warrants, upon
which representations and warranties Fame relies as follows:
(a) The Company is a corporation duly organized, validly
existing, and in good standing under the laws of Nevada and has all requisite
power and authority (corporate and other) to own, lease and operate its
properties and carry on its business as it is now
3
<PAGE>
being conducted and to enter into this Agreement and to consummate the
transactions contemplated hereunder;
(b) The Company has the full, absolute and unrestricted right,
power, legal capacity and authority to enter into this Agreement, to transfer
the Jeffries Shares to Fame and to carry out the transactions contemplated
hereby; the execution and consummation of this Agreement will not violate any
statute, law, regulation, rule, court or administrative judgment, order or
decree which is applicable to the Company. All actions of the Company necessary
to authorize it to execute, deliver and consummate this Agreement and to
transfer the Jeffries Shares to Fame have been duly and validly authorized and
taken, and no further actions or authorizations are required. This Agreement
constitutes the valid, legally binding obligation of the Company and is
enforceable in accordance with its terms; and
(c) The execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement will not:
(i) result in any breach of, or constitute a default
under, the Certificate or Articles of Incorporation or Bylaws of
the Company, or any instrument or obligation to which the Company
is a party or by which it is bound, or;
(ii) violate any existing statute, order, writ,
injunction or decree of any court, administrative agency or
governmental body.
4
<PAGE>
REPRESENTATIONS AND WARRANTIES OF FAME
7. Fame further represents and warrants, upon which
representations and warranties the Company relies, as follows:
(a) Fame is a corporation duly organized, validly existing,
and in good standing under the laws of South Wales, Australia and has all
requisite power and authority (corporate and other) to own, lease and operate
its properties and carry on its business as it is now being conducted and to
enter into this Agreement and to consummate the transactions contemplated
hereunder;
(b) Fame has the full, absolute and unrestricted right, power,
legal capacity and authority to enter into this Agreement, to transfer the Fame
Shares to the Company and to carry out the transactions contemplated hereby; the
execution and consummation of this Agreement will not violate any statute, law,
regulation, rule, court or administrative judgment, order or decree which is
applicable to Fame. All actions of Fame necessary to authorize it to execute,
deliver and consummate this Agreement and to transfer the Fame Shares to the
Company have been duly and validly authorized and taken, and no further actions
or authorizations are required. This Agreement constitutes the valid, legally
binding obligation of Fame and is enforceable in accordance with its terms; and
(c) The execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement will not:
5
<PAGE>
(i) result in any breach of, or constitute a default
under, the Certificate or Articles of Incorporation or Bylaws of
Fame, or any instrument or obligation to which Fame is a party or
by which it is bound, or;
(ii) violate any existing statute, order, writ,
injunction or decree of any court, administrative agency or
governmental body.
MISCELLANEOUS
8. All notices hereunder shall be in writing and shall be
mailed by first class registered or certified mail, postage prepaid, return
receipt requested, or by prepaid telegram or telex and all communications shall
be addressed to the addresses of the parties hereto as such parties shall
designate by notice to the other party.
9. This Agreement contains the final, complete and exclusive
understanding of the parties with respect to its subject matter and all prior
negotiations, discussions, commitments and understandings heretofore had between
them with respect thereto are merged herein. Except as otherwise expressly
provided herein, all the terms and conditions of this Agreement shall bind and
inure to the benefit of, and be enforceable by, the heirs and the respective
successors and assigns of the parties hereto. This Agreement may not be modified
or amended except by an instrument in writing signed by the Company and Fame
10. The titles and headings of the sections of this
6
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Agreement are included for the convenience of the parties only and are not
part of this Agreement.
11. Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable under any applicable law or rule in any jurisdiction, provided
such provision does not go to the very essence of this Agreement, such provision
will be ineffective only to the extent of such invalidity, illegality or
unenforceability in such jurisdiction, without invalidating the remainder of
this Agreement in such jurisdiction or any provision hereof in any other
jurisdiction.
12. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and
all of which shall constitute but one and the same document.
13. At any time, and from time to time, each party agrees, at its,
his or their expense, to take such actions and to execute and deliver such
documents as may be reasonably necessary to effectuate the purposes of this
Agreement.
14. This Agreement shall be governed in all respects,
whether as to validity, construction, interpretation, capacity,
7
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performance or otherwise, by the laws of the State of New Jersey.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first written above.
ESSENTIAL RESOURCES, INC.
By:
Phillip Cook
Chief Executive Officer
FAME DECORATOR AGENCIES PTY
LIMITED
By
8
<PAGE>
NOTE: INFORMATION OTHERWISE CONTAINED IN [BRACKETED] PORTIONS OF
THIS DOCUMENT HAS BEEN DELETED PURSUANT TO AN APPLICATION FOR
CONFIDENTIAL TREATMENT.
EXHIBIT 10g
DATED 1996
Essential Nature Products Limited
and
ANC Resources Pty Limited
[ ]
[ ]
DEED RELATING TO THE
SALE OF
TEA TREE OIL
ROSENBLUM & PARTNERS
Solicitors and Attorneys
Level 29 Govenor Phillip Tower
1 Farrer Place
Sydney NSW
Australia
Telephone: (02) 258-5811
Fax: (02) 258-5800
<PAGE>
DEED made the day of 1996
BETWEEN: Essential Nature Products Pty Limited of Level 1, 20 Loftus
Street Sydney NWS 2000
("Buyer")
AND: ANC Resources Pty Limited of 4D/35-37 Hawthorne Parade,
Haberfield NSW 2045
("Seller")
AND: [ ] of 9 Bathurst Street Greystanes NSW 2145
("NPEO")
AND: [ ] of ("[ ]")
WHEREAS:
A. The NPEO and KYW are the joint owners of the Tea Tree Farms
and the Tea Trees.
B. NPEO and KYW are joint ventures whose business involves the:
(i) harvesting of Tea Tress grown on the Tea Tree Farms;
and
(ii) processing and distilling the Tea Tree Produce to
produce the substance known as tea tree oil which is
produced by processing and distilling the Tea Tree
Produce.
C. NPEO has agreed pursuant to agreements with the Seller to
supply the Seller with the substance known as tea tree oil
which is produced by processing and distilling the Tea Tree
Produce upon the terms and conditions contained in the
agreements copies of which are attached in Schedule 1 (the
"Purchase Agreements").
D. The Buyer is a subsidiary of Essential Resources Inc.
E. The Buyer has agreed to buy from the Seller and the Seller
has agreed to sell to the Buyer the Tea Tree Oil upon the
terms and conditions of this Deed.
<PAGE>
NOW THIS DEED WITNESSES:
1 DEFINITIONS AND INTERPRETATION
1.1 In this Deed (including the recitals to this Deed) unless the
context otherwise requires:
"Deed" means this Deed, the Schedules, and any document that
varies or supplements it;
"Expert" means the person determined pursuant to clause 3.5;
"Finally Determined" has that meaning ascribed in clause 4.5;
"Market Price" means the price per kg of the Tea Tree Oil
determined in accordance with clause 3.3;
"Named Port" means one of the ports listed in Schedule 3 which
is notified to the Seller by the Buyer in writing at least 20
Business Days before the delivery date notified to the Buyer
by the Seller;
"Named Vessel" means the vessel nominated by the buyer in
writing at least 20 Business Days before the delivery date
notified to the Buyer by the Seller;
"Prevailing Purchase Price" means the price per kg of Tea Tree
Oil determined in accordance with clause 3.2;
"Purchase Price" means the price per kg of Tea Tree Oil as
determined pursuant to clause 3.1 from time to time;
"Tea Trees" means the trees of the melaleuca variety that are
grown for harvest on the Tea Tree Farms;
"Tea Tree Produce" means the produce of the harvest of Tea
Trees which includes all those parts of the Tea Trees which
grow above the ground and which are cut down and collected in
accordance with normal agricultural practice for harvesting
Tea Trees.
1.2 References to recitals, clauses, sub-clauses, paragraphs,
annexures or schedules are references to recitals, clauses,
sub-clauses, paragraphs, annexures and schedules of or to this
Deed.
1.3. Headings in this Deed are for convenience only and do not
affect its interpretation or construction.
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1.4 In this Deed, unless the context acquires:
(a) The singular incudes the plural and vice versa;
(b) each gender includes the other two genders;
(c) the word "person" means a natural person and any
association, body or entity whether incorporated or
not;
(d) the word "month" means calendar month and the word
"year" means 12 calendar months;
(e) a reference to writing includes any communication
sent by post or facsimile transmission;
(f) where any word or phrase is defined, any other part
of speech or other grammatical form of that word or
phrase has a cognate meaning;
(g) "Business Day" means a day other than a Saturday,
Sunday or public holiday in New South Wales.
2. PURCHASE OF TEA TREE OIL
2.1 The Buyer shall purchase all of the first 200 tonnes of Tea
Tree Oil in any year, and the Seller shall sell all such Tea
Tree Oil exclusively to the Buyer.
2.2 Any amounts of Tea Tree Oil in any year in excess of 200
tonnes shall be offered for sale by the Seller to the Buyer on
the terms and conditions contained in this Deed. The Seller
shall not sell, offer to sell or otherwise dispose of any such
Tea Tree Oil to any person other than the Buyer unless it has
made a written offer to sell such Tea Tree Oil to the Buyer in
accordance with this sub-clause 2.2 and the Buyer has not
accepted the offer within 20 Business Days of receiving it.
3. PURCHASE PRICE
3.1 For each kg of Tea Tree Oil bought and sold pursuant to clause
2.1 the Purchase Price is:
(a) for the first tonne of Tea Tree Oil A$[ ] per kg
of Tea Tree Oil; and
(b) thereafter, the lesser of A$[ ] per kg of Tea Tree
Oil or the Prevailing Purchase Price determined
pursuant to clause 3.2.
3.2 For the purposes of paragraph 3.1(b), if at any time the
Market Price per kg of Tea Tree Oil is less than 95% of the
Purchase Price at that time the Prevailing Purchase Price
shall be the Market Price at that time.
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3.3 The Market Price per kg of Tea Tree Oil is the price per kg
agreed between the Buyer and Seller in writing after
negotiating in good faith and if the Buyer and Seller fail to
agree on a price per kg for the Tea Tree Oil the price per kg
as determined pursuant to clause 3.4.
3.4 If the Buyer and Seller fail to agree on a price per kg for
the Tea Tree Oil in clause 3.3 or on the 2nd Price in clause
7.5, the Expert may determine the Market Price per kg for the
Tea Tree Oil, by determining the price a willing buyer would
pay to a willing seller at arms length pre kg of the Tea Tree
Oil in Australia and in so determining, may have regard to:
(a) the quality and quantity of the Tea Tree Oil;
(b) prices current at the time the determination by the
Expert is required for the oily substance known as
tea tree oil including any weighted average prices or
any published indicative prices in Australia; and
(c) market demand for the oily substance known as tea
tree oil.
3.5 If the Buyer and Seller:
(a) fail to agree on a price per kg for the Tea Tree Oil;
(b) require an Expert for the purposes of clause 4.5; or
(c) fail to agree on the 2nd Price in clause 7.5.
the Buyer and Seller shall agree on an appropriately qualified
or experienced independent person to be the Expert to
determine the price per kg for the Tea Tree Oil or be the
Expert to make the determination in clause 4.5 as the case may
be. If the Buyer and Seller cannot agree on such an Expert
within 10 Business Days of failing to agree on the Market
Price per Kg of Tea Tree Oil or failing to negotiate the
dispute for the purposes of clause 4.5, they shall request the
President for the time being of the Australian Institute of
Valuers and Land Economists (Inc.)(or any successor body) to
appoint such an appropriately qualified or experienced
independent person to be the Expert to determine the price per
kg for the Tea Tree Oil or be the Expert for the purposes of
clause 4.5 as the case may be.
3.6 The parties shall give the Expert access to all information
which he or she requires and which is controlled or at the
disposal of each of the parties for the purposes making any
determinations under this Deed.
3.7 The Expert will act an expert and not as an arbitrator for the
purposes of this Deed and his or her decision shall be final
and binding on the Buyer and Seller.
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3.8 The costs of the Expert shall be borne equally by the parties.
4. PAYMENT TERMS
4.1 Within 10 Business Days of entering this Deed, the Buyer will
pay A$[ ] to the Seller in consideration for the first
tonne of Tea Tree Oil to be supplied to the Buyer by the
Seller under clause 2.1.
4.2 After the first tonne of Tea Tree Oil is supplied to the Buyer
by the Seller under clause 2.1, payment for the Tea Tree Oil
supplied to the Buyer by the Seller under clause 2.1 shall be
made to the Seller by the Buyer by means of an irrevocable
letter of credit or bank guarantee in favour of the Seller
established by he Buyer's bank from time to time and such
letter of credit of bank guarantee shall be paid in full no
later than 20 Business Days after written notice of the Tea
Tree Oil supplied to the Buyer by the Seller under clause 2.1
has been delivered by the Seller in accordance with clause
5.1.
4.3 The Buyer shall give written notice to the Seller of the
relevant payment details not later than 30 Business Days prior
to the schedule delivery date of the Tea Tree Oil.
4.4 If there is a bona fide dispute as to the amount payable by
the Buyer under clause 4 whether as a result of the quantity
or quality of the Tea Tree Oil (or if that amount has not been
Finally Determined by the date on which it is due) then, on
the due date, the Buyer will pay the Seller the portion not in
dispute or the portion which has been Finally Determined. The
Buyer will pay the Seller the balance (if any) within 10
Business Days after the dispute has been resolved or the
amount has been Finally Determined.
4.5 For the purposes of clause 4.4 "Finally Determined" means
determined by the Buyer and the Seller after negotiating in
good faith to resolve the dispute in clause 4.4 and if the
dispute in clause 4.4 is not resolved and a determination is
not made, the determination of the Expert.
5. DELIVERY OF TEA TREE OIL FREE ON BOARD
5.1 The Tea Tree Oil supplied to the Buyer by the Seller under
clause 2.1 shall be delivered in suitable containers on board
the Named Vessel lying at the Named Port on the delivery date
which shall be nominated by the Seller by written notice to
the Buyer at least 30 Business Days before the deliver date
for tat Tea Tree Oil. The Seller shall promptly notify the
Buyer that the Tea Tree Oil has been delivered aboard. Title
and risk in the Tea Tree Oil and the containers in which they
are delivered shall pass to the Buyer upon such delivery being
effected. The Seller shall promptly provide the Buyer with a
clean shipped bill of lading in respect of the Tea Tree Oil.
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<PAGE>
5.2 The Buyer shall reserve the necessary space on the Named
Vessel and give Seller due notice of the loading berth and any
revised delivery dates to the Named Vessel. The Buyer shall
bear any additional cost caused due to the failure of the
named Vessel to be available to load the Tea Tree Oil on the
delivery date as revised.
5.3 For the purposes of ensuring that sufficient space is reserved
by the Buyer and for the purposes of determining the amount
payable under clause 4 for the Tea Tree Oil the Seller shall
notify the Buyer in the same written notice notifying the
delivery date of the Tea Tree Oil in clause 5.1 the weight of
Tea Tree Oil proposed to be delivered in kilograms and the
number of containers in which the Tea Tree Oil is to be
delivered.
6. WARRANTIES
6.1 The Seller represents and warrants that:
(a) the Seller is the sole legal and beneficial owner of
the Tea Tree Oil and that the Tea Tree Oil is not the
subject of any mortgage, charge, crop, lien,
encumbrance or security interest nor subject to any
other third party claim;
(b) the Tea Tree Oil supplied from time to time under
this Deed is of the standard specified in Schedule 2;
(c) the Tea Tree Oil supplied from time to time under
this Deed is fit for the purpose for which goods of
the same kind are commonly supplied and any other
purpose made known to the Seller;
(d) the Tea Tree Oil supplied from time to time under
this Deed is of merchantable quality and be free from
any defect in material and workmanship;
(e) it is entitled to sell to the Buyer the Tea Tree Oil
pursuant to the terms and conditions of this Deed.
6.2 NPEO and KYW jointly and severally represent and warrant to
the Buyer that they grow Tea Trees on Tea Tree Farms and that
they are in the business of producing the oily substance known
as tea tree oil.
6.3 The Buyer shall have no obligation to purchase any Tea Tree
Oil from the Seller in accordance with this Deed if any
representation or warranty in this clause 6 is untrue or
breached, as the case may be, unless the breach is in respect
of any of the warranties contained in clause 6.1(b)-(h) and
such breach is remedied by the Seller to the satisfaction of
the Buyer within 10 Business Days of the Seller receiving
notice of the breach.
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<PAGE>
7. DURATION, TERMINATION AND DEFAULT
7.1 The Seller, at any time may by notice in writing to the Buyer
immediately terminate this Deed if:
(a) the Buyer becomes an externally administered body
corporate" (as defined in section 9 of the
Corporations Law); or
(b) the Buyer defaults in the performance of any other
obligation it owes to the Sellers or under this Deed
and where the default is capable of remedy the Buyer
does not remedy the default within 20 Business Days
after it receives written notice of the default from
the Seller.
7.2 The Buyer, at any time may by notice in writing to the Seller
immediately terminate this Deed if:
(a) the Seller, NPEO or KYW becomes an "externally
administered body corporate" (as defined in section 9
of the Corporations Law); or
(b) the Seller defaults in the performance of any other
obligation it owes to the Buyer or under this Deed
and where the default is capable of remedy the Seller
doe snot remedy the default within 20 Business Days
after it receives written notice of the default from
the Buyer.
7.3 The Buyer may at any time by notice in writing to the Seller
immediately terminate this Deed if the Seller defaults in the
performance of any obligation under this Deed and where the
default is capable of remedy the Seller does not remedy the
default within 10 Business Days after it receives written
notice of the default from the Buyer.
7.4 Subject to clause 7.5 and unless terminated earlier under
another sub-clause in clause 7, this Deed shall come into
force on the date of this Deed and shall continue in force for
a period of 5 years.
7.5 The Buyer may at its option extend the period in clause 7.4
from 5 years after the date of this Deed to 10 years after the
date of this Deed upon giving notice to the other parties of
its intention to do so on any Business Day within 5 years of
the date of this Deed. If the Buyer exercises such an option:
(a) this Deed shall be construed as if the period in
clause 7.4 always referred to 10 years and the Deed
shall continue in force for a total period of 10
years;
(b) the amount of A$[ ] in paragraph 3.1(b) will be
deemed to be replaced after the expiry of 5 years
from the date of this Deed with such amount as is
agreed in writing by the Buyer and the Seller after
negotiating in good
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<PAGE>
faith at the time of exercising the option (the
"1st Price"), provided that the 1st Price does not
exceed A$[ ] and if the Buyer and the Seller fail to
agree on the 1st Price, the 1st Price shall be A$[ ];
(c) the Buyer and the Seller shall negotiate in good
faith, to determine price per kg of Tea Tree Oil for
the purposes of clause 7.6 (the "2nd Price") provided
that if the Buyer and the Seller fail to agree on the
2nd Price, the 2nd Price shall be the Market Price of
Tea Tree Oil as determined by the Expert pursuant to
clause 3;
(d) the Seller shall exercise the option in the agreement
between the Seller and NPEO dated 1 August 1996 (a
copy of which is attached in Schedule 1) to renew the
agreement and NPEO and KYW will severally use their
best endeavors to procure the exercise of the option
by the Seller.
7.6 If the Buyer exercises the option in clause 7.5, the Buyer may
at its option further extend the period in clause 7.4 from 10
years after the date of this Deed to 15 years after the date
of this Deed upon giving notice to the other parties of its
intention to do so on any Business Day within the 10 years of
the date of this Deed. If the Buyer exercises such an option
this Deed shall be construed as if period in clause 7.4 always
referred to 15 years and the Deed shall continue in force for
a total period of 15 years. If the Buyer exercises such an
option, the 1st Price in paragraph 3.1(b) will be deemed to be
replaced after the expiry of 10 years from the date of this
Deed with the 2nd Price.
7.7 The termination of this Deed will not prejudice any right,
power or remedy to the extent that it accrued prior to or on
termination.
8. EXCUSES FOR NON PERFORMANCE - FORCE MAJEURE
8.1 The obligations of a party other than the obligation to pay
money shall be suspended during the time and to the extent
that the party is prevented from or delayed in complying with
them by force majeure.
8.2 Force majeure means a circumstance beyond the reasonable
control of a party and which occurs without the fault or
negligence of the party affected.
8.3 Force majeure includes:
(a) strike, lockout, industrial action, accident, storm,
flood, fire, drought, earthquake, explosion, peril of
navigation;
(b) hostility, war (declared or undeclared),
insurrection;
(c) executive or administrative order or act of either
general or particular application of any government
whether official or unofficial or of any
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official purporting to act under the authority of
that government prohibition;
(d) restriction by domestic or foreign laws, regulars or
policies;
(e) quarantine or customs restrictions; or
(f) breakdown or damage to or confiscation of property.
8.4 The party affected by the force majeure shall:
(a) as soon as possible after being affected, give to
each other party full particulars of the force
majeure and the manner in which its performance is
prevented or by which it is delayed; and
(b) promptly and diligently take appropriate action to
enable it to perform the obligations prevented or
delayed by force majeure, except that the party is
not obliged by this paragraph (b) to settle a strike,
lockout or other industries unrest.
9. DEALINGS
9.1 The Seller will not transfer, assign, declare any trust or
create any mortgage, charge, lien, encumbrance or security
interest or any other similar third party claim (whether
similar to those mentioned in this Deed or not) over the
Seller's interest in the Tea Tree Oil, without the prior
written consent of the Buyer, which consent must not be
unreasonably withheld.
9.2 The Buyer must not assign or encumber or attempt to assign or
encumber any right or interest under this Deed without the
prior written consent of the Seller, which consent must not be
unreasonably withheld.
9.3 The Seller must not assign or encumber, or attempt to assign
or encumber its interest under this Deed without the prior
written consent of the Buyer which consent must not be
unreasonably withheld.
9.4 The Seller will not during the term of this Deed assign,
transfer, devise, part with, share the possession of, or grant
any license affecting,k or mortgage, charge or otherwise deal
with, or dispose of its rights to purchase Tea Tree Oil under
the Purchase Agreements unless:
(a) the Seller gives to the Buyer not less than one (1)
month's notice in writing of its desire to deal with
its rights to purchase Tea Tree Oil under the
Purchase Agreements;
(b) the Seller is not, at or after the time of giving the
notice referred to in
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clause 9.4(a), in default in the observance and
performance of the terms and conditions contained or
implied in this Deed:
(c) the Seller pays to the Buyer at the time of giving
the notice referred to in clause 9.4(a) a
non-refundable reasonable fee as notified in writing
by the Buyer to the Seller to cover administrative
expenses and also pays to the Buyers its costs and
disbursements of and incidental to the matters
referred to in this clause 9.4;
(d) the proposed assigned, transferrer, or licensee
proves to the satisfaction of the Buyer that he is a
suitable, respectable, responsible and solvent
person, financial substantial and otherwise capable
of performing the obligations of the Seller under
this Deed.
(e) the assignee, transferee, or licensee referred to in
clause 9.4(d) enters into a Deed upon the same terms
and conditions as this Deed; and
(f) The Seller enters into a deed in the form required by
the Buyer under which it release the Buyer from all
claims which the Seller then has, or may thereafter
have, against the Buyer in respect of, or in any way
arising from, this Deed and pursuant to which the
Seller guarantees the performance of the assignee,
transferee, or licensee referred to in clause 9.4(e).
9.5 For the purposes of clause 9.4 the following circumstances
occurring at any time during the term of this Deed shall
constitute an assignment of the Seller's rights to purchase
Tea Tree Oil under the Purchase Agreements:
(a) if, any corporation or any related corporation (as
defined in the Corporations Law as at the date of
this Deed) holding or holding between them not more
than fifty percent (50%) of the issued capital or
voting rights of the Seller, acquires or acquire
between them so much of the issued capital or voting
rights of the Seller as, when added to the issued
capital or voting rights (if any) previously held by
such corporation or related corporations, represents
in the aggregate more than fifty percent (50%) of the
issued capital or voting rights of the Seller;
(b) if any person or any person and his relatives (as
defined in the Income Tax Assessment Act 1936 as at
the date of this Deed) holding or holding between
them not more than fifty percent (50%) of the issued
capital or the voting rights of the Seller acquires
or acquire between them so much of the issued capital
or voting rights as, when added to the issued capital
or voting rights (if any) previously held by such
person or persons, represents in the aggregate more
than fifty percent (50%) of the issued capital or
voting rights of the Seller; or
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(c) if, the changes referred to in clauses 9.5(a) and (b)
occur in any holding company (as defined in the
Corporations Law as at the date of this Deed) of the
Seller or in any holdings company of any holding
company of the Seller.
9.6 NPEO and KYO will not during the term of this Deed assign,
transfer, demise, part with, share the possession of, or grant
any license affecting, or mortgage, charge or otherwise deal
with, or dispose of their Tea Tree Farms, their business of
producing the oily substance known as tea tree oil and/or
their rights under either of the Purchase Agreements unless:
(a) NPEO and/or KYO as the case may be give to the Buyer
not less than one (1) month's notice in writing of
its desire to deal with the Tea Tree Farms and/or
their business of producing the oily substance known
as tea tree oil and/or their rights under the
Purchase Agreements;
(b) the proposed assignee, transferee, or licensee proves
to the satisfaction of the Buyer that he is a
suitable, respectable, responsible and solvent
person, financially substantial and otherwise capable
of performing the obligations of the NPEO and/or KYO
as the case may be under the Purchase Agreements;
(c) the assignee, transferee, or licensee referred to in
clause 9.6(b) enters into an agreement upon the same
terms and conditions as the Purchase Agreements with
the Seller or such other terms agreed to in writing
by the Buyer; and
(d) NPEO and/or KYO as the case may be enter into a deed
in the form required by the Buyer pursuant to which
the NPEO and/or KYO jointly and severally guarantee
the performance of the assignee, transferee, or
licensee referred to in clause 9.6(c).
9.7 For the purposes of clause 9.6 the following circumstances
occurring at any time during the term of this Deed shall
constitute or be deemed to constitute an assignment of NPEO's
and/or KYW's Tea Tree Farms and/or their business of producing
the oiling substance known as tea tree oil and/or their rights
under the Purchase Agreements:
(a) if, any corporation or any related corporation (as
defined in the Corporations Law as at the date of
this Deed) holding or holding between them not more
than fifty percent (50%) of the issued capital or
voting rights of either NPEO or KYW or both, acquires
or acquire between them so much of the issued capital
or voting rights of either NPEO or KYW or both as,
when added to the issued capital or voting rights (if
any) previously held by such corporation or related
corporations, represents in the aggregate more than
fifty percent (50%) of the issued capital or voting
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rights of NPEO and/or KYW as the case may be;
(b) If any person or any person and his relatives (as
defined in the Income Tax Assessment Act 1936 as at
the date of this Deed) holding or holding between
them not more than fifty percent (50%) of the issue d
capital or the voting rights of either NPEO or KYW or
both acquires or acquire between them so much of the
issued capital or voting rights as, when added to the
issued capital or voting rights (if any) previously
held by such person or persons, represents in the
aggregate more than fifty percent (50%) of the issued
capital or voting rights of NPEO and/or KYW as the
case may be; or
(c) if, the changes referred to in clauses 9.7(a) and (b)
occur in any holding company (as defined in the
Corporations Law as at the date of this Deed) of
either NPEO or KYW or in any holding company of any
holding company of either NPEO or KYW.
10. EXCLUSIVITY
10.1 The Seller shall not sell any Tea Tree Oil to any person other
than the Buyer.
10.2 NPEO and KYW shall not dispose of any of their produce of the
oily substance known as tea tree oil to any person other than
the seller under the Purchase Agreements.
10.3 NPEO and KYW shall not dispose of any of their Tea Tree
Produce before it is produced into the oily substance known as
tea tree oil without the written consent of the Buyer.
11. STAMP DUTY
11.1 The Buyer agrees to pay all of the stamp duty payable in
relation to this Deed.
12. GOVERNING LAW AND JURISDICTION
12.1 The validity, interpretation and performance of this Deed
shall be governed by and construed in accordance with the law
of the State of New South Wales and which the parties
acknowledge is the proper law of this Deed.
12.2 Each of the parties irrevocably agrees that the courts of the
State of New South Wales and shall have jurisdiction to hear
and determine any suit, action or proceeding, and to settle
any disputes, which may arise out of or in connection with
this Deed and for such purposes irrevocably submits to the
jurisdiction of such courts. The submission to the
above-mentioned jurisdiction shall not (and shall not be
construed so as to) limit the rights of either party to take
proceedings against the other in any other court of competent
jurisdiction nor shall the taking
13
<PAGE>
of proceedings in any jurisdiction preclude the taking of
proceedings in another jurisdiction, whether concurrently or
not.
13. ENTIRE DEED
13.1 This Deed contains the entire understanding between the
parties in relation to its subject matter. There are no
express or implied conditions, warranties, promises,
representations or obligations, written or oral, in relation
to this Deed other than those expressly state in it or
necessarily implied by law.
14. NOTICES
14.1 A notice or other communication required or permitted to be
given by a party to another shall be in writing and
(a) delivered personally;
(b) sent by post, postage prepaid; or
(c) sent by facsimile transmission
to that party's address for service that is set out in this
Deed or notified in writing to each party from time to time.
14.2 A notice or other communication shall be taken, for the
purposes of this Deed, to have been given if:
(a) personally delivered, upon delivery;
(b) mailed, on the expiration of 2 Business Days after
the date of posting; or
(c) sent by facsimile transmission, on the day it is sent
(or, if that is not a Business Day, on the next
Business Day).
14.3 For the purposes of clause 14.1 the facsimile number of the
parties (until an alternative number is notified in writing)
shall be:
(a) for the Buyer - 9251 8070
(b) for the Seller - 9975 6177
(c) [ ]
(d) [ ]
14
<PAGE>
15. NO PARTNERSHIP
15.1 This Deed is not intended to create or evidence a partnership.
16. STATUTORY REQUIREMENTS
16.1 In carrying out its obligations under this Deed, the Buyer
shall comply with the requirements of all acts, regulations,
ordinances, by-laws, permits and other lawful directions of
competent authorities.
17. COUNTERPARTS
17.1 This Deed may be executed in any number of duplicate originals
or counterparts.
17.2 This Deed shall not come into effect until each party has
executed either it or a duplicate original or counterpart of
it.
18. SEVERABILITY
18.1 If any provision of this Deed is invalid, void or
unenforceable, all other provisions which are capable of
separate enforcement without regard to an invalid, void or
unenforceable provision are and shall continue to be of full
force and effect in accordance with their terms.
18.2 If a provision that is invalid, void, voidable or
unenforceable is fundamental to the continuation of this Deed,
the parties shall meet promptly to consider an amendment
prepared by the Buyer. If the parties cannot agree on an
amendment, they shall refer it to arbitration.
EXECUTED as a Deed.
THE COMMON SEAL of ESSENTIAL )
NATURE PRODUCTS PTY LIMITED )
is affixed in accordance with the Articles ) /s/ John Reece
--------------
of Association: ) Director
Name: John Reece
/s/ Wai Yok Lee
- ---------------------------------------------
Secretary/Director/Authorized Person
Name:Wai Yok Lee
15
<PAGE>
THE COMMON SEAL of ANC )
RESOURCES PTY LIMITED is affixed )
in accordance with the Articles ) /s/Susanna Lee
---------------
of Association: ) Director
- ---
Name:Susanna Lee
/s/Wai Yok Lee
- ---------------------------------------------
Secretary/Director/Authorized Person
Name:
THE COMMON SEAL of [ ] )
is affixed in accordance with the Articles ) ---------------
of Association: ) Director
Name:
- ---------------------------------------------
Secretary/Director/Authorized Person
Name:
SIGNED for and on behalf of [ ] )
in the presence of: ) -------------------------
) [Agent or other capacity]
Name:
- ---------------------------------------------
Name:
16
<PAGE>
Schedule 1
Purchase Agreements
17
<PAGE>
AGREEMENT
This Agreement is entered into this 1st day of August, 1996
The Agreement is between ANC Resources Pty. Ltd. whose registered office is at
109-111 Shepherd Street Chippendale and [ ] (NPEO) whose
registered office is at [ ].
AGREEMENT
1. ANC agrees to purchase all the Tea Tree Oil that will be produced by
NPEO at its farms located in [ ] under terms and conditions set out in
this Agreement.
2. ANC agrees to pay NPEO U.S. $[ ] ex distillery for kg. of
Tea Tree Oil purchased from NPEO.
3. NPEO agrees to sell all the production of Tea Tree Oil that will be
produced on its farms in [ ] under terms and conditions wet out
in this Agreement.
4. ANC agrees to supply all data required by the joint venture to
successfully grow its plantations and produce Tea Tree Oil to a
standard that is acceptable to the market.
INSURANCE
ANC will be responsible for implementing an insurance program covering loss and
damage of goods immediately on receipt of shipping documents indicating that the
goods to be insured have been accepted on board at a nominated [ ].
ANC will not be responsible for the insurance of the goods whikle in transit
from the distillery to the nominated port.
TERMS OF PAYMENT
ANC agrees that it shall pay for all goods covered in this agreement by
telegraphic transferring monies due for payment for each shipment to the
nominated bank account of NPEO immediately after sighting shipping documents
relevant to the shipment.
TERM OF THE AGREEMENT
The term of this Agreement is 5 years, with a 10 year option following agreement
by both parties on price, commencing from the date this agreement is signed. The
Agreement can be extended following a signed agreement between both parties
being lodged six months before the expiry date of this Agreement.
1
<PAGE>
TERMINATION
This Agreement can be terminated only under the following conditions:
1. ANC is unable to meet the commitments to purchase the Tea Tree Oil that
NPEO has produced at its plantation in [ ]. NPEO then has the right to
sell the Tea Tree Oil to any party it chooses.
2. NPEO fails to meet its commitments to produce Tea Tree Oil from its
plantations in Vietnam.
PENALTIES
Penalties will apply if this Agremeent is terminated.
1. NPEO has the right to recover financial losses from ANC if any such
losses are incurred by NPEO following termination of this Agreement as
set out in Clause 1. of "TERMINATION".
2. ANC has the right to recover financial losses from NPEO if any such
losses are incurred by ANC following termination of this Agreement as
set out in Clause 2. of "TERMINATION".
GOVERNING LAW
The construction and performance of this Agreement will be governed by the laws
of NEW SOUTH WALES.
ANC Resources Pty. Ltd. Signed [Seal]
/s/Wai Yok Lee
Witnessed
Date
[ ] Signed [Seal]
Witnessed
Date
2
<PAGE>
Schedule 2
Standard of Tea Tree Oil
To the standard specified in the draft International Standard for Oil of the
Melaleuca - Terpinen- 4-ol type in ISO/DIS 4730 until the final International
Standard Oil of the Melaleuca - Terpinen- 4-ol type in ISO 4730 is issued were
upon the standard shall be that specified in ISO 4730.
Notwithstanding the above standard.
1. the parties may agree in writing to a superior standard to the one
specified above from time to time for the purposes of this Deed; and
2. the Buyer may by written notice to the Seller nominate an inferior
standard to the one specified above from time to time for the purposes
of this Deed.
<PAGE>
Schedule 3
Named Ports
1. In the case of Tea Tree Oil produced in China - from such ports
situated in Hong Kong as are notified to the Buyer; or
2. In the case of Tea Tree Oil produced in Vietnam - from such ports
situated in Ho Chi Minh City are notified to the Buyer; or
3. Such other ports notified to the Buyer from time to time.
<PAGE>
EXHIBIT 10n
Land Titles Office Use Only
LEASE
Real Property Act 1900
Office of State Revenue Use Only
(A) PROPERTY LEASED
Show no more than 20 References to Title.
Specify the part or premises if appropriate.
PART Folio Identifier 329/778003 being Unit 4,
43-45 Egerton Street, Silverwater
(B) LODGED BY
L.T.O. BOX Name, Address or DX and Telephone
937K Brophy Bridge & Mirow
DX 1181
Sydney
Reference (max. 15 characters): WJM
(C) LESSOR VYRIL ANTHONY VELLA
(D) The lessor leases to the lessee the property described above
subject to the following ENCUMBRANCES
1. 2. 3. 4.
(E) LESSEE [L] COLLAGE INTERNATIONAL PTY LIMITED ACN
003 984 441 of Unit 4, 43-45 Egerton Street,
Silverwater
TENANCY:
1. Term: 3 years
2. Commencing Date: 15 August 1996
3. Terminating Date: 14 August 1999
4. With an OPTION TO RENEW for a period of set out in
5. With an OPTION TO PURCHASE set out in
6. Together with and reserving the RIGHTS set out in Annexure "A"
7. Incorporates the provisions set out in ANNEXURE "B" hereto.
8. Incorporates the provisions set out in MEMORANDUM NO. X916489
filed in the Land Titles Office.
Instructions for filling out this form are available from the land titles office
CHECKED BY (office use only) [ ].
<PAGE>
(H) DATE We certify this dealing correct for the purposes of the Real
Property Act 1900.
Signed in my presence by the lessor who is personally known to me.
- -----------------------------------
Signature of Witness
- -----------------------------------
Name of Witness (Block Letters)
- ----------------------------------- -----------------------
Address of Witness Signature of Lessor
Signed in my presence by the lessee who is personally known to me
THE COMMON SEAL OF COLLAGE INTERNATIONAL PTY LIMITED [ SEAL ]
was hereunto affixed in accordance with
its Articles of Association
and in the presence of: -
- ----------------------------- ------------------------
Name of Witness Signature of Lessee
I solemnly and sincerely declare that the time for the exercise of the Option to
Renew/Purchase in expired lease No_________ has ended and the lessee under that
lease has not exercised the option. I make solemn declaration conscientiously
believing the same to be true and by virtue of the Oaths Act, 1900.
Made and subscribed at ________ in the State of _________on________ 19_____ in
the presence of
- ------------------------------
Signature of Witness
- ------------------------------
Name of Witness (Block Letters)
- ------------------------------ -----------------------
Address and Qualification of Witness Signature of Lessor
<PAGE>
ANNEXURE "A" TO LEASE BETWEEN VYRIL ANTHONY VELLA AND COLLAGE
INTERNATIONAL PTY LIMITED DATED DAY OF 1995
The Lessor reserves until himself the following rights and
liberties:-
The right to maintain and repair or replace all gas, water and other services,
pipes, conduits, ducts and electricity and telephone wires passing through the
Demised Premises and the right to run water, oil, gas, air, waste and
electricity in or through the said pipes, conduits, ducts, or wires to other
parts of the building.
<PAGE>
ANNEXURE "B" TO LEASE BETWEEN VYRIL ANTHONY VELLA AND COLLAGE
INTERNATIONAL PTY LIMITED DATED DAY OF 1995
1. AMENDMENTS TO MEMORANDUM
Clauses 4, 5 and 6 of Memorandum No. X916489 shall not apply to this
lease.
2. RENT
2.01 The Lessee covenants with the Lessor that the Lessee will during the
whole of the term hereby granted pay to the Lessor or as the Lessor
shall direct in writing free of exchange and all deductions the rent
specified in this clause and in Item 2 of the Reference Schedule of
this Lease by equal monthly installments in advance.
2.02 The rent payable during the period form 15 August 1996 to 31 March 1997
shall be calculated at the rate per annum specified in Item 2 of the
Reference Schedule.
2.03 The rent payable during the period from 1 April 1997 to 31 March 1998
shall be which ever is the greater of:-
(a) the rent per annum payable during the period referred to
in Clause 2.02 plus five per cent (5%) thereof;
(b) the rent per annum ascertained in accordance with Clause
3 hereof.
2.04 The rent payable during the period from 1 April 1998 to 31 March 1999
shall be the rent payable under Clause 2.03 hereof plus fiver per cent
(5%) thereof.
2.05 The rent payable during the period from 1 April 1999 to 14 August 1999
shall be calculated at the rate per annum of which ever is the greater
of:-
(a) the rent per annum payable during the period referred to
in Clause 2.04 plus five per cent (5%) thereof; and
(b) the rent per annum ascertained in accordance with Clause
3 hereof.
3. CURRENT MARKET RENT
3.01 Whenever the rent is to be ascertained in accordance with this clause,
the rent ascertained shall be the current annual market rent in respect
of the premises as at the date of commencement of the relevant period,
and is in this clause referred to as the "Annual Market Rent."
<PAGE>
3.02 The Lessor shall within the period commencing sixty (60) days
period to the date of commencement of the relevant period and
expiring thirty (30) days after the date of commencement of
the relevant period give a written notice to the Lessee
specifying the amount which the Lessor considers to be the
Annual Market Rental as at the date of commencement of the
relevant period (herein called "the review date") and unless
the Lessee serves a notice on the Lessor in accordance and
within the time specified in Clause 3.03 (in which regard time
shall be of the essence) then the amount stated in the notice
served by the Lessor pursuant to this Clause 3.02 shall be the
amount of the Annual Market Rent as at the review date.
3.03 The Lessee, may within twenty-one (21) days after receipt of the
Lessor's notice given under Clause 3.02 (in which regard time shall be
of the essence) notify the Lessor in writing that the Lessee disputes
the amount specified by the Lessor in such notice as the Annual Market
Rental.
3.04 Within fourteen (14) days after notification by the Lessee to
the Lessor pursuant to Clause 3.03 (in which regard time shall
be of the essence), each of the Lessor and the Lessee shall
appoint a valuer and notify each other in writing within that
period of the name and address of the valuer so appointed. The
two (2) valuers so appointed shall jointly determine the
Annual Market Rental and such determination shall be final and
binding on the Lessor and the Lessee. Each such valuer shall
be a full member of not less than five (5) years standing of
the New South Wales Division of the Australian Institute of
Valuers (which term includes, in the event that such Institute
of Valuers such body or association as then serves
substantially the same objects as such Institute does at the
date of commencement of the term of this Lease) and shall be
the holder of a license to practice as a valuer of the kind of
premises demised by the Lease. If either the Lessor or the
Lessee fails to appoint a valuer in accordance with this
Clause 3.04 or to notify the other party of the name and
address of such valuer within the period of fourteen (14) days
hereinbefore mentioned (in which regard time shall be of the
essence), the party so failing shall forthwith upon the valuer
under this Clause 3.04 and the valuer who has been appointed
and whole appointment has been notified in accordance with
this Clause 3.04 shall determine the Annual Market Rental at
the review date and his decision shall be final and binding on
the Lessor and the Lessee.
3.05 If each party fails to appoint a valuer in accordance with
Clause 3.04 or o notify the other party of the name and
address of such valuer within the period of fourteen (14) days
hereinbefore mentioned (in which regard time shall be of the
essence) or if the valuers respectively appointed by the
Lessor and the Lessee are unable to agree upon the amount of
the Annual Market Rental within twenty-eight (28) days after
service by the Lessee on the Lessor of the notice referred to
<PAGE>
in Clause 3.03 (in which regard time shall be of the essence), the
amount of the Annual Market Rental as at the review date shall be
determined by a valuer appointed, on the request of either the Lessor
or the Lessee, by the President or other principal officer for the time
being of the New South Wales Division of the Australian Institute of
Valuers and such valuer shall be a full member of not less than five
(5) years standing of the New South Wales Division of the Australian
Institute of Valuers or such other body or association as aforesaid and
shall be the holder of a license to practice as a valuer of the kind of
premises demised by the Lease. The President or other principal officer
shall cause notice of such appointment to be served on each of the
Lessor and the Lessee as soon as possible thereafter.
3.06 The valuer so appointed shall determine the Annual Market Rental a at
the relevant review date and shall serve written notice of such
determination on each of the Lessor and the Lessee within twenty-eight
(28) days after the date of his appointment (in which regard time shall
be of the essence).
3.07 The valuer or valuers so appointed under Clause 3.04 or 3.05
shall in making their determinations:-
(a) act as an expert and not as an arbitrator;
(b) take into account all written representations received
from either the Lessor or the Lessee or any
representative thereof within fourteen (14) days after
notice of such appointment is served on each of the
Lessor and the Lessee but shall not consider any oral
representation whatsoever nor any written representation
received after the expiration of such period of fourteen
(14) days;
(c) take no account of any goodwill attributable to the
demised premises by reason of the trade, business or
activity carried on therein by the Lessee;
(d) take no account of the value of the Lessee's fixtures and
fittings in the Demised Premises nor of any deleterious
condition of the Demised Premises if such condition results
from any breach of any term of this Lease by the Lessee;
(e) take no account of any premium paid or payable or rent
abatement or other concession or inducement given or to be
given to the Lessee or to the occupier of any premises
comparable to the Demised Premises;
(f) have regard to the current annual rental value of
comparable premises in the Building or elsewhere in the
area in which the Building is situated;
<PAGE>
(g) value the Demised Premises as being available to be let by a
willing landlord to a willing tenant as a whole with vacant
possession and on the terms and conditions of this Lease
(other than the amount of the annual rent hereby reserved but
including the provisions for rent review);
(h) assume that the Lessee has performed all obligations on
its part contained in the Lease.
3.08 The determination of Annual Market Rental by such valuer shall be final
and binding on the Lessor and the Lessee, who shall bear the costs of
such determination equally.
4. REIMBURSEMENT OF OUTGOINGS
4.01 For the purposes of this Clause 4 the expression "Operating
Expenses" means all costs, charges, expenses, fees and other
outgoings paid or payable by the Lessor in managing,
supervising, operating, cleaning, painting, lighting,
policing, maintaining and keeping secure the building of which
the Demised Premises form part (herein called "the Building")
and the land upon which the Building is erected (herein called
"the Land") including in particular, but without limiting the
generality of the foregoing, the following:-
(a) all rates and taxes (including land tax), charges,
assessments, rents, duties and fees at any time or from
time to time payable to any government, local government,
semi-government or other competent authority levied,
assessed or charged in respect of the Building and/or
Land (irrespective of the ownership thereof) including
any rental or occupation fee charged by or payable to any
such body authority or department in respect of the
Building and/or the Land;
(b) all insurance premiums payable by the Lessor in respect
of the Land and/or the Building and the fittings and
fixtures of the Lessor therein in their full insurable
reinstatement value against fire flood lightning storm
and tempest and in respect of insurance of the Land an/or
the Building and the Lessor against such other risks
(referable to the Land and/or the Building or the Lessor
in relation to the Lessor's ownership or interest in the
Land and/or the Building) as the Lessor may deem
necessary or desirable including public risk,
consequential loss and loss of rent;
(c) the cost of all service s supplied to the Land and/or the
Building including, but without limiting the generality of the
foregoing, all changes for electricity, gas, water, oil,
telephone, sewerage and garbage services;
(d) the cost of all services provided by the Lessor for
tenants and other occupants in the Building and visitors
<PAGE>
to the Building including, but without limiting the generality
of the foregoing, the cost of examining, operating,
maintaining and repairing (including repairing by way of
replacement) any plant and equipment in the Building and
cleaning, lighting and servicing those parts of the Land
provided by the Lessor from time to time for common use by the
occupants of the Building (herein called "the Common Area");
(e) all costs for or in connection with the maintenance,
operation, renovation and upkeep of the Land and/or the
Building excluding the cost of any structural work and the
cost of any work the payment for which is the responsibility
of a particular tenant or occupier in the Building;
(f) all reasonable management, control and security costs
(including any fees payable to the Lessor's Managing Agents)
in connection with the Land and/or the Building including, but
without limiting the generality of the foregoing, salaries,
wages, pay roll tax, superannuation and pension payments and
workers' compensation insurance premiums;
(g) the cost of the maintenance, repair and testing of all fire
fighting protection equipment including sprinkler
installations, hydrants, fire extinguishers, smoke detectors
and fire fighting equipment installed by the Lessor throughout
the Building together with charges rendered by any authority
or person in the supply, maintenance, servicing and monitoring
of fire alarms;
(h) all costs incurred in the control of and eradication of
all pests in Common Area;
(i) all costs incurred in the lease, hire, repair,
maintenance and running of all public address and
background music systems in the Common Area (if
installed);
(k) the cost of the removal of all waste and garbage from the
Building and the Land;
(l) the expenses of the Lessor in supplying paper, towels, soaps
and other toilet and ablution requisites in the washrooms and
lavatories of the Building.
4.02 In this Clause 4, the expression "Lease Year" means any period of
twelve (12) months ending 31 December.
4.03 In respect of any Lease Year the whole of which is part of the term of
this Lease, the Lessee shall pay to the Lessor an amount equal to the
percentage specified in Item 4 of the
<PAGE>
Reference Schedule of the Operating Expenses in that Lease
Year.
4.04 In respect of any Lease Year part of which (such part being hereinafter
referred to as "the Broken Period") is part of the Term of this Lease,
the Lessee shall pay to the Lessor an amount calculated in accordance
with the following formula:-
<TABLE>
<S> <C> <C> <C>
Amount Number of Percentage Amount of the
Payable Days in specified in Operating
for Broken = Broken x Item 4 of x Expenses in the
Period Period the Reference Lease Year of
------ Schedule which the Broken
365 Period is part
</TABLE>
4.05 As soon as practicable after the end of each Lease Year the
Lessor shall give to the Lessee a statement in writing
specifying the aggregate of the Operating Expenses for that
Lease Year and the amount payable by the Lessee in relation
thereto (the amount payable by the Lessee being hereinafter
referred to as "the Lessee's Contribution"). Except in the
case of manifest error notified by either party to the other
in writing within fourteen (14) days of the service of such
statement on the Lessee, such statement shall be conclusive
evidence as to the matters stated therein. The Lessee shall
pay the Lessee's Contribution specified in any statement given
pursuant to this subclause to the Lessor or as the Lessor may
otherwise direct in writing within twenty-eight (28) days
after service of such statement on the Lessee.
4.06 The Lessor may from time to time give to the Lessee a
statement in writing of the Lessor's reasonable estimate of
the Lessee's Contribution for the current Lease Year whereupon
the Lessee shall pay the estimated Lessee's Contribution by
equal monthly installments in advance on the days on which
monthly installments of rental are payable under this Lease.
The Lessor may from time to time by statement in writing to
the Lessee revise its estimate of the Lessee's Contribution
for the current Lease Year and may require that the amount of
the monthly installments thereof payable by the Lessee be
adjusted so that the total estimated Lessee's Contribution
shall have been paid by the expiry of that Lease Year. At the
end of each Lease Year any necessary adjustment between the
estimated Lessee's Contribution and the actual Lessee's
Contribution shall be made within the twenty-eight (28) day
period referred to in Clause 4.05 by way of refund to or
further payment by the Lessee as the case may be.
5. CAR PARKING
<PAGE>
During the term hereof and any extension of this Lease or holding over
thereunder the Lessee and its employees, agents, contractors, customers
and others having business with the Lessee shall have the right to use
in common with the Lessor and other authorized persons seven (7) cars
in the spaces nearest to the Demised Premises. The Lessee will not
suffer or permit any vehicle owned or driven by any employee or
authorized person to remain standing in any area other than such
portion of the car park. The Lessee will at all times when requested by
the Lessor so to do furnish to the Lessor an up-to-date list of the
registration numbers of all motor vehicles owned or driven by the
Lessee's employees or servants and will promptly notify the Lessor of
any changes in the particulars contained in such list.
6. COMMON AREA
6.01 Control of Common Area - Without prejudice to any right hereby granted
to the Lessee to use and occupy any part or parts of the Common Area
for the purpose of parking motor vehicles:-
(a) The Lessor shall make available from time to time such parts
of the Common Area as the Lessor in its sole discretion shall
from time to time deem appropriate. The Lessor reserves the
right from time to time to discontinue or to change the size
location and nature of the Common Area or any part of parts
thereof.
(b) The Lessor may at any time close temporarily any part of the
Common Area for the purpose of making repairs or changes to
discourage non-customers' parking and may do such other acts
in and on the Common Area or any part thereof as in its
discretion may be desirable to improve the convenience
thereof.
6.02 MAINTENANCE OF COMMON AREA - The Lessor will subject to the
provisions of this Lease maintain the Common Area during the
term of this Lease inclusive of the exterior walls and all
parking space, roads, pavements, public rest rooms, water
drainage, lighting and other facilities shall be maintained
and the expenditure thereon shall be at the absolute and
uncontrolled discretion of the Lessor.
7. PAINTING OF INTERIOR
At least once during every period of five (5) years from the
commencement of this Lease whilst the Lessee remains in occupation and
also on ceasing to occupy the Demised Premises for any reason if so
required by the Lessor the Lessee shall paint or otherwise treat in an
appropriate manner all the internal surfaces of the Demised Premises
with at least two (2) coats of good oil paint or other suitable
material of the best quality in a proper and workmanlike manner to
standards reasonably determined by the Lessor.
<PAGE>
8. AIR CONDITIONING PLANT
The Lessee shall keep and maintain the air conditioning plant in the
Demised Premises in good order and substantial repair and condition and
in proper working order at all times during the currency of this Lease
at its own expense.
9. EXISTING EQUIPMENT
The Lessor agrees that the partitions and blinds in the mezzanine
office and the burglar alarm and cool room in the Demised Premise shall
be Lessor's fixtures for the purposes of this Lease and shall remain in
and form part of the Demised Premises for the purpose of this Lease.
10. The Lessee shall at or prior to the expiration of the term remove the
freezer referred to in Clause 11 of the Lease Registered No. E428896
and the provisions of Clause 33 of Memorandum No. X916489 will apply in
respect of such removal.
SIGNED SEALED AND DELIVERED )
by THOMAS UNGCHUM YI )
in the presence of: )
SIGNED SEALED AND DELIVERED )
by MARC JOSEPH HIGGINS )
in the presence of: )
THE COMMON SEAL OF COLLAGE )
INTERNATIONAL PTY LIMITED )
was hereunto affixed in )
accordance with its Articles )
of Association in the )
presence of: )
<PAGE>
THE REFERENCE TABLE
<TABLE>
<S> <C>
ITEM 1: Clause 1(d) Covenantor
Memorandum
Thomas Ungchum Yi, 50 Arnott Road,
Marayong
Marc Joseph Higgins,
38/2 Charles
Street, P
ITEM 2: Clause 2 Rent
Lease
$73,000.00
ITEM 3: Not applicable
ITEM 4: Clause 3.03 Lessee's Proportion of Outgoings
Lease 36.1%
ITEM 5: Clause 8 Further Term
Lease Not applicable
ITEM 6: Clause 9 Use of Premises
Memorandum Storage and distribution of
cosmetics, health foods and
promotional gifts.
ITEM 7: Clause 32 Interest on Arrears
Memorandum Fourteen per cent (14.00%)
ITEM 8: Clause 43(a) Amount of Bank Guarantee
Memorandum Three (3) months rent
ITEM 9: Clause 43(b) Amount of Substituted Bank Guarantee
Three (3) months rent
</TABLE>
<PAGE>
Exhibit 11
Essential Resources, Inc.
Computation of Per Share Earnings
<TABLE>
<S> <C> <C>
WEIGHTED SHARES OUTSTANDING:
Fully
SHARES OUTSTANDING January 1, 1996 to May 31, 1996 1,259,529 x 5 months = 6,297,645 Primary Diluted
------- -------
SHARES OUTSTANDING June 1, 1996 to June 30, 1996 1,140,198 x 1 month = 1,140,198
---------
7,437,843 / 6 = 1,239,640 1,239,640
x 2(1) x 2(1)
--------- ---------
2,479,280 2,479,280
EQUIVALENT SHARES:
April 1, 1996 To June 30, 1996 - AVERAGE OUTSTANDING 771,961(1) 771,961(1)
--------- ---------
3,251,241(1) 3,251,241(1)
========= =========
Net Income $ 293,196 $ 293,196
Interest addback 36,553 36,338
--------- ---------
$ 329,749 $ 329,534
========= =========
Per Share $ 0.1014 $ 0.1013
========= =========
</TABLE>
(1) Reflects two-for-one stock split effective August 26, 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE AUDITED FINANCIAL
STATEMENTS OF ESSENTIAL RESOURCES, INC. AND SUBSIDIARIES FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS(1).
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 218,195
<SECURITIES> 0
<RECEIVABLES> 222,097
<ALLOWANCES> 0
<INVENTORY> 329,597
<CURRENT-ASSETS> 1,383,033
<PP&E> 92,577
<DEPRECIATION> 16,286
<TOTAL-ASSETS> 1,655,387
<CURRENT-LIABILITIES> 1,224,641
<BONDS> 0
0
0
<COMMON> 2,519
<OTHER-SE> 329,547
<TOTAL-LIABILITY-AND-EQUITY> 1,655,387
<SALES> 2,340,671
<TOTAL-REVENUES> 2,441,338
<CGS> 1,082,687
<TOTAL-COSTS> 870,734
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,721
<INCOME-PRETAX> 463,196
<INCOME-TAX> 170,000
<INCOME-CONTINUING> 293,196
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 293,196
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
<FN>
(1) The information provided relates to the six month transitional year ended
June 30, 1996
</TABLE>
