FORM 10-QSB
U.S. Securities and Exchange Commission
Washington, D.C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission File Number: 0-21394
Developed Technology Resource, Inc.
(Exact name of issuer as specified in its charter)
Minnesota 41-1713474
State of Incorporation I.R.S. Employer Identification No.
7300 Metro Boulevard, Suite 550
Edina, Minnesota 55439
Address of Principal Executive Office
(612) 820-0022
Issuer's Telephone Number
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
As of November 13, 1998, there were 805,820 shares of the
issuer's Common Stock, $0.01 par value per share, outstanding.
<PAGE>
DEVELOPED TECHNOLOGY RESOURCE, INC.
INDEX
For the Quarter Ended September 30, 1998
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Condensed Unaudited Financial Statements
Condensed Balance Sheets 3
Condensed Statements of Operations 4
Condensed Statements of Cash Flows 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Shareholders 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 16
<PAGE>
ITEM 1. CONDENSED UNAUDITED FINANCIAL STATEMENTS
DEVELOPED TECHNOLOGY RESOURCE, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
1998 1997
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 205,887 $ 284,526
Receivables:
Trade, net 44,569 80,820
Sale of discontinued operations 480,000 480,000
FoodMaster International LLCFMI) 960,436 371,801
Other 1,246 763
Note receivable -- 516,935
Prepaid and other current assets 102,574 41,352
Total current assets 1,794,712 1,776,197
Furniture and Equipment, net 44,670 39,381
Investment in FMI 1,090,973 834,917
$2,930,355 $2,650,495
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 93,727 $ 257,938
Accrued liabilities 129,262 147,337
Deferred gain short-term 467,065 467,065
Total current liabilities 690,054 872,340
Non-current Deferred Gain 34,977 38,986
Commitments and Contingencies -- --
Shareholders' Equity:
Common stock 8,058 7,908
Additional paid-in capital 5,341,648 5,319,298
Accumulated deficit (3,144,382) (3,588,037)
Total shareholders' equity 2,205,324 1,739,169
$2,930,355 $2,650,495
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
DEVELOPED TECHNOLOGY RESOURCE, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
(As Restated (As Restated
See Note 4) See Note 4)
<S> <C> <C> <C> <C>
Revenues:
Sales $ 69,900 $ 68,800 $ 309,148 $1,564,966
Management fees from FMI
joint venture 308,508 224,499 937,438 664,054
Commissions and other income 1,350 1,229 27,008 43,830
379,758 294,528 1,273,594 2,272,850
Cost and Expenses:
Cost of sales 59,950 59,500 244,792 813,332
Selling, general and
administrative 327,146 266,241 1,040,083 926,325
387,096 325,741 1,284,875 1,739,657
Operating (Loss) Income (7,338) (31,213) (11,281) 533,193
Other Income:
Interest income, net 40,499 3,001 198,880 3,593
Equity in earnings of FMI
joint venture 76,311 15,662 256,056 46,987
Income (Loss) before Minority
Interest 109,472 (12,550) 443,655 583,773
Minority Interest in Earnings
of FoodMaster -- -- -- (64,571)
Income (Loss) from Continuing
Operations 109,472 (12,550) 443,655 519,202
Gain from Discontinued
Operations -- 200,000 -- 200,000
Net Income $109,472 $187,450 $443,655 $ 719,202
Continuing Income per Common Share:
Basic $ 0.14 $ (0.02) $ 0.55 $ 0.66
Diluted $ 0.09 $ (0.02) $ 0.37 $ 0.59
Net Income per Common Share:
Basic $ 0.14 $ 0.24 $ 0.55 $ 0.91
Diluted $ 0.09 $ 0.22 $ 0.37 $ 0.82
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
DEVELOPED TECHNOLOGY RESOURCE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
(As Restated
See Note 4)
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 443,655 $ 719,202
Adjustments to Reconcile Net Income to Cash
Used by Operating Activities:
Depreciation 11,504 35,198
Provision for doubtful accounts 2,182 (222,092)
Gain on sale of furniture
and equipment -- (3,180)
Gain on sale of discontinued
operations -- (200,000)
Minority interest in earnings
of joint venture -- 64,571
Equity in earnings of FMI
joint venture (256,056) (46,987)
Changes in Operating Assets and Liabilities, net of
transfers to joint venture:
Receivables 550,521 189,041
Receivable from FMI joint venture (588,635) (467,704)
Inventories -- (46,382)
Prepaid and other current assets (61,222) 66,521
Accounts payable and accrued
liabilities (182,286) 197,039
Deferred gains (4,009) (259,758)
Customer deposits -- (68,667)
Net cash used by operating
activities (84,346) (43,198)
INVESTING ACTIVITIES:
Proceeds from Sale of Furniture
and Equipment -- 75,875
Purchases of Furniture and
Equipment (16,793) (63,691)
Advances to Joint Venture -- (86,952)
Deferred Acquisition Costs -- 87,730
Net cash (used) provided by
investing activities (16,793) 12,962
FINANCING ACTIVITIES:
Net proceeds on Note Payable -- 5,835
Proceeds from Exercise of Stock
Options 22,500 --
Net cash provided by financing
activities 22,500 5,835
DECREASE IN CASH AND CASH EQUIVALENTS (78,639) (24,401)
CASH AND CASH EQUIVALENTS, Beginning
of Period 284,526 425,366
CASH AND CASH EQUIVALENTS, End of Period $ 205,887 $ 400,965
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
DEVELOPED TECHNOLOGY RESOURCE, INC.
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Business
Developed Technology Resource, Inc. (DTR or the Company) owns
and manages food businesses in the countries of the former
Soviet Union (fSU) through FoodMaster International L.L.C.
(FMI), its joint venture with Agribusiness Partners
International L.P. (API). FMI purchases dairy manufacturing
facilities in the fSU and provides equipment and necessary
capital. DTR manages the dairies and pursues future
acquisitions for FMI. Using modern marketing techniques and
packaging equipment, the dairies provide customers in the fSU
better quality branded dairy products.
In 1998 and 1997, DTR also sold equipment to various customers
throughout the fSU.
During 1998, DTR's 100% owned subsidiary, SXD, Inc.,
distributed X-ray tubes under an exclusive arrangement with a
Russian manufacturer and held ownership interests in the
coatings technology business of Phygen, Inc. and the cancer
detection business of Armed. These operations were formerly
operated by DTR until October 1997.
Basis of Presentation
The interim financial statements of Developed Technology
Resource, Inc. (DTR) are unaudited, but in the opinion of
management, reflect all necessary adjustments for a fair
presentation of the financial position, as well as the results
of operations and cash flows for the periods presented.
On June 30, 1998, the Company decided to change its year end
from October 31 to December 31. As a result, a transition
report was filed to show the results for the two-month period
of November and December 1997 and 1996. This 10-QSB shows the
nine-month results from January to September 1998 and 1997
based on the Company's new year end of December 31.
From January 1997 through February 1997, the financial
statements include the operations of DTR and FoodMaster
Corporation (FoodMaster), DTR's 50% owned subsidiary in
Almaty, Kazakhstan. All significant intercompany transactions
and balances were eliminated in consolidation. On March 3,
1997, DTR contributed its 50% ownership of FoodMaster to the
FMI joint venture for a 40% ownership in FMI. Effective March
1997, DTR records its proportionate share of the net income or
loss of FMI in the statements of operations as equity in
earnings of FMI joint venture under the equity method of
accounting. The excess of DTR's underlying equity in net
assets of FMI over the carrying value of its investment is
being amortized to income over 15 years.
The results of operations for any interim period are not
necessarily indicative of results for the full year. These
financial statements should be read in conjunction with the
Company's Annual Report and Notes thereto on Form 10-KSB for
the year ended October 31, 1997 and with the Company's
Transition Report for the two month period ended December 31,
1997 as filed with the Securities and Exchange Commission.
Segment Reporting
In September 1997, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 131, Disclosures about Segments of an Enterprise
and Related Information. This statement is effective for
fiscal years beginning after December 15, 1997. The Company
has not yet evaluated the full impact of the adoption of SFAS
131.
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 at the date of the financial
statements and reported amounts of revenues and expense during
the reporting period. Actual results could differ from those
estimates.
<PAGE>
2. Ak-Bulak Option
Effective August 1996, the Company obtained an option to
purchase 80% of Ak-Bulak, an inactive company which owned the
other 50% of the FoodMaster joint venture. This purchase of
80% of Ak-Bulak would give DTR an additional 40% ownership of
FoodMaster. To exercise the option, the Company agreed to pay
certain pre-defined outstanding debts of Ak-Bulak, the other
owner of FoodMaster, and to make capital improvements to the
dairy owned by FoodMaster. As of March 2, 1997, DTR had paid
$171,774 in connection with the exercise of this option. On
March 3, 1997, DTR contributed its 50% ownership in FoodMaster
along with its option to acquire the additional 40% ownership
to the FMI joint venture. FMI repaid DTR for all but $14,045
of the costs paid through March 2, 1997 to exercise the option
(See Note 3).
3.Investment in FoodMaster International L.L.C. (FMI)
On March 3, 1997, DTR and API established the FMI joint
venture, to acquire and operate dairies in the former Soviet
Union. DTR contributed to FMI its 50% ownership in
FoodMaster, the Ak-Bulak option (See Note 2) and its
opportunities for a future acquisition of a dairy in Moldova.
API agreed to fund $2.945 million to further develop the dairy
operations in Kazakhstan and Moldova and to provide an
additional $3.055 million over two years to expand FMI. On
September 11, 1998, DTR and API amended the FMI joint venture
agreement to allow API to contribute an additional $6 million
for an additional 10% ownership. Under the new ownership
structure effective October 1, 1998, API will own 70% and DTR
will own 30% of FMI. By September 30, 1998, API had
contributed a total of $6 million of its initial commitment and
$2.4 million of its additional commitment for a total of $8.4
to FMI. DTR has a right to earn a greater ownership interest
of FMI by achieving certain defined performance targets based
on returns to API. Effective March 1997, DTR records its
proportionate share of the net income or loss of FMI in the
statement of operations as equity in earnings of FMI joint
venture under the equity method of accounting.
DTR also entered into a management agreement with FMI, whereby
DTR manages the day to day operations of FMI and the dairy
operations owned by FMI, and pursues future dairy acquisitions
for FMI for a management fee. The Company recorded management
fee income of $937,438 and $664,054 for the nine months ended
September 30, 1998 and 1997, respectively, in accordance with
its management agreement with FMI which began March 3, 1997
and was amended on September 12, 1998.
Summarized financial information from the unaudited financial
statements of FMI carried on the equity basis is as follows:
September 30, 1998
Current assets $8,308,319
Total assets 17,334,703
Noncurrent liabilities 1,237,966
Shareholders' equity 11,844,242
DTR's share of FMI 's equity 4,737,697
DTR's carrying value of FMI's equity 1,890,973
Nine Months Ended
September 30, 1998
Sales $14,626,757
Gross profit 3,900,452
Net income 230,908
DTR's share of FMI's loss before adjustment of
DTR's excess of net equity over carrying
value of the investment 92,363
DTR's share of equity in earnings of FMI
joint venture after adjustment 256,056
4.Restatement
The Company has restated its financial statements to reflect
the three and nine months ended September 30, 1997 to properly
account for the transfer of DTR's FoodMaster operations to the
FMI joint venture which occurred in March 1997. In the prior
year, DTR reported its operations with a fiscal year end of
October 31 and accordingly filed a nine month 10-QSB for the
period ended July 31.
5.Stock Activity
On November 6, 1997, the Board of Directors adopted the 1997
Outside Directors Stock Option Plan, superseding the 1993
Outside Directors Stock Option Plan. In exchange for the
surrender of all stock options previously granted to the
outside directors, the Board granted stock options of 15,000
shares of common stock to the two current outside directors at
an exercise price of $1.50 per share, which was equal to the
market price on the grant date. As of September 30, 1998,
15,000 of the 30,000 issued options were exercised. In
exchange for services rendered, the outside members of the
Board of Directors, upon election, receive 5,000 common stock
options each year that vest equally over four quarters. The
exercise price is set at the market price on the grant date.
6. Discontinued Operations
Effective December 31, 1995, DTR entered into an agreement to
sell certain assets and the rights to its airport security
equipment in the FSU to Gate Technology, a United Kingdom
company owned by a former DTR employee. DTR transferred
assets, inventory, customer lists, promotional materials, and
other items with a net book value on January 31, 1996 of
$143,293. In exchange for these items, DTR received cash
payments of $45,000 to reimburse DTR for expenses related to
this business during the first quarter of fiscal 1996 and a
receivable totaling $765,000 payable over 30 months. A
portion of these payments is personally guaranteed by the
former employee, and is collateralized by his ownership of
16,430 shares of DTR's common stock. Additional contingent
payments may also be received based on future performance.
DTR retained the right to pursue airport security management
contracts.
Due to the inherent risks associated with operating in the
FSU, including credit risk, the gain on this sale has been
deferred and will be recognized as payments are received. DTR
received total payments of $200,000 and $170,000 during 1997
and fiscal 1996, respectively. As a result, DTR recorded a
gain on discontinued operations of $200,000 in 1997.
7.Net Income per Common Share
Effective November 1, 1997, DTR adopted Statement of Financial
Accounting Standards (SFAS) No. 128, Earnings Per Share.
Under this new standard, basic net income per share is
computed by dividing net income by the weighted average number
of common shares outstanding. Diluted net income per share
includes the dilutive effect of shares which would be issued
upon the exercise of outstanding stock options and warrants,
reduced by the number of shares which are assumed to be
purchased by the Company from the resulting proceeds at the
average market price during the period.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Numerator:
Net income $ 109,472 $187,450 $ 443,655 $719,202
Denominator:
Weighted average shares-
basic earnings 805,820 790,820 805,545 790,820
Dilutive effect of stock
options/warrants 376,987 74,034 382,296 85,214
Weighted average shares-
diluted earnings 1,182,807 864,854 1,187,841 876,034
Net income per share - Basic $ 0.14 $ 0.24 $ 0.55 $ 0.91
Net income per share - Diluted$ 0.09 $ 0.22 $ 0.37 $ 0.82
</TABLE>
Options and warrants to purchase 5,000 and 60,001 shares of
common stock for the period ended September 30, 1998 and 1997,
respectively, were not included in the computation of diluted
earnings per share because their exercise prices were greater
than the average market price of the common shares and,
therefore, their inclusion would be antidilutive.
8. Supplemental Disclosures of Cash Flow Information:
Non-cash operating, investing and financing activities:
On March 2, 1997, the Company contributed $626,917 in net
assets of its FoodMaster joint venture to FoodMaster
International L.L.C. (FMI) for its 40% interest as discussed
in Note 3. The non-cash effects of these transactions have
been removed from the appropriate categories in the operating,
investing and financing sections of the Company's Statements
of Cash Flows for the nine months ended September 30, 1997.
Supplemental cash flow information:
For the nine months ended September 30, 1998 1997
Cash paid for:
Interest $ 1,256 $ --
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Statements other than current or historical information
included in this Management's Discussion and Analysis and
elsewhere in this Form 10-QSB, in future filings by Developed
Technology Resource, Inc. (the Company or DTR) with the
Securities and Exchange Commission and in DTR's press releases
and oral statements made with the approval of authorized
executive officers, should be considered "forward-looking
statements" made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. These
statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from historical
earnings and those presently anticipated or projected. DTR
wishes to caution the reader not to place undue reliance on any
such forward-looking statements.
On March 3, 1997, DTR and API established the FMI joint
venture to acquire and operate dairies in the former Soviet
Union. DTR contributed to FMI its 50% ownership in FoodMaster,
the Ak-Bulak option and its opportunities for a future
acquisition of a dairy in Moldova. API agreed to fund $2.945
million to further develop the dairy operations in Kazakhstan and
Moldova and to provide an additional $3.055 million over two
years to expand FMI. On September 11, 1998, DTR and API amended
the FMI joint venture agreement to allow API to contribute an
additional $6 million for an additional 10% ownership. Under the
new ownership structure effective October 1, 1998, API will own
70% and DTR will own 30% of FMI. By September 30, 1998, API had
contributed a total of $6 million of its initial commitment and
$2.4 million of its additional commitment for a total of $8.4 to
FMI.DTR has a right to earn a greater ownership interest of FMI by
achieving certain defined performance targets based on returns to
API. Effective March 1997, DTR records its proportionate share
of the net income or loss of FMI in the statement of operations
as equity in earnings of FMI joint venture under the equity
method of accounting.
DTR also entered into a management agreement with FMI on
March 3, 1997 (subsequently amended on September 11, 1998),
whereby DTR manages the day to day operations of FMI and the
dairy operations owned by FMI, and pursues future dairy
acquisitions for FMI for a management fee.
In November 1997, DTR's Board of Directors voted to
establish a wholly-owned subsidiary company called SXD, Inc. with
an investment of $800,000 in cash and receivables. SXD now owns
and operates DTR's x-ray tube distribution business, ownership
interests in the coating technology business of Phygen, Inc., and
the cancer detection business of Armed.
Results of Operations
Revenues
The Company generated total revenues of $379,758 and
$1,273,594 during the three and nine months ended September 30,
1998, respectively, compared to $294,528 and $2,272,850 during
the three and nine months ended September 30, 1997,
respectively. The 44% decrease from 1997 nine month revenue
levels is primarily the result of the change from the
consolidated method of reporting joint venture operating results
to the equity method as discussed above and by less sales of
equipment discussed below.
Sales for the three months ended September 30, 1998 and 1997
totaled $69,900 and $68,800, respectively. Sales for the nine
months ended September 30, 1998 and 1997 totaled $309,148 and
$1,564,966, respectively. Sales resulted from three areas within
DTR - dairy operations of FoodMaster (until March 2, 1997),
equipment sales, and x-ray tube sales.
Since March 3, 1997, the dairy operations of FoodMaster are
no longer reported on a consolidated basis with DTR due to the
transfer of FoodMaster to FMI. The dairy operations of
FoodMaster are consolidated in the financial statements of FMI,
and DTR recognizes 40% of FMI's income or loss as equity in
earnings of FMI joint venture in DTR's Statements of Operations.
Therefore, there are no sales of FoodMaster in 1998. However,
FoodMaster sales from January 1997 through February 1997 were
$965,359 or 61.7% of DTR's total sales for the nine months of
1997.
For the nine months ended September 30, 1998 and 1997,
sales of food packaging equipment was $120,748 (39.1%) and
$429,177 (27.5%) of total sales, respectively. There were no
sales of equipment in the three months ended September 30, 1998
and 1997. Sales of equipment occur sporadically throughout each
year depending on the amount of new customers and growth among
existing customers. In 1997, more locations were added to the
FMI operations that demanded additional packaging equipment.
There are no current orders for additional equipment sales for
the remainder of 1998.
Sales of x-ray tubes by SXD, Inc., DTR's 100% owned
subsidiary, increased 10.5% to $188,400 in the nine months ended
September 30, 1998 from $170,430 for the same period in 1997.
The $14,555 increase occurred due to an increase in the quantity
of orders from repeat customers during the first two quarters of
1998 compared to the first two quarters of 1997.
Management fee income billed to FMI for services was
$937,438 and $664,054 for the nine months ended September 30,
1998 and 1997. For the three months ended September 30, 1998
and 1997, management fee income was $308,508 and $224,499. The
management fee began on March 3, 1997. Therefore, 1997 revenues
reflect two months less management fee income than 1998. The
$84,009 increase in the three months ended September 30 is the
result of new FMI acquisitions in 1998 that did not exist during
the same period in 1997. These new acquisitions required
additional management personnel, travel, training, and other
resources in 1998.
Cost of Sales
Cost of sales for the three and nine months ended September
30, 1998 was $59,950 and $244,792, respectively. For the three
and nine months ended September 30, 1997, cost of sales was
$59,500 and $813,332. The 69.9% decrease in cost of sales
between the nine months ended September 30, 1998 and 1997 is the
result of the change in accounting methods discussed above. Cost
of sales reflects the cost of manufacturing the dairy products of
FoodMaster for the two months of 1997 and the cost of purchasing
food packaging equipment and x-ray tubes.
There is no cost of sales reflected for FoodMaster in fiscal
1998. FoodMaster cost of sales was $369,305 or 45.4% of
FoodMaster sales for the nine months ended September 30, 1997.
Cost of sales on equipment sales was $82,592 resulting in a
gross profit of $38,156 or 31.6% for the nine months of 1998
compared to $296,382 resulting in a gross profit of $132,795 or
30.9% in the nine months of 1997. During 1997, the Company spent
more on sales commissions causing a lower gross profit. X-ray
tubes cost of sales were $162,200 and $147,645 in the nine months
of 1998 and 1997, respectively. Gross profit remained consistent
with a 13% to 14% margin received on sales. Management does not
expect these trends to change significantly for the remainder of
1998.
Selling, general and administrative
Selling, general and administrative expenses for the three
months ended September 30, 1998 and 1997 were $327,146 and
$266,241, respectively. Selling, general and administrative
expenses for the nine months ended September 30, 1998 and 1997
were $1,040,083 and $926,325, respectively. During the first
three months of fiscal 1997, FoodMaster operations comprised
$226,750 of the $926,325 SG&A expenses. Therefore, the Company's
1997 SG&A expenses excluding the FoodMaster operations was
$699,575. The $60,905 and the $340,508 increase in three and nine
months ended September 30, 1998 over 1997 excluding FoodMaster
operations is the result of DTR hiring additional employees and
consultants and increasing their travel to manage the expanding
dairy operations of FMI. However, these costs are offset by the
management fees billed to FMI as discussed above under Revenues.
Liquidity and Capital Resources
Operating Activities
DTR used net cash of $84,346 in the nine months of 1998
compared to cash used of $43,198 in the nine months of 1997. In
1997, the Company received a $200,000 installment payment
resulting from the sale of a discontinued business in fiscal
1996 (See Note 6). This lowered the Company's cash usage in
1997 compared to 1998. In 1998, the Company received an increase
in cash because a majority of the operating expenses were paid
in accordance with the management agreement between DTR and FMI
during all nine months of 1998 compared to seven months in 1997.
Investing Activities
In 1998, DTR purchased $16,793 in new software and
equipment for its office in Minneapolis, MN. In the nine months
of 1997, DTR sold $72,695 of net equipment primarily to its FMI
subsidiary receiving proceeds of $75,875. Additionally, DTR
purchased $63,691 of equipment during this period in 1997.
Financing Activities
In the first quarter of 1998, options to purchase 15,000
shares of DTR's Common Stock were exercised for a purchase price
of $1.50 per share. DTR's FoodMaster operations obtained $5,835
in net proceeds from bank financing during the period from
January 1997 to February 1997, before the operations were
transferred to FMI.
The Company has recently begun addressing the Year 2000(Y2k)
issues. Since the Company is not a direct manufacturer of
products and since all of its assets are less than six years old,
most of its exposure to the Y2k issue falls in the area of third
parties. All of the Company's information technology systems are
Y2k compliant, but the Company is still determining the effect on
non-information technology systems. The Company plans to be Y2k
compliant by mid-1999.
The Company does not believe that the costs related to the
Y2k issue will be greater than $25,000 due to the reasons stated
above. The Company may use these funds for an outside consultant
to provide an evaluation of its entire system.
The most risk that the Company faces in its operations is
that of the failure of third party vendors to be ready for the
Y2k. The most direct risk could be a failure on the part of
telecommunication companies which would impede the daily
communication between the Company and its subsidiaries.
Indirectly, the subsidiaries could experience a failure to
receive timely shipments of supplies which would result in a loss
of an indeterminable amount of revenues.
The Company is currently developing its contingency plan for
the aforementioned risks. It expects to have this plan fully
created by early 1999.
Based on current projections and with the receipt of the
additional investment from API, the Company believes there will
be sufficient working capital and liquidity to fund its current
operations through the coming year. Management is continually
looking for opportunities for growth and market dominance for its
subsidiaries FMI and SXD.
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
No matters were submitted to a vote of the
shareholders during the quarter ended September 30,
1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following new Exhibits are filed as part of this
Form 10-QSB:
(a) List of Exhibits
10.6 Limited Liability Company Agreement of FoodMaster
International L.L.C. as amended and restated
September 11, 1998
10.9 Management Agreement between DTR and FoodMaster
International L.L.C. as amended and restated
September 11, 1998
10.14 Employment Agreement between DTR and John Hupp effective
October 1, 1998 as amended and restated
27.1 Financial Data Schedule (September 30, 1998)
27.2 Financial Data Schedule (September 30, 1997 Restated)
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during
the quarter ended September 30, 1998.
<PAGE>
EXHIBIT INDEX
The following Exhibits are filed as part of this Form
10-QSB:
No. Exhibit Description
10.7 Limited Liability Company Agreement of FoodMaster
International L.L.C. as amended and restated September 11, 1998
10.9 Management Agreement between DTR and FoodMaster
International L.L.C. as amended and restated September 11, 1998
10.14 Employment Agreement between DTR and John Hupp effective October
1, 1998 as amended and restated
27.1 Financial Data Schedule (September 30, 1998)
27.2 Financial Data Schedule (September 30, 1997 Restated)
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
DEVELOPED TECHNOLOGY RESOURCE, INC.
Date: November 16, 1998 By: /s/ John P. Hupp
Name: John P. Hupp
Title: President
Date: November 16, 1998 By: /s/ LeAnn H. Davis
Name: LeAnn H. Davis, CPA
Title: Chief Financial Officer
Principal Financial & AccountingOfficer)
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
FOODMASTER INTERNATIONAL L.L.C.
THIS AMENDED AND RESTATED LIMITED LIABILITY COMPANY
AGREEMENT ("Agreement") is made and entered into as of this 11th
day of September, 1998 by and between (i) API DAIRY PARTNERS L.P.
("API I") and AGRIBUSINESS PARTNERS INTERNATIONAL L.P. II ("API
II"), both of which are limited partnerships organized and
existing under the laws of the State of Delaware, with their
principal offices at 1004 Farnam Street, Omaha, Nebraska, 68102
(API I and API II hereinafter collectively referred to as "API"),
and (ii) DEVELOPED TECHNOLOGY RESOURCE, INC., a Minnesota
corporation organized and existing under the laws of the State of
Minnesota with its principal office at 7300 Metro Boulevard,
Suite 550, Edina, Minnesota, 55439 (hereinafter referred to as
"DTR").
WITNESSETH
WHEREAS, API I is a holding company formed to hold
dairy investments made by Agribusiness Partners International,
L.P., which is an investment fund formed for the purpose of
investing in agribusiness in the former Soviet Union and which is
guaranteed by the Overseas Private Investment Corporation
("OPIC") and governed by an OPIC financing agreement;
WHEREAS, API II is an affiliate of API I and has also
been formed for the purpose of investing in agribusiness in the
former Soviet Union, but which is not guaranteed by OPIC;
WHEREAS, API and DTR entered into that certain Limited
Liability Company Agreement (the "Original Agreement"), dated as
of March 3, 1997 (the "Closing"), pursuant to which API and DTR
established Foodmaster International L.L.C., a Delaware limited
liability company (the "Company"); and
WHEREAS, API and DTR desire to amend and restate the
Original Agreement as set forth herein.
NOW, THEREFORE, for and in consideration of the
premises and mutual covenants set forth herein, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Defined Terms. In addition to the other terms
defined in this Agreement, the following terms shall have the
respective meanings set forth below:
(a) "Capital Contribution" means, with respect to any
Member, the amount of capital contributed by such Member to the
Company as set forth in Article 3 hereof.
(b) "Certificate of Formation" means the certificate
of formation of the Company as filed in the Office of the
Secretary of State of the State of Delaware on February 27, 1997,
as amended from time to time.
(c) "Current Ratio" means current assets divided by
current liabilities.
(d) "Debt Ratio" means the sum of total current
liabilities and long term debt divided by total assets.
(e) "Dollars" means the lawful currency of the United
States of America.
(f) "GAAP" means generally accepted accounting
principles as used in the United States.
(g) "Interest" means the ownership interest of a
Member in the Company (which shall be considered personal
property for all purposes), consisting of (i) such Member's right
to receive profits, losses, allocations, and distributions, (ii)
such Member's right to vote or grant or withhold consents with
respect to Company matters as provided herein or in the Delaware
Act, and (iii) such Member's other rights and privileges as
herein provided.
(h) "Members" means API and DTR and all other persons
who may become Members of the Company as provided herein.
(i) "Percentage Interest" means the interests of API
and DTR as determined pursuant to Section 5.2. The Percentage
Interests of API I an API II, shall be equal to 95% and 5%,
respectively, of API's Percentage Interest as determined pursuant
to the terms of this Agreement.
1.2 Other Definitional Provisions. Unless the context of
this Agreement clearly requires otherwise, references to the
plural include the singular; references to the singular include
the plural; and references to the masculine gender include the
feminine and neuter genders. The words "hereof", "herein", and
similar terms refer to this Agreement as a whole. The term
"including" is not limiting and the term "or" has the inclusive
meaning represented by the term "and/or."
ARTICLE II
THE COMPANY
2.1 Purposes and Activities. The business and purpose of
the Company shall be to produce, package and distribute high-
quality branded dairy and juice products, and such other products
as are unanimously agreed to by the Members, in the former Soviet
Union.
2.2 Principal Office. The principal place of business of
the Company shall be located at the offices of DTR at 7300 Metro
Boulevard, Suite 550, Edina, Minnesota, 55439 or such other place
as the Members may from time to time determine. The registered
office of the Company in the State of Delaware shall be located
at 1209 Orange Street, Wilmington, Delaware, 19801, and the
registered agent of the Company for service of process at such
address shall be The Corporation Trust Company (or such other
registered office and registered agent as the Members may from
time to time select).
2.3 Term. The provisions of this Agreement shall be deemed
to take effect as of the Closing. The Company shall dissolve in
accordance with the provisions of Section 7.1.
ARTICLE III
CAPITAL STRUCTURE
3.1 Capital Contributions.
(a) As of the date of this Agreement, API has made
Capital Contributions to the Company in the amount of Six Million
Dollars ($6,000,000) and DTR has made Capital Contributions to
the Company in the amount of Four Million Dollars ($4,000,000).
(b) In addition to the Capital Contributions made by
API to the Company as set forth in Section 3.1(a), API shall make
Capital Contributions to the Company of up to Four Million
Dollars ($4,000,000) (the "API Contribution") (the percentage of
each Capital Contribution to be made by API pursuant to this
Agreement shall be contributed by API I and API II based on their
respective Percentage Interests), in one or more installments in
such amounts and at such times as requested by the Company (each
a "Capital Request"), which shall be contributed by bank transfer
to the Company's Dollar-denominated bank account maintained at
U.S. Bank, International Moscow Bank or another bank acceptable
to API. The amount of the API Contribution may be increased to
an amount not to exceed Six Million Dollars ($6,000,000), upon
agreement of the Members, provided that such agreement is reached
by October 15, 1998.
(c) In addition to the Capital Contributions made by
DTR to the Company as set forth in Section 3.1(a), with respect
to each Capital Request, DTR shall be entitled to make a Capital
Contribution in an amount equal to forty percent (40%) of the
amount of the Capital Request. In the event that DTR elects to
make such a Capital Contribution pursuant to this Section 3.1(c)
with respect to a Capital Request, the amount of the Capital
Contribution to be made by API with respect to such Capital
Request shall be reduced by the amount of DTR's Contribution.
3.2 Additional Capital Contributions. Except as
unanimously agreed to by the Members, no Member shall be required
or permitted to make any additional Capital Contributions to the
Company except as specified in Section 3.1.
3.3 Failure to Contribute. In the event that API is
required to make a Capital Contribution pursuant to Sections
3.1(b) and fails to make such Contribution, the number of
Directors that API and DTR shall each be entitled to appoint
pursuant to Article IV shall be adjusted to reflect the Capital
Contributions as of such date, provided that the rights contained
in Article IV shall be restored upon the making of such
contribution by API.
3.4 Return of Capital. No Member has a right to withdraw
its Capital Contribution except upon liquidation of the Company
or as otherwise provided for in this Agreement. No interest
shall accrue or be paid by the Company with respect to any
Capital Contribution.
ARTICLE IV
MANAGEMENT
4.1 Management/Voting.
(a) The management of the Company shall be vested in a
Board of Directors (the "Board") consisting of five (5) members,
three (3) of whom shall be appointed by API and two (2) of whom
shall be appointed by DTR. The Board may appoint, employ, or
otherwise contract with any persons or entities for the
transaction of the business of the Company or the performance of
services for or on behalf of the Company, and the Board may
delegate to any such person (who may be designated an officer of
the Company) or entity such authority to act on behalf of the
Company as the Board may from time to time deem appropriate. The
Company shall enter into an amended and restated management
agreement with DTR, dated as of the date of this Agreement and in
the form of Exhibit A hereto (the "Management Agreement"),
pursuant to which DTR shall manage the business of the Company.
(b) With respect to all matters submitted to a vote of the
Members, API shall be entitled to cast sixty percent (60%) of all
votes and DTR shall be entitled to cast forty percent (40%) of
all votes.
4.2 Removal/Vacancy. Any Director may be removed by the
Member appointing such Director. Upon the death, retirement or
removal of any Director, the Member appointing such Director may
appoint a replacement.
4.3 Actions by the Board. Except as otherwise specified in
this Agreement, any action to be taken or approved by the Board
requires the approval of a majority of the Directors.
4.4 Committees of the Board. The Directors may appoint
from among their number one or more committees and may delegate
to such committee any of the powers of the Directors.
4.5 Meetings of Board. Meetings of the Board may be called
by any Director provided that the Board shall meet at least once
during each calendar quarter. Three (3) Directors shall
constitute a quorum for the transaction of business and
notwithstanding any vacancy on the Board, a quorum may exercise
all powers of the Board. Meetings of the Board shall be held at
such time and place as determined by the Board. Notice of such
meetings shall be provided to each Director at least ten (10)
days prior to the meeting. The Board may act without a meeting
provided that such action is consented to in writing by each
Director then in office. Directors may participate in any
meeting of the Board by conference call or similar communications
equipment by means of which all persons can hear each other, and
participation by such means shall constitute attendance at such
meeting.
4.6 Distribution. Distributions to Members shall be made
in such amounts and at such times as determined by the Board
based on the budget and business plan in effect and on the
current and expected cash flow needs of the Company.
4.7 Financial Statements.
(a) The Company shall cause annual audited financial
statements for the Company to be prepared in accordance with GAAP
and provided to Members within ninety (90) days of the end of the
Company's fiscal year. The Company shall also cause an audit to
be performed on an annual basis of each entity controlled by the
Company which audit shall be performed in accordance with GAAP
and in accordance with any applicable local accounting principles
and practices.
(b) The Company shall cause monthly financial
statements for the Company to be prepared and provided to Members
within twenty (20) days of the end of each calendar month.
4.8 Extraordinary Actions. In addition to other actions
identified herein requiring unanimous approval of the Members,
the Company shall not (i) sell or otherwise dispose of all or
substantially all of its assets unless such sale or disposition
is unanimously approved by the Members provided that such
approval shall not be unreasonably withheld, (ii) undertake any
new investment projects unless such projects are unanimously
approved by the Members, or (iii) terminate the Management
Agreement unless such termination is unanimously approved by the
Members.
ARTICLE V
ALLOCATIONS/PERCENTAGE INTERESTS
5.1 Allocations. All items of Company income, gain,
loss, deduction, credit, or the like shall be allocated among the
Members in accordance with their respective Percentage Interests
(as adjusted pursuant to Section 5.2) as of the end of the fiscal
year with respect to which such items were incurred.
5.2 Percentage Interests. (a) Subject to adjustment
pursuant to subparagraphs (b) and (c), the Percentage Interests
of each of the Members shall be determined as follows:
(i) The Percentage Interest of API shall be equal
to (x) the sum of $10.8 million plus the amount of all
Capital Contributions made by API pursuant to Section
3.1(b), divided by (y) $18 million plus the sum of all
Capital Contributions made by API and DTR pursuant to
Section 3.1(b) and 3.1(c), respectively.
(ii) The Percentage Interest of DTR shall be
equal to the sum of (x) $7.2 million plus the amount of
all Capital Contributions made by DTR pursuant to
Section 3.1(c) divided by (y) $18 million plus the sum
of all Capital Contributions made by API and DTR
pursuant to Section 3.1(b) and 3.1(c), respectively.
(b) As of the last day ("Adjustment Date") of each
calendar year ("Calculation Period") in the five year period
commencing on January 1, 1998, DTR's Percentage Interest shall be
increased (and API's Percentage Interest correspondingly
decreased) in the event that the net income of the Company,
calculated in accordance with GAAP as audited by the Company's
independent auditors, for the Calculation Period ending on the
Adjustment Date exceeds a target return of twenty percent (20%)
of the Members' Equity (as defined below), calculated in
accordance with GAAP as audited by the Company's independent
auditors, as of the beginning of the first day of the Calculation
Period (the "Target Return"), in accordance with the following
formula:
A = [(B x ME) + [C x (1 - B)]] ? [ME]
where
A = DTR's Percentage Interest after annual adjustment
pursuant to this Section 5.2(b);
B = DTR's Percentage Interest prior to annual
adjustment pursuant to this Section 5.2(b);
ME = "Members' Equity" which shall be equal to all
capital invested in the Company by the Members,
plus retained earnings and other adjustments made
pursuant to GAAP, as set forth on the Company's
balance sheet as of the beginning of the
Calculation Period; and
C = Twenty percent (20%) of the amount by which the
net income of the Company for the Calculation
Period, determined in accordance with GAAP as
audited by the Company's independent auditors,
exceeds the Target Return for such Calculation
Period.
Notwithstanding the foregoing, the aggregate increase
to DTR's Percentage Interest pursuant to this Section 5.2(b)
shall not exceed ten (10) percentage points in excess of the
Percentage Interest determined pursuant to Section 5.2(a) (e.g. a
Percentage Interest of 30% could not be increased to a Percentage
Interest of greater than 40% pursuant to this Section 5.2(b)).
No reductions in DTR's Percentage Interest shall be made pursuant
to this Section 5.2(b).
(c) In addition to any adjustments that may be made
pursuant to Section 5.2(b), it is the intent of the Members that,
upon the sale, transfer, liquidation or other disposition by API
of its Interest, DTR's Percentage Interest shall be increased to
the extent that API earns an actual Internal Rate of Return over
the term of its investment in the Company ("IRR") in excess of
thirty-five percent (35%). To effect the foregoing, in the event
that API's IRR, calculated as of the date that API sells,
transfers, liquidates, or otherwise disposes of its Interest
("Termination Date") exceeds thirty-five percent (35%), API's
Percentage Interest shall be increased in accordance with the
following formula: for each percentage point (or portion
thereof) by which API's IRR exceeds thirty-five percent (35%),
DTR's Percentage Interest shall be increased (and API's
Percentage Interest correspondingly reduced) in the ratio of one
percentage point for each two percentage points by which API's
IRR exceeds thirty-five percent (35%). The calculation of API's
IRR shall be based upon actual cash amounts received by API as of
the Termination Date and the actual value received by API with
respect to the sale, transfer, liquidation or other disposition
of its Interest, calculated as of the Termination Date.
Notwithstanding the foregoing, the increase of DTR's Percentage
Interest pursuant to this Section 5.2(c) combined with the
increase pursuant to this Section 5.2(b) shall not exceed
thirteen and 33/100 percent (13.33%).
(d) The adjustment of Percentage Interests pursuant to
this Section 5.2 shall not alter the voting/management provisions
contained in this Agreement.
ARTICLE VI
TRANSFERS
6.1 New Members. Additional Members shall not be admitted
in the absence of unanimous consent of the existing Members
except as provided herein.
6.2 Transfers to Third Parties. No Member may sell,
assign, pledge, or otherwise transfer or encumber (collectively
"transfer") all or any part of its Interest and no transferee of
all or any part of any Member's Interest shall be admitted as a
substituted Member, without the unanimous consent of all Members,
provided that if DTR refuses to consent to a transfer proposed by
API, the put-right provided pursuant to Section 6.4 shall become
immediately exercisable.
6.3 Transfer by API After Five Years by Sale or IPO. If
after five years from the Closing, API has not sold its Interest
in the Company, then at API's election, DTR will, at the request
of API, either assist API in the sale of its Interest to a third
party, subject to the consent provisions set forth in Section
6.2, or assist in an initial public offering ("IPO") of Interests
in the Company.
6.4 Put Right. If any time after five years from the
Closing, API has not sold or otherwise liquidated its Interest in
the Company, then API may elect to require the Company to
purchase API's Interest at its fair market value at the time of
election determined as:
(a) The Members shall select a qualified independent
third party who shall provide the Members with an appraisal of
the fair market value of API's Interest.
(b) Based upon the appraisal provided pursuant to
Section 6.4(a), the Members shall agree on a fair market value of
API's Interest.
(c) If the Members fail to reach an agreement on the
fair market value of API's Interest, then the fair market value
shall be determined by arbitration pursuant to Article X, except
that each Member shall select an arbitrator qualified to provide
an appraisal of the fair market value of API's Interest. If the
highest valuation does not exceed the lowest valuation by ten
percent (10%) of each other, then the fair market value will be
the average of the values provided by both of the arbitrators.
If the highest valuation exceeds the lowest valuation by 10% or
greater, then an additional qualified arbitrator shall be
selected by the original arbitrators. The additional arbitrator
shall set the fair market value of API's Interest at a value
between the appraised values provided by the first two
arbitrators.
(d) The Company shall pay API cash in full payment
within forty-five (45) days of the Company's purchase of API's
Interest unless the Current Ratio of the Company is less than 2
to 1 and the Debt Ratio of the Company is greater than 30%. The
Company may then elect to pay for the purchase of API's Interest
with a senior note (or combination of cash and senior note). The
senior note will be superior in right of payment to all debt
obligations of the Company except for debt obligations of the
Company existing at the time of issuance of the note which cannot
by their terms be subordinated to such note. Interest will
accrue on the unpaid principal amount of the senior note at a
rate of twenty-five percent (25%) per annum. Principal and
interest shall be amortized and payable in equal monthly
installments over a term of twenty-four (24) months. The Company
shall have the right to prepay any principal due under the senior
note without penalty.
ARTICLE VII
TERMINATION OF AGREEMENT/LIQUIDATION
7.1 Termination of Agreement. This Agreement shall
terminate and the Company shall be liquidated (i)upon the
unanimous agreement of the Members, (ii) on the date that is
thirty (30) years after the filing of the Certificate of
Formation with the Delaware Secretary of State, or (iii) upon the
withdrawal, bankruptcy, or dissolution of any Member or the
occurrence of any other event that terminates the continued
membership of any Member in the Company under Delaware law unless
the remaining Members unanimously agree to continue the business
of the Company within ninety (90) days of such event. Upon
termination, this Agreement shall be of no further force and
effect provided that the indemnification provisions of Section
12.1 and the confidentiality provision contained in Section 8.2
shall continue in full force and effect.
7.2 API Priority Distribution. If the Company is
liquidated for any reason, sold or refinanced prior to API's
receipt of distributions in an amount equivalent to its Capital
Contributions to the Company, then API shall have priority over
DTR's right to receive any distribution of the assets of the
Company in an amount equal to the amount of API's Capital
Contribution less distributions to API after the payment of all
amounts owed by the Company to creditors. Proceeds in excess of
such amount shall be distributed in accordance with the following
priority: (i) to DTR to the extent of its Capital Contribution
less distributions received, and (ii) to the Members in
proportion to their Percentage Interests. The priority payment
set forth in this Section 7.2 is not intended to prohibit the
making of distributions to Members.
ARTICLE VIII
NON-COMPETITION/CONFIDENTIALITY
8.1 Non-competition.
(a) Subject to the provisions of the following
sentence, neither DTR, nor any affiliate thereof, shall directly
or indirectly own, manage, invest or participate in any
corporation, partnership, joint venture or other enterprise
involved in the production or distribution of dairy or juice, or
other food products produced or distributed by the Company, in
the former Soviet Union except through the Company. The
provisions of this Section 8.1(a) shall not apply to DTR's
interest, as of the date of this Agreement, in a project in
Kazakstan that is involved in the production and distribution of
potato chips provided that DTR does not control or participate in
the management of such project.
(b) API shall not directly or indirectly own, manage,
invest or participate in any corporation, partnership, joint
venture or other enterprise involved in the production or
distribution of dairy products in the former Soviet Union except
through the Company. The prohibition contained in this Section
8.1(b) shall not apply to (i) API's investment in the
Borisoglebsk project, or (ii) any investment by API in any
project provided that API does not participate in the management
of such project.
(c) As used in this Section 8.1, the term "affiliate"
with respect to DTR shall mean any person or entity directly or
indirectly controlling, controlled by, or under common control
with DTR, as the case may be.
8.2 Confidentiality.
(a) Unless otherwise specifically agreed by API and
DTR, during the term of this Agreement and for a period of five
(5) years thereafter, the Company and each Member shall maintain
in confidence, and shall refrain from using or disclosing, all
Confidential Information. For the purposes of this Section 8.2,
"Confidential Information" means all know-how, financial data,
technical data (including the terms of the transactions
contemplated in this Agreement), trade secrets or other
confidential information that the Company has disclosed to any
Member, or that a Member has disclosed to any other Member or the
Company, under or in connection with this Agreement. The Company
and each Member shall cause its directors, current and past
employees, agents and contractors to refrain from using or
disclosing any Confidential Information in any manner, except as
expressly permitted by this Section 8.2.
(b) Notwithstanding the foregoing, this Section 8.2
shall not restrict the use or disclosure of Confidential
Information to the extent that:
(i) the information becomes generally available
to the public without breach of this Section 8.2;
(ii) the recipient lawfully obtains the
information from a third party who is not subject to the terms of
this Agreement;
(iii) the recipient has independently developed
the information prior to disclosure; or
(iv) applicable law requires disclosure of the
information to governmental, legislative or judicial authorities,
provided that the recipient shall give prior notice to the
disclosing party and use its best efforts to require such
authorities to continue to accord confidential treatment to the
information.
(c) Notwithstanding the foregoing, this Section 8.2
shall not restrict the use or disclosure of Confidential
Information to the extent necessary to permit either API or DTR
to undertake any project not prohibited by the provisions of
Section 8.1.
ARTICLE IX
FORCE MAJEURE
9.1 Force Majeure Defined. "Force Majeure" means the
occurrence of circumstances beyond the reasonable control of the
Member affected, and which such Member could not have prevented
by the exercise of reasonable diligence. Events of Force Majeure
include:
(a) earthquakes, floods, fires or other natural
physical disasters; wars or hostilities; riots or civil
disturbances; acts of terrorism or sabotage; governmental
regulations, decrees or actions; and legislative or judicial
actions; or
(b) actions of any persons or groups of persons (i)
with the purpose of obtaining money or property from the Company
or from employees or representatives of the Company by coercion
or intimidation; (ii) threatening the life and/or health of
employees or representatives of the Company or (iii) causing or
threatening to cause material loss to the Company, provided that
adequate evidence of such circumstances is presented to the
satisfaction of the other Members; or
(c) actions of any governmental authority to seize,
confiscate, expropriate or nationalize the Interest of any Member
or its share in the Company or any property of the Company, or
otherwise to prevent any Member from exercising its rights with
respect to the Company as set forth in this Agreement or
applicable law in force on the date hereof.
9.2 Effect of Force Majeure. If an event of Force Majeure
causes a Member's failure or delay in its performance of any
obligations under this Agreement, then such failure or delay
shall be excused (and thus shall not constitute a breach of this
Agreement for as long as the Force Majeure remains in effect).
9.3 Notice of Force Majeure. A Member that fails or delays
to perform any obligations under this Agreement due to Force
Majeure shall so notify the other Members in writing, as promptly
as possible after such occurrence. The notice shall describe the
nature of the Force Majeure, furnish adequate evidence of the
existence and circumstances of the event of Force Majeure and, to
the extent possible, estimate its duration and its likely effects
on the Member's performance of its obligations under this
Agreement.
9.4 Cessation of Force Majeure. A Member whose performance
is affected by a Force Majeure shall use its best efforts to
terminate the effects of such Force Majeure. Upon the cessation
of the Force Majeure, the affected Member shall resume
performance of its obligations as soon as possible. The affected
Member shall notify the other Members as soon as it learns that
the Force Majeure has ceased or appears likely to cease.
ARTICLE X
RESOLUTION OF DISPUTES
10.1 Arbitration. Any dispute, claim or grievance arising
out of or relating to the interpretation or application of this
Agreement, or to the breach, termination of validity thereof,
shall be settled by arbitration in accordance with the then-
current Center for Public Resources Rules of Non-Administered
Arbitration of Business Disputes, by a sole arbitrator. The
arbitration shall be governed by the United States Arbitration
Act, 9 U.S.C. et seq. Judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction
thereof. The place of the arbitration shall be a neutral city in
the midwestern United States.
ARTICLE XI
REPRESENTATIONS AND WARRANTIES
11.1 API. API I and API II each represent and warrant to
DTR:
(a) It is a limited partnership duly organized,
validly existing and in good standing under the laws of the State
of Delaware. It has the power and authority to own, lease, and
operate its assets, properties, and businesses and to enter into
this Agreement and to carry out its obligations hereunder. The
execution, delivery, and performance of this Agreement by it have
been duly authorized by all necessary action on its part, and
this Agreement is legally binding upon it in accordance with its
terms.
(b) The execution, delivery, and performance by it of
this Agreement and the transactions contemplated hereby will not
(i) violate the provisions of any order, judgment, or decree of
any court or other governmental agency or any arbitrator
applicable to it, (ii) result in a material breach of or
constitute (with due notice or lapse of time or both) a material
default under any contract or agreement to which it is a party or
by which it is bound; or (iii) violate any provision of law
applicable to it, the violation of which is likely to have a
material adverse effect on the business, operations or condition
(financial or otherwise) of it or the Company.
11.2 DTR. DTR represents and warrants:
(a) DTR is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Minnesota. DTR has the corporate power and authority to own,
lease and operate its assets, properties, and business and to
enter into this Agreement and to carry out its obligations
hereunder. The execution, delivery, and performance of this
Agreement by DTR have been duly authorized by all necessary
corporate actions on the part of DTR, and this Agreement is
legally binding upon DTR in accordance with its terms.
(b) The execution, delivery, and performance by DTR of
this Agreement and the transactions contemplated hereby will not
(i) violate the provisions of any order, judgment, or decree of
any court or other governmental agency or any arbitrator
applicable to DTR or the Articles of Incorporation or Bylaws of
DTR; (ii) result in a material breach of or constitute (with due
notice or lapse of time or both) a material default under any
contract or agreement to which DTR is a party or by which DTR is
bound; or (iii) violate any provision of law applicable to DTR,
the violation of which is likely to have a material adverse
effect on the business, operations or condition (financial or
otherwise) of DTR or the Company.
(c) DTR has or will have at the time of contribution,
full legal right to transfer and assign all rights and properties
to be contributed to the Company as Capital Contributions
pursuant to the terms of this Agreement (including the Original
Agreement), free and clear mortgage, pledge, claim, lien charge,
obligation, liability (including liability for taxes) or other
encumbrances, and the Company will receive full legal and
beneficial title to all such rights and properties.
ARTICLE XII
INDEMNIFICATION
12.1 Extent of Responsibility for Damages. Each Member
shall indemnify and hold harmless the other Member for losses,
claims, damages, liabilities, including without limitation
reasonable legal and other expenses incurred in connection with
investigating any loss, claim, damage or liability, that such
Member may incur or suffer by reason of (i) any inaccuracy in any
representation or the breach of any warranty made by the Member
hereunder, or (ii) the failure of such Member to fully perform or
observe any term, provision, covenant, agreement to be performed
under this Agreement.
12.2 Indemnification of Members and Directors. The Company
shall indemnify and hold harmless each Member and its Affiliates
and each Director (each an "Indemnified Person") against any and
all losses, claims, damages, expenses and liabilities of any kind
whatsoever that such Indemnified Person may at any time become
subject to or liable for by reason of the formation, operation,
or termination of the Company, or the Indemnified Person acting
as a Member or Director of the Company, or the authorized actions
of such Indemnified Person in connection with the conduct of the
affairs of the Company, provided that no Indemnified Person shall
be entitled to indemnification to the extent that liability
otherwise indemnified for results from (i) any act or omission of
such Indemnified Person that involves actual fraud or willful
misconduct, or (ii) any transaction from which such Indemnified
Person derived improper personal benefit.
12.3 Limitation of Liability. No Member shall have any
personal liability whatsoever to the Company or any other Member
on account of such Member's status as a Member or by reason of
such Member's acts or omissions in connection with the conduct of
the business of the Company; provided, however, that nothing
contained herein shall protect any Member against any liability
to the Company or the Members to which such Member would
otherwise be subject by reason of (i) any act or omission of such
Manager that involves actual fraud or willful misconduct or (ii)
any transaction from which such Member derived improper personal
benefit.
ARTICLE XIII
GENERAL PROVISIONS
13.1 Limitation on Liability. The debts, obligations, and
liabilities of the Company, whether arising in contract, tort, or
otherwise, shall be solely the debts, obligations, and
liabilities of the Company, and no Member of the Company shall be
obligated personally for any such debt, obligation, or liability
of the Company solely by reason of being a Member.
13.2 Tax Treatment. It is the intention of the Members that
the Company shall be taxed as a "partnership" for federal, state,
local, and foreign income tax purposes. The Members agree to
take all reasonable actions, including the amendment of this
Agreement and the execution of other documents, as may reasonably
be required in order for the Company to qualify for and receive
"partnership" treatment for federal, state, local, and foreign
income tax purposes.
13.3 Cooperation. The parties hereto shall in good faith
undertake to perform their obligations under this Agreement.
Upon execution of this Agreement and thereafter, each party shall
do such things as may be reasonably requested by the other party
hereto in order to more effectively carry out the intent of this
Agreement.
13.4 Notices. Except as otherwise provided in this
Agreement, any and all notices, consents, waivers, directions,
requests, votes or other instruments or communications among the
Members, Member representatives and the Company under this
Agreement shall be communicated and be effective only if the
original is sent in writing by hand or by registered mail, and a
copy is sent by telex or facsimile. Any notice so given shall be
deemed to have been received as of the date the original is
received, or as of the date on which a copy was sent by telex or
facsimile and a confirmation of receipt indicated on the sending
telex or facsimile machine, whichever is earlier.
13.5 Applicable Law. This Agreement shall be governed by
and interpreted in accordance with the substantive law of the
State of Delaware. The Company shall be governed by and operate
in accordance with the applicable legislation of Delaware.
13.6 Severability. In case one or more of the provisions
contained in this Agreement, or any application thereof, shall be
invalid, illegal or unenforceable in any respect under applicable
law, the validity, legality and enforceability of the remaining
provisions contained therein and any other application thereof
shall not be affected or impaired in any way.
13.7 Entire Agreement. This Agreement sets forth the entire
agreement among the Members relating to the subject matter
contained herein and shall create binding rights and obligations
of the Members, and between the Members and the Company. All
other prior agreements or understandings, both written and oral,
are of no further force or effect. This Agreement shall not be
amended or replaced except by unanimous written agreement of the
Members.
13.8 Headings. The headings contained in this Agreement are
for convenience only and shall not be used to construe or
interpret the substantive meaning or intent of any provision
thereof.
13.9 Counterparts. This Agreement may be executed in one or
more counterparts, each of which is an original but all of which
shall constitute one instrument.
IN WITNESS WHEREOF, the undersigned have caused this
Agreement to be signed in four (4) originals on the date first
written above.
FOR AND ON BEHALF OF:
DEVELOPED TECHNOLOGY RESOURCE, INC.
By:
Name: John P. Hupp
Title: President
FOR AND ON BEHALF OF:
API DAIRY PARTNERS L.P.
By Agribusiness Holding Company L.L.C.
its general partner
By:
Name: Robert H. Peyton
Title: President
FOR AND ON BEHALF OF:
AGRIBUSINESS PARTNERS INTERNATIONAL L.P. II
By C.I.S. Management Company L.L.C.
its general partner
By:
Name: Robert H. Peyton
Title: President
AMENDED AND RESTATED
MANAGEMENT AGREEMENT
THIS AMENDED AND RESTATED AGREEMENT ("Agreement") is
made and entered into as of the 11th day of September, 1998, by
and between DEVELOPED TECHNOLOGY RESOURCE, INC., a corporation
organized under the laws of the State of Minnesota (hereinafter
the "Manager"), and FOODMASTER INTERNATIONAL L.L.C., a limited
liability company organized under the laws of the State of
Delaware (hereinafter the "Company").
WITNESSETH:
WHEREAS, the Company has been formed by the Manager and
certain other parties (collectively the "Members") for the
purpose of producing, packaging and distributing high-quality,
branded dairy products and fruit juice, and other products as
agreed to by the Members, in the former Soviet Union;
WHEREAS, the Members have entered into that certain
Amended and Restated Limited Liability Company Agreement, as of
the date hereof (the "Operating Agreement"), with respect to the
operation of the Company;
WHEREAS, as an inducement to the Members to form the
Company, Manager agreed to manage the business of the Company
pursuant to the terms of that certain Management Agreement, made
and entered into as of March 3, 1997, by the Manager and the
Company (the "Original Agreement"); and
WHEREAS, Manager and the Company desire to amend and
restate the Original Agreement as set forth herein."
NOW, THEREFORE, for and in consideration of the
foregoing and the premises and mutual covenants hereinafter
contained, the parties hereto hereby agree as follows:
1. Engagement of Manager. The Company hereby engages
the Manager to develop, manage and operate all business
activities of the Company and to do and perform any and all
things in the management of those business activities customarily
performed by managers of similar businesses, subject to the terms
and conditions imposed by this Agreement.
2. Acceptance by Manager/Priority of Resources.
Manager hereby agrees to manage the business of the Company on
the terms and conditions provided herein. In addition to the
provisions of Section 5(a) of this Agreement, it is understood
and agreed that the Manager will devote all resources necessary
to the performance of its obligations under this Agreement and
shall not undertake any other projects or commitments which may
adversely affect its ability to perform its obligations under
this Agreement.
3. Control by the Company. Notwithstanding any other
provision of this Agreement, the Manager shall be subject to the
direction and control of the Company with respect to all aspects
of the performance of its obligations under this Agreement
4. Duties of Manager. Subject to the provisions of
Section 3, Manager agrees to perform all actions reasonably
necessary to develop, manage and operate the business activities
of the Company, including without limitation the following:
a. Manage all business activities of the Company.
b. Conduct all business activities of the Company's
operations in Kazakstan, Moldova and the Ukraine,
and in any other location in which the Company
undertakes operations.
c. Investigate other dairy, juice and related
products operations in the former Soviet Union for
possible investment by the Company.
d. Establish and maintain bank accounts for the
Company, provided that such accounts shall be
approved by the Company prior to being
established, and keep the books and records of all
business activities of the Company, to pay all
debts and obligations, to execute contracts as
authorized by the Company.
e. Engage accountants for the Company and for the
businesses owned and controlled by the Company,
provided that such accountants shall be approved
by the Company prior to engagement. Select,
employ, supervise, direct, pay and discharge all
employees or independent contractors necessary, in
Manager's opinion, for the development,
management, and operation of the Company's
businesses in the former Soviet Union, and all
such persons shall be employees or agents of
Manager and not of the Company. Manager shall
carry workers' compensation insurance, written in
such manner as also to protect the Company in an
appropriate amount, covering all such employees,
and shall withhold for tax purposes and make all
deductions and file all reports required under all
applicable laws and regulations.
f. Such other duties and responsibilities reasonably
requested from time to time by the Company.
5. Exclusivity/Employee Non-Competes.
(a) The Manager shall cause John P. Hupp, Erlan
Sagadiev, Denis Gablenko, Lydia L. Bauer, Kevin Cuthill, and
LeAnn Davis, and all other persons employed by the Manager during
the term of this Agreement to perform duties or functions similar
to those performed by the foregoing (collectively "Senior
Management"), to work exclusively on behalf of the Company to the
exclusion of all other projects or business during the terms of
this Agreement. Without limiting the foregoing, Senior
Management shall not participate or be involved, in any manner or
capacity, in the management or operations of SXD, Inc., a
subsidiary of the Manager. Notwithstanding the foregoing, John
Hupp may serve as President, Chief Executive Officer and a
Director of the Manager and devote such time as is necessary to
fulfill his fiduciary duties as an officer and director of the
Manager and LeAnn Davis may serve as chief financial officer and
secretary of the Manager.
(b) The Manager shall cause each member of Senior
Management to enter into non-competition agreements pursuant to
which such person agrees that during their employment with the
Manager and for a period of one year after termination thereof
(whether voluntary or involuntary), such employee shall not (i)
directly or indirectly maintain an ownership interest in,
operate, or work for any entity which produces, packages or
distributes dairy, juice or other food products in any of the
Republics of the former Soviet Union in which the Company
engages, or proposes to engage, in such activities, (ii) solicit,
do business with, or deliver products or services to any person
or entity who was a client or customer of the Company, or (iii)
employ or offer to employ any individual who was employed by the
Manager or the Company or in any way associated with the Manager
or the Company. Manager shall provide copies of all agreements
entered into pursuant to this Section 5(b) to the Company upon
request.
6. Independent Contractor. The Manager shall operate
as an independent contractor and neither Manager nor its
employees shall be considered employees of the Company.
7. Property of the Company. It is understood and
agreed that all books, records, files, reports, business
products, discoveries, improvements, know-how or techniques made,
developed or created by the Manager (or its agents or employees)
in connection with the performance of the Manager's obligations
under this Agreement, shall be the property of the Company and
shall be assigned to the Company upon request. Nothing in this
Agreement is intended to preclude the Manager from using (i) any
products, discoveries, improvements, know-how or techniques in
connection with projects which the Manager is not precluded from
undertaking under the terms of the Operating Agreement, or (ii)
products, discoveries, improvements, know-how or techniques
unrelated to the production, packaging or distribution of dairy,
juice or other food related products in the former Soviet Union.
8. Insurance. The Company shall provide liability
insurance in an amount satisfactory to the Manager. The Manager
shall be named insured on such liability insurance policies and
certificates of insurance shall be provided to the Manager.
9. Reports. The Manager will submit to the Company
monthly financial statements for all businesses in which the
Company has an investment and will provide such other information
and reports as may be requested from time to time by the Company.
10. Preparation of Annual Budget. Manager shall
prepare a preliminary annual budget forty-five (45) days prior to
the end of each fiscal year. The Company shall provide the
Manager with an approved budget for each fiscal year prior to the
beginning of that fiscal year. The Company must approve any
expenses incurred by the Manager in excess of amounts specified
in the approved budget.
11. Indemnification.
(a) The Company shall indemnify and hold harmless the
Manager from and against any and all claims or liabilities for
damage or injury to property or persons or death of persons
occurring on or about the premises of any businesses owned or
controlled by the Company and managed by the Manager, except for
such claims as arise due to the negligent act or omission of
Manager, its agents or employees.
(b) The Manager shall indemnify and hold harmless the
Company against any and all claims or liabilities for damage or
injury to property or persons or death of persons resulting or
arising from the negligent acts or omissions of the Manager, its
agents or employees, except for such claims as arise due to the
negligent acts or omissions of the Company which do not involve
any negligent acts or omissions of the Manager, its agents or
employees.
12. Compensation and Expense Reimbursement. As
consideration for performing the services identified in this
Agreement, the Company shall reimburse the Manager for all
expenses reasonably incurred by the Manager in connection with
the performance of services under this Agreement provided that
such expenses are specified in the budget approved pursuant to
Section 10 or have been pre-approved by the Company. The Manager
shall provide the Company with monthly invoices (in form and
detail as reasonably acceptable to the Company) of expenses to be
reimbursed under this Agreement. The Company shall pay the
Manager for expenses identified in such invoice within thirty
(30) days of the receipt of an invoice.
13. Option Plans. During the term of this
Agreement, the Manager shall not, without the prior approval of
the Company which shall not be unreasonably withheld, alter or
amend any of the plans or programs in existence as of the date of
this Agreement, pursuant to which options to purchase stock of
the Manager ("Options") are granted to Senior Management. The
foregoing prohibition shall include, without limitation, the
issuance of any Options subsequent to the date of this Agreement.
14. Shareholder Agreements. The obligations of the
Company under this Agreement are conditioned upon each of John P.
Hupp and Erlan Sagadiev having entered into an agreement with the
Manager (a "Shareholder Agreement") pursuant to which Messrs.
Hupp and Sagadiev each agree that, until and unless
(a) API (as defined in the Operating Agreement) sells,
transfers or liquidates its interest in the Company,
(b) API exercises its rights set forth in either
Section 6.3 or Section 6.4 of the Operating Agreement,
(c) he is involuntarily terminated from the Manager,
(d) one year after API becomes entitled to exercise
the put right provided for in Section 6.4 of the
Operating Agreement, or
(e) the termination of this Agreement pursuant to
Section 15 other than termination by the Company for
cause,
he will not, without the prior consent of the Company, sell,
pledge or transfer any shares of stock of the Manager in excess
of that number of shares equal to thirty-five percent (35%) of
the number of shares of stock of the Manager subject to all
vested Options, whether exercised or unexercised, owned by
Messrs. Hupp or Sagadiev, as the case may be, at the time of such
sale, pledge or transfer, provided that neither Messrs. Hupp or
Sagadiev shall be permitted to sell any shares of stock of the
Manager unless written notice thereof has been provided to the
Company at least thirty (30) days prior to such sale. Manager
shall not give effect to any attempted transfers of shares of its
stock in violation of the Shareholder Agreements.
Notwithstanding the other provisions of this Section 14, the
Shareholders Agreement shall not prohibit either Messrs. Hupp or
Sagadiev from selling, pledging or transferring any shares of
stock of the Manager to the extent that such shares are acquired
other than through the exercise of the Options.
15. Contracts. Contracts and agreements entered into
in accordance with Section 4 of this Agreement in connection with
the development, management or operation of the businesses owned
or controlled by the Company and managed by the Manager shall be
executed by the Manager as agent of the Company, and the Company
agrees to indemnify and hold harmless the Manager from and
against all existing and future liabilities under such contracts
and agreements, provided that the Manager shall have no authority
to incur any obligation on behalf of the Company that exceeds
[U.S.]$25,000 unless (i) the amount of such obligation, the
identity of the party to whom the obligation is to be incurred,
and the purpose for which the obligation is to be incurred is
specified in a budget approved by the Company, or (ii) such
obligation is otherwise specifically approved by the Company.
16. Term. This Agreement shall be effective as of the
date of the Original Agreement and shall remain in effect until
terminated in accordance with the following sentence. This
Agreement shall not terminate except (i) by mutual consent of the
parties hereto, (ii) by either party for cause, (iii) by the
Company upon sixty (60) day prior written notice, or (iv) upon
the liquidation of the Company. For purposes of this Agreement,
"cause" shall mean the breach of any term hereof which breach is
not cured within thirty (30) days of the delivery of notice of
such breach by the party seeking termination.
17. Cooperation Between Parties. The parties agree to
give each other full cooperation and assistance to the end that
both parties may discharge their responsibilities hereunder.
Without limiting the foregoing or any other provision of this
Agreement, the Manager shall provide the Company, upon request
with copies of all agreements, contracts and other documents
entered into in connection with, or pursuant to the terms of this
Agreement.
18. Notices. Wherever in this Agreement it shall be
required or permitted that notice or demand be given or served by
either party to this Agreement to or on the other, such notice or
demand shall be given or served either personally or forwarded by
registered or certified mail, postage prepaid, and a copy sent by
telex or facsimile. Any notice so given shall be deemed to have
been received as of the date the original is received, or as of
the date on which a copy was sent by telex or facsimile and a
confirmation of receipt indicated on the sending telex or
facsimile machine, whichever is earlier. The addresses for the
parties are as follows:
To the Manager: Developed Technology Resource, Inc.
7300 Metro Blvd., Suite 550
Edina, MN 55439
Telecopy: 612-820-0011
To the Company: c/o Agribusiness Management Co.
1004 Farnham Street, Suite 400
Omaha, NE 68102
Telecopy: 402-345-8966
Such addresses may be changed from time to time by either party
by serving notice as above provided.
19. Assignment. This Agreement shall be binding upon
the successors and assigns of the parties hereto and may not be
assigned by Manager, except to an entity controlled by Manager,
without the prior written consent of the Company.
20. Amendment or Modification. This Agreement
constitutes the entire agreement between the parties hereto, and
no variance or modification hereof shall be valid or enforceable,
except by an amendment or supplemental agreement in writing
executed by the parties hereto.
21. Choice of Law. This Agreement shall be construed
in accordance with and governed by the laws of the State of
Delaware, without giving effect to principles of conflicts of
laws.
22. Counterparts. This Agreement may be executed in
one or more counterparts, each of which is an original but all of
which shall constitute one instrument.
IN WITNESS WHEREOF, the parties hereof have caused this
instrument to be duly executed as of the day and year first above
written.
FOODMASTER INTERNATIONAL L.L.C.
By API Dairy Partners L.P.,
Member
By Agribusiness Holding
Company L.L.C., its
general partner
By__________________________
Robert H. Peyton, President
DEVELOPED TECHNOLOGY RESOURCE, INC.
By_________________________________
John P. Hupp, President
JOHN HUPP
AND
DEVELOPED TECHNOLOGY RESOURCE, INC.
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT, effective
October 1, 1998, is made by and between John Hupp ("Executive")
and Developed Technology Resource, Inc. ("DTR"), a Minnesota
corporation.
WHEREAS, DTR desires the services of Executive to assist DTR
in its operations as provided herein, and Executive has agreed to
provide such services;
NOW, THEREFORE, DTR and Executive, in consideration of the
mutual promises and covenants contained herein, agree as follows:
1. EMPLOYMENT. DTR agrees to employ Executive as its
President. Executive hereby accepts such employment. Executive
will serve DTR under the direction of its Board of Directors.
2. EXCLUSIVITY OF SERVICES. Executive will devote his
best efforts to the performance of his duties hereunder as a full
time employee of DTR. Executive will not, without the written
consent of the Board of Directors of DTR, engage in any activity
which conflicts or interferes with the performance of his duties
hereunder. Executive warrants that there exist no undisclosed
written or oral arrangements preventing his exclusive service to
DTR, and that he has not made any undisclosed commitment or
performed any undisclosed act, and will not make any commitment
or perform any act, in conflict with the exclusive nature of his
duties to DTR.
3. TERM. This Employment Agreement shall have a term
expiring on September 30, 2001, subject to earlier termination
under Section 8 hereof.
4. COMPENSATION. In consideration of Executive's
acceptance of continued employment and performance of duties
under this Employment Agreement, including, but not limited to
the provisions of Sections 5, 6 and 7, DTR shall pay to Executive
the following Compensation:
(a) Salary. Executive shall be paid a salary at a
gross annual rate of One Hundred Ten Thousand Dollars
($110,000.00) per annum. The Board of Directors of DTR
may, in its discretion, increase Executive's salary.
Salary payments hereunder shall be made in the same
manner and number as are the salary payments of other
senior executives of DTR and shall be subject to
required payroll tax withholding and other deductions
authorized by Executive.
(b) Bonuses. The Board of Directors of DTR may grant
Executive one or more bonuses in its discretion.
(c) Benefits. Executive shall, for each fiscal year
this Employment Agreement remains effective, be
entitled to paid vacations, health plans, pension
plans, stock purchase plans, profit sharing plan,
automobile allowance, and any other benefit plans, on
the same terms as such benefits are available generally
to other senior executives of DTR.
(d) Expense Reimbursement. DTR will pay or reimburse
Executive for all reasonable and necessary out-ofpocket
expenses incurred by him in the performance of his
duties under this Employment Agreement, subject to the
presentation of appropriate vouchers in accordance with
DTR' normal policies for expense verification.
5. COVENANT NOT TO COMPETE. In partial consideration of
the Compensation paid under this Employment Agreement, Executive
agrees that during the term of this Employment Agreement and for
a period of one (1) year following the termination of his
employment, whether voluntary or involuntary, he shall not,
either personally, or through an employer, firm, agent, servant,
employee, partner, shareholder, representative, affiliate, or any
other entity:
(a) solicit, do business with, or deliver products or
services which compete with the business, products or
services of DTR to any person or entity who was a
client or customer of DTR or was in any way associated
with DTR as of the date of Executive's termination or
at any time during the twelve (12) months immediately
preceding such termination, without the prior written
consent of DTR,
(b) employ or offer to employ any individual employed
by DTR or in any way associated with DTR within the
four (4) months preceding the termination of
Executive's employment; or request, advise or entice
any such individual to leave the employment of DTR or
disassociate from DTR, without the prior written
consent of DTR,
provided that any involuntary termination must be in compliance
with this Employment Agreement, including the provisions of
Section 8(b). Executive further agrees that in the event he
breaches any of the covenants contained in this Section 5,
irreparable injury will result to DTR, that DTR's remedy at law
will be inadequate, and that DTR will be entitled to an
injunction to restrain the continuing breach of this Employment
Agreement by Executive, his partners, agents, servants,
employees, or representatives, or any other persons or entities
acting for or with him. DTR shall, without limitation, be
entitled to damages, reasonable attorneys fees, and all other
costs and expenses incurred in connection with the enforcement of
this Section 5, in addition to any other rights or remedies which
DTR may have at law or in equity. DTR may waive the application
of this section for good cause.
6. NONDISCLOSURE OF INFORMATION.
(a) Executive agrees that any information related to
the business of DTR, or any of its clients, customers
or associated entities, and acquired by Executive
during his employment by DTR shall be regarded as
confidential and solely for the benefit of DTR.
Executive shall not, except as necessary in the
ordinary course of conducting business for DTR, use
such information himself or disclose such information
to any other person, directly or indirectly, either
during the term of this Employment Agreement or at any
time thereafter, without the prior written consent of
DTR.
(b) Executive shall not remove any records or
documents from the premises of DTR, or any of its
clients, customers or associated entities, in either
original, duplicate, or copied form, except as
necessary in the ordinary course of conducting business
for DTR. Executive shall immediately deliver to DTR,
upon termination of employment with DTR, or at any
other time upon DTR's request, any such records or
documents in Executive's possession or control.
7. INVENTIONS.
(a) "Inventions," as used in this Section 7, means any
discoveries, improvements and ideas (whether or not
they are in writing or reduced to practice) or works of
authorship (whether or not they can be patented or
copyrighted) that Executive makes, authors, or
conceives (either alone or with others) and that:
(i) concern directly DTR's business or DTR's
present or demonstrably anticipated future
research or development;
(ii) result from any work Executive performs
for DTR;
(iii) use DTR's equipment, supplies,
facilities, or trade secret information; or
(iv) Executive develops during the time
Executive is performing employment duties for DTR;
(b) Executive agrees that all Inventions made by
Executive during or within six months after the term of
this Agreement will be DTR's sole and exclusive
property. Executive will, with respect to any
Invention:
(i) keep current, accurate, and complete
records, which will belong to DTR;
(ii) promptly and fully disclose the
existence and describe the nature of the Invention
to DTR in writing (and without request);
(iii) assign (and Executive does hereby
assign) to DTR all of his rights to the Invention,
any applications he makes for patents or
copyrights in any country, and any patents or
copyrights granted to him in any country; and
(iv) acknowledge and deliver promptly to DTR
any written instruments and perform any other acts
necessary in DTR's opinion to preserve property
rights in the Invention against forfeiture,
abandonment or loss and to obtain and maintain
letters patent and/or copyrights on the Invention
and to vest the entire right and title to the
Invention in DTR.
The requirements of this subsection 7(b) do not apply to an
Invention for which no equipment, supplies, facility or trade
secret information of DTR was used and which was developed
entirely on Executive's own time, and (1) which does not relate
directly to DTR's business or to DTR's actual or demonstrably
anticipated research or development, or (2) which does not result
from any work Executive performed for DTR. Except as previously
disclosed to DTR in writing, Executive does not have, and will
not assert, any claims to or rights under any Inventions as
having been made, conceived, authored or acquired by Executive
prior to his employment by DTR. With respect to any obligations
performed by Executive under this subsection 7(b) following
termination of employment, DTR will pay Executive reasonable
hourly compensation (consistent with the last Base Salary) and
will pay or reimburse all reasonable out-of-pocket expenses.
8. TERMINATION.
(a) Executive's employment shall be terminated under
any of the following circumstances:
(i) Immediately, if Executive has breached
this Employment Agreement in any material respect,
and such breach is not cured by Executive, or is
not capable of being cured by Executive, within 30
days after written notice of such breach is
delivered to Executive;
(ii) Immediately, in the event of (1)
Executive's conviction of a felony or crime
involving moral turpitude or immoral conduct that
is reasonably likely to affect adversely the
business of DTR, or the goodwill associated
therewith, or (2) the bankruptcy of DTR;
(iii)Voluntary termination by Executive;
(iv) Upon the death or total disability of
Executive.
(b) In the event that Executive's employment is
voluntarily terminated pursuant to Section 8(a)(iii)
above, or is involuntarily terminated pursuant to
subsections (i)-(ii) of Section 8(a) above, Executive
shall not be entitled to any Compensation following
such termination.
(c) If Executive's employment is terminated pursuant
to Section 8(a)(iv), Executive and/or his surviving
spouse and dependents, if any, otherwise his estate,
shall receive the salary in the amount and manner set
forth in Section 4(a) hereof and the benefits set forth
in Section 4(c) (to the extent allowed by law) for a
twelve month period following the termination.
(d) In the event that Executive's employment is
terminated for any reason other than those set forth in
subsections (i)-(iv) of Section 8(a) above, Executive
shall receive the salary in the amount and manner set
forth in Section 4(a) hereof and the benefits set forth
in Section 4(c) hereof (to the extent allowed by law)
for a twelve month period following the termination.
DTR may satisfy this obligation by continuing to make
the regular payroll payments for the term rather than a
lump sum payment.
(e) Nothing in this Section 8 shall be construed to
affect Executive's entitlement to be paid for vacation,
salary or benefits earned and unpaid at the time his
employment is terminated.
(f) Notwithstanding any termination of this Employment
Agreement by any party and for any reason, in
consideration of his employment hereunder to the date
of such termination, Executive shall remain bound by
the provisions of this Employment Agreement which
specifically relate to periods, activities or
obligations upon or subsequent to the termination of
Executive's employment, except as specifically provided
otherwise in this Agreement.
9. CONSENT TO VENUE AND JURISDICTION. Executive consents
to venue and jurisdiction in the District Court of Hennepin
County, State of Minnesota, and in the United States District
Court for the District of Minnesota, and to service of process
under Minnesota law, in any action commenced to enforce this
Agreement.
10. FOODMASTER L.L.C. MANAGEMENT AGREEMENT OBLIGATIONS. As
long as the Amended and Restated Management Agreement between DTR
and FoodMaster International L.L. C. dated September 11, 1998, a
copy of which is attached as Exhibit A, is in effect, Executive
agrees to be bound by the Noncompetition obligations of Section
5(b) and the Shareholder Agreement obligations of Section 14
thereof, which sections are specifically incorporated herein by
reference.
11. ENTIRE AGREEMENT. This Agreement supersedes the
Employment Agreement dated September 30, 1996, and constitutes
the entire agreement between the parties. This Agreement may not
be amended or modified except by mutual written agreement of DTR
and Executive.
12. SUCCESSORS AND ASSIGNS. Subject to the provisions
herein, the benefits and obligations of this Agreement shall be
binding upon and inure to the successors and assigns of DTR.
13. GOVERNING LAW. This Employment Agreement shall be
construed under and governed by the laws of the State of
Minnesota.
14. NOTICE. Any notice or other communications required or
permitted to be given to the parties hereto shall be deemed to
have been given on the third (3rd) day following deposit in the
United States mail, postage prepaid, and addressed to the
appropriate party at the address of such party as may be, from
time to time, provided in writing to the other.
15. SEVERABILITY. If any provisions of this Employment
Agreement shall, for any reason, be adjudged to be void, invalid
or unenforceable by a court of law, the remainder of this
Employment Agreement shall nonetheless continue and remain in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this
Employment Agreement.
DEVELOPED TECHNOLOGY RESOURCE, INC.
Dated: _____________________ By /s/ Roger Schnobrich
Its Director
Dated: _____________________ By /s/ John P. Hupp
"Executive"
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<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 205,887 205,887
<SECURITIES> 0 0
<RECEIVABLES> 1,498,940 1,498,940
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<DEPRECIATION> 115,460 115,460
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0 0
0 0
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<TOTAL-COSTS> 387,096 1,284,875
<OTHER-EXPENSES> (76,311) (256,056)
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<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 400,965 400,965
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<DEPRECIATION> 134,183 134,183
<TOTAL-ASSETS> 2,234,815 2,234,815
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0 0
0 0
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<OTHER-EXPENSES> (15,662) 17,584
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<INTEREST-EXPENSE> (3,001) (3,593)
<INCOME-PRETAX> (12,550) 519,202
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<NET-INCOME> 187,450 719,202
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<EPS-DILUTED> 0.22 0.82
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