SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the year ended December 31, 1999
OR
[ ] Transition report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number: 0-21394
Developed Technology Resource, Inc.
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
(952) 820-0022
Issuer's Telephone Number
Securities registered pursuant to Section 12(b) of the Exchange
Act:
None
Securities registered pursuant to Section 12(g) of the Exchange
Act:
Common Stock, $0.01 par value per share
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
Check if no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B contained in this form, and no disclosure will
be contained, to the best of the registrant's knowledge, in the
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB { }
Issuer's revenues for its most recent year: $1,150,373
As of April 7, 2000, 930,820 shares of the Registrant's Common
Stock were outstanding. The aggregate market value of the Common
Stock held by non-affiliates of the registrant on such date,
based upon the closing bid price of the Common Stock as reported
by the OTC Bulletin Board on April 7, 2000 was $931,025. For
purposes of this computation, affiliates of the registrant are
deemed only to be the registrant's executive officers and
directors. See Item 11.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for its 2000 annual
Meeting of Shareholders are incorporated by reference in Part
III.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
Developed Technology Resource, Inc. (the Company or DTR) was
incorporated on November 13, 1991 in the State of Minnesota to
locate potentially viable technologies in the former Soviet Union
(fSU) for transfer and sale to companies in the West. During the
first two years of operations, the Company experienced limited
success in technology transfer and shifted its focus to the sale
and distribution of aviation security equipment in the fSU.
During the first quarter of 1996, the Company sold its aviation
security sales and service business to Gate Technologies for
$810,000 in order to shift its focus to managing and developing
food processing operations in the fSU.
In 1995, the Company formed a 50/50 joint venture called
FoodMaster Corporation (hereinafter FoodMaster) with Ak-Bulak, a
dairy just outside Almaty, Kazakhstan to produce and sell yogurt
and other dairy products. In January 1997, FoodMaster formed a
joint venture in Akmola (now called Astana), the new capital of
Kazakhstan, and began production of dairy products at this
location in March 1997.
On March 3, 1997, DTR and Agribusiness Partners
International L.P. (API) established the FoodMaster International
LLC (FMI) joint venture to acquire and operate dairy processing
facilities in the fSU. For a 40% interest in FMI, DTR contributed
its 50% ownership in FoodMaster, an option to acquire an
additional 40% ownership in FoodMaster, and its opportunities for
a future acquisition of a dairy in Moldova. Exercise of the
option by FMI in March 1997 increased the ownership in FoodMaster
to 90%. For a 60% interest in FMI, API agreed to contribute $6
million dollars, which was paid to FMI between March 1997 and
June 1998 to further develop FMI's existing and future dairy
operations in the fSU. On September 11, 1998, DTR and API
amended the FMI joint venture agreement to allow API to
contribute an additional $6 million dollars for an additional 10%
ownership. This additional contribution was paid to FMI between
September 1998 and April 1999. As of December 31, 1999 and 1998,
DTR owned 30% and 33% of FMI, respectively and API owned 70% and
67% of FMI, respectively based on API's additional contributions.
The investment proceeds received by FMI were used to fund
expansion of existing facilities and to acquire five additional
subsidiaries between 1998 and 1999. DTR has a right to receive
up to 6% additional ownership interest in FMI by achieving
certain defined rates of returns for API upon API's transfer,
liquidation or sale of their ownership interest in FMI. Until
November 15, 1999, DTR managed the day-to-day operations of FMI
under an exclusive management contract. After November 15, 1999,
API and DTR agreed to allow FMI to be self-managing with its own
direct management team.
All of FMI's subsidiaries are operating plants for
manufacturing dairy products such as milk, yogurt, cheese, and
ice cream or distribution companies to facilitate the
distribution of these products. The following table sets forth
FMI's ownership percentage in its subsidiaries at December 31,
1999 and December 31, 1998:
December 31,December 31,
Company Name Location 1999 1998
FoodMaster Corporation(a) Almaty, Kazakhstan 72.06% 90.00%
FoodMaster NC(b) Astana, Kazakhstan 0.00% 20.00%
Fabrica produse lactate Hincesti Hincesti, Moldova 81.64% 80.50%
Soroca Cheese Factory Soroca, Moldova 60.11% 60.11%
JSC Bilosvit-Uman Uman, Ukraine 66.04% 62.88%
FoodMaster Kyiv(c) Kyiv, Ukraine 100.00% 100.00%
<PAGE>
(a) FoodMaster Corporation is the parent corporation
of 5 other dairy related companies.
(b) FoodMaster Corporation now owns 100% of FoodMaster NC.
(c) Denotes distribution company only.
In November 1997, DTR's Board of Directors authorized
500,000 stock options to be awarded to Mssrs Hupp and Sagadiev
over a five-year period as incentive compensation to build the
dairy processing business in the former Soviet Union. At the
same time, the board voted to establish a wholly-owned subsidiary
called SXD, Inc. to which these stock options would not
participate. DTR's minority interest in Phygen, Inc., a coating
technology business, its contractual rights to possible revenue
from the cancer detection technology being developed by Armed,
and the x-ray tube distribution business were transferred to SXD.
Additionally, DTR transferred $800,000 in cash and receivables to
SXD. Since November 1997, DTR's Board sought investment
opportunities for SXD outside of the former Soviet Union in an
effort to maximize shareholder value. Following the termination
of the x-ray tube distribution business in March 1999 and DTR's
needs for continued operations, the Board of Directors voted in
January 2000 to liquidate SXD by transferring all of the assets,
ownership interests, and liabilities back to DTR in complete
redemption of the outstanding common stock. The outstanding
stock options of Mssrs Hupp and Sagadiev were reduced by 17%
following the transfer of the assets back to DTR.
During 1999, DTR verbally agreed to convert $123,305 of its
receivable from Savory Snacks LLC to a 67% ownership interest in
Savory Snacks LLC. During the process of negotiations, the
Company decided to delay their purchase until 2000 when it is
anticipated that some additional investors may take an ownership
interest in Savory Snacks. This Wisconsin-based company develops
and acquires snack food companies in the former Soviet Union.
Ongoing Business Strategy
The Company's strategy is to develop additional dairy
processing and snack food businesses in the former Soviet Union.
The Company will explore partnerships with strategic investors
and financial investors to this end.
Business Operations
Dairy and Food Processing
Until November 1999, DTR managed all of the dairy operations
and distribution companies owned by FMI. These dairy operations
manufacture and sell a variety of different dairy products,
including but not limited to kefir, yogurt, cheese, ice cream,
ice pops, butter and sour cream. In November 1999, DTR agreed to
terminate its management agreement with FMI in order to pursue
other opportunities and to allow FMI to be self-managed. Some of
DTR's foreign managers were offered positions with FMI while
others were released. Future management arrangements with FMI
will be based on a specific need basis as agreed upon by the FMI
Board of Directors. In 2000, DTR will seek to further develop its
food processing business.
Food Packaging Equipment
In November 1994, the Company signed an International
Distribution Agreement with NiMCO Corporation of Crystal Lake,
Illinois, granting the Company exclusive rights to sell certain
NiMCO food packaging products in most areas of the fSU. This
exclusivity expired on December 31, 1996. DTR is no longer in
the business of distributing equipment. However, DTR may, from
time-to-time, purchase US equipment and resell it mainly to its
foreign subsidiaries. Sales from food packaging equipment
accounted for 7.8% of DTR's revenues for the year ended December
31, 1998. There were no sales of food packaging equipment in
1999.
X-ray Tubes
The Company distributed x-ray tubes through SXD, Inc. under
an exclusive distribution agreement with Svetlana-Rentgen
("Svetlana"), a company located in the fSU until March 1999.
Revenues from the sale of x-ray tubes accounted for 4.3% and
17.4% of DTR's total revenues for the years ended December 31,
1999 and 1998, respectively. After March 1999, the Company was
forced to lower its prices to a level that would not be worth
continuing this business. Therefore, the Company did not renew
its purchase or sales contracts after March 1999.
Competition
Dairy and Food Processing The FMI subsidiary operations compete
under the FMI local brand names of FoodMaster, Alba and Bilosvit
with several local companies, as well as foreign importers of
dairy products. However, the Company believes that FMI's
products are superior to local competitors and priced
competitively with imports. The FoodMaster name along with the
local specialty brand names are recognized as quality products.
In Almaty, Kazakhstan, FoodMaster's fluid milk products are
estimated to hold a greater than 50% market share.
Food Packaging Equipment Manufacturers producing competing
equipment of similar performance to the NiMCO line of equipment
include Tetra-Laval of Sweden, Elo-Pak of Norway, International
Paper of the United States, Pastu-Pack of the UK, and Galdi of
Italy. Some of these companies have been selling equipment in
the fSU for more than 20 years. The Company does not currently
have a measurable market share. At this time, DTR is not
focusing on selling equipment to parties other than FMI
subsidiaries on an "as needed" basis.
X-Ray Tubes There are many foreign importers of this type of
product. In 1999, the pressure from the foreign importers made
the Company lower its prices to a level that was not worth
continuing. As this business was not the main focus of the
Company's current strategy in the dairy and snack food business,
it decided to exit the market.
Principal Suppliers
Dairy and Food Processing Suppliers to the dairy operations
consist of numerous dairy farmers located in the vicinity of the
dairy production facilities. In addition, FMI receives packaging
supplies from many suppliers throughout Europe and the United
States.
Food Packaging Equipment NiMCO, based in Crystal Lake, IL, was
the sole supplier of packaging equipment for dairy based
products.
X-ray Tubes Svetlana Rentgen (Svetlana), based in the fSU, was
the exclusive supplier of tubes. In accordance with its plan to
phase out this operating division, the Company ended its
relationship with Svetlana in March 1999.
Major Customers
For the year ended December 31, 1999 and 1998, the Company
recorded net sales of $48,900 and $440,942, respectively. The
following table sets forth the name and location of each customer
who accounted for 10% or more of the Company's sales for 1999 and
1998, respectively:
Percentage of Sales
Year Ended Year Ended
December 31,December 31,
Customer Name Location 1999 1998
EG&G Astrophysics Long Beach, CA 38.7% 47.1%
Control Screening Fairfield, NJ 61.3% 21.8%
FoodMaster International LLC Edina, MN 0.0% 30.5%
Governmental Regulations
The Company's principal revenue-generating business activity
in 1999 and 1998 was managing the FMI subsidiaries' manufacturing
and selling of dairy products in the fSU. The governmental,
political, social, and legal structures within countries of the
fSU are evolving. In general, business must comply with decrees,
laws, and instructions issued from a multitude of government
bodies at the national and local levels.
The government regulations that most affect the Company and
its subsidiaries are in the areas of taxation, currency and
customs regulation, business registration, and labor laws. To
the best of management's knowledge, the Company is in full
compliance with the laws in all the countries of the fSU in which
business is conducted, and as necessary, may seek legal counsel
in the United States or from local counsel in the applicable fSU
country.
Employees
As of April 7, 2000, DTR had three full-time employees in
its office in Edina, Minnesota. After the change in the
management of FMI in November 1999, all employees now work
directly for the subsidiaries rather than for DTR. The Company is
not a party to any collective bargaining agreements and it
considers its employee relations to be satisfactory.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's corporate headquarters are located in Edina,
Minnesota. The Company leases 1,009 square feet at a monthly
base rent ranging from $1,514 to $1,682 over a 60 month lease
term that expires on April 30, 2002.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending or
threatened against the Company as of December 31, 1999 or as of
the date of filing of this Form 10-KSB.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 18, 1999, the Company held its annual
shareholder meeting in order to elect the directors for the year.
Due to a lack of quorom, the meeting was adjourned. The former
Board of Directors including Peter Hauser, Roger Schnobrich and
John Hupp will retain their positions until the next annual
meeting that will be held in 2000.
No other matters were submitted to a vote of the
shareholders during the fourth quarter ended December 31, 1999.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Since the first quarter of 1996, the Company's Common Stock
has been quoted on the OTC Bulletin Board under the symbol of
DEVT. The following table sets forth the low and the high bid
prices for each quarter as reported on the OTC Bulletin Board
during the years ended December 31, 1999 and 1998.
Bid Price
Calendar 1999
Low High
First Quarter $ 1 $ 3 7/32
Second Quarter 1 1/2 3 15/32
Third Quarter 0 3/4 2 17/32
Fourth Quarter 0 3/4 1 3/4
Calendar 1998
First Quarter $ 2 1/2 $ 3 1/8
Second Quarter 2 1/2 6
Third Quarter 2 9/32 5 1/8
Fourth Quarter 3 6 7/8
As of April 7, 2000, the Company had 56 shareholders of
record of its Common Stock. The Company estimates there are
approximately 450 beneficial owners of its Common Stock. The
transfer agent for the Company's Common Stock is Norwest Bank
Minnesota, N.A., 161 North Concord Exchange, South St. Paul,
Minnesota, 55075-0738, telephone: (800) 468-9716 or (651) 450-
4058.
The Company has never declared nor paid any dividends on its
Common Stock. The Board of Directors presently intends to retain
all earnings, if any, for use in the Company's business in the
foreseeable future. Any future determination as to declaration
and payment of dividends will be made at the discretion of the
Board of Directors.
<PAGE>
ITEM 6. 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-KSB, 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 Agribusiness Partners
International L.P. (API) established the FoodMaster International
LLC (FMI) joint venture to acquire and operate dairy processing
facilities in the fSU. For a 40% interest in FMI, DTR contributed
its 50% ownership in FoodMaster, an option to acquire an
additional 40% ownership in FoodMaster, and its opportunities for
a future acquisition of a dairy in Moldova. Exercise of the
option by FMI in March 1997 increased the ownership in FoodMaster
to 90%. For a 60% interest in FMI, API agreed to contribute $6
million dollars, which was paid to FMI between March 1997 and
June 1998 to further develop FMI's existing and future dairy
operations in the fSU. On September 11, 1998, DTR and API
amended the FMI joint venture agreement to allow API to
contribute an additional $6 million dollars for an additional 10%
ownership. This additional contribution was paid to FMI between
September 1998 and April 1999. As of December 31, 1999 and 1998,
DTR owned 30% and 33% of FMI, respectively and API owned 70% and
67% of FMI, respectively based on API's additional contributions.
The investment proceeds received by FMI were used to fund
expansion of existing facilities and to acquire five additional
subsidiaries between 1998 and 1999. DTR has a right to receive
up to 6% additional ownership interest in FMI by achieving
certain defined rates of returns for API upon API's transfer,
liquidation or sale of their ownership interest in FMI.
DTR records its proportionate share (40% from March 1997 to
September 1998, 33% from October 1998 to December 1998 and 30%
thereafter) of the net income or loss of FMI in the statement of
operations as equity in (loss) earnings of FMI joint venture
under the equity method of accounting.
From March 1997 to November 1999, DTR managed the dairy
operations of FMI and pursued dairy acquisitions for FMI under a
management contract with FMI. DTR received direct expense
reimbursement, with no profit margin, in accordance with a pre-
approved budget between DTR and FMI. Thus, management fees
increased or decreased as DTR's expenses incurred for management
activities increased or decreased, with no effect on income
because there was no profit margin provided for in the agreement.
Under the terms of the management agreement, DTR's key managers
were required to work only for the advancement of the FMI
business. In November 1999, DTR agreed to terminate its
management agreement in order to pursue other opportunities and
to allow FMI to be self-managed. Some of DTR's foreign managers
were offered positions with FMI while others were released.
Future management arrangements with FMI will be based on a
specific need basis as agreed upon by the FMI Board of Directors.
<PAGE>
Results of Operations
Year Ended Year Ended
December 31,December 31,
1999 1998
Revenues:
Equipment $ 0 $ 137,042
X-Ray Tube 48,900 303,900
Total Sales 48,900 440,942
Management Fee Income 1,080,490 1,281,322
Other Revenues 20,983 28,359
Total Revenues $ 1,150,373 $ 1,750,623
Cost of Sales:
Equipment $ 0 $ 100,499
X-Ray Tube 41,450 260,950
Total Cost of Sales $ 41,450 $ 361,499
Revenues
The Company generated total revenues of $1,150,373 and
$1,750,623 during the years ended December 31, 1999 and 1998,
respectively. The 34% decrease from 1998 revenue levels is
primarily the result of the discontinuance of the sales of x-ray
tubes in March 1999, no sales of food packaging equipment in
1999 and a discontinuance of the FMI management fee contract in
November 1999.
Sales for the years ended December 31, 1999 and 1998 totaled
$48,900 and $440,942, respectively. Sales were derived from two
areas within DTR - equipment sales and x-ray tube sales.
Sales of and commissions on food packaging equipment were
$137,042 (31%) of total sales for 1998. There were no sales of
equipment in 1999. Sales of equipment occur sporadically
throughout the year. They occur primarily to subsidiaries of FMI
throughout each year depending on the amount of new customers
and growth among existing locations. There are no commitments
to purchase nor are there efforts to sell this packaging
equipment. Sales are only conducted on an as-needed basis.
Since FMI did not acquire any new production facilities during
1999, there was no need for any of this equipment.
Sales of x-ray tubes by SXD Inc., DTR's wholly-owned
subsidiary, were $48,900 (100% of total sales) and $303,900 (69%
of total sales) for years ended December 31, 1999 and 1998,
respectively. There are several companies that manufacture and
sell x-ray tubes in direct competition to DTR. The Company did
not have a measurable market share and began phasing this
division out of its operations in January 1999. In accordance
with its plan to phase out this operating division, the Company
ended its relationship with its supplier, Svetlana Rentgen, in
March 1999. Therefore, there are no sales of x-ray tubes after
March 1999.
Management fee income results from expenses billed to FMI
for services. These charges contain no profit margin and are in
accordance with a pre-approved budget between DTR and FMI.
During the years ended December 31, 1999 and 1998, DTR billed
$1,080,490 and $1,281,322, respectively in accordance with its
management agreement with FMI. Management fees declined in 1999
due to the discontinuance of the management contract in November
1999, as discussed above, and fewer expatriates used to manage
operations beginning in September 1999. In 2000, there will be
no further management fees charged to FMI by DTR under this old
management contract. However, FMI may contract specific
management or consulting services from DTR as agreed upon by the
FMI Board of Directors. DTR is also evaluating other management
or consulting arrangements.
Cost of Sales
Cost of sales on 1998 equipment sales was $100,499 resulting
in a gross profit of 26.7% for the year ended December 31, 1998.
There were no sales of equipment during 1999, and thus no costs
incurred during 1999.
X-ray tubes cost of sales were $41,450 and $260,950 for the
years ended December 31, 1999 and 1998, respectively. Gross
profit remained consistent with a 14% to 15% margin received on
sales during all reported periods. Although the gross profit has
remained consistent over the past few years, the increase in
competition put pressure on the Company to lower its prices in
1999 to a level that would not be worth continuing this division.
Therefore, the Company did not renew its sales contracts with its
customers after March 1999.
Selling, general and administrative
Selling, general and administrative (SG&A) expenses for the
year ended December 31, 1999 were $1,171,458 compared to
$1,391,611 for the year ended December 31, 1998. The $220,153
decrease in SG&A expenses is the result of less travel,
consulting and printing expenses in 1999. In addition, DTR
discontinued the management of FMI in November 1999 and used
fewer expatriates to manage operations beginning in September
1999. The majority of these costs were offset by the management
fee income of $1,080,490 and $1,281,322 for the years ended
December 31, 1999 and 1998, respectively. These management fees
were charged to FMI as discussed above under Revenues. In 2000,
DTR is continuing to reduce its overhead and is seeking
opportunities to provide management and consulting services.
Liquidity and Capital Resources
Operating Activities
DTR's operating activities generated net cash of $190,888
during 1999 compared to cash used of $181,069 during 1998. The
increase in cash resulted primarily from FMI's payment of DTR's
management fees and additional collection of cash on the final
sales of x-ray tubes. In 2000, there will be no further
management fees charged to FMI by DTR. However, the Company may
generate some additional revenue through job specific management
and consulting services.
Investing Activities
During 1999, DTR sold $2,645 of its existing fixed assets
at their net book value of $1,952 to FMI. In addition, the
Company purchased $4,933 of equipment. During the year ended
December 31, 1998, SXD, Inc. loaned $600,000 to invest in an
unsecured note receivable from another unaffiliated private
company. During 1999, the Company wrote down its investment in
this unaffiliated company to zero since their is no guarantee as
to when or if the company will be able to repay the loan.
However, DTR is currently restructuring its loan and is hopeful
that it will recover the current balance of $649,288, including
interest, at a future date.
In 1998, DTR purchased $21,945 in new software and
equipment for its office in Minneapolis, MN. In addition, the
Company received a $500,000 repayment on the note outstanding at
December 31, 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. There were no financing activities during
the year ended December 31, 1999.
Adverse Foreign Economic and Currency Conditions
Since August 1998, the countries of the fSU in which the
subsidiaries of FMI operate have faced a series of adverse
economic conditions. Uncertainties regarding the political,
legal, tax or regulatory environment, including the potential for
adverse and retroactive changes in any of these areas could
significantly affect the Company and the carrying value of its
investment in the FMI joint venture. The countries have
experienced a significant devaluation of their local currency
against the US dollar, higher interest rates and reduced
opportunities for financing. DTR is committed to working through
FMI's Board of Directors to address working capital shortages as
needed over the coming year. In August 1999, FMI sold 12.3% of
its consolidated Kazakhstan operations to an unaffiliated third
party for $1.8 million and it converted $1.8 million of its loans
to the Kazakhstan subsidiaries to equity so that its ownership
would not be dramatically diluted. DTR expects further working
capital shortages at FMI and its subsidiaries will be funded
through loans from FMI, loans from third parties or through the
sale of additional equity.
FMI is seeking to finalize negotiations to receive up to an
additional $2 million in cash in the form of convertible debt
instruments at its consolidated FoodMaster Kazakhstan locations
from third-party investors.
DTR believe that FMI has sufficient working capital and liquidity
to fund its current operations through the coming year.
The Company plans to obtain cash through the collection of
$200,216 of its $323,521 receivable with Savory Snacks LLC and
the collection of its $649,288 note receivable. The remaining
$123,305 of the Savory Snacks receivable will convert to an
equity ownership by DTR in Savory Snacks. Additionally, the
Company plans to receive income by providing management and
consulting services during 2000. Finally, the Company may obtain
some additional equity financing through the issuance of
additional shares of common stock. There are no assurances,
however, that such financing, if available will be at a price
that will not cause substantial dilution to the Company's
shareholders. If the Company is not able to generate sufficient
cash through its operating and financing activities in 2000, it
will not be able to pay its debts in a timely manner.
In November 1997, DTR's Board of Directors authorized
500,000 stock options to be awarded to Mssrs Hupp and Sagadiev
over a five-year period as incentive compensation to build the
dairy processing business in the former Soviet Union. At the
same time, the board voted to establish a wholly-owned subsidiary
called SXD, Inc. to which these stock options would not
participate. DTR's minority interest in Phygen, Inc., a coating
technology business, its contractual rights to possible revenue
from the cancer detection technology being developed by Armed,
and the x-ray tube distribution business was transferred to SXD.
Additionally, DTR transferred $800,000 in cash and receivables to
SXD. Since November 1997, DTR's Board sought investment
opportunities for SXD outside of the former Soviet Union in an
effort to maximize shareholder value. Following the termination
of the x-ray tube distribution business in March 1999 and DTR's
needs for continued operations, the Board of Directors voted in
January 2000 to liquidate SXD by transferring all of the assets,
ownership interests, and liabilities back to DTR in complete
redemption of the outstanding common stock. The outstanding
stock options of Mssrs Hupp and Sagadiev were reduced by 17%
following the transfer of the assets back to DTR.
<PAGE>
ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS - DEVELOPED
TECHNOLOGY RESOURCE, INC.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
DEVELOPED TECHNOLOGY RESOURCE, INC.
Edina, Minnesota
We have audited the accompanying consolidated balance sheet of
Developed Technology Resource, Inc. (the Company) as of December
31, 1999, and the related consolidated statements of operations,
shareholders' equity and cash flows for the year then ended.
These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall consolidated financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Developed Technology Resource, Inc. as of December
31, 1999, and the results of their consolidated operations and
their consolidated cash flows for the year then ended in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 2 to the consolidated financial
statements, the Company has suffered recurring losses from
operations that raise substantial doubt about its ability to
continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.
/s/ KPMG LLP
Minneapolis, Minnesota
April 12, 2000
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
DEVELOPED TECHNOLOGY RESOURCE, INC.
Edina, Minnesota
We have audited the accompanying consolidated balance sheet of
Developed Technology Resource, Inc. (the Company) as of December
31, 1998, and the related consolidated statements of operations,
shareholders' equity and cash flows for the year then ended.
These consolidated financial statements are the responsibility of
the Company's management. We did not audit the 1998 financial
statements of S.A. Fabrica de brinzeturi din Soroca, S.A. Fabrica
de produse lactate din Hancesti, and FoodMaster Kyiv, three
partially-owned subsidiaries of FoodMaster International L.L.C.
(FMI), a joint venture of the Company which is accounted for by
the equity method. The Company's equity interest in these three
FMI subsidiaries' net assets of approximately $650,000 at
December 31, 1998 and net loss of approximately $102,000 for the
year ended December 31, 1998 are included in the Company's
accompanying consolidated financial statements. Each of the
financial statements of FMI's three partially-owned subsidiaries
were audited by other auditors whose reports dated April 30,
1999, April 30, 1999 and April 16, 1999, respectively, included
explanatory paragraphs disclosing that such financial statements
were prepared assuming that each of the three partially-owned
subsidiaries would continue as going concerns despite suffering
losses, having accumulated deficits or current liabilities which
exceed current assets at December 31, 1998 combined with the
uncertainty due to the Year 2000 issue and the current economic
environment in Moldova and Ukraine, respectively, all of which
raise substantial doubt about each of their ability to continue
as a going concern. The financial statements for each of the
three partially-owned subsidiaries of FMI which do not include
any adjustments that might result from the outcome of these
uncertainties, have been furnished to us, and our opinion,
insofar as it relates to the amounts included for such companies,
is based solely on the reports of such other auditors.
We conducted our audit in accordance with generally accepted
auditing standards. These standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall consolidated financial statement presentation. We believe that
our audit and the reports of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audit and the reports of the other
auditors, the Company's consolidated financial statements present
fairly, in all material respects, the financial position of
Developed Technology Resource, Inc. as of December 31, 1998 and
the results of its consolidated operations and its consolidated
cash flows for the year then ended, in conformity with generally
accepted accounting principles.
The Company's accompanying consolidated financial statements have
been prepared assuming that the Company will continue as a going
concern. As discussed in Note 2 to the financial statements and
in the reports of the other auditors as described above, there
are significant uncertainties which raise substantial doubt about
the Company's ability to continue as a going concern. The
consolidated financial statements of the Company do not include
any adjustments that might be necessary as a result of these
uncertainties.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
September 3, 1999
<PAGE>
DEVELOPED TECHNOLOGY RESOURCE, INC.
CONSOLIDATED BALANCE SHEET
December 31, 1999
ASSETS
<TABLE>
<S> <C>
Current Assets:
Cash and cash equivalents $ 193,319
Receivables:
From sale of discontinued operations 200,000
Savory Snacks L.L.C. 323,521
Other 4,300
Note receivable, net of allowance of $649,288 --
Prepaid and other current assets 23,044
Total current assets 744,184
Furniture and Equipment, net 35,161
$ 779,345
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 82,535
Due to FoodMaster International L.L.C. (FMI) 7,991
Accrued liabilities 23,555
Deferred gain 184,758
Total current liabilities 298,839
Non-current Deferred Gain 14,951
Total liabilities 313,790
Shareholders' Equity:
Undesignated stock, $.01 par value, 1,666,667
shares authorized, no shares issued or
outstanding --
Common stock, $.01 par value, 3,333,334
shares authorized, 805,820 shares issued
and outstanding 8,058
Additional paid-in capital 6,264,920
Accumulated deficit (5,807,423)
Total shareholders' equity 465,555
Commitments and Contingencies (Note 7) --
$ 779,345
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
DEVELOPED TECHNOLOGY RESOURCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1999 1998
<S> <C>
Revenues:
Sales $ 48,900 $ 440,942
Management fees from FMI joint venture 1,080,490 1,281,322
Commissions and other income 20,983 28,359
1,150,373 1,750,623
Cost and Expenses:
Cost of sales 41,450 361,449
Selling, general and administrative 1,171,458 1,391,611
1,212,908 1,753,060
Operating Loss (62,535) (2,437)
Other Income (Expense):
Interest income, net 60,183 202,027
Provision for note receivable (649,288) --
Loss of FMI joint venture (1,300,296) (386,088)
Loss before Income Taxes (1,951,936) (186,498)
Income Tax Expense 9,147 --
Net Loss $(1,961,083) $ (186,498)
Net Loss per Common Share:
Basic $ (2.43) $ (0.23)
Diluted $ (2.43) $ (0.23)
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
DEVELOPED TECHNOLOGY RESOURCE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 790,820 $ 7,908 $ 5,319,298 $(3,659,842) $ 1,667,364
Exercise of options 15,000 150 22,350 -- 22,500
Sale of interest in FMI
joint venture -- -- 614,675 -- 614,675
Net loss -- -- -- (186,498) (186,498)
Balance, December 31, 1998 805,820 8,058 5,956,323 (3,846,340) 2,118,041
Sale of interest in FMI
joint venture -- -- 308,597 -- 308,597
Net loss -- -- -- (1,961,083) (1,961,083)
Balance, December 31, 1999 805,820 $ 8,058 $ 6,264,920 $(5,807,423) $ 465,555
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
DEVELOPED TECHNOLOGY RESOURCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(1,961,083) $ (186,498)
Adjustments to Reconcile Net Loss to Cash
Provided (Used) by Operating Activities:
Depreciation 11,614 14,915
Provision for doubtful accounts (12,690) 2,182
Provision for doubtful notes receivable 649,288 --
Loss on sale of furniture and equipment -- 1,217
Loss of FMI joint venture 1,300,296 386,088
Changes in Operating Assets and Liabilities:
Receivables 92,271 (53,768)
Receivable from FMI joint venture 619,071 (239,279)
Receivable from Savory Snacks (200,216) (123,305)
Prepaid and other current assets 12,449 22,794
Accounts payable and accrued liabilities (299,129) (56)
Deferred gains (20,983) (5,359)
Net cash provided(used)by operating activities 190,888 (181,069)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of furniture and equipment 1,952 1,400
Purchases of furniture and equipment (4,933) (21,945)
Proceeds from note receivable -- 500,000
Issuance of note receivable -- (600,000)
Net cash used by investing activities (2,981) (120,545)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options -- 22,500
Net cash provided by financing activities -- 22,500
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 187,907 (279,114)
CASH AND CASH EQUIVALENTS, Beginning of year 5,412 284,526
CASH AND CASH EQUIVALENTS, End of year $ 193,319 $ 5,412
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
DEVELOPED TECHNOLOGY RESOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
1. Summary of Significant Accounting Policies Business
Developed Technology Resource, Inc. (DTR or the Company)
invests in and manages food processing operations in the
countries of the former Soviet Union (fSU) directly and
through FoodMaster International L.L.C. (FMI), its joint
venture with Agribusiness Partners International L.P. (API).
In addition to FMI, DTR managed the operations of its wholly-
owned subsidiary, SXD, Inc.
During early 1999 and 1998, SXD, Inc. distributed X-ray tubes
under DTR's exclusive agreement with a Russian manufacturer,
issued unsecured short-term loans, and held ownership
interests in the coatings technology business of Phygen, Inc.
and the cancer detection business of Armed which had no
reportable business activity during 1999 or 1998. The x-ray
tube distribution agreement expired in March 1999. In 1999,
the increase in competition put pressure on the Company to
lower its prices to a level that would not be worth continuing
this division. Thus, DTR did not seek to renew its purchase
or sales contracts.
Basis of Presentation
DTR owns 30% of FMI and the Company 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 ($3,273,866) is being amortized to income
over 15 years.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid
investments with original maturities of three months or less
at the time of purchase.
The Company maintains its cash in bank deposit accounts, which
at times may exceed federally insured limits. The Company has
not experienced any losses in such accounts and believes it is
not exposed to any significant credit risk on cash.
Furniture and Equipment
Furniture and equipment are recorded at cost. Depreciation is
calculated on the straight-line basis over the estimated
useful lives of the assets, primarily three to five years.
Impairment of Long-lived Assets and Long-lived Assets to be
Disposed of
The Company reviews its long-lived assets related to each
investment to be held and used in the business whenever events
or changes in circumstances indicate that the carrying amount
of an investment may not be recoverable. The Company
evaluates each investment considering a history of operating
losses and negative cash flows as its primary indicators of
potential impairment. An impaired investment is written down
to its estimated fair market value by discounting future cash
flows based on the best information available. Considerable
management judgment is necessary to estimate discounted future
cash flows. Accordingly, actual results could vary
significantly from such estimates.
Revenue Recognition
Revenue is recognized upon shipment of products to customers
and as services are provided.
Income Taxes
The Company utilizes the asset and liability method to
financial accounting and reporting for income taxes. Deferred
income tax assets and liabilities are computed annually for
differences between the financial statement and tax basis of
assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws and
rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to
the amount expected to be realized. Income tax expense is the
tax payable or refundable for the period plus or minus the
change during the period in deferred tax assets and
liabilities.
Net Loss per Common Share
Net loss per common share is computed by dividing net loss by
the weighted average number of common and potentially dilutive
securities outstanding during the year. Stock options and
warrants are included in the calculation of diluted net income
per share when the result is dilutive.
Stock Based Compensation
The Company applies the intrinsic-value method of APB Opinion
25, Accounting for Stock Issued to Employees, and related
interpretations in accounting for its employee stock plans.
Under the provisions of APB Opinion 25, if options are granted
or extended at exercise prices less than fair market value,
compensation expense is recorded for the difference between
the grant price and the fair market value at the date of the
grant.
Foreign Currency Translation
During 1998, FMI's fSU operations were accounted for using
hyper-inflationary accounting principles. As such, the
translation gains and losses from converting each respective
local currency to the US dollar were recorded in FMI's
consolidated statements of operations.
Effective January 1, 1999, as required by generally accepted
accounting principles, FMI ceased to account for its fSU
operations as highly inflationary due to the sharp decline in
historical inflation levels. FMI remains cautious concerning
the future outlook for operations in the fSU. The Company and
FMI will continue to monitor the inflation rates in each of
the fSU countries in which it operates to determine if FMI
should revert to hyper-inflationary accounting.
In 1999, the functional currency of FMI's subisidiaries is the
local currency. Accordingly, FMI translates all assets and
liabilities into U.S. dollars at current rates. Revenues,
costs and expenses are translated at weighted average rates
during the year. Gains and losses resulting from the
translation of the consolidated financial statements are
excluded from the results of operations and are reflected as a
translation adjustment as a separate component of
shareholders' deficit. Gains and losses resulting from
foreign currency transactions are recognized in the
consolidated statement of operations in the period they occur.
Use of Estimates
The preparation of consolidated 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 consolidated financial statements and reported
amounts of revenues and expense during the reporting period.
Actual results could differ from those estimates.
Reclassifications
Certain amounts in the 1998 consolidated financial statements
have been reclassified to conform to the 1999 basis of
presentation.
New Accounting Standards
In June 1998, the FASB issued FAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. Under FAS No.
133, new standards were established for recognizing all
derivatives as either assets or liabilities and measuring
those instruments at fair value. FAS No. 137, Accounting for
Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133, changed the
effective date of the statement to fiscal years beginning
after June 15, 2000. The impact of adoption on the Company's
consolidated financial statements has not yet been determined.
In December 1999, the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101 which provides the
staff's views in applying generally accepted accounting
principles to selected revenue recognition issues. The
Company will be required to adopt the new standard beginning
with the second quarter of 2000. The impact of adoption on
the Company's consolidated financial statements has not yet
been determined.
2.Going Concern Considerations
Since August 1998, the countries of the fSU, in which the
subsidiaries of FMI operate, have faced a series of adverse
economic conditions. Uncertainties regarding the political,
legal, tax or regulatory environment, including the potential
for adverse and retroactive changes in any of these areas
could significantly affect the Company. The countries have
seen a significant devaluation of their local currency against
the US dollar, higher interest rates and reduced opportunities
for financing. As a result of these situations, several of
the subsidiaries have suffered significant losses in 1999 and
1998 and carry an accumulated deficit at December 31, 1999.
DTR is committed to working through FMI's Board of Directors
to address working capital shortages as needed over the coming
year.
The Company has incurred substantial losses in recent years
and, as a result, has an accumulated deficit of $5,008,240 at
December 31, 1999. Losses for 1999 and 1998 were $1,961,083
and $186,498, respectively. FMI has also experienced significant
losses which have elimated DTR's carrying value of its investment
in FMI at December 31, 1999. The Company's ability to continue
as a going concern depends upon successfully obtaining
sufficient financing to maintain adequate liquidity until such
time as DTR sells or receives a return on its investments.
The accompanying consolidated financial statements have been
prepared on a going concern basis, which assumes continuity of
operations and realization of assets and liabilities in the
ordinary course of business. The consolidated financial
statements do not include any adjustments that might result if
the Company was forced to discontinue its operations.
The Company plans to obtain cash through the collection of
$200,216 of its $323,521 receivable with Savory Snacks LLC and
the collection of its $649,288 note receivable. The remaining
$123,305 of the Savory Snacks receivable will convert to an
equity ownership by DTR in Savory Snacks. Additionally, the
Company plans to receive income by providing management and
consulting services during 2000. Finally, the Company may
obtain some additional equity financing through the issuance
of additional shares of common stock. There are no assurances,
however, that such financing, if available will be at a price
that will not cause substantial dilution to the Company's
shareholders. If the Company is not able to generate
sufficient cash through its operating and financing activities
in 2000, it will not be able to pay its debts in a timely
manner.
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 dairy processing facilities in
the fSU. For a 40% interest in FMI, DTR contributed its 50%
ownership in FoodMaster, an option to acquire an additional
40% ownership in FoodMaster, and its opportunities for a
future acquisition of a dairy in Moldova. Exercise of the
option by FMI in March 1997 increased the ownership in
FoodMaster to 90%. For a 60% interest in FMI, API agreed to
contribute $6 million dollars, which was paid to FMI between
March 1997 and June 1998 to further develop FMI's existing and
future dairy operations in the fSU. On September 11, 1998,
DTR and API amended the FMI joint venture agreement to allow
API to contribute an additional $6 million dollars for an
additional 10% ownership. This additional contribution was
paid to FMI between September 1998 and April 1999. As of
December 31, 1999 and 1998, DTR owned 30% and 33% of FMI,
respectively and API owned 70% and 67% of FMI, respectively
based on API's additional contributions. The investment
proceeds received by FMI were used to fund expansion of
existing facilities and to acquire five additional
subsidiaries between 1998 and 1999. DTR has a right to
receive up to 6% additional ownership interest in FMI by
achieving certain defined rates of returns for API upon API's
transfer, liquidation or sale of their ownership interest in
FMI.
DTR records its proportionate share (40% from March 1997 to
September 1998, 33% from October 1998 to December 1998 and 30%
thereafter) of the net income or loss of FMI in the statement
of operations as equity in (loss) earnings of FMI joint
venture under the equity method of accounting.
From March 1997 to November 1999, DTR managed the dairy
operations of FMI and pursued dairy acquisitions for FMI under
a management contract with FMI. DTR received direct expense
reimbursement, with no profit margin, in accordance with a pre-
approved budget between DTR and FMI. Thus, management fees
increased or decreased as DTR's expenses incurred for
management activities increased or decreased, with no effect
on income because there was no profit margin provided for in
the agreement. Under the terms of the management agreement,
DTR's key managers were required to work only for the
advancement of the FMI business. In November 1999, DTR agreed
to terminate its management agreement in order to pursue other
opportunities and to allow FMI to be self-managed. Some of
DTR managers were moved to positions with FMI while others
were released. The Company recorded management fee revenue
of $1,080,490 and $1,281,322 for the years ended December 31,
1999 and 1998, respectively, in accordance with its management
agreement with FMI.
During 1999, the Company recorded a $1,518,554 loss, before
amortization of negative goodwill totaling $218,258, related to
its share of net losses from the FMI joint venture. As a
result of these losses, the Company's net investment in FMI
was reduced to zero. The Company's pro rata share of losses
for 1999 was $1,884,169. The excess of the losses over the
$1,518,554 loss recorded by the Company in 1999 totaled $365,615.
This amount will offset the Company's share of FMI's net
income, if any, in future years.
Summarized financial information from the audited consolidated
financial statements of FMI accounted for on the equity method
is as follows:
<TABLE>
<CAPTION>
December 31, 1999
<S> <C>
Current assets $ 5,593,307
Total assets 16,233,418
Current liabilities 4,372,369
Noncurrent liabilities 4,808,399
Joint-venture equity 7,052,651
DTR's 30% share of FMI 's equity 2,115,795
DTR's negative goodwill (amortized over 15 years) (2,655,469)
DTR's carrying value of FMI's equity -0-
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1999 1998
<S> <C> <C>
Sales $20,325,730 $20,366,221
Gross profit 3,652,739 5,271,770
Net loss (6,280,565) (1,724,330)
DTR's share of FMI's loss before amortization
of DTR's negative goodwill (1,884,169) (604,345)
DTR's share of equity in loss of FMI joint venture,
net amortization of negative goodwill (1,300,296) (386,088)
</TABLE>
4. Note Receivable
On December 3, 1998, SXD entered into an 8%, $600,000,
unsecured, convertible promissory note with an unrelated third
party (the party). In addition to the note, the Company
received warrants to purchase up to 60,000 shares of the
party's common stock at an exercise price of $10 per share.
All principal, together with accrued interest of 8% per annum,
was due and payable on March 15, 1999. This note was extended
to November 30, 1999 to allow the debtor additional time to
raise funds and repay the note. As of April 7, 2000, the
party has been unable to raise the funds it needs in order to
repay the note. The Company is currently restructuring its
loan to the party. Although the Company fully expects to
collect the funds related to this note, there is no guarantee
when and if the party will be able to repay the note. Due to
the potential uncollectibility, the Company has fully reserved
for the balance of the note and accrued interest through
November 1999 of $649,288. The Company has recognized a charge
of $649,288 which is included as Other Expense in the Statement
of Operations.
5. Furniture and Equipment
Furniture and equipment are summarized as follows:
Estimated
Useful Life
Software 3-5 years $ 11,730
Furniture & equipment 5 years 108,366
Leasehold improvements 5 years 4,982
125,078
Less accumulated depreciation 89,917
Furniture and equipment, net $ 35,161
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 Technologies, Inc., 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 a cash payment of $45,000 to reimburse DTR for
expenses related to this business during the first quarter of
1996 and a note receivable totaling $765,000 payable over 30
months. Additional contingent payments may also be received
based on future performance of Gate Technologies, Inc. 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 $621,707 gain on this sale was
deferred and will be recognized as payments are received.
Through December 31, 1999, DTR has collected a total of
$325,000 on this note. In August 1997, the Board of Directors
approved a revision in the sale agreement that increased the
balance due to DTR by $40,000 representing interest on the
outstanding balance. Thus, the total still due under this
note is $480,000 and the former employee is in default on all
payments. This receivable is still offset by a deferred gain
of $461,707.
Due to the buyer's delinquency in payment and the limited
success of the business that was sold, management reduced the
receivable and the related deferred gain recorded on its
balance sheet by $280,000 at December 31, 1998. The remaining
receivable balance of $200,000 is mostly offset by a current
deferred gain of $181,707 in the balance sheet at December 31,
1999 and 1998. The former employee pledged 16,430 of his
shares of DTR's common stock as collateral for the loan and
DTR is currently in the process of foreclosing on these
shares. After this foreclosure, the Company will show
approximately $180,000 remaining as a receivable.
7. Commitments & Contingencies
Leases
The Company leases its office facilities under a five-year
operating lease that expires on April 30, 2002. The following
schedule sets forth the future minimum rental payments
required under the operating lease:
Year Ending Operating
December 31, Leases
2000 19,507
2001 20,012
2002 6,727
$ 46,246
Rent expense was $72,892 and $66,911, for the years ended
December 31, 1999 and 1998, respectively. Rent expense
exceeds the amount shown in the above operating lease
commitments due to apartment rentals for expatriate employees
or corporate apartments on a month-to-month basis. These
rental fees were charged back to FMI through the management
fee each month.
8.Stock Options and Warrants
Under the Company's 1992 Stock Option Plan (the Plan), the
Board of Directors may grant qualified or nonqualified options
for up to 66,667 shares of common stock to employees and non-
employees. Options granted to employees generally vest over a
five-year period. Certain options granted to employees
contain provisions whereby vesting is accelerated in the event
the employee is terminated without cause as defined in the
option agreements. Options granted to non-employees vest
equally over one year after the date of grant and are
exercisable for ten years from the date of grant. Effective
September 30, 1996, the Plan was amended to increase the
shares available for granting to 600,000 shares.
On November 6, 1997, the Board of Directors adopted the 1997
Outside Directors Stock Option Plan, superseding the 1993
Outside Directors Stock Option Plan. Under the terms of this
plan, the Company reserved 100,000 shares of common stock for
issuance to outside directors as compensation for their
services as board members. In exchange for the surrender of
all stock options previously granted to the outside directors,
the Board granted stock options under the new plan for 15,000
shares of common stock at an exercise price of $1.50 per share
to the current outside directors. Options for the purchase of
shares are issued to the directors each year upon their
election at the annual shareholders meeting and vest quarterly
throughout the year. The number of options granted each year
is determined by the Board of Directors and the option price
will be set as the average between the bid and ask prices of
the Company's Common Stock on the date of issuance.
FAS No. 123, Accounting for Stock Based Compensation, requires
the Company to provide pro- forma information regarding net
loss and per share amounts as if compensation cost for the
Company's stock options had been determined in accordance with
the fair value based method prescribed by FAS No. 123. The
Company estimates the fair value of each stock option at the
grant date by using a Black-Scholes option-pricing model. The
following assumptions were used for options issued during the
periods:
Year Ended Year Ended
December 31, December 31,
1999 1998
Dividend Yield None None
Volatility 135.2% 105.5-115.3%
Risk Free Interest Rate 5.99% 5.8% - 5.9%
Expected Lives in Months 24 30 - 120
Had compensation costs been determined based on the fair value
of options at their grant dates in accordance with FAS No.
123, the Company would have shown the following effect:
Year Ended Year Ended
December 31, December 31,
1999 1998
Increase in Net Loss $ 10,200 $ 122,000
Decrease in EPS Basic 0.01 0.15
Decrease in EPS Diluted 0.01 0.10
The following table summarizes the information about the
Company's warrant and stock option activity for the years
ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
Outside Weighted-
Employee Directors Average
Stock Option Exercise
Warrants Options Plan Total Price/Share
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 28,333 610,000 30,000 668,333 $ 2.19
Expired (28,333) (6,667) -- (35,000) $18.14
Exercised -- -- (15,000) (15,000) $ 1.50
Granted -- 35,000 10,000 45,000 $ 2.85
Balance, December 31, 1998 -- 638,333 25,000 663,333 $ 1.41
Expired -- (55,000) -- (55,000) $ 1.69
Granted -- -- 10,000 10,000 $ 1.50
Balance, December 31, 1999 -- 583,333 35,000 618,333 $ 1.39
Exercisable, December 31,1999 -- 336,083 25,000 361,083 $ 1.39
</TABLE>
The following table summarizes information about the Company's
stock plans at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted- Weighted- Weighted-
Number Average Average Number Average
Range of Outstanding Remaining Exercise Exercisable Exercise
Exercise Price at 12/31/99 Life (years) Price at 12/31/99 Price
<C> <C> <C> <C> <C> <C>
$1.19 to $1.50 560,000 5.81 $1.23 329,000 $1.23
$2.75 to $3.125 58,333 4.04 $2.88 32,083 $2.95
618,333 361,083
</TABLE>
The following table summarizes information about the Company's
stock plans at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted- Weighted- Weighted-
Number Average Average Number Average
Range of Outstanding Remaining Exercise Exercisable Exercise
Exercise Price at 12/31/98 Life (years) Price at 12/31/98 Price
<C> <C> <C> <C> <C> <C>
$1.19 to $1.50 600,000 7.33 $1.23 232,000 $1.24
$2.75 to $3.125 58,333 5.04 2.88 23,333 3.00
$6.75 5,000 .41 6.75 5,000 6.75
663,333 260,333
</TABLE>
9. Income Taxes
Deferred income tax assets and liabilities were as follows:
December 31,
1999
Deferred tax asset $1,836,000
Deferred tax liabilities (221,000)
Valuation allowance (1,615,000)
--
Deferred income tax assets and liabilities consist primarily
of net operating loss (NOL) carryforwards and the allowance
for doubtful accounts, and differences between the financial
and tax basis of the investment in a joint venture,
respectively.
At December 31, 1999, the Company had NOL carryforwards of
approximately $3,330,000 for income tax purposes. The NOL
carryforwards expire in years 2008 through 2019 if not
previously utilized. Utilization of the available NOL
carryforward may be limited due to future significant changes
in ownership under Internal Revenue Codes Section 382. These
potential future tax benefits are not recognized in the
consolidated financial statements since realization is not
reasonably assured.
10. Earnings Per Share
The following table reflects the calculation of basic and
diluted earnings per share.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1999 1998
Numerator:
<S> <C> <C>
Net loss $(1,961,083) $ (186,498)
Denominator:
Weighted average shares - Basic earnings 805,820 805,615
Dilutive effect of stock options/warrants -- --
Weighted average shares - Diluted earnings 805,820 805,615
Net loss per share - Basic $ (2.43) $ (0.23)
Net loss per share - Diluted $ (2.43) $ (0.23)
</TABLE>
The assumed exercise of potentially dilutive securities
(560,000 and 658,333 shares) have not been included in the
computation of diluted earnings per common share for the years
ended December 31, 1999 and 1998, respectively as their effect
would be antidilutive.
11. Related Party Transactions
During 1998, DTR sold a packaging machine and inventory items
to FMI for $118,130 and $16,294, respectively. The cost of
these items were $82,592 and $17,907 respectively. There were
no related party transactions in the year ended December 31,
1999.
On December 3, 1998, SXD entered into an 8%, $600,000,
unsecured, convertible promissory note with an unrelated third
party (the party). In addition to the note, the Company
received warrants to purchase up to 60,000 shares of the
party's common stock at an exercise price of $10 per share.
This loan was offered as part of a $1.2 million bridge
financing deal that was being administered by Equity
Securities Investments Inc. (Equity Securities). One of DTR's
directors, is the Vice-President of Equity Securities. In
addition to the bridge financing, Equity Securities was
working with the party as its agent to raise additional
financing through a private placement. This relationship
expired November 1999 and there is no current commitment to
renew.
12. Economic Dependence
For the year ended December 31, 1999 and 1998, the Company had
two customers which comprised 100% of its x-ray tube sales of
$48,900 and $303,900, respectively. In addition, the Company
had one supplier for these x-ray tubes. Purchases from this
supplier totaled $41,450 and $260,950 for the years ended
December 31, 1999 and 1998, respectively. Sales to related
parties comprised $134,424 or 30.5% of total sales for the
year ended December 31, 1998. There were no sales to related
parties during the year ended December 31, 1999. For the year
ended December 31, 1998, the Company had two non-related
customers which comprised $303,900 or 68.9% of total sales.
13. Supplemental Disclosures of Cash Flow Information
Non-cash operating and investing activities:
For the year ended December 31, 1998, the Company reduced the
deferred gain and corresponding receivable from the sale of
discontinued operations by $280,000 as discussed in Note 6.
In September 1998, API began its purchase of an additional 10%
of FMI for $6 million dollars as discussed in Note 3. As a
result, DTR recorded a $308,597 and a $614,675 increase in the
value of its investment during the years ended December 31,
1999 and 1998, respectively for the cash contributed by API to
FMI through April 1999 in order to recognize the unrealized
gain from the reduction in its ownership interest in FMI. The
API capital contribution to FMI also correspondingly increased
DTR's paid-in-capital.
In 1999, the Company transferred $49,288 related to accrued
interest on the note receivable from other receivables to the
principal balance due on notes receivable.
Year Ended Year Ended
December 31,December 31,
Supplemental cash flow information: 1999 1998
Cash paid for:
Interest $ 3,360 $ 2,110
14. Subsequent Events
On February 1, 2000, an employee exercised his right to
125,000 shares of the Company's common stock. The former
employee paid the Company $70,000 and gave the Company a
promissory note bearing interest at 4.87% per annum for the
balance owed of $82,500. The principal and interest are due
in five equal installments beginning February 2001 and each
year thereafter. This note is secured by 90,000 shares owned
by the former employee.
On January 13, 2000, the Board of Directors agreed to Amend
the employment agreement of John Hupp, President. The Board
voted to reduce his current number of stock options from
250,000 to 207,500, to grant him 40,000 new stock options, and
to offer him the option of a non-interest bearing loan to
purchase these options in the event that he is terminated
without cause.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On October 21, 1999, Developed Technology Resource, Inc.
dismissed Deloitte & Touche LLP, the principal accountant
previously engaged to audit the registrant's consolidated
financial statements for the year ended December 31, 1998, the
two-month transition period ended December 31, 1997 and the
fiscal year ended October 31, 1997, as its independent
accountant. Deloitte & Touche LLP's report on the financial
statements for the year ended December 31, 1998 and the two-month
transition period ended December 31, 1997 contained a paragraph
expressing doubt over the Company's ability to continue as a
going concern but was not modified as to audit scope or
accounting principles. Deloitte & Touche LLP's
report on the financial statements for the fiscal year ended
October 31, 1997 does not contain an adverse opinion or
disclaimer of opinion, and was not modified as to uncertainty,
audit scope, or accounting principles. In connection with the
audit for the fiscal year ended October 31, 1997 and through
October 21, 1999, there have been no disagreements with Deloitte
& Touche LLP on any matter of accounting
principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements,
if not resolved to the satisfaction of Deloitte & Touche LLP
would have caused them to make reference thereto in their report
on the financial statements for such period. The decision to
change accountants has been approved by the Board
of Directors of the registrant.
On October 21, 1999, KPMG LLP was appointed as the
registrant's new independent accountant to audit the registrant's
consolidated financial statements. During the past fiscal year
and through October 21, 1999, the registrant has not, prior to
engaging the new accountant, consulted the new accountant
regarding the application of accounting principles to a specific
or contemplated transaction or regarding the type of audit
opinion that might be rendered on the registrant's consolidated
financial statements.
PART III
ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
ACT
The information required by Item 9 is incorporated herein by
reference to the section entitled "Principal Shareholders and
Management Ownership" in the Company's proxy statement for its
2000 Annual Meeting of Shareholders, which will be filed with the
Securities and Exchange Commission pursuant to Regulation 14A
within 120 days of the Company's fiscal year ended December 31,
1999.
ITEM 10. EXECUTIVE COMPENSATION
The information required by Item 10 is incorporated
herein by reference to the section entitled "Compensation of
Directors and Executive Officers" in the Company's proxy
statement for its 2000 Annual Meeting of Shareholders, which will
be filed with the Securities and Exchange Commission pursuant to
Regulation 14A within 120 days of the Company's fiscal year ended
December 31, 1999.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by Item 11 is incorporated herein
by reference to the section entitled "Principal Shareholders and
Management Ownership" in the Company's proxy statement for its
2000 Annual Meeting of Shareholders, which will be filed with the
Securities and Exchange Commission pursuant to Regulation 14A
within 120 days of the Company's fiscal year ended December 31,
1999.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 12 is incorporated herein
by reference to the section entitled "Certain Transactions" in
the Company's proxy statement for its 2000 Annual Meeting of
Shareholders, which will be filed with the Securities and
Exchange Commission pursuant to Regulation 14A within 120 days of
the Company's fiscal year ended December 31, 1999.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
The following Exhibits are filed as part of this Form
10-KSB:
No. Exhibit Description
3.1 Articles of Incorporation of the Company dated
November 11, 1991(1)
3.2 Certificate of Amendment of Articles of
Incorporation of the Company dated June 16, 1992(1)
3.3 Bylaws of the Company(1)
3.4 Certificate of Amendment of Articles of
Incorporation of the Company, changing registered
office address dated March 2, 1993(1)
3.5 Certificate of Amendment of Articles of
Incorporation of the Company dated November 30, 1995(3)
4.1 Form of stock certificate representing Common
Stock, $.01 par value per share, of the Company, issued
by Company after a 1 for 3 reverse split effective
December 12, 1995(3)
4.2 Form of Subscription Agreement and Investment
Representations in connection with private placement of
300,000 shares of Common Stock(1)
4.3 Amended Incentive Stock Option Grant - Erlan
Sagadiev dated December 11, 1996(6)
4.4 Amended Incentive Stock Option Grant - John Hupp
dated December 11, 1996(6)
4.5 1992 Stock Option Plan as amended and restated
effective September 30, 1996(8)
4.6 Developed Technology Resource, Inc. 1997 Outside
Directors Stock Option Plan effective November 1,
1997(7)
10.1 Asset Sale Agreement between Company and a
corporation to be organized by Oleg Yermakov selling
the Company's security equipment distribution business
and certain assets to Oleg Yermakov, contingent on
certain future events(5)
10.2 Exclusive Distributor Agreement dated October 1995
between Company and SECTOR 6, Security Division of
N.V. COMAUTO S.A. effective until September 30, 1998(5)
10.3 Contract for Fiduciary Management of State Shares
of the Open Type Joint Stock Company, Ak-Bulak with
their Subsequent Buy-out Option (4)
10.5 Form of Stock Option Agreement(1)
10.6 Limited Liability Company Agreement of FoodMaster
International L.L.C. as amended and restated November
15, 1999(12)
10.7 FoodMaster International L.L.C. Share Transfer
Agreement dated March 3, 1997(6)
10.8 FoodMaster International L.L.C. Bill of Sale,
Assignment and Assumption Agreement dated March 3,
1997(6)
10.9 Management Agreement between DTR and FoodMaster
International L.L.C. as amended and restated September
11, 1998(9)
10.10 Termination of Management Agreement between
DTR and FoodMaster International L.L.C. effective
November 15, 1999(12)
10.12 Form of Assignment of Financial Advisory
Agreement from the Company to FAI Limited Partnership
effective January 31, 1993(1)
10.13 Employment Agreement between DTR and Erlan
Sagadiev effective September 30, 1996(6)
10.14 Employment Agreement between DTR and John
Hupp effective October 1, 1998 as amended and
restated(9)
10.15 Amendment to Employment Agreement between DTR
and John Hupp effective January 13, 2000(12)
10.16 Office Lease between DTR and McNeil Real
Estate dated March 11, 1997 effective until April 30,
2002(8)
10.18 Promissory Note between DTR and Hyperport
International, Inc. dated July 26, 1999(12)
10.20 Partnership Agreement dated January 16, 1992
among the Company, Armen P. Sarvazyan and Stanislav
Yemelyanov concerning the formation of Medical
Biophysics International, as amended by Partnership
Agreement Amendment dated August 20, 1992(1)
10.21 Letter of Understanding dated June 18, 1992
between the Company and Armen P. Sarvazyan concerning
Medical Biophysics International, and May 22, 1992
letter from the Company to Dr. Armen P. Sarvazyan,
Ph.D.(1)
10.22 Assignment of rights to Intracavity
Ultrasonic Device for Elasticity Imaging from Armen P.
Sarvazyan, Stanislav Emelianov and Andrei R. Skovoroda
to Medical Biophysics International dated December 19,
1992(1)
10.23 Assignment of rights to Method and Apparatus
for Elasticity Imaging from Armen P. Sarvazyan and
Stanislav Emelianov to Medical Biophysics International
dated December 19, 1992(1)
10.24 Assignment of rights to Method and Device for
Mechanical Tomography of Tissue from Armen P. Sarvazyan
to Medial Biophysics International dated January 16,
1993(1)
10.42 Form of Underwriter's Warrants dated May 5,
1993 between the Company and Equity Securities Trading
Co., Inc.(2)
10.43 Form of Directors and Officers
Indemnification Agreement issued to each of the
Company's officers and directors on October 15, 1993 by
action of the Board of Directors(2)
10.45 Amendment to Asset Sale Agreement (Exhibit
10.1) dated August 20, 1997 (7)
16.1 Letter of agreement from Deloitte & Touche LLP
(11)
21.1 Subsidiaries of Developed Technology Resource,
Inc. as amended(10)
27 Financial Data Schedule(12)
(1)Incorporated by reference to the same exhibit number included
in the Company's registration statement on Form SB-2, as
Amended, filed with the Commission as file number 33-58626C
in 1993.
(2)Incorporated by reference to the same exhibit number included
in the Company's Annual Report on Form 10-KSB filed with the
Commission for the fiscal year ended October 31, 1993.
(3)Incorporated by reference to exhibit numbers 1A and 3A
included in the Company's Form 8-A/A filed with the
Commission on December 12, 1995.
(4)Incorporated by reference to exhibit number 10 included in
the Company's Quarterly Report on Form 10-QSB for the third
fiscal quarter ended July 31, 1996.
(5)Incorporated by reference to the same exhibit number included
in the Company's Annual Report on Form 10-KSB filed with the
Commission for the fiscal year ended October 31, 1995.
(6)Incorporated by reference to exhibit numbers 4.1, 4.2, 10.1,
10.2, 10.3, 10.4, 10.5 and 10.6 included in the Company's
Quarterly Report on Form 10-QSB filed with the Commission for
the first fiscal quarter ended January 31, 1997.
(7)Incorporated by reference to exhibit numbers 10.44 and 10.45
included in the Company's Annual Report on Form 10-KSB filed
with the Commission for the fiscal year ended October 31,
1997.
(8)Incorporated by reference to exhibit numbers 10.4 and 10.16
included in the Company's Quarterly Report on Form 10-QSB
filed with the Commission for the first fiscal quarter ended
January 31, 1998.
(9)Incorporated by reference to the same exhibit number included
in the Company's Quarterly Report on Form 10-QSB filed with
the Commission for the third calendar quarter ended September
30, 1998.
(10) Incorporated by reference to the same exhibit number
included in the Company's Annual Report on Form 10-KSB filed
with the Commission for the fiscal year ended December 31,
1998.
(11) Incorporated by reference to exhibit number A included
in the Company's 8-K filing for Change in Registrant's
Certifying Accountant filed with the Commission on October
26, 1999.
(12) Filed herewith.
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: April 14, 2000 By _________________________________
Name: John P. Hupp
Title: President
Date: April 14, 2000 By _________________________________
Name: LeAnn H. Davis, CPA
Title: Chief Financial Officer
(Principal Financial & Accounting Officer)
Date: April 14, 2000 By _________________________________
Name: Peter L. Hauser
Title: Director
Date: April 14, 2000 By _________________________________
Name: Roger W. Schnobrich
Title: Director
EXHIBIT 10.6
SECOND
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
FOODMASTER INTERNATIONAL L.L.C.
THIS SECOND AMENDED AND RESTATED LIMITED LIABILITY
COMPANY AGREEMENT ("Agreement") is made and entered into as of
this 15th day of November, 1999 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, dated as of March 3, 1997, as
amended by that certain Amended and Restated Limited Liability
Company Agreement, dated as of September 11, 1998 (as amended,
the "Original Agreement"), pursuant to which API and DTR
established and operated Foodmaster International L.L.C., a
Delaware limited liability company (the "Company").
WHEREAS, API and DTR and the Company entered into that
certain Management Agreement, dated as of March 3, 1997, as
amended by that certain Amended and Restated Management
Agreement, dated as of September 11, 1998 (as amended, the
"Management Agreement");
WHEREAS, the Company and DTR are terminating the
Management Agreement effective as of the date of this Agreement;
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) "Affiliate" means, with respect to any Member, any
person or entity directly or indirectly controlling, controlled
by, or under common control with such Member, as the case may be.
(b) "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.
(c) "Dollars" means the lawful currency of the United
States of America.
(d) "GAAP" means generally accepted accounting
principles as used in the United States.
(e) "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.
(f) "Members" means API and DTR and all other persons
who may become Members of the Company as provided herein.
(g) "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 ninety-five
percent (95%) and five percent (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 Registered Office/Registered Agent. 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 Company shall dissolve in accordance with
the provisions of Section 7.1.
ARTICLE III
CAPITAL STRUCTURE
3.1 Capital Contributions. As of the date of this
Agreement, API has made Capital Contributions to the Company in
the amount of Twelve Million Dollars ($12,000,000) and DTR has
made Capital Contributions to the Company in the amount of Four
Million Dollars ($4,000,000).
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 or any subsidiary thereof.
3.3 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.
(b) With respect to all matters submitted to a vote of the
Members, API shall be entitled to cast seventy percent (70%) of
all votes and DTR shall be entitled to cast thirty percent (30%)
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) Unless the Board determines otherwise, 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.
Unless the Board determines otherwise, 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
by the end of the calendar month immediately following the
calendar month with respect to which the financials are prepared.
4.8 Extraordinary Actions. In addition to other actions
identified herein requiring unanimous approval of the Members,
the Company shall not, without the approval of each Member which
approval shall not be unreasonably withheld, (i) sell or
otherwise dispose of all or substantially all of its assets, or
(ii) undertake any new investment projects. For purposes of
determining the reasonableness of a Member in providing or
withholding approval under this Section 4.8, the Member shall be
permitted to take into account the impact of the proposed action
on such Member.
4.9 Interested Party Transactions. Subject to the
provisions of the following sentence, the Company shall not enter
into contract, arrangement or transaction with any Member or any
Affiliate of any Member unless such contract, arrangement or
transaction is approved by each of the Members or all of the
Directors then in office. The provisions of the foregoing
sentence shall not apply to any contract, arrangement or
transaction pursuant to which the Company reimburses a Member for
providing goods or services to the Company provided that the
amount of such reimbursement is no greater than such Member's
cost of providing such goods or services, including reasonable
overhead.
4.10 Inspection Rights. Each Member shall have the right,
at all reasonable times during usual business hours, to audit,
examine, and make copies of or extracts from any books, records,
or other papers of the Company. Such right may be exercised
through any agent or employee of such Member designated by the
Member. Each Member shall bear all expenses incurred in any
examination made by or on behalf of such Member.
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 subparagraph (b), the Percentage Interest of API
shall be seventy percent (70%) and the Percentage Interest of DTR
shall be thirty percent (30%).
(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%), DTR'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(b) shall not exceed six percent (6.0%).
(c) The adjustment of Percentage Interests pursuant to
this Section 5.2 shall not alter the voting/management provisions
contained in this Agreement.
ARTICLE VI
ADMISSION OF NEW MEMBERS/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. Except as otherwise
provided in this Agreement, 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.
6.3 Right of First Refusal. If any Member receives a bona
fide offer (an "Offer") from a third party (the "Offeror") to
sell any or all of it's Interest and that the Member wishes to
accept, such Member shall give written notice (the "Notice")
thereof to the other Member(s) no latter than the earlier of five
days after receipt or thirty (30) days prior to the date of the
proposed sale of the Interest which notice shall include all
material terms and conditions of the offer and the identity of
the Offeror. The other Member(s) shall then have the right and
option, but not the obligation, to purchase the Interest, on the
terms and conditions and on the proposed sale date set forth in
the Notice. The option provided for herein shall be exercisable
by the Member(s) within thirty (30) days after receipt of the
Notice. If the option is not exercised within the option period,
then the Member receiving the Offer shall have the right for a
period of thirty (30) days following the expiration of such
option period to sell any or all of its Interest subject to the
Offer, free and clear of the restrictions or limitations of this
Agreement; provided, however, that such sale may be only to the
original Offeror and on the same material terms and conditions
contained in the Offer; and provided further, that such Offeror
shall agree in writing to be bound by all of the terms and
conditions of this Agreement. If any or all of the Interest is
not sold pursuant to the provisions of this Section 6.3 prior to
the expiration of the thirty (30) day period specified in the
immediately preceding sentence, such Interest shall become
subject once again to the provisions and restrictions hereof.
6.4 Tag Along Right.
(a) If API proposes, in a single transaction or a
series of transactions, to sell any of its Interest, then DTR
shall have the right to join in such sale on a pro rata basis as
hereinafter provided.
(b) Prior to the sale by API of any portion of its
Interest (the "Disposition Percentage"), API shall cause the
party that proposes to acquire such Interest (the "Proposed
Purchaser") to offer (the "Purchase Offer") in writing to DTR to
purchase a portion, at least equal to the Disposition Percentage,
of DTR's Interest. Such purchase shall be made on the same terms
and conditions as the Proposed Purchaser has offered to purchase
the Interest of API. DTR shall have thirty (30) days from the
receipt of the Purchase Offer in which to accept such Purchase
Offer.
6.5. Bring Along Right.
(a) If, at any time after the date of this Agreement,
API shall determine to sell all of its Interest in a bona fide
arm's-length transaction to a third party, then, upon written
request of API, DTR shall sell, or cause to be sold, to such
third party all of the Interest owned by DTR, provided that DTR
shall not be obligated to sell its Interest pursuant to this
Section 6.5 except on terms and conditions that are no less
favorable than those pursuant to which API sells its interest,
taking into account the total consideration received by API in
the overall transaction pursuant to which API sells its interest
and reasonably attributable to API's Interest.
(b) In connection with any transaction to which Section
6.5(a) applies, API shall send written notice (the "Sale Notice")
to DTR, setting forth the terms and conditions pursuant to which
the third party purchaser will acquire API's Interest, including
the closing date of the sale, which shall be at least fifteen
(15) days following the date of the Sale Notice. Not later than
the closing date of such sale, the third party purchaser shall
deliver payment for the Interest of DTR against the receipt of
all documents reasonably requested by such third party purchaser
to transfer ownership of DTR's Interest.
6.6 Transfer of Interest. At any time after January 1,
2003, either Member will, at the request of the other Member,
cooperate, in all commercially reasonable respects, with the
requesting Member in the sale of its Interest to a third party,
subject to the provisions of Sections 6.2, 6.3 and 6.4 or
cooperate, in all commercially reasonable respects, in an initial
public offering ("IPO") of Interests in the Company.
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, or (ii) 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.
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
products in Kazakstan, Ukraine, or Moldova except through the
Company.
(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 or juice products in Kazakstan, Ukraine, or
Moldova 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.
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 had at the time of contribution, full legal
right to transfer and assign all rights and properties
contributed to the Company as Capital Contributions, free and
clear of mortgage, pledge, claim, lien charge, obligation,
liability (including liability for taxes) or other encumbrances,
and the Company has received 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
Member 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, provided that the terms of the
Original Agreement shall remain in effect with respect to periods
prior to the date of this Agreement. 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
EXHIBIT 10.10
TERMINATION OF MANAGEMENT AGREEMENT
This TERMINATION OF MANAGEMENT AGREEMENT (this
"Termination") is made as of November 15, 1999 (the "Effective
Date"), by and between FOODMASTER INTERNATIONAL L.L.C., a
Delaware limited liability company ("Company"), and DEVELOPED
TECHNOLOGY RESOURCE, INC., a Minnesota corporation ("Manager").
PRELIMINARY STATEMENT
The Company and Manager are parties to that certain Amended
and Restated Management Agreement dated as of September 11, 1998,
(the "Management Agreement"). The Manager was responsible for
the operations, planning and day to day management functions of
the Company pursuant to the Management Agreement and that certain
Amended and Restated Limited Liability Company Agreement of the
Company dated September 11, 1998 (the "Operating Agreement").
Pursuant to Section 16, the Management Agreement may be
terminated upon the mutual agreement of the Company and the
Manager.
AGREEMENT
The Company and the Manager hereby agree as follows:
Section 1. Termination. The Management
Agreement is hereby terminated effective as of the date hereof.
Section 2. Counterparts. This Termination may
be executed in one or more counterparts, each of which shall be
deemed an original.
Section 3. Binding Effect. This Termination
shall be binding upon and inure to the benefit of the Company and
the Manager and their respective successors and assigns,
including, without limitation, any United States trustee, any
debtor-in-possession or any trustee appointed from a private
panel.
Section 4. General Release. Except as may be otherwise
provided herein, the Manager, on behalf of itself and its heirs,
successors and assigns, and the Company, on behalf of itself and
its heirs, successors and assigns, hereby fully and forever
release and discharge the other party to this Termination and its
respective, subsidiaries, affiliates, divisions, successors and
assigns, together with their respective officers, directors,
agents and employees, from any and all claims, fees, demands,
rights, liens, agreements, contracts, covenants, actions, suits,
causes of action, obligations, debts, costs, expenses, attorneys'
fees, damages, judgments, orders or liabilities of any kind or
nature, in law, equity or otherwise, whether now known or
unknown, suspected or unsuspected, which the releasing party now
owns or holds or has at any time heretofore owned or held as
against the other party to this Termination, arising out of or in
any way connected with the duties of the parties hereto under the
Management Agreement, or the termination of the same, or any
other transactions, occurrences, acts of omissions or any loss,
damage or injury whatsoever, known or unknown, suspected or
unsuspected, resulting from any act or omission by or on the part
of the parties hereto committed or omitted prior to the date of
this Agreement, including, but not limited to any and all claims
for attorneys' fees and costs under any statute, regulation, or
judicial precedent that shifts responsibility to either of the
parties hereto for payment of attorney's fees and costs in
litigation arising out of the Management Agreement.
Section 5. Certain Costs and Expenses.
(a) The Manager shall be entitled to reimbursement by
the Company for all of the costs and expenses incurred by
the Manager for the performance of its duties under the
Management Agreement up to and including the Effective Date.
The manner and amount of such reimbursement shall be
governed by the applicable provisions of the Management
Agreement. The Manager hereby covenants and agrees to
provide the Company with a statement of all such costs and
expenses within sixty (60) days after the date hereof, and
the Company agrees to pay any undisputed costs and expenses
within thirty (30) days of receipt of the statement. The
Company hereby agrees to provide the Manager with written
notice of any reasonable objection to any of the costs and
expenses contained in such statement within fifteen (15)
days of receipt of the statement, which notice shall include
a specific description of any disputed cost or expense. Any
disputed amount shall be deposited in escrow according to
terms and conditions mutually agreeable to the parties
hereto, and each of the Company and the Manager hereby
covenant and agree to use their best efforts to resolve any
such dispute in a timely manner.
(b) In addition to the costs and expenses payable by
the Company to the Manager pursuant to Section 5(a) of this
Termination, the Company hereby agrees that, if the Manager
is required to terminate the existing employment agreement
between the Manager and Kevin Cuthill or Denis Gablenko (the
"Employment Agreement") as a result of this Termination, the
Company will reimburse the Manager for certain termination
expenses which may become due and payable after the
Effective Date. Any amounts paid by the Manager to Kevin
Cuthill or Denis Gablenko as a severance payment, including
travel expenses, pursuant to the terms of the Employment
Agreement shall be subject to the reimbursement requirement
of this Section 5(b). The Manager will provide the Company
with a written statement which shall include an itemized
list of the severance expenses, and the Company agrees pay
the Manager an amount equal to the undisputed amount of the
severance expenses within thirty (30) days of receiving such
statement Any disputes with respect to such reimbursement
shall be settled in the manner provided for in Section 5(a)
of this Termination. The Manager acknowledges and agrees
that the obligation of the Company to reimburse the Manager
for the severance expenses contemplated in this Section 5(b)
shall in no manner whatsoever constitute an assumption by
the Company of any of the obligations or other liabilities
of the Manager with respect to the Employment Agreement,
including, without limitation, any claim, damages or other
liability of the Manager which may arise under the
Employment Agreement in addition to the obligation of the
Manager to provide a severance payment.
Section 6. Operating Agreement. As of the Effective
Date, the Operating Agreement shall be terminated and replaced by
the Second Amended and Restated Operating Agreement of the
Company, dated as of the date hereof, and all of the rights,
duties and obligations of the Manager, as a member of the
Company, shall be governed thereby.
Section 7. Governing Law. This Agreement is entered
into and executed in, and shall be construed in accordance with
the internal laws of the State of Delaware, USA, without regard
to the application and effect its conflict of laws principles.
Section 8. Entire Agreement. This Agreement constitutes
the entire agreement concerning the Manager's employment and
termination and all other matters addressed herein. This
Termination supersedes and replaces all prior and contemporaneous
negotiations and all agreements proposed or otherwise, whether
written or oral, concerning all subject matter covered herein.
Section 9. Severability. If one or more of the
provisions of this Termination shall for any reason be held
invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect or
impair any other provisions of this Termination, but this
Termination shall be construed as if such invalid, illegal or
unenforceable provision had not been contained herein.
Section 10. No Admission. The parties are entering into
this Termination solely to effectuate a mutually acceptable
termination of the Management Agreement. The parties do not
believe that they have done anything wrong, and the fact that
they are entering into this Termination should not be understood
as an admission by either of the parties hereto that they have
violated the respective rights of the other party in any manner
whatsoever, or the rights of any third party.
The Company and the Manager have entered into this
Termination as of the date first above written.
FOODMASTER INTERNATIONAL L.L.C., a
Delaware limited liability company
By:
Name:
Title:
DEVELOPED TECHNOLOGY RESOURCES,
INC., a Minnesota corporation
By:
Name:
Title:
WRITTEN CONSENT OF THE MEMBERS
OF
FOODMASTER INTERNATIONAL L.L.C.
The undersigned, being all of the members of FOODMASTER
INTERANTIONAL L.L.C., a Delaware limited liability company (the
"Company"), acting pursuant to Section 18-302 (d) of the Delaware
Limited Liability Company Act, hereby adopt the following
resolutions by written consent:
RESOLVED, that the Company, through its Board of Directors,
is hereby authorized to terminate that certain Amended and
Restated Management Agreement (the "Management Agreement"), dated
September 11, 1998, by and between the Company and the Developed
Technology Resources; and further
RESOLVED, that Robert H. Peyton is hereby authorized to
execute such documents and take such other and further actions as
may be required to carry out the termination of the Management
Agreement; and further
RESOLVED, that all actions of the Board of Directors of the
Company related to said transaction are hereby ratified,
confirmed and adopted.
ADOPTED as of the 15th day of November, 1999.
DEVELOPED TECHNOLOGY RESOURCE,
INC., a Minnesota corporation
By:
Name:
Title:
API DAIRY PARTNERS L. P., a
Delaware limited partnership
By: C.I.S. Management Company,
L.L.C., a Delaware limited
liability company
By:
Name:
Title:
AGRIBUSINESS PARTNERS INTERNATIONAL
L.P. II, a Delaware limited
partnership
By: C.I.S. Management Company,
L.L.C., a Delaware limited
liability company
By:
Name:
Title:
EXHIBIT 10.15
January 13, 1999
Dear John:
This letter will constitute an amendment to your Employment
Agreement with DTR that was signed on October 1, 1998 and also an
amendment to the grant of stock options to you pursuant to the
Amended Stock Option Grant dated December 11, 1996.
AMEMDMENT TO EMPLOYMENT AGREEMENT
Your Employment Agreement dated October 1, 1998 shall be amended
as follows:
Termination of Employment. At the last Board meeting, in
recognition of the current cash position of DTR, the
possibility that the termination of your employment with DTR
could be in DTR's best interests was recognized. For the
purpose of exercising your unexercised stock options, DTR
will accept as payment for all or any part of the purchase
price a non-recourse, interest free promissory note from you
to DTR in the form attached hereto as Exhibit A and a
related pledge agreement in the form attached hereto as
Exhibit B, upon any one of the following:
(i) termination of your employment by DTR at any time without
cause, including but not limited to the non renewal of your
employment contract with DTR after September 30, 2001;
(ii) voluntary termination of your employment with DTR at any
time with the consent of the DTR board.
AMENDMENT OF YOUR STOCK OPTIONS
As of the date of this letter, the Stock Options you presently
hold shall be amended as follows:
Current Status of Stock Options. Prior to setting forth
the modifications of your stock options, it will be helpful
to set forth the current status of your stock options. You
hold options to purchase 250,000 shares of DTR's common
stock at $1.22 per share. At the time the options were
granted you agreed that you waived any interest in the
wholly-owned subsidiary that DTR was to form. That
subsidiary, SXD, was formed. DTR now intends to undertake
a reorganization whereby DTR will liquidate that subsidiary
and transfer its assets to DTR. The relative valuation of
the portion of the merged company represented by each
constituent entity is DTR-83% and SXD-17%. In recognition
of these relative values, when the reorganization takes
place, the total number of options you currently hold will
be reduced to 207,500 shares (83% of 250,000). The number
of your options that are currently exercisable is 150,000.
Upon completion of the merger, this amount will be reduced
to 124,500 (83% of 150,000). An additional 41,500 options
will become exercisable on September 30,2000 and an
additional 41,500 options will become exercisable on
September 30,2001. All options become immediately
exercisable if your employment is terminated for any reason
other than cause. Cause is defined in the Amended Stock
Option Grant. After three months from the date of
termination all unexercised options shall lapse and
terminate.
NEW STOCK OPTIONS TO BE GRANTED
As of the date of this letter, you are hereby granted
additional options to purchase 40,000 shares of DTR's common
stock at a price per share equal to the mean between the bid and
ask prices as of that date according to the attached Stock Option
Grant. The provisions of this Letter Agreement for a loan to
exercise stock options shall apply to these newly granted stock
options.
Please sign and return one copy of this letter to
acknowledge our acceptance of the modifications to your
Employment Agreement and to your stock options that are set forth
in this letter.
Very truly yours,
Developed Technology Resource, Inc.
By: _____________________ and _______________________
Roger W. Schnobrich Peter L. Hauser
Director Director
I accept the modifications to my Employment Agreement and to
the stock options that I hold, that are set forth in the
foregoing letter.
______________________________
John P. Hupp
EXHIBIT 10.18
SERIES B 8% CONVERTIBLE SUBORDINATED PROMISSORY NOTE
EXTENSION II
$631,466.67
July 26,1999
Minneapolis, MN
The Series B 8% Convertible Subordinated Promissory Note dated
December 3, 1998 in the amount of Six Hundred Thousand Dollars
and 00/100 ($600,000) between Hyperport International, Inc.
("Borrower") and SXD, Inc. ("Lender") with an original maturity
date of March 30, 1999 ("Maturity Date") and an extended maturity
date of June 15, 1999 ("Extended Maturity Date") (collectively
the "Note"), for value received, is hereby modified to include
all accrued interest owned to-date ($600,000 x 8.0%/360 days x
236 days = $31,466.67) to the principal balance and extend the
Extended Maturity Date to November 30, 1999 ("Second Extended
Maturity Date"). The new principal balance is Six Hundred Thirty
One Thousand Four Hundred Sixty Six Dollars and 66/100
($631,466.67) ("New Principal Balance"). All other terms and
conditions of the Note remain unchanged and are in full force and
effect, including but not limited to Borrower prepaying the Note
in whole or in part at any time and from time to time without
premium or penalty.
Signers for Lender and Borrower are duly authorized
representatives of Lender and Borrower with full authority to
extend the Maturity Date of the Note to the Second Extended
Maturity Date and bind both parties to the above terms.
Agreed to as to the above date by
HYPERPRT INTERNATIONAL, INC ("BORROWER")
/s/ Gregg Hoffman
______________________________________
Its: CFO
SXD, INC. ("LENDER")
/s/ LeAnn H. Davis
______________________________________
Its: Chief Financial Officer
[ARTICLE] 5
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1999
[PERIOD-END] DEC-31-1999
[CASH] 193,319
[SECURITIES] 0
[RECEIVABLES] 0
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 774,184
[PP&E] 125,078
[DEPRECIATION] (89,917)
[TOTAL-ASSETS] 779,345
[CURRENT-LIABILITIES] 298,839
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 8,058
[OTHER-SE] 457,497
[TOTAL-LIABILITY-AND-EQUITY] 779,345
[SALES] 48,900
[TOTAL-REVENUES] 1,150,373
[CGS] 41,450
[TOTAL-COSTS] 1,212,908
[OTHER-EXPENSES] 1,300,296
[LOSS-PROVISION] 649,288
[INTEREST-EXPENSE] (60,183)
[INCOME-PRETAX] (1,951,936)
[INCOME-TAX] 9,147
[INCOME-CONTINUING] (1,961,083)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (1,961,083)
[EPS-BASIC] (2.43)
[EPS-DILUTED] (2.43)
</TABLE>
