UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year JUNE 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Transition period from:____________to:___________
Commission File Number. 0-24138
DIAMOND EQUITIES, INC.
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(Name of Small Business Issuer in its Charter)
NEVADA 88-0232816
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State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization
2010 E. UNIVERSITY DRIVE, STE. # 3 - TEMPE, ARIZONA 85281
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(Address of Principal Executive Offices) (Zip Code)
(602) 921-2760
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: NONE
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Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, PAR VALUE $.001 PER SHARE
CLASS A WARRANTS
CLASS B WARRANTS
Check whether the issuer: (1) filed all Reports 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 here if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in definite proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
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The Issuer's revenues for the year ended June 30, 1998, were $ none.
The aggregate market value of the voting stock held by non-affiliates
(approximately 1,775,034 shares as of September 27, 1997) based upon the average
of the bid and asked prices of such stock as of September 23, 1998, as reported
on the Electronic Bulletin Board, was $0.05.
The number of shares of Common Stock of the issuer outstanding as of
September 23, 1998, was 4,666,099.
Transitional Small Business Disclosure Format (check one): Yes No [X]
Documents incorporated by Reference:
Incorporated by reference to this annual report are Forms 8-K filed by
the Registrant on June 19, 1998 and July 29, 1998, respectively, which disclosed
acquisitions of two entities engaged in the plastic injection molding industry.
One acquisition took place after the Registrant's fiscal year ending June 30,
1998.
In addition, a Form 8-K was filed on July 17, 1998 regarding a
voluntary change of auditors for the Registrant.
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TABLE OF CONTENTS
PART I Page No.
Item 1. Description of Business...........................................3
Item 2. Description of Property...........................................9
Item 3. Legal Proceedings.................................................9
Item 4. Submission of Matters to a Vote of Security Holders..............10
PART II
Item 5. Market Price of and Dividends on the Registrant's Common
Equity and Other Stockholder Matters.............................10
Item 6. Management's Discussion and Analysis or Plan of Operation........11
Item 7. Financial Statements.............................................12
Item 8. Changes in and Disagreements With Accountants....................13
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons.....13
Item 10. Executive Compensation...........................................13
Item 11. Security Ownership of Certain Beneficial Owners and Management...14
Item 12. Certain Relationships and Related Transactions...................16
Item 13. Exhibits List and Reports on Form 8-K............................16
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
HISTORY. The Company was organized under the laws of the State of Nevada on
July 24, 1987, under the name of KTA Corporation. On September 25, 1989, the
Company changed its name to United Payphone Services, Inc. At that time, the
Company was in the business of operating, servicing and maintaining a system of
privately-owned public pay telephones in Nevada. In January, 1990 the Company
expanded its operations into Arizona. In December, 1994, the Company sold all of
its pay telephone location contracts in Las Vegas, Nevada, but did not include
the pay telephone equipment. All of the Nevada equipment was then relocated to
Arizona where the Company did business under the name "U.S. Payphone, Inc." The
Company generated revenues, after the sale of its Nevada contracts, from coin
and non-coin calls made from approximately 865 telephones located and installed
throughout the State of Arizona.
On November 15, 1996, the Company sold substantially all of its fixed assets
(the "Asset Sale") to Tru-Tel Communications, L.L.C., a Nevada limited liability
company ("Tru-Tel"). Under an asset purchase agreement (the "Asset Purchase
Agreement") for $1,711,250 in cash and a secured promissory note of $811,250
(the "Tru-Tel Note"). The Tru-Tel Note is payable on a monthly basis commencing
on February 15, 1997, and bears interest at the rate of 8% per annum. The final
payment of all accrued and unpaid interest and outstanding principal is due on
or before January 15, 2002. The Tru-Tel Note is secured by a lien on all assets
transferred in the Asset Sale and is further secured by personal guarantees of
the principals of Tru-Tel. The Company effected the Asset Sale because the
directors determined that the changing regulatory environment and business
prospects would have a negative effect on the Company's future operations.
The Asset Purchase Agreement prohibits the Company from engaging in, either
directly or indirectly, in any business which operates public or private pay
phones within the State of Arizona. In addition, the Company may not install or
maintain any phone equipment, or provide related services, for any party to its
existing contracts, which were sold to Tru-Tel. As a result, the Company has had
no business operations since the Asset Sale and had no income in fiscal year
1997. On June 20, 1997, the company changed its name to Diamond Equities, Inc.
RECENT DEVELOPMENTS. Prior to June, 1998, the Company was essentially a
"blank check" company, as a result of the Asset Sale discussed above, with cash
and a promissory note as its primary assets. On November, 1997, the Company
established a subsidiary, Precision Plastics Molding, Inc. ("Precision" or the
"Subsidiary"), a Nevada corporation, and on June 15, 1998 the Company and
Precision purchased the assets of Premier Plastics Corporation, a Tempe, Arizona
private corporation engaged in the plastic injection molding business.
Consideration of $80,000 in cash was paid along with the assumption of various
notes and payables in the amount of approximately $40,000. In addition, the
selling shareholder of Premier received 300,000 shares of common stock of the
Subsidiary valued at $0.25 per share. Prior to this acquisition, the Subsidiary
had no assets. The purchase price was determined by negotiations between the
parties. The cash paid was from the Registrant's own funds. There was no prior
relationship between Premier and its sole shareholder and the officers and
directors of the Registrant or its Subsidiary.
On July 15, 1998, the Company and Precision closed a transaction involving
the purchase of substantially all the assets of Accurate Thermoplastics, Inc.
("Accurate") an Arizona private corporation engaged in the plastic injection
molding business. The assets purchased included equipment, inventories, contract
rights, customer lists, know-how, drawings, specifications and intellectual
property. The sole shareholder of Accurate, Roy L. Thompson, was engaged to
serve as a consultant to Precision. The business of Accurate will be continued
under the name Precision Plastics, Inc.. Precision acquired the assets of
Accurate for payment of Five Hundred Sixty Thousand Dollars ($560,000)
consisting of cash and a promissory note, and in consideration for the
assumption by Precision of certain liabilities of Accurate. The purchase price
paid by Precision was determined by negotiations between the parties. The cash
paid was from funds paid to Precision by the Registrant for 2,000,000 shares of
Precision's common stock 68.9% of the outstanding common stock of Precision.
There was and is no relationship between Accurate and its sole shareholder and
the officers and directors of the Registrant or Precision.
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OVERVIEW OF THE PLASTICS INDUSTRY. The plastics industry, as broadly
defined, is the fourth largest industry in the United States. Only the motor
vehicle, petroleum refining and electronics manufacturing industries are larger.
While plastics in various forms have been around for many years, the real
growth of the industry began in the 1970's and in the 1980's it enjoyed 6%
average annual growth. Plastics invaded wood, metal, glass, paper, and other
industries as new and better plastics were found to be superior or adequate
substitutes for traditional materials. New uses were found for plastics which
other materials could not compete with.
Presently, plastics manufacturers produce over five hundred different types
of resins and compounds. There are varying grades of physical property and price
associated with this wide array of materials.
There are four major divisions of plastics resins. They are commonly
referred to as:
1. Commodity resins - represents the bulk of production and is low tech and
produced by many suppliers.
2. Intermediate resins - more advanced and specialized than commodity resins.
3. Engineering resins - exhibit more advanced physical characteristics and are
generally produced on a smaller scale.
4. Advanced resins - most capable of withstanding impact and high heat. Can
carry high loads and resists chemicals and solvents.
Plastics are often divided by their physical properties. Thermoplastics can
be re-melted and reused repeatedly. They represent 83% of the industry
production. Polyethylene represents 40% of the thermoplastics market and is
heavily used in packaging. Quantum Chemical, Union Carbide and Dow Chemical are
some of the largest producers of Polyethylene. PVC is the second largest of the
thermoplastics products and is commonly used in construction (PVC pipe, for
instance). Occidental Petroleum, Shintech and Formosa Plastics are some of the
leading PVC producers. Thermosets are plastics that are hardened by chemical
reaction. They represent the remaining 17% of the plastics market. 50% of
Thermosets are used in construction as plywood adhesives, insulation, etc This
is a more mature and less dynamic sector of the plastics industry
Shipments of plastics have grown 22% in the most recent two-year period for
which figures are available. Prices of plastics, which had remained relatively
flat during the early 90's jumped dramatically in the mid-90's due to strong
demand and short supplies of raw materials. At present, the top twenty plastics
manufacturers account for 66% of all production. Smaller purchasers have a
difficult time securing price breaks, creating a motivation for molders to
consolidate to be competitive and profitable.
The United States is a huge consumer of plastics, using 24% of all the
plastics used in the world. The U.S. is an exporter of plastics, with 4.2% of
all plastics jobs tied to exports.
A 1995 report from U.S. Industry Profiles states, "The plastics industry
should grow from 8% to 10% annually in the late 1990's, as a general increase in
the use of plastics leads to strong demand." This appears to be occurring as the
industry creates new compounds and invests in research and development. The
industry's overall share of the economy continues to grow.
OVERVIEW OF THE COMPANY'S LOCAL MARKET. Arizona is one of seven states with
double-digit growth in the number of plastics jobs according to a recent report
from Probe Economics as commissioned by The Society of the Plastics Industry.
Database Publishing's Arizona Industrial Directory for 1997 indicates that
there were forty eight companies in Arizona defined as "plastic injection
molders". Of these, at least thirty six are estimated by Database to have sales
in either the $1,000,000 to $5,000,000 range or to have sales of less than
$1,000,000. Actually, there are probably no companies over $3,000,000 from this
group. The December 29,1997 issue of the Plastics News provided a table of the
largest plastic injection molders below the top 100 in the United States. Only
three Arizona molders are on the list. Their sales ranged from $2,300,000 down
to $1,600,000.
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Of the remaining twelve companies on Database's list, only two to four
companies appear to be in the mid-range. Several, such as Badger Meter and
Richco are primarily involved in non-plastics production (i.e. in Richco's case
they are primarily a metals manufacturer).
Geographically, the molders are concentrated in the metro Phoenix area. Only
fourteen are located in other parts of the state and, of those, eight are in
Tucson. Consequently, it is most likely that additional companies which may be
acquired will be located in the metro Phoenix area, making consolidation of
operations easier and less costly to accomplish, with more immediate impact on
profits. However, should a good acquisition opportunity arise outside of the
metro Phoenix area, the Company will carefully consider such an opportunity.
It is clear that there is a need for an active, mid-range plastic injection
molding company in Arizona to serve customers who are in need of larger
production capabilities and the lower prices resulting from the enhanced buying
power of a mid-sized molder. Companies such as Motorola, Intel and others have
many products that would lend themselves to being produced by a mid-range molder
and the Company intends to pursue those customers.
CURRENT MANUFACTURING OPERATIONS -- BUSINESS. The Company, through its
majority-owned subsidiary, Precision Plastics Moldings, Inc., is now primarily
engaged in the plastics injection molding business. The operations of Premier
have been combined with those of Accurate, with both acquisitions now operating
under the name of Precision Plastics Molding, Inc., and all operations are
conducted at the former Accurate facility at 216 S. Alma School Rd., Mesa, AZ.
The following is a brief discussion of the business conducted by Precision / the
Company.
BUSINESS. The business of Precision is to produce a plastic product from the
customer's designs. The customers either provide their own molds or have
Precision build a mold in its facility. When the mold is completed Precision
then manufactures as many or as few products as the customers desire. Most
products require more than just one molded part. In most cases several parts are
molded and then assembled. Precision does not always mold all of the parts for
assembly nor does Precision normally do the assembly.
PRODUCTS. Precision manufactures many products that are owned by its
customers. Precision does not presently own the rights to any of the products
that it produces. Precision offers the service of manufacturing parts for a
customer's products at the level of quality they demand.
MARKETING. Currently, Precision does not have a marketing or sales force.
The current customers were acquired from the companies purchased. Precision
intends to hire personnel to find companies that need plastic parts manufactured
for their own products.
CUSTOMERS / SUPPLIERS. Precision currently makes products for approximately
twenty five (25) different customers. The largest by far is Ryobi. Management
estimates that Ryobi's business makes up at least forty percent (40%) of
Precision's sales. Precision works with thirty (30) different suppliers of
different products consumed in manufacturing products such as boxes and plastic
resin. Precision's main suppliers of plastic are Ferro Corp, GE Plastics,
Polymerland, and Plastics General Polymers.
SALES. Precision has, as of September 1, 1998, a sales backlog of 20 days
but already has the raw materials to run production for these sales. The tooling
department has a sales backlog of $75,000 and will require $20,000 of raw
material and $7,500 of in-house labor to produce the tools.
GENERAL. The Company intends to continue to use its working capital to take
advantage of business opportunities which arise from time to time. Management
anticipates that such opportunities will be available to the Company due
primarily to its status as a small, publicly-held entity with a bona fide
business with liquid assets and to its flexibility in structuring and
participating in business opportunities. Decisions as to which business
opportunities to acquire will be made by management of the Company, which will
in all probability act without the consent, vote or approval of the Company's
shareholders. The Company presently has no other agreements, understandings or
arrangements to acquire or participate in any specific business opportunity.
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FUTURE OPERATIONS. The Company, Diamond Equities, Inc., will seek corporate
opportunities which it finds or which are presented to it by persons or firms
that desire to employ the Company's funds in their business and/or obtain the
perceived advantages being part of a publicly-held corporation. The Company's
principal business objective will be to seek long-term growth potential in a
business venture rather than to seek immediate, short-term earnings. The Company
will not restrict its search to any specific business, industry or geographical
location, and the Company may participate in a business ventures of virtually
any kind or nature.
Management anticipates that it may be able to participate in a limited
number of business ventures, due primarily to the Company's limited capital.
Lack of diversification is a substantial risk in investing in the Company
because it may not permit the Company to offset potential losses from one
venture against gains from another and will expose the Company to the
cyclicality and other risks of any business in which it invests.
The Company has been seeking business opportunities in firms which have
recently commenced operations, are developing companies in need of additional
funds for expansion into new products or markets, are seeking to develop a new
product or service, or are established businesses which may be experiencing
financial or operating difficulties and are in need of additional capital. In
some instances, a business opportunity may involve the acquisition of, or merger
with a corporation which does not need substantial additional cash but which
desires to establish a public trading market for its common stock. The Company
may purchase assets and establish wholly- or majority-owned subsidiaries in
various businesses or purchase existing businesses as subsidiaries.
The Company anticipates that the selection of a business opportunity in
which to participate may be complex. However, because of general economic
conditions, rapid technological advances being made in some industries, and
shortages of available capital, the Company believes that there are numerous
other companies seeking even the limited additional capital which the Company
has and/or the benefits of a publicly-traded corporation. The perceived benefits
of a publicly-traded corporation may include facilitating or improving the terms
on which additional equity financing may be sought, providing liquidity for the
principals of a business, creating a means for providing incentive stock options
or similar benefits to key employees, providing liquidity (subject to
restrictions of applicable statutes) for all shareholders, estate planning and
other factors. Business opportunities may occur in many different industries and
at various stages of development, all of which can make the task of comparative
investigation and analysis of such business opportunities extremely difficult
and complex.
The Company may have insufficient capital with which to provide the owners
of business opportunities with sufficient cash or other assets. However, the
Company plans to offer owners of business opportunities the possibility of
acquiring equity interests in a public company at substantially less cost than
is required, for example, to conduct an initial public offering. The owners of
the business opportunities could, however, incur significant post-merger or
acquisition registration costs if they wish to register a portion of their
shares for subsequent sale. The Company will also incur significant legal and
accounting costs in connection with the acquisition of a business opportunity
including the costs of preparing registration statements if required, Forms 8-K,
agreements and related reports and documents.
In connection with the acquisition of or merger with another business, the
Company may use a portion of its working capital to make short-term (less than
one year) loans to a target business. The Company will attempt to assure that
the borrower will have the ability to repay the loan within its stated term and
that the loan is either fully secured or personally guaranteed, but there can be
no assurance in this regard. The Company may make unsecured loans as well as
secured loans and, in either event, could lose its entire principal in such a
loan.
EVALUATION OF OPPORTUNITIES. Analyses of new business acquisitions will be
undertaken by or under the supervision of the officers and directors of the
Company, none of whom is a professional business analyst. In analyzing
prospective business opportunities, management considers such matters as the
available technical, financial, and managerial resources; working capital and
other financial requirements; history of operation, if any; prospects for the
future; nature of present and expected competition; the quality and experience
of management services which may be available and the depth of such management;
the potential for further research, development, or exploration; specific risk
factors not now foreseeable but which then may be anticipated to impact the
proposed activities of the Company; the potential for growth or expansion; the
potential for profit; the perceived public recognition or acceptance of
products, services, or trades; name identification; and other relevant factors.
Officers and directors of the Company will meet personally with
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management and key personnel of the target business as part of their
investigation. To the extent possible, the Company intends to utilize written
reports and personal investigation to evaluate the above factors. The Company
may allocate a minor portion of its working capital for the retention of outside
consultants, if the Board deems it necessary, to aid in the analysis of a
business opportunity.
Since the Company is subject to Section 13 of the Exchange Act, it will be
required to furnish certain information about significant acquisitions,
including audited financial statements for the company(s) acquired, covering
one, two or three years depending upon the relative size of the acquisition.
Consequently, acquisition prospects that do not have or are unable to obtain the
required audited statements may not be appropriate for acquisition so long as
the reporting requirements of the Exchange Act are applicable.
It is anticipated that any opportunity in which the Company participates
will present certain risks. Many of these risks cannot be adequately identified
prior to selection of the specific opportunity, and the Company must, therefore,
depend on the ability of management to identify and evaluate such risks. Certain
opportunities available to the Company may have been unable to develop a going
concern or may be in development stage in that they have not generated
significant revenues from their principal business activities prior to the
Company's participation. In such cases, the combined enterprises may not become
going concerns or advance beyond the development stage even after the Company's
participation in the activity and the related expenditure of the Company's
findings. Many of the opportunities may involve new and untested products,
processes, or market strategies which may not succeed. Such risks will be
assumed by the Company and, therefore, its shareholders.
The Company will not restrict its search to any specific kind of firms, but
may acquire a venture which is in any stage of its corporate life, including,
but not limited to, companies in the development stage and those already in
operation. It is impossible to predict at this time the status or maturity of
any business in which the Company may become engaged through acquisition or
otherwise.
ACQUISITION OF OPPORTUNITIES. In acquiring a particular business, the
Company may become party to a merger, consolidation, reorganization, joint
venture, or licensing agreement with another corporation or entity. It may also
purchase the stock or assets of an existing business. On the consummation of a
transaction, it is possible that the present management and shareholders of the
Company will not be in control of the Company. In addition, a majority or all of
the Company's directors may, as part of the terms of the acquisition
transaction, resign and be replaced by new directors without a vote of the
Company's shareholders.
It is anticipated that any securities issued in any such reorganization
would be issued in reliance on exemptions from registration under applicable
federal and state securities laws. In some circumstances, however, as a
negotiated element of this transaction, the Company may agree to register such
securities either at the time the transaction is consummated, under certain
conditions, or at specified times thereafter. The issuance of substantial
additional securities and their potential sale into any trading market which may
develop in the Company's Common Stock may adversely affect the market for such
securities.
While the actual terms of a transaction to which the Company may be a party
cannot be predicted, it is expected that the parties to the business transaction
will find it desirable to avoid the creation of a taxable event and thereby
structure the acquisition in a "tax free" reorganization under Sections
368(a)(1) or 351 of the Internal Revenue Code of 1954, as amended (the "Code").
In order to obtain tax free treatment under the Code, it may be necessary for
the owners of the acquired business to own 80% or more of all classes of stock
of the surviving entity. In such event, the shareholders of the Company, would
retain less than 20% of the issued and outstanding shares of the surviving
entity, which could result in significant dilution in the percent ownership of
such shareholders.
As part of the Company's investigation, officers and directors of the
Company may meet with management and key personnel of a target company, may
visit and inspect facilities, obtain independent analysis or verification of
certain information provided by such Company, check references of management and
key personnel, and take other reasonable investigative measures, to the extent
that the Company's limited financial resources and management expertise allow.
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The manner in which the Company participates in an opportunity will depend
on the nature of the opportunity, the respective needs and desires of the
Company and other parties, the management of the target company, and the
relative negotiating strength of the Company and such other management.
With respect to any mergers or acquisitions, negotiations with target
company management will be expected to focus on the percentage of the Company
which target company shareholders would acquire in exchange for their
shareholdings in the target company. Depending upon, among other things, the
target company's assets and liabilities, the Company's shareholders will, in all
likelihood, hold a lesser percentage ownership interest in the Company following
any merger or acquisition. Such dilution of ownership interest may be
significant in the event the Company acquires a target company with substantial
assets. Any merger or acquisition effected by the Company can be expected to
have a significant dilutive effect on the percentage of shares held by the
Company's shareholders, including those shareholders who continue their
investment.
It is possible that the Company will not have sufficient working capital to
undertake any significant development, marketing, or manufacturing of any
product which may be acquired. Accordingly, following the acquisition of any
such product, the Company may be required to either seek additional debt or
equity financing or obtain funding from third parties, in exchange for which the
Company may be required to give up a substantial portion of its interest in any
acquired product. There can be no assurance that the Company will be able to
obtain additional financing or to interest third parties in providing funding
for the further development, marketing, and manufacturing of any products
acquired.
The Company will participate in a business opportunity only after the
negotiation and execution of appropriate written agreements. Although the terms
of such agreements cannot be predicted, generally such agreements will require
specific representations and warranties by all of the parties thereto, will
specify certain events of default, will detail the terms of closing and the
conditions which must be satisfied by each of the parties prior to such closing,
will outline the manner of bearing costs if the transaction is not closed, will
set forth remedies on default, and will include other terms typical in
transactions of such nature.
It is anticipated that the investigation of specific business opportunities
and the negotiation, drafting, and execution of relevant agreements, disclosure
documents, and other instruments will require substantial management time and
attention and substantial costs for accountants, attorneys, and others,. If a
decision is made not to participate in a specific business opportunity, the
costs incurred in the related investigation would not be recoverable.
Furthermore, even if an agreement is reached for the participation in a specific
business opportunity, the failure to consummate that transaction may result in
the loss to the Company of the related costs incurred.
As is customary in the industry, the Company may pay a finder's fee for
locating a merger or acquisition candidate and for location of additional
financing. If any such fee is paid, it will be approved by the Company's board
of directors and will be in accordance with industry standards. This type of fee
would not be paid to any employee, officer, director or a 5% or more shareholder
of the Company.
FORWARD-LOOKING STATEMENTS. This report contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, and is subject
to the safe harbors created thereby. Actual results could differ materially
because of the following uncertain factors: the inability to make additional
acquisitions; the probability of losses due to its new line of business; the
continued employment of key management; a change in control of the Company.
COMPETITION. In terms of making other acquisitions, the Company will be a
minor participant among the firms which engage in the acquisition of business
opportunities. There are many established venture capital and financial concerns
which have significantly greater financial and personnel resources and technical
expertise than the Company. In view of the Company's limited financial
resources, the Company will continue to be at a significant competitive
disadvantage compared to the Company's competitors in making desirable
acquisitions. Also, the Company may be competing with other small, blind-pool,
public companies located in the Southwest and elsewhere.
REGULATION. The Company might, in certain circumstances, be deemed to be an
investment company under the provisions of Section 3(a)(3) of the 1940 Act,
which could have substantial adverse impact on its operations. This could occur
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if a significant proportion of its working capital were invested in short-term
debt instruments for longer than a one-year period and the Company had no
significant operations. The Company intends to take all reasonable steps to
avoid such classification.
Mergers or acquisitions of the Company are structured in such a manner as to
minimize federal and state tax consequences to the Company and the target
company. Management of the Company also reviews any mergers or acquisitions in
an effort to minimize the possibility that any merger or acquisition will be
classified as a taxable event by the Internal Revenue Service.
EMPLOYEES. The Company presently has three employees, all engaged in
management, administrative or clerical functions. The Company will also engage,
from time to time, services of outside consultants to assist it in evaluation of
prospective target companies. The Company may allocate a minor portion of its
working capital for part-time secretarial services required by the Company.
The Company's subsidiary, Precision, has twenty eight (28) non-union
employees and fifteen (15) machine operators. Two (2) are tool makers, three (3)
shift supervisors, four (4) are quality assurance inspectors, one (1) handles
shipping and receiving, and three (3) are office and clerical personnel.
ITEM 2. DESCRIPTION OF PROPERTY.
Until September, 1997 the Company maintained its offices rent-free in office
space provided by the Company's President in his home. The President did not
receive any rent, but was reimbursed for out-of-pocket expenses, not to exceed
$500.00 per month.
On September 1, 1997, the Company leased approximately 1,725 square feet of
office space, located at 2010 E. University Drive, Suite # 3, Tempe, Arizona
85281. The term of the lease is from September 1, 1997 through August 31, 1999.
The rent for the first year was $1036.80 plus tax per month and for the second
year, $1071.36 plus tax per month.
Effective July 15, 1998, the Company's subsidiary, Precision, leases 15,000
square feet of space at 216 South Alma School Road, Mesa, Arizona 85210, of
which 13,000 square feet are used for production and 2,000 square feet for
offices. The space is rented at $6,750 per month.
ITEM 3. LEGAL PROCEEDINGS.
Neither the Company nor any of its subsidiaries is a party to any material
pending legal proceedings or government actions (except as set forth below),
including any material bankruptcy, receivership, or similar proceedings. Except
as set forth below, management of the Company does not believe that there are
any material proceedings to which any officer or affiliate of the Company, any
owner of record of beneficially of more than 5% of the Common Stock of the
Company, or any associate of any such director, officer, affiliate of the
Company, or security holder is a party adverse to the Company or has a material
interest adverse to the Company.
FEDERAL GRAND JURY INDICTMENTS. On November 6, 1996, a true bill was
returned by the Grand Jury in the United States District Court in Nevada against
certain former directors and officers of the Company and other non-affiliated
individuals, who were accused of racketeering, RICO violations, securities fraud
and wire fraud. All of the charges against the former directors and officers
arose out of alleged activities the individuals undertook while serving as
directors and officers of the Company. The Company is not a party of and was not
named as a defendant in the indictments. However, because the indictments relate
to activities alleged to have been perpetrated by then officers and directors of
the Company, there can be no assurance that the indictments ultimately will not
have a material adverse effect on the Company.
The persons named in the indictments as discussed in prior 10-KSB filings,
are no longer officers, directors or control persons of the Company.
9
<PAGE>
The government informed the Company on August 21, 1996 that Mr. and Mrs.
Westfere, the Company's then current Chief Executive Officer and
Secretary/Treasurer, were neither subjects or targets of the grand jury
investigation, and the government did not contact any other then current
officers or employees concerning the investigation. The government has never
informed the Company as to the relief, if any, to be sought. The Company
complied with the subpoena DUCES TECUM (to produce Company records and
documents) it received and cooperated with the government's investigation. The
Company is presently unable to assess the potential liability, if any, to the
Company as a result of activities which are the subject of the above
investigation.
BREACH OF CONTRACT LITIGATION. In connection with the sale of its
pay-telephone operations, the Company received a promissory note in the
principal sum of $811,250. Monthly payments of $14,000 on the note were to
commence on February 15, 1997. No payments on the note have been received. On
March 18, 199_____ a complaint for breach of contract was filed with the Eighth
Judicial District Court of Clark County, Nevada. The complaint alleges an
anticipatory breach by the defendant, Tru-Tel Communications, LLC, issuer of the
promissory note. The complaint also names as party defendants, the principals of
Tru-Tel Communications, LLC and Finova Capital Corporation (provider of the
financing used to purchase the assets.)
The defendants have responded by issuing counterclaims. The counterclaims
allege that the revenues of the Company reported to Tru-Tel Communications, LLC
and Finova Capital Corporation were purportedly overstated at the time of the
asset purchase agreement. The Company intends to vigorously contest the
counterclaims and pursue the original claims against all party defendants. While
it is not feasible at this time to predict or determine the ultimate financial
outcome of the complaint, management does not believe that the Company will be
party to any unfavorable judgments.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted during the fiscal year ended June 30, 1998, to a
vote of the Company's security holders.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is currently traded in the over-the-counter
market and is quoted on the OTC Bulletin Board. According to information
provided to the Company, during the fiscal year ended June 30, 1998, 303,800
shares of the Company's Common Stock were traded on the Bulletin Board. The
Company therefore believes that there is no established public trading market
for the Company's Common Stock. The Company also believes that there are only
five market makers which currently make a market in the Company's Common Stock.
These quotations reflect inter-dealer prices, without retail markup, markdown,
or commission and may not necessarily represent actual transactions.
Quarter High Low
------- ---- ---
FISCAL YEAR ENDED First $ 0.75 $ 0.50
JUNE 30, 1997 Second $ 0.63 $ 0.50
Third $ 0.69 $ 0.50
Fourth $ 0.82 $ 0.50
FISCAL YEAR ENDED First $0.1875 $ 0.125
JUNE 30, 1998 Second $ 0.16 $0.0625
Third $ 0.08 $0.0325
Fourth $ 0.51 $0.0325
10
<PAGE>
As of September 14, 1998, there were approximately 639 holders of record of
the Company's Common Stock as reported to the Company by its transfer agent.
No cash dividends have been declared or paid to date on the Company's Common
Stock.
The Registrant previously had 727 shares of Series A 6% Preferred Stock
outstanding, with $194,023 in accrued but unpaid dividends. On October 28, 1997
the Registrant entered into an agreement with Dingaan Holdings, S.A., the sole
shareholders of the Series A Preferred Stock, to exchange these shares and the
accrued dividends for 18,000 shares of new Series B Preferred Stock. The Series
B Preferred Stock carries no dividend and is convertible to 18,000,000 shares of
common stock of the Registrant.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
RESULTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
On November 15, 1996, the Company sold its payphone base and all related
equipment, contracts, automobiles and nearly all furniture & fixtures to Tru-Tel
Communications, L.L.C. for $1,711,250 in cash and a note receivable of $811,250.
The Company assigned the office and warehouse lease to the buyer and moved its
operations to another location in Tempe, Arizona. Since November 15, 1996, the
Company has been winding down operations relative to the payphone business and
has been involved in searching for new business ventures through June 15, 1998
when it acquired Premier Plastics, Inc. a plastic injection molding business in
Tempe, Arizona. Because the Company had some operations in the pay telephone
industry in fiscal year 1997, the results of operations will differ from that of
fiscal year 1998.
The Company had a net loss of $(769,923) in the fiscal year ended June 30,
1998 as compared to a net income of $1,598,517 in the fiscal year ended June 30,
1997. The difference in net loss in the year ended June 30, 1998 versus the gain
in 1997 is largely due to the gain recognized on the sale of the operations of
$1,688,750 in 1997. The net loss from continuing operations for the fiscal 1998
was $(734,500), as compared to $(171,661) for the fiscal 1997 and the allowance
for defaulted collection on the Tru-Tel note receivable. The difference is
partially due to general and administrative expenses being included in
discontinued operations for the fiscal 1997 year. When these two factors are
considered the net loss from operations were very comparable for the two years.
Interest income decreased to $53,179 in fiscal 1998 as compared to $98,076
in the fiscal year ended June 30, 1997, due to diminishing cash balances. No
operating revenues from the new plastics operations were realized until July
1998.
The Company's selling, general and administrative expenses decreased by 52%
to $355,100 for the fiscal year 1998 as compared to $744,442 (including
discontinued operations) for the fiscal year ended June 30, 1997. The decrease
is due to the change of operations as well as a large decrease in depreciation
due to the sale of assets. The Company had a gain on the sale of equipment of $0
and $1,848,279 in the fiscal years ended June 30, 1998, and 1997, respectively.
The difference was due to the sale of approximately 99% of the fixed assets of
the Company.
In June 1994, the Company issued 727 shares of its Series A 6% Preferred
Stock to Teletek in consideration for cash advances and the settlement of
certain litigation involving the Company. In 1997, these shares were sold by
Teletek to Dingaan Holdings, S.A., during the fiscal year ended June 30, 1997.
The above shares requires the Company to pay a cumulative annual dividend equal
to 6% of the face value of the Preferred Stock ($1,817,591), plus accrued and
unpaid dividends, until redeemed or converted. The Company accrued $109,056 in
preferred dividends during the fiscal year ended June 30, 1997. However, in
September 1997 the Company issued a Series B Preferred Stock to the holders of
the Series A Preferred Stock in an exchange. The Series B Preferred has no
dividend and converts into 18,000,000 shares of common. No dividends were
therefore accrued during the fiscal 1998 year.
The Company's future results of operations will be materially affected due
to the recent change of operations into the plastics industry. The Company
anticipates that in the fiscal year ending June 30, 1999, that the operations in
the plastics industry will be expanded with additional acquisitions and growth.
Subsequent to June 30, 1998, the Company acquired its second plastics company,
11
<PAGE>
Accurate Thermoplastics, Inc, and is looking for a third acquisition. THE
FOREGOING IS A FORWARD-LOOKING STATEMENT WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, AND IS SUBJECT TO THE SAFE HARBORS CREATED
THEREBY. ACTUAL RESULTS COULD DIFFER MATERIALLY BECAUSE OF THE FOLLOWING
FACTORS: THE INABILITY TO SECURE BUSINESS OPERATIONS; LOSSES DUE TO AN
UNPROFITABLE NEW LINE OF BUSINESS; THE CONTINUED EMPLOYMENT OF KEY MANAGEMENT; A
CHANGE IN CONTROL OF THE COMPANY DUE TO THE CONVERSION BY DINGAAN HOLDINGS, S.A.
OF ITS SERIES B PREFERRED STOCK OR OTHER EVENTS.
LIQUIDITY AND CAPITAL RESOURCES. The Company requires capital to support the
new injection molding operations and general and administrative expenses of the
Company in its search for viable acquisitions.
At June 30, 1998, the Company had cash and cash equivalents of $600,231
compared to cash and cash equivalents of $1,586,983 at June 30, 1997. This
decrease of $986,752 resulted primarily from the purchases of a Certificate of
Deposit in the amount of $500,000, the purchase of investments and notes
receivable of $175, 000 and the use of cash in operations of $545,000. The
company borrowed $250,000 against the CD which increased the cash position.
The funding sources currently available to the Company include two lines of
credit for $200,000 and $235,000 each and potential public or private offerings.
The Company has current plans to raise additional funds in its subsidiary
Precision Plastics through private placements of its common stock or preferred
stock to assist with the capital requirements of additional acquisitions and to
consolidate debt. There are however no third party financing arrangements in
place at this time. Therefore, the Company's sole source of operating capital
for the foreseeable future is likely to be from current cash reserves.
Principal uses of working capital will include payment of the Company's
general and administrative expenses and the payment of notes associated with the
purchase of assets by Precision. Subsequent to June 30, 1998 the Company paid
$375,000 for the acquisition of Accurate Thermoplastics and signed a 90-day Note
for an additional $185,000. There is currently no requirement to pay accrued and
unpaid dividends on its previously outstanding shares of Series A 6% Preferred
Stock and no dividends are payable on its Series B Preferred Stock.
The Company believes that its existing cash balances and net cash flows from
operations (if any) will be sufficient to meet the Company's cash requirements
for the next 12 months. However, the foregoing and the Company's ability to
operate profitably are subject to material uncertainties due to the lack of
significant revenues and operations. See Item 6 "Results of Operations for the
Fiscal Years Ended June 30, 1998 and 1997". The acquisition of Accurate
Thermoplastics subsequent June 30, 1998 may materially change the cash
requirements of the Company depending on the success of operations of that
entity.
ITEM 7. FINANCIAL STATEMENTS.
The following financial statements are attached hereto and incorporated
herein:
HEADING PAGE
------- ----
Independent Auditor's Report F-3
Balance Sheets for the Years Ended June 30, 1998 and 1997 F-4
Statements of Operations for the Years Ended June 30, 1998
and 1997 F-6
Statements of Stockholder's Equity for the years ended June 30, 1998,
1997 and 1996 F-8
Statements of Cash Flows for the years ended June 30, 1998, 1997
and 1996 F-9
Notes to Financial Statements F-10
12
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
As reported on Form 8-K dated July 17, 1998, the Company changed
accountants, without any disagreement or adverse opinion or disclaimer.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
GENERAL.
The following information is provided for each of the executive officers and
directors of the Company:
DAVID WESTFERE, 32, has been a Director, President and Chief Executive and
Operating Officer of the Company since April 6, 1995, and was General Manager of
Operations from January 1991 to April 1995. From 1988 until 1990 he was the
route supervisor for the Company's pay telephone operation in Bakersfield,
California, and from 1990 until 1991 he was the route supervisor of the
Company's pay telephone operation in Phoenix, Arizona. From September 1984 to
June 1987 Mr. Westfere attended the University of Akron.
TODD D. CHISHOLM, 36, has been a Director of the Company since June 27,
1995. From June 1990 until September 1992 he was employed as a staff accountant
by Orton & Company, Certified Public Accountants, and from September 1992 until
June 1994 he was employed as audit manager by Jones, Jensen, Orton & Company,
Certified Public Accountants. Since June 1994 he has been self-employed as a
certified public accountant. Since April 1995 he has also been the
vice-president and chief financial officer of The Solarium, Inc., a privately
held travel and tanning center. Mr. Chisholm received a bachelor of arts degree
in business from the University of Utah. He has been a certified public
accountant since 1992.
The Registrant also employs Mr. Chisholm as it's C.F.O. and
Secretary/Treasurer. Mr. Chisholm, performs accounting services for the
Registrant for which he is paid a flat fee of $920 per month for compilation and
payroll services and is paid an hourly fee for any additional work. It is
believed that the terms of the arrangement between Mr. Chisholm and the
Registrant are at least as favorable as terms that could be obtained with a
non-affiliated party.
Mr. Westfere and Mrs. Ramona Westfere were appointed as directors of the
company on April 6, 1995 by the Company's sole remaining directors at the time.
Mr. Chisholm was appointed as a director on June 27, 1995 by the directors. Mrs.
Westfere resigned as a director and officer of the Company on February 1, 1997.
ITEM 10. EXECUTIVE COMPENSATION.
The following table set forth the aggregate executive compensation earned by
or paid to current management of the Company for the fiscal year ended June 30,
1998, 1997 and 1996.
Annual Compensation
Name and Principal Positions Year Salary Bonus Other Annual Compensation
David Westfere, President (1) 1998 $36,800 $0.00 $51,787 (2)
1997 $36,800 $0.00 $42,429.81 (3)
1996 $32,400 $16,000 $46,972.00 (4)
- ----------
13
<PAGE>
(1) The Company did not pay any long-term compensation to Mr. Westfere
during the above periods.
(2) During the fiscal year 1998, the Company paid (i) health insurance
premiums of $5,920 and (ii), $36,000 to C&N, Inc., a company controlled by Mr.
Westfere, for management services. See "Item 12 -- Certain Relationships and
Related Transactions.
(3) The Company paid health insurance premiums of $6,429.81 for Mr. Westfere
and his family during the fiscal year 1997. The Company also paid a total of
$36,000 to C&N, Inc., a company controlled by Mr. Westfere, for management
services during such period.
(4) During the fiscal year 1996, the Company paid health insurance premiums
for Mr. Westfere and his family of $5,972; and $36,000 to C&N, Inc., a
corporation controlled by Mr. Westfere.
No executive officer of the Company received compensation exceeding $100,000
for the fiscal years ended June 1998, 1997, 1996.
COMPENSATION OF DIRECTORS. Directors are permitted to receive fixed fees and
other compensation for their services as directors, as determined by the Board
of Directors. No such fees were paid to the Company's directors for the fiscal
year 1998.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information concerning the Common
Stock ownership as of September 1, 1998, of (i) each person who is known to the
Company to be the beneficial owner of more than five percent of the Company's
Common Stock; (ii) all directors; (iii) each of the Company's executive
officers; and (iv) directors and executive officers of the Company as a group:
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS (8)
---------------- -------------------- --------------------
Oak Holdings, Inc. 2,500,000 (1) 53.6%
Apartado 63685
Panama, Republic of Panama
Grafton Holdings S.A. 2,500,000 (2) 53.6%
Apartado 63685
Panama, Republic of Panama
Peter Robin Baily 2,500,000 (3) 53.6%
Apartado 6-4569
Panama City, Republic of Panama
Pedro Coronado 2,500,000 (4) 53.6%
Apartado 6-2495
Panama City, Republic of Panama
Dingaan Holdings, S.A. 992,065 (5) 21.3%(5)
Enro Canadian Center
First Floor
Marlborough Street
P.O. Box N-3802
Nassau, Bahamas
14
<PAGE>
Todd D. Chisholm 10,000 (6) (8)
50 West Broadway
Suite 1130
Salt Lake City, Utah 84101
David Westfere 46,000 (7) (8)
105 E. Ellis Drive
Tempe, AZ 85282
Directors and Executive Officers 56,000 (8) (8)
as a Group (2 persons)
- ----------
(1) These shares are held directly and of record by Oak Holdings, Inc.
(2) These shares are held and of record by Oak Holdings, Inc., Grafton
Holdings, S.A. ("Grafton") has indicated that it has direct beneficial ownership
of such shares. However, the Company believes that Grafton has indirect
ownership of such shares as the sole corporate director of Oak Holdings, Inc..
As the sole corporate director of Oak Holdings, Inc., Grafton has represented to
the Company that it is responsible for the management of Oak Holdings, Inc..
(3) These shares are held by and of record by Oak Holdings, Inc.. Mr. Baily
has indicated to the Company that he has indirect beneficial ownership of such
shares by virtue of being a controlling shareholder of Oak Holdings, Inc. with
Pedro Coronado.
(4) These shares are held directly and of record by Oak Holdings, Inc.. Mr.
Coronado has indicated to the Company that he has indirect beneficial ownership
of such shares by virtue of being a controlling shareholder of Oak Holdings,
Inc.
(5) These shares were previously held by Teletek, Inc., Las Vegas, Nevada,
and were sold to Dingaan Holdings, S.A. under a Stock Purchase Agreement dated
December 1, 1996, the consideration for the transfer of the securities was the
forgiveness of debt in the amount of two million dollars representing a loan
made by Dingaan Holdings, S.A., to Teletek on August 22, 1996.
Of the shares sold, a total of 992,065 shares are now held of record by
Dingaan Holdings, S.A. ("Dingaan"). Based solely upon the foregoing shares,
Dingaan currently owns approximately 21.3% of the total issued and outstanding
shares of Common Stock of the Company (4,666,099 shares). In addition, Dingaan
owns 18,000 shares of the Company's Series B Preferred Stock. These shares of
Series B Preferred Stock are convertible to 18,000,000 shares of common stock.
In the event Dingaan converts all the Series B Preferred Stock, Dingaan would
own a total of 18,992,065 shares of Common Stock, or 80.3% of the total then
issued and outstanding shares of Common Stock of the Company.
(6) These shares are held directly and of record by Todd D. Chisholm, an
individual.
(7) These shares are owned jointly by Mr. and Mrs. Westfere, husband and
wife.
(8) Less than 1%.
(9) Percentages reflect the beneficial ownership of related parties. See
above footnotes. The above table and footnotes reflects the removal of certain
entities which no longer own 5% or more of the outstanding Common Stock.
15
<PAGE>
As of September 24, 1998, the Company had outstanding 18,000 shares of
Series B Preferred Stock, all of which shares were owned of record by Dingaan
Holdings, S.A..
There are no arrangements known to the Company, the operation of which may
at a subsequent date result in a change of control of the Company. However, if
at any time Dingaan should elect to convert its shares of Series B Preferred
Stock into shares of Common Stock, control of the Company would change to that
entity upon such conversion. See Footnote 5 to the Table immediately above.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company pays $3,000 per month to C&N, Inc. ("C&N"), an Arizona
corporation, for management services. The Company paid C&N a total of $36,000
under this agreement during the fiscal year ended June 30, 1998. Mr. Westfere,
an officer and director of the Company, is the president of C&N, and Mr.
Westfere and his wife and their minor children are C&N's sole shareholders. The
agreement between the Company and C&N commenced on January 1, 1995, and is
renewable from year to year. The agreement was negotiated between Mr. Westfere
and former management of the Company as part of the total compensation package
for Mr. and Mrs. Westfere. It is believed that the terms of the agreement are
more favorable to Mr. and Mrs. Westfere than the Company could obtain with a
non-affiliated party.
Mr. Chisholm, a director of the Company, performs accounting services for
the Company. He is paid a flat fee of $920 per month for compilation and payroll
services and is paid an hourly fee for any additional work. It is believed that
the terms of the arrangement are at least as favorable as the terms that could
be obtained with a non-affiliated party.
On October 3, 1996, the Company and Mr. Michael G. Swan, formerly a director
of the Company, entered into a Severance Agreement, pursuant to which (a) a
prior consulting agreement was terminated; (b) Mr. Swan is prohibited from
performing any services for the company, or from representing himself to be an
agent or representative of the Company, without the prior written consent of the
Company's Chief Executive Officer; and (c) the Company agreed to pay Mr. Swan
$5,000 per month through April 1998. The Company may terminate the Severance
Agreement in the event Mr. Swan (i) breaches the Severance Agreement, (ii) is
convicted of a felony involving or related to his previous employment with the
Company or services provided by him for the benefit of or related to the
Company; or (iii) dies.
ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K.
(a) The following exhibits are furnished with this Report pursuant to Item
601 of Regulation SB-2.
Exhibit No. Description of Exhibit Page
- ----------- ---------------------- ----
3 (i) Articles of Incorporation as amended *
3 (ii) Bylaws of the Company, as currently in effect *
3 (iii) Certificate regarding Series A 6% Preferred Stock ***
3 (iv) Certificate of Amendment of Articles of Incorporation,
dated June 20, 1997
3 (v) Articles of Incorporation - Precision Plastics Molding, Inc.
3 (vi) Bylaws - Precision Plastics Molding, Inc.
4 (a) Form of certificate evidencing shares of Common Stock *
4 (b) Form of certificate evidencing shares of Series A 6%
Preferred Stock ***
16
<PAGE>
10.1 Assignment and Assumption of Liabilities Agreement **
10.2 Stock Purchase Agreement dated April 3, 1995 between Oak Holdings ****
and Teletek, Inc.
10.3 Consulting Agreement dated April 6, 1995, between the Company
and Michael Swan ****
10.4 Consulting Agreement dated January 1, 1995, between the Company
and C&N, Inc. ***
10.5 Severance Agreement dated October 3, 1996 between the Company
and Michael Swan *2
10.6 Form 12b-25 dated September 27, 1997 *****
10.7 Stock Purchase Agreement between Teletek, Inc. and Dingaan
Holdings, S.A. dated December 1, 1996 (change in control
of registrant) ******
10.8 Asset Purchase Agreement between the Company, Precision
and Premier Plastics Corp, dated June 15, 1998.
10.9 Asset Purchase Agreement between the Company, Precision
and Accurate Thermoplastics, Inc., dated July 15, 1998
10.10 Preferred Stock Exchange Agreement
23 Consent of Independent Certified Public Accountants
27 Financial Data Schedule
- -------------
* Incorporated by reference to the exhibits with the Company's registration
statement on Form 10-SB (Commission File No. 0-24138) filed with the Securities
and Exchange Commission on May 13, 1994.
** Incorporated by reference to the exhibits filed with the Company's 1994
annual report on Form 10-KSB (Commission File No. 0-24138) filed with the
Securities and Exchange Commission on October 13, 1994.
*** Incorporated by reference to the exhibits filed with the Company's
registration statement on Form SB-2 (Commission File No. 33-85884).
**** Incorporated by reference to the exhibits filed with the Company's Current
Report on form 8-K (Commission File No. 0-24138) filed with the Securities and
Exchange Commission on December 1, 1996.
***** Incorporated by reference to the Company's Form 12b-25 dated September 27,
1997.
*2 Incorporated by reference to the exhibits filed with the Company's 1996
Annual Report on Form 10-KSB (Commission file No. 0-24138) filed with the
Securities and Exchange Commission on October 11, 1996.
****** Incorporated by reference to the Company's current Report on Form 8-K
(Commission File No. 0-24138) filed with the Securities and Exchange Commission
on March 15, 1997.
(b) Form 8-Ks were filed electronically by the Company on June 19, 1997
(amended July 17, 1998) and July 29, 1998 disclosing the acquisition of the
assets of Premier Plastics Corp and Accurate Thermoplastics, Inc., respectively.
It also filed a Form 8-K to report a voluntary change in accountants, on July
17, 1998.
17
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DIAMOND EQUITIES, INC.
Registrant
By /s/ David D. Westfere
-------------------------------------
David D. Westfere, President
Date: October 13, 1998
-----------------
By: /s/ Todd D. Chisholm
-------------------------------------
Todd D. Chisholm, Chief Financial Officer
Date: October 13, 1998
-----------------
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ David D. Westfere
-------------------------------------
David D. Westfere, Director
Date: October 13, 1998
-----------------
By: /s/ Todd D. Chisholm
-------------------------------------
Todd D. Chisholm, Director
Date: October 13, 1998
-----------------
18
<PAGE>
FORM 10-KSB
DIAMOND EQUITIES, INC.
EXHIBITS
10.8 Asset Purchase Agreement between the Company, Precision and
Premier Plastics Corp, dated June 15, 1998
10.9 Asset Purchase Agreement between the Company, Precision and
Accurate Thermoplastics, Inc., dated July 15, 1998
10.10 Preferred Stock Exchange Agreement
23 Consent of Independent Certified Public Accountants
27 Financial Data Schedule
Independent Auditor's Report.............................................. F-3
Balance Sheets for the Years Ended June 30, 1998 and 1997................. F-4
Statements of Operations for the Years Ended June 30, 1998 and 1997....... F-6
Statements of Stockholder's Equity for the years ended June 30, 1998,
1997 and 1996............................................................ F-8
Statements of Cash Flows for the years ended June 30, 1998, 1997 and 1996. F-9
Notes to Financial Statements............................................. F-10
19
<PAGE>
DIAMOND EQUITIES, INC.
FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 AND 1995
<PAGE>
C O N T E N T S
Page
INDEPENDENT AUDITORS' REPORT ............................................F-3
BALANCE SHEETS...........................................................F-4
STATEMENTS OF OPERATIONS ................................................F-6
STATEMENTS OF STOCKHOLDERS' EQUITY.......................................F-8
STATEMENTS OF CASH FLOWS.................................................F-9
NOTES TO FINANCIAL STATEMENTS ...........................................F-10
<PAGE>
INDEPENDENT AUDITORS' REPORT
OFFICERS AND DIRECTORS
DIAMOND EQUITIES, INC.
TEMPE, ARIZONA
We have audited the accompanying balance sheets of Diamond Equities, Inc. as of
June 30, 1997 and 1996, and the related statements of operations, stockholders'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits. The financial
statements of Diamond Equities, Inc. for the year ended June 30, 1995, were
audited by other auditors whose report dated August 28, 1995, expressed an
unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Diamond Equities, Inc. as of
June 30, 1996 and 1997, and the results of its operations and its cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
As discussed in Note 14 to the financial statements, an error in the recording
of a severance agreement as of June 30, 1997, was discovered. The error resulted
in the understatement of liabilities and the overstatement of net income.
Accordingly, the June 30, 1997 financial statements have been restated to
correct the error.
Salt Lake City, Utah
August 6, 1997
except for Note 14, as to which the date is
September 28, 1998
F-3
<PAGE>
DIAMOND EQUITIES, INC.
BALANCE SHEETS
JUNE 30, 1997, 1996 AND 1995
1997 1996
---- ----
ASSETS
CURRENT ASSETS
Cash and cash equivalents $1,586,983 $ 694,293
Receivables:
Trade accounts receivable 20,292 29,524
Interest receivable 1,900 --
Note receivable - current portion 41,123 --
Prepaid expenses -- 5,000
---------- ----------
TOTAL CURRENT ASSETS 1,650,298 728,817
PROPERTY AND EQUIPMENT 20,980 707,204
OTHER ASSETS
Deposits -- 2,106
Note receivable - noncurrent portion 770,127 --
TOTAL ASSETS $2,441,405 $1,438,127
========== ==========
CERTAIN 1996 ITEMS HAVE BEEN RECLASSIFIED TO CONFORM TO THE 1997 PRESENTATION.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-4
<PAGE>
DIAMOND EQUITIES, INC.
BALANCE SHEETS
JUNE 30, 1997, 1996 AND 1995
1997 1996
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 112,812 $ 106,997
Accrued expenses 107,723 32,212
Sales tax payable 88,098 --
Accrued preferred dividends 194,023 84,967
Current portion of long-term liabilities -- 770
----------- -----------
TOTAL CURRENT LIABILITIES 502,656 224,946
LONG-TERM LIABILITIES -- 173,201
CONTINGENT LIABILITIES -- 132,442
----------- -----------
TOTAL LIABILITIES 502,656 530,589
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, par value $.001, 6%
cumulative convertible, non-voting
Authorized 100,000 shares, issued
727 shares at stated value 1,817,591 1,817,591
Common stock, par value $.001
Authorized 50,000,000 shares,
issued 4,666,099 and 5,277,099
shares, respectively 4,666 5,277
Capital in excess of par value 2,582,282 3,039,921
Retained earnings (deficit) (2,465,790) (3,955,251)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 1,938,749 907,538
----------- -----------
TOTAL LIABILITIES AND EQUITY $ 2,441,405 $ 1,438,127
=========== ===========
CERTAIN 1996 ITEMS HAVE BEEN RECLASSIFIED TO CONFORM TO THE 1997 PRESENTATION.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-5
<PAGE>
DIAMOND EQUITIES, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
1997 1996 1995
---- ---- ----
INCOME
Revenues $ -- $ -- $ --
Cost of sales -- -- --
----------- --------- ---------
GROSS PROFIT -- -- --
EXPENSES
General and administrative expenses 225,042 -- --
Depreciation and amortization 4,979 -- --
----------- --------- ---------
230,021 -- --
----------- --------- ---------
OPERATING LOSS (230,021) -- --
----------- --------- ---------
OTHER INCOME (EXPENSE)
Miscellaneous income 896 -- --
Interest income 57,514 2,995 4,041
----------- --------- ---------
58,410 2,995 4,041
----------- --------- ---------
Income (loss) from continuing
operations before income taxes (171,611) 2,995 4,041
Income tax expense 50 -- --
----------- --------- ---------
INCOME (LOSS) FROM
CONTINUING OPERATIONS (171,661) 2,995 4,041
----------- --------- ---------
DISCONTINUED OPERATIONS
Loss from discontinued operations,
net of applicable income taxes of $0,
$50 and $50 (78,101) (95,524) (194,204)
Gain on disposal of discontinued
operations, net of applicable income
taxes of $11,740 1,848,279 -- --
----------- --------- ---------
1,770,178 (95,524) (194,204)
----------- --------- ---------
NET INCOME (LOSS) 1,598,517 (92,529) (190,163)
Preferred dividends 109,056 109,056 109,278
----------- --------- ---------
NET INCOME (LOSS)
ATTRIBUTABLE TO
COMMON STOCK $ 1,489,461 $(201,585) $(299,441)
=========== ========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-6
<PAGE>
DIAMOND EQUITIES, INC.
STATEMENTS OF OPERATIONS (CONTINUED)
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
1997 1996 1995
---- ---- ----
PRIMARY EARNINGS (LOSS)
PER COMMON SHARE
Loss before discontinued operations $ (0.06) $ (0.02) $ (0.02)
Discontinued operations 0.36 (0.02) (0.04)
---------- ---------- ----------
PRIMARY EARNINGS
(LOSS) PER SHARE $ 0.30 $ (0.04) $ (0.06)
========== ========== ==========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES USED IN
PRIMARY CALCULATION 4,971,878 4,734,544 4,666,099
========== ========== ==========
FULLY-DILUTED EARNINGS (LOSS)
PER COMMON SHARE
Loss before discontinued operations $ (0.02) $ -- $ --
Discontinued operations 0.18 -- --
---------- ---------- ----------
FULLY-DILUTED EARNINGS
PER SHARE $ 0.16 $ -- $ --
========== ========== ==========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES USED IN
FULLY-DILUTED CALCULATION 9,818,787 -- --
========== ========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-7
<PAGE>
DIAMOND EQUITIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
CAPITAL IN RETAINED TOTAL
COMMON STOCK EXCESS OF PREFERRED EARNINGS STOCKHOLDERS'
SHARES AMOUNT PAR VALUE STOCK (DEFICIT) (EQUITY)
------ ------ --------- ----- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at 6/30/94 4,666,099 $ 4,666 $ 2,587,282 $1,817,591 $(3,454,225) $ 955,314
--------- ------- ----------- ---------- ----------- -----------
Preferred dividends -- -- -- -- (109,278) (109,278)
Net loss for year ended
6/30/95 -- -- -- -- (190,163) (190,163)
--------- ------- ----------- ---------- ----------- -----------
Balance at 6/30/95 4,666,099 4,666 2,587,282 1,817,591 (3,753,666) 655,873
Issuance of common
stock with warrants
attached for $.75
per unit 611,000 611 457,639 -- -- 458,250
Cost of stock offering -- -- (5,000) -- -- (5,000)
Preferred dividends -- -- -- -- (109,056) (109,056)
Net loss for year ended
6/30/96 -- -- -- -- (92,529) (92,529)
--------- ------- ----------- ---------- ----------- -----------
Balance at 6/30/96 5,277,099 5,277 3,039,921 1,817,591 (3,955,251) 907,538
Recision of common
stock issuance (611,000) (611) (457,639) -- -- (458,250)
Preferred dividends -- -- -- -- (109,056) (109,056)
Net income for year
ended 6/30/97 -- -- -- -- 1,598,517 1,598,517
--------- ------- ----------- ---------- ----------- -----------
Balance at 6/30/97 4,666,099 $ 4,666 $ 2,582,282 $1,817,591 $(2,465,790) $ 1,938,749
========= ======= =========== ========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-8
<PAGE>
DIAMOND EQUITIES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from interest and other income $ 56,510 $ 2,995 $ 4,041
Less cash paid for:
General and administrative expenses 223,845 -- --
Income taxes paid to governments 50 -- --
----------- --------- ---------
223,895 -- --
----------- --------- ---------
Net cash flows from (used by) continuing activities (167,385) 2,995 4,041
Net cash flows from discontinued operations 49,157 218,730 384,437
----------- --------- ---------
Net cash flows from operating activities (118,228) 221,725 388,478
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (4,994) -- --
Capital expenditures of discontinued operations (40,617) (148,210) (480,913)
Sale of property and equipment -- 7,500 74,500
Proceeds from the sale of discontinued operations 1,688,750 -- --
Cash paid for deposits -- -- (979)
----------- --------- ---------
Net cash flows from (used by) investing activities 1,643,139 (140,710) (407,392)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans -- -- 125,294
Cash used to reduce short-term borrowing -- -- (13,496)
Cash used to reduce long-term liabilities (173,971) (882) --
Cash used to pay dividends -- (24,089) (113,759)
Cash used to rescind stock issuance (458,250) -- --
Cash received from issuance of stock -- 453,250 --
----------- --------- ---------
Net cash flows from (used by) financing activities (632,221) 428,279 (1,961)
----------- --------- ---------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 892,690 509,294 (20,875)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 694,293 184,999 205,874
----------- --------- ---------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 1,586,983 $ 694,293 $ 184,999
=========== ========= =========
</TABLE>
NON-CASH FINANCING ACTIVITIES
During the year ended June 30, 1997 the Company sold equipment for a note
receivable totaling $811,250.
During the year ended June 30, 1996 the Company acquired office equipment with a
cost of $5,410 through a capital lease.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-9
<PAGE>
DIAMOND EQUITIES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 AND 1995
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The Company's accounting policies conform to generally accepted
accounting principles. The following policies are considered to
be significant:
NATURE OF OPERATIONS
The Company was incorporated on July 24, 1987 as a Nevada
corporation under the name KTA Corporation. In February, 1989 the
Company began operating pay telephones in the Reno, Nevada area.
On September 25, 1989 the Company changed its name to United
Payphone Services, Inc. The Company moved its operations to
Arizona where it operated pay-telephones in the Phoenix and
Tucson areas. On November 15, 1996 the Company sold all of its
pay-telephone assets to Tru-Tel Communications, LLC. On June 20,
1997 the Company changed its name to Diamond Equities, Inc.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect reported amounts of
assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and revenues
and expenses during the reporting period. In these financial
statements, assets, liabilities, and earnings involve extensive
reliance on management's estimates. Actual results could differ
from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all cash balances and highly
liquid investments with original maturities of less than three
months.
ACCOUNTS RECEIVABLE
Accounts receivable balances considered uncollectible are written
off and bad debt expense is recognized using the direct write-off
method. No allowance for uncollectible accounts is recognized.
The difference between the direct write-off method and the
allowance method is not considered material.
REVENUE RECOGNITION
Revenue from the discontinued pay-telephone operation was
recognized upon receipt of coin and rendering of telephone
service.
DEPRECIATION
Depreciation expense is computed using the straight-line method
in amounts sufficient to write off the cost of depreciable assets
over their estimated useful lives.
F-10
<PAGE>
DIAMOND EQUITIES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 AND 1995
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEPRECIATION (CONTINUED)
Normal maintenance and repair items are charged to costs and
expenses as incurred. The cost and accumulated depreciation of
property and equipment sold or otherwise retired are removed from
the accounts and gain or loss on disposition is reflected in net
income in the period of disposition.
INCOME TAXES
Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of income taxes
currently due plus deferred income tax charges and credits.
Deferred tax assets are evaluated for their potential future
benefit to the Company and valuation allowances are established
based on such analysis.
EARNINGS (LOSS) PER COMMON SHARE
Net earnings (loss) per common share is calculated by dividing
net income (loss) attributable to common stock by the weighted
average number of common shares outstanding. The calculation of
fully diluted earnings per share assumes conversion of the
preferred stock and the elimination of the preferred stock
dividend. Fully diluted earnings per share were not reported in
1996 and 1995 because they were greater than primary earnings per
common share.
NOTE 2 - CASH AND CASH EQUIVALENTS
The Company maintains cash balances at banks in Arizona. Accounts
are insured by the Federal Deposit Insurance Corporation up to
$100,000. At June 30, 1997, the Company's uninsured bank balances
total $1,368,674 ($358,550 for 1996).
NOTE 3 - NOTE RECEIVABLE
On November 15, 1996 the Company sold all of its assets related
to the operation of the pay-telephone business (see Note 9). In
connection with the sale of the assets, the Company received a
note receivable totaling $811,250. The note is payable to the
Company in monthly installments of $14,000 including interest at
8% per annum, beginning February 15, 1997, with the balance due
January 15, 2002.
F-11
<PAGE>
DIAMOND EQUITIES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 AND 1995
NOTE 3 - NOTE RECEIVABLE (CONTINUED)
As discussed in Note 7, no payments have been received on the
note and the Company has commenced legal proceedings to collect
the amount. The Company reports impaired loans in accordance with
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan",
as amended by SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan". This accounting standard defines an
impaired loan as any loan where the creditor is unable to collect
all the amounts due according to the contractual interest
payments and contractual principal payments as scheduled in the
loan agreement. The note receivable discussed above meets this
definition for an impaired loan. Management is unable to estimate
the amount of the impairment and therefore the Company has no
valuation allowance against the note receivable. Interest income
on impaired loans is recognized only when payments are received.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment as of June 30, 1997 and 1996 are detailed
in the following summary:
ACCUMULATED NET BOOK
1997 COST DEPRECIATION VALUE
---- ---- ------------ -----
Furniture and fixtures $ 21,368 $7,295 $ 14,073
Office equipment 7,367 2,323 5,044
Automobiles 2,192 329 1,863
---------- ------ --------
$ 30,927 $9,947 $ 20,980
========== ====== ========
ACCUMULATED NET BOOK
1996 COST DEPRECIATION VALUE
---- ---- ------------ -----
Furniture and fixtures $ 22,544 $ 11,569 $ 10,975
Office equipment 92,536 59,578 32,958
Automobiles 64,804 37,785 27,019
Payphones 1,650,865 1,559,959 90,906
Payphone accessories 379,002 179,842 199,160
Payphone installations 475,554 161,004 314,550
Property improvements 32,121 5,084 27,037
Equipment under capital leases 5,410 811 4,599
---------- ---------- --------
$2,722,836 $2,015,632 $707,204
========== ========== ========
F-12
<PAGE>
DIAMOND EQUITIES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 AND 1995
NOTE 5 - SALES TAX PAYABLE
During March, 1993, the Arizona Department of Revenue assessed a
sales tax deficiency of $73,680 against the Company for the
period from January 1, 1990 through January 31, 1993 with respect
to coin revenues from privately operated pay-telephones. A timely
protest was filed with the Department of Revenue seeking
abatement of the entire assessment. The basis of the protest is
the taxability of coin revenue under the classification of
telecommunications which is defined under Arizona law as the
transmitting of a signal.
The Company's protest was consolidated with those of other
private pay telephone operators. A favorable ruling was
originally received from a Department of Revenue officer which
was overturned by the Director of the Department of Revenue. An
appeal was made before the Arizona State Board of Tax Appeals in
October, 1995.
Previously the Company has recognized a contingent liability of
$132,442 for the estimated sales tax due. On January 29, 1997 a
preliminary settlement was agreed to whereby the Company will owe
$88,098 for sales taxes for the period from January 1, 1990
through November, 1997. The difference in the previously
recognized contingent liability and the settlement amount of
$44,344 has been recognized as a gain and included in
discontinued operations.
NOTE 6 - LONG-TERM LIABILITIES
1997 1996
---- ----
Note payable to related party, principal and
interest due September, 1997, bearing
interest at 8%, unsecured $ -- $ 55,683
Note payable to related party, principal and
interest due September, 1997, bearing
interest at 8%, unsecured -- 113,760
Capital lease payable to vendor in monthly
installments of $106, due December, 2001,
bearing interest at 12%, secured by
equipment -- 4,528
------- --------
-- 173,971
Less current portion -- (770)
------- --------
Long-term portion $ -- $173,201
======= ========
F-13
<PAGE>
DIAMOND EQUITIES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 AND 1995
NOTE 7 - COMMITMENTS AND CONTINGENCIES
CONCENTRATION OF CREDIT RISK
In connection with the sale of its pay-telephone operations, the
Company received a promissory note in the principal sum of
$811,250. Monthly payments of $14,000 on the note were to
commence on February 15, 1997. To date no payments on the note
have been received. On March 18, 1997 a complaint for breach of
contract was filed with the Eighth Judicial District Court. The
complaint alleges an anticipatory breach by the defendant,
Tru-Tel Communications, LLC, issuer of the promissory note. The
complaint also names as party defendants, the principals of
Tru-Tel Communications, LLC and Finova Capital Corporation
(provider of the financing used to purchase the assets.)
The defendants have responded by issuing counterclaims. The
counterclaims allege that the revenues of the Company reported to
Tru-Tel Communications, LLC and Finova Capital Corporation were
purportedly overstated at the time of the asset purchase
agreement. The Company intends to vigorously contest the
counterclaims and pursue the original claims against all party
defendants. While it is not feasible at this time to predict or
determine the ultimate financial outcome of the complaint,
management does not believe that it will be party to any
unfavorable judgments.
Other amounts due from Tru-Tel Communications, LLC include
$40,562 of interest receivable on the note which has not been
accrued. The Company also paid $18,899 of expenses on behalf of
Tru-Tel Communications, LLC during the transition to the new
ownership. This amount is included in accounts receivable.
LEGAL FEES
The Company has entered into a contingency fee agreement with the
attorneys that are representing the Company in the sales tax
issue described in Note 5. The agreement sets the contingent
legal fees at one third of the decrease obtained in the sales tax
due to the Arizona Department of Revenue. The Company has accrued
$38,580 in legal fees and has included such amount in accrued
expenses. Management feels that the amount accrued is sufficient
to cover the legal fees that will be required upon ultimate
settlement of the sales tax issue.
F-14
<PAGE>
DIAMOND EQUITIES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 AND 1995
NOTE 8 - CAPITAL STOCK
PREFERRED STOCK
The Company has outstanding 727 shares of cumulative,
convertible, preferred stock at June 30, 1997 and 1996.
Cumulative dividends at 6% are payable annually. Dividends are in
arrears to the amount of $194,023. Each share of preferred stock
is convertible at the option of the holder at a rate equal to 75%
of the average bid price of the common shares for the ten days
prior to the conversion date. The preferred stock is redeemable
by the Company at the cash price paid for the shares plus the
amount of any dividends accumulated and unpaid as of the date of
redemption.
WARRANTS
Stock purchase warrants were issued in connection with the May,
1996 issuance of common stock. The offering was made in units
consisting of two shares of common stock, one class A warrant and
one class B warrant. As a result of the sale of the operations of
the Company, the May, 1996 stock issuance, including warrants,
was rescinded.
NOTE 9 - DISCONTINUED OPERATIONS
On November 15, 1996 the Company entered into an asset purchase
agreement with Tru-Tel Communications LLC whereby all of the
assets related to the operation of the pay-telephone business
were sold. Proceeds from the sale included $1,688,750 cash and a
promissory note (see Note 3) for $811,250. Tru-Tel
Communications, LLC assumed the Company's capital lease on
equipment and operating leases on facilities. The Company
recorded a gain on the sale of the assets of $1,848,279 after
taxes. Revenues from the discontinued operations totaled
$835,858, $2,127,574 and $2,074,244 for the years ended June 30,
1997, 1996 and 1995, respectively.
NOTE 10 - INCOME TAXES
The Company uses an asset and liability approach to financial
accounting and reporting for income taxes. The difference between
the financial statement and income tax bases of assets and
liabilities is determined annually. Deferred income tax assets
and liabilities are computed for those differences that have
future income tax consequences using the currently enacted tax
laws and rates that apply to the periods in which they are
expected to affect taxable income. Valuation allowances are
established, if necessary, to reduce the deferred income tax
asset to the amount that will more likely than not be realized.
Income tax expense is the current tax payable or refundable for
the period plus or minus the net change in the deferred tax
assets and liabilities.
F-15
<PAGE>
DIAMOND EQUITIES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 AND 1995
NOTE 10 - INCOME TAXES (CONTINUED)
Income taxes payable as of June 30, 1997 and 1996 are detailed in
the following summary:
1997 1996
---- ----
Currently payable $ 11,790 $ 50
========= ===========
Deferred income tax liability $ 324,000 $ --
Deferred income tax asset 725,000 1,257,000
Valuation allowance (401,000) (1,257,000)
--------- -----------
Net deferred income tax asset 324,000 --
--------- -----------
Net deferred income tax liability $ -- $ --
========= ===========
The deferred tax assets result from net operating loss
carryforwards available and carryforwards of credits resulting
from alternative minimum taxes paid.
At June 30, 1997, the Company had net operating loss
carryforwards available to offset future income taxes totaling
$1,742,141 expiring from 2003 and 2011. The net change in the
valuation allowance for deferred income tax assets was a decrease
of $856,000, related to the utilization of net operating loss
carryforwards.
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at June 30 are as follows:
1997 1996
---- ----
Deferred income tax assets:
Net operating loss carryforwards $ 713,260 $ 1,257,000
Credit for alternative minimum
taxes paid 11,740 --
--------- -----------
Total gross deferred income tax assets 725,000 1,257,000
Less valuation allowance (401,000) (1,257,000)
--------- -----------
Net deferred income tax asset 324,000 --
--------- -----------
Deferred income tax liabilities:
Difference on note receivable 324,000 --
--------- -----------
Total gross deferred income tax liability 324,000 --
--------- -----------
Net deferred income tax liability $ -- $ --
========= ===========
F-16
<PAGE>
DIAMOND EQUITIES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 AND 1995
NOTE 10 - INCOME TAXES (CONTINUED)
The reconciliation of the differences between the statutory
U.S. federal income tax rate and the Company's effective tax rate
is as follows:
1997 1996 1995
---- ---- ----
U.S. Statutory Rate 34.0% (34.0%) (34.0%)
State income tax, net of
federal benefit -- -- --
Effect of net operating loss
carryforward and valuation
allowance (34.0%) 34.0% 34.0%
----- ---- ----
Effective tax rates -- -- --
===== ==== ====
NOTE 11 - CASH FLOWS FROM OPERATING ACTIVITIES
The following schedule reconciles net income (loss) as reported in
the accompanying statements of operations with net cash flows from
operating activities in the statements of cash flows:
1997 1996 1995
---- ---- ----
Net income (loss) $ 1,598,517 $(92,529) $(190,163)
Adjustments to reconcile
net income (loss) to net
cash flows from operating
activities:
Loss from
discontinued operations 78,101 95,524 194,204
Gain on sale of discontinued
operations (1,848,279) -- --
Depreciation and amortization
expense 4,979 -- --
(Increase) decrease in assets:
Accounts receivable 9,232 -- --
Interest receivable (1,900)
Prepaid expenses and deposits 8,742 -- --
F-17
<PAGE>
DIAMOND EQUITIES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 AND 1995
NOTE 11 - CASH FLOWS FROM OPERATING ACTIVITIES (CONTINUED)
1997 1996 1995
---- ---- ----
Increase (decrease) in liabilities:
Accounts payable 5,815 -- --
Accrued expenses (22,592) -- --
--------- -------- --------
Net cash flows from (used
by) continuing activities (167,385) 2,995 4,041
Net cash flows from
discontinued operations 49,157 218,730 384,437
--------- -------- --------
Net cash flows from
operating activities $(118,228) $221,725 $388,478
========= ======== ========
NOTE 12 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS
No. 107, "Disclosure about Fair Value of Financial Instruments".
The carrying amounts and fair value of the Company's financial
instruments at June 30, 1997 and 1996 are as follows:
CARRYING FAIR
1997 AMOUNTS VALUES
---- ------- ------
Cash and cash equivalents $ 1,586,983 $ 1,586,983
Note receivable including
current maturities 811,250 724,320
Preferred stock 1,817,591 2,682,152
CARRYING FAIR
1996 AMOUNTS VALUES
---- ------- ------
Cash and cash equivalents $ 694,293 $ 694,293
Long-term debt including
current maturities 173,971 173,971
Preferred stock 1,817,591 2,536,744
Warrants, Class A - 3,055
Warrants, Class B - 3,055
F-18
<PAGE>
DIAMOND EQUITIES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 AND 1995
NOTE 12 - FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments.
CASH AND CASH EQUIVALENTS
The carrying amounts reported on the balance sheet for cash and
cash equivalents approximate their fair value.
NOTE RECEIVABLE
The fair value of the note receivable was determined based on
discounted cash flow analysis using a discount rate similar to
financial instruments with similar risk.
LONG-TERM DEBT
At June 30, 1997, the Company had no long-term debt. At December
31, 1996, the fair values of long-term debt are estimated using
discounted cash flow analysis based on the Company's incremental
borrowing rate as the discount rate.
PREFERRED STOCK
The Company's preferred stock is not publicly traded and
therefore a fair value is not readily available. Based on the
conversion ratio of the preferred stock and the current market
value of the common stock, a fair value estimate was determined.
WARRANTS
At June 30, 1997, the Company had no warrants issued or
outstanding. At June 30, 1996, the fair value of the stock
purchase warrants was estimated based on the redemption value of
the warrants. During the first 30 days after the issuance of the
warrants the Company had the right to redeem the warrants at $.01
per warrant. This is the basis of the fair value estimate.
NOTE 13 - RELATED PARTY TRANSACTIONS
As described in Note 6, the Company had notes payable to a
related party. The related party is a significant shareholder in
the Company.
As described in Note 14, the Company has entered into a severance
agreement with an individual. The individual is a related party
by virtue of stock ownership in the Company.
F-19
<PAGE>
DIAMOND EQUITIES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 AND 1995
NOTE 14 - SUBSEQUENT DISCOVERY OF AN ERROR
In September, 1998 an error was discovered in the June 30, 1997
financial statements. The Company had a long-term consulting
agreement with a shareholder. The agreement called for the
payment of a monthly consulting fee of $5,000. For the years
ended June 30, 1995 and 1996 the total consulting fees were
$60,000 and $60,000. Such amounts have been included in
discontinued operations.
During October 1996, the Company modified the agreement to be a
severance agreement. The severance agreement called for the same
payments of $5,000 per month. At June 30, 1996 there was $47,783
remaining to be paid on the agreement, which was not accrued.
This resulted in an understatement of liabilities by $47,783, an
understatement of the loss before discontinued operations of
$35,000 and an overstatement of income from discontinued
operations of $82,783. The net effect of the error on the net
income amount was an overstatement of $47,783.
The financial statements have been restated to reflect the proper
treatment of the modification of the agreement. The total fee
associated with the consulting/severance agreement for the year
ended June 30, 1997 was $107,783, all of which was included in
discontinued operations.
F-20
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement")is entered into this day by and
Premier Plastics Corporation ("PPC"), an Arizona corporation ("Seller"), John O.
Hoffman ("Seller's Shareholder") Diamond Equities, Inc., a Nevada corporation
("Diamond") and Precision Plastics Molding, Inc. a Nevada corporation and
subsidiary of Diamond ("Purchaser").
RECITALS
Seller operates a business primarily engaged in the plastic injection
molding business. Seller's principal place of business is 5869 S. Kyrene Road
#18, Tempe, Arizona 85283. Seller owns equipment, inventories, contract rights,
customer lists, intellectual property including trade secrets, methods process,
know-how, drawings, specifications and all memoranda, notes and records with
regard to any research and development ("Assets") and miscellaneous assets used
in connection with the operation of its business;
Purchaser desires to acquire substantially all the Assets used or useful, or
intended to be used, in the operation of Seller's business, and Seller desires
to sell such Assets to Purchaser; and
WHEREAS, Seller's Shareholder is the sole shareholder of Seller; and
WHEREAS, Diamond Equities, Inc. is the parent company of Precision Plastics,
Inc., NOW THEREFORE, IT IS AGREED AS FOLLOWS:
SECTION 1. ASSETS PURCHASED; LIABILITIES ASSUMED.
1.1 ASSETS PURCHASED. Seller agrees to sell to Purchaser and Purchaser
agrees to purchase from Seller, on the terms and conditions set forth in this
Agreement. Seller owns assets including equipment, inventories, contract rights,
customer lists, intellectual property including trade secrets, methods process,
know-how, drawings, specifications and all memoranda, notes and records with
regard to any research and development ("Assets") and miscellaneous assets used
in connection with the operation of its business set forth more specifically on
Schedule A hereto ("Assets"). Assets shall include all accounts receivable,
notes receivable, prepaid accounts, and any other assets of the business not
specified in herein.
1.2 LIABILITIES ASSUMED. Purchaser shall accept the assignment and assume
responsibility for all unfilled orders from customers of Seller assigned to
Purchaser pursuant to Section 1.1, shall assume responsibility of payment for
purchase orders for inventory items that have been placed by Seller prior to the
Closing Date but that will not be delivered until after the Closing Date, shall
assume and perform all of Seller's obligations under leases, agreements, and
other contracts listed on Schedule B hereto, and shall assume liability for all
other liabilities of Seller set forth on Schedule B hereto. Should Precision
default on the leases to Balboa, the equipment covered by the leases will revert
back to Premier and John O. Hoffman.
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SECTION 2. PURCHASE PRICE. The price for the Assets shall be paid as follows:
2.1 At Closing, Purchaser shall pay, by cashier's check or certified check,
the sum of Eighty Thousand Dollars ($80,000).
2.2 The assumption by Precision of Seller's notes and payables in the amount
of Forty Thousand Dollars ($40,000), as shown on Schedule B hereto. Any
difference between this amount and the actual pay-off balance as of the date of
close will be refunded to Premier. This amount is not to exceed Five Thousand
Dollars ($5,000).
2.3 Seventy Five Thousand Dollars ($75,000) worth or three hundred thousand
shares (300,000) at twenty five cents (.25) per share of the common stock of
Precision Plastics Molding, Inc.
SECTION 3. ADJUSTMENTS. The operation of Seller's business and related
income and expenses up to the close of business on the day before the Closing
Date shall be for the account of Seller and thereafter for the account of
Purchaser. Expenses, including but not limited to utilities, personal property
taxes, rents, real property taxes, wages, vacation pay, payroll taxes, and
fringe benefits of employees of Seller, shall be prorated between Seller and
Purchaser as of the close of business on the Closing Date, the proration to be
made and paid, insofar as reasonably possible, on the Closing Date, with
settlement of any remaining items to be made within thirty (30) days following
the Closing Date.
SECTION 4. SELLER'S AND SELLER'S SHAREHOLDER REPRESENTATIONS AND
WARRANTIES. Seller and Seller's Shareholder each represent and warrant to
Purchaser as follows:
4.1 CORPORATE EXISTENCE. Seller is now and on the Closing Date will be a
corporation duly organized and validly existing and in good standing under the
laws of the State of Arizona. Seller has all requisite corporate power and
authority to own, operate and/or lease the Assets, as the case may be, and to
carry on its business as now being conducted.
4.2 AUTHORIZATION. The execution, delivery, and performance of this
Agreement have been duly authorized and approved by the board of directors and
shareholders of Seller, and this Agreement constitutes a valid and binding
Agreement of Seller in accordance with its terms.
4.3 FINANCIAL STATEMENTS. Attached hereto as Schedule C are Seller's
financial statements. The Financial Statements are in accordance with the books
and records of Seller and are true, correct, and complete; fairly present
financial conditions of Seller at the dates of such Financial Statements and the
results of its operations for the periods then ended; and were prepared in
accordance with generally accepted accounting principles applied on a basis
consistent with prior accounting periods. Except as described in this Agreement,
since May 22, 1998 there has been no material adverse change in the financial
condition of Seller.
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4.4 TITLE TO ASSETS. Except as described in Schedule A of this Agreement,
Seller holds good and marketable title to the Assets, free and clear of
restrictions on or conditions to transfer or assignment, and free and clear of
liens, pledges, charges, or encumbrances.
4.5 BROKERS AND FINDERS. Neither Seller nor Seller's Shareholder has
employed any broker or finder in connection with the transactions contemplated
by this Agreement, or taken action that would give rise to a valid claim against
any party for a brokerage commission, finder's fee, or other like payment.
4.6 TRANSFER NOT SUBJECT TO ENCUMBRANCES OR THIRD-PARTY APPROVAL. The
execution and delivery of this Agreement by Seller and Seller's Shareholder, and
the consummation of the contemplated transactions, will not result in the
creation or imposition of any valid lien, charge, or encumbrance on any of the
Assets, and will not require the authorization, consent, or approval of any
third party, including any governmental subdivision or regulatory agency.
4.7 LABOR AGREEMENTS AND DISPUTES. Seller is neither a party to, nor
otherwise subject to any collective bargaining or other agreement governing the
wages, hours, and terms of employment of Seller's employees. Neither Seller nor
Seller's Shareholder is aware of any labor dispute or labor trouble involving
employees of Seller, nor has there been any such dispute or trouble during the
two years preceding the date of this Agreement.
4.8 ERISA AND RELATED MATTERS. Schedule D sets forth a description of all
"Employee Welfare Benefit Plans" and "Employee Pension Benefit Plans" (as
defined in A7A73(1) and 3(2), respectively, of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) existing on the date hereof that are
or have been maintained or contributed to by the Seller. To the extent any such
plans are in place, Seller agrees to provide additional details on request of
Purchaser.
4.9 NON-CANCELABLE CONTRACTS. At the time of Closing, there will be no
material leases, employment contracts, contracts for services or maintenance, or
other similar contracts existing or relating to or connected with the operation
of Seller's business not cancelable within thirty (30) days, except those
Agreements listed on Schedule E.
4.10 COMPLIANCE WITH CODES AND REGULATIONS. Seller and Seller's Shareholder
have no knowledge that leasehold improvements violate and provisions of any
applicable building codes, fire regulations, building restrictions, or other
ordinances, orders, or regulations.
4.11 LITIGATION. Seller and Seller's Shareholder have no knowledge of any
claim, litigation, proceeding, or investigation pending or threatened against
Seller that might result in any material adverse change in the business or
condition of Assets being conveyed under this Agreement.
4.12 ACCURACY OF REPRESENTATIONS AND WARRANTIES. None of the representations
or warranties of Seller or Seller's Shareholder contain or will contain any
untrue statement of a material fact or omit or will omit or misstate a material
fact necessary in order to make statements in this Agreement not
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misleading. Seller and Seller's Shareholder know of no fact that has resulted,
or that in the reasonable judgment of Seller's Shareholder will result in a
material change in the business, operations, or assets of Seller that has not
been set forth in this Agreement or otherwise disclosed to Purchaser.
SECTION 5. REPRESENTATIONS OF PURCHASER. Purchaser represents and warrants as
follows:
5.1 CORPORATE EXISTENCE. Both Diamond and Precision is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Nevada. Purchaser has all requisite corporate power and authority to enter into
this Agreement and perform its obligations hereunder.
5.2 AUTHORIZATION. The execution, delivery, and performance of this
Agreement have been duly authorized and approved by the board of directors and
shareholders of Purchaser, and this Agreement constitutes a valid and binding
Agreement of Purchaser in accordance with its terms.
5.3 BROKERS AND FINDERS. Neither Purchaser nor Seller have employed any
broker or finder in connection with the transaction contemplated by this
Agreement and has taken no action that would give rise to a valid claim against
any party for a brokerage commission, finder's fee, or other like payment.
5.4 ACCURACY OF REPRESENTATIONS AND WARRANTIES. None of the representations
or warranties of Purchaser contain or will contain any untrue statement of a
material fact or omit or will omit or misstate a material fact necessary in
order to make the statements contained herein not misleading
SECTION 6. COVENANTS OF SELLER AND SELLER'S SHAREHOLDER.
6.1 SELLER'S OPERATION OF BUSINESS PRIOR TO CLOSING. Seller and Seller's
Shareholder agree that between the date of this Agreement and the Closing Date,
Seller will:
6.1.1 Continue to operate the business that is the subject of this Agreement
in the usual and ordinary course and in substantial conformity with all
applicable laws, ordinances, regulations, rules, or orders, and will use its
best efforts to preserve its business organization and preserve the continued
operation of its business with its customers, suppliers, and others having
business relations with Seller.
6.1.2 Not assign, sell, lease, or otherwise transfer or dispose of any of
the Assets used in the performance of its business, whether now owned or
hereafter acquired, except in the normal and ordinary course of business and in
connection with its normal operation.
6.1.3 Maintain all of its Assets other than inventories in their present
condition, reasonable wear and tear and ordinary usage excepted, and maintain
the inventories at levels normally maintained.
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6.2 ACCESS TO PREMISES AND INFORMATION. At reasonable times prior to the
Closing Date, Seller will provide Purchaser and its representatives with
reasonable access during business hours to the Assets, titles, contracts, and
records of Seller and furnish such additional information concerning Seller's
business as Purchaser from time to time may reasonably request.
6.3 EMPLOYEE MATTERS.
6.3.1 Prior to Closing, Seller will deliver to Purchaser a list on Schedule
F of the names of all persons on the payroll of Seller, together with a
statement of amounts paid to each during Seller's most recent fiscal year and
amounts paid for services from the beginning of the current fiscal year to the
Closing Date. Seller will also provide Purchaser with a schedule of all employee
bonus arrangements and a schedule of other material compensation or personnel
benefits or policies in effect.
6.3.2 Prior to the Closing Date, Seller will not, without Purchaser's prior
written consent, enter into any material agreement with any employees, increase
the rate of compensation or bonus payable to or to become payable to any
employee, or effect any changes in the management, personnel policies, or
employee benefits, except in accordance with existing employment practices.
6.3.3 Seller and Seller's Shareholder will undertake all action necessary or
appropriate to permit Purchaser, if Purchaser so desires, to take over Seller's
pension and profit-sharing plan , if any, as a successor employer, and will
cooperate with Purchaser with respect to this undertaking.
6.3.4 As of the Closing Date, Seller will terminate all of its employees not
having employment agreements transferable to Purchaser and will pay each
employee all wages, commissions, and accrued vacation pay earned up to the time
of termination, including overtime pay.
6.4 CONDITIONS AND BEST EFFORTS. Seller and Seller's Shareholder will use
their best efforts to effectuate the transactions contemplated by this Agreement
and to fulfill all the conditions of the obligations of Seller and Seller's
Shareholder under this Agreement, and will do all acts and things as may be
required to carry out their respective obligations under this Agreement and to
consummate and complete this Agreement.
SECTION 7. COVENANTS OF PURCHASER.
7.1 CONDITIONS AND BEST EFFORTS. Purchaser will use its best efforts to
effect the transactions contemplated by this Agreement and to fulfill all the
conditions of Purchaser's obligations under this Agreement, and shall do all
acts and things as may be required to carry out Purchaser's obligations and to
consummate this Agreement.
7.2 CONFIDENTIAL INFORMATION. If for any reason the sale of Assets is not
closed, Purchaser will not disclose to third parties any confidential
information received from Seller or Seller's Shareholder
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in the course of investigating, negotiating, and performing the transactions
contemplated by this Agreement.
SECTION 8. CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS. The obligation
of Purchaser to purchase the Assets is subject to the fulfillment, prior to or
at the Closing Date, of each of the following conditions, any one or portion of
which may be waived in writing by Purchaser:
8.1 Purchaser, after inspection of Seller's premises, operations, financial
and other affairs, as provided in Paragraph 5, approves of the condition and
affairs of the Assets or financial results;
8.2 Purchaser shall have received a reasonably satisfactory valuation of the
Assets prepared in accordance with standard valuation industry practice from an
independent business valuation firm reasonably acceptable to Purchaser, at
Purchaser's own expense;
8.3 Purchaser, on the Closing Date, shall receive all the Assets of Seller
free and clear of any liens, encumbrances or other obligations;
8.4 REPRESENTATIONS, WARRANTIES, AND COVENANTS OF SELLER AND SELLER'S
SHAREHOLDER. All representations and warranties made in this Agreement by Seller
and Seller's Shareholder shall be true as of the Closing Date as fully as though
such representations and warranties had been made on and as of the Closing Date,
and, as of the Closing Date, neither Seller nor Seller's Shareholder shall have
violated or shall have failed to perform in accordance with any covenant
contained in this Agreement.
8.5 LICENSES AND PERMITS. Purchaser shall have obtained all licenses and
permits from public authorities necessary to authorize the ownership and
operation of the business of Seller.
8.6 CONSENTS. Purchaser shall have obtained the consent of any lessor of
equipment to the assignments of such agreements to the Purchaser.
8.7 CONDITIONS OF THE BUSINESS. There shall have been no material adverse
change in the manner of operation of Seller's business prior to the Closing
Date.
8.8 NO SUITS OR ACTIONS. At the Closing Date no suit, action, or other
proceeding shall have been threatened or instituted to restrain, enjoin, or
otherwise prevent the consummation of this Agreement or the contemplated
transactions.
SECTION 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER AND SELLER'S
SHAREHOLDER. The obligations of Seller and Seller's Shareholder to consummate
the transactions contemplated by this Agreement are subject to the fulfillment,
prior to or at the Closing Date, of each of the following conditions, any one or
a portion of which may be waived in writing by Seller;
9.1 REPRESENTATIONS, WARRANTIES, AND COVENANTS OF PURCHASER. All
representations and warranties made in this Agreement by Purchaser shall be true
as of the Closing Date as fully as though
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such representations and warranties had been made on and as of the Closing Date,
and Purchaser shall not have violated or shall not have failed to perform in
accordance with any covenant contained in this Agreement.
SECTION 10. PURCHASER'S ACCEPTANCE. Purchaser represents and acknowledges
that it has entered into this Agreement on the basis of its own examination,
personal knowledge, and opinion of the value of the business. Purchaser has not
relied on any representations made by Seller other than those specified in this
Agreement. Purchaser further acknowledges that neither Seller nor Seller's
Shareholder has made any agreement or promise to repair or improve any of the
leasehold improvements, equipment, or other personal property being sold to
Purchaser under this Agreement, and that Purchaser takes all such property in
the condition existing on the date of this Agreement, except as otherwise
provided in this Agreement.
SECTION 11. RISK OF LOSS. The risk of loss, damage, or destruction to any of
the equipment, inventory, or other personal property to be conveyed to Purchaser
under this Agreement shall be borne by Seller to the time of Closing. In the
event of such loss, damage, or destruction, Seller, to the extent reasonable,
shall replace the lost property or repair or cause to repair the damaged
property to its condition prior to the damage. If replacement, repairs, or
restorations are not completed prior to Closing, then the purchase price shall
be adjusted by an amount agreed upon by Purchaser and Seller that will be
required to complete the replacement, repair, or restoration following Closing.
If Purchaser and Seller are unable to agree, then Purchaser, at its sole option
and notwithstanding any other provision of this Agreement, upon notice to
Seller, may rescind this Agreement and declare it to be of no further force and
effect, in which event there shall be no Closing of this Agreement and all the
terms and provisions of this Agreement shall be deemed null and void. If, prior
to Closing, any of the real properties that are the subject of the leases
mentioned herein are damaged or destroyed, then Purchaser may rescind this
Agreement in the manner provided above unless arrangements for repair
satisfactory to all parties involved are made prior to Closing.
SECTION 12. INDEMNIFICATION AND SURVIVAL.
12.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made in this Agreement shall survive the Closing of this Agreement,
except that any party to whom a representation or warranty has bee made in this
Agreement shall be deemed to have waived any misrepresentation or breach of
representation or warranty of which such party had knowledge prior to Closing.
Any party learning of a misrepresentation or breach of representation or
warranty under this Agreement shall immediately give written notice thereof to
all other parties to this Agreement. The representations and warranties in this
Agreement shall terminate two (2) years from the Closing Date, and such
representations or warranties shall thereafter be without force or effect,
except any claim with respect to which notice has been given to the party to be
charged prior to such expiration date.
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12.2 SELLER'S AND SELLER'S SHAREHOLDER'S INDEMNIFICATION.
12.2.1 Seller and Seller's Shareholder each hereby agree to indemnify and
hold Purchaser, it successors, and assigns harmless from and against
12.2.2 Any and all claims, liabilities, and obligations of every kind and
description, contingent or otherwise, arising out of or related to the operation
of Seller's business prior to the close of business on the day before the
Closing Date, except for claims, liabilities, and obligations of Seller
expressly assumed by Purchaser under this Agreement or paid by insurance
maintained by Seller, Seller's Shareholder, or Purchaser.
12.2.3 Any and all damage or deficiency resulting from any material
misrepresentation, breach of warranty or covenant, or non-fulfillment of any
agreement on the part of Seller and Seller's Shareholder under this Agreement.
12.2.4 Seller's and Seller's Shareholder's indemnity obligations shall be
subject to the following:
12.2.5 If any claim is asserted against Purchaser that would give rise to a
claim by Purchaser against Seller and Seller's Shareholder for indemnification
under the provisions of this Section, then Purchaser shall promptly give written
notice to Seller's Shareholder concerning such claim and Seller's Shareholder
shall, at no expense to Purchaser, defend the claim.
12.2.6 Seller's Shareholder shall not be required to indemnify Purchaser for
an amount that exceeds the total purchase price paid by Purchaser under Sections
3 and 5 of this Agreement.
12.3 PURCHASER'S INDEMNIFICATION. Purchaser agrees to defend, indemnify,
and hold harmless Seller and Seller's Shareholder from and against:
12.3.1 Any and all claims, liabilities, and obligations of every kind and
description arising out of or related to the operation of the business following
Closing or arising out of Purchaser's failure to perform obligations of Seller
assumed by Purchaser pursuant to this Agreement.
12.3.2 Any and all damage or deficiency resulting from any material
misrepresentation, breach of warranty or covenant, or non-fulfillment of any
agreement on the part of Purchaser under this Agreement.
SECTION 13. DISSOLUTION OF SELLER. Seller agrees that after Closing Seller
will liquidate completely and terminate its corporate existence. From and after
the Closing Date, Seller will not engage in any business or other activity,
except as required to complete its liquidation and dissolution. Nothing in this
Agreement shall prevent Seller from dissolving promptly on or after the Closing
Date.
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SECTION 14. CLOSING.
14.1 DATE. This Agreement shall be closed as soon as practicable after (i)
completion of the due diligence investigation contemplated; (ii) execution of
this Agreement; (iii) satisfaction of all conditions to closing set forth in
this Agreement; and (iv) receipt of any required approvals under Arizona and
Nevada corporate law and any other required regulatory approvals. If Closing has
not occurred on or prior to June 20, 1998, then any party may elect to terminate
this Agreement. If, however, the Closing has not occurred because of a breach of
contract by one or more parties, the breaching party or parties shall remain
liable for breach of contract.
14.2 PLACE. Closing will take place at the law office of A.F. Schaffer,
P.C., 2700 N. Central Avenue, Suite 1500, Phoenix, Arizona 85004.
14.3 OBLIGATIONS OF SELLER AND SELLER'S SHAREHOLDER AT THE CLOSING. At the
Closing and coincidentally with the performance by Purchaser of its obligations
described herein, Seller and Seller's Shareholder shall deliver to Purchaser the
following:
14.3.1 All documents specified in the Exhibits referred to herein.
14.3.2 All documents which are required to effect transfer to Purchaser the
Assets described herein.
14.4 OBLIGATIONS OF PURCHASER AT THE CLOSING. At the Closing and
coincidentally with the performance by Seller and Seller's Shareholder of their
obligations described in Section 19.2, Purchaser shall deliver to Seller the
following:
14.4.1 a certified or cashiers check in the amount of $80,000.
14.4.2 Certificate for 300,000 Shares of Common Stock of Purchaser.
SECTION 15. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING.
15.1 PRODUCT LIABILITY INSURANCE. Subsequent to the Closing, Purchaser will
cause Seller and Seller's Shareholder to be carried as an insured party under
all of Purchaser's insurance policies that provide product liability coverage
Seller's Shareholder shall pay to Purchaser an amount equal to any increase, if
any, in premiums occasioned by Purchaser's compliance with the provisions of
this Section.
15.2 BOOKS AND RECORDS. This sale does not include the books of account and
records of Seller's business. However, possession and custody of such books and
records, except for Seller's general ledger, may be retained by Purchaser at the
place of business Purchaser is acquiring from Seller under this Agreement for a
period of six (6) months. During this period, Seller or its agents shall have
access to such books and records and may make copies thereof. Purchaser will
exercise reasonable care in the safekeeping of such records. Seller shall retain
its general ledger but shall make it available
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for inspection by Purchaser from time to time upon reasonable request. All books
and records of Seller shall remain in Maricopa County for two (2) years from the
date this Agreement is signed.
15.3 SELLER'S RIGHT TO PAY. In the event Purchaser fails to make any payment
of taxes, assessments, insurance premiums, or other charges that Purchaser is
required to pay to third parties under this Agreement, Seller shall have the
right, but not the obligation, to pay the same. Purchaser will reimburse Seller
for any such payment immediately upon Seller's demand, together with interest at
the same rate provided in the Note from the date of Seller's payment until
Purchaser reimburses Seller. Any such payment by Seller shall not constitute a
waiver by Seller of any remedy available by reason of Purchaser's default for
failure to make the payments.
SECTION 16. DEFAULT.
16.1 REMEDIES. If Purchaser fails to perform any of the terms, covenants,
conditions, or obligations of this Agreement then Seller, subject to the
requirements of the notice provided in Section 19.2, shall have the right to
exercise any remedy available.
SECTION 17. BULK TRANSFERS. Purchaser waives compliance by Seller with the
Arizona Bulk Transfers Article of the Uniform Commercial Code ("Bulk Transfers
Article"). Except for those liabilities assumed by Purchaser, as provided in
Section 1.2, in the event any creditor of Seller claims the benefit of the Bulk
Transfers Article as against Purchaser or any of the Assets being conveyed to
Purchaser under this Agreement, Seller and Seller's Shareholder shall
immediately pay or otherwise satisfy such claim or undertake its defense. Seller
and Seller's Shareholder shall indemnify and hold Purchaser harmless from and
against any and all loss, expense, or damage resulting from the failure to
comply with the Bulk Transfers Article. If Seller fails to comply with the
provisions of this Section and Purchaser is required to pay any creditor of
Seller in order to protect the property purchased under this Agreement from
claims or liens of Seller's creditors, except those assumed by Purchaser, then
Purchaser may offset the amount it pays against the balance due Seller on the
Note by furnishing to the escrow agent proof of such payment in the form of a
receipt from the creditor involved.
SECTION 18. MISCELLANEOUS PROVISIONS.
18.1 AMENDMENT AND MODIFICATION. Subject to applicable law, this Agreement
may be amended, modified, or supplemented only by a written agreement signed by
all of the parties hereto.
18.2 NOTICES. All notices, requests, demands, and other communications
required or permitted hereunder will be in writing and will be deemed to have
been duly given when delivered by hand or two days after being mailed by
certified or registered mail, return receipt requested, with postage prepaid:
If to Purchaser, to: Copy to:
David D. Westfere, President A.F. Schaffer, P.C.
Precision Plastics Molding, Inc. 2700 N. Central Avenue, Suite 1500
2010 E. University Drive, Suite 3 Phoenix, AZ 85004
Tempe, AZ 85281
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If to Seller, to: Copy to:
John O. Hoffman
5869 S. Kyrene Road, Suite 18
Tempe, AZ 85283
18.3 ATTORNEY FEES. In the event an arbitration, suit or action is brought
by any party under this Agreement to enforce any of its terms, or in any appeal
therefrom, it is agreed that the prevailing party shall be entitled to
reasonable attorneys fees to be fixed by the arbitrator, trial court, and/or
appellate court.
18.4 LAW GOVERNING. This Agreement shall be governed by and construed in
accordance with the laws of the State of Nevada.
18.5 COMPUTATION OF TIME. In computing any period of time pursuant to this
Agreement, the day of the act, event or default from which the designated period
of time begins to run shall be included, unless it is a Saturday, Sunday or a
legal holiday, in which event the period shall begin to run on the next day
which is not a Saturday, Sunday or legal holiday.
18.6 TITLES AND CAPTIONS. All section titles or captions contained in this
Agreement are for convenience only and shall not be deemed part of the context
nor affect the interpretation of this Agreement.
18.7 PRONOUNS AND PLURALS. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine, neuter, singular or plural as the
identity of the person or persons may require.
18.8 ENTIRE AGREEMENT. This Agreement contains the entire understanding
between and among the parties and supersedes any prior understandings and
agreements among them respecting the subject matter of this Agreement. Any
amendments to this Agreement must be in writing and signed by the party against
whom enforcement of that amendment is sought.
18.9 AGREEMENT BINDING. This Agreement shall be binding upon the heirs,
executors, administrators, successors and assigns of the parties hereto.
18.10 ARBITRATION. If at any time during the term of this Agreement any
dispute, difference, or disagreement shall arise upon or in respect of the
Agreement, and the meaning and construction hereof, every such dispute,
difference, and disagreement shall be referred to a single arbiter agreed upon
by the parties, or if no single arbiter can be agreed upon, an arbiter or
arbiters shall be selected in accordance with the rules of the American
Arbitration Association and such dispute, difference, or disagreement shall be
settled by arbitration in accordance with the then prevailing commercial rules
of the American Arbitration Association, and judgment upon the award rendered by
the arbiter may be entered in any court having jurisdiction thereof.
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18.11 PRESUMPTION. This Agreement or any Section thereof shall not be
construed against any party due to the fact that said Agreement or any Section
thereof was drafted by said party.
18.12 FURTHER ACTION. The parties hereto shall execute and deliver all
documents, provide all information and take or forbear from all such action as
may be necessary or appropriate to achieve the purpose of the Agreement.
18.13 COUNTERPARTS. This Agreement may be executed in several counterparts
and all so executed shall constitute one Agreement, binding on all the parties
hereto even though all the parties are not signatories to the original or the
same counterpart.
18.14 PARTIES IN INTEREST. Nothing herein shall be construed to be to the
benefit of any third party, nor is it intended that any provision shall be for
the benefit of any third party.
18.15 SAVINGS CLAUSE. If any provision of this Agreement, or the application
of such provision to any person or circumstance, shall be held invalid, the
remainder of this Agreement, or the application of such provision to persons or
circumstances other than those as to which it is held invalid, shall not be
affected thereby.
The following parties hereby agree and approve all of the terms and
conditions of this Agreement, by signing where indicated.
Seller: Purchaser:
PREMIER PLASTICS CORPORATION PRECISION PLASTICS MOLDING, INC.
an Arizona corporation a Nevada corporation
By: /s/ John O. Hoffman By: /s/ David D. Westfere
---------------------------- ---------------------------------
John O. Hoffman, President David D. Westfere, President
-----------------------------
John O. Hoffman, Seller's Shareholder
DIAMOND EQUITIES, INC.
[NOTARY SEAL OF MARCIE G. BROWN]
/S/ Marcie G. Brown By: /s/ David D. Westfere
-------------------------------
David D. Westfere, President
ASSET PURCHASE AND SALE AGREEMENT
THIS ASSET PURCHASE AND SALE AGREEMENT ("Agreement"), is entered into
effective July 15, 1998, among ACCURATE THERMOPLASTICS, INC., an Arizona
corporation (the "Company"), DIAMOND EQUITIES, INC., a Nevada Corporation
("Diamond"), PRECISION PLASTICS, INC., a Nevada Corporation ("Precision"), a
majority-owned subsidiary of Diamond, and Roy L. Thompson who is the holder of
all of the capital stock of the Company (the "Selling Shareholder").
RECITALS:
WHEREAS, the Company is engaged in the plastic injection molding business;
and
WHEREAS, Diamond, through Precision, desires to purchase and the Company
desires to sell all of its right, title and interest in and to all or
substantially all of the tangible and intangible assets utilized in the
Company's business as now conducted (die "Assets").
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the Company, Diamond, Precision and the Selling Shareholder hereby agree as
follows:
COVENANTS:
Subject to the terms and conditions of this Agreement, on the Closing Date,
as defined in Paragraph 3, "Closing Date," the Company shall sell, convey,
transfer and assign to Precision and Precision shall purchase from the Company,
all of the Company's right, title and interest in and to the Assets, as
described in Schedule 1.1, accounts receivable as of July 15, 1998 are set forth
in Schedule 1. 1. 1. Precision shall assume the liabilities set forth in
Paragraph 1, "Assumption of Liabilities" and pay the consideration set forth in
Paragraph 2, "Purchase Price and Payment for Assets," to purchase the Assets.
All of the Exhibits and Schedules referred to in this Agreement are made a part
of this Agreement by this reference.
1. ASSUMPTION OF LIABILITIES. Subject to the terms and conditions of this
Agreement, Precision shall assume certain specified liabilities and obligations
of the Company and the Selling Shareholder as set forth in Schedule 2. 1, all
outstanding purchase orders, all accounts payable as of July 15, 1998, as set
forth in Schedule 2. 1. 1, and all liabilities incurred in the ordinary course
of business, including employment responsibilities for the Company's employees,
who become employees of Precision with the execution of this Agreement . Except
as set forth in Paragraph 1, Precision shall not assume any other liabilities or
obligations in connection with its purchase of the Assets
2. PURCHASE PRICE AND PAYMENT FOR ASSETS. Precision will acquire the Assets
in consideration for payment of Five Hundred Sixty Thousand Dollars ($560,000)
consisting of cash and a promissory note (the "Note") as set forth in Paragraph
2.1, and in consideration for the assumption by Precision of certain
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liabilities as set forth in Paragraph 1. The purchase price ("Purchase Price")
shall be allocated among the Assets according to Schedule 2.2. The Purchase
Price will be subject to reduction as set forth in Paragraph 2.1.2.
2.1. Precision will pay the cash and issue the Note to the Selling
Shareholder and the Company as follows:
2.1.1. Three Hundred Seventy Five Thousand Dollars ($375,000) in cash
in the form of two cashiers checks, one in the amount of $300,000 made payable
to Wilfried Solenthaler and one in the amount of $75,000 made payable to the
Company; and
2.1.2. The Note, attached hereto as Exhibit A, in the principal amount
of One Hundred Eighty Five Thousand Dollars ($185,000) bearing interest at the
rate of 8.0% per annum. The principal and accrued interest thereon will be due
and payable in one installment of One Hundred Five Thousand Dollars ($105,000)
and one installment of Eighty Thousand Dollars ($80,000). The first payment will
be made Ninety (90) days from the Closing ("Initial Maturity Date") and the
second payment will be made One Hundred Eighty (180) days from the Closing
("Final Maturity Date"). The Note will be secured by the Assets. The security
agreement securing the Note ("Security Agreement") will be in the form set forth
as Exhibit B. The Purchase Price will be reduced and the principal amount of the
Note will be subject to offset or reduction, as specified in the Note, to the
extent any pre-existing security interests, liens, encumbrances, mortgages or
charges of any nature whatsoever remain outstanding on the Final Maturity Date
(or if a court of competent jurisdiction finds liability on behalf of Precision
or Diamond for any amounts owed to Jerry Scruggs relating to the December 22,
1995 Agreement), and if Precision agrees to and does satisfy any such liability.
2.2. The Company will transfer title to the Assets to Precision
subject to any pre-existing security interests, liens, encumbrances, mortgages,
or charges as disclosed on Schedule 2.1 on the Closing. Further, the Company
shall maintain its Corporate Records within Maricopa County for two years after
the Closing. The term "Corporate Records" shall mean any and all records kept by
the Company in its current and prior operations, including, but not limited to,
the financial records, inventory records, all magnetic media, any transferable
licenses issued by the federal government or any state or municipal government
acquired by the Company in its current or prior operations and its tax returns.
3. CLOSING DATE.
3.1. As of the execution of this Agreement (the "Closing") the following
shall occur or shall have occurred:
3.1.1 Consent of the Selling Shareholder and the Company to the
transactions contemplated in this Agreement;
3.1.2 Receipt of a lease in a form satisfactory to Precision for the
building in which the Assets are located;
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3.1.3. Satisfaction of all conditions to closing set forth in
Paragraph 6, "Conditions Precedent to Obligations of Diamond and Precision," and
Paragraph 7, "Conditions Precedent to the Obligations of the Company and the
Selling Shareholder."
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
SHAREHOLDER. The acceptance of the Purchase Price by the Company and the Selling
Shareholder shall constitute an affirmation by the Company and the Selling
Shareholder of the truth, as of the Closing, of the representations and
warranties made by the Selling Shareholder in this Agreement and the Selling
Shareholder and the Company represent and warrant to Diamond and Precision that:
4.1. ORGANIZATION AND GOOD STANDING. The Company is a corporation duly
organized and existing in good standing under the laws of the State of Arizona.
The Company has full corporate power and authority to carry on its business as
now conducted and to own or lease and operate the properties and assets now
owned or leased and operated by it. The Company is duly qualified to transact
business in the State of Arizona and in all states and jurisdictions in which
the business or ownership of its property makes it necessary so to qualify
(other than jurisdictions in which the nature of the property owned or business
conducted, when considered in relation to the absence of serious penalties,
renders qualification as a foreign corporation unnecessary as a practical
matter).
4.2. CAPITALIZATION. The authorized capital stock of the Company
consists solely of 400,000 shares of Common Stock, $1 par value per share, of
which 1,750 shares are issued and outstanding ("Company Shares"), all of which
shares are owned by the Selling Shareholder.
4.3. NO SUBSIDIARIES. The Company has no subsidiaries and does not own
five percent (5 %) or more of the securities having voting power of any
corporation (or would own such securities in such amount upon the closing of any
existing purchase obligations for securities).
4.4. OWNERSHIP AND AUTHORITY. Except as set forth in Schedule 4.4, the
Company is the sole owner of the Assets and has the requisite power and
authority to own and transfer the Assets, to enter into this Agreement and to
carry out the transactions contemplated hereby. The execution, delivery and
performance of this Agreement by the Company has been duly authorized by its
Board of Directors. This Agreement is valid and binding upon the Company, and is
enforceable against the Company in accordance with its terms, subject to
bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium,
receivership or other similar laws relating to or affecting creditors' rights
generally. The execution, delivery and performance of this Agreement by the
Company will not result in the violation or breach of any term or provision of
charter instruments applicable to the Company or constitute a material default
under any indenture, mortgage, deed of trust or other contract or agreement to
which the Company is a party or by which the Company or the Assets are bound or
will not cause the creation of a lien or encumbrance on the Assets except that
contemplated under the Security Agreement.
4.5. LIABILITIES AND OBLIGATIONS. Except to the extent set forth in
Schedule 4.5, the Company has no liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) secured by a pledge or a
lien on the Assets. Precision shall assume only those obligations set forth in
Paragraph 1. Any obligations listed in Schedule 4.5 shall be discharged and
satisfied in full by the Company as of the Closing.
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4.6. FINANCIAL STATEMENTS. The Financial Statements (i) have been prepared
from the books and records of the Company by Wheelwright Peterson PLC, an
independent certified public accounting firm, (ii) fairly and accurately present
the financial condition of the Company as of the dates thereof in conformity
with federal tax accounting principals consistently applied, and (iii) contain
and reflect all necessary adjustments for fair and accurate presentation of the
financial condition as of such dates. Except as set forth in Schedule 4.6, there
has not been any change between the date of the Financial Statements (June 30,
1998) and the date of this Agreement which has had or will have a material
adverse effect on the financial position or results of operations of the
Company. Except as and to the extent reflected or reserved against in such
Financial Statements, or otherwise expressly disclosed therein, or except as
disclosed in Paragraph 1, the Company has no liabilities or obligations,
contingent or otherwise, of a nature required to be reflected in the Financial
Statements in accordance with federal tax accounting principles consistently
applied.
4.7. ABSENCE OF CERTAIN CHANGES. Except as disclosed on the Schedules
hereto, during the period from June 30, 1998 through and including the Closing,
the Company has not:
4.7.1. Suffered any material adverse change affecting its Assets,
liabilities, financial condition or business;
4.7.2. Made any increase in the compensation payable or to become
payable to any of its employees or agents except for increases which have
historically been made in the ordinary course of business, or made any bonus
payments, except for the bonuses which have historically been made in the
ordinary course of business and those approved by Diamond, or compensation
arrangements to or with any of its employees or agents, whether direct or
indirect;
4.7.3. Paid or declared any dividends, distributions or other payments
due or owing to the Selling Shareholder which will result in a reduction of the
book value of the Company, calculated as of June 30, 1998 in accordance with
federal tax accounting principles consistently applied, prior to or as of the
Closing;
4.7.4. Sold or transferred any of its assets or canceled any
indebtedness or claims owing to it, except in the ordinary course of business
and consistent with its past practices;
4.7.5. Sold, assigned or transferred any formulas, inventions,
patents, patent applications, trademarks, trade names, copyrights, licenses,
computer programs or software, know-how or other intangible assets;
4.7.6. Amended or terminated any contract, agreement or license to
which it is a party otherwise than in the ordinary course of business or as may
be necessary or appropriate for the consummation of the transactions described
herein;
4.7.7. Borrowed any money or incurred, directly or indirectly (as a
guarantor or otherwise), any indebtedness in excess of $2,500, except in the
ordinary course of business and consistent with its past practices;
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4.7.8. Except for the items listed on Schedule 4.5, discharged or
satisfied any lien or encumbrance or paid any obligation or liability (absolute
or contingent), other than current liabilities shown in the Financial Statements
or current liabilities incurred since such date in the ordinary course of
business, consistent with its past practices;
4.7.9. Mortgaged, pledged or subjected to lien, charge or other
encumbrance any of its Assets, except in the ordinary course of business and
consistent with its past practices; or
4.7.10. Entered into or committed to any other transaction other than
in the ordinary course of business, consistent with past practices or as may be
necessary or appropriate for the consummation of the transactions described
herein.
4.8. TAXES. The Company (and any predecessor corporation or partnership as
to which either of them is the transferee or successor) has timely filed, or has
timely secured an extension and will (within the permitted extension) file, all
tax returns, including federal, state, local and foreign tax returns, tax
reports and forms, as to which the due date for filing is prior to the Closing;
has reported all reportable income on such returns; has adopted and followed in
the preparation of such returns methods of accounting accepted by law, and has
not changed any methods of accounting without compliance with procedures
required by law; has not deducted any expenses or charges or claimed any credits
which are not allowable; and except as set forth in Schedule 4.8. 1, has paid,
or accrued and reserved for, all taxes, penalties and interest shown to be due
or required to be paid pursuant to the returns as filed, or as adjusted pursuant
to amendment or correction. The Company shall also provide copies of all federal
and state income and sales tax returns filed, FICA and state income taxes
withholding returns filed and evidence of payment of such taxes as listed in
Schedule 4.8.2 hereto. The Selling Shareholder has (i) paid or will pay by the
Closing any property taxes owed with respect to the Assets through the Closing;
and (ii) no knowledge of any deficiency or assertion of any deficiency relating
to property taxes on the Assets. No examination, audit, or inquiry of any tax
return, federal, state or otherwise of the Company is currently in progress and
neither the Company nor the Selling Shareholder has received notice of intent to
commence any inquiry, audit or examination of any tax return from any taxing
authority. There are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any tax return of the Company.
4.9. ASSETS. The Assets are located solely in the state of Arizona. Except
as listed on Schedule 4.9, the Assets are either in good working order and
condition or are marketable and will be delivered in the same state to Precision
on the Closing.
4.10. TITLE TO THE ASSETS. The Company has good and marketable title to all
of the Assets, free and clear of all security interests, liens, encumbrances,
mortgages or charges of any nature whatsoever other than those liabilities
disclosed on Schedule 2. 1. Any security interests, liens, encumbrances,
mortgages or charges not set forth in Schedule 2.1 shall be discharged in full
on or before the date of final payment under the Note ("Final Maturity Date")
and evidenced by UCC Releases delivered by the Company on the Final Maturity
Date.
4.11. ACCOUNTS RECEIVABLE. The Company is aware of no information that the
amount of all accounts receivable, unbilled invoices and other debts due as
recorded in the records and books of account of the Company as being due to the
Company as of the Closing (less the amount of any provision or reserve therefor
made in the records and books of the account of the Company) will not be good
and
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collectible in full in the ordinary course of business in accordance with past
practices; and none of such accounts receivable or other debts is or will at the
Closing be subject to any counterclaim or offset except to the extent of any
such provision or reserve. There have been no material adverse changes since
June 30, 1998 in the amount of accounts receivable or other debts due the
Company or the allowances with respect thereto, or accounts payable of the
Company from that reflected in the Financial Statements.
4.12. MATERIAL DOCUMENTS. Set forth in Schedule 4.12 is a complete list of
all material documents to which the Company is a party. All such documents
listed on and attached to Schedule 4.12 are valid, enforceable and accurate and
complete copies of such material documents (or, with the consent of Precision,
forms thereof) as have been requested by Precision have been provided to the
Precision. Except as disclosed in Schedule 4.12, the Company is not or will not
be, merely with the passage of time, in default under any such material document
nor is there any requirement for any of such material documents to be novated or
to have the consent of the other contracting party in order for such material
documents to be valid, effective and enforceable by Precision after the Closing
as it was immediately prior thereto.
4.13. INTELLECTUAL PROPERTIES. The Company has no interest in and owns no
domestic and foreign letters, patent, patents, patent applications, patent
licenses, software licenses and know how licenses, trade names, trademarks,
copyrights, unpatented inventions, service mark registrations and applications
and copyright registrations and applications owned or used by the Company in the
operation of its business (collectively, the "Intellectual Property").
4.14. NO DEFAULT. Except as provided on Schedule 4.14, the Company and the
Selling Shareholder are not in default under any provision of any material
contract, commitment, or agreement respecting the Company, the Assets or the
capital stock of the Company to which the Company or the Selling Shareholder are
parties or by which they are bound.
4.15. LITIGATION. Except as set forth in Schedule 4.15, there are no
actions, claims or proceedings pending or threatened before any court,
administrative agency or governmental body against the Company, the Assets, or
the Company's employees which may have a material adverse effect on the Company,
the Assets, or the Company's financial condition.
4.16. EMPLOYEES. Schedule 4.16 hereto sets forth the name and current
monthly salary and any accrued benefit for each employee of the Company as of
the Closing.
4.17. COMPLIANCE WITH LAWS. The Company has conducted and is continuing to
conduct its business in compliance with, and is in compliance with, all
applicable statutes, orders, rules and regulations promulgated by governmental
authorities relating in any respect to its operations, conduct of business or
use of properties, including, without limitation, any applicable statute, order,
rule or regulation relating to (i) wages, hours, hiring, nondiscrimination,
retirement, benefits, pensions, working conditions, and worker safety and
health; (ii) air, water, toxic substances, noise, or solid, gaseous or liquid
waste generation, handling, storage, disposal or transportation; (iii) zoning
and building codes; (iv) the production, storage, processing, advertising, sale,
distribution, transportation, disposal, use and warranty of products; or (v)
trade and antitrust regulations. The execution, delivery and performance of this
Agreement by the Selling Shareholder and the Company and the consummation by the
Selling Shareholder and the Company of the transactions contemplated by this
Agreement will not, separately or jointly,
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violate, contravene or constitute a default under any applicable statutes,
orders, rules and regulations promulgated by governmental authorities or cause a
lien on any property used, owned or leased by the Company to be created
thereunder. There are no proposed changes in any applicable statutes, orders,
rules and regulations promulgated by governmental authorities that would cause
any representation or warranty contained in this Paragraph 4.17 to be untrue or
have an adverse effect on its operations, conduct of business or use of
properties.
4.18. FILINGS. The Company and the Selling Shareholder have made all filings
and reports required under all local, state and federal laws with respect to its
business and of any predecessor entity or partnership, except filings and
reports in those jurisdictions in which the nature of the property owned or
business conducted, when considered in relation to the absence of serious
penalties, renders the required filings or reports unnecessary as a practical
matter.
4.19. CERTAIN ACTIVITIES. The Company has not, directly or indirectly,
engaged in or been a party to any of the following activities:
4.19.1 Bribes, kickbacks or gratuities to any person or entity,
including domestic or foreign government officials or any other payments to any
such persons or entity, whether legal or not legal, to obtain or retain business
or to receive favorable treatment of any nature with regard to business
(excluding commissions or gratuities paid or given in full compliance with
applicable law and constituting ordinary and necessary expenses incurred in
carrying on its business in the ordinary course);
4.19.2 Contributions (including gifts), whether legal or not legal,
made to any domestic or foreign political party, political candidate or holder
of political office;
4.19.3 Holding of or participation in bank accounts, funds or pools of
funds created or maintained in the United States or any foreign country, without
being reflected on the corporate books of account, or as to which receipts or
disbursements therefrom have not been reflected on such books, the purpose of
which is to obtain or retain business or to receive favorable treatment with
regard to business;
4.19.4 Receiving or disbursing monies, the actual nature of which has
been improperly disguised or intentionally misrecorded on or improperly omitted
from the corporate books of account;
4.19.5 Paying fees to domestic or foreign consultants or commercial
agents which exceed the reasonable value of the ordinary and customary
consulting and agency services purported to have been rendered;
4.19.6 Paying or reimbursing (including gifts) personnel of the
Company for the purpose of enabling them to expend time or to make contributions
or payments of the kind or for the purposes referred to in Paragraphs 4.19.1
through 4.19.5 above;
4.19.7 Participating in any manner in any activity which is illegal
under the international boycott provisions of the Export Administration Act, as
amended, or the international boycott provisions of the Internal Revenue Code,
or guidelines or regulations thereunder; and
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4.19.8 Making or permitting unlawful charges, mischarges or defective
or fraudulent pricing under any contract or subcontract under a contract with
any department, agency or subdivision thereof, of the United States government,
state or municipal government or foreign government.
4.20. EMPLOYMENT RELATIONS. The Company is in compliance with all federal,
state or other applicable laws, domestic or foreign, respecting employment and
employment practices, terms and conditions of employment and wages and hours,
and has not and is not engaged in any unfair labor practice which would result
in a material adverse effect on the Company; no unfair labor practice complaint
against the Company is pending before the National Labor Relations Board; there
is no labor strike, dispute, slow down or stoppage actually pending or
threatened against or involving the Company; no labor representation question
exists respecting the employees of the Company; no grievance which might have an
adverse effect upon the Company or the conduct of its business exists; no
arbitration proceeding arising out of or under any collective bargaining
agreement is currently being negotiated by the Company; and the Company has not
experienced any material labor difficulty during the last three (3) years.
4.21. INSURANCE COVERAGE. The policies of fire, liability or other forms of
insurance of the Company are described in Schedule 4.21.
4.22. CHARTER AND BYLAWS. The Company has heretofore delivered to Precision
true, accurate and complete copies of the Articles of Incorporation and Bylaws
of the Company, together with all amendments to each of the same as of the date
hereof.
4.23. CORPORATE MINUTES. The minute books of the Company made available to
Precision at the Closing are the correct and only such minute books and do and
will contain complete and accurate records of any and all proceedings and
actions at all meetings, including written consents executed in lieu of meetings
of its shareholders, Board of Directors and committees thereof through the
Closing. The stock records of the Company delivered to Precision at the Closing
are the correct and only such stock records and accurately reflect all issues
and transfers of record of the capital stock of the Company.
4.24. DEFAULT ON INDEBTEDNESS. The Company is not in monetary default or in
material default in any other respect under any evidence of indebtedness for
borrowed money.
4.25. INDEBTEDNESS. Except as described in Schedule 4.25, the Selling
Shareholder and any corporation or entity with which he is affiliated are not
indebted to the Company, and the Company has no indebtedness or liability to the
Selling Shareholder or any corporation or entity with which he is affiliated.
4.26. AGREEMENTS, JUDGMENT AND DECREES AFFECTING THE COMPANY AND THE SELLING
SHAREHOLDER. The Company and the Selling Shareholder jointly and severally
represent and warrant that the Selling Shareholder and the Company are not
subject to any agreement, judgment or decree adversely affecting their or its
ability to enter into this Agreement, to consummate the transactions
contemplated herein, or, to continue as employees or consultants of the Company
after Closing. The Company and the Selling Shareholder further represent and
warrant that there are no laws or regulations prohibiting the consummation of
the transactions contemplated by this Agreement.
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4.27. GOVERNMENTAL APPROVALS. No consent, approval or authorization of, or
notification to or registration with, any governmental authority, either
federal, state or local, is required in connection with the execution, delivery
and performance of this Agreement by the Selling Shareholder or the Company.
4.28. COMPLETENESS OF REPRESENTATIONS AND SCHEDULES. The Schedules hereto,
where applicable to the Selling Shareholder and the Company, completely and
correctly present in all material respects the information required by this
Agreement. This Agreement, the certificates to be delivered by the Company and
the Selling Shareholder at the Closing, the Schedules and the representations
and warranties contained in this Paragraph 4, and the documents and written
information pertaining to the Company furnished to Precision or its agents by or
on behalf of the Selling Shareholder or the Company, do not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make this Agreement, or such certificates, schedules, documents or written
information not misleading.
5. REPRESENTATIONS AND WARRANTIES OF DIAMOND AND PRECISION. Diamond and
Precision represent and warrant to the Selling Shareholder and the Company that:
5.1. ORGANIZATION AND GOOD STANDING.
5.1.1. Precision is a corporation duly organized and existing in good
standing under the laws of the State of Nevada. Precision has full corporate
power and authority to carry on its business as now conducted. Precision is duly
qualified to transact business in the States of Arizona and Nevada and in all
states and jurisdictions in which the business or ownership of the Assets makes
it necessary so to qualify (other than jurisdictions in which the nature of the
property owned or business conducted, when considered in relation to the absence
of serious penalties, renders qualification as a foreign corporation unnecessary
as a practical matter).
5.1.2. Diamond is a publicly held company and is a reporting company
under the Securities Exchange Act of 1934 as amended ("Exchange Act"). All
reports due under the Exchange Act have been filed as of the date of this
Agreement and are true, correct and complete in all material respects.
5.2. CAPACITY. Precision represents and warrants to the Company and the
Selling Shareholder that Precision has read and understands this Agreement, has
consulted legal and accounting representatives to the extent deemed necessary
and has the capacity to enter into this Agreement and to carry out the
transactions contemplated hereby without the consent of any third party.
5.3. FINDERS. No agent, broker, person or firm acting on behalf of Diamond
or Precision is, or will be, entitled to any commission or broker's or finder's
fees from any of the parties to this Agreement, or from any person controlling,
controlled by or under common control with any of the parties to this Agreement,
in connection with any of the transactions contemplated in this Agreement.
5.4. AUTHORITY AND CONSENT. The execution, delivery and performance of this
Agreement by Diamond and Precision have been duly authorized by their respective
Boards of Directors. This Agreement is valid and binding upon Diamond and
Precision, and is enforceable against Diamond and Precision in accordance with
its terms, subject to bankruptcy, reorganization, insolvency, fraudulent
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conveyance, moratorium, receivership or other similar laws relating to or
affecting creditors' rights generally.
5.5. VALIDITY OF AGREEMENT. Neither the execution nor the delivery of this
Agreement by Diamond and Precision, nor the performance by Diamond and Precision
of any of the respective covenants or obligations to be performed by Diamond and
Precision hereunder, will result in any violation of any order, decree or
judgment of any court or other governmental body, or statute or law applicable
to Diamond or Precision, or in any breach of any terms or provisions of either
the Articles of Incorporation or Bylaws of Diamond or Precision, or constitute a
default under any indenture, mortgage, deed of trust or other contract to which
Diamond or Precision is a party or by which Diamond or Precision is bound.
5.6. GOVERNMENT APPROVALS. No consent, approval or authorization of, or
notification to or registration with, any governmental authority, either
federal, state or local, is required in connection with the execution, delivery
and performance of this Agreement by Diamond or Precision.
5.7. FINANCIAL STATEMENTS AND PUBLIC REPORTS. The audited consolidated
financial statements of Diamond for the fiscal years ended June 30, 1997 and
1996, with accompanying notes, all as contained in Diamond's Annual Report on
Form 10-KSB for the fiscal year ended June 30, 1997, and the financial
statements contained in Diamond's Quarterly Reports on Form 10-QSB for the three
months and nine month periods ended March 31, 1998, delivered to the Selling
Shareholder, fairly and accurately present, in all material respects, the
financial position of Diamond at such dates, the results of its operation and
changes in its financial position for the periods and years ended on such dates,
in conformity with generally accepted accounting principles consistently
applied. Such financial statements will contain and reflect all necessary
adjustments for a fair and accurate presentation of the financial condition as
of the date of such statements.
5.8. SUBSIDIARIES. Precision is Diamond's only subsidiary as of the date of
this Agreement. Diamond owns a majority of the outstanding capital stock of
Precision.
5.9. COMPLETENESS OF REPRESENTATIONS AND SCHEDULES. The Schedules and
Exhibits hereto completely and correctly present in all material respects the
information required by this Agreement. This Agreement, the certificates to be
delivered by the officers of Diamond and Precision at the Closing, any Schedules
and Exhibits to be delivered under this Agreement and the representations and
warranties of this Paragraph 5, and the documents and written information
pertaining to Diamond furnished to the Company or its agents and the Selling
Shareholder by or on behalf of Diamond, do not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make this
Agreement, or such certificates, schedules, documents or written information,
not misleading.
6. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF DIAMOND AND PRECISION . The
Closing of this Agreement by Diamond and Precision is in recognition that the
following conditions have been, or will be, fulfilled:
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6.1. TITLE.
6.1.1 At or prior to the Closing, there shall have been delivered to
Precision appropriate bills of sales, assignments and other instruments giving
and conveying to Diamond all right, title and interest in and to the Assets
described or referred to in Schedule 1.1.
6.1.2 At or prior to the Final Maturity Date, there shall have been
delivered to Precision, duly executed UCC-2 Releases, as described in Paragraph
4.10, "Title to the Assets," of this Agreement, or evidence that no liens have
been recorded against the Assets and consents to the assignment and transfer by
the Company to Precision of all rights of the Company in and to all contracts,
agreements, commitments and other assets to be assigned and transferred to
Precision hereunder in all instances in which the same may be necessary to vest
in Precision all of Company's right title and interest therein and thereto.
6.2. CONSENT OF PRINCIPAL CUSTOMERS. Prior to Closing, the Company shall
have obtained all approvals in conjunction with the transfer of the Assets to
Precision as may be required by any contracts between the Company and any of its
principal customers and such approvals shall be issued in written form and
substance satisfactory to Diamond and their counsel or Diamond shall have waived
such requirements.
6.3. POSSESSION. The Company and the Selling Shareholder shall deliver to
Precision possession of the Assets, including any consents of any third parties
required to the sale and transfer of the Assets.
6.4. CONSULTING AGREEMENT. As of the Closing, Roy L. Thompson shall have
entered into a consulting and non-compete agreement with Precision in the form
attached hereto as Exhibit C.
6.5. PRIVATE PLACEMENT. The Company will provide Diamond with all the
information regarding the Company required by Diamond in connection with
Diamond's preparation of any private placement of Diamond's debt or equity
securities.
6.6. FINANCIAL AND OTHER CONDITIONS. The Company shall have no contingent or
other liabilities connected with its business, except as disclosed in the
Financial Statements and as described in Paragraph 1. The review of the
business, premises and operations of the Company and the Financial Statements by
Precision at its expense shall not have revealed any matter which, in the sole
judgment of Precision, makes the acquisition on the terms herein set forth
inadvisable for Precision.
6.7. LEGAL PROHIBITION. There are no injunctions or final judgments, laws or
regulations prohibiting the consummation of the transactions contemplated by
this Agreement.
6.8. ALL CONTRACTS CONTINUED. All lines of credit, debts, fumcing
arrangements, leases and other contracts of the Company shall be acceptable to
Precision and shall continue under their present terms and conditions in
Precision's name after the Closing and all approvals relating to the sale of the
Assets, and to effect the transactions contemplated hereby, required by the
foregoing instruments and arrangements shall have been obtained by the Closing.
6.9. DISMISSAL OF BANKRUPTCY. Precision shall have received a copy of the
order from the bankruptcy court with jurisdiction over the Company's prior
bankruptcy of such bankruptcy's dismissal, closure or final decree.
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7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND THE SELLING
SHAREHOLDER. The Closing of this Agreement by the Company and the Selling
Shareholder is in recognition that the following conditions have been, or will
be, fulfilled:
7.1. EXECUTION AN APPROVAL OF AGREEMENT. Diamond and Precision shall have
duly executed and delivered this Agreement to the Company and the Selling
Shareholder.
7.2. PAYMENT. Subject to the terms and conditions hereof, Precision shall
have delivered the cash, executed the Note and assumed the Liabilities of the
Company and the Selling Shareholder in exchange for the Assets as described in
Paragraph 3, "Purchase Price. "
7.3. CONSULTING AGREEMENT. As of the Closing, Roy L. Thompson shall have
entered into a consulting and non-compete agreement with Precision in the form
attached hereto as Exhibit C.
7.4. REPRESENTATIONS AND WARRANTIES. The representations and warranties made
to the Company and the Selling Shareholder in this Agreement or in any document,
statement, list or certificate furnished pursuant hereto shall be true and
correct as of the Closing.
8. INDEMNIFICATION.
8.1. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS. The
representations and warranties made by the parties in this Agreement and all of
the covenants of the parties in this Agreement, shall survive the execution and
delivery of this Agreement and the Closing and shall expire on the third
anniversary of the Closing. Any claim for indemnification shall be effective
only if notice of such claim is given by the party claiming indemnification or
other relief to the party against whom such indemnification or other relief is
claimed on or before the third anniversary of the Closing.
8.2. INDEMNIFICATION BY PRECISION.
8.2.1 Precision agrees to indemnify and hold the Company and the
Selling Shareholder harmless, from and after the Closing, against and in respect
of all matters in connection with any losses, liabilities, costs or damages
(including reasonable attorneys' fees) incurred by the Selling Shareholder that
result from Precision's business operations and/or any misrepresentation or
breach of the warranties by Diamond and Precision in Paragraph 5,
"Representations and Warranties of Diamond and Precision, " or any breach or
non-fulfillment of any agreement or covenant on the part of Precision contained
in this Agreement, and all suits, actions, proceedings, demands, judgments,
costs and expenses incident to the foregoing matters, including reasonable
attorneys' fees.
8.2.2. In no event shall Precision's liability under Paragraph 8.2.1
above to the Company and the Selling Shareholder (other than for costs and
reasonable attorneys' fees incurred by such Selling Shareholder to which they
may be entitled pursuant to Paragraph 8.4 or 9.3) collectively exceed the
Purchase Price. No claim for indemnification may be made under this Paragraph 9
after the third anniversary of the Closing.
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8.3. INDEMNIFICATION BY THE SELLING SHAREHOLDER.
8.3.1. The Selling Shareholder agrees to indemnify and hold Diamond
and Precision harmless, from and after the Closing, against and in respect of
all matters in connection with any losses, liabilities or damages (including
reasonable attorneys' fees) incurred by Diamond or Precision resulting from any
misrepresentation or breach of their warranties in Paragraph 4, "Representations
and Warranties of the Company and the Selling Shareholder," or any breach or
non-fulfillment of any agreement or covenant on the part of the Company and the
Selling Shareholder contained in this Agreement and all suits, actions,
proceedings, demands, judgments, costs and expenses incident to the foregoing
matters, including reasonable attorneys' fees.
8.3.2. Notwithstanding the provisions of Paragraph 8.3. 1 above,
Precision shall be entitled to seek indemnification from the Selling Shareholder
pursuant to Paragraph 8.3.1 only for the portion of the aggregate of the losses,
liabilities, costs and damages (including reasonable attorneys' fees) incurred
by Precision which it would be entitled to claim under such Paragraph 8.3.1 that
in the aggregate exceeds $10,000. Upon such occurrence, the collective liability
of the Selling Shareholder under Paragraph 8.3.1 above to Precision (other than
for costs and reasonable attorneys' fees incurred by Precision to which it may
be entitled pursuant to Paragraphs 8.4 or 10.3) will not exceed the Purchase
Price paid to the Company and the Selling Shareholder. No claim for
indemnification may be made under this Paragraph 8 after the third anniversary
of the Closing
8.4. ARBITRATION. If Precision believes that a matter has occurred that
entitles it to indemnification under Paragraph 8.3, "Indemnification by the
Selling Shareholder," or the Selling Shareholder believes that a matter has
occurred that entitles them to indemnification under Paragraph 8.2,
"Indemnification by Precision," Precision or the Selling Shareholder, as the
case may be (the "Indemnified Party"), shall give written notice to the party or
parties against whom indemnification is sought (each of whom is referred to
herein as an "Indemnifying Party") describing such matter in reasonable detail.
The Indemnified Party shall be entitled to give such notice prior to the
establishment of the amount of its losses, liabilities, costs or damages and to
supplement its claim from time to time thereafter by further notices as they are
established. Each Indemnifying Party shall send a written response to such claim
for indemnification within thirty (30) days after receipt of the claim stating
its acceptance or objection to the indemnification claim, and explaining its
position in respect thereto in reasonable detail. If such Indemnifying Parry
does not timely so respond, it will be deemed to have accepted the Indemnified
Party's indemnification claim as specified in the notice given by the
Indemnified Party. If the Indemnifying Party gives a timely objection notice,
then the parties will negotiate in good faith to attempt to resolve the dispute,
and upon the expiration of an additional thirty (30) day period from the date of
the objection notice or such longer period as to which the Indemnified and
Indemnifying Parties may agree, any such dispute shall be submitted to
arbitration in Phoenix, Arizona to a member of the American Arbitration
Association mutually appointed by the Indemnified Party and Indemnifying Party
(or, in the event the Indemnified Party and Indemnifying Party cannot agree on a
single such member, to a panel of three members of such Association selected in
accordance with the rules of such Association), who shall promptly arbitrate
such dispute in accordance with the rules of such Association and report to the
parties upon such disputed items, and such report shall be final, binding and
conclusive on the parties. Judgment upon the award by the arbitrator(s) may be
entered in any court having jurisdiction. The prevailing party in any such
arbitration shall be entitled to recover from, and have paid by, the other party
hereto all fees and disbursements of
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such arbitrator or arbitrators. For this purpose, a party shall be deemed to be
the prevailing party only if such party would be deemed to be a prevailing party
under Paragraph 10.1.3.
8.5. NO FINDERS. Precision represents and warrants to the Company and the
Selling Shareholder and the Company and the Selling Shareholder represent and
warrant that there are no obligations to pay any fee or commission to any
broker, finder or intermediary for or on account of the transactions
contemplated by this Agreement. Precision agrees to indemnify and hold the
Selling Shareholder harmless from any breach of Precision's representation in
the previous sentence, and the Selling Shareholder agrees to indemnify and hold
Precision harmless from any breach of his representation in the previous
sentence. The parties acknowledge that Lerrin may seek a commission and Diamond
and Precision acknowledge that the Company and the Selling Shareholder deny that
such commission is owed. In the event that Lerrin seeks such a commission, the
Company and the Selling Shareholder agree to indemnify Diamond and Precision
against any fees claimed by Lerrin to be owed by Diamond or Precision. In
addition, the Company and the Selling Shareholder agree to pay all costs and
expenses, including without limitations any legal fees associated with the
defense of any suit or proceeding brought by Lerrin against Diamond or Precision
with respect to any finder's fee.
8.6. THIRD PERSON CLAIM PROCEDURES. If any third person asserts a claim
against an Indemnified Party for an indemnifiable event, the Indemnified Party
shall promptly (but in no event later than ten (10) days prior to the time at
which an answer or other responsive pleading or notice with respect to the claim
is required) notify the Indemnifying Party of such claim. The Indemnifying Party
shall have the right, at its election, to take over the defense or settlement of
such claim by giving prompt notice to the Indemnified Party that it will do so,
such election to be made and notice given in any event at least five (5) days
prior to the time at which an answer or other responsive pleading or notice with
respect thereto is required. If the Indemnifying Party makes such election, the
Indemnifying Party may conduct the defense of such claim through counsel of its
choosing (subject to the Indemnified Party's approval, not to be unreasonably
withheld), will be responsible for the expenses of such defense, and shall be
bound by the results of its defense or settlement of the claim to the extent it
produces damage or loss to the Indemnified Party. The Indemnifying Party shall
not settle such claims without prior notice to and consultation with the
Indemnified Party, and no such settlement involving any injunction or material
and adverse effect on the Indemnified Party may be agreed to without its
consent. As long as the Indemnifying Party is diligently contesting any such
claim in good faith, the Indemnified Party shall not pay or settle any such
claim. If the Indemnifying Party does not make such election, or having made
such election does not proceed diligently to defend such claim prior to the time
at which an answer or other responsive pleading or notice with respect thereto
is required, or does not continue diligently to contest such claim, then the
Indemnified Party may take over defense and proceed to handle such claim in its
exclusive discretion, and the Indemnifying Party shall be bound by any defense
or settlement that the Indemnified Party may make in good faith with respect to
such claim. The parties agree to cooperate in defending such third party claims,
an d the defending party shall have access to records, information and personnel
in control of the other part which are pertinent to the defense thereof.
8.7. LIMITATION OF REMEDIES. No party to this Agreement shall be liable to
any other party or parties or have any remedies against any other party or
parties under this Agreement other than as provided in Paragraph 8,
"Indemnification, " and Paragraph 9, "Termination." The parties understand that
this requires that all disputed claims shall be submitted to arbitration in
accordance with Paragraph 8.4, "Arbitration. "
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8.8. INDEMNIFICATION LIMITS. The indemnification rights and obligations of
the parties shall cease with respect to any matter as to which notice has not
been given to the Indemnifying Parry prior to the third anniversary of the
Closing. The maximum amount for which an Indemnifying Party shall be liable for
is the Purchase Price paid to the Company and the Selling Shareholder under this
Agreement, as described under Paragraph 3, "Purchase Price."
9. EXPENSES AND TRANSFER TAXES.
9.1. Precision shall be solely responsible for paying its own expenses and
costs incident to the preparation of this Agreement and to the consummation of
the transactions contemplated by this Agreement, and shall have no obligation
for paying such expenses or costs of the other parties.
9.2. The Company and the Selling Shareholder shall be solely responsible for
paying their own expenses and costs incident to the preparation of this
Agreement and to the consununation of the transactions contemplated by this
Agreement. The Company and the Selling Shareholder shall have no obligation to
reimburse the expenses or costs of Precision.
9.3. Notwithstanding any of the other provisions hereof, in the event of
arbitration and/or litigation with respect to the interpretation or enforcement
of this Agreement or any provisions hereof, the prevailing party in any such
matter shall be entitled to recover from the other party their or its reasonable
costs and expense, including reasonable attorneys' fees, incurred in such
arbitration and/or litigation. For purposes of this subparagraph 9.3, a party
shall be deemed to be the prevailing party only if such party (A)(i) receives an
award or judgment in such arbitration and/or litigation for more than 50 % of
the disputed amount involved in such matter, or (ii) is ordered to pay the other
party less than 50 % of the disputed amount involved in such matter or (B)(i)
succeeds in having imposed a material equitable remedy on the other party (such
as an injunction or order compelling specific performance), or (ii) succeeds in
defeating the other party's request for such an equitable remedy.
9.4. Precision, the Company and the Selling Shareholder do not believe any
sales or transfer taxes will be due as a result of the sale and transfer of the
Assets as contemplated in this Agreement. Precision shall, however, pay any
sales or transfer taxes which may become due on the sale or transfer of the
Assets under this Agreement.
10. RISK OF LOSS. The risk of loss or destruction of all or any part of the
Assets prior to the Closing from any cause (including, without limitations fire,
theft, acts of God or public enemy) shall be upon the Company and the Selling
Shareholder. Such risk shall be upon Precision if such loss occurs after the
Closing.
11. NODFICATION OF CLAIMS. Each party will promptly notify the other of any
third party claims against any party relating to the Company or the Assets of
which it receives knowledge or notice so as to permit such party an opportunity
to prepare a timely defense to such claim or to attempt settlement.
12. MISCELLANEOUS.
12.1 BINDING AGREEMENT. The parties covenant and agree that this
Agreement, when executed and delivered by the parties, will constitute a legal,
valid and binding agreement between the
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parties and will be enforceable in accordance with its terms.
12.2. ASSIGNMENT. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto, their legal
representatives, successors and assigns.
12.3. ENTIRE AGREEMENT. This Agreement and its exhibits and schedules
constitute the entire contract among the parties hereto with respect to the
subject matter thereof, superseding all prior communications and discussions and
no party hereto shall be bound by any communication on the subject matter hereof
unless such is in writing signed by any necessary party thereto and bears a date
subsequent to the date hereof. The exhibits and schedules shall be construed
with and deemed as an integral part of this Agreement to the same extent as if
the same had been set forth verbatim herein. Information set forth in any
exhibit, schedule or provision of this Agreement shall be deemed to be set forth
in every other exhibit, schedule or provision of this Agreement and therefore
shall be deemed to be disclosed for all purposes of this Agreement.
12.4. MODIFICATION. This Agreement may be waived, changed, amended,
discharged or terminated only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, amendment, discharge or
termination is sought.
12.5. NOTICES. All notices, requests, demands and other communications shall
be deemed to have been duly given three (3) days after postmark of deposit in
the United States mail, if mailed, certified or registered mail, postage
prepaid:
` If to the Company or the Selling Shareholder:
Roy L. Thompson
1121 Gold Nugget Lane
Payson, Arizona 85541
With copy to:
Timothy D. Ronan
Ronan & Firestone, PLC
649 North Second Avenue
Phoenix, Arizona 85003
Michael Barry
Meyer, Hendricks, Bivens & Moyes, P.A.
3003 North Central Avenue, Suite 1200
Phoenix, Arizona 85012-2200
If to Diamond or Precision:
Diamond Equities, Inc.
2010 E. University Drive, Suite #3
Tempe, Arizona 85281
Attn: David D. Westfere, President
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<PAGE>
With a copy to:
Christian J. Hoffnann, III
Streich Lang, P.A.
Renaissance One
Two N. Central Avenue
Phoenix, Arizona 85004-2391
or to such other address as any party shall designate to the other in writing.
The parties shall promptly advise each other of changes in addresses for such
notices.
12.6. CHOICE OF LAW. This Agreement shall be governed by, construed,
interpreted and enforced according to the laws of the State of Arizona.
12.7. SEVERABILITY. If any portion of this Agreement shall be finally
determined by any court or governmental agency of competent jurisdiction to
violate applicable law or otherwise not to conform to requirements of law and,
therefore, to be invalid, the parties will cooperate to remedy or avoid the
invalidity, but, in any event, will not upset the general balance of
relationships created or intended to be created between them as manifested by
this Agreement and the instruments referred to herein. Except insofar as it
would be an abuse of the foregoing principle, the remaining provisions hereof
shall remain in full force and effect.
12.8. OTHER DOCUMENTS. The parties shall upon reasonable request of the
other, execute such documents as may be necessary or appropriate to carry out
the intent of this Agreement.
12.9. HEADINGS AND THE USE OF PRONOUNS. The paragraph headings hereof are
intended solely for convenience of reference and shall not be construed to
explain any of the provisions of this Agreement. All pronouns and any variations
thereof and other words, as applicable, shall be deemed to refer to the
masculine, feminine, neuter, singular or plural as the identity of the person or
matter may require.
12.10. TIME IS OF THE ESSENCE. Time is of the essence of this Agreement.
12.11. NO WAIVER AND REMEDIES. No failure or delay on a parties part to
exercise any right or remedy hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise by a party of a right or remedy hereunder
preclude any other or further exercise. No remedy or election hereunder shall be
deemed exclusive but it shall, where ever possible, be cumulative with all other
remedies in law or equity.
12.12. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, and by the different parties hereto on separate counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
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12.13. FURTHER ASSURANCES. Each of the parties hereto shall use commercially
practicable efforts to fulfill all of the conditions set forth in this Agreement
over which it has control or influence (including obtaining any consents
necessary for the performance of such party's obligations hereunder) and to
consummate the transactions contemplated hereby, and shall execute and deliver
such further instruments and provide such documents as necessary to effect this
Agreement.
12.14. RULES OF CONSTRUCTION. The normal rules of construction which require
the terms of an agreement to be construed most strictly against the drafter of
such agreement are hereby waived since each party have been represented by
counsel in the drafting and negotiation of this Agreement.
12.15 THIRD PARTY BENEFICIARIES. Each party hereto intends this Agreement
shall not benefit or create any right or cause of action in or on behalf of any
person other than the parties hereto.
[THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY: PRECISION:
ACCURATE THERMOPLASTICS, INC. PRECISION PLASTICS, INC.
a Florida Corporation a Nevada corporation
/s/ Roy Thompson /s/ David D. Westfere
- ------------------------------- ---------------------------------
By Roy Thompson By David D. Westfere
Its President Its President
Diamond:
SELLING SHAREHOLDER: DIAMOND EQUITIES, INC.
a Nevada corporation
/s/ Roy Thompson /s/ David D. Westfere
- ------------------------------- ---------------------------------
Roy L. Thompson By David D. Westfere
Its President
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PREFERRED STOCK EXCHANGE AGREEMENT
This Agreement is entered into as of this 28th day of October, 1997 between
Diamond Equities, Inc. ("DEI"), a Nevada Corporation, and Dingaan Holdings, S.A.
("Dingaan").
RECITALS
WHEREAS, Dingaan holds 727 shares of Series A 6% Preferred Stock ("Series A
Stock") of DEI and,
WHEREAS, DEI desires to exchange a new series of preferred stock without
dividends for the Series A Stock and,
WHEREAS, Dingaan has agreed to such an exchange,
NOW THEREFORE, in consideration of the premises contained in the recitals, the
parties agree as follows:
AGREEMENT
SECTION 1. SERIES A STOCK.
1.1 The Series A Stock presently held by Dingaan have a stated value of
$1,817,591.00 (one million eight hundred seventeen thousand, five hundred ninety
one dollars).
1.2 Cumulative Dividends are at 6% payable annually, and are presently in
arrears in the amount of $194,023.00 (one hundred ninety three thousand and
twenty three dollars).
1.3 The Series A Stock is convertible at the option of the holder at a rate
equal to 75% (seventy five percent) of the average bid price of the common
shares for the ten (10) days prior to the conversion date.
1.4 The Series A Stock is redeemable by DEI at the cash price paid for the
shares plus the amount of any dividends accumulated and unpaid as of the date of
the redemption.
<PAGE>
SECTION 2. OWNERSHIP.
2.1 Dingaan confirms that its ownership of the Series A Stock is unencumbered
and that it is able to pass clear title to the shares to DEI on the Closing
Date.
SECTION 3. AUTHORIZATION AND EXCHANGE OF SERIES A STOCK FOR NEW SERIES B
PREFERRED STOCK.
3.1 The Board of Directors of DEI has, by resolution dated September 24, 1997,
authorized the issuance and exchange of a new Series B Preferred Stock for its
existing Series A Stock.
3.2 Twenty thousand (20,000) shares of the Series B Stock shall be valued at
$1,817,591.00 (one million, eight hundred seventeen thousand, five hundred and
ninety one dollars), plus the Series A stock dividends in arrears in the amount
of $194,023.00, for a total value of $2,011, 614.00 (two million, eleven
thousand, six hundred fourteen dollars).
3.3 The twenty five thousand (25,000) shares of the Series B Stock shall be
convertible into 20,000,000 (twenty million) shares of common stock of DEI.
3.4 Other specific terms and conditions of the Series B Preferred Stock shall be
determined between the parties and represented in a Series B Preferred Stock
Certificate.
SECTION 4. CLOSING.
4.1 The Closing of the Exchange of Shares hereunder shall be held at offices of
DEI on November 1 ,1997 or such other place or date as the parties may agree.
4.2 At the Closing, DEI shall deliver a definitive certificate registered in
Dingaan's name representing 20,000 shares of Series B Preferred Stock and the
value thereof being exchanged, signed by the President of DEI.
4.3 At the Closing, Dingaan shall deliver its certificate, representing
ownership of 727 shares of the Series A Preferred Stock, duly endorsed or
accompanied by a duly executed stock power in blank with a signature guaranteed
by a bank, trust company or a member firm of the NASD.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF DEI. DEI hereby represents and
warrants to Dingaan as set forth below.
Page 2 of 7
<PAGE>
5.1 ORGANIZATION AND STANDING; ARTICLES AND BYLAWS. DEI is a corporation duly
incorporated and validly existing and in good standing under the laws of the
State of Nevada. DEI has requisite corporate power and authority to own and
operate its properties and assets, and to carry on its business as presently
conducted and as proposed to be conducted. DEI is duly qualified and authorized
to do business, and is in good standing as a foreign corporation, in each
jurisdiction where the nature of its activities and of its properties (both
owned and leased) makes such qualification necessary and where a failure to do
so qualify would have a material adverse effect on its business or properties.
5.2 CORPORATE POWER. DEI will have at the Closing Date all requisite legal and
corporate power and authority to execute and deliver this Agreement, to sell and
issue the Shares hereunder, to issue the Common Stock issuable upon conversion
of the Preferred Stock ("Underlying Common Stock") and to carry out and perform
its obligations under the terms of this Agreement.
5.4 CAPITALIZATION. The authorized capital stock of DEI immediately prior to the
Closing consists of (a) [NUMBER] shares of Common Stock, of which [NUMBER]
shares are or will be issued and outstanding, and (b) [NUMBER] shares of
preferred stock ("Preferred Stock"), of which [NUMBER] shares are or will be
issued and outstanding prior to the Closing. The outstanding shares have been
duly authorized and validly issued, and are fully paid and nonassessable and
were issued in compliance with all applicable federal and state securities laws.
DEI has reserved [NUMBER] shares of Common Stock for issuance upon conversion of
the Preferred Stock. There are (i) no options, warrants or other rights to
purchase any of DEI's authorized and unissued capital stock, or any security
directly or indirectly convertible into or exchangeable for shares of capital
stock of DEI, (ii) so far as known to DEI, no voting trust or voting agreements
among, or irrevocable proxies executed by, stockholders of the Company, (iii) so
far as known to DEI, no agreements among stockholders providing for the purchase
or sale of DEI's capital stock, and (iv) no obligations (contingent or
otherwise) of DEI to purchase, redeem or otherwise acquire any shares of its
capital stock or any interest therein or to pay any dividend or make any other
distribution in respect thereof. All such issued and outstanding options and
warrants have been duly and validly issued in compliance with applicable federal
and state securities laws.
5.5 AUTHORIZATION. All corporate action on the part of DEI, its directors and
shareholders necessary for the authorization, execution, delivery and
performance of this Agreement by DEI, the authorization, issuance and delivery
of the Shares and the Underlying Common Stock and the performance of all of
DEI's obligations hereunder has been taken or will be taken prior to Closing.
This Agreement constitutes a valid and binding obligation of DEI, enforceable in
accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other general principles of equity,
whether such enforcement is considered in a proceeding in equity or law. The
Shares, when issued in compliance with the provisions of this Agreement, and the
Underlying Common Stock, when issued, will be validly issued, will be fully paid
and nonassessable, will be free of any duties or other governmental charges and
will be free of any liens, encumbrances or restrictions, other than any liens,
encumbrances or restrictions created by or imposed upon the holders under the
documents relating to this transaction; provided, however, that the Shares and
the Underlying Common Stock may be subject to
Page 3 of 7
<PAGE>
restrictions on transfer under state and/or federal securities laws. Except as
contemplated herein, the Shares and the Underlying Common Stock are not subject
to any preemptive rights or rights of first refusal.
5.6 LIABILITIES. Except as set forth in DEI's financial statements as of June
30, 1997], copies of which have been heretofore delivered to Dingaan, DEI has no
liabilities or obligations, absolute or contingent, except liabilities and
obligations which have been incurred in the ordinary course of business none of
which, in the aggregate, exceeds $10,000.
5.7 COMPLIANCE WITH OTHER INSTRUMENTS. Company is not in violation of any term
of its Articles or Bylaws, or in any material respect of any term or provision
of the mortgages, indebtedness, indentures, contracts, agreements, or
instruments set forth on Exhibit D or any other material agreement, or any
judgment or decree. The best of its knowledge, DEI is not in violation of any
order, statute, rule or regulation applicable to DEI where such violation would
materially and adversely affect DEI; to DEI's actual knowledge, DEI is not in
violation of any order, statute or regulation applicable to DEI. The execution,
delivery and performance of and compliance with this Agreement and the issuance
of the Shares and the Underlying Common Stock have not resulted and will not
result in any material violation of, or conflict with, or constitute a material
default under, DEI's Articles or Bylaws or any of such material agreements nor
result in the creation of, or mortgage, pledge, lien, encumbrance or charge upon
any of the material properties or assets of DEI.
5.8 LITIGATION, ETC. There are no actions, suits, proceedings or investigations
pending against DEI or its properties or in which DEI is the plaintiff, before
any court or governmental agency (nor, to DEI's knowledge, is there any threat
thereof or any reasonable basis therefor).
5.9 REGISTRATION RIGHTS. DEI is not under any contractual obligation to register
with the Securities and Exchange Commission ("SEC") under the Securities Act of
1933, as amended ("Securities Act") any of its presently outstanding securities
or any of its securities which may hereafter be issued.
5.10 GOVERNMENTAL CONSENT, ETC. No consent, approval or authorization of or
designation, declaration or filing with any governmental authority on the party
of DEI is required in connection with the valid execution and delivery of this
Agreement, or the offer, or issuance of the Shares or the underlying Common
Stock or the consummation of any other transaction contemplated hereby.
5.11 EXEMPTION. The offer, issue and exchange of the Shares and the Underlying
Common Stock are and will be exempt from the registration and prospectus
delivery requirements of the 1933 Act, pursuant to the exemption 5 provided by
Section 4(1) and 4(2) of the Act.
Page 4 of 7
<PAGE>
SECTION 6. REPRESENTATIONS AND WARRANTIES OF DINGAAN. Dingaan hereby represents
and warrants to DEI with respect to the exchange of the Preferred Stock as
follows:
6.1 INVESTMENT. Dingaan is acquiring the shares for investment for its own
account, not as a nominee or agent, and not with the view to, or for resale in
connection with, any distribution thereof. It understands that the shares to be
issued have not been, and will not be, registered under the Securities Act of
1933, as amended ("Securities Act") or the securities laws of any state by
reason of a specific exemption from the registration provisions of the
Securities Act and the securities law of the State of Nevada and other
applicable jurisdictions, the availability of which depends upon, among other
things, the bona fide nature of the investment intent.
6.2 RULE 144. It acknowledges that the Shares must be held indefinitely unless
subsequently registered under the Securities Act or unless an exemption from
such registration is available. It is aware of the provisions of Rule 144
promulgated under the Securities Act which permit limited resale of shares
purchased in a private placement subject to the satisfaction of certain
conditions, including, among other things, the existence of a public market for
the shares, the availability of certain current public information about the
company, the resale occurring not less than one year after a party has purchased
and paid for the security to be sold, the sale being effected through a
"broker's transaction" or in transactions directly with a "market maker" and the
number of shares being sold during any three-month period not exceeding
specified limitations. Dingaan acknowledges that, except as specifically set
forth in this Agreement, it is not relying on DEI in any way to satisfy the
conditions precedent for limited resale of shares pursuant to Rule 144 under the
Securities Act.
6.3 NO PUBLIC MARKET. It understands that no public market now exists for any of
the Series B Preferred Stock issued by DEI and that DEI has made no assurances
that a public market will ever exist for such securities.
6.4 ACCESS TO DATA. It has had an opportunity to discuss the business of DEI,
its management and financial affairs with its management and the opportunity to
review the Company's financial statements, books and records, facilities and
business plan. It has also had an opportunity to ask questions of officers of
the company, which questions were answered to its satisfaction.
6.5 POWER AND AUTHORITY. Dingaan will have at the Closing Date all requisite
legal and other power and authority to execute and deliver this Agreement and to
carry out and perform its obligations under the terms of this Agreement. This
Agreement constitutes a valid and legally binding obligation of Dingaan,
enforceable in accordance with its terms, and subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other general
principals of equity, whether such enforcement is considered in a proceeding in
equity or law.
Page 5 of 7
<PAGE>
SECTION 7. MISCELLANEOUS PROVISIONS.
7.1 NOTICES. All notices, requests, demands, and other communications required
or permitted hereunder will be in writing and will be deemed to have been duly
given when delivered by hand or two days after being mailed by certified or
registered mail, return receipt requested, with postage prepaid:
If to DEI to: If to Dingaan to:
David D. Westfere Dingaan Holdings, S.A.
2010 E. University Drive, Enro Canadian Center, First Floor
Suite # 3 Marlborough Street
Tempe, AZ 85281 P.O. Box N-38-2
Nassau, Bahamas
7.2 TITLES AND CAPTIONS. All section titles or captions contained in this
Agreement are for convenience only and shall not be deemed part of the context
nor effect the interpretation of this Agreement.
7.3 ENTIRE AGREEMENT. This Agreement contains the entire understanding between
and among the parties and supersedes any prior understandings and agreements
among them respecting the subject matter of this Agreement.
7.4 AGREEMENT BINDING. This Agreement shall be binding upon the heirs,
executors, administrators, successors and assigns of the parties hereto.
7.5 ATTORNEY FEES. In the event an arbitration, suit or action is brought by any
party under this Agreement to enforce any of its terms, or in any appeal
therefrom, it is agreed that the prevailing party shall be entitled to
reasonable attorneys fees to be fixed by the arbitrator, trial court, and/or
appellate court.
7.6 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Nevada.
7.7 PRESUMPTION. This Agreement or any section thereof shall not be construed
against any party due to the fact that said Agreement or any section thereof was
drafted by said party.
7.8 FURTHER ACTION. The parties hereto shall execute and deliver all documents,
provide all information and take or forbear from all such action as may be
necessary or appropriate to achieve the purposes of the Agreement.
7.9 PARTIES IN INTEREST. Nothing herein shall be construed to be to the benefit
of any third party, nor is it intended that any provision shall be for the
benefit of any third party.
Page 6 of 7
<PAGE>
7.10 SAVINGS CLAUSE. If any provision of this Agreement, or the application of
such provision to any person or circumstance, shall be held invalid, the
remainder of this Agreement, or the application of such provision to persons or
circumstances other than those as to which it is held invalid, shall not be
affected thereby.
Indicating their agreement to the above, the parties have signed this Agreement
below:
DIAMOND EQUITIES, INC., A NEVADA CORPORATION: DINGAAN HOLDINGS, S.A.
By:/s/ David D. Westfere By: E.P. Toothe & Associates
------------------------ --------------------------
David D. Westfere, President (Print or type full name)
Date: 10-28-97 E.P. Toothe & Associates
------------------------ --------------------------
(Signature)
Date: 21st October, 1997.
------------------------
Page 7 of 7
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Form 10-KSB for the year ended June 30, 1998
of our report dated August 6, 1997 and September 28, 1998, relating to the
financial statements of Diamond Equities, Inc. for the year ended June 30, 1997.
/s/ Wisan, Smith, Racker & Prescott, L.L.P.
September 28, 1998
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<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
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