SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number: 0-24736
Famous Sam's Group, Inc., f/k/a U.S. Flywheel Systems, Inc.
(Exact name of registrant as specified in its charter)
Nevada 88-0361701
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
4221 East Pontatoc Canyon Drive, Tucson, Arizona 85718
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (520)
577-6611
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 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
Indicate by check mark if disclosure of delinquent filers pursuant
to Rule 405 of Regulation S-K is not contained herein and will not
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ ]
<PAGE>
State the aggregate market value of the voting stock held by
non-affiliates of the registrant. The aggregate market value shall
be
computed by reference to the price at which the stock was sold, or
the average bid and asked prices of such stock, as of a specified
date within 60 days prior to the date of filing: There is presently
no market in
registrant's stock; thus, there is no market value.
Registrant had no revenues during fiscal 1995.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock as of the latest practicable
date: As of July 15, 1996, there were approximately 33,000 shares
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the documents incorporated by reference and the Part
of this Form 10-KSB into which the document is incorporated: None.
Item 1. Description of Business.
Famous Sam's Group, Inc., formerly known as U.S. Flywheel Systems,
Inc. (the "Company"), currently has no operations and no assets.
The Company was incorporated in California on March 5, 1990, as a
subsidiary of Sunbird Technologies, Inc., a Utah corporation
("Sunbird Technologies"), for the purpose of developing
technologies
related to flywheels, which are devices that store and transmit
kinetic energy. In June, 1991, the Company acquired three patents
and a license relating to flywheel technology from Sunbird
Technologies and its affiliates in exchange for 12,000,000 pre- May
31, 1996, reverse one for one thousand (1:1,000) split common
shares
of the Company ("Common Stock"). These shares of the Company were
subsequently distributed to the shareholders of Sunbird
Technologies.
In October, 1993, the Company, Costner Industries, Inc. ("CII"),
and
Jack C. and Steven E. Bitterly formed a California partnership (the
"Partnership") for the purpose of developing, manufacturing and
marketing flywheels. CII contributed $500,000 in cash to the
Partnership, which then purchased for this amount the various
interests of the Company in its flywheel technologies. CII also
agreed to contribute an additional $2,000,000 to the Partnership as
needed to pursue its purpose. The Company then transferred the
$500,000 which it had received from the foregoing sale to Sunbird
Technologies. Although there is a promissory note in favor of the
Company for this amount, management no longer believes the note to
be collectable and, therefore, wrote the note off for financial
accounting purposes in 1994. The initial interest of the Company
in
the Partnership of 21.27% was reduced to 12.92% in July, 1994, when
CII paid the Company $100,000 for this interest. This amount was
also transferred to Sunbird Technologies. CII and the Bittlerlys
have until October 10, 1996, to exercise the options which they
have
to purchase further interests in the Partnership from the Company.
Other than the sale of the technology of the Company to the
Partnership and the subsequent sale of a portion of the interest of
the Company in the Partnership, the Company has received no funds
in
regards of its flywheel technology, and the Company has not
received
or become entitled to any funds in respect of its Partnership
interest.
On April 24, 1996, the Company held a special meeting of its board
of directors (the "Board of Directors"), with all directors being
in
attendance. The purpose of the meeting was to (i) discuss and take
action on all corporate matters which had taken place since the
date
of the last meeting of the board, including the filing of all
delinquent reports by the Company with the U.S. Securities and
Exchange Commission (the "Commission"), (ii) appoint independent
Certified Public Accountants to audit the books and records of the
Company for the year ended December 31, 1995, (iii) discuss the
financial condition of the Company and implement an appropriate
course of action and (iv) discuss all other matters then pending
before the Company. At the meeting, the Board of Directors adopted
a new plan of business for the Company, that being to divest itself
of all of its current assets and liabilities and then begin a
search
for a new business opportunity. In order to implement this new
plan
of business, however, the Board of Directors had to implement a
number of curative measures. First, a trust was established
effective March 31, 1996, and all assets and liabilities of the
Company as of the close of business on April 23, 1996, were
transferred into the trust. The beneficiaries of the trust were
and
remain all shareholders of the Company as of the close of business
on April 23, 1996, which was the date of notice to the shareholders
and the notification of the appropriate regulatory authorities.
The
administrators of the trust have been appointed by the Company,
which retains authority over their appointment and service.
Secondly, an attorney was engaged to assist in the renegotiation
and
satisfaction of debts, to provide for various general corporate
matters and to assist in the filing of all delinquent reports with
the Commission. Thirdly, a new auditor was engaged to audit the
books and records of the Company for 1995, prepare and file the
1994
and 1995 federal and state income tax forms and compile the
financial information necessary for the filing of the third quarter
of 1995 and the first quarter of 1996 report by the Company with
the
Commission. Finally, a firm was engaged to disseminate information
to the public, attract firms to begin a public market for the
Common
Stock and provide advice on such other financial matters as may
have
presented themselves from time to time. The foregoing curative
matters resulted in the expenditure of approximately $20,000, of
which $15,000 was paid through the issuance of 20,000,000 shares of
pre-split Common Stock, which resulted in a change of control of
the
Company. The Company is now current in its reports with the
Commission, all tax filings have been made with the appropriate
federal and state agencies, all information concerning the
foregoing
has been disseminated to the public, and market makers have
undertaken to begin making a market in the Common Stock. Further,
all assets of the Company have been transferred to trust for the
benefit of all shareholders prior to the change in control of the
Company and all liabilities of the Company satisfied through a
capital infusion from the new control group.
In May, 1996, the Company entered into a letter of intent with
Famous Sam's Franchise Corporation, an Arizona corporation ("Famous
Sam's"), which was followed by a formal agreement (the
"Reorganization Agreement"). Pursuant to the Reorganization
Agreement, the Company agreed to acquire all of the outstanding
capital stock of Famous Sam's in exchange for 700,000 post-split
shares of Common Stock. Prior to closing under the Reorganization
Agreement, the Company was required to (i) change its name, (ii)
change its domicile, (iii) reverse split its Common Stock, (iv)
bring itself current in the filing of reports with the Commission,
(v) file all the reports required by federal and state regulatory
and taxing authorities, (vi) transfer all assets in trust for the
benefit of its shareholders and (vii) satisfy all liabilities. In
furtherance of the foregoing, on May 31, 1996, the Company changed
its name to Famous Sam's Group, Inc., and its domicile to Nevada,
and reverse split its Common Stock on a one for one thousand
(1:1,000) basis, which left approximately 33,000 shares
outstanding.
Previously, on April 24, 1996, the Company transferred all of its
assets in trust for the benefit of its shareholders as of the close
of business on April 23, 1996. All liabilities of the Company have
either been satisfied or fully provided for by the infusion of cash
in the form of a capital contribution from its current control
group. Finally, the Company satisfied all conditions pertaining to
it under the Reorganization Agreement concurrent with the filing of
this and other reports with the Commission.
Famous Sam's, under the Reorganization Agreement, was required to
either produce a balance sheet as of a recent date showing that,
after closing, the Company, on a consolidated basis with Famous
Sam's, had assets of $4,000,000 or more and a net tangible book
value of at least $2,000,000, or, in the alternative, produce a
business plan which reasonably allowed for the foregoing within one
year after closing. The latter of these alternative conditions had
been provided for by the date of this report. Famous Sam's was
further required under the Reorganization Agreement to provide
audited and unaudited financial statements allowing for compliance
by the Company following closing with the rules and regulations of
the Commission. These had also been provided by the date of this
report.
Famous Sam's is engaged in the business of franchising a bar and
restaurant concept known as "Famous Sam's." The operations of this
company are principally centered in Arizona at the present time.
Item 2. Description of Property.
The Company, as of the date of this report, owned no real or
personal property, tangible or intangible. Conversely, the Company
had no liabilities which had not either been paid in their entirety
or fully provided for. The executive offices of the Company are
being provided free of charge by its attorney on a month-to-month
basis. These offices are located at 4221 East Pontatoc Canyon
Drive, Tucson, Arizona 85718. The telephone number at this address
is (520) 577-6611.
Item 3. Legal Proceedings.
The Company was sued and a judgment obtained by its former legal
counsel in a California state court. Arrangements had been made as
of the date of this report to satisfy the judgment in the full
amount approximating $17,500 and to obtain the appropriate
releases.
Other than the foregoing, no material legal proceedings to which
the
Company (or any officer or director of the Company, or any
affiliate
or owner of record or beneficially of more than five percent of the
Common Stock, to management's knowledge) is a party or to which the
property of the Company is subject is pending, and no such material
proceeding is known by management of the Company to be
contemplated.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no meetings of security holders during the period
covered
by this report; thus, this item is not applicable. The
shareholders
of the Company did, however, act by consent, as allowed by state
law, on two separate occasions subsequent to the period covered by
this report. These actions are described under Item 1, above.
Item 5. Market for Common Equity and Related Shareholder Matters.
There is no market for the Common Stock since the security is not
listed on any exchange and is not quoted or traded on the
over-the-counter market. Currently, no broker maintains a position
or deals
in the Common Stock and no bid or asked prices are quoted in the
pink sheets or any local newspaper.
On May 31, 1996, the Company effected a reverse one for one
thousand
(1:1,000) capital share split. Concurrently, the authorized
capitalization of the Company was increased to 10,000,000 common
shares, $.001 par value per share, and 1,000,000 preferred shares,
$.01 par value per share. As of July 15, 1996, there were
approximately 33,000 shares of Common Stock issued and outstanding,
which were held of record by approximately 2,217 shareholders.
The Company has paid no dividends on the Common Stock since
inception and does not expect to pay dividends in the foreseeable
future. There are, however, no restrictions on the payment of
dividends.
Item 6. Management's Discussion and Analysis of Financial
Condition
and Results of Operations.
Results of Operations
The Company, previous to 1994, operated solely as a research and
development facility. Since October, 1993, the Company has merely
held a minority stake in the Partnership. The Company had no
income
during 1995 from any source whatsoever. The Company had no revenue
from operations during the fiscal years ended December 31, 1995,
December 31, 1994 or December 31, 1993. During the 1994 fiscal
year, the Company realized $100,000 in income from the sale of a
portion of its Partnership interest to CII and in 1993 realized
$500,000 in income from the sale of its flywheel technology and
licenses to the Partnership.
The Company's expenses during the fiscal year ended December 31,
1995, were entirely administrative in nature. No meaningful
comparison can be made to 1994 since the business of the Company
during 1995 was merely to hold a minority stake in the Partnership
and, during 1994, the Company was in the process of wrapping up the
sale of its technology and licenses to the Partnership and the
subsequent sale of a portion of its Partnership interest. Thus,
during both years, the Company had no operations.
The Company's expenses during the fiscal year ended December 31,
1994, amounted to $611,754, of which $555,747 represented bad debt
expense related to amounts due the Company from Sunbird
Technologies. The remainder of the expenses related to
administrative matters, matters pertaining to the sale of a
portion
of the Partnership interest of the Company to CII and the filing of
reports and tax forms with the Commission and various other
regulatory agencies. Expenses increased by $220,252 (56.3%) as
compared to the fiscal year ended December 31, 1993, primarily as
a
result of the bad debt expense discussed above and the addition of
$46,024 in legal and accounting fees related to the registration of
the Company with the Commission and other transactions. The
Company, however, had no expenses related to the amortization of
the
flywheel technology sold to the Partnership, as compared to
amortization expense of $389,435 for the fiscal year ended December
31, 1993. The Company had a net loss of $511,689 for the 1994
fiscal year, as compared with a net loss of $2,518,499 for the 1993
fiscal year, of which $2,126,197 represented a one-time write-down
in 1993 of the Company's intangible assets.
In October, 1993, the Company contributed substantially all of its
assets to the Partnership in exchange for $500,000 and
approximately
21.3% of the Partnership. Prior to this, management of the Company
was unsuccessful in obtaining development capital for its flywheel
technology. CII elected to spend more than $100,000 to evaluate
the
Company's technology, and after several months of negotiations,
management of the Company believed that the Partnership concept
would provide the funding necessary for the development of the
technology. Although the Company realized a $2,126,197 loss on the
sale of these assets, management believed that the sale was in the
best interests of the Company since the Company had been unable to
secure other financing or development alternatives during a
critical
period in a competitive environment for flywheel technologies. The
loss resulted from the write-down taken by the Company in recording
the impairment to its intangible assets prior to transfer. This
figure was calculated as the difference between the net book value
of the patents prior to transfer. This figure was calculated as
the
difference between the net book value of the patents and license on
the date of transfer ($2,626,197) and the amount realized from the
sale ($500,000).
After selling a portion of its interest in the Partnership in July,
1994, the Company's primary asset was a 12.92% interest in the
Partnership. Accordingly, during the twelve months ended December
31, 1995, the Company's plan of operation was limited to
administrative functions.
Liquidity and Capital Resources
The Company had no source of liquidity during 1995. As a result,
it
became delinquent in payments to its creditors, one of whom sued
for
payment and obtained a judgement. During 1996, a change of control
occurred, and the new control group provided a capital infusion
which satisfied or otherwise provided for the payment in full of
all
obligations of the Company. It is believed by management that the
closing with Famous Sam's, if such should occur, will subsequently
allow for liquidity to the Company from its relationship with the
new subsidiary.
The Company's liquidity during the years ended December 31, 1994,
and December 31, 1993, was materially and adversely affected by
research and development expenses and operating losses. As
described in the Company's financial statements, the Company
experienced total net losses of $3,030,188 for the two years ended
December 31, 1994, including the $2,126,197 write-down of the
Company's intangible assets prior to the transfer to the
Partnership
in October, 1993.
Compliance with Beneficial Ownership Reporting Rules
Section 16(a) of the Securities Act of 1934, as amended ("Exchange
Act"), requires the executive officers and directors of the
Company,
and persons who beneficially own more than 10% of the Common Stock,
to file initial reports of ownership and reports of changes in
ownership with the Commission. These officers, directors and
shareholders are also required to furnish the Company with copies
of
certain of these reports. Based solely on a review of copies of
reports furnished to the Company during its fiscal year ended
December 31, 1995, and thereafter, or written representations, if
any, received by the Company from these persons that no other
reports were required, the Company believes that, during 1995, all
applicable Section 16(a) filing requirements were satisfied.
<PAGE>
HALLIBURTON, HUNTER & ASSOCIATES, P.C.
Certified Public Accountants
To the Board of Directors and Shareholders
Famous Sam's Group, Inc., f/k/a U.S. Flywheel Systems, Inc.
We have audited the accompanying balance sheets of Famous Sam's
Group, Inc., f/k/a U.S. Flywheel Systems, Inc. (a development stage
company) as of December 31 1995, and the related statements of
operations, stockholders' equity, and cash flows for the year then
ended. Our responsibility is to express an opinion on these
financial statements based on our audit. The financial statements
of Famous Sam's Group, Inc., f/k/a U.S. Flywheel Systems, Inc. (a
development stage company), as of December 31, 1994, and 1993 were
audited by other auditors whose report dated May 5, 1995, expressed
an unqualified opinion on these 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, based on our audit and the report of the other
auditors, the financial statements referred to above present
fairly,
in all material respects, the financial position of Famous Sam's
Group, Inc., f/k/a U.S. Flywheel Systems, Inc., (a development
stage
company), as of December 31, 1995, and December 31, 1994, and the
results of its operations and cash flows for the three years ended
December 31, 1995.
/s/ Halliburton, Hunter & Associates, P.C.
Littleton, Colorado
July 22, 1996
Item 7. Financial Statements.
FAMOUS SAM'S GROUP, INC., f/k/a, U.S. FLYWHEEL SYSTEMS, INC.
(a development stage company)
BALANCE SHEETS
ASSETS December 31,
1995 1994
Current Assets:
Cash $-0- $939
Due from affiliate, net of allowance of
$555,747 (Note 6) -0- -0-
Total Current Assets -0- 939
Other Assets:
Investment in partnership (Notes 1 and 2) -0- -0-
Total Assets -0- 939
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable (Note 5) 37,076 16,077
Due to shareholders (Note 3) -0- 11,707
Accrued interest payable (Note 3) -0- 1,262
Total Current Liabilities 37,076 29,046
Shareholders' Equity (Deficit)
Common Stock, no par value, authorized
50,000,000 shares, 12,010,000 shares
issued and outstanding 3,724,323 3,724,323
Deficit accumulated during the development
stage (3,761,399)(3,752,430)
Total Shareholders' Equity (Deficit) (37,076) (28,107)
Total Liabilities and Shareholders'
Equity (Deficit) $-0- $939
The auditors report and accompanying notes are an integral part of
these statements.
FAMOUS SAM'S GROUP, INC., f/k/a, U.S. FLYWHEEL
SYSTEMS, INC.
(a development stage company)
STATEMENTS OF OPERATIONS
Years ended December 31
1995 1994 1993
Income
Miscellaneous income $ -0- $ 65 $ 65
Sale of partnership
interest (Note 1) -0- 100,000 100,000
Total income -0- 100,065 100,065
Expenses
Amortization (Note 2) -0- -0- 1,094,126
Bad debt expense (Note 6) -0- 555,747 555,747
Interest expense -0- 2,359 2,604
Miscellaneous 8,969 119 9,267
Office expense -0- 5,082 10,666
Professional fees -0- 46,024 52,699
Rent -0- -0- 1,802
Taxes and licenses -0- 1,590 2,312
Telephone -0- 833 1,275
Travel -0- -0- 1,569
Total Expenses 8,969 611,754 1,732,067
Operating income (loss) (8,969) (511,689) (391,502)
Write down of Asset to Net
Realizable Value (Note 1) -0- -0- (2,126,197)
Income (Loss) Before Provision
For Income Taxes (8,969) (511,689) (3,758,199)
Provisions for Income Taxes -0- -0- 3,200
Net Income (Loss) (8,969) (511,689) (3,761,399)
Net Income (Loss) per share
(Note 2) * (.04) (.21)
* - Less than $.01 per share.
The auditors report and accompanying notes are an integral part of
these statements.<PAGE>
FAMOUS SAM'S GROUP, INC., f/k/a,
U.S. FLYWHEEL SYSTEMS, INC.
(a development stage company)
STATEMENTS OF STOCKHOLDER'S EQUITY
Total
Common Stock Accumulated Equity
Shares Amount (Deficit)
(Deficit)
Balance at
December 31, 1992 12,010,000 $3,724,323 $(722,242) $3,002,081
Net loss for the
year ended
December 31, 1993 -0- -0- (2,518,499) (2,518,499)
Balance at December
31, 1993 12,010,000 3,724,323 (3,240,741) 483,582
Net loss for the
year ended
December 31, 1994 -0- -0- (511,689) (511,689)
Balance at
December 31, 1994 12,010,000 3,724,323 (3,752,430) (28,107)
Net loss for the
year ended
December 31, 1995 -0- -0- (8,969) (8,969)
Balance at
December 31, 1995 12,010,000 $3,724,323 $(3,761,399)
$(37,076)
The auditors report and accompanying notes are an integral part of
these statements.<PAGE>
FAMOUS SAM'S GROUP, INC., f/k/a,
U.S. FLYWHEEL SYSTEMS, INC.
(a development stage company)
STATEMENTS OF CASH FLOW
Years Ended December 31,
1995 1994 1993
Cash flows provided (used) by operating activities:
Net (loss) $(8,969) $(511,689)$(2,518,499)
Adjustments to reconcile
net gain (loss) to net
cash provided by
operating activities:
Amortization -0- -0- 389,435
Gain on sale
of partnership interest -0- (100,000) -0-
Write down of asset to
net realizable value -0- -0- 2,126,197
Decease (increase)
in due from affiliate -0- 510,541 (181,680)
Increase (decrease) in
accounts payable 8,030 8,708 (9,403)
Increase (decrease) in
franchise tax payable -0- (1,600) 800
Increase in accrued
interest payable -0- 1,262 -0-
Net Cash Flows Provided (Used)
by Operating Activities (939) (92,778) (193,160)
Cash Flows Provided (Used) by Investing Activities:
Net proceeds from sale
of assets (Note 1) -0- 100,000 175,000
Cash Flows Provided by Financing Activities:
Increase (decrease) in amounts
due to the shareholders -0- (6,301) 18,008
Increase (Decrease) in Cash (939) 921 152
Cash at the Beginning
of the Period 939 18 170
Cash at the End
of the Period -0- 939 18
The auditors report and accompanying notes are an integral part of
these statements.<PAGE>
FAMOUS SAM'S GROUP, INC., f/k/a,
U.S. FLYWHEEL SYSTEMS, INC.
(a development stage company)
STATEMENTS OF LOSS
Years ended December 31
1995 1994 1993
Noncash Transactions:
Proceeds from sale of assets
paid directly to affiliate $-0- $-0- $325,000
The auditors report and accompanying notes are an integral part of
these statements.<PAGE>
FAMOUS SAM'S GROUP, INC., f/k/a,
U.S. FLYWHEEL SYSTEMS, INC.
(a development stage company)
NOTES TO
FINANCIAL STATEMENTS
December 31, 1995
1. Organization and Business.
Organization - U.S. Flywheel Systems, Inc. ("Company"), was
incorporated in California on March 5, 1990, as Sunbird Thermal
Energy Products, and was previously a subsidiary of Sunbird
Technologies, Inc., a Utah corporation ("Sunbird"). The Company
was
formed for the purpose of developing technologies related to
composite fiber flywheels. Flywheels are devices which store and
transmit kinetic energy for various commercial products. In June,
1991, the Company acquired three patents relating to a certain
flywheel technology from Sunbird and other individuals affiliated
with Sunbird in exchange for an aggregate of 12,000,000 shares of
the Company's Common Stock. In addition, the Company acquired the
exclusive worldwide license to manufacture, market and distribute
a
flywheel device developed by Sunbird.
Partnership Agreement - In October, 1993, the Company entered into
a partnership agreement with Costner Industries, Inc., a California
corporation ("CII"), to develop, manufacture and market flywheels
based on the Company's and Jack and Steven Bitterlys' technology.
The partnership was formed in California under the name of U.S.
Flywheel Systems ("Partnership"). The Company sold all of its
assets to the Partnership for $500,000 in cash and a 21.26%
interest
in Partnership profits. The net book value of the assets sold as
of
the date of the sale was $2,626,197. The Company then subsequently
sold 8.34% of its Partnership interest for $100,000 in cash. As of
December 31, 1995, the Company's interest in the Partnership was
12.92%.
Previous Ownership - Sunbird owned 80% of the outstanding common
shares of the Company until the common stock of the Company was
registered on a Form 10-SB effective October 24, 1994. At that
time, Sunbird distributed its shares in the Company to the
shareholders of Sunbird on a pro rata basis without further
consideration. Based on a no action response from the Commission,
the shares were distributed without registration under the
Securities Act of 1933, as amended (the "1933 Act"). The Sunbird
shareholders also received an information statement substantially
complying with the requirements of Schedule 14C under the
Securities
Exchange Act of 1934, as amended. Accordingly, the shares of the
Company which were distributed to the Sunbird shareholders were not
be "restricted" securities within the meaning of Rule 144(a)(3)
under the 1933 Act.
Reorganization - Effective March 31, 1996, the assets and
liabilities of the Company were transferred into an irrevocable
liquidating trust. (See discussion in Note 7.) On April 24,
1996,
the Company adopted a new plan of business to investigate and, if
appropriate, capitalize such business opportunities as may from
time
to time present themselves. Effective May 31, 1996, the Board of
Directors and shareholders of the Company approved the sale of all
of the assets of the Company to Famous Sam's Group, Inc., a Nevada
corporation, in a tax-free reorganization pursuant to the
provisions of Section 368(c) of the Internal Revenue Code. (See
discussion in Note 7.)
2. Summary of Significant Accounting Policies.
Development Stage Company - The Company is considered to be a
development stage company for financial reporting purposes since it
had not generated significant operating income as of December 31,
1995.
Income Taxes - On January 1, 1992, the Company adopted SFAS No.
10-9, "Accounting for Income Taxes," which requires a liability
approach to financial accounting and reporting for income taxes.
The difference between the financial statement and tax basis for
assets and liabilities is determined annually. Deferred income tax
assets and liabilities are computed for those differences that have
future 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 deferred tax asset accounts to the amounts 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 asset and liability accounts.
Income tax expense is provided on the income reported on the
statement of income. The differences between book income and tax
income for tax purposes are insignificant and, therefore, the
effect
of adopting SFAS No. 109 on net income has not been recorded.
Amortization - The patents were sold in 1993 to the Partnership as
discussed in Note 1. The patents and licenses had an original
useful life of 17 years and were being amortized over the remaining
life.
Per Share Information - Per share information is based on the
weighted average number of common shares outstanding during the
reporting period. Shares used in the calculations were 12,010,000
for 1995 and 1994.
Investment in Partnership - The investment in the Partnership would
have been recorded under the cost method, but as of December 31,
1995, the Company did not have a capital interest in the
Partnership.
3. Due to Shareholders.
The Company previously had unsecured notes that bore interest at
rate of 8% per annum with two of its shareholders. These notes
were
offset in the third calendar quarter of 1995 against amounts owed
the Company by an affiliate of these shareholders, Sunbird, which
had been written off for financial accounting purposes in 1994 due
to the improbability of collection. The Company has been informed
by its counsel that the legal right of set off pertains in this
instance and that these notes are, therefore, unenforceable.
4. Income Tax.
Through December 31, 1993, the Company filed consolidated federal
tax returns with its previous parent, Sunbird, and filed a separate
California tax return. In conjunction with the registration of the
common stock of the Company in October of 1994, as discussed in
Note
1, above, Sunbird distributed its shares of the Company to its
shareholders. Consequently, the Company is no longer a subsidiary
of Sunbird and, therefore, no longer files consolidated tax returns
with Sunbird.
5. Accounts Payable and Contingent Liabilities.
On May 6, 1996, the law firm of Jackson, Demarco and Peckenpaugh
obtained a judgement against the Company in the amount of $17,339
for outstanding invoices on services rendered. The outstanding
balance at December 31, 1995, is included in the accounts payable
balance.
6. Due from Affiliate.
As of December 31, 1994, the Company reserved $555,747, as an
allowance against the $555,747 receivable due from Sunbird. As of
December 31, 1995, this receivable is still considered
uncollectible.
7. Subsequent Events.
Issuance of Common Stock - The Board of Directors resolved on April
24, 1996, to issue 10,000,000 shares of fully paid and
non-assessable shares of Common Stock in exchange for a flat fee of
$7,500 to Mr. Mark S. Pierce for legal fees and costs and an
additional 10,000,000 shares of fully paid and non-assessable
shares
of Common Stock in exchange for a flat fee of $7,500 to Financial
Alchemy for various financial services. All of the shares issued
to
Mr. Pierce and Financial Alchemy are "restricted" under Rule 144
and
bear the appropriate legend.
Liquidating Trust - Effective March 31, 1996, the Company resolved
to wind down its current operations and transfer all of its
remaining assets and liabilities in trust for the benefit of its
shareholders (the "Trust"). The Trust is governed under the laws
of the State of Colorado and is irrevocable. The Trust terminates
upon the sale or distribution of all assets held under the Trust
and
the satisfaction of all liabilities therefrom.
Reorganization - The Company, effective May 31, 1996, transferred
all of its remaining assets and liabilities to Famous Sam's Group,
Inc., Nevada corporation, in a tax-free reorganization pursuant to
the provisions of Section 368(c) of the Internal Revenue Code.
This
reorganization allowed the Company to (i) change its domicile to
Nevada, (ii) reverse split its capital structure on a 1:1000 basis
with a subsequent and immediate increase in capitalization to
10,000,000 common shares ($.001 par value per share) and 1,000,000
preferred shares ($.01 par value per share) and (iii) change its
name to Famous Sam's Group, Inc., all as approved by the
shareholders on April 24, 1996, and as discussed above in Note 1.
Item 8. Changes in and Disagreements with Accountants on
Accounting
and Financial Disclosure.
In May, 1996, the Company advised Caldwell, Becker, Dervin, Petrick
& Company that it would not retain them as the independent
accountant to audit financial statements of the Company as of and
for the year ended December 31, 1995, because the Company had found
an auditing firm whose costs for these services would be
substantially less expensive. The Company had no disagreement with
its former accountant on any matter of accounting principal or
practice, financial statement disclosure or auditing scope or
procedure which would have caused the accountant to make reference
in its report upon the subject matter of the disagreement.
Further,
the former principal accountant's report on the financial
statements
did not contain an adverse opinion or a disclaimer of opinion or
qualification as to audit scope or accounting principle. The
decision to change accountants was approved by the full Board of
Directors, which at that time had no audit or similar committee.
PART III
Item 9. Directors and Executive Officers of the Company.
The following table sets forth all current directors and executive
officers of the Company, as well as their ages:
NAME AGE POSITION WITH
COMPANY *
Robert D'Alesio 41 Sole Director,
President, Chief Executive,
Financial and Accounting Officer, Treasurer
* No current director has any arrangement or understanding whereby
they are or will be selected as a director or nominee.
The executive officers will hold office until the next annual
meeting of shareholders and until his successor has been duly
elected and qualified. The officers are elected by the Board of
Directors at its annual meeting immediately following the
shareholders' annual meeting and hold office until their death or
until they earlier resign or are removed from office. There are no
written or other contracts providing for the election of directors
or term of employment of executive officers, all of whom serve on
an
"at will" basis.
The Board of Directors currently consists of one member, Mr. Robert
D'Alesio. The Company does not have any standing audit, nominating
or compensation committees, or any committees performing similar
functions. The board will meet periodically throughout the year as
necessity dictates. During 1995, the board had one meeting.
Executive Profiles
Mr. D'Alesio has been a private businessman in Denver, Colorado,
during the last five years.
Item 10. Executive Compensation.
No compensation was paid during 1995 to the Board of Directors or
executive officers of the Company in their capacities as such.
Item 11. Security Ownership of Management and Certain Others.
Based upon information which has been made available to the Company
by its stock transfer agent, the following table sets forth, as of
July 15, 1996, the shares of Common Stock owned by each current
director, by directors and executive officers as a group and by
each
person known by the Company to own more than 5% of the outstanding
Common Stock:
Title of Class Name and Address Number of
Shares Percent of Class (1)
of Beneficial Owner
Common Stock Robert D'Alesio (2) 20,000
65%
Directors and Executive Officers as a Group 20,000
65%
(one in number):
(1) Based on approximately 33,000 shares of common stock issued
and outstanding on July 15, 1996.
(2) These shares are owned by a corporation which Mr. D'Alesio
controls.
Item 12. Certain Transactions.
No disclosure is required under this item.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits:
3.1 Articles of Incorporation and Amendments (Nevada)
3.2 Bylaws (Nevada).
4.1 Specimen stock certificate.*
10.1 Partnership Agreement dated October 20, 1993, among the
Company, Costner Industries, Inc., a California corporation,
Jack Bitterly and Steve Bitterly.*
10.2 Asset Purchase Agreement dated October 20, 1993, among
the Company, the Partnership, Jack Bitterly, Steve
Bitterly, Bruce Swartout, U.S. Flywheel, Inc., a
California corporation and Sunbird Technologies, Inc..*
10.3 U.S. Flywheel Systems Unit Purchase Agreement dated July 16,
1994, between the Company and Costner Industries, Inc..*
10.4 Straight Note dated October 21, 1993, between the Company and
Sunbird.*
10.5 Consulting Agreement dated October 20, 1993, between the
Partnership and Bruce Swartout.*
10.6 Asset Purchase Agreement dated May 31, 1996, changing name
and
domicile to Nevada and reverse splitting outstanding
capitalization and increasing authorized capital.
10.7 Reorganization Agreement between the Company and Famous
Sam's.
10.8 Liquidating Trust.
*Filed as an exhibit to the Company's Registration Statement on
Form
10-SB dated August 23,1994, or October 21, 1994 (Registration No.
0-24736) and incorporated herein by reference.
(b) Forms 8-K: None.
<PAGE>
SIGNATURES
In accordance with the requirements of the Section 13 or 15(d) of
the Securities Exchange Act of 1934, registrant has duly caused
this
report to be signed on its behalf by the undersigned, thereunto
duly
authorized, in the City of Denver, State of Colorado on the 16th
day
of July, 1996.
FAMOUS SAM'S GROUP, INC.
(Registrant)
By: /s/ Robert D'Alesio
Robert D'Alesio, Chief Executive Officer
By: /s/ Robert D'Alesio
Robert D'Alesio, Chief Financial
and Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of
1934,
this report has been signed below by the following person on behalf
of the registrant in the capacity on this 16th day of July, 1996.
/s/ Robert D'Alesio
Robert D'Alesio, Sole Director
<PAGE>
EXHIBIT INDEX
3.1 Articles of Incorporation and Amendments (Nevada)
3.2 Bylaws (Nevada).
10.6 Asset Purchase Agreement dated May 31, 1996, changing
name and domicile to Nevada and reverse splitting
outstanding capitalization and increasing authorized
capital.
10.7 Reorganization Agreement between the Company and Famous
Sam's.
10.8 Liquidation Trust.
<PAGE>
EXHIBIT 3.1
Articles of Incorporation and Amendments (Nevada)<PAGE>
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION OF
FAMOUS SAM'S HOLDINGS COMPANY
Pursuant to the provisions of the Nevada Corporation
Code,
the
undersigned corporation adopts the following Articles of Amendment
to its
Articles of Incorporation:
I. The following amendment to the Articles of
Incorporation was
adopted on July 8, 1996, by the incorporator of the corporation.
Article FIRST shall be deleted in its entirety and a new
Article
FIRST shall be inserted in lieu thereof as follows:
FIRST: NAME OF CORPORATION: The name of the corporation
is Famous
Sam's Group, Inc.
IN WITNESS WHEREOF, the undersigned have executed these
Articles of
Amendment this 8th day of July, 1996.
FAMOUS SAM'S GROUP, INC.
BY:
Mark S.
Pierce
Incorporator
ATTEST:
State of Arizona )
) SS.
County of Pima )
On July 8, 1996, personally appeared before me, a Notary Public,
Mark S. Pierce,
who acknowledged that he executed the above instrument.
Alexis Thurber, Notary
Public
<PAGE>
ARTICLES OF INCORPORATION
OF
FAMOUS SAM'S HOLDING COMPANY
Know All Men By These Presents That: the undersigned incorporator,
being a
natural person of the age of eighteen (18) years or more and
desiring to form a
body corporate under the laws of the State of Nevada, does hereby
sign, verify
and deliver in duplicate to the Secretary of State for the State of
Nevada the
following Articles of Incorporation.
ARTICLE I
NAME
The name of the Corporation shall be Famous Sam's Holding Company
(the
"Corporation").
ARTICLE II
PERIOD OF DURATION
The Corporation shall exist in perpetuity from and after the date
of
filing these
Articles of Incorporation with the Secretary of State for the State
of Nevada,
unless and until dissolved according to law.
ARTICLE III
PURPOSE AND POWERS
The purpose for which the Corporation has been formed and the
powers
to
effectuate this purpose are as follows:
Section 3.1 Purpose. The purpose for which the Corporation has
been formed is
to transact any and all lawful business for which corporations may
be formed
under the laws of the State of Nevada.
Section 3.2 Powers. The Corporation shall have and may exercise
all rights,
powers, and privileges now and hereafter conferred upon
corporations
formed under
the laws of the State of Nevada and may do everything necessary,
lawful,
suitable, and proper for the accomplishment of its corporate
purpose, including,
without limitation, the right, power, and privilege to:
(a) Acquire, construct, maintain, develop, improve,
rent, use, mortgage, and dispose of real property and
interests, estates, and rights therein;
(b) Guarantee, purchase or otherwise acquire, hold,
assign, transfer, mortgage, create a security interest
in, transfer to trust by deed or otherwise, pledge,
exchange, or sell or otherwise dispose of shares or
other evidence of the equity of, or debt created by,
other corporations and, while the holder thereof,
exercise all rights and privileges of ownership,
including, without limitation, the right to vote to the
same extent as a natural person might or could do;
(c) Draw, make, accept, endorse, discount, execute,
and issue promissory notes, drafts, bills of exchange,
warrants, debentures, and other negotiable,
non-negotiable, transferable, and non-transferable
instruments or writings evidencing indebtedness of the
Corporation;
(d) Enter into, make, perform, and rescind contracts
of every kind, without limitation as to amount, for any
lawful purpose and with any person, firm, association or
corporation, town, city, county, state, territory,
government, or other entity or person or persons;
(e) Borrow money by issuing bonds, debentures, or any
other evidence of indebtedness and secure the same by
mortgage, pledge, deed of trust, or otherwise;
(f) Purchase, hold, sell, and transfer the shares or
other evidence of equity in the Corporation;
(g) Have one or more of its officers or agents conduct
any or all of its operations and business and promote
its objects within or without the State of Nevada
without restriction as to place or amount;
(h) Do any or all of the things set forth in this
article as principal, agent, broker, contractor,
trustee, or otherwise, either alone, in company with
others, or both;
(i) Guarantee, purchase or otherwise acquire, hold,
assign, transfer, mortgage, create a security interest
in, transfer to trust by deed or otherwise, pledge,
exchange, or sell or otherwise dispose of securities (as
defined, without limitation, in section 2(1), or
otherwise, of the Securities Act of 1933, as amended,
and/or in section 3(a)(10), or otherwise, of the
Securities Exchange Act of 1934, as amended, and as
otherwise defined in any federal or state act regulating
the offering, issuance, and sale of securities and the
interpretation of said term thereunder), whether created
or issued by any person, firm, association, corporation,
or government, or subdivision thereof; make payment
therefor in any lawful manner; and exercise, as owner or
holder, any and all rights, powers, and privileges in
respect thereof;
(j) Purchase or otherwise acquire the equity,
goodwill, rights, property, and franchises and take over
as a going concern or otherwise the whole or any part of
the assets and liabilities of any person, firm,
association, or corporation and hold or in any manner
dispose of the whole or any part of the property so
acquired; merge or consolidate with or into any
corporation in such manner as may be permitted by law;
and continue to conduct the whole or any part of any
business acquired insofar as a corporation of this
character may lawfully do so with the right to exercise
all powers necessary or convenient in and about the
conduct and management of such business; and
(k) Enter into any partnership, limited or general, as
a limited or general partner, or both; enter into any
other arrangement for sharing profits, union of
interest, unitization or farmout agreements, reciprocal
concessions; and cooperate with any corporation,
association, partnership, syndicate, entity, person, or
governmental, municipal, or public authority, domestic
or foreign, for the purpose of carrying on any business
which the Corporation is authorized to carry on or any
business or transaction deemed necessary, convenient, or
incidental to carrying out the purpose for which the
Corporation has been formed.
ARTICLE IV
Capital
Section 4.1 Classes of Shares. The proprietary interest of the
Corporation
shall hereafter be divided into two classes of stock, which are
collectively
referred to herein as "Shares." The first is a class of common
stock, par value
$.001 per share, and the second a class of preferred stock, par
value $.01 per
share. (An individual share within the respective classes of stock
shall be
referred to appropriately as either a "Common Share" or a
"Preferred
Share.")
The Corporation has the authority to issue 10,000,000 Common Shares
and 1,000,000
Preferred Shares. The authority of the Corporation to issue shares
may be
limited by resolution of the board of directors of the Corporation
(the "Board
of Directors"). Shares may be issued from time to time for such
consideration
in money or property (tangible or intangible) or labor or services
actually
performed as the Board of Directors may determine in their sole
judgment and
without the necessity of action by the holders of Shares. Common
Shares may be
issued in series. Shares may not be issued until paid for and,
when
issued, are
nonassessable. Fractional Shares may not be issued by the
Corporation and, in
the event fractional shares are or may become outstanding, the
Corporation shall
redeem said shares at the then market price.
Section 4.2 Preferred Shares. The Board of Directors is
authorized
to act by
resolution, subject to limitations prescribed by the laws of the
State of Nevada,
these Articles of Incorporation, the Bylaws of the Corporation (the
"Bylaws"),
and previous resolutions by the Board of Directors limiting this
authorization,
to provide for the issuance of Preferred Shares in series. To
exercise this
authority the Board of Directors must first designate the series so
established,
and, secondly, fix and determine the relative rights, preferences,
and
limitations of the Preferred Shares in the series established to
the
extent not
fixed and determined by these Articles of Incorporation. The
extent
of this
authority, with respect to each series established, is to be
determined by
reference to the "Nevada Corporation Code," articles 1 through 10,
inclusive, of
title 7, Nevada Revised States, as amended. Without limiting the
generality of
the foregoing, this authority includes fixing and determining the
following:
(a) The number of Preferred Shares which may be issued
under the series established, and the designation of
such series;
(b) The rate of dividend on Preferred Shares of that
series, if any, the time of payment of dividends,
whether dividends shall be cumulative, and, if
cumulative, the date from which dividends shall begin
accruing;
(c) Whether Preferred Shares of that series may be
redeemed, and, if redeemable, the redemption price,
terms, and conditions of redemption;
(d) Whether to establish a sinking fund or make other
provisions for the redemption or purchase of Preferred
Shares of that series;
(e) The amount payable per Preferred Share of that
series in the event of the dissolution, liquidation, or
winding up of the Corporation, whether voluntarily or
involuntarily;
(f) Voting powers, if any, of the series; and
(g) Whether the series shall have conversion
privileges, and, if convertible, the terms and
conditions upon which Preferred Shares of that series
shall be convertible, including, without limitation, the
provision, if any, for adjustment of the conversion rate
and the payment of additional amounts by holders of such
shares upon the exercise of this privilege.
Irrespective of the limitations set forth in subsection (a) of this
section, the
Board of Directors may, at any time after the number of Preferred
Shares
authorized under a series has been established, authorize the
issuance of
additional Preferred Shares of the same series or reduce the number
of Preferred
Shares authorized under such series. All Preferred Shares shall be
identical to
each other in all respects, except as to those relative rights,
preferences, and
limitations established by the Board of Directors pursuant to its
authority as
determined by reference to the Nevada Corporation Code and as
established in
subsections (a) through (g), inclusive, of this section, as to
which
there may
be variations between series.
Section 4.3 Voting. Each record holder of Common Shares (and to
the extent,
if any, provided by the laws of the State of Nevada or by the Board
of Directors
acting pursuant to the authority set forth in Section 4.2(f). of
this article
each record holder of Preferred Shares) shall have one vote on each
matter
submitted to a vote for each Share standing in his name on the
books
of the
Corporation. Unless otherwise required under the laws of the State
of Nevada,
these Articles of Incorporation, the Bylaws, or the resolution of
the Board of
Directors creating any series of Preferred Shares, no matter
submitted to a
Shareholder vote shall require the approval of a class or series of
Shares voting
separately.
Section 4.4 Quorum. At all meetings of Shareholders, one-third
(1/3) of the
Shares entitled to vote at such meeting, whether represented in
person or by
proxy, shall constitute a quorum and at any meeting at which a
quorum is present
the affirmative vote of a majority of the Shares represented at
such
meeting and
entitled to vote on the subject matter shall be the act of the
Shareholders.
ARTICLE V
RIGHTS OF SHAREHOLDERS
Section 5.1 Cumulative Voting. Shareholders are not entitled to
cumulative
voting unless expressly provided to the contrary by resolution of
the Board of
Directors in establishing a series within a class of Shares.
Section 5.2 Preemptive Rights. Shareholders shall not be entitled
to any
preemptive or similar rights, including, without limitation, any
preemptive or
similar right to purchase, subscribe for, or otherwise acquire
unissued or
treasury Shares of the Corporation that may be issued at any time,
or to
purchase, subscribe for, or otherwise acquire any options,
warrants,
or
privileges to purchase, subscribe for, or otherwise acquire any
such
unissued or
treasury Shares, or to purchase, subscribe for, or otherwise
acquire
bonds,
notes, debentures, or other securities convertible into or carrying
options,
warrants, or privileges to purchase, subscribe for, or otherwise
acquire any such
unissued or treasury Shares unless expressly provided to the
contrary by
resolution of the Board of Directors in establishing a series
within
a class of
Shares.
ARTICLE VI
REGISTERED OFFICER AND REGISTERED AGENT
The registered office of the Corporation is One East First Street,
Reno, Nevada
89501, and the name of the registered agent of the Corporation at
such address
is The Corporation Trust Corporation of Nevada.
ARTICLE VII
BOARD OF DIRECTORS
Section 7.1 Exercise of Corporate Powers. The corporate powers
shall be
exercised by the Board of Directors. The number of directors shall
be set under
the Bylaws or by resolution of the Board of Directors, either of
which shall meet
the requirements set forth under the Nevada Corporation Code, and
subject to the
limitation that the initial Board of Directors shall consist of one
person, whose
name and address is as follows: Mark S. Pierce, 4221 East Pontatoc
Canyon Drive,
Tucson, Arizona 85718
Section 7.2 Limitation of Liability. To the fullest extent
permitted by the
Nevada Corporation Code, as the same exists or may hereafter be
amended, a
director of the corporation shall not be liable to the Corporation
or to the
Shareholders for breach of fiduciary duty as a director.
Section 7.3 Delegation to Bylaws. All other provisions relating
to the
governance of the Board of Directors shall be set forth in the
Bylaws, or
established by resolutions of the Board of Directors in accordance
with authority
granted thereby.
ARTICLE VIII
TRANSACTIONS WITH CERTAIN INTERESTED PARTIES
Section 8.1 Directors and Officers. No contract or other
transaction between
the Corporation and one or more of its directors or officers or any
other
corporation, firm, association, or entity in which one or more
directors of the
Corporation are directors or officers or are financially interested
shall be
either void or voidable solely because of such relationship or
interest, or
solely because such directors are present at the meeting of the
Board of
Directors or a committee thereof which authorized, approved, or
ratified such
contract or transaction, or solely because their votes were counted
for such
purpose if: (a) the fact of such relationship or interest is
disclosed or known
to the Board of Directors or committee which authorizes, approves,
or ratifies
the contract or transaction by a vote or consent sufficient for the
purpose
without counting the votes or consents of such interested persons;
(b) the fact
of such relationship or interest is disclosed to or known by the
Shareholders
entitled to vote and they authorize, approve, or ratify such
contract or
transaction by vote or written consent; or (c) the contract or
transaction is
fair and reasonable to the Corporation. Common or interested
directors may be
counted in determining the presence of a quorum at a meeting of the
Board of
Directors or a committee thereof which authorizes, approves, or
ratifies such
contract or transaction.
Section 8.2 Certain Other Persons. No contract or other
transaction between the
Corporation and one or more of its employees, fiduciaries, or
agents
or between
the Corporation and any corporation, firm, association, or entity
of
which one
of the employees, fiduciaries, or agents of the Corporation is a
director,
officer, member, employee, trustee or shareholder, or otherwise has
a direct or
indirect financial interest is void or voidable solely because of
such
relationship or interest or solely because such persons were
present
at the
meeting of the Board of Directors or a committee thereof which
authorizes,
approves, or ratifies such contract or transaction or solely
because
their votes
are counted for such purpose if: (a) the fact of such
relationship
or interest
is disclosed to or known by the Board of Directors or committee
which authorizes,
approves, or ratifies the contract or transaction by a vote or
consent sufficient
for the purpose without counting the votes or consents of such
interested
persons; or (b) the fact of such relationship or interest is
disclosed to or
known by the Shareholders entitled to vote and they authorize,
approve, or ratify
such contract or transaction by vote or written consent.
ARTICLE IX
CORPORATE OPPORTUNITY AND INDEMNIFICATION
Section 9.1 Corporate Opportunity. The officers, directors, and
other members
of management of the Corporation shall be subject to the doctrine
of
"corporate
opportunities" only insofar as this doctrine applies to business
opportunities
in which the Corporation has expressed an interest as determined
from time to
time by the Board of Directors through resolutions appearing in the
minutes of
the Corporation. Once such areas of interest are delineated, all
business
opportunities within such areas of interest which come to the
attention of the
officers, directors, and other members of management of the
Corporation shall be
disclosed promptly to the Corporation and made available to it.
The
Board of
Directors may reject any business opportunity. Until such time as
the
Corporation, through its Board of Directors, has designated an area
of interest,
the officers, directors, and other members of management of the
Corporation shall
be free to engage in such areas of interest on their own. This
doctrine shall
not limit the right of any officer, director, or other member of
management of
the Corporation to continue a business existing prior to the time
that an area
of interest is designated by the Corporation. This provision shall
not be
construed to release any employee of the Corporation (other than an
officer,
director, or other member of management) from any duties which he
may have to the
Corporation; additionally, an agreement between the Corporation and
an officer,
director, or other member of the management of the Corporation may
expressly
modify this article to such extent as the Board of Directors in its
sole
discretion may determine.
Section 9.2 Indemnification. The Bylaws shall set forth the
indemnification
rights available to officers, directors, employees and agents.
ARTICLE X
MAJORITY VOTE
When, with respect to any action to be taken by Shareholders of the
Corporation,
the Nevada Corporation Code requires the vote or concurrence of the
holders of
two-thirds of the outstanding Shares entitled to vote thereon, or
of
any class
or series, such action may be taken by the vote or concurrence of
a
majority of
such Shares or class or series thereof.
ARTICLE XI
TRANSFER RESTRICTIONS ON SHARES
The Corporation has the right, by appropriate action, to impose
restrictions upon
the transfer of any of its Shares, or any interest therein;
provided, however,
that such restrictions or the substance thereof shall be set forth
upon the face
or back of the certificates representing such Shares.
ARTICLE XIII
AMENDMENTS; BYLAWS
The Bylaws of the Corporation may contain any provision for the
regulation and
management of the affairs of the Corporation not inconsistent with
the laws of
the State of Nevada or these Articles of Incorporation. The Board
of Directors,
in addition to the Shareholders, shall have the power to alter,
amend, or repeal
the Bylaws or to adopt new Bylaws.
<PAGE>
IN WITNESS WHEREOF, the undersigned incorporator has signed these
Articles of
Incorporation this 20th day of May, 1996.
Mark S. Pierce, Incorporator
4221 East Pontatoc Canyon Drive
Tucson, Arizona 85718
State of Arizona )
) SS
County of Pima )
On this 20th day of May, 1996, before me personally
appeared Mark S.
Pierce, whose identity was proved to me on the basis of
satisfactory
evidence to
be the person whose name is subscribed to this instrument, and
acknowledged that
he/she executed the same.
Notary Public
Residing at
My commission expires:
The undersigned, The Corporation Trust Company of Nevada,
does hereby
sign these articles for the express and sole purpose of accepting
its appointment
as registered agent.
THE CORPORATION TRUST COMPANY OF NEVADA
By:
,
Date:
<PAGE>
EXHIBIT 3. 2
Bylaws (Nevada).
<PAGE>
BYLAWS
FAMOUS SAM'S
GROUP, INC.
ARTICLE I
(Offices)
Section 1.1. Principal Office. The principal office of the
corporation shall be located at such place as the board shall
designate. The corporation may have such other offices and places
of business, either within or outside of Nevada, as the board may
designate or as the affairs of the corporation may require.
Section 1.2. Registered Office. The registered office required
by the Nevada Corporation Code may, but need not, be identical with
the principal office if in Nevada, and the address of the
registered
office may be changed from time to time by the board. The board
shall also appoint and maintain a registered agent, or agents if
necessary.
ARTICLE II
(Shareholders)
Section 2.1. Annual Meeting. Unless otherwise designated by
the
board, the annual meeting of shareholders shall be held during the
month of April, at a time and date fixed by the board, or at such
other time as may be determined by the board, for the purpose of
electing directors and for the transaction of such other business
as
may lawfully and properly come before the meeting. If the election
of directors shall not be held at the annual meeting, or at any
adjournment thereof, the board shall cause the election to be held
at a special meeting as soon thereafter as convenient.
Section 2.2. Special Meetings. Special meetings may be called
as
set forth in the Nevada Corporation Code.
Section 2.3. Place of Meeting. The board may designate any
place, either within or outside of Nevada, as the place for any
annual meeting or any special meeting called by the board. If no
designation is made, or if a special meeting shall be called
otherwise than by the board, the place of the meeting shall be the
registered office.
Section 2.4. Notice of Meeting; Waiver. Written notice or
waiver thereof shall be made in accordance with the Nevada
Corporation Code.
Section 2.5. Conduct of Meeting. The president shall call
meetings to order and act as chairman. In the absence of the
president, any shareholder entitled to vote at that meeting, or any
proxy of such shareholder, may call the meeting to order and a
chairman shall be elected by a majority of the shareholders
entitled
to vote at that meeting. Any person appointed by the chairman
shall
act as secretary of such meeting.
<PAGE>
Section 2.6. Closing of Transfer Books or Fixing of Record
Date.
The Nevada Corporation Code shall govern the closing of transfer
books or the fixing of a record date for purposes of shareholders'
meetings or for the purpose of determining shareholders entitled to
receive payment of any dividend, or in order to make a
determination
of shareholders for any other proper purpose.
Section 2.7. Quorum. Unless otherwise provided by the
articles of incorporation, one-third of the outstanding shares
entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting. If a quorum is not represented
at
a meeting, a majority of the shares present may adjourn the meeting
without further notice for a period not to exceed 60 days at any
one
adjournment. At any adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might
have been transacted at the meeting as originally notified. The
shareholders present at a duly convened meeting may continue to
transact business until adjournment, notwithstanding the withdrawal
of shareholders so that less than a quorum remains. If a quorum is
present, the affirmative vote of a majority of the shares
represented and entitled to vote on the subject matter shall be the
act of the shareholders, unless the vote of a greater number or
voting by classes is required by law or the articles of
incorporation.
Section 2.8. Proxies. At all meetings, a shareholder may vote
by proxy executed in writing by the shareholder or his duly
authorized attorney-in-fact. Such proxy shall be filed with the
secretary of the meeting before or at the time of the meeting. No
proxy shall be valid after eleven (11) months from the date of its
execution unless otherwise provided in the proxy.
Section 2.9. Informal Action by Shareholders. Any action
required or allowed to be taken at a meeting may be taken without
a
meeting; provided, however, that a consent in writing setting forth
the action so taken shall be signed by all of the shareholders
entitled to vote with respect to the subject matter thereof. Such
consent shall have the same force and effect as a unanimous vote of
the shareholders, and may be stated as such in any articles or
document filed with the Secretary of State for the State of Nevada
under the Nevada Corporation Code.
ARTICLE III
(Board of
Directors)
Section 3.1. General Powers. The property, business and
affairs
of the corporation shall be managed by the board, except as
otherwise provided in the Nevada Corporation Code or the articles
of
incorporation. The board shall have all powers to act as set forth
in the laws of Nevada.
Section 3.2. Performance of Duties. A director shall perform
his duties in good faith, including his duties as a member of any
committee upon which he may serve, and in a manner reasonably
believed to be in the best interests of the corporation, and with
such care as an ordinarily prudent person in a like position would
use under similar circumstances. Each directors' actions shall be
subject to the business judgment rule and each director shall be
free from liability to the full extent provided by the Nevada
Corporation Code.
<PAGE>
Section 3.3. Number, Tenure and Qualifications. The number of
directors shall initially be set at the organizational meeting
therefor, or unanimous consent in lieu thereof. The number of
directors shall not exceed seven (7), nor be less than three (3),
unless there are fewer then three (3) shareholders in number, in
which event the number of directors may equal the number of
shareholders. The directors shall be elected at each annual
meeting
of shareholders. Each director shall hold office until the next
annual meeting of shareholders and thereafter until his successor
shall have been elected and qualified. Directors shall be 18 years
of age or older, but need not be residents of Nevada or
shareholders. Directors shall be removable in the manner provided
by the Nevada Corporation Code.
Section 3.4. Resignation. Any director may resign at any time
by giving notice (either oral or written) of his resignation to
the
board, the president or the secretary. The resignation shall take
effect at the date of receipt of such notice or at any later time
specified therein and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it
effective.
Section 3.5. Removal. Except as otherwise provided in the
articles of incorporation or in these bylaws, any director may be
removed, either with or without cause, at any time by the
affirmative vote of the holders of a majority of the issued and
outstanding shares of stock entitled to vote for the election of
directors at a special meeting of the shareholders called and held
for such purpose.
Section 3.6. Vacancies. Any vacancy occurring in the board may
be filled by the affirmative vote of a majority of the remaining
directors though less than a quorum.
Section 3.7. Regular Meetings. A regular meeting of the board
shall be held without other notice than this bylaw immediately
after
and at the same place as the annual meeting of shareholders. The
board may provide by resolution the time and place, either within
or
outside of Nevada, for the holding of additional regular meetings
without other notice than such resolution.
Section 3.8. Notice. Notice of any special meeting shall be
given at least 3 days previous thereto by written notice delivered
personally or mailed to each director at his business address.
Such
notice shall be deemed to be delivered when deposited in the United
States mail so addressed, with postage thereon prepaid.
Section 3.9. Quorum. A majority of the number of directors in
office at the time of the meeting shall constitute a quorum for
the
transaction of business, but if less than such a majority is
present, a majority of the directors present may adjourn the
meeting
from time to time without further notice.
Section 3.10. Manner of Acting. If a quorum is present, the
affirmative vote of a majority present and entitled to vote on that
particular matter shall be the act of the board, unless the vote of
a greater number is required by law or the articles of
incorporation.
<PAGE>
Section 3.11. Compensation. By resolution of the board, any
director may be reimbursed for all reasonable expenses incurred in
attending any meeting and may be paid a fixed sum for attendance at
such meeting, or receive a stated salary as director. No such
payment shall preclude any director from serving the corporation in
any other capacity and receiving compensation therefor.
Section 3.12. Committees. The board, by resolution adopted by
a majority elected and qualified at the time of the resolution, may
designate two or more directors to constitute an executive or any
other committee, which shall have and may exercise all of the
authority of the board or such lesser authority as may be set forth
in said resolution. No such delegation of authority shall operate
to relieve the board or any director from any responsibility
imposed
by law. The board shall at any time have the power to fill
vacancies in, to change the size or constituent membership of and
to
discharge any committee in whole or in part. Each committee shall
keep a written record of its acts and proceedings and shall submit
this record to the board at each regular meeting thereof and at
such
other times as may be requested by the board. Failure to submit
this record or of the board to approve any action set forth therein
shall not invalidate any action taken by the committee to the
extent
the action was carried out prior to the time it was or should have
been submitted to the board.
Section 3.13. Informal Action by Directors. Any action
required or permitted to be taken at a meeting of directors, or at
any meeting of any committee of directors, may be taken without a
meeting if a consent in writing setting forth the action so taken
shall be signed by all directors entitled to vote with respect to
the subject matter thereof. Such consent shall have the same force
and effect as a unanimous vote of the directors, and may be stated
as such in any articles or documents filed with the Secretary of
State for the State of Nevada under the Nevada Corporation Code.
Section 3.14. Meetings by Telephone. Members of the board or
any
committee may participate in a meeting by means of conference
telephone or similar communications equipment by which all persons
participating in the meeting can hear each other at the same time.
Such participation shall constitute presence in person.
ARTICLE IV
(Officers and
Agents)
Section 4.1. General. The officers shall initially be a
president, a secretary and a treasurer, each of whom shall be
elected by the board. The board may also appoint one or more vice
presidents and such other officers, assistant treasurers, and
assistant secretaries as may be necessary, each of whom shall be
chosen in such manner and hold office for such terms and have such
authority and duties as from time to time may be determined by the
board, or which may otherwise be commensurate with their position.
The salaries of all the officers shall be fixed by the board. One
person may hold any two offices, except that no person may
simultaneously hold the offices of president and secretary. The
officers shall be 18 years of age or older. In all cases where the
duties of any officer, agent or employee are not prescribed by the
bylaws or by the board, such officer, agent or employee shall
follow
the orders and instructions of (a) the president, or if a chairman
of the board has been elected, then (b) the chairman.
<PAGE>
Section 4.2. Election and Term in Office. The officers shall be
elected by the board annually at the first meeting held after each
annual meeting of the shareholders. If the election of officers
shall not be held at such meeting, such election shall be held as
soon thereafter as may be convenient. Each officer shall hold
office until the first of the following occurs: until his successor
shall have been duly elected and shall have qualified; until his
death; until he shall resign; or until he shall have been removed
in
the manner hereinafter provided.
Section 4.3. Removal. Any officer, agent or employee may be
removed by the board or by an executive committee, if any, whenever
in its judgement the best interests of the corporation will be
served thereby, but such removal shall be without prejudice to the
contracts rights, if any, of the person so removed. Election or
appointment of an officer or agent shall not of itself create
contract rights.
Section 4.4. Vacancies. A vacancy in any office, however
occurring, may be filled by the board for the unexpired portion of
the term.
Section 4.5. Bonds. If the board by resolution shall so
require, any officer or agent of the corporation shall give bond to
the corporation in such amount and with such surety as the board,
may deem sufficient, conditioned upon the faithful performance of
that officer's or agent's duties and offices.
ARTICLE V
(Stock)
Section 5.1. Certificates. The shares of stock shall be
represented by consecutively numbered certificates signed in the
name of the corporation by its president or a vice president and by
the treasurer or an assistant treasurer or by the secretary or an
assistant secretary, and shall be sealed with the seal of the
corporation, if any. Certificates of stock shall be in such form
consistent with law as shall be prescribed by the board. No
certificate shall be issued until the shares represented thereby
are
fully paid. Once issued, shares shall be nonassessable.
Section 5.2. Record. A record shall be kept of the name of
each
person or other entity holding the stock represented by each
certificate for shares of the corporation issued, the number of
shares represented by each such certificate, the date of issuance
and, in the case of cancellation, the date of cancellation. The
person or other entity in whose name shares of stock stand on the
books of the corporation shall be deemed the owner thereof, and
thus
the holder of record of such shares of stock for all purposes.
ARTICLE VI
(Indemnification of
Officers and Directors)
The corporation has the power to indemnify current or former
directors, officers, employees, and agents to the fullest extent
provided in its Articles of Incorporation and by the Nevada
Corporation Code as amended and in effect on the date of the
adoption of this article.
ARTICLE VII
(Instruments; Loans; Checks; Deposits; Proxies)
Section 7.1. Execution of Instruments. The president shall
have
the power to execute and deliver on behalf of and in the name of
the
corporation any instrument requiring the signature of an officer of
the corporation, except as otherwise provided in the articles of
incorporation or these bylaws or where the execution and delivery
thereof shall be expressly delegated by the board to some other
officer or agent of the corporation. Unless authorized to do so by
these bylaws or by the board, no officer, agent or employee shall
have any power or authority to bind the corporation in any way, to
pledge its credit or to render it liable pecuniarily for any
purpose
or in any amount.
Section 7.2. Loans. The corporation may lend money to,
guarantee the obligations of and otherwise assist directors,
officers and employees of the corporation, or directors of another
corporation of which the corporation owns a majority of the voting
stock, only upon compliance with the requirements of the Nevada
Corporation Code. No loans shall be contracted for on behalf of
the
corporation and no evidence of indebtedness shall be issued in its
name unless authorized by a resolution of the board. Such
authority
may be general or confined to specific instances.
ARTICLE VIII
(Miscellaneous)
Section 8.1. Amendments. The board shall have the power to
alter, amend or repeal the bylaws or adopt new bylaws of the
corporation at any regular meeting of the board or at any special
meeting called for that purpose, subject to repeal or change by
action of the shareholders.
Section 8.2. Emergency Bylaws. Subject to repeal or change by
action of the shareholders, the board may adopt emergency bylaws in
accordance with and pursuant to the provisions of the Nevada
Corporation Code.
The above and foregoing constitute the true, correct and complete
bylaws of Famous Sam's Group, Inc., a Nevada corporation, as
adopted by its directors on its date of incorporation.
Alexis Thurber, Secretary
<PAGE>
EXHIBIT 10.6
Asset Purchase Agreement dated May 31, 1996, changing name and
domicile to Nevada and reverse splitting outstanding
capitalization and increasing authorized capital.<PAGE>
AGREEMENT
THIS REORGANIZATION AGREEMENT ("Agreement"), made and entered into
this 27th day of May, 1996 ("Execution Date"), by and between on
the
first part U.S. Flywheel Systems, Inc., a publicly-held California
corporation ("Seller"), and on the second part Famous Sam's
Holding
Company, a Nevada corporation ("Buyer"), to be effective as of May
31, 1996,
WITNESSETH:
WHEREAS, Buyer intends to acquire (through a "C Reorganization")
Seller and its business, such as it is (collectively, the
"Business"); and
WHEREAS, the respective boards of Seller and Buyer and the
stockholders of Seller (deeming it advisable for the benefit of
each
corporation and their respective stockholders that Buyer acquire
the
Business) have approved this Agreement without reservation;
NOW, THEREFORE, in consideration of the above and foregoing
premises
and the mutual terms, covenants, representations, warranties,
covenants and conditions set forth herein, and such other and
further consideration, the receipt and sufficiency of which are
hereby acknowledged, THE PARTIES HEREBY ADOPT THIS AGREEMENT AS A
TAX-FREE REORGANIZATION UNDER SECTION 368(c) OF THE INTERNAL
REVENUE
CODE AND AGREE AS FOLLOWS:
1. Purchase and Sale. Seller hereby sells, assigns, conveys,
transfers, sets over and delivers to Buyer (and Buyer hereby
purchases from Seller) all of the right, title and interest of
Seller in and to all of the assets, tangible and intangible,
comprising the Business and, in exchange therefor, hereby delivers
the Purchase Price (as defined below) and assumes all of the
liabilities, obligations and contractual commitments of the
Business.
2. Purchase Price. The purchase price paid by Buyer for the
Business is 32,010 shares of common stock (the "Purchase Price"),
all of which shall be forthwith delivered and distributed to the
shareholders of Seller on a pro rata basis.
3. Allocation of Purchase Price. The Purchase Price shall be
allocated as set forth in the balance sheet of Seller as of March
31, 1996, which shall be prepared in accordance with Generally
Accepted Accounting Principles by Buyer and Seller from the books
and records of Seller (the "Balance Sheet"), and which shall be
submitted by Buyer as the successor to Seller to the U.S.
Securities
and Exchange Commission (the "Commission") for the fiscal quarter
then ended in accordance with the rules and regulations pertaining
thereto under the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
4. The Business. The Business shall include and consist of the
following: (a) all assets set forth or otherwise included in the
Balance Sheet, as well as any and all assets acquired less any and
all assets disposed of since that time; (b) all agreements,
contracts, letters of intent, reorganization and other forms of
agreement, whether written or oral, to which Seller is a party, and
all modifications and amendments affecting the same; (c) all books,
records, ledgers, files, documents, correspondences, lists,
studies,
reports and other printed or written materials; (d) all intangible
and other property associated with the Business; (e) goodwill; and
(f) claims, deposits, prepayments, refunds, tax abatements, causes
of actions, chooses in action, rights or recovery, rights of set
off
and rights of recoupment.
5. Liabilities Assumed. Buyer agrees to assume, pay and discharge
all debts, obligations, duties and liabilities of the Business (all
as set forth in the Balance Sheet), less any and all liabilities
satisfied since the date thereof and including any liabilities
incurred since the date thereof.
6. Representations and Warranties of Seller. Seller hereby
represents and warrants the following to Buyer, each of which is
true and correct as of the date of this Agreement and shall remain
so as of the effective date. Seller acknowledges that the
execution
and delivery of this Agreement has been made in material reliance
by
Buyer on such representations and warranties: (a) Corporate
Status.
Seller has been duly formed and is validly existing as a
corporation
under the laws of the state of California, and has been duly
authorized to dispose of the Business and to do all things required
of it under or in connection with this Agreement. (b) Binding
Agreement. This Agreement has been duly executed and delivered by
and is binding upon Seller, and does not violate any provision of
any agreement or judicial order to which Seller is a party or by
which it is bound. (c) Financial Status of Seller. There are no
attachments, executions, assignments for the benefit of creditors,
receiverships, conservatorships or voluntary or involuntary
proceedings in bankruptcy or actions pursuant to any other debtor
relief laws contemplated by or pending against Seller. (d)
Litigation. There is no litigation, investigation, condemnation or
proceeding of any kind pending or contemplated against Seller.
7. Representations and Warranties of Buyer. Buyer hereby
represents and warrants the following to Seller, each of which is
true and correct as of the date of this Agreement and shall remain
so as of the effective date. Buyer acknowledges that the execution
and delivery of this Agreement has been made in material reliance
by
Seller on such representations and warranties: (a) Corporate
Status. Buyer has been duly formed and is validly existing as a
corporation under the laws of the state of Nevada, and has been
duly
authorized to acquire the Business and to do all things required of
it under or in connection with this Agreement. (b) Binding
Agreement. This Agreement has been duly executed and delivered by
and is binding upon Buyer, and does not violate any provision of
any
agreement or judicial order to which Buyer is a party or by which
it
is bound. (c) Financial Status of Buyer. There are no
attachments,
executions, assignments for the benefit of creditors,
receiverships,
conservatorships or voluntary or involuntary proceedings in
bankruptcy or actions pursuant to any other debtor relief laws
contemplated by or pending against Buyer. (d) Litigation. There
is
no litigation, investigation, condemnation or proceeding of any
kind
pending or contemplated against Buyer.
8. Miscellaneous. (a) Continuing Assistance. Subsequent to the
effective date hereof, Seller will provide to Buyer and Buyer will
provide to Seller whatever assistance the other reasonably
requires.
(b) Successor and Assigns. This Agreement shall be binding upon,
and inure to the benefit of, the parties hereto and their
respective
permitted successors, heirs, administrators and assigns. (c)
Continuation and Survival of Representations and Warranties. All
representations and warranties by the parties herein shall survive
the execution, delivery and effectiveness hereof. (d) Governing
Law. This Agreement shall be governed by and construed and
enforced
in accordance with the laws of the state of Nevada. (e) Captions.
The captions in this Agreement are for convenience only and shall
not be deemed to be part of this Agreement. (f) Severability. If
any provision of this Agreement or the application thereof to any
person or circumstance shall, at any time or to any extent, be
invalid or unenforceable, the remainder of this Agreement, or the
application of such to persons or circumstance other than those to
which it is held invalid or unenforceable shall not be affected
thereby, and each provision of this Agreement shall be valid and
shall be enforced to the fullest extent permitted by law.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement.
SELLER: U.S. FLYWHEEL SYSTEMS, INC.
By:
William Haaker, President
BUYER: FAMOUS SAM'S HOLDINGS COMPANY
By:
Mark Hogan, President<PAGE>
EXHIBIT 10.7
Reorganization Agreement between the Company and Famous Sam's.<PAGE>
REORGANIZATION AGREEMENT
FAMOUS SAM'S FRANCHISE CORPORATION
(an Arizona corporation)
with
U.S. FLYWHEEL SYSTEMS, INC.
(a California corporation)
and
TRI-BEAU ACQUISITION COMPANY
(a Nevada corporation)
May 17, 1996<PAGE>
TABLE OF CONTENTS
ARTICLE I: Acquisition. . . . . . . . . . . . . . . . . . . . .1
1.01. Closing.. . . . . . . . . . . . . . . . . . . . . .1
1.02. Surviving Corporation . . . . . . . . . . . . . . .1
1.03. Terms of the Merger.. . . . . . . . . . . . . . . .2
1.04. Payment for Shares. . . . . . . . . . . . . . . . .2
1.05. Certain Effects of the Merger . . . . . . . . . . .2
1.06. Filing of Certificate of Merger . . . . . . . . . .3
ARTICLE II: Representations and Warranties of Famous Sam's to
U.S.
Flywheel and Acquiring Corporation3
2.01. Corporate Organization. . . . . . . . . . . . . . .3
2.02. Authorization.. . . . . . . . . . . . . . . . . . .3
2.03. Compliance with Law.. . . . . . . . . . . . . . . .3
2.04. No Violations.. . . . . . . . . . . . . . . . . . .3
2.05. Shareholder Interests.. . . . . . . . . . . . . . .4
2.06. Subsidiaries and Affiliates.. . . . . . . . . . . .4
2.07. Consents and Approvals of Government Authorities. .4
2.08. Financial Statements. . . . . . . . . . . . . . . .4
2.09. No Undisclosed Liabilities or Obligations.. . . . .4
2.10. Absence of Certain Changes. . . . . . . . . . . . .4
2.11. Title to Properties; Encumbrances.. . . . . . . . .6
2.12. Equipment.. . . . . . . . . . . . . . . . . . . . .6
2.13. Inventory.. . . . . . . . . . . . . . . . . . . . .6
2.14. Accounts and Notes Receivable.. . . . . . . . . . .6
2.15. Patents, Trademarks and Tradenames. . . . . . . . .7
2.16. Contracts and Commitments; No Default.. . . . . . .7
2.17. Leases. . . . . . . . . . . . . . . . . . . . . . .8
2.18. Litigation. . . . . . . . . . . . . . . . . . . . .8
2.19. Tax Returns.. . . . . . . . . . . . . . . . . . . .8
2.20. Insurance.. . . . . . . . . . . . . . . . . . . . .8
2.21. Benefit Plans.. . . . . . . . . . . . . . . . . . .9
2.22. Labor Difficulties. . . . . . . . . . . . . . . . .9
2.23. Permits and Licenses. . . . . . . . . . . . . . . .9
2.24. Disclosure. . . . . . . . . . . . . . . . . . . . .9
ARTICLE III: Representations and Warranties of U.S. Flywheel and
Acquiring Corporation to Famous Sam's9
3.01. Corporate Organization. . . . . . . . . . . . . . .9
3.02. Authorization.. . . . . . . . . . . . . . . . . . 10
3.03. Compliance with Law.. . . . . . . . . . . . . . . 10
3.04. No Violations.. . . . . . . . . . . . . . . . . . 10
3.05. Subsidiaries and Affiliates.. . . . . . . . . . . 10
3.06. Consents and Approvals of Government Authorities. 10
3.07. Financial Statements. . . . . . . . . . . . . . . 10
3.08. No Undisclosed Liabilities or Obligations.. . . . 11
3.09. Absence of Certain Changes. . . . . . . . . . . . 11
3.10. Leases. . . . . . . . . . . . . . . . . . . . . . 12
3.11. Litigation. . . . . . . . . . . . . . . . . . . . 12
3.12. Tax Returns. . . . . . . . . . . . . . . . . . . 12
3.13. Permits and Licenses. . . . . . . . . . . . . . . 12
3.14. SEC Reports.. . . . . . . . . . . . . . . . . . . 12
3.15. Disclosure. . . . . . . . . . . . . . . . . . . . 13
ARTICLE IV: Conduct of Famous Sam's Pending Closing. . . . . . 13
4.01. Regular Course of Business. . . . . . . . . . . . 13
4.02. Capital Changes.. . . . . . . . . . . . . . . . . 13
4.03. Subsidiaries. . . . . . . . . . . . . . . . . . . 13
4.04. Organization. . . . . . . . . . . . . . . . . . . 13
4.05. Contracts.. . . . . . . . . . . . . . . . . . . . 13
4.06. Insurance; Property.. . . . . . . . . . . . . . . 13
4.07. No Default; Amendment.. . . . . . . . . . . . . . 13
4.08. Compliance with Laws. . . . . . . . . . . . . . . 14
4.09. Tax Returns.. . . . . . . . . . . . . . . . . . . 14
4.10. No Acquisitions.. . . . . . . . . . . . . . . . . 14
<PAGE>
ARTICLE V: Obligations of U.S. Flywheel, Acquiring Corporation and
Famous Sam's Pending Closing14
5.01. Full Access.. . . . . . . . . . . . . . . . . . . 14
5.02. Confidentiality. . . . . . . . . . . . . . . . . 14
5.03. Financial Statements. . . . . . . . . . . . . . . 14
5.04. Further Assurances. . . . . . . . . . . . . . . . 15
5.05. Public Announcements. . . . . . . . . . . . . . . 15
ARTICLE VI: Conditions to Famous Sam's's Closing Obligation. . 15
6.01. Representations and Warranties True.. . . . . . . 15
6.02. Performance.. . . . . . . . . . . . . . . . . . . 15
6.03. Delivery of U.S. Flywheel Financial Statements. . 15
6.04. No Governmental Proceeding or Litigation. . . . . 15
6.05. Delivery of Consideration.. . . . . . . . . . . . 15
ARTICLE VII: Conditions to U.S. Flywheeel's and Acquiring
Corporation's Closing Obligations15
7.01. Representations and Warranties True.. . . . . . . 15
7.02. Performance.. . . . . . . . . . . . . . . . . . . 15
7.03. Delivery of Famous Sam's Financial Statements.. . 16
7.04. No Governmental Proceeding or Litigation. . . . . 16
ARTICLE VIII: Termination and Abandonment. . . . . . . . . . . 16
8.01. Methods of Termination. . . . . . . . . . . . . . 16
8.02. Procedure Upon Termination. . . . . . . . . . . . 16
ARTICLE IX: General Provisions . . . . . . . . . . . . . . . . 16
9.01. Waiver. . . . . . . . . . . . . . . . . . . . . . 16
9.02. Notices.. . . . . . . . . . . . . . . . . . . . . 17
9.03. Entire Agreement. . . . . . . . . . . . . . . . . 17
9.04. Headings. . . . . . . . . . . . . . . . . . . . . 17
9.05. Governing Law.. . . . . . . . . . . . . . . . . . 17
9.06. Counterparts. . . . . . . . . . . . . . . . . . . 17
9.07. No Oral Modification. . . . . . . . . . . . . . . 17
9.08. Survival of Representations, Warranties and
Covenants.17
9.09. Severability. . . . . . . . . . . . . . . . . . . 17
9.10. Successor and Assigns.. . . . . . . . . . . . . . 17
9..11. Expenses. . . . . . . . . . . . . . . . . . . . . 17
<PAGE>
THIS REORGANIZATION AGREEMENT ("Agreement"), made and entered
into this
17th day of May, 1996 ( "Execution Date"), by and between on the
first part
Famous Sam's Franchise Corporation ("Famous Sam's"), a
privately-held Arizona
corporation, and on the second part U.S. Flywheel Systems, Inc.
("U.S.
Flywheel"), a publicly-held California corporation, and Tri-Beau
Acquisitions
Company ("Acquiring Corporation"), a Nevada corporation which will
be
subsequently formed and wholly-owned by U.S. Flywheel specifically
and solely for
the purpose of acquiring Famous Sam's as a wholly-owned subsidiary
of U.S.
Flywheel in an "A Reorganization" or "Reverse Triangular Merger"
("Merger"),
WITNESSETH:
WHEREAS, U.S. Flywheel intends to acquire (through a reverse
triangular Merger
between Famous Sam's and Acquiring Corporation) Famous Sam's and
its
business;
WHEREAS, Acquiring Corporation will be subsequently formed as a
wholly-owned
subsidiary of U.S. Flywheel for the sole and specific purpose of
acquiring Famous
Sam's as a wholly-owned subsidiary of U.S. Flywheel in a tax exempt
reorganization; and
WHEREAS, the respective boards of Famous Sam's, U.S. Flywheel and
Acquiring
Corporation and the sole stockholder of Famous Sam's and Acquiring
Corporation
(deeming it advisable for the benefit of each corporation and their
respective
stockholders that U.S. Flywheel acquire through the Merger Famous
Sam's as a
wholly-owned subsidiary) have approved this Agreement, subject to
the conditions
precedent to Closing set forth in Articles VI and VII hereof, and,
therefore,
have agreed that Acquiring Corporation will be merged with and into
Famous Sam's
and that U.S. Flywheel thereby, through its subsidiary, Acquiring
Corporation,
will acquire the business and prospects of Famous Sam's;
NOW, THEREFORE, in consideration of the above and foregoing
premises
and the
mutual terms, covenants, representations, warranties, covenants and
conditions
set forth herein, and such other and further consideration, the
receipt and
sufficiency of which are hereby acknowledged, THE PARTIES HEREBY
ADOPT THIS
AGREEMENT AS A TAX-FREE REORGANIZATION UNDER SECTION 368(a) OF THE
INTERNAL
REVENUE CODE AND AGREE AS FOLLOWS:
ARTICLE I: Merger
1.01. Closing. The closing of the transactions evidenced by
this
Agreement the
("Closing") shall take place at the offices of Mark S. Pierce at
1200 17th
Street, Ste. 1350, Denver, Colorado (or such other place as the
parties may
agree) at 10:00 a.m. local time on Friday, June 28, 1996 (the
"Closing Date");
provided, however, that any party may, for any reason, postpone
the
Closing Date
for any length and any number of times up to Friday, August 2,
1996.
In
addition, the Closing Date may be postponed to a later time and
date
by mutual
agreement of the parties; provided, however, that the Closing Date
shall not be
extended beyond August 2, 1996, without the consent of all parties
hereto. If
the Closing Date is postponed, all references to the Closing Date
in
this
Agreement shall refer to the postponed date.
1.02. Surviving Corporation. Acquiring Corporation shall be
merged with and into
Famous Sam's, which may herein sometimes referred to as "Surviving
Corporation."
The Merger shall become effective on the filing date of the
Articles
of Merger
with the appropriate Secretaries of State.
(a) Articles of Incorporation. The articles of incorporation
of
Famous Sam's, as heretofore amended and as in effect
immediately
prior to
the execution and delivery of this Agreement, shall be the
articles of the
Surviving Corporation and shall thereafter continue to be its
articles
until duly amended or repealed.
(b) Bylaws. The bylaws of Famous Sam's, as heretofore amended
and
as in effect immediately prior to the execution and delivery of
this
Agreement, shall be the bylaws of the Surviving Corporation and
shall
thereafter continue to be its bylaws until duly amended or
repealed.
(c) Directors. The directors of U.S. Flywheel, after
fulfillment
of the conditions precedent to effectiveness of this Agreement,
shall at
a minimum be Messrs. Gerald Ross (who shall also act as
Chairman
of the
Board), and William Haaker, and they shall hold office until
their
respective successors are duly elected or appointed and
qualified in the
manner provided in the articles and bylaws governing U.S.
Flywheel, or as
otherwise provided by law. The directors of Famous Sam's,
after
fulfillment of the conditions precedent to effectiveness of
this
Agreement, shall be Messrs. Gerald Ross (who shall also act as
Chairman
of the Board) and such other individuals as Mr. Ross shall
decide in his
sole discretion to appoint, and they shall hold office until
their
respective successors are duly elected or appointed and
qualified in the
manner provided in the articles and bylaws governing Famous
Sam's, or as
otherwise provided by law. Nothing contained in this paragraph
shall be
construed to create any employment or other contractual rights
in the
aforesaid directors with the respective corporations.
(d) Executive Officers. The executive officer of U.S.
Flywheel
and
Famous Sam's, after fulfillment of the conditions precedent to
effectiveness of this Agreement, shall be Gerald Ross (Chief
Executive
Officer) and such other executive officers as Mr. Ross shall
decide in his
sole discretion to appoint. These officers shall hold office
after the
execution and delivery hereof for the term to which they have
been
elected or appointed, subject to the provisions set forth in
the
bylaws
governing the respective corporations. Nothing contained in
this
paragraph shall be construed to create any employment or other
contractual
rights in the aforesaid officers with the respective
corporations.
1.03. Terms of the Merger. Upon the execution and delivery of
this Agreement and
the effectiveness of the Merger, each share of stock then issued
and
outstanding
by Acquiring Corporation and Famous Sam's shall, by virtue of the
Merger and
without any action on the part of the holder(s) thereof (with the
exception of
one (1) share of Famous Sam's which shall be owned and held by U.S.
Flywheel)
shall no longer be outstanding and shall be canceled and retired
and
cease to
exist, and the shares of Famous Sam's shall be converted into the
right to
receive, upon surrender of the certificate representing such
shares,
the
consideration set forth under paragraph 1.04 hereof.
1.04. Payment for Shares. In consideration for the Merger, U.S.
Flywheel shall
issue and deliver, upon fulfillment of the conditions precedent
hereto, 700,000
shares of its "restricted" common stock to the shareholders of
Famous Sam's on
a pro rata basis. The aforesaid number shall constitute 70% of the
outstanding
proprietary interest of U.S. Flywheel immediately after their
issuance and
delivery. The aforesaid shares shall be fully-paid and
non-assessable shares of
the common stock of U.S. Flywheel, all of which shall be
"restricted," as defined
in Regulation D and Rule 144 under the Securities Act of 1933, as
amended (the
"Securities Act"). If delivery of a U.S. Flywheel share is to be
made to a
person other than one in whose name the Famous Sam's certificate is
registered,
it shall be a condition of payment that the certificate shall be
properly
endorsed or otherwise in proper form for transfer on delivery and
the person
requesting such shall pay any transfer or other taxes required by
reason of the
payment to a person other than the registered holder of the
certificate so
surrendered or establish to the satisfaction of the Surviving
Corporation that
such tax has been paid or is not applicable. Upon and after the
execution and
delivery of this Agreement, no transfer of stock outstanding prior
to said date
shall be made on the stock transfer books of the Surviving
Corporation.
1.05. Certain Effects of the Merger. Upon effectiveness of this
Agreement, the
separate existence of Acquiring Corporation shall cease, and
Acquiring
Corporation shall be merged with and into Famous Sam's, which, as
the Surviving
Corporation, shall possess all the assets, properties, rights,
privileges, powers
and franchises of a public or of a private nature, and be subject
to
all
liabilities, restrictions, disabilities and duties of Acquiring
Corporation. If
at any time the Surviving Corporation shall consider or be advised
that any
further assignment or assurances in law or any things are necessary
or desirable
to vest in the Surviving Corporation, according to the terms
hereof,
the title
to any property or rights of Acquiring Corporation, the last acting
officers and
directors of Acquiring Corporation (or the corresponding officers
and directors
of the Surviving Corporation) shall execute and make all such
proper assignments
and assurances and do all things necessary or proper to vest title
in such
property or rights in the Surviving Corporation, and otherwise to
carry out the
purpose and intent of this Agreement.
1.06. Filing of Certificate of Merger. As soon as practicable
after the
effectiveness of this Agreement, Acquiring Corporation shall
deliver
for filing
duly executed Articles of Merger as required by the Nevada
Corporation Code, and
will take such other and further action in connection therewith as
may be
required by Nevada law to make the Merger effective as soon as
practicable
thereafter.
ARTICLE II: Representations and Warranties of Famous Sam's to U.S.
Flywheel and
Acquiring Corporation
Famous Sam's hereby represents and warrants to U.S. Flywheel and
Acquiring
Corporation that, as of Closing:
2.01. Corporate Organization. Famous Sam's (which term for
purposes of this
Article II shall include any and all subsidiaries of Famous Sam's,
if any) (a)
is duly organized, validly existing and in good standing under the
laws of the
state of its organization and has all power and authority necessary
to carry on
its business as now being conducted and to own, lease or operate
its
properties
and assets and (b) is duly qualified or licensed to do business as
a foreign
corporation in good standing in every jurisdiction in which the
character or
location of the properties and assets owned, leased or operated by
it or the
conduct of its business requires such qualification or licensing.
At Closing a
schedule shall be initialed and delivered by Famous Sam's to U.S.
Flywheel and
Acquiring Corporation (the "Famous Sam's Disclosure Schedule")
which
lists in
paragraph 2.01 thereof all jurisdictions in which Famous Sam's is
qualified or
licensed to do business, and has true, correct and complete copies
of the
articles and bylaws of Famous Sam's as presently in effect
attached,
as well as
a Certificate of Existence/Authority from its state of
organization,
and
Certificates of Authority to do Business in each and every
jurisdiction requiring
such for the conduct of the business or operations of Famous
Sam's.
2.02. Authorization. Famous Sam's has full corporate power and
authority to
enter into this Agreement and to carry out the transactions
contemplated hereby.
The board of directors governing Famous Sam's has duly taken all
action required
by law and its governing documents to authorize the execution and
delivery of
this Agreement and the consummation of the transactions
contemplated
hereby.
This Agreement has been duly and validly executed and delivered and
no other
individual or corporate action is necessary. This Agreement is a
valid and
binding obligation of Famous Sam's and is enforceable in accordance
with its
terms, except to the extent that: (a) the enforcement of certain
rights and
remedies created by this Agreement is subject to bankruptcy,
insolvency,
reorganization and similar laws of general application affecting
the
rights and
remedies of the parties, and (b) the enforceability of any
particular provision
of this Agreement under principles of equity or the availability of
equitable
remedies (such as specific performance, injunctive relief, waiver
or
other
equitable remedies) is subject to the discretion of court.
2.03. Compliance with Law. Famous Sam's is in material
compliance with all laws,
regulations and orders applicable to its businesses. Famous Sam's
has not
received any notification that it is in violation of any law,
regulation or order
and no material violation exists.
2.04. No Violations. Neither the execution and delivery of this
Agreement nor
the consummation of the transactions contemplated hereby will: (a)
violate any
provision of the articles or bylaws of Famous Sam's, (b) violate,
be
in conflict
with, constitute a default (or an event which, with or without due
notice or
lapse of time, or both, would constitute a default) under, or cause
or permit the
acceleration of the maturity of any (i) debt, (ii) obligation,
(iii)
contract,
(iv) commitment or (v) other agreement to which Famous Sam's is a
party, (c)
result in the creation or imposition of any mortgage, pledge, lien,
security
interest, encumbrance or charge of any kind upon any of the
property
or assets
of Famous Sam's under any debt, obligation, contract, agreement or
commitment to
which Famous Sam's is a party or by which Famous Sam's is bound, or
(d) violate
any statute or law or any judgment, decree, order, regulation or
rule of any
court or governmental authority by which Famous Sam's is a party.
2.05. Shareholder Interests. The authorized and outstanding
capital interests
of Famous Sam's are set forth in paragraph 2.05 of the Famous Sam's
Disclosure
Schedule. Each of the interests listed in paragraph 2.05 has been
fully paid for
and no amount is owing Famous Sam's in regards thereof and the same
are owned
free and clear of any and all liens and encumbrances of any kind
whatsoever.
Except as indicated in said paragraph 2.05, there are no
outstanding
options,
warrants, conversion privileges or other rights to purchase or
acquire any
interest in Famous Sam's and there were no contracts, commitments,
understandings, arrangements or restrictions by which Famous Sam's
is bound to
issue any additional interests.
2.06. Subsidiaries and Affiliates. Paragraph 2.06 of the Famous
Sam's Disclosure
Schedule lists all subsidiaries of Famous Sam's, and except as
indicated in said
paragraph 2.06, these interests are owned free and clear of any and
all liens and
encumbrances whatsoever.
2.07. Consents and Approvals of Government Authorities. No
consent, approval or
authorization of, or declaration, filing or registration with, any
governmental
or regulatory authority is required in connection with the
execution, delivery
and performance of this Agreement by Famous Sam's and the
consummation of the
transactions contemplated hereby.
2.08. Financial Statements. Famous Sam's at Closing shall have
furnished U.S.
Flywheel and Acquiring Corporation with audited balance sheets of
Famous Sam's
as of December 31, 1994, and December 31, 1995, and an unaudited
balance sheet
as of March 31, 1996, or June 30, 1996, if the Closing shall occur
after August
14, 1996, (collectively, the "Famous Sam's Balance Sheets"), and
audited
statements of income, cash flows and retained earnings for the
years
ended
December 31, 1993, December 31, 1994, and December 31, 1995, and
the
foregoing
statements in unaudited form for the three months ended March 31,
1995, and March
31, 1996, or the six months ended June 30, 1995, and June 30, 1996,
if the
Closing shall occur after August 14, 1996, as well as footnotes to
all of the
foregoing (collectively, the "Famous Sam's Operating Statements and
Footnotes").
The latest unaudited Famous Sam's Balance Sheet will reflect that,
as of the date
thereof, there were total assets in the amount of $4,000,000 or
more
and
"tangible" shareholders' equity in the amount of $2,000,000 or
more,
or, in the
alternative, Famous Sam's will present to U.S. Flywheel a business
plan which
reasonably substantiates the ability of Famous Sam's to meet these
numbers within
the 12 month period following Closing. The Famous Sam's Balance
Sheets,
Operating Statements and Footnotes which are required to have been
audited shall
have been audited and examined by independent certified public
accountants who
are qualified to practice in front of the U.S. Securities and
Exchange
Commission. The Famous Sam's Balance Sheets, Operating Statements
and Footnotes
shall be in accord with the books and records of Famous Sam's and
shall present
fairly the assets, liabilities and financial condition of Famous
Sam's as of the
date thereof and the results of Famous Sam's's operations for the
periods then
ended, all in accordance with generally accepted accounting
principles ("GAAP")
consistently followed throughout the year and presented in
accordance with the
rules and regulations promulgated under the Securities Act of 1933,
as amended
(the "Securities Act") and the Securities Exchange Act of 1934, as
amended (the
"Exchange Act").
2.09. No Undisclosed Liabilities or Obligations. The Famous
Sam's Balance Sheets
shall reflect in the appropriate category or categories all
material
liabilities
and obligations of Famous Sam's as of the date thereof, and as of
Closing Famous
Sam's shall have no material obligations or liabilities of any
nature (absolute,
accrued, contingent or otherwise, and whether due or to become due
(herein
"liabilities")) except (a) liabilities which have been fully
reflected or
reserved against in the Famous Sam's Balance Sheets, which reserves
are
appropriate and reasonable, (b) liabilities incurred in the
ordinary course of
business and consistent with past practice since the date of the
Famous Sam's
Balance Sheets and (c) as otherwise set forth in paragraph 2.09 of
the Famous
Sam's Disclosure Schedule.
2.10. Absence of Certain Changes. Except for the execution of
this Agreement and
the consummation of the transactions contemplated herein and as set
forth in
paragraph 2.10 of the Famous Sam's Disclosure Statement, from the
date of the
Famous Sam's Balance Sheet and to Closing, Famous Sam's shall not
have:
(a) suffered any material and adverse change in its financial
condition, working capital, assets, liabilities, reserves,
business,
operations or prospects;
(b) suffered any loss, damage, destruction or other casualty
materially and adversely affecting any of the properties,
assets
or
business of Famous Sam's (whether or not covered by insurance);
(c) borrowed or agreed to borrow any funds or incurred, or
assumed or became subject to, whether directly or by way of
guarantee or otherwise, any obligation or liability except
obligations and liabilities incurred in the ordinary course of
business and consistent with past conduct, or liabilities
incurred
to bring the Merger to fruition;
(d) paid, discharged or satisfied any claims, liabilities or
obligations, other than payments, discharges or satisfactions
in
the
ordinary course of business and consistent with past practice
of
liabilities or obligations reflected or reserved against in the
Famous Sam's Balance Sheets or incurred in the ordinary course
of
business and consistent with past practice since the date of
the
Famous Sam's Balance Sheets;
(e) permitted or allowed any of its property or assets (real,
personal or mixed, tangible or intangible) to be subjected to
any
mortgage, pledge, lien, security interest, encumbrance,
restriction
or charge of any kind other than in the ordinary course of
business.
(f) written down the value of any inventory or written off as
uncollectible any notes or accounts receivable;
(g) canceled any debts or waived any claims or rights of
substantial value, or sold, transferred, or otherwise disposed
of
any of its properties or assets (real, personal or mixed,
tangible
or intangible) other than in the ordinary course of business;
(h) licensed or disposed of or permitted to lapse any rights
to the use of any patent, trademark, trade name, technology,
process, or other intangible asset, copyright, or disposed of
or
disclosed to any person any such matters not theretofore a
matter of
public knowledge;
(i) granted any general increase in the compensation of its
directors, officers or employees (including any such increase
pursuant to any bonus, pension, profit-sharing or other plan or
commitment) or any increase in the compensation payable or to
become
payable to any such director, officer or employee;
(j) made any capital expenditure or commitment in excess of
$50,000 individually or in excess of $50,000 in the aggregate
for
additions to property, plant or equipment;
(k) declared, paid or set aside for payment any distribution
in respect of its proprietary interests (directly or
indirectly)
or
redeemed, purchased or otherwise acquired any of its
outstanding
proprietary interests or other securities;
(l) made any change in any method of accounting practice;
(m) paid, loaned or advanced any amounts to, or sold,
transferred or leased any properties or assets (real, personal
or
mixed, tangible or intangible) to, or entered into any
agreement
or
arrangement with, any of its directors, officers or
affiliates;
(n) entered into any other transaction, contract or
commitment other than in the ordinary course of business;
(o) been subject to any other event or condition of any
character that has or might reasonably have a material and
adverse
effect upon its financial condition, business, assets or
properties;
or
(p) agreed, whether in writing or otherwise, to take any
action described in this paragraph.
2.11. Title to Properties; Encumbrances. The Famous Sam's
Balance Sheets shall
reflect in the appropriate category or categories all assets of
Famous Sam's
(real, personal and mixed, tangible and intangible) as of the dates
thereof.
Since the date of the latter of said balance sheets and to the
Closing Date,
Famous Sam's shall not have acquired or disposed of any assets
(herein "assets")
except (a) assets acquired or disposed of in the ordinary course of
business and
consistent with past practice since the date of said Famous Sam's
Balance Sheet
or (b) as otherwise set forth in paragraph 2.11 of the Famous Sam's
Disclosure
Schedule. Famous Sam's has good and marketable title to, or a
valid
leasehold
interest in, all such assets and each is disclosed, as appropriate,
in the Famous
Sam's Balance Sheets. None of such properties or assets is subject
to any
mortgage, pledge, lien, security interest, encumbrance, restriction
or charge of
any kind except the following: (a) liens which are shown on the
Famous Sam's
Balance Sheets securing specified liabilities or obligations with
respect to
which no default exists; (b) liens reflected in paragraph 2.11 of
the Famous
Sam's Disclosure Schedule; (c) minor imperfections of title, if
any, none of
which (individually or in the aggregate) is substantial in amount,
materially
detracts from the value or impairs the existing use of the property
subject
thereto, or impairs the operations of the entity owning the same,
and (d) liens
for current taxes not yet due and payable.
2.12. Equipment. The Famous Sam's Balance Sheets shall reflect
in the
appropriate category or categories all of the equipment owned by
Famous Sam's as
of the dates thereof. Since the date of the latter of said balance
sheets, and
to the Closing Date, Famous Sam's has not acquired or transferred
any equipment
(herein "equipment") except (a) equipment acquired or disposed of
in
the ordinary
course of business and consistent with past practice since the date
of said
Famous Sam's Balance Sheets and (b) as otherwise set forth in
paragraph 2.12 of
the Famous Sam's Disclosure Schedule. The equipment is
structurally
sound with
no material defects, in good operating condition and repair and
adequate for the
uses to which it is being put, and none of the equipment is in need
of
maintenance or repairs, except for ordinary and routine maintenance
and repairs.
2.13. Inventory. The Famous Sam's Balance Sheet shall reflect
in
the appropriate
category or categories all inventory owned by Famous Sam's as of
the
dates
thereof. Since the date of the latter of said balance sheets and
to
the Closing
Date, Famous Sam's has not acquired or disposed of any inventory
(herein
"inventory") except (a) inventory acquired or disposed of in the
ordinary course
of business and consistent with past practice since the date of
said
Famous Sam's
Balance Sheet and (b) as otherwise set forth in paragraph 2.13 of
the Famous
Sam's Disclosure Schedule. All such inventory consists of a
quality
and quantity
usable and salable in the ordinary course of business, and the
present quantities
of all inventory of Famous Sam's are reasonable in their present
circumstances
for its businesses.
2.14. Accounts and Notes Receivable. The Famous Sam's Balance
Sheets shall
reflect in the appropriate category or categories all accounts and
notes
receivable of Famous Sam's as of the date thereof, and each account
receivable
represents transactions actually made in the ordinary course of
business. Since
the date of the latter of said balance sheets and to the Closing
Date, Famous
Sam's has not collected, acquired or disposed of any account or
note
receivable
(herein "receivables") except (a) receivables collected, acquired
or
disposed of
in the ordinary course of business and consistent with past
practice
since the
date of said Famous Sam's Balance Sheets and (b) as otherwise set
forth in
paragraph 2.14 of the Famous Sam's Disclosure Schedule. These
receivables were
current and remain collectible net of any reserves shown on and as
of the date
of the latest Famous Sam's Balance Sheets (which reserves were and
remain
adequate and established in accordance with past practice).
2.15. Patents, Trademarks and Tradenames. Famous Sam's has
disclosed in
paragraph 2.15 of the Famous Sam's Disclosure Schedule all of the
patents,
trademarks, trade names, copyrights, technology, know-how and
processes in which
it has any rights. Since the date of the latter of the Famous
Sam's
Balance
Sheets and to the Closing Date, Famous Sam's has not acquired or
disposed of any
such technology (herein "proprietary technology") except (a)
proprietary
technology acquired or disposed of in the ordinary course of
business and
consistent with past practice since the date of said Famous Sam's
Balance Sheet
and (b) as otherwise set forth in paragraph 2.15 of the Famous
Sam's
Disclosure
Schedule. Famous Sam's has the sole and exclusive right to use
these assets and
the consummation of the transactions contemplated hereby will not
alter or impair
any such rights. No claims have been asserted by any person to the
use of these
assets or challenging or questioning the validity or effectiveness
of such and
there is no valid basis for any such claim. The use of these
assets
does not
infringe on the rights of any person.
2.16. Contracts and Commitments; No Default. Paragraph 2.16 of
the Famous Sam's
Disclosure Schedule lists all material contracts and commitments to
which Famous
Sam's is a party, including promissory notes, as of the date
thereof. Except as
shall be set forth in Paragraph 2.16 of the Famous Sam's Disclosure
Schedule:
(a) Famous Sam's has no employment agreement with any officer,
director, employee or agent, nor any agreement that contains
any
severance or termination pay liabilities or obligations;
(b) Famous Sam's has no employee to whom it is paying
aggregate
direct remuneration at the annual rate of more than $60,000 for
services rendered or commissions at a rate which (based on
sales
by
such employee during the last fiscal year would exceed $60,000;
(c) Famous Sam's does not have any collective bargaining or
union
contract agreements;
(d) Famous Sam's is not restricted by agreement from carrying
on
any of its businesses or any part thereof anywhere in the world
or
from competing in any line of said businesses with any person;
(e) Famous Sam's has no debt obligation for borrowed money,
including guarantees of or agreements to acquire any such debt
obligation, of others;
(f) Famous Sam's has no outstanding loan to any person;
(g) Famous Sam's has no obligation or liability as guarantor,
surety, co-signor, endorser, co-maker, indemnitor or otherwise
in
respect of the obligation of any other person;
(h) Famous Sam's is not subject to any obligation or
requirement to
provide funds to or make any investment (in the form of a loan,
capital contribution or otherwise) in any person;
(i) Famous Sam's is not a party to any agreement, contract,
commitment or loan to which any of its directors, officers or
affiliates or any of their affiliates is a party;
(j) there are no outstanding sales or purchase contracts,
commitments or proposals of Famous Sam's which will result in
any
loss exceeding $10,000 upon completion or performance thereof,
after
allowance for direct distribution expenses, except sales or
purchase
contracts, commitments or proposals which, in the aggregate,
call
for fixed and/or contingent payments thereunder of less than
$10,000
per year;
(k) Famous Sam's is not a party to any purchase or sale
contract or
agreement which has exceeded or will exceed 10% of the gross
revenues, as provided under GAAP, in any twelve (12) month
fiscal
period;
(l) Famous Sam's is not under any liability or obligation with
respect to the return of inventory or merchandise in the
possession
of wholesalers, distributors, retailers or other customers;
(m) Famous Sam's has not given any irrevocable power of
attorney to
any person, firm, corporation or other entity for any purpose
whatsoever, except the appointment of agents to accept service
of
process; and
(n) except for agreements, contracts, commitments or
restrictions
referred to in this section or elsewhere specifically disclosed
pursuant to this Agreement, Famous Sam's has no agreement,
contract,
commitment or restriction which is material to any of its
businesses, operations or prospects (for the purpose of this
subsection, any agreement, contract, commitment or restriction
may
be deemed "immaterial" if it is a purchase or sale contract or
agreement which has not exceeded or will not exceed 10% of the
gross
revenues, as provided under GAAP, in the 12 month fiscal period
or
if it may be canceled on 30 days' notice without premium,
penalty or
forfeiture and it calls for fixed and/or contingent payments
thereunder of less than $10,000 per year).
All contracts, agreements, commitments or restrictions referred to
in this
section are valid and enforceable in accordance with their
respective terms and
Famous Sam's is not in default in the performance of any of its
obligations
thereunder and is not aware of any event of default that has
occurred which
(whether with or without notice, lapse of time, or both, or the
happening or the
occurrence of any other event) would constitute a default
thereunder.
2.17. Leases. Paragraph 2.17 of the Famous Sam's Disclosure
Schedule lists all
material leases to which Famous Sam's is a party. All such leases
are valid,
binding and enforceable in accordance with their terms, and are in
full force and
effect. Except as set forth in said paragraph of the Famous Sam's
Disclosure
Schedule, (a) there are no existing defaults by Famous Sam's or any
other party
under any lease, (b) no event of default has occurred which
(whether
with or
without notice, lapse of time or the happening or occurrence of any
other event)
would constitute a default under any lease and (c) all lessors
under
the leases
have consented (where such consent is necessary) to the
consummation
of the
transactions contemplated by this Agreement.
2.18. Litigation. There is no legal, administrative,
arbitration
or other
proceeding, claim or action of any nature or investigation pending
or threatened
against or involving Famous Sam's, or which questions or challenges
the validity
of this Agreement or which challenges any action to be taken by
Famous Sam's
pursuant to this Agreement or in connection with the transactions
contemplated
hereby, and Famous Sam's does not know or have any reason to know
of
any valid
basis for any such legal, administrative, arbitration or other
proceeding, claim
or action. Famous Sam's is not subject to any judgment, order or
decree entered
in any lawsuit or proceeding which has had or may have an adverse
effect on its
business practices or on its ability to acquire any property or
conduct its
businesses in any area.
2.19. Tax Returns. Famous Sam's has duly filed all federal,
state and local tax
reports and returns required to be filed by it and has duly paid
all
taxes and
other charges due or claimed to be due from it by federal, state
and
local taxing
authorities; further, the reserves for taxes to be reflected in the
Famous Sam's
Balance Sheets, if any, are adequate, and there are no tax liens
upon any
property or assets of Famous Sam's.
2.20. Insurance. Paragraph 2.20 of the Famous Sam's Disclosure
Schedule contains
an accurate and complete list and description of all material
policies of fire,
liability, worker's compensation and other forms of insurance owned
or held by
Famous Sam's. All such policies (a) are in full force and effect,
(b) are
sufficient for compliance with all requirements of law and of all
agreements to
which Famous Sam's is a party, (c) are valid, outstanding and
enforceable
policies, (d) provide adequate insurance coverage for the assets
and
operations
of the party covered, (e) will remain in full force and effect
through the
respective dates set forth in the Famous Sam's Disclosure Schedule
and (f) will
not in any way be affected by, or terminate or lapse by reason of,
the
transactions contemplated by this Agreement.
2.21. Benefit Plans. Famous Sam's does not maintain or
contribute to any
"employee pension benefit plan," as such term is defined in Section
3(2) of the
Employee Retirement Income Security Act of 1974, as amended
("ERISA"). Famous
Sam's does not maintain or contribute to any "employee welfare
benefit plan," as
such term is defined in Section 3(1) of ERISA, whether insured or
otherwise.
2.22. Labor Difficulties. Famous Sam's has been and remains in
material
compliance with all applicable laws respecting employment and
employment
practices, terms and conditions of employment and wages and hours,
including,
without limitation, any such laws respecting employment
discrimination and
occupational safety and health requirements, and is not engaged in
any unfair
labor practice. There are no unfair labor practice complaints
against Famous
Sam's pending or threatened before the National Labor Relations
Board. There are
no labor strikes, disputes, slowdowns or stoppages actually pending
or threatened
against or directly affecting Famous Sam's. No union
representation
question
exists respecting the employees of Famous Sam's. No grievance or
any
arbitration
proceeding arising out of or under a collective bargaining
agreement
is pending
and no claims exist thereunder against Famous Sam's. No collective
bargaining
agreement is binding upon Famous Sam's. Famous Sam's has not
experienced any
work stoppage or other material labor difficulty since January 1,
1993.
2.23. Permits and Licenses. Famous Sam's has obtained all
necessary permits and
licenses required in the operation and conduct of its businesses,
all of which
are now valid and in good standing; further, none of such unduly
burdens or
restricts Famous Sam's in the ordinary course of its businesses;
and, further,
Famous Sam's has complied with all commitments and obligations
under
all such
items.
2.24. Disclosure. No representations or warranties by Famous
Sam's in this
Agreement and no statement contained in any document (including,
without
limitation, the Famous Sam's Disclosure Schedule) or other writing
furnished by
Famous Sam's to U.S. Flywheel or Acquiring Corporation pursuant to
the provisions
hereof or in connection with the transactions contemplated hereby
contain any
untrue statement of material fact or omit to state any material
fact
necessary
in order to make the statements herein or therein, in light of the
circumstances
under which they were made, not materially misleading; further,
there are no
facts known to Famous Sam's which (either individually or in the
aggregate) could
or would materially and adversely affect or involve any substantial
possibility
of having a material and adverse effect upon the condition
(financial or
otherwise), results of operations, assets, liabilities or
businesses
of Famous
Sam's which have not been disclosed in this Agreement.
ARTICLE III: Representations and Warranties of U.S. Flywheel and
Acquiring
Corporation to Famous Sam's
U.S. Flywheel and Acquiring Corporation hereby represent and
warrant to Famous
Sam's that, as of Closing:
3.01. Corporate Organization. U.S. Flywheel and Acquiring
Corporation (a) are
duly organized, validly existing and in good standing under the
laws
of the state
of their organization and have all corporate power and authority
necessary to
carry on their business as now being conducted and to own, lease or
operate their
respective properties and assets and (b) are duly qualified or
licensed to do
business as foreign corporations in good standing in every
jurisdiction in which
the character or location of the properties and assets owned,
leased
or operated
by them or the conduct of their business requires such
qualification
or
licensing. A schedule has been initialed and delivered by U.S.
Flywheel and
Acquiring Corporation to Famous Sam's at Closing (the "U.S.
Flywheel
Disclosure
Schedule") which lists in Paragraph 3.01 thereof all jurisdictions
in which U.S.
Flywheel and its subsidiaries are qualified or licensed to do
business, and has
true, correct and complete copies of the articles and bylaws of
U.S.
Flywheel and
Acquiring Corporation as presently in effect attached, as well as
a
Certificate
of Good Standing from the various states of organization, and
Certificates of
Authority to do Business in each and every jurisdiction requiring
such for the
conduct of the business or operations of U.S. Flywheel and
Acquiring
Corporation.
3.02. Authorization. U.S. Flywheel and Acquiring Corporation
have full corporate
power and authority to enter into this Agreement and to carry out
the
transactions contemplated hereby. The board of directors governing
U.S. Flywheel
and Acquiring Corporation have each taken all action required by
law
and their
governing documents to authorize the execution and delivery of this
Agreement and
the consummation of the transactions contemplated hereby. This
Agreement has
been duly and validly executed and delivered and no other corporate
action is
necessary. This Agreement is a valid and binding obligation,
enforceable in
accordance with its terms, except to the extent that: (a) the
enforcement of
certain rights and remedies created by this Agreement is subject to
bankruptcy,
insolvency, reorganization and similar laws of general application
affecting the
rights and remedies of the parties, and (b) the enforceability of
any particular
provision of this Agreement under principles of equity or the
availability of
equitable remedies (such as specific performance, injunctive
relief,
waiver or
other equitable remedies) is subject to the discretion of court.
3.03. Compliance with Law. U.S. Flywheel and Acquiring
Corporation are in
compliance with all laws, regulations and orders applicable to
their
respective
businesses. Neither U.S. Flywheel nor Acquiring Corporation have
received any
notification that they or any of them are in violation of any law,
regulation or
order and no such violation exists.
3.04. No Violations. Neither the execution and delivery of this
Agreement nor
the consummation of the transactions contemplated hereby will: (a)
violate any
provision of the articles or bylaws of U.S. Flywheel or Acquiring
Corporation,
(b) violate, be in conflict with, constitute a default (or an
event
which, with
or without due notice or lapse of time, or both, would constitute
a
default)
under, or cause or permit the acceleration of the maturity of any
(i) debt, (ii)
obligation, (iii) contract, (iv) commitment or (v) other agreement
to which U.S.
Flywheel or Acquiring Corporation is or are a party, (c) result in
the creation
or imposition of any mortgage, pledge, lien, security interest,
encumbrance or
charge of any kind upon any of the property or assets of U.S.
Flywheel and/or
Acquiring Corporation under any debt, obligation, contract,
agreement or
commitment to which U.S. Flywheel and/or Acquiring Corporation is
or
are a party
or by which U.S. Flywheel and/or Acquiring Corporation is or are
bound, or (d)
violate any statute or law or any judgment, decree, order,
regulation or rule of
any court or governmental authority by which U.S. Flywheel and/or
Acquiring
Corporation is or are a party.
3.05. Subsidiaries and Affiliates. U.S. Flywheel has no
subsidiaries, other than
Acquiring Corporation, which has no subsidiaries.
3.06. Consents and Approvals of Government Authorities. No
consent, approval or
authorization of, or declaration, filing or registration with, any
governmental
or regulatory authority is required in connection with the
execution, delivery
and performance of this Agreement by U.S. Flywheel and Acquiring
Corporation and
the consummation of the transactions contemplated hereby.
3.07. Financial Statements. U.S. Flywheel has furnished Famous
Sam's with
audited balance sheets as of December 31, 1994, and December 31,
1995, and an
unaudited balance sheet as of March 31, 1996, or June 30,
1996, if the Closing shall occur after August 14, 1996,
(collectively, the "U.S.
Flywheel Balance Sheets"), and audited, consolidated statements of
income, cash
flows and retained earnings for the years ended December 31, 1993,
December 31,
1994, and December 31, 1995, and the foregoing statements in
unaudited form for
the three months ended March 31, 1995, and March 31, 1996, or the
six months
ended June 30, 1995, and June 30, 1996, if the Closing shall occur
after August
14, 1996, as well footnotes thereto (collectively, the "U.S.
Flywheel Operating
Statements and Footnotes"). The latest unaudited U.S. Flywheel
Balance Sheet
will reflect that, as of the date thereof, there were no assets or
liabilities
in U.S. Flywheel, unless such assets have been transferred and such
liabilities
satisfied subsequent to the date thereof, all to the reasonable
satisfaction of
Famous Sam's. The audited U.S. Flywheel Balance Sheets, Operating
Statements and
Footnotes have been audited and examined by independent, certified
public
accountants. The U.S. Flywheel Balance Sheets, Operating
Statements
and
Footnotes are in accord with the books and records of U.S. Flywheel
and they
completely and fairly present the assets, liabilities and financial
condition of
U.S. Flywheel as of the date thereof and the results of U.S.
Flywheel'
operations, all in accordance with GAAP consistently followed
throughout the year
and presented in accordance with the rules and regulations
promulgated under the
Securities Act and the Exchange Act. The U.S. Flywheel Balance
Sheets, Operating
Statements and Footnotes do not reflect a material and adverse
change from the
financial statements presented in the Form 10-Q filed by U.S.
Flywheel under the
Exchange Act for the three and nine months ended September 30,
1995.
3.08. No Undisclosed Liabilities or Obligations. The U.S.
Flywheel Balance
Sheets list in the appropriate category or categories all
liabilities and
obligations of U.S. Flywheel and Acquiring Corporation as of the
date thereof.
U.S. Flywheel and Acquiring Corporation as of Closing have no
obligations or
liabilities of any nature (absolute, accrued, contingent or
otherwise, and
whether due or to become due (herein "liabilities")) except (a)
liabilities which
have been fully reflected or reserved against the U.S. Flywheel
Balance Sheets,
which reserves are appropriate and reasonable; (b) liabilities
incurred in the
ordinary course of business and consistent with past practice since
the date of
the latest U.S. Flywheel Balance Sheets; and (c) as otherwise set
forth in
paragraph 3.08 of the U.S. Flywheel Disclosure Schedule.
3.09. Absence of Certain Changes. Except as set forth in
paragraph 3.09 of the
U.S. Flywheel Disclosure Statement, since the date of the latest
U.S. Flywheel
Balance Sheet, neither U.S. Flywheel nor Acquiring Corporation
have:
(a) suffered any material and adverse change in their
respective
financial condition, working capital, assets, liabilities,
reserves,
business, operations or prospects;
(b) suffered any loss, damage, destruction or other casualty
materially and adversely affecting any of the properties,
assets
or
business of U.S. Flywheel and/or Acquiring Corporation (whether
or
not covered by insurance);
(c) borrowed or agreed to borrow any funds or incurred, or
assumed
or became subject to, whether directly or by way of guarantee
or
otherwise, any obligation or liability;
(d) paid, discharged or satisfied any claims, liabilities or
obligations, other than payments, discharges or satisfactions
in
the
ordinary course of business and consistent with past practice;
(e) permitted or allowed any of their property or assets
(real,
personal or mixed, tangible or intangible) to be subjected to
any
mortgage, pledge, lien, security interest, encumbrance,
restriction
or charge of any kind;
(f) written down the value of any inventory or written off as
uncollectible any notes or accounts receivable;
(g) canceled any debts or waived any claims or rights of
substantial value, or sold, transferred, or otherwise disposed
of
any of their properties or assets (real, personal or mixed,
tangible
or intangible);
(h) licensed or disposed of or permitted to lapse any rights
to
the
use of any patent, trademark, trade name, technology, process,
or
other intangible asset, copyright, or disposed of or disclosed
to
any person any such matters not theretofore a matter of public
knowledge;
(i) granted any general increase in the compensation of their
respective directors, officers or employees (including any such
increase pursuant to any bonus, pension, profit-sharing or
other
plan or commitment) or any increase in the compensation payable
or
to become payable to any such director, officer or employee;
(j) made any capital expenditure or commitment;
(k) declared, paid or set aside for payment any dividend or
other
distribution in respect of the Common Stock or (directly or
indirectly) redeemed, purchased or otherwise acquired any of
its
Common Stock or other securities;
(l) made any change in any method of accounting practice;
(m) paid, loaned or advanced any amounts to, or sold,
transferred
or leased any properties or assets (real, personal or mixed,
tangible or intangible) to, or entered into any agreement or
arrangement with, any of their respective directors, officers
or
affiliates;
(n) entered into any other transaction, contract or
commitment;
(o) been subject to any other event or condition of any
character
that has or might reasonably have a material and adverse effect
upon
their financial condition, business, assets or properties; or
(p) agreed, whether in writing or otherwise, to take any
action
described in this paragraph.
3.10. Leases. Neither U.S. Flywheel nor Acquiring Corporation
is
or are a party
to any lease.
3.11. Litigation. There is no legal, administrative,
arbitration
or other
proceeding, claim or action of any nature or investigation pending
or threatened
against or involving U.S. Flywheel or Acquiring Corporation, or
which questions
or challenges the validity of this Agreement or which challenges
any
action to
be taken by U.S. Flywheel or Acquiring Corporation pursuant to this
Agreement or
in connection with the transactions contemplated hereby, and U.S.
Flywheel and
Acquiring Corporation do not know or have any reason to know of any
valid basis
for any such legal, administrative, arbitration or other
proceeding,
claim or
action. Neither U.S. Flywheel nor Acquiring Corporation is or are
subject to any
judgment, order or decree entered in any lawsuit or proceeding
which
has had or
may have an adverse effect on its business practices or on its
ability to acquire
any property or conduct their businesses in any area.
3.12. Tax Returns. U.S. Flywheel and Acquiring Corporation have
duly filed all
federal, state and local tax reports and returns required to be
filed by them and
have duly paid all taxes and other charges due or claimed to be due
from them by
federal, state and local taxing authorities; further, the reserves
for taxes
reflected in the U.S. Flywheel Balance Sheets, if any, are
adequate,
and there
are no tax liens upon any property or assets of U.S. Flywheel or
Acquiring
Corporation.
3.13. Permits and Licenses. U.S. Flywheel and Acquiring
Corporation have
obtained all necessary permits and licenses required in the
operation and conduct
of their respective businesses, all of which are now valid and in
good standing;
further, none of such unduly burdens or restricts U.S. Flywheel or
Acquiring
Corporation in the ordinary course of their respective businesses;
and further,
U.S. Flywheel and Acquiring Corporation have complied with all
commitments and
obligations under all such items.
3.14. SEC Reports. Paragraph 3.14 of the U.S. Flywheel
Disclosure Schedule
contains the Form 10-KSB as of and for the year ended December 31,
1995, the Form
10-Q as of and for the three months ended March 31, 1996, or the
Form 10-Q as of
and for the six months ended June 30, 1996, if the Closing shall
occur after
August 14, 1996, each as filed by U.S. Flywheel with the Securities
and Exchange
Commission (the "Commission") pursuant to the Exchange Act. These
reports were
prepared in all material respects in accordance with the
requirements of the
Exchange Act and the rules and regulations thereunder, and do not
contain any
untrue statement of a material fact or omit to state any material
fact required
to be stated therein or necessary in order to make the statements
therein, in
light of the registration statements in which they were made, not
misleading.
U.S. Flywheel has filed all reports with the Commission required to
be filed by
it prior to the period ended December 31, 1995.
3.24. Disclosure. No representations or warranties by U.S.
Flywheel in this
Agreement and no statement contained in any document (including,
without
limitation, the U.S. Flywheel Disclosure Schedule), certificate, or
other writing
furnished by U.S. Flywheel to Famous Sam's pursuant to the
provisions hereof or
in connection with the transactions contemplated hereby, contain
any
untrue
statement of material fact or omit to state any material fact
necessary in order
to make the statements herein or therein, in light of the
circumstances under
which they were made, not misleading; further, there are no facts
known to U.S.
Flywheel or its subsidiaries which (either individually or in the
aggregate)
could or would materially and adversely affect or involve any
substantial
possibility of having a material, adverse effect upon the condition
(financial
or otherwise), results of operations, assets, liabilities or
businesses of U.S.
Flywheel and/or its subsidiaries which have not been disclosed in
this Agreement.
ARTICLE IV: Conduct of Famous Sam's Pending Closing
Pending Closing and until the Termination Date:
4.01. Regular Course of Business. Famous Sam's and its
subsidiaries, if any,
will carry on their respective businesses diligently and
substantially in the
same manner as heretofore conducted, and Famous Sam's and such
subsidiaries shall
not institute any new methods of purchase, sale, lease, management,
accounting
or operation or engage in any transaction or activity, enter into
any agreement
or make any commitment except in the ordinary course of business
and
consistent
with past practice.
4.02. Capital Changes. Neither Famous Sam's nor any of its
subsidiaries, if any,
shall issue or sell, or issue options, warrants to purchase,
conversion
privileges or other rights to subscribe to, or enter into any
arrangement or
contract with respect to, any interests therein or any of their
other securities,
or make any other changes in their capital structure.
4.03. Subsidiaries. Neither Famous Sam's nor any of its
subsidiaries, if any,
shall organize any subsidiary, acquire any capital stock or other
equity security
of any entity or acquire any interest (equity, debt or otherwise)
in
any
business, other than in the ordinary course of their business.
4.04. Organization. Famous Sam's and its subsidiaries, if any,
shall preserve
their existence and business organizations intact, keep available
their key
employees, and preserve their relationships with suppliers,
dealers,
licensors,
licensees, distributors, customers and others having business
relations with
them.
4.05. Contracts. No contracts or commitments shall be entered
into by or on
behalf of Famous Sam's or any of its subsidiaries, if any, except
in
the ordinary
course of business.
4.06. Insurance; Property. All property (real, personal and
mixed and
whether owned or leased by Famous Sam's or any of its subsidiaries)
shall be
insured in the manner contemplated by Article II, Section 2.20
hereof, and all
such property shall be used, operated, maintained and repaired in
a
careful and
reasonably efficient manner.
4.07. No Default; Amendment. Neither Famous Sam's nor any of
its
subsidiaries,
if any, shall do any act or omit to do any act, or permit any act
or
omission to
act, which shall cause a material breach of any material contract
or
commitment
of Famous Sam's or any of its subsidiaries, nor shall they amend
any
material
contract.
4.08. Compliance with Laws. Famous Sam's and its subsidiaries,
if any, shall
duly comply with all laws applicable to them and their properties,
operations,
businesses and employees.
4.09. Tax Returns. Famous Sam's and its subsidiaries, if any,
shall promptly
prepare and file all federal, state, local and foreign tax returns
and amendments
thereto required to be filed by them.
4.10. No Acquisitions. Neither Famous Sam's nor any of its
subsidiaries, if any,
will approve or undertake in any manner any merger, consolidation,
asset
acquisition or disposition or tender offer or other takeover
transaction or
furnish or cause to be furnished any information concerning their
business,
properties or assets to any person (other than to U.S. Flywheel)
which is
interested in any such transaction, or solicit or encourage any
inquiries or
proposals for the acquisition of all or any part of their capital
interests,
assets or business.
ARTICLE V: Obligations of Famous Sam's, U.S. Flywheel and Acquiring
Corporation Pending Closing
Famous Sam's, U.S. Flywheel and Acquiring Corporation hereby
covenant and agree
with one another that:
5.01. Full Access. Famous Sam's, U.S. Flywheel and Acquiring
Corporation shall
afford to one another, their respective counsel, officers,
directors, accountants
and authorized representatives full access to one another's
physical
facilities,
books and records in order that they may each have full opportunity
to make such
investigations as they shall desire to make of the affairs of one
another;
provided, however, that any such investigation shall be conducted
in
such a
manner so as not to interfere unreasonably with the operation of
the
business of
either Famous Sam's, U.S. Flywheel and/or Acquiring Corporation,
and, further,
each of the parties hereto shall cause their respective officers,
directors and
independent and in-house accountants and attorneys to furnish such
additional
financial and operating data and other information as any of them
shall from time
to time reasonably request, including access to the working papers
of their
independent certified public accountants.
5.02. Confidentiality. Famous Sam's, U.S. Flywheel and
Acquiring
Corporation
shall (and shall cause their respective counsel, officers,
directors, accountants
and representatives to) hold in confidence and not disclose to any
other for any
reason whatsoever any and all information received by any one or
more of them
from one or more of the others in connection with the transactions
contemplated
hereby that any party identifies with reasonable specificity in
writing as
proprietary ("Proprietary Information"); except to the extent that
such
Proprietary Information was previously known to the party to whom
it
is being
disclosed or was otherwise available from third persons without
restriction on
its further use or disclosure or was otherwise not legally
protectable as
proprietary information; provided, however, that nothing herein
contained shall
be deemed to preclude any party from (a) asserting that any
document
or
information (whether or not embodied in a document) asserted by any
party to be
proprietary is not entitled to protection as such on the grounds
that such
Proprietary Information was previously known to the party to whom
it
was
disclosed or was otherwise available from third persons without
restriction on
its further use or disclosure or otherwise not legally protectable
as
proprietary, and (b) thereafter freely using or disclosing such
information
unless a court of competent jurisdiction finally determines that
this provision
does not apply to such information.
5.03. Financial Statements. On or prior to Closing, Famous
Sam's
shall deliver
to U.S. Flywheel and Acquiring Corporation the Famous Sam's Balance
Sheets,
Operating Statements and Footnotes and an unqualified report and
opinion from
independent certified public accountants pertaining to the audited
Famous Sam's
Balance Sheets, Operating Statement and Footnotes. The
presentation
of the
foregoing shall be in such a manner so as to comply with the rules
and
regulations under the Securities Act and the Exchange Act.
Correspondingly, on
or prior to Closing, U.S. Flywheel and Acquiring Corporation shall
deliver to
Famous Sam's the U.S. Flywheel Balance Sheets, Operating Statements
and Footnotes
and an unqualified report and opinion from independent certified
public
accountants pertaining to the audited U.S. Flywheel Balance Sheets,
Operating
Statement and Footnotes. The presentation of the foregoing shall
be
in such a
manner so as to comply with the rules and regulations under the
Securities Act
and the Exchange Act.
5.04. Further Assurances. Famous Sam's, U.S. Flywheel and
Acquiring Corporation
shall after the Execution Date and Closing execute and deliver such
instruments
and take such other actions as the other party may reasonably
require in order
to carry out the intent of this Agreement.
5.05. Public Announcements. Famous Sam's, U.S. Flywheel and
Acquiring
Corporation shall consult with each other before issuing any press
releases or
otherwise making any public statements with respect to the
transactions
contemplated herein and shall not issue any such press release or
make any such
public statement prior to such consultation. Approval by Famous
Sam's, U.S.
Flywheel or Acquiring Corporation of such press releases and public
statements
shall not be unreasonably withheld.
ARTICLE VI: Conditions to Famous Sam's's Closing Obligation
The obligation of Famous Sam's to effect the transactions
contemplated herein
shall be subject to the satisfaction, on or before Closing, of each
of the
following conditions:
6.01. Representations and Warranties True. The representations
and warranties
of U.S. Flywheel and Acquiring Corporation contained herein, in the
U.S. Flywheel
Disclosure Schedule and in all certificates and other documents
delivered by U.S.
Flywheel and Acquiring Corporation to Famous Sam's pursuant hereto
or in
connection with the transactions contemplated hereby shall be in
all
material
respects true and accurate as of Closing.
6.02. Performance. U.S. Flywheel and Acquiring Corporation
shall
have performed
and complied with all agreements, obligations, conditions and
covenants required
by this Agreement to be performed or complied with by it on or
prior
to Closing.
6.03. Delivery of U.S. Flywheel Financial Statements. U.S.
Flywheel and
Acquiring Corporation shall have delivered to Famous Sam's the U.S.
Flywheel
Financial Balance Sheets, Operating Statements and Footnotes.
6.04. No Governmental Proceeding or Litigation. No suit,
action,
investigation,
inquiry or other proceeding by any governmental body or other
person
or entity
or legal or administrative proceeding shall have been instituted or
threatened
which questions the validity or legality of the transactions
contemplated hereby
or which if successfully asserted would otherwise have a material
and adverse
effect on the conduct of the business or assets of U.S. Flywheel or
Acquiring
Corporation.
6.05. Delivery of Consideration. U.S. Flywheel shall have
delivered that
consideration set forth in Section 1.04 hereof.
ARTICLE VII: Conditions to U.S. Flywheel's and Acquiring
Corporation's Closing
Obligations
The obligation of U.S. Flywheel and Acquiring Corporation to effect
the
transactions contemplated herein shall be subject to the
satisfaction, on or
before Closing, of each of the following conditions:
7.01. Representations and Warranties True. The representations
and warranties
of Famous Sam's contained herein, in the Famous Sam's Disclosure
Schedule and in
all certificates and other documents delivered by Famous Sam's
pursuant hereto
or in connection with the transactions contemplated hereby shall be
in all
material respects true and accurate as of Closing.
7.02. Performance. Famous Sam's shall have performed and
complied with all
agreements, obligations, conditions and covenants required by this
Agreement to
be performed or complied with by them on or prior to Closing.
7.03. Delivery of Famous Sam's Financial Statements. Famous
Sam's shall have
delivered to U.S. Flywheel and Acquiring Corporation the Famous
Sam's Financial
Balance Sheet, Operating Statements and Footnotes.
7.04. No Governmental Proceeding or Litigation. No suit,
action,
investigation,
inquiry or other proceeding by any governmental body or other
person
or entity
or legal or administrative proceeding shall have been instituted or
threatened
which questions the validity or legality of the transactions
contemplated hereby
or which if successfully asserted would otherwise have a material
and adverse
effect on the conduct of the business or assets of Famous Sam's or
any of its
subsidiaries.
ARTICLE VIII: Termination and Abandonment
8.01. Methods of Termination. This Agreement may be terminated
and the
acquisition evidenced hereby abandoned at any time prior to Closing
by:
(a) mutual written consent of Famous Sam's, U.S. Flywheel and
Acquiring Corporation;
(b) Famous Sam's if the conditions precedent provided for in
Article VI of this Agreement shall not have been met or waived
in
writing by Famous Sam's on or prior to August 2, 1996.
(c) U.S. Flywheel and Acquiring Corporation if the conditions
provided for in Article VII of this Agreement shall not have
been
met or waived in writing by U.S. Flywheel on or prior to August
2,
1996.
8.02. Procedure Upon Termination. In the event of termination
and
abandonment
pursuant to subsections (b) or (c) of Section 8.01 hereof, written
notice thereof
shall forthwith be given to the other party or parties, and this
Agreement shall
terminate and the transactions contemplated hereby shall be
abandoned without
further action by either party. If this Agreement is terminated as
provided
herein:
(a) each party will return all documents, work papers and
other
material of any other party relating to the transactions
contemplated hereby, whether obtained before or after the
execution
hereof, to the party furnishing the same; and
(b) all Proprietary Information received by any party hereto
with
respect to the business of any other party or its subsidiaries
shall
not at any time be used for the advantage of, or disclosed to
third
persons by, such party for any reason whatsoever, except as
contemplated in Article V, Section 5.02 hereof.
ARTICLE IX: General Provisions
9.01. Waiver. Any failure on the part of any party to comply
with any of its
obligations, agreements or conditions hereunder may be waived in
writing by the
party to whom such compliance is owed; however, waiver on one
occasion does not
operate to effectuate a waiver on any other occasion.
9.02. Notices. All notices and other communications hereunder
shall be in
writing and shall be deemed to have been given on the date of
receipt if
delivered in person or three days after such is sent by prepaid,
first class,
registered or certified mail, return receipt requested, or, again,
on the date
of receipt if sent by facsimile as follows: if to Famous Sam's, Mr.
Gerald Ross,
8351 East Broadway, Tucson, Arizona 85710; (520) 296-9102, and if
to
U.S.
Flywheel, Mr. William Haaker, 3871 S. Rosemary, Denver, Colorado;
(303) 759-3408.
9.03. Entire Agreement. This Agreement (and the documents,
notes, lists and
other agreements executed in connection and on even date herewith,
including the
respective Disclosure Schedules) constitutes the entire agreement
between the
parties regarding the subject matter hereof, and supersedes and
cancels any other
agreement, representation or communication, whether oral or
written,
between the
parties hereto and relating to the subject matter hereof.
9.04. Headings. The article and paragraph headings in this
Agreement are
inserted for convenience only and shall not affect in any way the
meaning or
interpretation of this Agreement.
9.05. Governing Law. This Agreement shall be governed by and
construed and
enforced in accordance with the laws of the State of Colorado.
9.06. Counterparts. This Agreement may be executed in two or
more counterparts,
each of which shall be deemed an original, but all of which
together
shall
constitute but one and the same instrument.
9.07. No Oral Modification. This Agreement may be amended
solely
in writing, and
only after the mutual agreement of the parties.
9.08. Survival of Representations, Warranties and Covenants.
The
representations, warranties, covenants and agreements contained
herein shall
survive Closing for a period of two years at which time they shall
expire.
9.09. Severability. The invalidity or unenforceability of any
one or more of the
provisions of this Agreement shall not affect the validity or
enforceability of
any of the other provisions hereof, and this Agreement shall be
construed in all
material respects as if such invalid or unenforceable provisions
were omitted.
9.10. Successor and Assigns. This Agreement, and each and every
provision
hereof, shall be binding upon and inure to the benefit of the
parties, their
respective successors, successors-in-title and assigns, and each
and
every
successor-in-interest to any party, whether such successor acquires
such interest
by way of gift, purchase, foreclosure, or by any other method, who
shall hold
such interest subject to all of the terms and conditions of this
Agreement.
Notwithstanding the foregoing, this agreement and the rights and
obligations
hereunder shall not be assignable or delegable by any party.
9.11. Expenses. Each party shall pay its own expenses incurred
by or on behalf
of it in connection with the authorization, preparation, execution
and
performance of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to
be executed
and delivered on the Execution Date.
FAMOUS SAM'S FRANCHISE CORPORATION, an Arizona corporation
By:
Gerald Ross, President
U.S. FLYWHEEL SYSTEMS, INC. a California corporation
By:
William Haaker, President
TRI-BEAU ACQUISITION COMPANY, a Nevada corporation
By:
Mark Hogan, President
<PAGE>
EXHIBIT 10.8
Liquidation Trust
<PAGE>
LIQUIDATION TRUST
THIS AGREEMENT is made by and between U.S. Flywheel Systems,
Inc.,
a California corporation (the "Corporation"), and William Haaker
and
Mark
Hogan (collectively, the "Trustees").
WHEREAS, the Corporation has resolved to liquidate all of its
remaining
assets and transfer all of its remaining liabilities;
WHEREAS, the Corporation, through its board of directors, has
selected
Messrs. Haaker and Hogan to be the Trustees of this Trust and, upon
their
termination, resignation or total disability or death to select a
successor trustee (the "Successor Trustee"); and
WHEREAS, the Corporation desires to provide for the orderly payment
of
its obligations and then provide for the distribution of its
remaining
assets, if any, to its stockholders, as more fully set forth
herein;
and
WHEREAS, the Trustees have agreed to supervise such process to the
extent
herein set forth;
NOW, THEREFORE, the Corporation hereby establishes the U.S.
Flywheel
Systems, Inc., Liquidating Trust as follows:
ARTICLE 1
(Identification of Parties and Term)
1.1 This Trust shall be known as the U.S. Flywheel Systems,
Inc.,
Liquidating Trust (the "Trust").
1.2 The Trustees of this Trust shall be Messrs. William
Haaker
and
Mark Hogan. Upon the termination, resignation or total disability
or
death of each of the Trustees, the Board of the Corporation then
obtaining shall select a "Successor Trustee."
1.3 The term of this Trust shall terminate upon the sale or
distribution of all assets held under this Trust as hereinafter set
forth.
ARTICLE 2
(Trust Corpus)
2.1 Effective March 31, 1996, the Corporation shall be deemed
to
have transferred to the Trustees of the U.S. Flywheel Systems, Inc.
Liquidating Trust the property listed on Schedule A attached hereto
and
made a part hereof.
2.2 The Trustees and Corporation hereby agree as follows:
(a) The Trustees shall as soon as possible wind down the
current operations and business of the Corporation as
transferred to the Trust.
(b) The Trustees shall thereafter as soon as possible
satisfy all of the obligations of the Corporation as
transferred to the Trust, as set forth on Schedule B,
and,
then, transfer to the Stockholders a pro rata interest in
the
then assets of the Corporation.
2.3 If additional assets or liabilities now owned or owed by
the
Corporation is or are identified, the same shall also be
transferred
to
the Trustees of this Trust pursuant to the terms hereof.
ARTICLE 3
(Assets and Debts of the Corporation)
3.1 The Corporation represents to the Trustees the following:
(a) To the best of its knowledge and belief, all of the
assets of the Corporation are as set forth in Schedule A
attached hereto and made a part hereof.
(b) To the best of its knowledge and belief, all of the
enforceable obligations of the Corporation are as listed
in
Schedule B attached hereto and made a part hereof.
3.2 The Trustees shall notify the creditors listed in
Schedule
B
of the pending liquidation. The Trustees shall be held harmless
and
indemnified by the Corporation and the stockholders jointly and
severally
for any and all expense or obligation which shall arise as a result
of
their administration of the Trust. The Trustees shall not be under
any
obligation to make a diligent search to identify any unlisted or
locate
any listed creditors of the Corporation.
ARTICLE 4
(Revocability)
The Trust is irrevocable.
ARTICLE 5
(Distributions of Income and Corpus)
5.1 After making a determination of the liabilities against
the
Corporation as set forth in Article 3, the Trustees shall determine
and
redetermine from time to time, at their sole and reasonable
discretion,
the amount of assets necessary to satisfy such claims and shall:
(a) Identify which assets are to be retained for such
purpose;
(b) Identify which assets are to be retained to meet the
expenses of administering this Trust;
(c) Identify which assets are to be sold and the
proceeds
used for the purposes set forth in (a) and (b)
(d) Identify which assets are to be sold and, if the
obligations of this Trust, as set forth in Article 3
above
have been met, distributed to the Stockholders; and
(e) Identify which assets are, upon the satisfaction of
the
obligations of this Trust, distributed in kind to the
Stockholders.
5.2 The Trustees shall as soon as possible sell pursuant to
private sale the assets of the Corporation set forth in Schedule A.
5.3 Thereafter, the Trustees shall, in their sole and
absolute
discretion, have the power and duty to:
(a) Retain any assets to be retained for the purposes
herein
set forth;
(b) Sell assets which are to be sold for the purposes
herein
set forth;
(c) Upon a determination of the maximum reasonable
amounts
needed to pay obligations, distribute any cash type
items,
excess liquidation proceeds and investment income; and
(d) Upon the satisfaction of all obligations of this
Trust,
distribute assets which remain to the Stockholders.
ARTICLE 6
(Perpetuities Rule)
If the provisions hereunder shall be violative of the rule
against
perpetuities, then this Trust shall terminate if it has not
previously
terminated, twenty-one (21) years after the death of the last
survivor of
all of the Stockholders.
ARTICLE 7
(Accounting)
7.1 The Trustees shall have the entire care and custody of
all
of
the assets comprising the Trust estate, and shall maintain full and
accurate books of account and records of receipts and disbursements
and
other financial transactions relative to the Trust estate, all of
which
shall be available for inspection at any reasonable time by any
Stockholder or member of the board of directors or officer of the
Corporation, or his or her legal representative.
7.2 The Trustees shall not be required to render any
accounting to
any court, stockholder, board member or officer of the Corporation,
other
than as required under Section 7.1 hereof or by law.
ARTICLE 8
(Powers and Duties of Trustees)
8.1 The Trustees shall have the following powers and duties,
in
extension and not in limitation of the powers given by law, it
being
intended that the Trustees possess the broadest, fullest and most
complete power and authority and in each case to be exercised from
time
to time in such manner and to such extent as the Trustees, in their
sole
and absolute discretion, shall deem advisable and desirable, and
without
order or license of court:
(a) to take possession of any insurance proceeds and of
any
property forming a part of the Trust estate; to receive
additions to the Trust under this instrument by gift or
will
or otherwise and to hold and administer the same under
the
provisions hereof; and to collect the income and profits
from
such property;
(b) to retain indefinitely all property in the form in
which
the same shall be received, without liability for any
loss
that may be incurred thereby, and without regard to the
proportion that any one asset or class of assets may bear
to
the whole;
(c) to purchase, invest in, reinvest in, or otherwise
acquire and to retain, whether originally a part thereof
or
subsequently acquired, any and all stocks, bonds, notes,
or
other securities, as is deemed advisable, whether or not
such
investments be of the character permissible for
investments by
fiduciaries;
(d) To option, sell and convey, mortgage, encumber,
lease,
exchange, pledge, partition, plat, subdivide, improve,
repair,
surrender, abandon or otherwise deal with or dispose of
any
and all property forming a part of the Trust estate, at
such
time or times and in such a manner and upon such terms
as,
in
the absolute and uncontrolled discretion of the Trustees
may
be deemed expedient and proper; to give options therefor;
to
execute deeds, transfers, leases, pledges, mortgages and
other
instruments of any kind;
(e) to pay if deemed advisable any obligation of the
Corporation, including expenses of administration,
federal
and
state income, transfer, franchise, single business,
license or
other like taxes and fees;
(f) to borrow money upon terms acceptable to the
Trustees
from any person or corporation, including any banking
corporation and to pledge or mortgage any property as
security
therefor and to renew any indebtedness incurred by the
Corporation or by the Trustees;
(g) to open and to close checking or savings accounts in
banks or similar financial institutions, and/or safety
deposit
boxes in the name of the Trustees or in the name of a
nominee,
with or without indication of any fiduciary capacity; to
deposit cash in and withdraw cash from such accounts
and/or
boxes, with or without indication of any fiduciary
capacity;
to hold such accounts and/or securities in bearer form,
or
in
the name of the Trustees or in the name of a nominee with
or
without indication of any fiduciary capacity;
(h) to give general or special powers of attorney for
voting
or acting in respect of shares or securities, which may
be
discretionary and with power of substitution; to deposit
shares or securities with, or transfer them to,
protective
committees or similar bodies; to join in any
reorganization
and to pay assessments or subscriptions called for in
connection with shares or securities held by the
Trustees;
(i) as part of the liquidation or sale process, to
construct, alter or repair buildings or structures on
real
estate; to settle boundary lines and easements and other
rights with respect to real estate; to partition and to
joint
with co-owners and others in dealing with real estate in
any
way;
(j) to exercise or sell any option, right or privilege
to
purchase stock or other securities or property which the
Settlor might have or which becomes available during the
administration of the Trust estate;
(k) to adjust, arbitrate, compromise, sue or defend,
abandon
or otherwise deal with and settle any and all claims in
favor
of or against the Trust estate as they deem proper;
(l) to employ investment counsel, custodians or estate
property, brokers, accountants, attorneys, and any other
agents; generally to do any act or thing and execute all
instruments necessary, incidental or convenient to the
proper
administration of the Trust estate;
(m) to keep any or all of the Trust property at any
place
or
places within the United States or abroad or with a
depositary
or custodian at such place or places;
(n) to pay over to the Stockholders the entire principal
of
the Trust, thereby terminating the Trust, when in the
uncontrolled discretion of the Trustees it might become
expedient or advisable to do so for the following reasons
or
any other reason whatsoever which the Trustees may deem
sufficient: (a) changes in the political, economic or
social
order in the United States; (b) legislation, regulation
or
court decisions detrimental to the Trust, or any
beneficiary
hereof; (c) lack of availability of suitable Trust
investments
for an extended period; (d) insufficient principal to
justify
the expense of continuing the Trust's existence; or (e)
other
events which do or may tend to greatly impair the intent
and
purpose of this instrument; and
(o) to comply with the requirements of any agreement or
agreements to which the Corporation might be a party.
8.2 All powers given to the Trustees by this instrument are
exercisable by the Trustees only in a fiduciary capacity.
Notwithstanding any other provisions of this Agreement, the powers
vested
in the Trustees under this Article or under any other Article in
this
instrument shall be effective only so long as their existence will
not
cause the Trust property or any part thereof to be included in the
estate
of the person holding such power unless some other term or terms of
this
Trust Agreement already cause such result.
ARTICLE 9
(Trustees)
9.1 The Trustees of this Trust shall be as set forth in
Article 1.
9.2 If the Trustees shall become incapacitated through
illness,
age or other cause, the board of the Corporation shall appoint a
successor.
9.3 A Trustee hereunder may resign at any time by delivering
thirty (30) days' written notice to that effect to the remaining
Trustee
or, if none, to the Corporation. If no successor Trustee is named
upon
the resignation of the Trustee, a successor shall be appointed in
writing
by the then Stockholders of the Corporation. If no successor
Trustee is
appointed by the effective date of a Trustee's resignation, the
resigning
Trustee shall have the right to select and appoint his successor.
9.4 References to the Trustee or Trustees include Successor
Trustees. A Successor Trustee shall succeed to all of the title,
powers,
rights, discretion, obligations and immunities of the original
Trustees.
Provided, the Successor Trustee shall not be obligated to accept,
ratify
or approve of any of the acts, omissions, or defaults of the
Trustees,
nor shall he be required to audit or verify the records of the
Trustees.
Nor shall the fact the Successor Trustee has assumed and carried
out
his
duties without protest or exception be deemed such an acceptance,
ratification or approval. The Successor Trustee shall be entitled
to
rely upon any statements and records of the Trustees as to the
assets of
this Trust and shall have no responsibility or liability hereunder
to any
person for the assets of this Trust until reduced to the possession
of
the Successor Trustee.
9.5 No one dealing with the Trustees need inquire concerning
the
validity of anything they purport to do, or need see to the
application
of any money paid or any property transferred to or upon the order
of the
Trustees.
9.6 No Trustee shall be responsible for the acts or omissions
of a
Co-trustee or for allowing a Co-trustee to have custody or control
of the
funds, securities, or property. Each Trustee shall be responsible
only
for his acts or omissions. Furthermore, a Successor Trustee shall
not be
liable for any action taken by any Trustee prior to the time such
Successor Trustee becomes a Trustee.
9.7 A Trustee may, by an instrument in writing, delegate all
or
any powers of discretion to a Co-trustee for a limited period of
time and
may renew such delegation from time to time.
9.8 The Trustee estate and the income therefrom shall be
chargeable with the reasonable expense of the Trustee in the
administration of the Trust and with reasonable compensation for
the
services of the Trustee.
9.9 No bond shall be required of any Trustee hereunder, or if
a
bond is required by law, only a nominal bond shall be required.
ARTICLE 10
(Miscellaneous)
10.1 This Agreement of Trust shall always be interpreted under
the
laws of the State of Colorado.
10.2 It any provisions of this declaration of Trust should be
invalid or unenforceable, the remaining provisions shall continue
to
be
fully effective.
10.3 In any proceeding involving the construction or operation
of
this Agreement, the then identified Trustees shall represent all
unknown
and undetermined beneficiaries, and any order, judgment or decree
tendered in such proceeding shall be binding upon all unknown and
undetermined creditors.
10.4 This Agreement need not and shall not be registered with
any
Court unless the Trustees, in their sole discretion, deem it
advisable to
do so, or the laws of any state having jurisdiction thereof do not
permit
the same to be exempted from registration.
10.5 To the same effect as if it were the original, any one
may
rely upon a copy certified by a notary public to be a true copy of
this
instrument (and of the writings, if any, endorsed thereon or
attached
thereto). Anyone may rely upon any statement of fact certified by
anyone
who appears from the original document or a certified copy thereof
to be
a Trustee hereunder.
IN WITNESS WHEREOF, the Corporation and the Trustees have
executed
this Agreement to be effective as of the 31st day of March, 1996.
TRUSTEE: TRUSTEE:
William Haaker Mark Hogan
CORPORATION:
U.S. FLYWHEEL SYSTEMS, INC.
Attest:
By:
Mark S. Pierce, Assistant Secretary William
Haaker,
President<PAGE>
SCHEDULE A
Assets of U.S. Flywheel Systems, Inc.
Cash
Accounts Receivable
Due from Affiliate:
Prepaid Expenses
Investment in Partnership
Other<PAGE>
$0.00
$0.00
$555,747.00
$0.00
$195,000.00
$ 0.00
$750,747.00<PAGE>
<PAGE>
SCHEDULE B
Accounts and Other Payables as of Mach 31, 1996
Amount
1. Caldwell, Becker, Dervin, Petrick & Company
$5,000.00
2. No others known.
Total $5,000.00
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000928958
<NAME> U S FLYWHEEL SYSTEMS INC
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 37,076
<BONDS> 0
0
0
<COMMON> 3,724,323
<OTHER-SE> (3,761,399)
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,969
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,969)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
