SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(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, 1996
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.
(Exact name of registrant as specified in its charter)
Nevada 88-0361701
(State or other jurisdiction) (I.R.S. employer)
of 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. [ ]
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: On April
11, 1997, the closing inside bid and asked prices for the shares of
common stock of registrant, which is the sole voting stock
outstanding of registrant, were $.75 and $1.25, respectively. On
that date, there were 390,367 shares of common stock outstanding.
No affiliates held shares of this stock; thus, the aggregate market
value of the voting stock held by non-affiliates was approximately
$390,367.
Registrant had no revenues during fiscal 1996.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock as of the latest practicable
date: As of April 11, 1997, there were approximately 390,367
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"), 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 (1:1000) split common shares
of the Company ("Common Stock"). These shares of Common Stock 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 inexplicably
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 inexplicably transferred to Sunbird
Technologies.
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 or had not 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 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. After the transfer to trust,
the Company retained only the right to indemnity for any
liabilities transferred to trust which it may have been called upon
to satisfy and the right to appoint the trustees. Secondly, an
attorney, Mr. Mark S. Pierce, 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, the Board of
Directors authorized certain of its members, those being Messrs.
William Haaker and Mark Hogan, to engage a new auditor 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 reports by the Company with
the Commission. Finally, a firm was engaged to disseminate
information to the public, attract firms to begin making 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 then
anticipated expenditure of approximately $20,000, which was paid
through the issuance of 20,000,000 shares of pre-split Common
Stock.
In May, 1996, the Company entered into a letter of intent with, and
for the purpose of acquiring as a wholly-owned subsidiary, Famous
Sam's Franchise Corporation, an Arizona corporation ("Famous
Sam's"). The letter of intent was followed by the execution and
delivery of a formal agreement between the parties (the
"Reorganization Agreement"). 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 other reports required by federal and
state regulatory and taxing authorities, (vi) prove it had
transferred all assets and liabilities to trust for the benefit of
its shareholders and (vii) prove that all liabilities transferred
to trust had been satisfied. 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 the Common
Stock on a 1:1000 basis. On July 23, 1996, all remaining and
unfulfilled conditions precedent to closing of the Company under
the Reorganization Agreement were satisfied. Famous Sam's, under
the Reorganization Agreement, was required, prior to closing, 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. Famous Sam's was further required under the
Reorganization Agreement and prior to closing to provide audited
and unaudited financial statements allowing for compliance by the
Company following closing with the rules and regulations of the
Commission. Famous Sam's had met all conditions precedent to
closing by May 30, 1996, with the assets and net tangible book
value figures expressed immediately above being satisfied through
the delivery of a business plan which required the raising of
equity funds approximating $2,000,000 in amount.
Closing under the Reorganization Agreement occurred on July 23,
1996, and resulted in the issuance of 700,000 shares of the post-
split restricted common stock of the Company to Gerald and Sandra
Ross, as well as the appointment of a new board of directors and
executive officers of the Company.
On July 23, 1996, immediately prior to closing with Famous Sam's,
the Company entered into release and settlement agreements with two
former directors and executive officers, Messrs. William Haaker and
Mark Hogan, among others. Under the terms of these releases, the
Company and certain of its independent contractors, including Mr.
Pierce, were released of any and all claims and liabilities to that
date which Messrs. Haaker and Hogan might have had. In return,
Messrs. Haaker and Hogan were released by the Company from any and
all claims and liabilities to that date which the Company had,
although the independent contractors, including Mr. Pierce, did not
release their claims against Messrs. Haaker and Hogan. The primary
claims of the Company and of its independent contractors, including
Mr. Pierce, against these individuals arose from (i) their hiring
and administrating on behalf of the Company an accountant to
perform an audit of the books and records for the year ended
December 31, 1995, for the purpose of filing an annual report on
Form 10-KSB, preparing state and federal income tax returns for
1995 and preparing quarterly financial statements for the interim
periods ended September 30, 1995, and March 31, 1996, for the
purpose of filing quarterly reports on Form 10-QSB, and (ii) their
failing to satisfy the outstanding liabilities of the Company which
had been transferred to trust, as they had agreed to at the board
meeting on April 24, 1996, in the event such became necessary and
in the Reorganization Agreement as a condition precedent to closing
with Famous Sam's. The accountant hired by Messrs. Haaker and
Hogan was not then licensed as a CPA with the state in which she
practiced, although required to be so for the purposes for which
she was engaged. Further, although the audit was completed and
drafts of the financial statements as audited were approved by the
Company and its independent contractors as of the middle of May,
1996, Messrs. Haaker and Hogan engaged in acts which substantially
prejudiced the relationship of the Company with this person and
resulted in her resignation prior to finalizing and delivering the
audit. Also, Messrs. Haaker and Hogan refused and failed to
satisfy the obligations transferred to trust, as they had agreed
to, which required the independent contractors for the Company,
including Mr. Pierce, to raise funds for this purpose in exchange
for an assignment of all amounts which the trust then became
obligated to repay and the renegotiation of their contracts.
Primarily for these reasons, the Company was of the opinion that
Messrs. Haaker and Hogan had breached their fiduciary duties to the
Company and, therefore, terminated these individuals as officers
and directors. The Company then engaged a new accountant to finish
the audits, tax returns and quarterly financial statements and
appointed new management.
The most damaging results of the actions of Messrs. Haaker and
Hogan were to (i) postpone the closing with Famous Sam's from an
initial target date of May 30, 1996, until June 28, 1996, and then
again until July 24, 1996, which substantially impacted the then
anticipated business plan and operations of the Company, the
damages for which have yet to be determined by the Company, as
discussed in the paragraph below on the recision of the Famous
Sam's acquisition, (ii) require the Company to renegotiate its
management and independent contractor compensation arrangements to
effectuate the goals adopted by the Board of Directors for the
Company at its meeting on April 24, 1996, which substantially
impacted the financial position and outstanding shares of the
Company and (iii) require the obtainment on behalf of the
liquidating trust of funds sufficient to satisfy those obligations
of the Company which had been transferred to trust. Management
believes that, had it not been for the actions of Messrs. Haaker
and Hogan in delaying the closing of the Reorganization Agreement,
the business plan of Famous Sam's could have been fulfilled and the
recision of the Reorganization Agreement would not have occurred.
Further, the actions of Messrs. Haaker and Hogan lead to the
recision of the original independent contractor agreements entered
into on April 24, 1996, which resulted in the return of the
20,000,000 pre-split shares (20,000 post-split shares) of Common
Stock issued on April 24, 1996, to treasury, and required the
negotiation of new independent contractor agreements to fulfill the
intent of the board expressed in its meeting of April 24, 1996.
The new agreements provided for the completion of those matters
adopted at the April 24th meeting, and resulted in the issuance of
287,000 post-split shares of Common Stock, including 19,975 shares
each to Messrs. Haaker and Hogan, an aggregate of 39,950 shares.
On March 11, 1997, the Company and Famous Sam's entered into a
recision agreement between themselves and the former shareholders
of Famous Sam's (the "Shareholders") whereby the Company returned
to the Shareholders all of the outstanding proprietary interest of
its sole wholly-owned subsidiary, Famous Sam's, in exchange for (i)
a release of any and all liabilities between the Company, Famous
Sam's and the Shareholders, (ii) a representation from the
Shareholders and Famous Sam's that the Company had no outstanding
liabilities which had not been satisfied, other than amounts due
the attorney for the Company, Mr. Pierce, (iii) the return of the
700,000 shares of Common Stock issued to the Shareholders under the
Reorganization Agreement, all of which were returned to the
treasury of the Company, (iv) the resignation of the then board and
officers of the Company, (v) the appointment of Mr. Pierce to the
board and (iv) an undertaking by Mr. Pierce to pay the
Shareholders the sum of $40,000. Mr. Pierce is now the sole
director and executive officer of the Company.
The original premise for the recision was what the Company, Famous
Sam's and the Shareholders felt to be certain representations and
warranties made by an independent contractor, Mr. Dan Hodges, in
acting on behalf of the Company in obtaining the acquiescence of
Famous Sam's to the Reorganization Agreement. Subsequently, Mr.
Hodges voiced his strong objection to the opinions of the Company,
Famous Sam's and the Shareholders and threatened suit against each
for slander and libel. After discussions between management of the
Company and Mr. Hodges and subsequent factual inquiries by
management, it appeared that it was in the best interests of the
Company to expeditiously and economically resolve all differences
between the Company and Mr. Hodges. For this reason, all matters
between the Company and Mr. Hodges were resolved on April 15, 1997,
through the execution and delivery of a mutual release and
settlement agreement. No party to this agreement admitted or
denied any wrongdoing.
The recision of the Reorganization Agreement and the settlement
with Mr. Hodges were entered into by the Company in order to avoid
what it considered to be otherwise unnecessary litigation if the
disputes which had arisen with the Shareholders and Mr. Hodges had
not been resolved, which the Company could not have afforded. The
recision and settlement placed the parties in roughly the same
position as if the acquisition of Famous Sam's had never taken
place, which left the Company with no assets and no liabilities as
of the date of the recision, other than the debt which was owed to
Mr. Pierce for his services as counsel for the Company, all of
which were incurred prior to his becoming affiliated with the
Company. The Company has again adopted a business plan to actively
seek a viable acquisition candidate to provide potential for
shareholders to regain value and profit from their investment in
the Company.
In December of 1996, the Company and certain individuals previously
affiliated with the Company, among others, entered into a release
agreement with Bruce and Violet Swartout, who previously served as
directors and officers of the Company and who are significant
beneficiaries under the liquidating trust. The agreement was
reached without any admission of wrongdoing by any party. (In
fact, the Company was of the opinion, and was advised by counsel,
that the allegations of the Swartouts were without legal foundation
and, consequently, were frivolous.) The settlement resulted in the
satisfaction of all claims of the Company and certain individuals
previously affiliated with the Company, among others, against the
Swartouts, and the corresponding release of the supposed claims of
the Swartouts against the Company and these individuals. No
consideration, aside from the release of the Swartouts from
liability, was delivered by the Company or these individuals for
obtaining the supposed release of the Swartouts, with the exception
that the original trustees of the trust, Messrs. Haaker and Hogan,
were each required to resign as a trustee of the liquidating trust,
which was immediately acquiesced in by the Company since the
Company was of the opinion that these two individuals had not been
diligently prosecuting their duties as trustees under the trust in
any event. The only consideration delivered by the Swartouts under
the agreement was the release of their supposed claims. The
Company subsequently then released the right to appoint the
trustees of this trust.
Item 2. Description of Property.
The Company, as of the date of this report, owned no real or
personal property, tangible or intangible. The executive offices
of the Company are being provided free of charge by its sole
director and executive officer 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.
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.
Item 5. Market for Common Equity and Related Shareholder Matters.
On May 31, 1996, the Company effected a reverse one for one
thousand (1:1000) 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 April 11, 1997, there were
approximately 390,367 shares of Common Stock issued and
outstanding, which were held of record by approximately 2,191
shareholders.
The Common Stock is currently quoted on the Bulletin Board
maintained by the National Association of Securities Dealers, Inc.,
under the symbol "SAMS." There was no trading in the Common Stock
prior to August, 1996. The following table sets forth the range of
high and low bid and asked prices per share of the Common Stock as
reported by National Quotation Bureau, Inc. for the period
indicated.
Quarter Quarter High Bid Low Bid High Ask Low Ask
September 30, 1996 $4.50 $1.00 $5.50 $2.00
December 31, 1996 1.875 .75 2.25 1.25
March 31, 1997 .75 .75 1.25 1.25
The above prices represent inter-dealer quotations without retail
mark-up, mark-down or commission, and may not necessarily represent
actual transactions. On April 11, 1997, the closing inside bid and
asked prices for the Common Stock were $.75 and $1.25,
respectively. On that date there was one market maker publishing
a bid and there were two broker-dealers publishing offers.
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. From October, 1993, until April 23, 1996,
the Company merely held a minority stake in the Partnership, which
was transferred to trust on this latter date. As a result of the
recision of the Reorganization Agreement, the Company had no
operations during 1996. The Company had no revenues or income in
1996 or 1995 from any source whatsoever. During 1994, the Company
realized $100,000 in revenue from the sale of a portion of its
Partnership interest to CII. In 1993, the Company realized
$500,000 in revenue from the sale of its flywheel technology and
licenses to the Partnership. These amounts were inexplicably
transferred to Sunbird Technologies as well.
The Company's expenses during the years ended December 31, 1996, as
a result of the recision of the Reorganization Agreement, and
December 31, 1995, were entirely administrative in nature. No
meaningful comparison can be made between 1996, 1995 and 1994 since
the business of the Company during 1996 and 1995 was only
administrative in nature, 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.
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, 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 from Sunbird Technologies and the addition of $46,024 in
legal and accounting fees primarily related to the registration of
the Company with the Commission. 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 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, which was held until the transfer to
trust on April 23, 1996.
Liquidity and Capital Resources:
The Company transferred all liabilities to trust on April 23, 1996,
and all other liabilities, to the limited extent that there were
any, during the year and to the date of the recision of the
Reorganization Agreement, with the exception of the legal fees of
Mr. Pierce, were satisfied by Famous Sam's. The Company had no
other source of liquidity during 1996, other the largesse of Mr.
Pierce in his extension of credit prior to becoming affiliated with
the Company. The Company had no source of liquidity during 1995,
and, as a result, became delinquent in payments to its creditors,
one of whom sued for payment and obtained a judgement. In
fulfillment of a condition precedent to closing of the Famous Sam's
acquisition, management arranged for the advancement of sums to
satisfy in full these former obligations of the Company, as
previously transferred to the liquidating trust, and assigned in
consideration its claims in this regards against the trust. The
Company presently has no sources of liquidity.
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. 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, 1996, 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 1996, all applicable Section 16(a) filing requirements were
satisfied.
Item 7. Financial Statements.
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 1996, and December 31, 1995, and the
related statements of operations, stockholders' equity, and cash
flows for the years then ended. These statements are the
responsibility of the Company's management. 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 December 31, 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, 1996, and December 31, 1995, and
the results of its operations and cash flows for the three years
ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ Halliburton, Hunter & Associates, P.C.
Littleton, Colorado
April 11, 1997
FAMOUS SAM'S GROUP, INC., f/k/a, U.S. FLYWHEEL SYSTEMS, INC.
(a Development Stage Company)
BALANCE SHEET
December 31,
1996 1995
ASSETS
Current Assets:
Cash $ ------ $ ------
Total Current Assets ------ ------
Other Assets: ------ ------
Total Assets $ ------ $ ------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable (Note 5) $ 47,083 $ 37,076
Total Current Liabilities 47,083 37,076
Shareholders' Equity (Deficit)
Common Stock, $.001 par value,]
10,000,000 shares authorized,
390,367 shares outstanding 3,868,809 3,724,323
(Note 1)
Preferred Stock, $.01 par value,
1,000,000 shares authorized,
no shares outstanding ------ ------
(Note 1)
Deficit accumulated during the
the development stage (3,915,892) (3,761,399)
Total Shareholders'
Equity (Deficit) (47,083) (37,076)
Total Liabilities and
Shareholders' Equity
(Deficit) $ ------ $ ------
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
1996 1995 1994
Income
Miscellaneous income $ ----- $ ------ $ 65
Sale of partnership
interest (Note 1) ----- ------ 100,000
Total income ------ ------ 100,065
Expenses
Bad debt expense (Note 6) ------ ------ 555,747
Interest expense ------ ------ 2,359
Miscellaneous ----- 8,969 119
Office expense ------ ------ 5,082
Professional fees 154,493 ------ 46,024
Taxes and licenses ------ ------ 1,590
Telephone ------ ------ 833
Total Expenses 154,493 8,969 611,754
Operating income (loss) (154,493) (8,969) (511,689)
Income (Loss) Before Provision (154,493) (8,969) (511,689)
For Income Taxes
Provisions for Income Taxes ------ ------ ------
Net Income (Loss) (154,493) (8,969) (511,689)
Net Income (Loss) per share
(Note 2) (.93) (.49) (27.72)
* - Less than $.01 per share.
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 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 --- --- (2,518,499)(2,518,499)
31, 1993
Balance at:
December 31, 1993 12,010,000 3,724,323(3,240,741) 483,582
Net loss for the year
ended December --- --- (511,689) (511,689)
31, 1994
Balance at:
December 31, 1994 12,010,000 3,724,323 (3,752,430)( 28,107)
Net loss for the year
ended December --- --- (8,969) (8,969)
31, 1995
Balance at:
December 31, 1995 12,010,000 $3,724,323 (3,761,399) (37,076)
Reverse 1:1000 common
share split on (11,991,543) --- --- ---
May 31, 1996
Issuance of common
shares for services 287,000 59,576 --- 59,576
on July 23, 1996
Issuance of common
shares for services 84,910 84,910 --- 84,910
on September 5, 1996
Net Loss for the year
ended December --- --- (154,493) (154,493)
31, 1996
Balance at:
December 31, 1996 390,367 $3,868,809 $(3,915,892) $(47,083)
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 CASH FLOW
Years Ended December 31,
1996 1995 1994
Cash flows provided (used) by
operating activities:
Net (loss) $(154,493) $(8,969) $(511,689)
Adjustments to reconcile net
gain (loss) to net cash
provided by operating activities:
Gain on sale of partnership
interest --- --- (100,000)
Decease (increase) in due
from affiliate --- --- 510,541
Increase (decrease)
in accounts payable 10,007 8,030 8,708
Increase (decrease) in
franchise tax payable --- --- (1,600)
Increase in accrued
interest payable --- --- 1,262
Net Cash Flows Provided (Used)
by Operating Activities (144,486) (939) (92,778)
Cash Flows Provided (Used)
by Investing Activities:
Net proceeds from sale
of assets (Note 1) --- --- 100,000
Cash Flows Provided (Used)
by Financing Activities:
Proceeds from sale
of stock (Note 1) 144,486 --- ---
Increase (decrease) in
amounts due shareholders 144,486 --- ( 6,301)
Increase (Decrease) in Cash --- ( 939) 921
Cash at the Beginning of
the Period --- 939 18
Cash at the End
of the Period --- --- 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)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
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 pre - May
31, 1996, reverse split 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 during 1993 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 in
1994 then sold 8.34% of its Partnership interest for $100,000 in
cash. On April 24, 1996, the Company transferred the Partnership
interest, along with all liabilities then outstanding, into a
liquidating trust for the benefit of all shareholders of record as
of the close of business on April 23, 1996. As of December 31,
1996, the Company no longer had any interest in the Partnership.
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 "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. 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.
Acquisition - On July 24, 1996, the Company agreed to acquire all
of the outstanding proprietary interest of Famous Sam's Franchise
Corporation ("Famous Sam's) in exchange for 700,000 shares of the
Company's common stock. This acquisition was subsequently
rescinded by the Company and Famous Sam's, among others, on March
11, 1997. (See discussion in Note 8.)
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,
1996.
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.
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 390,367 on
a weighted average basis for 1996, and 18,457 (post-split shares)
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,
1996, and 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
the 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.
In December, 1996, the Company received a formal release from these
shareholders for these notes.
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. This liability was transferred to trust on April 23,
1996, and was subsequently satisfied. The only outstanding payable
at December 31, 1996, was to legal counsel for the Company, who is
now an affiliate of the Company, but who was not an affiliate at
that time. All other liabilities of the Company had been satisfied
by the former subsidiary of the Company, as discussed in Note 8,
below.
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, 1996, and December 31, 1995, this receivable was still
considered uncollectible.
7. Due to an Affiliate. As of December 31, 1996, the Company
owed Mr. Mark S. Pierce, an individual who is now affiliated with
the Company, but who was not at the time of the incurrence of the
debt, the sum of $47,083 in accrued but unpaid legal fees.
8. Subsequent Events.
Recision - On March 11, 1997, the Company and Famous Sam's entered
into a recision agreement between themselves and the former
shareholders of Famous Sam's (the "Shareholders') whereby the
Company returned to the Shareholders all of the outstanding
proprietary interest of its sole wholly-owned subsidiary, Famous
Sam's, in exchange for (i) a release of any and all liabilities
between the Company, Famous Sam's and the Shareholders, (ii) a
representation from the Shareholders and Famous Sam's that the
Company had no outstanding liabilities which had not been
satisfied, other than amounts due the attorney for the Company, Mr.
Mark S. Pierce, (iii) the return of the 700,000 shares of Common
Stock issued to the Shareholders under the Reorganization
Agreement, all of which were returned to the treasury of the
Company, (iv) the resignation of the then board and officers of the
Company, (v) the appointment of Mr. Pierce to the board and (iv)
an undertaking by Mr. Pierce to pay the Shareholders the sum of
$40,000. Mr. Pierce is now the sole director and executive officer
of the Company. The result of the recession was to place the
parties in the same position as they had enjoyed prior to the
acquisition of Famous
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 the 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*
Mark S. Pierce 40 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 officer will hold office until the next annual
meeting of shareholders and until his successor has been duly
elected and qualified or until his earlier resignation. Officers
are generally 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
the executive officer, who serves on an "at will" basis. The Board
of Directors currently consists of one member, Mr. Pierce. The
Company does not have any standing audit, nominating or
compensation committees, or any committees performing similar
functions.
Executive Profiles:
Mr. Pierce has been counsel to the Company since April 24, 1996,
and on March 11, 1997, was appointed to serve as its sole director
and its Chief Executive, Financial and Accounting Officer,
President and Treasurer. He served Midland, Inc., as a director
and the secretary from October, 1994, until February 18, 1997, when
it acquired the shares of two subsidiary corporations. Midland is
a publicly-held Colorado corporation with a class of equity
securities registered under Section 12(g) of the Exchange Act. He
was a director and an executive officer of Intercell Corporation
from April, 1992, until July 7, 1995, when it acquired the assets
of another business. Intercell is a publicly-held Colorado
corporation with a class of equity securities registered under
Section 12(g) of the Exchange Act. Mr. Pierce was the secretary
and a director of Forestry International, Inc., a publicly- held
Colorado corporation from December 24, 1992, until April 7, 1995,
at which time he resigned to pursue other business interests.
Forestry International also has a class of equity securities
registered under Section 12(g) of the Exchange Act. Mr. Pierce was
a director, and subsequently an executive officer, from May 22,
1992, until January 14, 1994, of Indemnity Holdings, Inc. a
publicly-held Colorado corporation. From September 1, 1993, until
April 7, 1995, Mr. Pierce was the President and a director of a
small, privately-held merchant banking firm with six employees,
including himself. In this company, he was involved in the
supervision of five employees and worked with independent
consultants in the areas of marketing, public relations,
accounting, law and corporate finance. Prior to September 1, 1993,
Mr. Pierce was engaged in the private practice of law in Denver,
Colorado, where he specialized in mergers, acquisitions, the
representation of publicly-held companies, bankruptcy and
international transactions.
Mr. Pierce graduated from the University of Wyoming in Laramie,
Wyoming, in May, 1979, with a Bachelor of Science degree in
Accounting with honors. He passed his examination as a Certified
Public Accountant in May, 1979, in his first sitting. Mr. Pierce
received his Juris Doctorate from the University of Colorado in
Boulder, Colorado, during May of 1983. He is a member of the
American and Colorado Bar Associations, and is a member of the
securities and international subsections of this latter
association.
Item 10. Executive Compensation.
No compensation was paid during 1996 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
April 11, 1997, 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 Class Name Beneficial Owner Number of Shares Percent(1)
Common Stock William Haaker 20,082 5.14%
Common Stock Mark Hogan 19,975 5.11
Directors and]
Executive Officers as a Group: 0 0
(1) Based on approximately 390,367 shares of common stock issued
and outstanding on April 11, 1997.
Item 12. Certain Transactions.
No disclosure is required under this item. Mr. Pierce, however,
rendered services to, and incurred costs on behalf of, the Company
during 1996 while he was not affiliated with the Company. A
portion of these fees and costs were paid, while a significant
amount ($47,083) remained unpaid at the end of the year.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits:
3.1(a) Articles of Incorporation and Amendments (California).*
3.1(b) Articles of Incorporation and Amendments (Nevada).**
3.2(a) Bylaws (California).*
3.2(a) 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.**
10.9 Recession Agreement.***
* 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).
** Filed as an exhibit to the Company's Form 10-KSB for the year
ended December 31, 1995.
*** Filed herewith.
(b) Forms 8-K: Form 8-K dated March 11, 1997.
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 Tucson, State of Arizona
on the 16th day of April, 1997.
FAMOUS SAM'S GROUP, INC.
(Registrant)
By: /s/ Mark S. Pierce
Mark S. Pierce, Chief Executive Officer
and President
By: /s/ Mark S. Pierce
Mark S. Pierce, Chief Financial
and Accounting Officer, Treasurer
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 April,
1997.
/s/ Mark S. Pierce
Mark S. Pierce, Sole Director
EXHIBIT 10.9
Form 8-K dated April 11, 1997, and attached Recision Agreement
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
March 11, 1997
(Date of Report)
Famous Sam's Group, Inc.
(Exact Name of Registrant as specified in its charter)
Nevada
(State or other jurisdiction of incorporation)
0-24736 88-0361701
(Commission File Number) (IRS Employer Identification Number)
4221 E. Pontatoc Canyon Dr., Tucson, AZ 85718
(Address of principal executive offices including zip code)
(520) 577-6611
(Registrant's telephone number including area code)
Not Applicable.
(Former name or former address, if changed since last report)
Item 1. Change in Control of Registrant.
See Item 2, below.
Item 2. Acquisition or Disposition of Assets.
On March 11, 1997 (the "Closing Date"), Registrant, Famous Sam's
Group, Inc., executed, delivered and closed under a Recision,
Release and Final Settlement Agreement (the "Recision Agreement")
with Famous Sam's Franchise Corporation ("FSFC") and the former
shareholders of FSFC, whereby Registrant returned to the
Shareholders all of the outstanding proprietary interest of its
sole wholly-owned subsidiary, FSFC, in exchange for a release of
any and all liabilities between Registrant, FSFC and the
Shareholders. The effect of the Recision Agreement was the
recision of the acquisition of FSFC from the Shareholders on July
24, 1996, as if the acquisition had never been agreed to. The
Recision Agreement was entered into in an effort by Registrant to
avoid what it considered to be otherwise unnecessary litigation if
the disputes which had arisen with the Shareholders had not been
resolved, which litigation Registrant could not have afforded.
The Shareholders transferred the 700,000 common shares of
Registrant issued in the acquisition of FSFC back to the treasury
of Registrant. Concurrent with the recision, the existing board
and officers of Registrant resigned, and counsel to Registrant, Mr.
Mark S. Pierce, was appointed to the board. Mr. Pierce is now the
sole director and executive officer of Registrant.
Item 3. Bankruptcy or Receivership.
Not Applicable.
Item 4. Changes in Registrant's Certifying Accountant.
Not Applicable.
Item 5. Other Events.
None.
Item 6. Resignation of Registrant's Directors.
Not Applicable.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
Not Required.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, Registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
Famous Sam's Group, Inc.
(Registrant)
By: /s/ Mark S. Pierce
Mark S. Pierce, Chief
Executive Officer
DATE: March 13, 1997
EXHIBITS
Exhibit 1. - Recision, Release and Final Settlement Agreement
registrant, Famous Sam's Franchise Corporation and the former
shareholders of Famous Sam's Franchise Corporation
RESCISSION, RELEASE AND FINAL SETTLEMENT
(March 11, 1997)
THIS AGREEMENT is made and entered into this 11th day of March,
1997, by and among Famous Sam's Group, Inc., a Nevada corporation
formerly known as U.S. Flywheel, Inc. ("FSGI"), and Famous Sam's
Franchise Corporation, an Arizona corporation ("FSFC"), and the
former shareholders of FSFC, Mr. Gerald Ross and Ms. Sandra Ross
(collectively, "Mr. and Mrs. Ross").
RECITALS:
The following recitals are true and correct and form an integral
part of this Agreement.
1. FSGI, FSFC and the Rosses entered into an agreement (the "B
Reorg Agreement") on the 24th day of July, 1996, pursuant to which
FSGI acquired from the Rosses all of the outstanding proprietary
interest of FSFC;
2. Dan Hodges ("Hodges") was the subject of two contracts with
FSGI pursuant to which he identified, negotiated and obtained the
agreement of the Rosses to sell their shares in FSFC to FSGI, all
as the authorized agent of FSGI;
3. Hodges, in obtaining the foregoing agreement from the Rosses to
sell their shares of FSFC to FSGI, made many representations and
warranties to, and covenants with, the Rosses on behalf of FSGI,
each of which was material in obtaining their agreement;
4. Hodges specifically represented, warranted and covenanted,
among other matters, to FSGI and Mr. and Mrs. Ross that he would
(i) arrange for the infusion of $2,000,000 in equity capital into
FSGI following the acquisition, (ii) provide a market for the
common equity of FSGI following the acquisition and the infusion of
the foregoing capital so that a $5.00 share price would be
maintained, (iii) guarantee the Rosses the return of their shares
in FSFC and money if he were unable to perform the foregoing;
5. Hodges had no ability whatsoever to provide for the
undertakings he made to the Rosses, each of which was materially
false and misleading and instrumental to the Rosses in their coming
to their decision, and each of which was made by Hodges knowing the
same to be materially false and misleading;
6. Hodges obtained shares in FSGI for his services, liquidated
those shares to his significant economic advantage, and failed to
provide for any of the undertakings which he made, never intending
to do so, and intending only to profit through the loss of FSGI,
FSFC and the Rosses;
7. FSGI, FSFC and the Rosses, after discovering the materially
false and misleading actions of Hodges, as set forth in part above,
have endeavored since October 1, 1996, to resolve the issues with
Hodges which have arisen.
8. Hodges has not even performed under these agreements, the
result of which has been the loss of two separate financing
opportunities to FSGI, FSFC and the Rosses for the business of
FSFC, and the complete collapse of the market for the FSGI equity
shares;
9. The parties have now concluded that Hodges had no intent
whatsoever to fulfill his obligations under his latest set of
agreements, or any of his prior agreements either for that matter,
all to the detriment of the parties;
10. FSFC and the Rosses, as a result of those actions set forth
above, among other actions, have the right under Section 17 of the
Securities Act of 1933, as amended (the "Securities Act"), Sections
10(b), 18 and 29 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the "Arizona Securities Act" to sue FSGI
for recision of the B Reorg Agreement and for their damages in
regards of the same;
11. The parties have now determined that it is in the best
interests of the parties to rescind the B Reorg Agreement, without
the necessity of litigation, and return themselves, as best they
are able, to the position they were in prior to July 24, 1996; and
12. The parties further desire to compromise all claims between
themselves in regards of the aforesaid on the terms and conditions
set forth herein.
COVENANTS:
NOW, THEREFORE, for Ten ($10) Dollars and other good and valuable
consideration, the receipt and sufficiency of which are each hereby
acknowledged, THE PARTIES AGREE AS FOLLOWS:
ARTICLE I
RECISION
1.1 Rescission of B Reorg Agreement. The parties hereby rescind
the B Reorg Agreement nunc pro tunc to the date thereof in
accordance with the provisions of the Securities Act, the Exchange
Act and the Arizona Securities Act, all of which are set forth in
the premises above.
1.2 Return of FSFC Shares by FSGI to the Rosses; Return of FSGI
Shares to Treasury by the Rosses. FSGI hereby delivers to the
Rosses all of its right, title and interest in and to FSFC,
including all its outstanding proprietary interest in FSFC. FSFC
and the Rosses hereby return to FSGI all of their right, title and
interest in and to FSGI, including all of their shares of capital
stock and all options and other rights to acquire shares of FSGI,
whether under FSGI's current Incentive Stock Ownership Plan (ISOP)
or otherwise. FSFC and the Rosses also hereby return to FSGI all
outstanding options and other rights outstanding under the
aforesaid ISOP or otherwise, whether owned by the Rosses or anyone
else.
1.3 Return of FSGI Corporate Records by the Rosses; Resignation of
Rosses and their Employees as Officers and Directors of FSGI;
Appointment of New Director; Assets and Liabilities of FSGI; Change
of Name by FSGI. The Rosses hereby return to FSGI its corporate
record and minute book, as well as any and all other corporate
records of FSGI in their possession or control. The current board
of FSGI has appointed a new director immediately prior to the
execution and delivery hereof, that being Mr. Mark S. Pierce, and
have obtained the resignation of the remaining directors and
officers of FSGI effective immediately prior to the execution and
delivery hereof. The Rosses hereby represent and warrant to FSGI
that there are no assets or outstanding liabilities of FSGI as of
the date hereof. FSGI covenants that it will endeavor as soon as
economically practicable to change its names from Famous Sam's
Group, Inc.
ARTICLE II
MUTUAL AND FINAL RELEASES AND COVENANTS NOT TO SUE
2.1 Release of the FSFC and the Rosses by FSGI. For and in
consideration of the above and foregoing premises and the mutual
covenants, promises and agreements contained herein, FSGI hereby
releases, acquits and forever discharges FSFC and the Rosses, as
well as FSFC's officers, directors, shareholders, affiliates,
successors and assigns, if any, from and against any and all
actions, causes of action, suits, claims, demands, rights,
controversies, debts, agreements, damages, costs, expenses,
liabilities and compensation whatsoever which it now has or may
hereafter have on account of or arising out of any matter, thing or
event which has happened, developed or occurred, whether known or
unknown, at any time at or prior to the execution and delivery of
this Agreement.
2.2 Release of FSGI by FSFC and the Rosses. For and in
consideration of the above and foregoing premises and the mutual
covenants, promises and agreements contained herein, FSFC and the
Rosses hereby release, acquit and forever discharge FSGI, as well
as FSGI's current officer and director, and Joseph Craig & Co., as
well as its officers, directors, shareholders and advisors,
including Messrs. Matthew Milonas and Craig Edelman, from and
against any and all actions, causes of action, suits, claims,
demands, rights, controversies, debts, agreements, damages, costs,
expenses, liabilities and compensation whatsoever which they now
have or may hereafter have on account of or arising out of any
matter, thing or event which has happened, developed or occurred,
whether known or unknown, at any time at or prior to the execution
and delivery of this Agreement.
2.3 FSGI's Covenant Not to Sue. FSGI further covenants and agrees
that it will not bring, commence, institute, maintain, prosecute or
instigate any action at law, proceeding in equity, administrative
proceeding or otherwise, nor prosecute or sue either FSFC and/or
the Rosses and/or FSFC's officers, directors, shareholders,
affiliates, successors or assigns, if any, either affirmatively or
by way of cross-claim, defense or counterclaim, or by any other
manner, for any alleged claim, demand, liability or cause of action
in any way stemming from any claimed action or inaction of either
FSFC and/or the Rosses at or prior to the execution and delivery of
this Agreement.
2.4 FSFC's and the Ross' Covenant Not to Sue. FSFC and the Rosses
each further covenant and agree that they will not bring, commence,
institute, maintain, prosecute or instigate any action at law,
proceeding in equity, administrative proceeding or otherwise, nor
prosecute or sue FSGI, as well as FSGI's current officer and
director, and Joseph Craig & Co., as well as its officers,
directors, shareholders and advisors, including Messrs. Matthew
Milonas and Craig Edelman, either affirmatively or by way of
crossclaim, defense or counterclaim, or by any other manner, for
any alleged claim, demand, liability or cause of action in any way
stemming from any claimed action or inaction of FSGI at or prior to
the execution and delivery of this Agreement.
2.5 Final Settlement. The parties each acknowledge, understand
and agree that they are aware that they or their attorneys may
hereafter discover facts different from or in addition to the facts
which they now know or believe to be true, but that it is their
intention to fully, finally, absolutely and forever settle any and
all claims, disputes and differences which now exist, may exist or
may have existed between them, and that in furtherance of such
intention, the general and other releases given herein shall be and
remain in effect as full and complete releases, notwithstanding any
mistake of fact or the discovery of any different or additional
facts.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
3.1 Representations and Warranties of FSGI. FSGI hereby
represents and warrants to FSFC and the Rosses as follows: (i) All
necessary action has been taken to make this Agreement a legal,
valid and binding obligation of the Hodges Group, and this
Agreement is enforceable in accordance with its terms and
conditions; and (ii) The execution and delivery of this Agreement
and the performance by FSGI of its obligations hereunder will not
result in any material breach or violation of or material default
under any material agreement, indenture, lease, license, mortgage,
instrument, or understanding, nor result in any violation of any
law, rule, regulation, statute, order or decree of any kind to
which FSGI is a party.
3.2 Representations and Warranties of FSFC and the Rosses. FSFC
and the Rosses each represent and warrant to FSFC as follows: (i)
All necessary action has been taken to make this Agreement a legal,
valid and binding obligation of FSFC and of the Rosses, and this
Agreement is enforceable in accordance with its terms and
conditions; and (ii) The execution and delivery of this Agreement
and the performance by FSFC and the Rosses of their respective
obligations hereunder will not result in any material breach or
violation of or material default under any material agreement,
indenture, lease, license, mortgage, instrument, or understanding,
nor result in any violation of any law, rule, regulation, statute,
order or decree of any kind to which either FSFC or the Rosses are
a party.
ARTICLE IV
MISCELLANEOUS
4.1 Entire Agreement; Modification. This Agreement sets forth and
constitutes the entire agreement between the parties hereto with
respect to the subject matter hereof, and supersedes any and all
prior agreements, understandings, promises, and representations
made by any party to any other concerning the subject matter hereof
and/or the terms applicable hereto. This Agreement may not be
released, discharged, amended or modified in any manner except by
an instrument in writing signed by duly authorized representatives
of the parties hereto.
4.2 Severability. The invalidity or unenforceabilty of one or
more 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 respects as if such invalid or
unenforceable provisions are omitted.
4.3 Governing Law. This Agreement shall be deemed to have been
entered into and shall be construed and enforced in accordance with
the laws of the State of Arizona. All parties agree to venue in
the City of Tucson, County of Pima, State of Arizona, and agree to
submit any disagreements hereunder to the appropriate court in said
city and state.
4.4 Waivers. The failure of any party hereto to insist, in any
one or more instances, upon the performance of any of the terms,
covenants or conditions of this Agreement, or to otherwise exercise
any right hereunder, shall not be construed as a waiver or
relinquishment of the future performance of any such term, covenant
or condition or the future exercise of such right, but the
obligations of the party with respect to such future performance
shall continue in full force and effect.
4.5 Headings. The headings of the articles, sections and
paragraphs used in this Agreement are included for convenience only
and are not to be used in construing or interpreting this
Agreement.
4.6 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,
heirs 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 the terms and conditions of this
Agreement.
4.7 Survival of Representations. The representations, warranties
and agreements of the parties hereto which are contained in this
Agreement shall survive the execution hereof, and shall be
unaffected by any investigation made by any party at any time.
4.8 Further Assurances. Each party hereto further agrees that
they shall, either collectively or individually, take such further
and additional action as may be reasonable and necessary to carry
into full effect the intent of this agreement and to otherwise
provide for the fulfillment hereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the date first above written.
Famous Sam's Group, Inc. Famous Sam's Franchise Corporation
By: \s\ Mark S. Pierce By: \s\ Gerald Ross
Mark S. Pierce, President Gerald Ross, President
\s\ Sandra Ross \s\ Gerald Ross
Sandra Ross, Individually Gerald Ross, Individually
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