U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Year Ended December 31, 1997
Commission File No. 33-90696
ANDEAN DEVELOPMENT CORPORATION
(Name of Small Business Issuer in Its Charter)
FLORIDA 65-0420146
(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1900 GLADES ROAD, SUITE 351, BOCA RATON, FLORIDA 33431
(Address of Principal Executive Offices) (Zip Code)
(561) 416-8930
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: NONE
Name of Each Exchange
Title of Each Class on Which Registered
- --------------------------------- -----------------------------
- --------------------------------- -----------------------------
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $.0001 PAR VALUE
(Title of Class)
REDEEMABLE COMMON STOCK PURCHASE WARRANTS
(Title of Class)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the issuer was required to file such reports, and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. X
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State issuer's revenues for its most recent fiscal year: $3,529,296
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of March 30, 1998 computed
by reference to the closing bid price of the Common Stock was $4.813 on that
date: $13,573,141.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
2,820,100 shares of Common Stock, $.001 par value, as of December 31,
1997.
Transitional Small Business Disclosure Format (check one) Yes No X
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Andean Development Corporation ("ADC") was organized in 1994 as a
holding company to acquire Errazuriz y Asociados Ingenieros S.A. ("E&A") and
Igenor Andina S.A. ("INA"), both Chilean corporations located in Santiago,
Chile. Except as otherwise specifically noted, ADC, E&A and INA are collectedly
referred to herein as the "Company."
E&A, organized in February 1991, specializes, as an agent, in the sale
of major electrical and mechanical equipment, and in the representation of
foreign manufacturers of electrical and mechanical equipment in South America.
E&A also offers technical assistance for both turnkey and non-turnkey public
works and development projects to be constructed in South America and primarily
in Chile. Since 1991, E&A has facilitated the sale of more than $550 million of
equipment and installations including generators, turbines and conveyors, which
has generated commission for the Company. See "Core Business."
INA, organized in 1986, focuses on providing engineering consulting
services and project management for irrigation, water treatment plants,
tunneling and hydroelectric power plants. Since 1986, INA, alone and in
conjunction with Norconsult International, A.S. of Norway ("Norconsult"), an
international engineering company, has provided engineering, consulting and
project management services relating to engineering projects valued at
approximately $22 million since inception, of which approximately $11.6 million
was revenues the Company has realized. See "Core Business."
The Company's strategy consists of (i) capitalizing on its historical
participation in the electric utility sector, ecology and irrigation projects,
and the potable and waste water treatment fields in order to expand its core
business, and (ii) investing in businesses that will provide a steady cash flow
to the Company. The Company also expects that the continuing stability of the
Chilean economy, inflation rates and privatization of business in Chile which
have increased investment in Chile will have a positive impact on the Company
and its operations. Additionally, other South American countries have undertaken
privatization policies similar to Chile, which may provide other opportunities
to the Company's core business.
Pursuant to the Company's business plan, during August 1997, the
Company purchased a 31% equity interest for $85,325 in a wine processing
facility in Chile ("Vina Valle del Itata S.A.") that is expected to commence
full initial production capability of approximately 1.5 million liters of wine,
as of March 1998. In November 1997, the Company also purchased a 670 acre farm
in the Itata Region in Chile for $1,073,000 to establish a vineyard. As of
December 31, 1997, the Company was also in the process of purchasing a 70%
equity interest for $101,032 in Ingesis, a Chilean software development company
("Ingesis") and a 51% equity interest in Negociaciones y Servidumbre S.A., a
Chilean corporation ("NYSA") for $125,508. Ingesis has developed
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a system, utilizing a digital signature generated by encrypting a logarithm on a
computer chip and NYSA specializes in negotiation and purchasing of land for use
by electrical utilities.
In May 1997, Pedro Pablo Errazuriz, the Company's Chief Executive
Officer ("CEO"), President and Chairman of the Board, acquired a 20% interest in
Construcciones Electromecanicas Consonni S.A., a Spanish corporation that
manufactures motor control centers and switchgear ("Consonni") and in Equipos de
Control Electrico S.A., a Spanish corporation and the international marketing
and sales arm of Consonni ("ECESA", and collectively with Consonni,
"Consonni/ECESA") from unrelated third parties, increasing his equity interest
in Consonni/ECESA to 77%. In June and July 1997, the Company purchased an 11%
equity interest in Consonni/ECESA for approximately $671,000 from unrelated
third parties. Subsequently, during August 1997, Mr. Errazuriz, on behalf of his
interest of 77% and the 11% interest owned by the Company, entered into a share
exchange agreement with Consonni USA, Inc., a Florida corporation ("CONUSA"),
where the aggregate 88% interest of Consonni/ECESA was exchanged for 2,300,000
shares of CONUSA Common Stock (representing approximately a 76.7% interest in
CONUSA). Effective December 31, 1997 and subject to shareholder approval, the
Company will acquire Mr. Errazuriz's interest in CONUSA for approximately $4.3
million for stock and other consideration. See "1997 Investments in New
Companies - Consonni/ECESA" and "Certain Relationships and Related
Transactions."
The Company's offices are currently located at 1900 Glades Road, Boca
Raton, Florida, U.S.A. and its telephone number is (561) 416-8930. Its fiscal
year end is December 31.
BACKGROUND
The Company was incorporated as a Florida corporation on October 19,
1994 under the name "Igenor U.S.A., Inc." On January 10, 1995, the Company
changed its name to "Andean Development Corporation." The Company undertook a
reorganization upon the closing of its November 1996 initial public offering,
but which was given effect as of December 31, 1994, whereby E&A and INA became
majority owned (99.99%) subsidiaries of the Company pursuant to share exchange
agreements. Chilean corporate law requires that a Chilean corporation have no
less than two different shareholders at any given time and thus, one share of
INA is owned by E&A and one share of E&A is owned by INA.
E&A was organized on February 28, 1991, in Santiago, Chile, as a
Chilean limited partnership under the name "Errazuriz y Asociados Ingenieros
Limitada." On September 21, 1994, E&A was reorganized as a Chilean corporation
and its name was changed to "Errazuriz y Asociados Ingenieros S.A."
INA was organized on June 11, 1986, in Santiago, Chile as a Chilean
limited partnership under the name "Ingenieria Norconsult Andina Limitada."
Initially INA was a joint venture between Norconsult, a worldwide engineering
consulting company based in Oslo, Norway and Errazuriz y Asociados Arquitectos
S.A. ("EAA"), a major shareholder of ADC. See "Principal Shareholders."
Norconsult subsequently sold its participation to Igenor Ingenierie et Gestion,
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S.A., a Swiss corporation ("Igenor"), which is also a majority shareholder of
the Company. On September 15, 1994, pursuant to Chilean law, INA was reorganized
from a limited partnership to a Chilean corporation, and its name was changed to
"Igenor Andina S.A."
In September 1996, the Company organized ADC Andean, S.A. ("ADC Swiss")
as a Swiss corporation. ADC Swiss is a wholly-owned corporation of ADC.
In July 1997, the Company organized AEFC as a Florida corporation. As
of December 31, 1997, AEFC is a wholly-owned subsidiary of the Company.
HISTORY AND ECONOMIC OVERVIEW
Since the inception of INA in 1986, the Company has transitioned itself
from sales of equipment to sales of commercial work and procuring large turnkey
projects as a consultant to and representative of international consortiums.
Since 1991, the Company, through INA, has focused on the energy and
infrastructure sectors. In connection with these activities, the Company has
also acted as project manager and supplier of specialized engineering services.
Generally, all services related to engineering, design, consulting, supervising
and inspecting of construction projects have been initiated by INA, and those
related to sale of equipment for construction projects have been initiated by
E&A.
The Company's services have historically been provided to both private
companies and governmental agencies, with more than half of the Company's total
revenues coming from the private sector during recent years. The Company has
been a supplier of equipment, spare parts and engineering services for most of
the largest utilities in Chile including, among others, private companies such
as ENDESA, S.A. (the largest electrical utility company in Chile), Chilgener
S.A. (the second largest electrical utility company in Chile), Minera Valparaiso
S.A. (a mining company), CREO (Cooperative Regional Ectrica de Osorno) (an
electrical utility company), and Edelnor S.A. (an electrical distribution
company); and government owned companies such as Codelco (Corporacion Nacional
del Cobre de Chile) (the largest government owned mining company in Chile),
Colbun S.A. (an electrical utility company), and Petrox S.A. (a petrol-chemical
and oil company).
CORE BUSINESS
E&A
E&A specializes, as an agent, in the sale of major electrical and
mechanical equipment in the representation of foreign manufacturers. A
substantial amount of its sales is for equipment relating to the electrical
utilities, mining, and materials handling industries. This include medium and
high voltage generators, transformers, controls, cables, gas and steam turbines
and industrial boilers, as well as other materials such as cranes, unloading
facilities, coal handling systems, crushers, air cleaning systems and
ventilators. Additionally, E&A offers technical assistance to bidders during the
preparation of tender (bid) documents for turnkey and non-turnkey projects,
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as well as throughout a project, once bids have been awarded. E&A has been
successful in obtaining and maintaining its representations of foreign equipment
manufacturers by offering engineering and sales support by experienced civil and
industrial engineers. These professionals are knowledgeable in both the
technical and sales aspects of a project and also have established contacts and
networks in Chile necessary to successfully compete with larger international
companies. While many of the services offered by the Company are comparable to
those of its competitors, because of the Company's historical presence in Chile
and its reputation for quality services, it can effectively compete with larger
competitors and offer additional services not available from its competitors.
See "Competition."
The services offered by E&A include, but are not limited to:
1. /bullet/ Forecasting of market trends.
/bullet/ Market research
/bullet/ Financing (expertise in local and foreign loans)
/bullet/ Packaging with other manufacturers
/bullet/ Knowledge of the decision making procedures and the
scheduling of projects
2. /bullet/ Local engineering support (by the Company's employees
or through subcontractors)
/bullet/ Procurement of local materials and products
/bullet/ Construction and plant erection capabilities
/bullet/ Project managing capabilities
/bullet/ Coordination with customer and customer engineering
While E&A does not charge any fee for the services described in item 1
above and funds the related operating costs, the services described in item 2
above are developed for a customer on a fee basis once a project is secured.
Additionally, equipment manufacturers pay E&A a commission upon receipt of the
award of a project. The commission is typically based on a percentage of the
amount of the sale, which varies depending upon the size and scope of a project.
See "Recent Projects."
In preparing bid documents for various projects, E&A has and will
continue to form consortiums of various equipment manufacturers who provide
products on competitive terms and conditions. E&A intend to assist in obtaining
financing of projects through both domestic (Chile) and international financial
institutions.
INA
INA focuses primarily on providing engineering consulting services for
hydroelectric plants and civil construction projects (tunneling projects). Most
of the engineering services provided by INA result from INA's exclusive
representation of Norconsult. Currently, one or two hydroelectric plants are
built in Chile every year, while each year Norconsult participates
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worldwide in the design of 10 to 15 of such plants. As a result, INA's
relationship with Norconsult provides INA with the ability to offer its
customers state-of-the-art knowledge for these types of projects while, at the
same time, associating with local engineering companies in preparing bid
documents for such projects. INA also offers most services not only relating to
hydroelectric power plants, but also to infrastructure and irrigation projects,
from the pre-construction stage through the commissioning of the project.
Additionally, INA has the ability to erect small electro-mechanical
installations and material handling systems. As a project manager for an
installation, INA coordinates with a consortium of equipment manufacturers in
the preparation and delivery of turnkey projects after a bid has been awarded.
INA also provides local engineering support to its clients.
Both E&A and INA believe they have built superior reputations in their
specific areas of expertise, having been involved in the greater majority of all
hydroelectric plants built in Chile since 1985, as well as other major
electro-mechanical projects than its Chilean competitors. A major part of the
Company's know-how is its understanding of a customer's needs and being its
ability to offer its customers goods and services that deviate only to the
extent that such deviations or substitutions make a bid more competitive. The
Company believes that in order to be awarded a bid, a bidder needs to know the
end user and through the years, the Company has obtained this knowledge by
working with the major companies in Chile (both private and public) who request
these bids. See "Major Projects."
The Company intends to further grow its core business by expanding in
North America and Europe as well as to seek additional representation of U.S.
and other North American based companies for sales to be made in Chile. To
facilitate this growth, the Company has established a U.S. office located in
Boca Raton, Florida. The Company has also acquired a 77% equity interest in
Consonni/ECESA from Mr. Errazuriz, subject to shareholder approval at the
Company's 1997 Annual Shareholders Meeting which shall be held as soon as
practicable. See "1997 Investments in New Companies - Consonni/ECESA" and
"Certain Relationships and Related Transactions." The Company believes that by
establishing its presence in the U.S. and Europe, it will be more competitive
because it will have more direct access to foreign manufacturers located in
North America, as well as other countries in North America and in Europe.
Major Representations (Exclusive)
<TABLE>
<CAPTION>
NAME OF COMPANY COUNTRY OF ORIGIN SECTOR
- --------------- ----------------- ------
<S> <C> <C>
Accusonic, Inc./O.R.E. Intl. Inc. U.S.A. Ecology & water treatment
Berdal Stromme A.S. Norway Engineering
Consonni S.A. Spain Energy and electricity
Kvaerner Energy A.S. Norway Energy
Kvaerner Turbin A.B. Sweden Mech. equip. for energy
Linde A.G Germany Mining processor, chemical plants
Norconsult Int. A.S. Norway Engineering
Union Espanola de Explosivos Spain Mining explosives
</TABLE>
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Selected Special Sales Representations (Non-Exclusive)
<TABLE>
<CAPTION>
NAME OF COMPANY COUNTRY OF ORIGIN NAME OF PROJECT
- --------------- ----------------- ---------------
<S> <C> <C>
ABB-Air Preheater U.S.A. Ventanas Power Plant
ABB-Sweden Sweden Pangue
ABB-Switzerland Switzerland Curillinque
ABB-Solyvent Ventec Spain Various mines (Exxon)
AEG Germany Pangue
Babcock & Wilcox/Cranes Div. Spain Ventanas Cranes
Babcock & Wilcox Espanola, S.A. Spain Mejillones Power Plant
Baedeker y Navarro (BYNSA) Spain Tocopilla Cranes
Combustion Engineering U.S.A. Chuquicamata
G.E.C. Large Machines U.K. Guardia Vieja
G.E.C. Mechanical Handling U.K. Cement Storage and Conveyor
Ingemas Spain Ventanas Conveyor System
Marubeni Corp. Japan Copper Concentrates Distr.
Mitsubishi Corp. Japan Polpaico
National Drying Machinery Co. U.S.A. Invertec
Siemens A.G. Germany Mejillones Th Power Plant
Loma Alta Hydroelectric
Sumitomo Corp. Japan Submarine Cables
Westinghouse Electric Company U.S.A. Turbines/Edegel, Peru
</TABLE>
RECENT PROJECTS - 1993 - 1996
Below is a representative list of the main equipment, turnkey projects
and engineering sales made by the Company from 1993 to 1996.(1)(2)
<TABLE>
<CAPTION>
APPROXIMATE
NAME OF PROJECT EQUIPMENT TYPE OF PROJECT CUSTOMER SUPPLIER VALUE
- --------------- --------- --------------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
1993
Ortiga Tunnel Redesign of tunnel Engineering Exxon Norconsult $100,000
Canutillar Power Plant tunnels Engineering Endesa Norconsult $200,000
Mejillones Thermal power plant Advisory Edelnor Babcock Wilcox $100 million
Capullo Hydropower Advisory CREO Kvaerner $5 million
& erection Norconsult
1994
Pangue General design & Engineering Kvaerner Norconsult A.S. $2.7 million
supplier coordination
Pangue Hydropower Advisory Pangue S.A. Kvaerner Turnbin $70 million
Antafagasta Sewage system Engineering Bayesa Biwater Int'l. $8 million
Wastewater
</TABLE>
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<TABLE>
<CAPTION>
APPROXIMATE
NAME OF PROJECT EQUIPMENT TYPE OF PROJECT CUSTOMER SUPPLIER VALUE
- --------------- --------- --------------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
1995
Patache Cranes Advisory CELTA Babcock Wilcox - $10 million
Espana
Lorna Alta Hydropower Advisory Pehuenche Siemens- $20 million
hidrovevey
San Ignacio Thermal-electrical plant Advisory Endesa Misubishi $100 million
1996
Andina Water tunnel system Engineering Codelco Norconsult $100,000
Nehuenco Thermal-electrical plant Advisory Colbun Siemens $100 million
Costanera,
Argentina Thermal electrical plant Advisory Endesa Mitsubishi $200 million
</TABLE>
(1) A number of the bids awarded for the projects described above
were awarded to a group of bidders forming a consortium.
(2) Typically, for projects valued in excess of $100 million, the
Company will earn a commission of between 0.03% to 1% of the
bid price of the project; for projects valued between $20
million and $100 million, from 1% to 3.5%; and from $1 million
to $20 million, between 3% and 5%. For sales less than $1
million, the commission typically ranges between 5% and 10%.
Factors that determine the amount of commission include, among
others, the amount of engineering services provided by the
Company.
1997 Projects
During 1997 the Company has participated in the following projects:
/bullet/ ANDRADE GUTIERREZ S.A. (CORTADERAL/ALTO CACHAPOAL PROJECT).
Andrade Gutierrez S.A., a Chilean corporation, has developed a
400 megawatt hydroelectric power concern, which is currently
in the pre-construction stage. The Company represented Kvaener
Energy A.S. for the sale of four turbine generator sets and
other relevant equipment estimated to be $60,000,000 to
$70,000,000. The project was awarded to this group during
September 1996.
/bullet/ HACIENDA SAN LORENZO S.A. (MAMPIL Y PEUCHEN POWER PLANT).
Elecnor S.A., along with Iberdrola (Spain), have been awarded
the bid for the construction, operation and partial ownership
of a group of small power plants in the south of Chile. The
Company has been invited to submit bids on behalf of Kvaerner
Turbin A.B. and Siemens for the equipment to be used in
connection with the powerhouses. During October, the
electrical aspect of the project was awarded to Siemens and
the contract was signed in January 1997.
/bullet/ EL PERAL LAND DEVELOPMENT PROJECT. The Company was hired as
consultant to develop beachfront property near Santiago,. The
project was awarded and the Company is
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providing advising services regarding the sale of options on
the land.
/bullet/ TOCOPILLA ELECTROANDINA PROJECT. Electroandina, the owner of
Tocopilla Power Plant - the main electric installation in the
north of Chile, requested bids to supply a 425 megawatt gas
powered thermal power plant to be located at Tocopilla, Chile,
and a similar device at Caleta Coloso, also in the north of
Chile. The Company participated in the project, which was
awarded to the consortium of which the Company is a part, in
December 1997.
/bullet/ YAMANGO HYDROPOWER PLANT. Edegel, the largest Peruvian
electric utility, requested bids for a new hydropower electric
plant to be located at the East of Lima, Peru. The Company
participated in this bid and was awarded the project in
November 1997.
WATER RELATED PROJECTS
Aguas y Ecologia S.A. and the Bayesa Project
While Chile has made significant economic gains over the past 12 years
in terms of foreign trade, the development of electrical utilities, the export
of agricultural and cellulose products, the efforts of the Chilean government to
take actions in the sanitary services and waste water treatment have been slower
in coming. The first steps toward waste water treatment commenced in 1987 when
the Ministry of Public Works called for bids to clean the Mapocho River Systems
(which account for 30% of all the waste water in Santiago), however a number of
political stalemates halted development in this area until 1993, which the
Chilean government commenced privatization of the water utility industry.
The Company, through ADC Swiss, currently owns a 67.5% of Aguas y
Ecologia S.A. ("A&E"), a Chilean corporation. A&E, in turn, owns a 10% interest
in Biwater-Aguas y Ecologia S.A. ("Bayesa"), which owns and operates the Bayesa
Project (the "Bayesa Project"). The Bayesa Project includes the design,
construction, and management of a waste water treatment facility in Antafagasta,
Chile for ESSAN (which is the water supply and treatment facility for the second
region of Chile where Antofagasta), and the right to sell reclaimed industrial
grade water.
The Bayesa Project will terminate after 30 years of operation, at which
time Bayesa anticipates that it will transfer the Bayesa Project to ESSAN for no
consideration. The Company took the reversion of the Bayesa Project back to
ESSAN into consideration when deciding to take an equity position in the Bayesa
Project. The Company concluded was that it was in the Company's best interest to
invest in the Bayesa Project, because of the potential profitability during the
30-year term of the contract.
Realizing that there appeared to be an emerging business in water
purification and treatment in Chile, the Company decided to seek additional
relationships with foreign entities that have experience in water purification
and may be partners in an eventual privatization project. Below is an overview
of these relationships and proposed projects.
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Pridesa
Effective September 1997, the Company entered into an agreement with
Pridesa, a medium size Spanish company engaged in developing waste water
treatment and desalinization plants. Under the terms of this agreement, the
Company and Pridesa will seek to construct, own, and manage a 34,000 cubic meter
per day desalinization plant in Iquique in the northern region of Chile, one of
the driest regions in the world. It is anticipated, but there can be no
assurances, that 75% of the funding for this plant will come from Spanish
government loans on favorable terms. The guaranty of the funding is anticipated
to be provided as a project loan from various Chilean banks. It is expected that
the Company will have a significant equity position and management role in this
project.
Colina
Colina is one of the main future suburbs for Santiago. Currently, many
first class real estate projects are under development in this area. It is
expected that within 15 years, the population of this area will grow to 600,000.
Water is currently available in limited supply and is expected to become a major
problem in the near future. The Company has been asked to analyze the
feasibility of a water treatment facility in this sector and will be interested
in participating in that business, if one develops.
Temuco
A similar situation to Colina has occurred in Temuco, one of the
fastest growing city in Chile. In 1995, the population increase in Temuco was
23% and currently it has around 300,000 inhabitants. An independent third party
has requested the Company to investigate a water supply project that could be
developed in that city.
1998 PROJECTS
1) RALCO
Project's owner : Endesa, Chile
Location : Chile, 8th Region
Type of project : Hydroelectric Power Plant
Capacity : 560 megawatt approximately
Bid submission date : Third Quarter, 1998
Award estimated date : Last Quarter 1999
Estimated Bid Price : $100 million
2) GUAVIO
Project's owner : Endesa (Emgesa, Colombia)
Location : 200 km east of Bogota
Type of project : Hydroelectric Project
Capacity : 220 megawatt approximately
Bid submission date : September 1998
Award estimated date : November 1998
Estimated Bid Price : $40 million
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3) PP. RIO de JANEIRO
Project's owner : Cachoeira Dorada SA - Endesa/Edegel
Location : Rio de Janeiro, Brazil
Type of project : Gas Powered Combined Cycle
Capacity : 120 megawatt approximately
Bid submission date : February 1998
Award estimated date : April 1998
Estimated Bid Price : $35 million
4) COSTANERA ADVISORY
Project's owner : Central Buenos Aires-Endesa/Entergy
Location : Buenos Aires, Argentina
Type of project : Engineering Advisory
Bid submission date : January 1998
Award estimated date : January 1998
End of Project : April 1998
5) CHIMAY
Project's owner : EDEGEL, Peru
Location : 150 km east of Lima
Type of project : Hydroelectric Plant
Capacity : 60 megawatt approximately
Bid submission date : February 1998
Award estimated date : May 1998
Estimated Bid Price : $100 million
6) TERMO BIBLIS
Project's owner : Electrica de Cartagena, Colombia -
Termo Biblis
Location : Cartagena
Type of project : Gas powered Combined Cycle (Siemens)
Capacity : 350 megawatt approximately
Bid submission date : April/May 1998
Award estimated date : June 1998
Estimated Bid Price : $150 million
7) COYA- PANGAL
Project's owner : Codelco Chile
Location : 100 south of Santiago
Type of project : Hydroelectric Project, purchase of
Plant
Capacity : 70 megawatt approximately
Bid submission date : June/August 1998
Award estimated date : December 1998
Estimated Bid Price : $75 million
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8) DESALINIZATION ANTAFAGASTA
Project's owner : ESSAN, Joint Venture
Location : Antafagasta, Chile
Type of project : Desalting Plant, water production
Capacity : 350 lkts/sec approx.
Bid submission date : July 1998
Award estimated date : October 1998
Estimated Bid Price : $30 million
A number of Chilean companies with whom the Company has established
relationships are now making investments and developing projects outside
Chile and as indicated above, a number of these companies have engaged the
Company to provide services for these projects.
STRATEGY FOR EQUITY PARTICIPATION
While both E&A and INA have been profitable during recent years, their
ability to produce a steady cash flow for the Company is limited by the nature
of their businesses since their activities depend almost exclusively on the
number of bids that are awarded to each of them. Income from these businesses
requires that first, new projects are developed; second, appropriate equipment
is available to offer to a project at competitive prices; and third, and most
importantly, that the Company is successful in selling the equipment and
services. The Company believes that to expand the businesses of E&A and INA, the
Company may require higher fixed costs and less flexibility. Alternatively,
increasing the number of employees does not necessarily mean increased sales and
profitability to the Company.
Management believes that by establishing an equity position in other
ventures will provide the Company with (a) diversified profitable growth; (b)
stabilized cash flow; and (c) the ability to further capitalize on the stability
of the Chilean economy. As a result, during 1997, the Company made a number of
equity investments in business which are anticipated to create a steady cash
flow to the Company and which will grow in the future.
1997 INVESTMENTS IN NEW COMPANIES
Consonni/ECESA
In May 1997, Mr. Errazuriz, the Company's CEO, President and Chairman,
acquired a 20% interest in Consonni/ECESA from unrelated third parties,
increasing his equity interest in Consonni/ECESA to 77%. Consonni/ECESA are
Spanish corporations that market, manufacture, distribute and sell motor control
centers and switchgear. In June and July 1997, the Company purchased an 11%
equity interest in Consonni/ECESA for approximately $671,000 from unrelated
third parties.
Consonni/ECESA has experienced significant operating losses up through
1996, resulting in a substantial accumulated deficit. Under Spanish government
regulations, a company is not
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allowed to operate with significant accumulated deficit without government
intervention. As a result, in July 1996, the Spanish government under judicial
orders, placed Consonni/ECESA under administrative supervision whereby
managements was required to present a strategic plan with the intent to
eliminate the supervision by demonstrating an ability to continue as a going
concern. As part of its plan, Consonni/ECESA developed a strategy to eliminate a
substantial amount of its debt and in particular, the amounts due to the Social
Security Administration of Spain and other governmental agencies and negotiated
with these governmental entities to reduce the amount of debt due to these
agencies, which reduction of debt was approved. In June and July 1997, once
these negotiations were substantially finalized, the Company purchased an 11%
interest in Consonni/ECESA for approximately $671,000 from unrelated third
parties.
Subsequently, during August 1997, Mr. Errazuriz, on behalf of his
interest of 77% and the interest owned by the Company (subject to shareholder
approval) of 11%, entered into a share exchange agreement with CONUSA, whereby
the 88% interest of Consonni/ECESA was exchanged for 2,300,000 shares of CONUSA
Common Stock (representing approximately a 76.7% interest in CONUSA). CONUSA has
applied for inclusion of its common stock on the OTC Bulletin Board, which is a
limited market. CONUSA intends to apply for inclusion on the National
Association of Security Dealers Automated Quotation (Nasdaq) SmallCap Market
System at such time as CONUSA meets the initial listing requirements.
Effective December 31, 1997, but subject to shareholder approval (which
approval shall be sought at the Company's 1997 Annual Shareholders' Meeting to
be held as soon as practicable), the Company will enter into an agreement with
Mr. Errazuriz whereby Mr. Errazuriz shall sell his 77% interest in CONUSA to the
Company for approximately $4.3 million, which shall be payable as follows (i)
approximately $212,000 in forgiveness of loans made by the Company to Mr.
Errazuriz,; (ii) 250,000 shares of Series A Preferred Stock, to which holders
shall be entitled to nine votes for each one share of Class A Preferred Stock
held, valued at approximately $1,203,250, based on the closing bid price of
$4.183 of the Company's common stock as of December 31, 1997, (iii) 50,000
shares of Company Common Stock, valued at approximately $240,650, based on the
closing bid price of $4.183 as of December 31, 1997, (iv) the "Villarrica Land,"
currently valued at approximately $789,450 (as described under "Properties" and
"Certain Relationships and Related Transactions"), subject to the outstanding
mortgages, (v) the "Villarrica Property," valued at approximately $494,000 (as
described under "Certain Relationships and Related Transactions"), and (vi) the
receivables for El Peral advisory services due to the Company, at $1,339,000.
See "Certain Relationships and Related Transactions." and "Notes to Financial
Statements."
NYSA
Negociaciones y Servidumbre, S.A. (NYSA), a Chilean corporation, was
organized to advise the largest private utilities and the Minister of Public
Works in the acquisition of land rights from private owners in connection with
the installation of electrical lines, piping systems and roads. NYSA, on behalf
of these utilities, assists in determining the appropriate market value in order
to purchase (rather than to expropriate) privately owned property, and typically
12
<PAGE>
undertakes all aspects of the acquisition (including legal matters). In July
1997, the Company commenced acquiring a 51% equity interest in NYSA for
$125,508.
Ingesis
In August 1997, the Company commenced acquiring a 70% interest in
Ingesis, S.A. in consideration for $101,032. Ingensis is a computer software
company located in Santiago, Chile that has developed a system that utilizes a
digital signature generated by encrypting a logarithm on a computer chip, which
has been approved by the Chilean Internal Revenue Service as a replacement for
the current system of tracking and auditing the collection of value added taxes.
The Company intents to invest an additional $250,000 to develop and market these
products, and to help develop and implement Ingesis' business plan.
Vina Valle del Itata S.A
Vina Valle del Itata S.A. ("VVISA"), a Chilean corporation, was
organized to produce wine processing grapes originated in the area called "Valle
del Itata" located approximately 400 kilometers south of Santiago. The initial
capacity of the installation is estimated to be 1.5 million liters of wine and
this capacity is expected to double within three years. The project is sponsored
by "Fundacion Chile" which is a joint venture between International Telephone
and Telegraph (ITT) and the Chilean Government and was created to develop new
industrial and agricultural ventures in Chile. The total investment by the joint
venture in this project will be $2.5 million of which $1 million will be used
for working capital. Banks and governmental Institutions will either finance or
guarantee 80% of these amounts. The Company currently owns a 31% share in
VVISA and has invested $85,325 to date. The installation was ready for operation
in March 1998 in time to process the 1998 vintage.
Vina "Rincon del Nuble"
The Company purchased 670 acres near Chillan for $1,073,000, of which
$685,292 was paid during 1997 and the balance is due on May 3, 1998. During
1997, the Company commenced a program to plant 430 acres of vineyard from 1997
to 1999. The first harvest is expected during March 2000 and full production
will be attained three years later. The Company intends to sell up to 25% share
of the vineyard, mainly to selected strategic partners and to certain of its
employees and workers.
MARKETING AND SALES
The Company's marketing and sales efforts are currently undertaken by
management, the Company's in-house engineers and other technical employees. A
substantial amount of the Company's marketing is accomplished by word of mouth,
personal contact, leads, and solicitation. The Company also uses written
marketing materials, including brochures, and does limited advertising in trade
journals and publications in Chile.
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COMPETITION
Core Business
The Company believes that each aspect of its business is competitive
and that competition is based not only on price but also on quality of service.
The Company's competitors include a number of international companies with local
offices in Santiago, Chile which consists of an administrative staff who, in
certain instances, are not engineers. While these larger competitors may bid on
the same projects as the Company, and although there can be no assurances that
the offers will be competitive, the Company believes that it has and will
continue to participate effectively in the bid process. To the Company's
knowledge, the majority of its competitors rely on the engineering expertise of
local subcontractors (such as the Company) or on engineering companies located
abroad.
The Company believes that in the past, it has demonstrated the ability
to seek and enter into relationships with those manufacturers whose products are
most competitively priced, not only in terms of dollars, but also in terms of
overall product efficiency and support for specific projects. Moreover, the
Company has been successful in helping to put together consortiums of
manufacturers, in order to quote large multi-faceted projects. Nonetheless, the
Company believes that each area of the new projects and investments in which the
Company intends to become involved is highly competitive.
A number of the Company's competitors may be larger, better
capitalized, and may have more experienced management and may have greater
access to resources, which may be necessary to produce a competitive advantage.
Recent Equity Investments
The Company has only recently entered into new equity ventures, the
majority of which are outside the scope of its core business. Accordingly, a
number of the Company's competitors in these ventures are larger, better
capitalized, and may have more experienced management and may have greater
access to resources, which may be a competitive advantage.
GOVERNMENT REGULATIONS
Generally
The Company's business is subject to the full range of governmental
regulation and supervision generally applicable to companies engaged in business
in Chile, including labor laws, social security laws, public health,
environmental laws, securities laws and anti-trust laws.
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<PAGE>
Environmental Regulations
Bayesa's agreement with ESSAN for the Bayesa Project provides that
certain water, once treated at the Bayesa Project, will be disposed of in the
ocean. In order for the Bayesa Project to discard this water into the ocean, the
amount of contaminants remaining must meet the requirements mandated by Chilean
environmental laws.
FOREIGN INVESTMENT LAWS AND REGULATIONS
The Chilean Constitution establishes that any Chilean or foreigner may
freely develop any activity in Chile so long as the activity in Chile does not
contravene existing laws dealing with public morals, public safety or national
security and follows the law that regulate such activity. It also establishes
the principle of non-discrimination, thus guaranteeing foreign investors equal
protection under Chilean law. Additionally, Chilean law prohibits any
discretionary acts by the Chilean government or other entities against the
rights of persons or property in derogation of this principle. Foreign investors
may transfer capital and net profits abroad. There are no exchange control
regulations which restrict the repatriation of the investment or earnings except
that the remittance of capital may take place starting a year after the date the
funds were brought into the country, but net profits can be remitted at any
time, after deduction of applicable withholding income taxes. Therefore, equity
investments in Chile by persons who are not Chilean residents follow the same
rules as investments made by Chilean citizens.
These principles are the basis for the DL 600. See "Dividend Policy."
Based on DL 600, the foreign investor and the government sign a legally-binding
investment contract which may only be modified by mutual consent. The contract
sets forth the current tax and foreign exchange laws as each relates to the
specific investments by that investor in Chile. Thus, the investor is protected
against any subsequent changes in the law which could adversely affect the
investor or his investments in Chile. Although the Chilean Government has been
successful in keeping this principle in place for the last 23 years, there is no
case regarding unilateral breach of an investment contract by the Government and
there can be no assurances that a breach by the Government will not occur in the
future or that it would not adversely affect the rights of the Company to do
business in Chile. Moreover, while there has been no precedent that political
changes had determined changes in these rules, no assurances can be made that
such changes will not occur in the future.
FOREIGN CORRUPT PRACTICES ACT
Substantially all of the Company's operations are transacted in South
America. To the extent that the Company conducts operations and sells its
products outside the U.S., the Company is subject to the Foreign Corrupt
Practices Act which makes it unlawful for any issuer to pay or offer to pay, any
money or anything of value to any foreign official, foreign political party or
official thereof or any candidate for foreign political office ("Foreign
Officials") or any person with knowledge that all or a portion of such money or
thing of value will be offered, given, or promised, directly or indirectly, to
any Foreign Official.
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<PAGE>
The Company has not made any offers, payments, promises to pay, or
authorization of any money or anything of value to any Foreign Official and has
implemented a policy to be followed by its officers, directors, employees and
anyone acting on its behalf, that no such payments can and will be made. The
Company has made all employees cognizant of the need for compliance with the
Foreign Corrupt Practices Act and any violation of the Company policy will
result in dismissal. Further, the Company conducts periodic reviews of this
policy with all employees to ensure full compliance.
EMPLOYEES
As of December 31, 1997, the Company employed 43 full-time employees,
eight of whom are managers/engineers and 35 of whom are administrative or
workers. Employees of the Company are not represented by labor unions. The
Company considers its relationship with its employees to be good. At its Boca
Raton, Florida office, the Company employs one person in management and one
administrative assistant.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases approximately 4,300 square feet of office in
Santiago, Chile, at a monthly rate of $7,398.00 per month. The lease commenced
on November 1, 1997 and will terminate on October 30, 2005. The Company also
leases approximately 1,600 square feet of office space in Boca Raton, Florida at
a monthly rate of $3,300.00 The lease commenced on November 1, 1997 and will
terminate on October 31, 2000.
The Company, through INA, currently owns land for future developments,
however, the land is limited in its capacity to be subdivided by local Chilean
regulations. The land is located near Villarrica in the south of Chile and
consists of approximately 107.75 acres of non-irrigated land, which is
classified as non-performing property ("Villarrica Land"). As of December 31,
1997, the book value of the land was $789,447 and had outstanding mortgages of
$149,074. Subject to shareholder approval, as part of the consideration to be
paid to Mr. Errazuriz in connection with the purchase of his interest of CONUSA,
the Company will transfer title to this property to Mr. Errazuriz, subject to
the existing outstanding mortgage. See "1997 Investments in New Companies -
Consonni/ECESA" and "Certain Relationships and Related Transactions."
In November 1997, the Company purchased 670 acres near Chillan (Vina
"Rincon del Nuble") for $1,073,000, of which $685,292 was paid during 1997 and
the balance is due on May 3, 1998. During 1997, the Company commenced a program
to plant 430 acres of vineyard from 1997 to 1999. The first harvest is expected
during March 2000 and full production will be attained three years later. The
Company intends to sell up to 25% share of the vineyard, mainly to selected
strategic partners and certain of its employees and workers. See "1997
Investments in New Companies - Vina "Rincon de Nuble".
16
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceeding the
resolution of which, the management of the Company believes, would have a
material adverse effect on the Company's results of operations or financial
condition, nor to any other pending legal proceedings other than ordinary,
routine litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
17
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since the Company's initial public offering of its common stock, par
value $.0001 ("Common Stock") and redeemable common stock purchase warrants
("Warrants") on October 29, 1996, the Company's Common Stock and Warrants have
traded principally on the National Association of Security Dealers Automatic
Quotation - National Market System ("Nasdaq NMS") under the symbols "ADCC" AND
"ADCCW", respectively. Prior to October 29, 1996, there was no public market for
the Company's securities. The following table sets forth the high and low bid
quotations for the Common Stock and Warrants for the periods indicated, as
reported by NASDAQ. These quotations reflect prices between dealers, do not
include retail mark-ups, markdowns or commissions and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
COMMON STOCK WARRANTS
------------ --------
HIGH LOW HIGH LOW
---- --- ---- ---
1996
- ----
<S> <C> <C> <C> <C>
October 29, 1996 to December 31, 1997 6-1/4 5 2-1/4 1/8
1997
- ----
January 1, 1997 to March 31, 1997 5-7/8 4-1/8 1-9/16 7/8
April 1, 1997 to June 30, 1997 6 3-1/2 1-7/16 9/16
July 1, 1997 to September 30, 1997 5-7/16 4-1/8 1-3/8 1-25/32
October 1, 1997 to December 31, 1997 5-7/8 4-3/8 1-3/4 1-1/8
</TABLE>
On December 31, 1997, the closing bid price for the Common Stock was
$4.813, and for the Warrants was $1.688. As of December 31, 1997, the number of
record holders of the Company's Common Stock and Warrants were approximately 450
and 450, respectively.
During 1997, the Company announced that it would pay dividends of $.20
per share, based on 1997 profits in two trenches. The first tranche of $.10 per
share was paid on December 31, 1997 and the second dividend was paid on or about
April 15, 1998.
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ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
Management's Discussion and Analysis or Plan of Operation contains
various "forward looking statements" within the meeting of the Securities Act of
1933, as amended, the Securities and Exchange Act of 1934, as amended, and the
Private Securities Litigation Reform Act 1995. Such statements consist of any
statement other than a recitation of historical fact and can be identified by
the use of forward-looking terminology such as "may", "expect", "anticipate",
"estimate" or "continue" or the negative thereof or other variations thereon or
comparable terminology.
The Company cautions that these statements are further qualified by
important factors that could cause actual results to differ materially from
those contained in the forward-looking statements, that these forward-looking
statements are necessarily speculative, and there are certain risks and
uncertainties that could cause actual events or results to differ materially
from those referred to in such forward-looking statements.
The Company does not have a policy of updating or revising
forward-looking statements and thus it should not be assumed that silence by
management of the Company over time means that actual events are bearing out as
estimated in such forward-looking statements.
OVERVIEW
During 1997, the efforts of management were principally focused on the
acquisition and reorganization of selected companies that would provide a source
of stable cash flow and which assets would constitute a solid investment. See
"Business - Strategy for Equity Participation, 1997 Investments". In particular,
the Company has focused on small to medium size companies with good potential of
increasing sales and revenues in the future. Management believes that these
acquisitions and investments will have a significant impact on future earnings.
The Company's proposed acquisition of CONUSA, of which Consonni/ECESA is a
majority owned (88%) subsidiary, subject to approval by the Company's
shareholders, should significantly increase gross revenues and provide a more
constant cash flow. See "Note 15 to Notes to Financial Statements". Management
has begun to make certain management changes within Consonni/ECESA, which
includes (i) sourcing components from a wider variety of manufacturers and
thereby decreasing manufacturing cost, (ii) renegotiating bank lines to lower
finance charges, and (iii) creating a broader network of agents in order to
obtain more orders. Management believes that these changes and others that it
intends to undertake in the future should help increase the Consonni/ECESA
revenue base and produce an operational profitability in accord with the size of
the Company.
At the same time, management believes that along with the acquisition
of tangible assets, the Company has also acquired the talents of highly
qualified professionals. While the Company believes that a number of these
investments, and specifically the vineyard and the wine processing installation,
will take some years to obtain full maturity and profitability, these assets
will still generate some revenues during 1998.
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<PAGE>
In 1997, the economic crisis in Asia and particularly the investment
activity during the last quarter of 1997 had a negative impact on the Company's
operations. Most of the projects being undertaken by the Company during the last
quarter of 1997, as well as certain projects expected for the first quarter of
1998, were postponed until after June 30, 1998, which adversely affected the
Company's results of operations for the fourth quarter and had a direct impact
on the Company's 1997 results. We also failed in our estimate of increased
revenues from american sources through our subsidiary company, AEFC, which
showed unable of being profitable.
Management believes that it is taking corrective measure to mitigate or
eliminate these problems during 1998. The Company's equity investment in the
Chillan Vineyard in Chile is not expected to begin producing any profits until
2000. Management, however, considers this investment to be important because the
vineyard will be the main source of supply for the Company's wine processing and
bottling plant, in which Company currently has a 31% equity interest. See
"Business 1997 Investments in New Companies". The Company believes that creating
a captive source of supply will facilitate the production of high quality wine
as is the rule in one place. Although Management believes the world demand for
wine will continue and that these investments will generated revenue sand profit
by the end of fiscal 2000.
Notwithstanding these yearly setbacks, management believes that the
increased expenses incurred were necessary to develop the Company and to prepare
for its new phase of activities. Additionally, management also believes that
most of the extraordinary expenses were necessary to create attractive new
opportunities, even if certain of these opportunities were not profitable by
themselves. Management also believes that during 1997 and the first quarter of
1998, the markets has corrected themselves with regard to the Asian Crisis and
that during the third quarter of 1998 the activity postponed will again
commence.
PLAN OF OPERATIONS
The Company intends to increase its efforts within its core business
and will seek additional markets in Peru, Argentina and Brazil, where a number
of the Chilean companies have made investments and undertaken new energy
projects. Mr. Errazuriz will again dedicate himself to sales, leaving the
administrative war to other officers of the Company. In particular, the Company
is presently negotiating for the construction and operation of a desalination
plant in the northern area of Chile, which has one of the driest deserts in the
world. The Company, on behalf and with Pridesa S.A., is currently negotiating
with ESSAN to obtain a joint venture in the distribution of water for a
desalination plant, which the Company and Pridesa intend to build. The Company
intends to have a minority equity interest and management role in this project.
See "Business - Water Related Projects - Pridesa".
20
<PAGE>
RESULTS OF OPERATIONS
December 31, 1997 compared to December 31, 1996
Gross revenues increased from $3,423,552 in 1996 to $3,879,062 at
December 31, 1997, an increase of 13%. This increase is based on increased
contracts being generated from the Company's core business activities.
Cost of operations increased from $1,074,826 at December 31, 1996 to
$1,773,165 at December 31, 1997 or 65% due to the following two factors: (I) as
revenues increased for the period so to have the related costs of operations,
(ii) with the additional diversification in operations as a result of new
business ventures, additional personnel have been hired to meet those new needs,
even though at December 31, 1997, no significant revenues have yet been
realized.
Selling and administrative expenses increased from $781,455 at December
31, 1996 to $1,053,221 at December 31, 1997, an increase of $271,766 or 35%
which is reflective of increased activities of both the Company's core business
as well as its new ventures and projects.
Gross profits decreased from $2,348,726 at December 31, 1996 to
$2,105,897 in 1997, a decrease of $242,829 or 10%, also as a result of the items
mentioned in the aforementioned paragraph.
Net income decreased from $1,342,074 at December 31, 1996 to $937,903
at December 31, 1997, a decrease of $404,171 or 30%. This is primarily due to
the increased cost referred to above as well as a higher effective income tax
rate resulting from tax credits provided in prior years not as prevalent during
1997.
LIQUIDITY AND CAPITAL RESOURCES
December 31, 1997 compared to December 31, 1996
During the period ended in December 31, 1997, as compared to the year
ended December 31, 1996, there were significant changes in the liquidity, type
of assets, structure of debt and stockholder's equity. Management believes that
each of these changes are positive indications of the ability of the Company to
increase its stability and net positive results in the future as well as to
increase its base of steady revenues.
21
<PAGE>
Current liabilities increased from $498,217 to $1,844,578, due to
increase obligations and core business operations with banks, tied to a
short-term loan to acquire the vineyard and core business operations. The
company's current assets, however, continue to maintain a ratio of 2.5 to 1 with
respect to its current liabilities. This decrease in working capital of 13:1 to
2.5 to 1.0 is due to the increased investments in subsidiaries which are
reflected as non-current assets.
Long term liabilities of $206,071 as of December 31, 1997, is up from
182,018 due to increased liabilities for staff severance benefits, common to
Chilean business practices.
Fixed assets increased from $165,557 at December 31, 1996 to $672,875
at December 31, 1996 or $507,318 as a result of additional investment in new
office facilities and equipment and other minor items related to the new office.
Other assets have increased from $1,833,130 for the period ended on
December 31, 1996 to $5,437,585 for the period ended December 31, 1997. This
increase corresponds to the investment in new business opportunities described
earlier. See Business - "Investment in New Companies during 1997" and to the
long term promissory note due from consulting activities.
ITEM 7. FINANCIAL STATEMENTS
See "Index to Financial Statements" for a description of the financial
statements included in this Form 10-KSB.
ITEM 8. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
22
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
EXECUTIVE OFFICERS AND DIRECTORS
The directors and executive officers of ADC are as follows:
NAME AGE POSITION
- ---- --- --------
Pedro Pablo Errazuriz 61 President Chief Executive Officer
Chairman of the Board
Jose Luis Yrarrazaval 58 Vice Chairman of the Board
Secretary/Director
Mauricio G. De la Barra 34 Chief Financial Officer
Alberto Coddou 59 Director
Sergio Jimenez 62 Director
Claude Mermier 62 Director
- --------------
PEDRO PABLO ERRAZURIZ has served as Chief Executive Officer and Chairman of the
Board of Directors of the Company since October 19, 1994, and its President
since January 11, 1995. He has also served as the President, the sole Director
of Andean Export Corporation since February 9, 1995, and a Director of Andean
Engineering & Finance Corp., since its inception in July 1997. Mr. Errazuriz
founded Ingenieria Norconsult Andina, the predecessor company of INA in 1986 as
a continuation of his activities in the sales of equipment, project management
and procurement for electricity generation projects and has served as its
President since its inception and through March 20, 1995. In 1991, Mr. Errazuriz
founded E&A and served as its President since its inception through March 20,
1995. Mr. Errazuriz has also served as Chairman of the Board of Kvaerner Chile
S.A., a subsidiary of Kvaerner A.S., a Norwegian-based manufacturer of
electrical and mechanical equipment) since 1992 and as the exclusive agent for
Kvaerner Turbin A.B. (Sweden) since 1994. Since 1986, Mr. Errazuriz has acted as
an exclusive agent in Chile for Norconsult. Mr. Errazuriz received an
engineering degree from the Catholic University of Chile in 1959.
JOSE LUIS YRARRAZAVAL has been a member of the Board of Directors of ADC since
March 20, 1995 and has served as Chief Financial Officer from March 20, 1995
until January 5, 1998, when he resigned to accept the position of Vice Chairman
of the Board of the Company, effective as of January 5, 1998. He also has served
as Executive Vice President and a Director of INA and E&A since March 20, 1995.
Between November 1993 and October 1997, Mr. Yrarrazaval has served as the
General Manager of both E&A and INA, which responsibilities included all
financial matters and personnel management. From April 1988 through October
1993, Mr. Yrarrazaval served as the project manager for INA, supervising the
projects of INA. From 1973 through 1988, Mr. Yrarrazaval was a partner and
technical manager of a construction company, involved in
23
<PAGE>
the construction of industrial plants, buildings, and housing developments. He
also acted as supervisor in the construction of agro-industrial and cold storage
plants. Mr. Yrarrazaval has a civil engineering and construction degree from the
State Technical University in Santiago, Chile.
MAURICIO G. DE LA BARRA has served as Chief Financial Officer of Andean
Development Corporation since January 5, 1998. He has also served as the General
Manager of E&A and INA since October 15, 1997, where his responsibilities
include all financial matters and personnel management. Between March 1992 and
August 1997, Mr. De la Barra was an executive with the Interamerican Development
Bank (IDB) in charge of the development, financing and execution of
infrastructure projects where he also integrated a team project that designed
the framework and government regulation to increase the private investment in
the infrastructure projects. Mr. De la Barra is a civil engineer, having
received his degree from Universidad de Concepcion de Chile in 1987. He also has
received a degree in Economic Evaluation of Projects from Catholic University of
Chile in 1990 and his Master of Business Administration from the Loyola College
of the University in Maryland in 1996.
ALBERTO CODDOU has served as a member of the Board of Directors of the Company
since March 20, 1995, and as a member of the Board of Directors of E&A since
March 20, 1995. Mr. Coddou has been a partner with the law firm of Figueroa &
Coddou in Santiago, Chile since 1965. He has also been an Assistant Professor of
Law at the University of Chile, School of Law from 1959 through 1982. In May
1995, Mr. Coddou was appointed Chairman of the Board and Legal Representative of
Consorio Periodistico de Chile S.A., the owners and editors of a Chilean
newspaper called La Epoca.
SERGIO JIMENEZ has served on the Board of Directors of ADC since March 20, 1995.
Through June 1997 he was the President of the Santiago Water and Sewage Company
"EMOS". As of June 1995, Mr. Jimenez has been appointed as a member of the Board
of ENAP (Empresa Nacional del Petroleo), the Chilean oil company owned by the
government. Mr. Jimenez served as President of Edelnor S.A. from March 1990 to
March 1994. Edelnor, which generates and transmits electricity in the northern
regions of Chile, was a subsidiary of CORFO, the holding company of Chilean
state-owned companies before it was privatized in 1994. From 1990 through 1992,
Mr. Jimenez was President and Chief Executive Officer of Metro S.A., also a
subsidiary of CORFO, which operates the Santiago subway system. Mr. Jimenez is
also a partner and Managing Director of Consultora Jimenez y Zanartu Limitada,
which consults on engineering projects for segments of the Chilean government
related to public works. Mr. Jimenez is a civil engineer, having received his
degree from the University of Chile, in Santiago and has a post graduate degree
in Project Evaluation from the University of Chile.
CLAUDE MERMIER has served on the Board of Directors of ADC since March 20, 1995.
Mr. Mermier has served as the Chairman of the Board of INA since March 20, 1995.
Mr. Mermier has also served as Chairman of Igenor Ingenierie & Gestion S.A., a
principal shareholder of the Company, since its inception in March 1992. Since
1979, Mr. Mermier has been the President of Compagnie Financiere pour le
Commerce Exterieur S.A., a Swiss company involved in property development
throughout Europe.
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<PAGE>
Directors are elected at the Company's annual meeting of shareholders
and serve for one year until the next annual shareholders' meeting or until
their successors are elected and qualified. Officers are elected by the Board of
Directors and their terms of office are, except to the extent governed by
employment contract, at the discretion of the Board. All of the Company's
executive officers are full-time employees of the Company. The Company pays its
Directors a fee of $1,000 per meeting attended, and reimburses all Directors for
their expenses in connection with their activities as directors of the Company.
Directors of the Company who are also employees of the Company will not receive
additional compensation for their services as directors. The Company intends to
purchase directors and officers insurance to the extent that it is available and
cost effective to do so.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has five committees: the Audit Committee, Compensation and
Investment Committee, Nominating Committee, Employee Stock Option Committee, and
the Directors Stock Option Committee. As of December 31, 1997, the members of
these committees consisted of Mr. Jose Luis Yrarrazaval, Alberto Coddou and
Sergio Jimenez. Messrs. Coddou and Jimenez are considered by the Company to be
independent directors.
The principal functions of the Audit Committees are to recommend the
annual appointment of the Company's auditors concerning the scope of the audit
and the results of their examination, to review and approve any material
accounting policy changes affecting the Company's operating results and to
review the Company's internal control procedures. The Investment and
Compensation Committee reviews and recommends investments, compensation and
benefits for the executives of the Company. The Nominating Committee seeks out
qualified persons to act as members the Company's Board of Directors. The
Employee Stock Option Committee and the Directors Stock Option Committee
administer and interpret the Company Stock Option Plan and the Directors Stock
Option Plan and is authorized to grant options pursuant to the terms of these
plans.
DIRECTORS AND OFFICERS OF THE SUBSIDIARIES
BERTA DOMINGUEZ, age 57, has served as a Director and President of Errazuriz y
Asociados Arquitectos Limitada, one of the principal shareholders of the Company
since 1990.
DAVID MAYER, age 56, has served as the President and a Director of Andean
Engineering & Finance Corp. since its inception in July 1997. Mr. Mayer has
served as a Director of Uniservice Corporation, a Florida corporation which
currently owns 29 Kentucky Fried Chicken(R)franchises in Chile.
From January 1992 to March 1996, Mr. Mayer was a consultant to Premier Artists
Services, Inc., Corporate Entertainment Productions, Inc., and Alliance
Entertainment, Inc., where he assisted the companies in the implementation of
their respective business plans and various corporate matters.
Mrs. Berta Dominguez is the wife of Mr. Pedro P. Errazuriz.
25
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires that the Company directors and executive officers, and persons who own
more than ten percent (10%) of the Company's outstanding Common Stock, to file
with the Securities and Exchange Commission (the "Commission") initial reports
of ownership and reports of changes in ownership of Common Stock. Such persons
are required by the Commission to furnish the Company with copies of all such
reports they file. The Company's knowledge, based solely on a review of the
copies of such reports furnished to the Company and written representation, as
of December 31, 1997, none of the Section 16(a) filing requirements applicable
to its officers, directors and greater than 10% beneficial owners have been
complied with, however the Company expects that all required reports shall be
filed as soon as practicable.
ITEM 10. EXECUTIVE COMPENSATION AND EMPLOYMENT AGREEMENTS
The following table sets forth compensation awarded to, earned by or
paid to the Company's Chief Executive Officer and each executive officer whose
compensation exceeded $100,000 for the year ended December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS ($) COMPENSATION($)
- --------------------------- ---- --------- --------- ---------------
<S> <C> <C> <C> <C>
Pedro P. Errazuriz(1)(2) 1997 $178,130 $70,705 $20,000(3)
Chief Executive Officer 1996 $51,475 $96,000 $73,016(4)
Chairman 1995 $97,801 $92,000 $79,104(5)
Jose L. Yrarrazaval(1)(2)(6) 1997 $75,040 $35,000 $17,000(7)
Vice Chairman of the Board/ 1996 $37,419 $35,000 $32,932(8)
Treasurer/Secretary/Director 1995 $56,886 $30,000 $17,700(9)
Juan Phillips(1)(2) 1997 $75,060 $15,000 $15,000(10)
General Manager INGESIS and NYSA 1 $34,608 $40,000 $31,488(11)
1995 $48,000 $16,000 -0-
</TABLE>
- --------------
(1) Prior to the Company's public offering in November 1996, payment of the
compensation to the persons set forth above was apportioned among the
following subsidiaries and affiliated companies as follows: E&A - 35%;
INA 25%; Electromecanica Osorno S.A. - 20%, a Chilean corporation
currently owned by Errazuriz y Asociados Arquitectos Ltda. (EAA) and by
Igenor, Ingenierie et Gestion, S.A. (Igenor), each principal
shareholders of the Company; and Proyectos y Equipos, S.A. a Chilean
corporation owned by EAA, Igenor, and a family member of Mr. Pedro P.
Errazuriz, the Chief Executive Officer, President and Chairman of the
Board of ADC. See "Principal Shareholders." The proportions established
as compensation that were paid by the different companies were
arbitrarily determined, intended to minimize tax payments and to
indicate the involvement of the Company's executives in all related
companies.
(2) The gross salary includes social security and retirement benefits.
Social Security in Chile was established as a private system that
requires all companies to retain 20% of the gross salaries of its
employees which
26
<PAGE>
is used to pay both Administrators of Pension Funds Companies ("AFP")
and Institutions of Provisional Health ("ISAPRE").
The allocation of this 20% to each service is as follows:
(a) 10% to the AFP: This amount is deposited in an individual
interest-bearing account of each employee to cover their retirement. In
Chile, the age of retirement is 60 years in case of women and 65 years
for men.
(b) 3% to the AFP: This amount covers any partial or permanent
disability and, in the case of death, will provide a monthly amount to
the deceased's spouse. The amount paid corresponds to 70% of an
employee's average salary, based upon the last 10 years of the
employee's life.
Both items (a) and (b) are limited to approximately $1,700 per
month.
(c) 7% to the ISAPRE: This amount covers medical fees,
hospitalization and clinical examinations, although in many instances
it may be necessary to pay additional costs for health care.
Chilean law requires the payment of one month salary for each
year worked by the employee when he is dismissed. When the employee
terminates his or her employment, no compensation is legally required.
(3) This is allocated to an annual automobile allowance.
(4) Includes an annual allowance of $15,000 for automobile costs and
maintenance; and annual housing/vacation allowance of $10,500, $7,200
for domestic employees; and $40,316, based upon a percentage of the
profit of the Company. The profit percentage was based on approximately
3% of the total net profits of all related companies for 1996.
(5) Includes an annual allowance of $15,000 for automobile costs and
maintenance; an annual housing/vacation allowance of $10,500; $7,200
for domestic employees; and $46,404, based upon a percentage of profit
of the Company. This profit percentage was based on 2% of the total net
profits of all related companies for 1995, calculated to Chilean
accounting standards.
(6) On January 5, 1998 Mr. Yrarrazaval has resigned his position as CFO.
(7) This is allocated to an annual automobile allowance.
(8) Includes an annual allowance of $17,000 for automobile costs and
expenses, and an annual housing and vacation allowance of $15,932.
(9) This is allocated to an annual automobile allowance.
(10) This is allocated to an annual automobile allowance.
(11) Includes an annual allowance of $17,000 for automobile costs and
expenses, and an annual housing and vacation allowance of $14,488.
27
<PAGE>
EMPLOYMENT AGREEMENTS
On March 15, 1996, the Company entered into employment agreements with
Messrs. Pedro P. Errazuriz, Jose Luis Yrarrazaval, and Juan Phillips. Each of
the employment contracts are for one year, which agreements may be automatically
renewed. The salaries and social security benefits will not be less than those
for fiscal year 1995, which shall be determined by the Company's Board of
Directors. Additionally, these individuals will also be entitled to a bonus, as
determined by the Company's Board of Directors.
Additionally, on September 15, 1998 the Company entered into a one year
employment agreement with Mr. Mauricio G. de la Barra, which may be
automatically renewed. Mr. De la Barra's base salary is $60,000 plus bonuses of
approximately $36,000. Mr. De la Barra is also entitled to social security
benefits.
INCENTIVE AND NON-QUALIFIED STOCK OPTION PLANS
Pursuant to the Company's Stock Option Plan (the "Stock Option Plan")
and Directors Stock Option Plan (the "Directors Plan"), 175,000 shares of Common
Stock and 75,000 shares of Common Stock, respectively, are reserved for issuance
upon exercise of options. The Plans are designed to serve as an incentive for
retaining qualified and competent employees and directors. Both the Stock Option
Plan and the Directors Plan apply to Andean Development Corporation and each of
its subsidiaries. Only non- employee directors are eligible to receive options
under the Directors Plan.
The Company's Board of Directors, or a committee thereof, administers
and interprets the Stock Option Plan and is authorized to grant options
thereunder to all eligible employees of the Company, including officers and
directors (whether or not employees) of the Company. The Stock Option Plan
provides for the granting of "incentive stock options" (as defined in Section
422 of the Internal Revenue Code), non-statutory stock options and "reload
options." Options may be granted under the Stock Option Plan on such terms and
at such prices as determined by the Board, or a committee thereof, except that
in the case of an incentive stock option granted to a 10% shareholder, the per
share exercise price will not be less than 110% of such fair market value. The
aggregate fair market value of the shares covered by incentive stock options
granted under the Plans that become exercisable by a grantee for the first time
in any calendar year is subject to a $100,000 limit.
The purchase price for any option under the Stock Option Plan may be
paid in cash, in shares of Common Stock or such other consideration that is
acceptable to the Board of Directors or the committee thereof. If the exercise
price is paid in whole or in part in Common Stock, such exercise may result in
the issuance of additional options, known as "reload options," for the same
number of shares of Common Stock surrendered upon the exercise of the underlying
option. The reload option would be generally subject to the same provisions and
restrictions set forth in the Stock Option Plan as the underlying option except
as varied by the Board of Directors or the committee thereof. A reload option
enables the optionee to ultimately own the same number of shares as the optionee
would have owned if the optionee had exercised all options for cash.
28
<PAGE>
The Company initially intended that the Directors Plan would provide
for an automatic grant of an option to purchase 3,000 shares of Common Stock
upon a person's election as a director of the Company and an automatic grant of
an option to purchase 3,000 shares of Common Stock at each annual meeting
through which a director's term continues. Subsequently, the Company determined
that the issuance of options pursuant to the Directors Plan would be undertaken
by resolution of the Board of Directors.
Options granted under the Stock Option Plan will be exercisable after
the period or periods specified in the option agreement, and options granted
under the Directors Plan are exercisable immediately. Options granted under the
Plans are not exercisable after the expiration of five years from the date of
grant and are not transferable other than by will or by the laws of descent and
distribution. The Plans also authorize the Company to make loans to optionees to
enable them to exercise their options.
While the Company previously had intended to issue options As of
December 31,1997, the Company has not granted any options to purchase shares of
Common Stock under its Stock Option Plan and Directors Plan.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 1997, the number of shares of
Common Stock which were owned beneficially by (i) each person who is known by
the Company to own beneficially more than 5% of its Common Stock, (ii) each
director, (iii) each executive officer and (iv) all directors and executive
officers as a group. As of December 31, 1997, there were 2,820,100 shares issued
and outstanding.
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME AND ADDRESS OF AMOUNT AND NATURE OF OUTSTANDING
BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP (2) SHARES OWNED(3)
- ------------------- ------------------------ ---------------
<S> <C> <C>
Pedro P. Errazuriz(4) 450,100 15.96%
President, CEO and
Chairman of the Board
Jose Luis Yrarrazaval -0- -0-
Chief Financial Officer, Treasurer,
Secretary and Director
Alberto Coddou, Director(5) -0- -0-
Sergio Jimenez, Director
Claude Mermier, Director(6)(7) 2,250 Less than 1%
All directors and executive officers 452,350 16.04%
As group (five persons)
Igenor, Ingenierie et Gestion, S.A.,
a Swiss corporation(6)(8) 900,000 31.91%
Errazuriz y Asociados 600,000 21,28%
Arquitectos, Limitada ,
</TABLE>
29
<PAGE>
<TABLE>
<S> <C> <C>
a Chilean limited partnership(9)
Berta Dominguez(10)791,250 791,250 28.06%
</TABLE>
- --------------
(1) Unless otherwise indicated, the address of each beneficial owner is
Avenue Americo Vespucio 100, piso 16, Santiago, Chile.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date hereof upon
exercise of option and warrants. Each beneficial owner's percentage
ownership is determined by assuming that option and warrants that are
held by such person (but not those held by any other person) and that
are exercisable within 60 days from the date hereof have been
exercised.
(3) Does not give effect to the exercise of warrants or options into shares
of Common Stock.
(4) Includes shares of Common Stock owned by Igenor, Ingenierie et Gestion,
S.A. of which Mr. Errazuriz owns 50% of the outstanding equity and 100
shares of Common Stock were issued to him on October 19, 1994.
(5) The address is Santa Lucia 280-OF. 12, Santiago, Chile.
(6) The address is c/o Etude Montavon-Mermier, 22, rue Etienne Dumont, 1211
Geneve 3, Switzerland.
(7) M. Mermier owns a 0.25% interest in Igenor, Ingenierie & Gestion, S.A.
(8) This is a company organized pursuant to Swiss law. Based upon
information provided to us by this company, the shareholders of this
company are Mr. Pedro P. Errazuriz (50%), the President, Chief
Executive Officer and Chairman of the Board of ADC; Ms. Berta Dominguez
(49%), the wife of Mr. Errazuriz and the Chairman, Chief Executive
Officer and director of E&A; Mr. Pedro Pablo Errazuriz, a son of Mr.
Errazuriz and his wife (0.25%); Mr. Claude Mermier (0.25%), a director
of Andean Development Corporation; and Pierre Yves Montavon (0.25%), an
unrelated third party.
(9) The partners are Ms. Berta Dominguez (58%), and the six children of Mr.
Pedro P. Errazuriz and Ms. Dominguez, who each owns a 7% interest and
who are (i) Pedro Pablo Errazuriz Dominguez, (ii) Berta Errazuriz
Dominguez, (iii) Magdalena Errazuriz Dominguez, (iv) Juan Andres
Errazuriz Dominguez, (v) Felipe Errazuriz Dominguez, and (vi) Arturo
Errazuriz Dominguez. During first quarter of 1998, but effective
December 31, 1998 the shares owed by EAA will be transferred to IIG.
(10) Mrs. Dominguez owns 49,25% of Igenor, Ingenierie et Gestion, S.A. and
58% interest in Errazuriz y Asocioados Arquitectos, Ltda. She is the
wife of Mr. Errazuriz, the President, CEO and Chairman of ADC.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Aguas y Ecologia S.A. (A&E)
During 1995 the Company acquired a 45% interest in A&E, which equals a
4.5% interest in the Bayesa Project. See "Business - Water Projects." The
interest was acquired from an affiliate of the Company, Invdemco, which is a
Chilean investment company. Immediately following the Company's initial public
offering in November 1996, the Company has purchased an additional 22.5%
interest in A&E from shares held by Invdemco,
30
<PAGE>
which translates into an additional 2.25% interest in the Bayesa Project, for
$141,750. The shareholders of Invdemco are (i) Mr. Pedro P. Errazuriz (50%),
President, CEO, and Chairman of the Board of the Company, ADC, (ii) Berta
Dominguez, the wife of Mr. Errazuriz and Director and President of E & A, one of
the principal shareholders of the Company (45%); (iii) and Berta Errazuriz (5%),
a daughter of Mr. Errazuriz and Mrs. Dominguez. As of August 1, 1997, the
Company owned a 6.7% interest in the Bayesa Project.
Villarrica Property
In November 1996, the Company sold to Invdemco a non-performing asset
of the Company consisting of a house located near Villarrica, Chile in the south
of Chile, situated on approximately 13.5 acres (the "Villarrica Property").
Invdemco paid $606,031.50, (50% of the purchase price) of the Villarrica
Property in cash at closing, with the balance being paid in four annual
installments of principal together with interest at the rate of 8-1/2% on the
unpaid balance, commencing January 15, 1998, which first installment payment has
been paid. See "Note 5 to Notes to Financial Statements." Subject to shareholder
approval, as part of the consideration to be paid to Mr. Errazuriz in connection
with the purchase of his 77% in Consonni/ECESA, the Company will forgive the
debt due to the Company by Invdemco in connection with the sale of the
Villarrica Property. See "Consonni/ECESA."
Villarrica Land
The Company, through INA, currently owns land for future developments,
however, the land is limited in its capacity to be subdivided by local Chilean
regulations. The land is located near Villarrica in the south of Chile and
consists of approximately 107.75 acres of non-irrigated land, which is
classified as non-performing property (Villarrica Land). As of December 31,
1997, the book value of the land was $789,447 and had outstanding mortgages of $
149,074. Subject to shareholder approval, as part of the consideration to be
paid to Mr. Errazuriz in connection with the purchase of his 77% interest of
Consonni/ECESA. See "Consonni/ECESA".
Proyectos y Equipos S.A. and Electromecanica Osorno S.A.
EAA and Igenor, the principal shareholders of the Company, also own, in
the aggregate, controlling interest in Proyectos y Equipos S.A. and
Electromecanica Osorno S.A., two Chilean corporations located in Santiago,
Chile. These companies specialize in the sale of air compressors and ventilators
and related products and small electrical equipment, respectively. The Company,
from time to time, intends to enter into agreements with these companies to
perform certain services, based upon competitive bids received from these
companies.
Consonni/ECESA
In May 1997, Mr. Pedro Errazuriz, the Company's CEO, President and
Chairman of the Board, acquired a 20% interest in Consonni/ECESA from unrelated
third parties, increasing his
31
<PAGE>
equity interest in Consonni/ECESA to 77%. Consonni/ECESA are Spanish
corporations that market, manufacture, distribute and sell motor control centers
and switchgear. In June and July 1997, the Company purchased an 11% equity
interest in Consonni/ECESA for approximately $671,000 from unrelated third
parties. See "Business - 1997 Investment in New Companies."
Subsequently, during August 1997, Mr. Errazuriz, on behalf of his
interest of 77% and the 11% interest owned by the Company, entered into a share
exchange agreement with CONUSA, whereby the 88% interest of Consonni/ECESA owned
by Mr. Errazuriz and the Company was exchanged for 2,300,000 shares of CONUSA
common stock (representing approximately a 76.7% interest in CONUSA, or a 67.5%
owned by Mr. Errazuriz and a 9.2% interest owned by the Company). CONUSA has
applied for inclusion of its common stock on the OTC Bulletin Board, which is a
limited market and intends to apply for inclusion on the National Association of
Security Dealers Automated Quotation (Nasdaq) SmallCap Market System at such
time as CONUSA meets the necessary listing requirements.
Effective December 31, 1997, but subject to shareholder approval, which
approval shall be sought at the Company's 1997 Annual Shareholders' Meeting to
be held as soon as practicable, the Company will enter into an agreement whereby
Mr. Errazuriz shall sell his 77% interest in CONUSA to the Company for
approximately $4.3 million, which shall be payable as follows (i) approximately
$212,000 in forgiveness of loans made by the Company to Mr. Errazuriz,; (ii)
250,000 shares of Series A Preferred Stock, to which holders shall be entitled
to nine votes for each one share of Class A Preferred Stock held, valued at
approximately $1,203,250, based on the closing bid price of $4.183 of the
Company's common stock as of December 31, 1997, (iii) 50,000 shares of Company
Common Stock, valued at approximately $240,650, based on the closing bid price
of $4.183 as of December 31, 1997, (iv) the "Villarrica Land," currently valued
at approximately $789,450 (as described under "Properties" and "Certain
Relationships and Related Transactions"), subject to the outstanding mortgages,
(v) the "Villarrica Property," valued at approximately $494,000 (as described
under "Certain Relationships and Related Transactions"), and (vi) the El Peral
Property receivable due to the Company for its advisory services, at $1,339,000.
See "Certain Relationships and Related Transactions." and "Notes to Financial
Statements." The Company has previously represented Consonni/ECESA as its
representative in Chile.
32
<PAGE>
Transactions Between the Company and its Officers, Directors and Affiliates
In May 1997, the Company loaned Mr. Errazuriz the principal sum of
$200,000, plus interest at an annual rate of 8%. These funds were used by Mr.
Errazuriz to purchase a 20% interest in Consonni/ECESA. As part of the proposed
purchase by the Company of Mr. Errazuriz' 77% interest in Consonni, the Company
will forgive this obligation (plus accrued interest) of appropriately $212,000.
See "Consonni/ECESA."
Mr. Pedro P. Errazuriz is a member of the Board of Directors and had
power of attorney for Kvaerner Chile, S.A. and Kvaerner Hydro, Agencia de
Kvaerner Turbin Aguas y Ecologia, S.A., corporations each involved in the
manufacturing and selling of electrical materials. Mr. Errazuriz has resigned
from the Board of Directors and has relinquished his power of attorney.
All transactions between the Company and its officers, shareholders and
each of their affiliated companies have been made on terms no less favorable to
the Company than those available from unaffiliated parties. In the future, the
Company intends to handle transactions of a similar nature on terms no less
favorable to the Company than those available from unaffiliated parties.
PART IV
EXHIBITS AND REPORTS ON FORM 8-K
The following documents are filed as a part of this report or are incorporated
by reference to previous filings, if so indicated:
(a) EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
1.1 Form of Underwriting Agreement(1)
1.1(a) Revised Form of Underwriting Agreement(1)
1.1(b) Revised Form of Underwriting Agreement(1)
1.1(c) Revised Form of Underwriting Agreement(1)
1.2 Revised Form of Agreement Among the Representatives(1)
1.2(b) Revised Form of Agreement Among Representatives(1)
1.2(c) Revised Form of Agreement Among Underwriters(1)
1.3 Revised Form of Selling Group Agreement(1)
1.3(a) Selected Dealers Agreement(1)
1.3(b) Form of Selected Dealers Agreement(1)
2.1(a)(i) Share Exchange Agreement between the Shareholders of Errazuriz
y Asociados Ingenieros S.A. and the Company(1)
33
<PAGE>
2.1(a)(ii) First Modification to Share Exchange Agreement between the
Shareholders of Errazuriz y Asociados Ingenieros S.A. and the
Company dated June 15, 1995(1)
2.1(a)(iii) Second Modification to Share Exchange Agreement between the
Shareholders of Errazuriz y Asociados Ingenieros S.A. and the
Company dated June 30, 1995(1)
2.1(b)(i) Share Exchange Agreement between the Shareholders of Igenor
Andina S.A. and the Company(1)
2.1(b)(ii) First Modification to Share Exchange Agreement between the
Shareholders of Igenor Andina, S.A. and the Company dated June
15, 1995(1)
2.1(b)(iii) Second Modification to Share Exchange Agreement between the
Shareholders of Igenor Andina, S.A. and the Company dated June
30, 1995(1)
3.1(a) Company's Amended and Restated Articles of Incorporation(1)
3.1(b) Articles of Incorporation for Andean Engineering & Finance
Corporation(2)
3.1(c) Articles of Incorporation and Corporation Bylaws for ADC
Andean, S.A., a Swiss corporation(2)
3.2 Company's Revised Amended and Restated Bylaws(1)
3.2(b) Andean Engineering & Finance Corporation Bylaws(2)
4.1 Form of Warrant Agreement together with the form of Warrant
Certificate(1)
4.1(a) Revised Form of Warrant Agreement together with the form of
Warrant Certificate(1)
4.2 Revised Form of Representatives' Warrant Agreement together
with the revised Form of Representatives' Purchase Warrant
Certificate(1)
4.2(a) Form of Representatives Warrant and Registration Rights
Agreement together with the revised Form of Representatives'
Purchase Warrant Certificate(1)
4.2(b) Revised Form of Representative's Warrant Agreement together
with the revised Form of Representative's Purchase Warrant
Certificate(1)
4.3 Specimen of Common Stock Certificate.(1)
4.4 Specimen of Warrant Certificate (to be included in the revised
Form of Warrant Agreement in Exhibit 4.1(a) (1)
4.4(b) Specimen of Warrant Certificate (to be included in the revised
Form of Warrant Agreement in Exhibit 4.2(b)) (1)
4.5 Form of Bridge Warrants(1)
10.1 Stock Option Plan(1)
10.1(a) Revised Stock Option Plan(1)
10.2 Directors Stock Option Plan(1)
10.2(a) Revised Directors Stock Option Plan(1)
10.3 Representation Agreement between Biwater and Errazuriz y
Asociados Ingenieros Ltda.(1)
10.4 Agreement between ESSAN and Bayesa for the Final Disposal of
the Antofagasta Sewage (New translation with Appendices No.
1-5 but without maps)(1)
10.5 Decree from the Municipality of Macul awarding the Land Grant
to Igenor Andina S.A.(1)
10.6 Agreement Between the Municipality of Macul and Igenor Andina
S.A. for the Land Grant (New translation)(1)
34
<PAGE>
10.7 Agreement between Igenor Andina, S.A. and the owner of the
restaurant "Donde la Cuca" to be located at the Macul Park
(in English)(1)
10.8 Agreement between Canales, Errazuriz, Rodriguez, Arquitectos
Asociados and TDS International concerning designing and
consulting services for the Macul Project.(1)
10.9 Agreement between Capullo S.A. and Igenor Andina S.A. in
Connection with the Capullo Hydroelectric Plant(1)
10.10 Form of Agreement Between Inversiones y Desarrollo Demco S.A.
("Invdemco") and Igenor Andina Sociedad Anonima to Exchange
the Interest of Invdemco in Aguas y Ecologia S.A. for Certain
and Real Property Near Villarrica, Chile(1)
10.11 Protocolization Request - Final Reception Certificate No. 61
for the Villarrica Property(1)
10.12 Lease Agreement between Juan Carlos Marti Medina, landlord,
and Norconsult International A.S., tenant dated September 16,
1992(1)
10.13 Revised Employment Agreement between Andean Development
Corporation and Pedro Pablo Errazuriz, President and CEO of
ADC, and Messrs. Jose Luis Yrarrazaval Torrealba, Juan
Phillips Davila, Gonzalo Cordua Hoffman, Juan Andres Errazuriz
Dominguez and Pedro Pablo Errazuriz Ossa, dated March 15,
1995(1)
10.14 Employment Agreement between Ingenieria Norconsult Andina
Limitada and Jose Luis Yrarrazaval Torrealba dated November 3,
1993 (in English)(1)
10.15 Employment Agreement between Errazuriz y Asociados Ingenieros
Limitada and Juan Phillips Davila dated November 2, 1993
(in English)(1)
10.16 Employment Agreement between Ingenieria Norconsult Andina
Limitada and Gonzalo Cordua Hoffman dated August 1, 1993
(in English)(1)
10.17 Employment Agreement between Ingenieria Norconsult Andina
Limitada and Juan Andres Errazuriz Dominguez dated October 11,
1993 (in English)(1)
10.18 Employment Agreement between Errazuriz y Asociados Arquitectos
Limitada and Pedro Pablo Errazuriz Ossa dated January 1, 1992
(in English)(1)
10.19 Letter from Westinghouse Electric Corporation to the Company
acknowledging the parties' intent for the Company to act as an
agent for Westinghouse for certain projects in Chile dated
July 31, 1995.(1)
10.19(a) Special Sales Representative Agreement between Westinghouse
Electric Company S.A. and Errazuriz Y Asociados Ingenieros
S.A.(1)
10.20 Credit Line Agreement between Bayesa and Banco Security in
connection with the Bayesa Project dated July 19, 1995.(1)
10.21 Commitment by Sociedad de Inversiones El Rincon S.A. to pay
its remaining contribution of 20% in Inversiones Tiempo Libre
S.A. dated April 26, 1995.(1)
10.22 Commitment by Inversiones Zukunft Ltda. to pay its remaining
contribution of 34% in Inversiones Tiempo Libre S.A. dated
April 26, 1995.(1)
10.23 Commitment by Margarita Maria Errazuriz to pay her remaining
contribution of 13% in Inversiones Tiempo Libre S.A. dated
April 26, 1995.(1)
10.24 Contract with Westinghouse.(1)
10.25 Contract with Mitsuishi.(1)
35
<PAGE>
10.26 Contract between Invdemco and Company for Villarrica
Property.(1)
10.27 Revised Shareholder Exchange Agreement(1)
10.28 Form of Financial Advisory Agreement(1)
10.29 Form of Merger and Acquisition Agreement(1)
10.30 Share Exchange Agreement between Consonni USA, Inc. and Pedro
Pablo Errazuriz Ossa dated August 15, 1997(2)
21 Subsidiaries of Registrant(1)
23.1 Consent of Independent Auditors(2)
27 Financial Data Schedule(2)
- ------------------------
(1) Incorporated by reference from the Registrant's Registration Statement,
as amended, on Form SB-2 filed with the Securities and Exchange
Commission and declared effective on October 29, 1996.
(2) Filed herewith
(b) Reports on Form 8-K : None.
36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Andean Development Corporation has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Andean Development Corporation
By: /S/ PEDRO P. ERRAZURIZ
---------------------------------
Pedro P. Errazuriz, President, Chief
Executive Officer,
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/S/ PEDRO P. ERRAZURIZ
- ---------------------- Director, President, April 13, 1998
Chief Executive Officer,
</TABLE>
37
<PAGE>
INDEX TO FINANCIAL STATMENTS
F-1
<PAGE>
[SPEAR, SAFER, HARMON & CO. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and Shareholders of
Andean Development Corporation
Boca Raton, Florida
We have audited the accompanying consolidated balance sheets of Andean
Development Corporation (the "Company") as of December 31, 1997 and 1996 and the
related consolidated statements of income, shareholders' equity and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Andean
Development Corporation as of December 31, 1997 and 1996 and the consolidated
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/S/ SPEAR, SAFER, HARMON & CO.
- ------------------------------
SPEAR, SAFER, HARMON & CO.
Miami, Florida
February 5, 1998
F-2
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
Consolidated Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
A S S E T S
1997 1996
-------------- -------------
<S> <C> <C>
Current Assets:
Cash $ 324,556 $ 168,156
Short-term investments 528,575 3,598,760
Accounts receivable 3,205,385 2,912,723
Due from related parties 520,000 17,072
Deferred income taxes - 4,589
Other current assets 118,038 140,010
-------------- -------------
Total Current Assets 4,696,554 6,841,310
-------------- -------------
Furniture and Equipment, net 672,875 165,557
-------------- -------------
Other Assets:
Undeveloped real estate, held for investment 789,447 789,447
Note receivable from related party 606,031 606,031
Note receivable - other 1,339,766 -
Deferred income taxes - 5,501
Investment in unconsolidated subsidiaries 1,629,998 425,250
Other assets 1,072,343 6,901
-------------- -------------
5,437,585 1,833,130
-------------- -------------
$ 10,807,014 $ 8,839,997
============== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
Consolidated Balance Sheets (Continued)
December 31, 1997 and 1996
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
1997 1996
-------------- -------------
<S> <C> <C>
Current Liabilities:
Obligations with banks $ 576,756 $ -
Current portion of long-term debt 30,320 39,578
Accounts payable 767,155 262,671
Due to related parties 24,264 7,562
Income taxes payable 197,022 143,451
Accrued expenses and withholdings 77,531 26,978
Current portion of staff severance indemnities 21,530 17,977
Dividends payable 150,000 -
-------------- -------------
Total Current Liabilities 1,844,578 498,217
-------------- -------------
Long-Term Liabilities:
Long-term debt, excluding current portion 118,754 145,344
Staff severance indemnities, excluding current portion 87,317 36,674
-------------- -------------
206,071 182,018
-------------- -------------
Shareholders' Equity:
Preferred stock, $.0001 par value, 5,000,000 shares
authorized, 0 shares issued and outstanding at
December 31, 1997 and 1996, respectively - -
Common stock, $.0001 par value, 20,000,000 shares
authorized, 2,820,100 shares issued and outstanding 282 282
Additional paid-in capital 5,724,320 5,724,320
Retained earnings 3,135,713 2,479,810
Cumulative translation adjustment (103,950) (44,650)
-------------- -------------
Total Shareholders' Equity 8,756,365 8,159,762
-------------- -------------
$ 10,807,014 $ 8,839,997
============== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
Consolidated Statements of Income
Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
-------------- -------------
<S> <C> <C>
Revenues from Operations:
Revenues $ 3,879,062 $ 3,423,552
Cost of operations 1,773,165 1,074,826
-------------- -------------
Gross Profit 2,105,897 2,348,726
Selling and Administrative Expenses 1,053,221 781,455
-------------- -------------
1,052,676 1,567,271
-------------- -------------
Other Income (Expenses):
Interest income 121,174 11,406
Interest expense (32,795) (325,777)
Loss on foreign currency exchange - (1,660)
Gain on sale of assets 6,031 274,715
Depreciation and amortization (67,046) (32,666)
-------------- -------------
27,364 (73,982)
-------------- -------------
Income Before Income Taxes 1,080,040 1,493,289
Income Taxes 142,137 151,215
-------------- -------------
Net Income $ 937,903 $ 1,342,074
============== =============
Net Income per Common Share $ .33 $0.81
===== =====
Weighted Average Shares Outstanding 2,820,100 1,656,859
============== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
Consolidated Statements of Shareholders' Equity
Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE TOTAL
COMMON PAID-IN RETAINED TRANSLATION SHAREHOLDERS'
STOCK CAPITAL EARNINGS ADJUSTMENT EQUITY
------------ ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 150 $ 674,122 $ 1,137,736 $ (46,091) $ 1,765,917
Additional paid-in capital
associated with detachable
stock warrants - 75,600 - - 75,600
Net income - - 1,342,074 - 1,342,074
Translation adjustment - - - 1,441 1,441
Issuance of common stock 132 6,765,000 - - 6,765,132
Costs associated with public
offering charged to capital
at effective date (1,790,402) - - (1,790,402)
------------ ------------ ----------- ------------ -------------
Balance at December 31, 1996 282 5,724,320 2,479,810 (44,650) 8,159,762
Net income - - 937,903 - 937,903
Dividends declared - - (282,000) - (282,000)
Translation adjustment - - - (59,300) (59,300)
------------ ------------ ----------- ------------ -------------
Balance at December 31, 1997 $ 282 $ 5,724,320 $ 3,135,713 $ (103,950) $ 8,756,365
============ ============ =========== ============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
Consolidated Statements of Cash Flows
Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
-------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 937,903 $ 1,342,074
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 67,046 32,666
Deferred taxes 10,090 24,387
Gain on sale of fixed assets (6,031) (18,923)
Gain on sale of property held for sale - (255,792)
Translation adjustment (59,300) 1,441
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (292,662) (1,509,722)
Other current assets 21,972 37,479
Note receivable (1,339,766) -
Other assets (1,065,442) (4,560)
Increase (decrease) in:
Accounts payable 504,484 (121,611)
Provision for severance indemnity 54,196 13,936
Accrued expenses and withholdings 50,553 (12,621)
Income taxes payable 53,571 107,437
-------------- -------------
Net Cash Used in Operating Activities (1,063,386) (363,809)
-------------- -------------
Cash Flows from Investing Activities:
Purchase of fixed assets (581,961) (134,694)
Improvements on real estate held for investment - (60,530)
Proceeds from sale of fixed assets 13,628 48,704
Proceeds from sale of subsidiaries - 194,359
Proceeds from sale of property - 616,217
Investment in unconsolidated subsidiaries (1,204,748) (141,750)
Proceeds from (investment in) short-term investments 3,070,185 (3,580,399)
-------------- -------------
Net Cash Provided by (Used in) Investing Activities 1,297,104 (3,058,093)
-------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
Consolidated Statements of Cash Flows (Continued)
Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
-------------- -------------
<S> <C> <C>
Cash Flows from Financing Activities:
Payment of public offering cost $ - $ (1,790,402)
Advances to related parties (486,226) (136,070)
Proceeds from (payments on) notes payable to bank 576,756 (367,658)
Principal payments on long-term debt (44,847) (709,118)
Principal borrowings on long-term debt 8,999 -
Proceeds from issuance of common stock - 6,765,132
Dividends paid (132,000) (300,000)
Proceeds from bridge loan - 65,000
Repayment of bridge loan - (65,000)
Proceeds from issuance of detachable stock warrants - 75,600
-------------- -------------
Net Cash (Used in) Provided by Financing Activities (77,318) 3,537,484
-------------- -------------
Net Increase in Cash 156,400 115,582
Cash at Beginning of Year 168,156 52,574
-------------- -------------
Cash at End of Year $ 324,556 $ 168,156
============== =============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest $ 32,795 $ 169,854
Cash paid during the year for taxes 97,023 7,764
Supplemental Disclosure of Non-Cash Investing Activities:
Note received from sale of property - 606,031
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
Notes to Consolidated Financial Statements
Years Ended December 31, 1997 and 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Andean Development Corporation, (the "Company"), is
a Florida corporation incorporated on October 19, 1994. The
Company is in the business of providing engineering, technical
assistance and equipment in the development of specialized
projects throughout the country of Chile and more recently in Peru
and Argentina. In November 1996, the Company completed the sale of
1,320,000 shares of its stock to the public in an initial public
offering.
BASIS OF PRESENTATION - The accompanying consolidated financial
statements include the accounts of the Company, and its
wholly-owned subsidiaries, Errazuriz y Asociados Ingenieros, S.A.
and Igenor Andina, S.A., two Chilean service corporations, Andean
Engineering and Finance Company, a Boca Raton Management Company
and Andean Development Corp. - Suisse. All significant
intercompany balances and transactions have been eliminated in
consolidation. In addition, the Company has investments in the
following unconsolidated entities:
OWNERSHIP METHOD OF
SUBSIDIARY PERCENTAGE ACCOUNTING
---------- ---------- ----------
Aguas y Ecologia, S. A. (A & E) 67.5 Equity
Vinedos Valle del Itata, S. A. 31.5 Equity
Bodegas Rincon del Nuble, S. A. 75.0 Equity
The Company's proportionate share of income or loss is not
included in the accompanying statements of income as the financial
statements are unavailable and impracticable to produce at this
time. Once finalized, the financial statements of the above are
not expected to have a material impact on these consolidated
financial statements.
The following table reflects the revenue, net income and
intercompany transactions for the previously separate entities
(Errazuriz y Asociados Ingenieros, S.A. and Igenor Andina, S.A.)
prior to the business combination.
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Revenues:
Errazuriz y Asociados $ 885,992 $ 848,237
Igenor Andina 1,579,848 1,243,015
Revenues shared by the two firms
outside of Chile 1,413,222 1,332,300
-------------- --------------
Total Revenues $ 3,879,062 $ 3,423,552
============== ==============
</TABLE>
F-9
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
Notes to Consolidated Financial Statements (Continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Net Income:
Errazuriz y Asociados $ 189,191 $ 239,846
Igenor Andina 308,657 666,610
Net income shared by the two firms
outside of Chile 440,055 435,618
-------------- --------------
$ 937,903 $ 1,342,074
============== ==============
Intercompany Transactions:
Due from Igenor to Errazuriz $ - $ 164,541
Due from Errazuriz to Igenor 514,178 -
-------------- --------------
$ 514,178 $ 164,541
============== ==============
</TABLE>
FUNCTIONAL CURRENCY - The financial statements have been
translated in accordance with the provisions set forth in
Statement of Financial Accounting Standards No. 52, from Chilean
pesos (the functional currency) into US dollars (the reporting
currency).
REVENUE RECOGNITION - The Company earns revenue principally from
commissions associated with the sale of major equipment items and
the performance of engineering services.
In the case of equipment sales, the Company earns a commission on
the sale of equipment or turn-key jobs when the contract between
the purchasing company (buyer of the equipment), is signed by both
parties or an "Order of Proceed" is issued by the buyer. At this
moment all the work of the Company has been completed and the
commission has been earned regardless of any future developments
between the supplier and the buyer. The collection of the
commissions earned is determined by the practices of the countries
involved. As a result, it is not unusual for it to take 60 to 180
days for the funds to be transferred.
Revenues associated with engineering services are recognized as
services when performed based on standard billing rates.
F-10
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
Notes to Consolidated Financial Statements (Continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATIONS OF CREDIT RISK - Financial instruments which
potentially subject the Company to concentrations of credit risk
consist principally of periodic temporary investments of excess
cash and trade receivables. The Company places its cash with high
credit quality financial institutions. A significant portion of
the Company's sales are to several large customers and, as such,
the Company is directly affected by the well-being of those
customers. However, the credit risk associated with trade
receivables is minimal due to the Company's customer base and
ongoing control procedures which monitor the credit worthiness of
customers. Historically, the Company has not experienced losses on
trade receivables. Therefore, no allowance for bad debts is deemed
necessary. During 1997 and 1996, approximately 50% of the
Company's consolidated accounts receivable was attributable to one
customer.
INCOME TAXES - Deferred tax assets and liabilities are recognized
for the future income tax consequences attributable to the
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that
includes the enactment date. Additionally, the Company provides no
deferred income taxes on its foreign earnings as the revenues will
not be transferred to the United States; rather such earnings will
be reinvested in foreign operations, thereby eliminating any
deferred tax liability.
A deferred tax asset was recognized at December 31, 1996 for
$10,090. Income tax expense totalled $142,137 and $151,215 for the
years ended December 31, 1997 and 1996.
FURNITURE AND EQUIPMENT - Furniture and equipment are recorded at
cost. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets, usually five years.
STAFF SEVERANCE INDEMNITIES - The Company provides for certain
lump sum severance indemnities to its employees at the end of
their employment as required by Chilean law. The obligation is
calculated based on the present value of the vested benefits to
which an employee is entitled, the expected service lives of the
employees and current salary levels. The Company believes that the
above calculation is not materially different from the calculation
required by SFAS 87, which would reflect expected future salary
increases.
FOREIGN OPERATIONS - As the Company is a holding company for two
existing Chilean companies, operating exclusively in South
America; the potential for both economic and political change in
the business environment is different from that of the United
States. The success of the Company depends on the success of the
Chilean operations and a stable economic and political
environment.
F-11
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
Notes to Consolidated Financial Statements (Continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER COMMON SHARE - Earnings per common share are based on
the weighted average number of shares outstanding of 2,820,100 and
1,656,859 for the years ended December 31, 1997 and 1996,
respectively, after giving effect to common stock equivalents
which consist of warrants issued with the initial public offering
that would have a dilutive effect on earnings per share. Warrants
issued with exercise prices greater than the existing market value
of the company stock are deemed anti-dilutive and are not
components of earnings per share.
ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent asset and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE 2 - SHORT-TERM INVESTMENTS
Short-term investments consist of time deposits totalling $37,858
and $442,107 at December 31, 1997 and 1996, respectively, invested
in local Chilean banks with maturity dates ranging from three
months to one year. These investments earn an annual rate of
interest ranging from 1.44% to 3.60%. In addition, the Company
invested $490,717 and $3,156,653 in money market accounts in a
United States bank at December 31, 1997 and 1996, respectively.
The account earned interest at an annual rate of 2.5% to 3.0%.
NOTE 3 - OTHER ASSETS
Other assets consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
-------------- -------------
<S> <C> <C>
Deposits for future investments $ 897,254 $ -
Acquisition costs 148,957 -
Other 26,132 6,901
-------------- --------------
$ 1,072,343 $ 6,901
============== ==============
</TABLE>
F-12
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
Notes to Consolidated Financial Statements (Continued)
NOTE 3 - OTHER ASSETS (CONTINUED)
The Company is in the process of acquiring an interest in two
Chilean entities, Negociaciones y Servidumbre, S.A. (NYSA) and
Ingesis. The Company has paid $125,508 for a 51% participation in
NYSA, a company organized to advise utilities and public works in
the acquisition of rights to cross electrical lines, piping
systems or roads through private properties. The Company has paid
$101,032 to acquire a 70% participation in Ingesis, an engineering
and manufacturing company specialized in certain electronic state
of the art techniques.
In addition, the Company is in the process of acquiring Consonni
USA, Inc. ("CONUSA") and its Spanish subsidiaries, Construcciones
Electromecanicas Consonni, S.A. ("CONSPAIN"), and Equipos de
Control Electrico, S.A. ("ECSA"). CONSPAIN and ECSA manufacture
low, medium and high voltage motor control centers and are
domiciled in Bilbao, Spain. The Company plans to acquire 88% of
CONUSA in 1998 subsequent to stockholder approval. Deposits made
in acquiring this interest totalled approximately $671,000.
Acquisition costs are recorded at cost and are to be amortized
using the straight-line method over 10 years beginning in 1998.
NOTE 4 - RELATED PARTY TRANSACTIONS
The Company conducts a substantial amount of its business with
companies that are affiliated with shareholders of the Company. As
a result, commissions have been received or paid for both
engineering and consulting services to and from affiliated
companies.
Commissions received from affiliated entities by the Company for
the engineering of various projects totalled $684,895 and $62,073
at December 31, 1997 and 1996, respectively. Income received from
affiliated entities for consulting services totalled $346,351 and
$103,800 at December 31, 1997 and 1996, respectively. In addition,
fees charged to the Company for consulting services performed by
its principal owners and immediate family totalled $45,665 and
$53,386, at December 31, 1997 and 1996, respectively.
The amounts due from the affiliated companies totalled $320,000
and $17,072 at December 31, 1997 and 1996, respectively. Funds
payable to these entities totalled $24,264 and $7,562 at December
31, 1997 and 1996, respectively.
In addition, Mr. Errazuriz, CEO, owed the Company $200,000 at
December 31, 1997.
F-13
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
Notes to Consolidated Financial Statements (Continued)
NOTE 5 - NOTE RECEIVABLE FROM RELATED PARTY
On November 12, 1996, as a result of the completion of a public
offering of stock, (see Note 11 for details of the Initial Public
Offering), the Company sold its 100% ownership of property and a
home in Villarrica, Chile, to a Chilean investment company,
Inversiones y Desarrollo Demco, whose shareholders are Mr.
Errazuriz, the Company's President and CEO, his wife, and one of
his daughters. The real estate, formerly treated as a
non-performing asset was sold at a price of $1,212,063.
Payment terms were 50% in cash at the closing which was held on
December 31, 1996, and the balance of $606,031 in four annual
installments with interest at 8-1/2% per year beginning January
15, 1998. This receivable is a component of note receivable from
related party on the balance sheet.
Initially, the agreement to sell the property in Villarrica
required the transfer of five lots including a home to Inversiones
y Desarrollo Demco. Upon the final transfer of the lots,
management decided not to include two of the lots in the sale.
This resulted in a realized gain to the Company during 1996 in the
amount of $255,792. The remaining two lots are now components of
undeveloped real estate in the accompanying balance sheet.
NOTE 6 - NOTE RECEIVABLE - OTHER
In June 1997, the Company acted as a consultant in an option to
purchase beach front property ("El Peral" project) close to
Santiago resulting in revenues and a note receivable for
$1,339,766, payable in 8 annual installments of $167,470 beginning
June 1999, accruing interest at 7%.
NOTE 7 - UNDEVELOPED REAL ESTATE - HELD FOR INVESTMENT
The balance of property for sale relates to land near Villarrica,
Chile, which was acquired for resale after being developed in a
resort area and is being used in the meantime as a guarantee for
some of the financial operations of the Company. The property is
being carried at its historical cost (which is less than its net
realizable value based on an independent appraisal). The Company
has no intention to sell the property in the near future and is
treating it as investment property.
F-14
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
Notes to Consolidated Financial Statements (Continued)
NOTE 8 - FURNITURE AND EQUIPMENT
Furniture and equipment consist of the following at December 31,
1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
<S> <C> <C>
Vehicles $ 202,330 $ 207,074
Office equipment 72,387 42,644
Furniture and fixtures 80,533 2,958
Leasehold improvements 371,796 -
Leased property 47,780 -
--------------- --------------
Total furniture and equipment, at cost 774,826 252,676
Less accumulated depreciation and amortization (101,951) (87,119)
--------------- ---------------
$ 672,875 $ 165,557
=============== ===============
</TABLE>
NOTE 9 - INCOME TAXES
The Company is subject to income tax in Chile. Reconciliations
between the statutory income tax rate in Chile, and the Company's
effective income tax rate as a percentage of income before income
taxes is as follows:
1997 1996
--------- --------
Chilean statutory tax rate 15.0% 15.0%
Other, net (1.9) (4.9)
--------- ------
Effective income tax rate 13.1% 10.1%
==== ====
NOTE 10 - OBLIGATION WITH BANKS
Obligations with banks consist of lines of credit with local
Chilean banks.
Interest rates on all of these lines of credit are based on the
Asociacion de Bancos y Entidades Financieras, (T.A.B.) rate, which
represents a daily average of the interest paid by banks on its
deposits. The rate is then adjusted upwards approximately 1.5% for
the banks profit, and then an additional 1.0% - 1.7% reflecting
the individual risk of the bank on the individual loan.
F-15
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
Notes to Consolidated Financial Statements (Continued)
NOTE 10 - OBLIGATION WITH BANKS (CONTINUED)
These lines of credit are secured by an assignment of the
Company's term deposits and vehicles owned by the Company.
NOTE 11 - LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
<S> <C> <C>
Note payable, collateralized by mortgage
on the undeveloped real estate held for
investment, due December 2002 with
interest at 8.7%, payable monthly.
Currency: UF $ 149,074 $ 174,905
Note payable, secured by an assignment
of a vehicle, due April 1997 with interest
at 10%, payable monthly. Currency: UF - 10,017
-------------- --------------
Total notes payable 149,074 184,922
Less current portion 30,320 39,578
-------------- --------------
Total long-term debt $ 118,754 $ 145,344
============== ==============
</TABLE>
The UF is an indexed unit of account expressed in pesos and
adjusted according to inflation (CPI). There are no covenants or
restrictions imposed on the aforementioned obligations with any of
the banks involved.
F-16
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
Notes to Consolidated Financial Statements (Continued)
NOTE 11 - LONG-TERM DEBT (CONTINUED)
The following table reflects the annual payments due for the next
five years of the long-term debt.
YEAR ENDING
DECEMBER 31,
------------
1998 $ 30,320
1999 29,118
2000 30,985
2001 -
2002 58,651
---------------
$ 149,074
NOTE 12 - SHAREHOLDERS' EQUITY
On November 12, 1996, the Company successfully completed the sale
of 1,200,000 shares of its common stock to the public in an
initial public offering which raised approximately $6,150,000,
before expenses. In addition, the Company sold one warrant with
each share to purchase one share of stock at the original offering
price of $5 per share. Also, the Company offered an additional 10%
or 120,000 shares of stock with warrants to the underwriters of
the offering, which were exercised in December, providing an
additional $615,000 of capital before expenses.
In 1997, the Company declared dividends of $.10 per share which
approximated $282,000. In 1996, no dividends were declared. In
December 1997, the Company paid $137,000 of the $282,000. The
balance is being paid on March 31, 1998.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
LEASE
In September 1997, the Company relocated its office to new
facilities in Santiago, Chile under an 8 year operating lease.
Monthly rental payments were $7,398 and $4,507 during 1997 and
1996, respectively. Rent expense for the years ended December 31,
1997 and 1996 totalled $90,426 and $54,084, respectively.
F-17
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
Notes to Consolidated Financial Statements (Continued)
NOTE 13 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum rental payments under the lease are as follows:
<TABLE>
<CAPTION>
YEAR ENDING ANNUAL
DECEMBER 31, PAYMENTS
------------ --------
<S> <C> <C>
1998 $ 88,771
1999 88,771
2000 88,771
2001 88,771
2002 88,771
2003 and thereafter 266,313
---------------
$ 710,168
</TABLE>
NOTE 14 - INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES
During 1996, the Company sold an investment in a related entity to
members of Mr. Errazuriz's family at the carrying value of
$194,359.
During 1995, the Company purchased 45% of the outstanding stock of
Aguas y Ecologia, S.A. (A&E) which owns 10% of the outstanding
stock in Bayesa, S.A. from a Chilean investment company. This
equates to a 4.5% ownership of Bayesa, S.A. During the later part
of 1996, the Company acquired an additional 22.5% of A&E or 2.25%
of Bayesa, S.A. Financial statements of A&E as prepared in
accordance with GAAP are unavailable and impracticable to produce
at this time.
During 1997, the Company purchased 31% of a wine bottling and
processing plant in Chile for approximately $85,000. The wine
processing and bottling plant will commence operations in March
1998. The Company also purchased a 670 acre vineyard for
approximately $1,073,000, which in the future will provide grapes
for the wine processing and bottling plant.
F-18
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
Notes to Consolidated Financial Statements (Continued)
NOTE 15 - UNAUDITED PROFORMA FINANCIAL STATEMENTS
The Company is in the process of acquiring 88% of Consonni USA,
Inc., subject to stockholder approval. A deposit of $670,714 has
been placed in acquiring 11% of the Consonni USA, Inc. (Note 3 -
Other Assets).
The remaining 77% is to be acquired from Mr. Errazuriz, subject to
shareholders approval, for approximately $4,278,000 to be paid by
issuing to him 250,000 shares of preferred stock and 50,000 shares
of common stock for the Company; forgiveness of long term
receivable for approximately $493,000 originated in the sale of
Villarrica House to Invdemco, a related company, less the first
installment to be paid in January 15, 1998; forgiveness of
$212,000 given to Mr. Errazuriz during 1997 to buy shares therein
included $12,000 of interests; transferring of rights on a
promissory note receivable in 8 year installments with a face
value of $1,339,763; and transferring the Villarrica Land, a
non-performing asset, at its book value of $789,447. The following
unaudited proforma balance sheet and statement of income are
presented as if the acquisition occurred on January 1, 1997.
Unaudited Proforma Balance Sheet
AS S E T S
DECEMBER 31, 1997
-----------------
Current Assets:
Cash $ 987,201
Short-term investments 528,575
Accounts receivable 7,260,674
Accounts receivable - other 969,545
Employee and officer loans receivable 71,013
Inventory 2,120,234
Other current assets 118,038
----------------
Total Current Assets 12,055,280
----------------
Furniture and Equipment, net 1,394,663
----------------
Other Assets:
Note receivable from related party 112,875
Goodwill, net of accumulated amortization
of $197,298 3,760,669
Deferred costs, net 159,697
Investment in affiliated companies 1,629,869
Other assets 422,878
----------------
6,085,988
----------------
$ 19,535,931
================
F-19
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
Notes to Consolidated Financial Statements (Continued)
NOTE 15 - UNAUDITED PROFORMA FINANCIAL STATEMENTS (CONTINUED)
Unaudited Proforma Balance Sheet (Continued)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
DECEMBER 31, 1997
-----------------
<S> <C>
Current Liabilities:
Obligations with banks $ 541,167
Current portion of long-term debt 806,414
Accounts payable 3,273,653
Due to government entities 371,160
Due to related parties 37,420
Income taxes payable 197,022
Accrued expenses and withholdings 222,162
Current portion of staff severance indemnities 21,530
Deferred income 107,946
Dividends payable 150,000
----------------
Total Current Liabilities 5,728,474
----------------
Long-Term Liabilities:
Long-term debt, excluding current portion 3,759,841
Staff severance indemnities, long-term portion 87,317
----------------
3,847,158
----------------
Shareholders' Equity:
Preferred stock, $.0001 par value, 5,000,000 shares
authorized, 250,000 issued and outstanding 25
Common stock, $.0001 par value, 20,000,000 shares
authorized, 2,870,100 shares outstanding 287
Additional paid-in capital 7,168,191
Retained earnings 17,029
Minority interest 410,597
Cumulative translation adjustment 2,364,170
----------------
Total Shareholders' Equity 9,960,299
----------------
$ 19,535,931
================
</TABLE>
F-20
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
Notes to Consolidated Financial Statements (Continued)
13
NOTE 15 - UNAUDITED PROFORMA FINANCIAL STATEMENTS (CONTINUED)
Unaudited Proforma Statement of Income
DECEMBER 31, 1997
-----------------
Revenues from Operations:
Revenues $ 17,142,149
Cost of operations 9,771,805
----------------
Gross Profit 7,370,344
Selling and Administrative Expenses 4,863,237
----------------
2,507,107
----------------
Other Income (Expenses):
Interest income 133,174
Miscellaneous income 45,140
Interest expense (153,484)
Other financing expenses (109,933)
Bad debt expense (9,071)
Consulting fees (166,055)
Gain on sale of assets 6,031
Depreciation and amortization (513,854)
----------------
(768,052)
----------------
Income Before Income Taxes 1,739,055
Income Taxes 142,137
----------------
Net Income Before Minority Interest and
Extraordinary Gain 1,596,918
Gain on Forgiveness of Debt 4,949,372
----------------
Net Income Before Minority Interest 6,546,290
Minority interest 1,307,056
----------------
Net Income $ 5,239,234
================
Net Income Before Extraordinary Gain per
Common Shares $ .51
Extraordinary Gain per Common Share 1.58
Minority Interest per Common Share (.42)
----------------
Net Income per Common Share $ 1.67
================
Weighted Average Shares Outstanding 3,120,100
================
F-21
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
3.1(b) Articles of Incorporation for Andean Engineering & Finance Corporation
3.1(c) Articles of Incorporation and Corporation Bylaws for ADC Andean, S.A.,
a Swiss Corporation
3.2(b) Andean Engineering & Finance Corporation Bylaws
23.1 Consent of Independent Auditors
27 Financial Data Schedule
EXHIBIT 3.1(b)
ARTICLES OF INCORPORATION
OF
ANDEAN ENGINEERING & FINANCE CORP.
The undersigned, a natural person competent to contract, does hereby
make, subscribe and file these Articles of Incorporation for the purpose of
organizing a corporation under the laws of the State of Florida.
ARTICLE I
CORPORATE NAME
The name of this Corporation shall be: ANDEAN ENGINEERING & FINANCE
CORP.
ARTICLE II
PRINCIPAL OFFICE AND MAILING ADDRESS
The principal office and mailing address of the Corporation is 1900
Glades Road, Suite 351, Boca Raton, Florida 33431.
ARTICLE III
NATURE OF CORPORATE BUSINESS AND POWERS
The general nature of the business to be transacted by this Corporation
shall be to engage in any and all lawful business permitted under the laws of
the United States and the State of Florida.
<PAGE>
ARTICLE IV
CAPITAL STOCK
The maximum number of shares that this Corporation shall be authorized
to issue and have outstanding at any one time shall be 100 shares of common
stock, par value $1.00 per share.
ARTICLE V
TERM OF EXISTENCE
This Corporation shall have perpetual existence.
ARTICLE VI
REGISTERED AGENT AND
INITIAL REGISTERED OFFICE IN FLORIDA
The Registered Agent and the street address of the initial Registered
Office of this Corporation in the State of Florida shall be:
South Florida Registered Agents, Inc.
200 E. Las Olas Boulevard
Suite 1900
Fort Lauderdale, Florida 33301
ARTICLE VII
INCORPORATOR
The name and address of the person signing these Articles of
Incorporation as the Incorporator is Gayle Coleman, 200 East Las Olas Boulevard,
Suite 1900, Fort Lauderdale, Florida 33301.
ARTICLE VIII
INDEMNIFICATION
This Corporation may indemnify any director, officer, employee or agent
of the Corporation to the fullest extent permitted by Florida law.
2
<PAGE>
ARTICLE IX
AFFILIATED TRANSACTIONS
This Corporation expressly elects not to be governed by Section
607.0901 of the Florida Business Corporation Act, as amended from time to time,
relating to affiliated transactions.
IN WITNESS WHEREOF, the undersigned Incorporator has executed the
foregoing Articles of Incorporation on the 1st day of July, 1997.
Gayle Coleman, Incorporator
3
<PAGE>
CERTIFICATE DESIGNATING REGISTERED AGENT
AND OFFICE FOR SERVICE OF PROCESS
ANDEAN ENGINEERING & FINANCE CORP., a corporation existing under the
laws of the State of Florida with its principal office and mailing address at
1900 Glades Road, Suite 351, Boca Raton, Florida 3341 has named South Florida
Registered Agents, Inc., whose address is 200 East Las Olas Boulevard, Suite
1900, Fort Lauderdale, Florida 33301 as its agent to accept service of process
within the State of Florida.
ACCEPTANCE:
Having been named to accept service of process for the above named
Corporation, at the place designated in this Certificate, I hereby accept the
appointment as Registered Agent, and agree to comply with all applicable
provisions of law. In addition, I hereby am familiar with and accept the duties
and responsibilities as Registered Agent for said Corporation.
SOUTH FLORIDA REGISTERED AGENTS, INC.
By: /s/ Beverly Bryan
-------------------------
Beverly Bryan, President
4
EXHIBIT 3.1(c)
ARTICLES OF INCORPORATION
AND
CORPORATE BYLAWS
ADC ANDEAN SA
Minutes taken by Etienne Jeandin, Esq., on December 18, 1996
<PAGE>
ANDEAN DEVELOPMENT CORPORATION, with a principal place of business at Boca Raton
(Florida - USA)
Hereby represents to the undersigned Notary on its desire to establish a stock
company under the corporate name of:
ADC ANDEAN SA
pursuant to Title XXVI of the Code of Commerce, to be governed by the text of
the bylaws hereunder.
The undersigned parties hereby represent and warrant as follows:
SHARE CAPITAL
The founding partners hold the one hundred (100) registered shares which have
been issued at a par value of ONE THOUSAND FRANCS (Fr 1,000), thereby
constituting the share capital of the Company, broken down as follows:
SHARES
1) Pedro Pablo ERRAZURIZ OSSA
representing ninety-eight shares 98
2) Claude MERMIER
representing one share 1
3) Yves MERMIER
representing one share 1
---
ON AGGREGATE: one hundred shares 100
SUBSCRIPTION
The founding partners have unconditionally undertaken to contribute the funds
corresponding to the issuance of the aforementioned shares.
<PAGE>
KNOW ALL PERSONS BY THESE PRESENTS THAT ON THIS 10TH DAY OF DECEMBER 199_, in
the presence of the undersigned Etienne JEANDIN, Esq., Notary Public in and for
Geneva:
THERE APPEARED
1) PEDRO PABLO ERRAZURIZ OSSA, Chilean, administrator, bearing legal
address at Los Conquistadores 1700, Piso 21, Santiago, Chile.
2) CLAUDE MERMIER, corporate director, bearing legal address at Bernex, 23
Chemin de l'Eponontaz, born in Epalinges (VD).
3) YVES MERMIER, attorney-at-law, bearing legal address at Bernex, 33
route de Pre-marais, born in Epalinges (VD).
Who hereby represent acting in a fiduciary capacity, that is, for themselves but
on behalf of the company:
WAIVER
Each founding partner has paid the sum of ONE THOUSAND FRANCS (Fr 1,000) on each
share subscribed for by the same, representing the full par value of each share,
and on aggregate amounting to ONE HUNDRED THOUSAND FRANCS (Fr 100,000), said sum
having been deposited to the account of ADC Andean SA, a stock company under
process of incorporation in Geneva, with Union de Banques Suisses (Geneva), as
applicable being ADC Andean SA an Entity governed by the Federal Law on Banks
and Savings Institutions, which sum shall be kept for the exclusive disposition
of the company, the aforesaid as set forth in a certificate issued by said bank
in Geneva on December 12, 1996, duly authenticated and attached hereto.
REPRESENTATION
Furthermore, the founding partners hereby represent:
that all the shares have been validly subscribed for,
that the promised contributions correspond to the full issuance price, and
that the contributions have been made pursuant to all legal and regulatory
requirements.
GOVERNANCE BODIES
Furthermore, the founding partners hereby appoint:
A- As sole administrator:
Claude MERMIER, duly qualified, who hereby accepts his mandate.
B- As auditors:
<PAGE>
Societe Fiduciaire et d'Etudes Fiscales, a stock company bearing legal
address in Geneva, 6 rue Bonivard, who accepts its mandate by means of
a letter dated December 12, 1996, which letter has been duly
authenticated and attached hereto.
DECLARATION
The undersigned Notary hereby attests that the founding partners have formally
declared unto him that they do not hold any right to the recovery of physical
assets prior to the distribution thereof, whether real or personal. The founding
partners have been further deemed, in a separate document, in compliance of the
provisions concerning the preliminary recovery of assets (Art. 628 CO) and those
regarding the purchase of real estate for individuals located abroad.
The undersigned Notary attests that the text of declarations I (general
certificate on the absence of rights to preliminary recovery) and II
(certificate on the absence of rights to preliminary recovery under the Lex
Friedrich) have been delivered to the said Notary and to the founding partners,
the latter having given their approval therefor. Said texts are attached hereto.
SUPPORTING DOCUMENTS
The undersigned Notary hereby certifies that the following documents have been
delivered to the founding partners, who approved the same, which documents are
attached hereto:
the bylaws of the company,
the certificate of bank deposit,
the letter of acceptance by the auditing firm,
certificates I and II on the absence of rights to preliminary recovery.
These minutes have been duly taken, drafted and executed at this Notary's
Office, 5 Place Claparede.
IN WITNESS WHEREOF, the parties have set their hand hereunto with the
undersigned Notary.
Signatures follow:
Recorded in Geneva, this 20th day of December 1996. Vol. 1996 No. 13865.
Tax: Fr. 54.60. Notary's Seal. Signed by: Siro MARTIN
FOR CERTIFIED ISSUANCE, IN ACCORDANCE WITH ITS ORIGINAL
EXHIBIT 3.2(b)
BYLAWS
OF
ANDEAN ENGINEERING & FINANCE CORPORATION
a Florida corporation
<PAGE>
INDEX
PAGE
----
ARTICLE I
OFFICES
Section 1.01 PRINCIPAL OFFICE......................... 1
Section 1.02 REGISTERED OFFICE........................ 1
Section 1.03 OTHER OFFICES............................ 1
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 2.01 ANNUAL MEETING............................ 1
Section 2.02 SPECIAL MEETINGS.......................... 2
Section 2.03 SHAREHOLDERS' LIST FOR MEETING............ 2
Section 2.04 RECORD DATE............................... 3
Section 2.05 NOTICE OF MEETINGS AND ADJOURNMENT........ 3
Section 2.06 WAIVER OF NOTICE.......................... 4
ARTICLE III
SHAREHOLDER VOTING
Section 3.01 VOTING GROUP DEFINED...................... 5
Section 3.02 QUORUM AND VOTING REQUIREMENTS FOR
VOTING GROUPS............................ 5
Section 3.03 ACTION BY SINGLE AND MULTIPLE VOTING
GROUPS................................... 6
Section 3.04 SHAREHOLDER QUORUM AND VOTING; GREATER
OR LESSER VOTING REQUIREMENTS............ 5
Section 3.05 VOTING FOR DIRECTORS; CUMULATIVE VOTING... 6
<PAGE>
Section 3.06 VOTING ENTITLEMENT OF SHARES.............. 7
Section 3.07 PROXIES................................... 8
Section 3.08 SHARES HELD BY NOMINEES................... 9
Section 3.09 CORPORATION'S ACCEPTANCE OF VOTES......... 10
Section 3.10 ACTION BY SHAREHOLDERS WITHOUT MEETING.... 11
Section 3.11 FREQUENCY OF SOLICITATIONS FOR ACTION
BY SHAREHOLDERS WITHOUT A MEETING......... 14
ARTICLE IV
BOARD OF DIRECTORS AND OFFICERS
Section 4.01 QUALIFICATIONS OF DIRECTORS.............. 15
Section 4.02 NUMBER OF DIRECTORS...................... 15
Section 4.03 TERMS OF DIRECTORS GENERALLY............. 15
Section 4.04 STAGGERED TERMS FOR DIRECTORS............ 16
Section 4.05 VACANCY ON BOARD......................... 16
Section 4.06 COMPENSATION OF DIRECTORS................ 16
Section 4.07 MEETINGS................................. 16
Section 4.08 ACTION BY DIRECTORS WITHOUT A MEETING.... 17
Section 4.09 NOTICE OF MEETINGS....................... 17
Section 4.10 WAIVER OF NOTICE......................... 17
Section 4.11 QUORUM AND VOTING........................ 18
Section 4.12 POWERS OF THE DIRECTORS.................. 18
Section 4.13 COMMITTEES............................... 18
Section 4.14 LOANS TO OFFICERS, DIRECTORS AND
EMPLOYEES; GUARANTY OF OBLIGATIONS...... 19
Section 4.15 REQUIRED OFFICERS........................ 20
Section 4.16 DUTIES OF OFFICERS....................... 20
<PAGE>
Section 4.17 RESIGNATION AND REMOVAL OF OFFICERS...... 20
Section 4.18 CONTRACT RIGHTS OF OFFICERS.............. 20
Section 4.19 GENERAL STANDARDS FOR DIRECTORS.......... 21
Section 4.20 DIRECTOR CONFLICTS OF INTEREST........... 21
Section 4.21 RESIGNATION OF DIRECTORS................. 22
ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS
Section 5.01 DIRECTORS, OFFICERS, EMPLOYEES
AND AGENTS............................... 23
ARTICLE VI
OFFICE AND AGENT
Section 6.01 REGISTERED OFFICE AND REGISTERED
AGENT................................... 28
Section 6.02 CHANGE OF REGISTERED OFFICE OR REGISTERED
AGENT; RESIGNATION OF REGISTERED AGENT.. 28
ARTICLE VII
SHARES, OPTION, DIVIDENDS AND DISTRIBUTIONS
Section 7.01 AUTHORIZED SHARES........................ 29
Section 7.02 TERMS OF CLASS OR SERIES DETERMINED
BY BOARD OF DIRECTORS................... 30
Section 7.03 ISSUED AND OUTSTANDING SHARES............ 30
Section 7.04 ISSUANCE OF SHARES....................... 31
Section 7.05 FORM AND CONTENT OF CERTIFICATES......... 31
Section 7.06 SHARES WITHOUT CERTIFICATES.............. 32
Section 7.07 RESTRICTION ON TRANSFER OF SHARES
AND OTHER SECURITIES.................... 33
<PAGE>
Section 7.08 SHAREHOLDER'S PRE-EMPTIVE RIGHTS......... 33
Section 7.09 CORPORATION'S ACQUISITION OF ITS
OWN SHARES.............................. 33
Section 7.10 SHARE OPTIONS............................ 33
Section 7.11 TERMS AND CONDITIONS OF STOCK RIGHTS
AND OPTIONS............................. 34
Section 7.12 SHARE DIVIDENDS.......................... 34
Section 7.13 DISTRIBUTION TO SHAREHOLDERS............. 35
ARTICLE VIII
AMENDMENT OF ARTICLES AND BYLAWS
Section 8.01 AUTHORITY TO AMEND THE ARTICLES OF
INCORPORATION........................... 36
Section 8.02 AMENDMENT BY BOARD OF DIRECTORS.......... 37
Section 8.03 AMENDMENT OF BYLAWS BY BOARD OF
DIRECTORS............................... 37
Section 8.04 BYLAW INCREASING QUORUM OR VOTING
REQUIREMENTS FOR DIRECTORS.............. 37
ARTICLE IX
RECORDS AND REPORT
Section 9.01 CORPORATE RECORDS........................ 38
Section 9.02 FINANCIAL STATEMENTS FOR SHAREHOLDERS.... 39
Section 9.03 OTHER REPORTS TO SHAREHOLDERS............ 40
Section 9.04 ANNUAL REPORT FOR DEPARTMENT OF STATE.... 40
ARTICLE X
MISCELLANEOUS
Section 10.01 DEFINITION OF THE "ACT".................. 41
Section 10.02 APPLICATION OF FLORIDA LAW............... 41
<PAGE>
Section 10.03 FISCAL YEAR.............................. 41
Section 10.04 CONFLICTS WITH ARTICLES OF
INCORPORATION........................... 41
<PAGE>
ARTICLE I
OFFICES
Section 1.01. PRINCIPAL OFFICE.
The principal office of the corporation in the State of Florida shall
be established at such places as the board of directors from time to time
determine.
Section 1.02. REGISTERED OFFICE.
The registered office of the corporation in the State of Florida shall
be at the office of its registered agent as stated in the articles of
incorporation or as the board of directors shall from time to time determine.
Section 1.03. OTHER OFFICES.
The corporation may have additional offices at such other places,
either within or without the State of Florida, as the board of directors may
from time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 2.01. ANNUAL MEETING.
(1) The corporation shall hold a meeting of shareholders annually, for
the election of directors and for the transaction of any proper business, at a
time stated in or fixed in accordance with a resolution of the board of
directors.
(2) Annual shareholders' meeting may be held in or out of the State of
Florida at a place stated in or fixed in accordance with a resolution by the
board of directors or, when not inconsistent with the board of directors'
resolution stated in the notice of the annual meeting. If no place is stated in
or fixed in accordance with these bylaws, or stated in the notice of the annual
meeting , annual meetings shall be held at the corporation's principal office.
(3) The failure to hold the annual meeting at the time stated in or
fixed in accordance with these bylaws or pursuant to the Act does not affect the
validity of any corporate action and shall not work a forfeiture of or
dissolution of the corporation.
<PAGE>
Section 2.02. SPECIAL MEETING.
(1) The corporation shall hold a special meeting of shareholders:
(a) On call of a majority of its board of directors or the
person or persons authorized to do so by the board of directors; or
(b) By the Chief Executive Officer of the Corporation;
(c) If the holders of not less than 10% of all votes entitled
to be cast on any issue proposed to be considered at the proposed special
meeting sign, date and deliver to the corporation's secretary one or more
written demands for the meeting describing the purpose or purposes for which it
is to be held.
(2) Special shareholders' meetings may be held in or out of the State
of Florida at a place stated in or fixed in accordance with a resolution of the
board of directors, or, when not inconsistent with the board of directors'
resolution, in the notice of the special meeting. If no place is stated in or
fixed in accordance with these bylaws or in the notice of the special meeting,
special meetings shall be held at the corporation's principal office.
(3) Only business within the purpose or purposes described in the
special meeting notice may be conducted at a special shareholders' meeting.
Section 2.03. SHAREHOLDERS' LIST FOR MEETING.
(1) After fixing a record date for a meeting, a corporation entitled to
notice of a shareholders' meeting, in accordance with the Florida Business
Corporation Act (the "Act"), or arranged by voting group, with the address of,
and the number and class and series, if any, of shares held by, each.
(2) The shareholders' list must be available for inspection by any
shareholder for a period of ten days prior to the meeting or such shorter time
as exists between the record date and the meeting and continuing through the
meeting at the corporation's principal office, at a place identified in the
meeting notice in the city where the meeting will be held, or at the office of
the corporation's transfer agent or registrar. A shareholder or his agent or
attorney is entitled on written demand to inspect the list (subject to the
requirements of Section 607.1602(3) of the Act), during regular business hours
and at his expense, during the period it is available for inspection.
<PAGE>
(3) The corporation shall make the shareholders' list available at the
meeting, and any shareholder or his agent or attorney is entitled to inspect the
list at any time during the meeting or any adjournment.
Section 2.04. RECORD DATE.
(1) The board of directors may set a record date for purposes of
determining the shareholders entitled to notice of and to vote at a
shareholders' meeting; however, in no event may a record date fixed by the board
of directors be a date preceding the date upon which the resolution fixing the
record date is adopted.
(2) Unless otherwise fixed by the board of directors, the record date
for determining shareholders entitled to demand a special meeting is the date
the first shareholder delivers his demand to the corporation. In the event that
the board of directors sets the record date for a special meeting of
shareholders, it shall not be a date preceding the date upon which the
corporation receives the first demand from a shareholder requesting a special
meeting.
(3) If no prior action is required by the board of directors pursuant
to the Act, and, unless otherwise fixed by the board of directors, the record
date for determining shareholders entitled to take action without a meeting is
the date the first signed written consent is delivered to the corporation under
Section 607.0704 of the Act. If prior action is required by the board of
directors pursuant to the Act, the record date for determining shareholders
entitled to take action without a meeting is at the close of business on the day
on which the board of directors adopts the resolution taking such prior action.
(4) Unless otherwise fixed by the board of directors, the record date
for determining shareholders entitled to notice of and to vote at an annual or
special shareholders' meeting is the close of business on the day before the
first notice of such annual or special shareholders' meeting is delivered to
shareholders.
(5) A record date may not be more than 70 days before the meeting or
action requiring a determination of shareholders.
(6) A determination of shareholders entitled to notice of or to vote at
a shareholders' meeting is effective for any adjournment of the meeting unless
the board of directors fixes a new record date, which it must do if the meeting
is adjourned to a date more than 120 days after the date fixed for the original
meeting.
Section 2.05. NOTICE OF MEETINGS AND ADJOURNMENT.
(1) The corporation shall notify shareholders of the date, time and
place of each annual and special shareholders' meeting no
<PAGE>
fewer than 10 or more than 60 days before the meeting date. Unless the Act
requires otherwise, the corporation is required to give notice only to
shareholders entitled to vote at the meeting. Notice shall be given in the
manner provided in Section 607.0141 of the Act, by or at the direction of the
president, the secretary, of the officer or persons calling the meeting. If the
notice is mailed at least 30 days before the date of the meeting, it may be done
by a class of United States mail other than first class. Notwithstanding Section
607.0141, if mailed, such notice shall be deemed to be delivered when deposited
in the United Statement mail addressed to the shareholder at his address as it
appears on the stock transfer books of the corporation, with postage thereon
prepaid.
(2) Unless the Act or the articles of incorporation requires otherwise,
notice of an annual meeting need not include a description of the purpose or
purposes for which the meeting is called.
(3) Notice of a special meeting must include a description of the
purpose or purposes for which the meeting is called.
(4) If an annual or special shareholders meeting is adjourned to a
different date, time, or place, notice need not be given of the new date, time,
or place if the new date, time or place is announced at the meeting before
adjournment is taken, and any business may be transacted at the adjourned
meeting that might have been transacted on the original date of the meeting. If
a new record date is or must be fixed under Section 607.0707 of the Act,
however, notice of the adjourned meeting must be given under this section to
persons who are shareholders as of the new record date who are entitled to
notice of the meeting.
(5) Notwithstanding the foregoing, no notice of a shareholders' meeting
need be given if: (a) an annual report and proxy statements for two consecutive
annual meetings o(pound) shareholders, or (b) all, and at least two checks in
payment of dividends or interest on securities during a 12-month period, have
been sent by first-class United States mail, addressed to the shareholder at his
address as it appears on the share transfer books of the corporation, and
returned undeliverable. The obligation of the corporation to give notice of a
shareholders' meeting to any such shareholder shall be reinstated once the
corporation has received a new address for such shareholder for entry on its
share transfer books.
Section 2.06. WAIVER OF NOTICE.
(1) A shareholder may waive any notice required by the Act, the
articles of incorporation, or bylaws before or after the date and time stated in
the notice. The waiver must be in writing, be signed by the shareholder entitled
to the notice, and be delivered to the corporation for inclusion in the minutes
or filing with the
<PAGE>
corporate records. Neither the business to be transacted at nor the purpose of
any regular or special meeting of the shareholders need be specified in any
written waiver of notice.
(2) A shareholder's attendance at a meeting: (a) Waives objection to
lack of notice or defective notice of the meeting, unless the shareholder at the
beginning of the meeting objects to holding the meeting or transacting business
at the meeting; or (b) waives objection to consideration of a particular matter
at the meeting that is not within the purpose or purposes described in the
meeting notice, unless the shareholder objects to considering the matter when it
is presented.
ARTICLE III
SHAREHOLDER VOTING
Section 3.01. VOTING GROUP DEFINED.
A "voting group" means all shares of one or more classes or series that
under the articles of incorporation or the Act are entitled to vote and be
counted together collectively on a matter at a meeting of shareholders. All
shares entitled by the articles of incorporation or the Act to vote generally on
the matter are for that purpose a single voting group.
Section 3.02. QUORUM AND VOTING REQUIREMENTS FOR VOTING GROUPS.
(1) Shares entitled to vote as a separate voting group may take action
on a matter at a meeting only if a quorum of those shares exists with respect to
that matter. Unless the articles of incorporation or the Act provides otherwise,
a majority of the votes entitled to be cast on the matter by the voting group
constitutes a quorum of that voting group for action on that matter.
(2) Once a share is represented for any purpose at a meeting, it is
deemed present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.
(3) If a quorum exists, action on a matter (other than the election of
directors) by a voting group is approved if the votes cast within the voting
group favoring the action exceed the votes cast opposing the action, unless the
articles of incorporation or the Act requires a greater number of affirmative
votes.
Section 3.03. ACTION BY SINGLE AND MULTIPLE VOTING GROUPS.
(1) If the articles of incorporation or the Act provides for voting by
a single voting group on a matter, action on that matter
<PAGE>
is taken when voted upon by that voting group as provided in Section 3.02 of
these bylaws.
(2) If the articles of incorporation or the Act provides for voting by
two or more voting groups on a matter, action on that matter is taken only when
voted upon by each of those voting groups counted separately as provided in
Section 3.02 of these bylaws. Action may be taken by one voting group on a
matter even though no action is taken by another voting group entitled to vote
on the matter.
Section 3.04. SHAREHOLDER QUORUM AND VOTING GREATER OR LESSER VOTING
REQUIREMENTS.
(1) A majority of the shares entitled to vote, represented in person or
by proxy, shall constitute a quorum at a meeting of shareholders. When a
specified item of business is required to be voted on by a class or series of
stock, a majority of the shares of such class or series shall constitute a
quorum for the transaction of such item of business by that class or series.
(2) An amendment to the articles of incorporation that changes the
quorum to a greater or lesser quorum or voting requirement must meet the same
quorum requirement and be adopted by the same vote required to take action under
the quorum and voting requirements then in effect or proposed to be adopted,
whichever is greater.
(3) If a quorum exists, action on a matter, other than the election of
directors, is approved if the votes cast by the holders of the shares
represented at the meeting and entitled to vote on the subject matter favoring
the action exceed the votes cast opposing the action, unless a greater number of
affirmative votes or voting by classes is required by the Act or the articles of
incorporation.
(4) After a quorum has been established at a shareholders~ meeting, the
subsequent withdrawal of shareholders, so as to reduce the number of shares
entitled to vote at the meeting below the number required for a quorum, shall
not affect the validity of any action taken at the meeting or any adjournment
thereof.
Section 3.05. VOTING FOR DIRECTORS: NO CUMULATIVE VOTING.
(1) Directors are elected by a plurality of the votes cast by the
shares entitled to vote in the election at a meeting at which a quorum is
present.
(2) Each shareholder who is entitled to vote at an election of
directors has the right to vote the number of shares owned by him for as many
persons as there are directors to be elected and for whose election he has a
right to vote. Shareholders do not have a right to cumulate their votes for
directors.
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Section 3.06. VOTING ENTITLEMENT OF SHARES.
(1) Unless the articles of incorporation or the Act provides otherwise,
each outstanding share, regardless of class, is entitled to one vote on each
matter submitted to a vote at a meeting of shareholders. Only shares are
entitled to vote.
(2) The shares of a corporation are not entitled to vote if they are
owned, directly or indirectly, by a second corporation, domestic or foreign, and
the first corporation owns, directly or indirectly, a majority of shares
entitled to vote for directors of the second corporation.
(3) This section does not limit the power of the corporation to vote
any shares, including its own shares, held by it in a fiduciary capacity.
(4) Redeemable shares are not entitled to vote on any matter, and shall
not be deemed to be outstanding, after notice of redemption is mailed to the
holders thereof and a sum sufficient to redeem such shares has been deposited
with a bank, trust company, or other financial institution upon an irrevocable
obligation to pay the holders the redemption price upon surrender of the shares.
(5) Shares standing in the name of another corporation, domestic or
foreign, may be voted by such officer, agent, or proxy as the bylaws of the
corporate shareholder may prescribe or, in the absence of any applicable
provision, by such person as the board of directors of the corporate shareholder
may designate. In the absence of any such designation or in case of conflicting
designation by the corporate shareholder, the chairman of the board, the
president, any vice president, the secretary, and the treasurer of the corporate
shareholder, in that order, shall be presumed to be fully authorized to vote
such shares.
(6) Shares held by an administrator, executor, guardian, personal
representative, or conservator may be voted by him, either in person or by
proxy, without a transfer of such shares into his name. Shares standing in the
name of a trustee may be voted by him, either in person or by proxy, but no
trustee shall be entitled to vote shares held by him without a transfer of such
shares into his name or the name of his nominee.
(7) Shares held by or under the control of a receiver, a trustee in
bankruptcy proceedings, or an assignee for the benefit of creditors may be voted
by him without the transfer thereof into his name.
(8) If a share or shares stand of record in the names of two or more
persons, whether fiduciaries, members of a partnership, joint tenants, tenants
in common, tenants by the entirety, or otherwise, or if two or more persons have
the same fiduciary
<PAGE>
relationship respecting the same shares, unless the secretary of the corporation
is given notice to the contrary and is furnished with a copy of the instrument
or order appointing them or creating the relationship wherein it is so provided,
then acts with respect to voting have the following effect:
(a) If only one votes, in person or in proxy, his act binds
all;
(b) If more than one vote, in person or by proxy, the act of
the majority so voting binds all;
(c) If more than one vote, in person or by proxy, but the vote
is evenly split on any particular matter, each faction is entitled to vote the
share or shares in question proportionally;
(d) If the instrument or order so filed shows that any such
tenancy is held in unequal interest, a majority or a vote evenly split for
purposes of this subsection shall be a majority or a vote evenly split in
interest;
(e) The principles of this subsection shall apply, insofar as
possible, to execution of proxies, waivers, consents, or objections and for the
purpose of ascertaining the presence of a quorum;
(f) Subject to Section 3.08 of these bylaws, nothing herein
contained shall prevent trustees or other fiduciaries holding shares registered
in the name of a nominee from causing such shares to be voted by such nominee as
the trustee or other fiduciary may direct. Such nominee may vote shares as
directed by a trustee or their fiduciary without the necessity of transferring
the shares to the name of the trustee or other fiduciary.
Section 3.07. PROXIES.
(1) A shareholder, other person entitled to vote on behalf of a
shareholder pursuant to Section 3.06 of these bylaws, or attorney in fact may
vote the shareholder's shares in person or by proxy.
(2) A shareholder may appoint a proxy to vote or otherwise act for him
by signing an appointment form, either personally or by his attorney in fact. An
executed telegram or cablegram appearing to have been transmitted by such
person, or a photographic, photostatic, or equivalent reproduction of an
appointment form, is a sufficient appointment form.
(3) An appointment of a proxy is effective when received by the
secretary or other officer or agent authorized to tabulate votes. An appointment
is valid for up to 11 months unless a longer period is expressly provided in the
appointment form.
<PAGE>
(4) The death or incapacity of the shareholder appointing a proxy does
not affect the right of the corporation to accept the proxy's authority unless
notice of the death or incapacity is received by the secretary or other officer
or agent authorized to tabulate votes before the proxy exercises his authority
under the appointment.
(5) An appointment of a proxy is revocable by the shareholder unless
the appointment form conspicuously states that it is irrevocable and the
appointment is coupled with an interest. Appointments coupled with an interest
include the appointment of: (a) a pledgee; (b) a person who purchased or agreed
to purchase the shares; (c) a creditor of the corporation who extended credit to
the corporation under terms requiring the appointment; (d) an employee of the
corporation whose employment contract requires the appointment; or (e) a party
to a voting agreement created in accordance with the Act.
(6) An appointment made irrevocable under this section becomes
revocable when the interest with which it is coupled is extinguished and, in a
case provided for in Subsection 5(c) or 5(d), the proxy becomes revocable three
years after the date of the proxy or at the end of the period, if any, specified
herein, whichever is less, unless the period of irrevocability is renewed from
time to time by the execution of a new irrevocable proxy as provided in this
section. This does not affect the duration of a proxy under subsection (3).
(7) A transferee for value of shares subject to an irrevocable
appointment may revoke the appointment if he did not know of its existence when
he acquired the shares and the existence of the irrevocable appointment was not
noted conspicuously on the certificate representing the shares or on the
information statement for shares without certificates.
(8) Subject to Section 3.09 of these bylaws and to any express
limitation on the proxy's authority appearing on the face of the appointment
form, a corporation is entitled to accept the proxy's vote or other action as
that of the shareholder making the appointment.
(9) If an appointment form expressly provides, any proxy holder may
appoint, in writing, a substitute to act in his place.
Section 3.08. SHARES HELD BY NOMINEES.
(1) The corporation may establish a procedure by which the beneficial
owner of shares that are registered in the name of a nominee is recognized by
the corporation as the shareholder. The extent of this recognition may be
determined in the procedure.
<PAGE>
(2) The procedure may set forth (a) the types of nominees to which it
applies; (b) the rights or privileges that the corporation recognizes in a
beneficial owner; (c) the manner in which the procedure is selected by the
nominee; (d) the information that must be provided when the procedure is
selected; (e) the period for which selection of the procedure is effective; and
(f) other aspects of the rights and duties created.
Section 3.09. CORPORATION'S ACCEPTANCE OF VOTES.
(1) If the name signed on a vote, consent, waiver, or proxy appointment
corresponds to the name of a shareholder, the corporation if acting in good
faith is entitled to accept the vote, consent waiver, or proxy appointment and
give it effect as the act of the shareholder.
(2) If the name signed on a vote, consent, waiver, or proxy appointment
does not correspond to the name of its shareholder, the corporation if acting in
good faith is nevertheless entitled to accept the vote, consent, waiver, or
proxy appointment and give it effect as the act of the shareholder if: (a) the
shareholder is an entity and the name signed purports to be that of an officer
or agent of the entity; (b) the name signed purports to be that of an
administrator, executor, guardian, personal representative, or conservator
representing the shareholder and, if the corporation requests, evidence of
fiduciary status acceptable to the corporation has been presented with respect
to the vote, consent, waiver, or proxy appointment; (c) the name signed purports
to be that of a receiver, trustee in bankruptcy, or assignee for the benefit of
creditors of the shareholder and, if the corporation requests, evidence of this
status acceptable to the corporation has been presented with respect to the
vote, consent, waiver, or proxy appointment; (d) the name signed purports to be
that of a pledgee, beneficial owner, or attorney in fact of the shareholder and,
if the corporation requests, evidence acceptable to the corporation of the
signatory's authority to sign for the shareholder has been presented with
respect to the vote, consent, waiver, or proxy appointment; or (e) two or more
persons are the shareholder as covenants or fiduciaries and the name signed
purports to be the name of at least one of the co-owners and the person signing
appears to be acting on behalf of all the co-owners.
(3) The corporation is entitled to reject a vote, consent, waiver, or
proxy appointment if the secretary or other officer or agent authorized to
tabulate votes, acting in good faith, has reasonable basis for doubt about the
validity of the signature on it or about the signatory's authority to sign for
the shareholder.
(4) The corporation and its officer or agent who accepts or rejects a
vote, consent, waiver, or proxy appointment in good faith and in accordance with
the standards of this section are not liable
<PAGE>
in damages to the shareholder for the consequences of the acceptance or
rejection.
(5) Corporate action based on the acceptance or rejection of a vote,
consent, waiver, or proxy appointment under this section is valid unless a court
of competent jurisdiction determines otherwise.
Section 3.10. ACTION BY SHAREHOLDERS WITHOUT MEETING.
(1) ACTION BY WRITTEN CONSENT. Any action which is required to be or
may be taken at any annual or special meeting of the shareholders of the
corporation may be taken without a meeting, without prior notice and without a
vote, if written consents which set forth the specific corporate action (the
"Corporate Action") to be taken have been signed by the holders of outstanding
shares of common stock which possess not less than the minimum number of votes
necessary to authorize or take such Corporate Action at an annual or special
meeting of shareholders at which all outstanding shares of common stock are
represented and the other requirements contained herein and in the corporation's
articles of incorporation and Florida law are complied with.
(2) DETERMINATION OF RECORD DATE FOR ACTION BY WRITTEN CONSENT. In
order to inform the corporation's shareholders and the investing public in
advance that a record date for action by written consent will occur and in order
that the corporation may determine the shareholders entitled to consent to
Corporate Action in writing without a meeting, the Board of Directors may fix a
record date for such action, which record date shall not precede the date upon
which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall not be more than 10 business days after
the date upon which the resolution fixing such record date is adopted by the
Board of Directors. Any Soliciting Party (as defined herein) who seeks to have
the shareholders authorize or take a Corporate Action by written consent must
advise the corporation by written notice (the "Solicitation Notice") delivered
to the Secretary of the corporation (the "Secretary"), which must be delivered
by certified mail, overnight courier or hand delivery, of the proposed Corporate
Action for which written consents will be sought and request that the Board of
Directors fix a record date. The record date for determining shareholders
entitled to consent to the Corporate Action in writing shall be fixed by the
Board of Directors by resolution within 10 business days after the date of
delivery of the Solicitation Notice. If the Board of Directors does not fix a
record date within the 10 business day-period after the date of delivery of the
Solicitation Notice, and no prior action by the Board of Directors is required
by Florida law, the corporation's articles of incorporation or these bylaws, the
record date shall be the first date on which a valid signed consent setting
forth the Corporate Action is delivered to the corporation in accordance with
<PAGE>
Florida law, the corporation's articles of incorporation and these bylaws. If
the Board of Directors does not fix a record date within the 10 business
day-period after the date of delivery of the Solicitation Notice and prior
action by the Board of Directors is required by Florida law, the corporation's
articles of incorporation or these bylaws, the record date shall be at the close
of business on the day on which the Board of Directors adopts the resolution
taking such prior action.
(3) DURATION AND REVOCATION OF CONSENTS. Consents to a Corporate Action
shall only be valid during the period ending 60 days after the date the first
valid signed consent regarding the proposed Corporate Action is delivered to the
corporation in accordance with Florida law, the corporation's articles of
incorporation and these bylaws. Consents may be revoked by written notice to (i)
the Secretary or (ii) any other officer or agent of the corporation having
custody of the book in which proceedings of meetings of shareholders are
recorded.
(4) RETENTION AND DUTIES OF INSPECTOR. Within 15 business days after
receipt of a Solicitation Notice, the Secretary shall engage a
nationally-recognized independent inspector of elections (the "Inspector") to
perform a review of any consents and revocations related to such Solicitation
Notice. The Inspector shall review all such consents and revocations, determine
whether the requisite number of valid and unrevoked consents has been obtained
to authorize or take the Corporate Action specified in the consents, and certify
such determination for entry in the records of the corporation. All costs of
retaining the Inspector shall be borne by the party which is soliciting
consents. For the purpose of permitting the Inspector to perform such review, no
action by written consent without a meeting shall be effective until such date
as the Inspector certifies to the corporation that the consents delivered to the
corporation in accordance with this Section 3.10 represent at least the minimum
number of votes that would be necessary to take the Corporate Action by written
consent.
(5) PROCEDURES FOR COUNTING AND CHALLENGING CONSENTS. All consents and
revocations shall be delivered to the Inspector upon receipt by the corporation
or its other designated agents. When such consents and revocations are received,
the Inspector shall review the consents and revocations and shall maintain a
count of the number of valid and unrevoked consents. As soon as practicable
after the end of the 60-day period provided for in paragraph (c), the Inspector
shall issue a preliminary report to the corporation and the Soliciting Party
stating:
(a) The number of valid and unrevoked consents;
(b) The number of valid revocations;
(c) The number of invalid consents;
(d) The number of invalid revocations; and
<PAGE>
(e) Based on a preliminary count, whether the requisite
number of valid and unrevoked consents has been
obtained to authorize or take the Corporate Action
specified in the consents.
Unless the corporation and the Soliciting Party shall agree to a
shorter or longer period, the corporation and the Soliciting Party shall each
have 48 hours to review the consents and revocations and to advise the Inspector
and the other party in writing whether they will challenge any of the
determinations set forth in the Inspector's preliminary report. Any such written
notice must describe with specificity the particular determinations set forth in
the preliminary report that are being challenged. Both the corporation and the
Soliciting Party may challenge any aspect of any of the consents or revocations.
If no written notice of a challenge to the preliminary report is received by the
Inspector within 48 hours after the issuance of the preliminary report, the
preliminary report of the Inspector shall become its final report.
If the corporation or the Soliciting Party or both deliver timely
written notice of a challenge to the preliminary report, the Inspector shall
hold a meeting as promptly as possible to allow the challenging party or parties
to present its or their challenges to any consents and/or revocations. The
Inspector shall adopt such reasonable procedures to be used at such meeting as
it deems necessary in its sole discretion. Representatives and counsel of the
corporation and the Soliciting Party may be present at such meeting. In such
meeting each challenging party (if there are two) and its counsel will be given
an opportunity to present documentation to support its position. The other party
will be given an opportunity to respond to a challenging party's presentation if
it so desires. A transcript of the meeting shall be recorded by a certified
court reporter and will be available for inspection by all parties. Following
completion of this meeting and a review of its results, the Inspector shall as
promptly as possible issue its final report to the corporation and the
Soliciting Party containing its final determinations plus any changes in the
preliminary totals as a result of any challenges and a certification of whether
the requisite number of valid and unrevoked consents was obtained to authorize
or take the Corporate Action specified in the consents. Nothing contained in
this paragraph shall in any way be construed to suggest or imply that the
corporation or any shareholder shall not be entitled to contest the validity of
any consent or revocation thereof or to take any other action (including,
without limitation, the commencement, prosecution or defense of any litigation
with respect thereto).
For purposes of determining the identity of the party which is
soliciting written consents, and to ensure that the limitations contained in
this Section are complied with, "Soliciting Party" shall include (x) any person
who directly or indirectly is the beneficial owner (within the meaning of Rule
13d-3 promulgated
<PAGE>
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of
shares of common stock of the corporation and who delivers a Solicitation Notice
to the corporation or on whose behalf a Solicitation Notice is delivered to the
corporation by the record holder of such shares, (y) any corporation,
partnership or other business entity which such person and/or his affiliates
control (as both terms are defined in Rule 12b-2 promulgated under the Exchange
Act), and (z) any group (within the meaning of Section 13(d)(3) of the Exchange
Act) of which such person is a member.
(6) NOTICE OF RESULT. Notice of any Corporate Action taken without a
meeting shall be given to those shareholders who have not consented in writing
to such Corporate Action or who were not entitled to vote on the Corporate
Action within five business days after the date on which such Corporate Action
becomes effective.
(7) AMENDMENT, REPEAL, ALTERATION OR MODIFICATION. This Section 3.10 of
the corporation's bylaws shall not be amended, repealed, altered or modified
until three years after its effective date, except by a vote or consent of
shareholders representing a majority of the then-issued and outstanding shares
entitled to vote thereon; provided, however, that this Section 3.10 of the
corporation's bylaws may be amended, repealed, altered or modified by the Board
of Directors when and to the extent that, in the written opinion of counsel, a
statutory amendment or judicial decision represents a material change in Florida
law relative to the subject matter hereof and the amendment, repeal, alteration
or modification is meant solely to conform with such change of law.
Section 3.11. FREQUENCY OF SOLICITATIONS FOR ACTION BY SHAREHOLDERS WITHOUT A
MEETING.
Notwithstanding any other provision of these bylaws or Florida law, a
Soliciting Party may only solicit (as such term is defined for purposes of
Section 14(a) of the Exchange Act and the regulations thereunder) written
consents from shareholders for any Corporate Action one time during each fiscal
year of the corporation. The corporation shall not (a) provide a shareholder
list or any other shareholder information to a Soliciting Party, (b) set a
record date pursuant to a Solicitation Notice (and no record date shall be set
in accordance with the next to last sentence of Section 3.10(2) of these
bylaws), or (c) have any obligation to mail any materials for or on behalf of
such Soliciting Party for any consent solicitation made by such Soliciting Party
which has already solicited written consents regarding the same or substantially
similar Corporate Action(s) (as determined by the Board of Directors in its
reasonable discretion) within the corporation's then-current fiscal year;
provided, however, that a Soliciting Party may solicit written consents twice in
such fiscal year if the corporation has not conducted an annual meeting of
shareholders within 16 months prior to the date that the Soliciting Party
delivers its Solicitation Notice for the second
<PAGE>
consent solicitation. For purposes of this Section 3.11, all parties contained
in the definition of "Soliciting Party" in Section 3.10(5) of these bylaws shall
be considered to be the same Soliciting Party for purposes of determining
whether a consent solicitation can be made during the fiscal year.
ARTICLE IV
BOARD OF DIRECTORS AND OFFICERS
Section 4.01. QUALIFICATIONS OF DIRECTORS.
Directors must be natural persons who are 18 years of age or older but
need not be residents of the State of Florida or shareholders of the
corporation.
Section 4.02. NUMBER OF DIRECTORS.
(1) The board of directors shall consist of not less than one nor more
than 15 individuals.
(2) The number of directors may be increased or decreased from time to
time by amendment to these bylaws by a majority of the directors or by a vote of
67% of the shares entitled to vote. If the terms of the directors are staggered
under Section 4.04 of these bylaws, any increase or decrease in the number of
directors shall be allocated proportionately among the classes. Any decrease in
the number of directors shall not prematurely shorten the term of any incumbent
director.
(3) Directors are elected at the first annual shareholders~ meeting and
at each annual meeting thereafter unless their terms are staggered under Section
4.04 of these bylaws.
Section 4.03. TERMS OF DIRECTORS GENERALLY.
(1) The terms of the initial directors of the corporation expire at the
first shareholders' meeting at which directors are elected.
(2) The terms of all other directors expire at the next annual
shareholders' meeting following their election unless their terms are staggered
under Section 4.04 of these bylaws.
(3) A decrease in the number of directors does not shorten an incumbent
director's term.
(4) The term of a director elected to fill a vacancy expires at the
next shareholders' meeting at which directors are elected.
<PAGE>
(5) Despite the expiration of a director's term, the director shall
continue to serve until that director's successor is elected and qualified or
until there is a decrease in the number of directors.
Section 4.04. STAGGERED TERMS FOR DIRECTORS.
The directors of the corporation may, by the articles of incorporation,
or by amendment to these bylaws adopted by a vote of the directors, be divided
into one, two or three classes with the number of directors in each class being
as nearly equal as possible; the term of office of those of the first class to
expire at the annual meeting next ensuing; of the second class one year
thereafter; at the third class two years thereafter; and at each annual election
held after such classification and election, directors shall be chosen for a
full term, as the case may be, to succeed those whose terms expire. If the
directors have staggered terms, then any increase or decrease in the number of
directors shall be so apportioned among the classes as to make all classes as
nearly equal in number as possible.
Section 4.05. VACANCY ON BOARD.
(1) Whenever a vacancy occurs on a board of directors, including a
vacancy resulting from an increase in the number of directors, it may be filled
by the affirmative vote of a majority of the remaining directors.
(2) A vacancy that will occur at a specific later date (by reason of a
resignation effective at a later date may be filled before the vacancy occurs
but the new director may not take office until the vacancy occurs.
(3) A director chosen as a result of this Section 4.06 or Section 4.02
shall hold such office until the next election of the class for which such
director has been chosen and until their successors shall be elected and
qualified.
Section 4.06. COMPENSATION OF DIRECTORS.
The board of directors may fix the compensation of directors.
Section 4.07. MEETINGS.
(1) The board of directors may hold regular or special meetings in or
out of the State of Florida.
(2) A majority of the directors present, whether or not a quorum
exists, may adjourn any meeting of the board of directors to another time and
place. Notice of any such adjourned meeting shall be given to the directors who
were not present at the time of the adjournment and, unless the time and place
of the adjourned meeting
<PAGE>
are announced at the time of the adjournment, to the other directors.
(3) Meetings of the board of directors may be called by the chairman of
the board or by the president.
(4) The board of directors may permit any or all directors to
participate in a regular or special meeting by, or conduct the meeting through
the use of, any means of communication by which all directors participating may
simultaneously hear each other during the meeting. A director participating in a
meeting by this means is deemed to be present in person at the meeting.
Section 4.08. ACTION BY DIRECTORS WITHOUT A MEETING.
(1) Action required or permitted by the Act to be taken at a board of
directors' meeting or committee meeting may be taken without a meeting if the
action is taken by all members of the board or of the committee. The action must
be evidenced by one or more written consents describing the action taken and
signed by each director or committee member.
(2) Action taken under this section is effective when the last director
signs the consent, unless the consent specifies a different effective date.
(3) A consent signed under this section has the effect of a meeting
vote and may be described as such in any document.
Section 4.09. NOTICE OF MEETINGS.
Regular and special meetings of the board of directors may be held
without notice of the date, time, place, or purpose of the meeting.
Section 4.10. WAIVER OF NOTICE.
Notice of a meeting of the board of directors need not be given to any
director who signs a waiver of notice either before or after the meeting.
Attendance of a director at a meeting shall constitute a waiver of notice of
such meeting and a waiver of any and all objections to the place of the meeting,
the time of the meeting, or the manner in which it has been called or convened,
except when a director states, at the beginning of the meeting or promptly upon
arrival at the meeting, any objection to the transaction of business because the
meeting is not lawfully called or convened.
<PAGE>
Section 4.11. QUORUM AND VOTING.
(1) A quorum of a board of directors consists of a majority of the
number of directors prescribed by the articles of incorporation or these bylaws.
(2) If a quorum is present when a vote is taken, the affirmative vote
of a majority of directors present is the act of the board of directors.
(3) A director of the corporation who is present at a meeting of the
board of directors or a committee of the board of directors when corporate
action is taken is deemed to have assented to the action taken unless:
(a) He objects at the beginning of the meeting (or promptly
upon his arrival) to holding it or transacting specified business at the
meeting; or
(b) He votes against or abstains from the action taken.
Section 4.12. POWERS OF THE DIRECTORS. In furtherance, and not in limitation of
the powers conferred to the Directors by statute, the Board of directors is
expressly authorized as follows:
(1) To make and alter the Bylaws of this corporation.
(2) To authorize and to cause to be executed mortgages and liens upon
the real and personal property of the corporation.
(3) To set apart out of any of the funds of the corporation available
for dividends a reserve or reserves for any proper purpose, or to abolish any
such reserve in the manner in which it was created.
(4) From time to time to determine whether and to what extent, at what
time and place, and under what conditions and regulations the accounts and books
of this corporation, or any of them, shall be open to inspection of any
stockholder; and no stockholder shall have any right to inspect any account,
book, or document of this corporation except as conferred by statute or by the
bylaws or as authorized by a resolution of the stockholders or board of
directors.
Section 4.13. COMMITTEES.
(1) The board of directors, by resolution adopted by a majority of the
full board of directors, may designate from among its members an executive
committee and one or more other committees each of which, to the extent provided
in such resolution and by these bylaws, shall have and may exercise all the
authority of the
<PAGE>
board of directors, except that no such committee shall have the authority to:
(a) Approve or recommend to shareholders actions or proposals
required by the Act to be approved by shareholders.
(b) Fill vacancies on the board of directors or any committee
thereof.
(c) Adopt, amend, or repeal these bylaws.
(d) Authorize or approve the reacquisition of shares unless
pursuant to a general formula or method specified by the board of directors.
(e) Authorize or approve the issuance or sale or contract for
the sale of shares, or determine the designation and relative rights,
preferences, and limitations of a voting group except that the board of
directors may authorize a committee (or a senior executive officer of the
corporation) to do so within limits specifically prescribed by the board of
directors.
(2) The sections of these bylaws which govern meetings, notice and
waiver of notice, and quorum and voting requirements of the board of directors
apply to committees and their members as well.
(3) Each committee must have two or more members who serve at the
pleasure of the board of directors. The board, by resolution adopted in
accordance herewith, may designate one or more directors as alternate members of
any such committee who may act in the place and stead of any absent member or
members at any meeting of such committee.
(4) Neither the designation of any such committee, the delegation
thereto of authority, nor action by such committee pursuant to such authority
shall alone constitute compliance by any member of the board of directors not a
member of the committee in question with his responsibility to act in good
faith, in a manner he reasonably believes 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
Section 4.14. LOANS TO OFFICERS. DIRECTORS, AND EMPLOYEES; GUARANTY OF
OBLIGATIONS.
The corporation may lend money to, guaranty any obligation of, or
otherwise assist any officer, director, or employee of the corporation or of a
subsidiary, whenever, in the judgment of the board of directors, such loan,
guaranty, or assistance may reasonably be expected to benefit the corporation.
The loan, guaranty, or other assistance may be with or without interest and
<PAGE>
may be unsecured or secured in such manner as the board of directors shall
approve, including, without limitation, a pledge of shares of stock of the
corporation. Nothing in this section shall be deemed to deny, limit, or restrict
the powers of guaranty or warranty of any corporation at common law or under any
statute. Loans, guaranties, or other types of assistance are subject to section
4.20.
Section 4.15. REQUIRED OFFICERS.
(1) The corporation shall have such officers as the board of directors
may appoint from time
(2) A duly appointed officer may appoint one or more assistant
officers.
(3) The board of directors shall delegate to one of the officers
responsibility for preparing minutes of the directors' and shareholders'
meetings and for authenticating records of the corporation.
(4) The same individual may simultaneously hold more than one office in
the corporation.
Section 4.16. DUTIES OF OFFICERS.
Each officer has the authority and shall perform the duties set forth
in a resolution or resolutions of the board of directors or by direction of any
officer authorized by the board of directors to prescribe the duties of other
officers.
Section 4.17. RESIGNATION AND REMOVAL OF OFFICERS.
(1) An officer may resign at any time by delivering notice to the
corporation. A resignation is effective when the notice is delivered unless the
notice specifies a later effective date. If a resignation is made effective at a
later date and the corporation accepts the future effective date, the board of
directors may fill the pending vacancy before the effective date if the board of
directors provides that the successor does not take office until the effective
date.
(2) The board of directors may remove any officer at any time with or
without cause. Any assistant officer, if appointed by another officer, may
likewise be removed by the board of directors or by the officer which appointed
him in accordance with these bylaws.
Section 4.18. CONTRACT RIGHTS OF OFFICERS.
The appointment of an officer does not itself create contract rights.
<PAGE>
Section 4.19. GENERAL STANDARDS FOR DIRECTORS.
(1) A director shall discharge his duties as a director, including his
duties as a member of a committee:
(a) In good faith;
(b) With the care an ordinarily prudent person in a like
position would exercise under similar circumstances; and
(c) In a manner he reasonably believes to be in the best
interests of the corporation.
(2) In discharging his duties, a director is entitled to rely on
information, opinions, reports or statements, including financial statements and
other financial data, if prepared or presented by:
(a) One or more officers or employees of the corporation whom
the director reasonably believes to be reliable and competent in the matters
presented;
(b) Legal counsel, public accountants, or other persons as to
matters the director reasonably believes are within the persons' professional or
expert competence; or
(c) A committee of the board of directors of which he is not a
member if the director reasonably believes the committee
(3) In discharging his duties, a director may consider such factors as
the director deems relevant, including the long-term prospects and interests of
the corporation and its shareholders, and the social, economic, legal, or other
effects of any action on the employees, suppliers, customers of the corporation
or its subsidiaries, the communities and society in which the corporation or its
subsidiaries operate, and the economy of the state and the nation.
(4) A director is not acting in good faith if he has knowledge
concerning the matter in question that makes reliance otherwise permitted by
subsection (2) unwarranted.
(5) A director is not liable for any action taken as a director, or any
failure to take any action, if he performed the duties of his office in
compliance with this section.
Section 4.20. DIRECTOR CONFLICTS OF INTEREST.
No contract or other transaction between a corporation and one or more
interested directors shall be either void or voidable because of such
relationship or interest, because such director or directors are present at the
meeting of the board of directors or
<PAGE>
a committee thereof which authorizes, approves or ratifies such contract or
transaction, or because his or their votes are counted for such purpose, if:
(1) 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 transactions by a vote or consent sufficient for the purpose WITHOUT
counting the votes or consents of such interested directors; -------
(2) The fact of such relationship or interest is disclosed or known to
the shareholders entitled to vote and they authorize, approve or ratify such
contract or transaction by vote or written consent; or
(3) The contract or transaction is fair and reasonable as to the
corporation at the time it is authorized by the board, a committee or the
shareholders.
Common or interested directors may be counted in determining the
presence of a quorum at the meeting of the board of directors or a committee
thereof which authorizes, approves or ratifies such contract or transaction.
For the purpose of paragraph (2) above, a conflict of interest
transaction is authorized, approved or ratified if it receives the vote of a
majority of the shares entitled to be counted under this subsection. Shares
owned by or voted under the control of a director who has a relationship or
interest in the conflict of interest transaction may not be counted in a vote of
shareholders to determine whether to authorize, approve or ratify a conflict of
interest transaction under paragraph (2). The vote of those shares, however, is
counted in determining whether the transaction is approved under other sections
of the Act. A majority of the shares, whether or not present, that are entitled
to be counted in a vote on the transaction under this subsection constitutes a
quorum for the purpose of taking action under this section.
Section 4.21. RESIGNATION OF DIRECTORS.
A director may resign at any time by delivering written notice to the
board of directors or its chairman or to the corporation.
A resignation is effective when the notice is delivered unless the
notice specifies a later effective date. If a resignation is made effective at a
later date, the board of directors may fill the pending vacancy before the
effective date if the board of directors provides that the successor does not
take office until the effective date.
<PAGE>
ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS
Section 5.01. DIRECTORS. OFFICERS. EMPLOYEES AND AGENTS.
(1) The corporation shall indemnify any director or executive officer
who was or is a party to any proceeding (other than an action by, or in the
right of, the corporation), by reason of the fact that he is or was a director
or executive officer of the corporation against liability incurred in connection
with such proceeding, including any appeal thereof, if he acted in good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any proceeding by judgment, order, settlement, or conviction or
upon a plea of nolo contendere or its equivalent shall not, of itself, create a
presumption that the director or executive officer did not act in good faith and
in a manner which he reasonably believed to be in, or not opposed to, the best
interests of the corporation or, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(2) The corporation shall have power to indemnify any person who was or
is a party to any proceeding (other than an action by, or in the right of, the
corporation), by reason of the fact that he is or was an employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise against liability incurred in connection
with such proceeding, including any appeal thereof, if he acted in good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any proceeding by judgment, order, settlement, or conviction or
upon a plea of nolo contendere or its equivalent shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
corporation or, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(3) The corporation shall indemnify any person, who was or is a party
to any proceeding by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that he is or was a director or executive
officer of the corporation, against expenses and amounts paid in settlement not
exceeding, in the judgment of the board of directors, the estimated expense of
litigating the proceeding to conclusion, actually and reasonably
<PAGE>
incurred in connection with the defense or settlement of such proceeding,
including any appeal thereof. Such indemnification shall be authorized if such
director or executive officer acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the corporation,
except that no indemnification shall be made under this subsection in respect of
any claim, issue, or matter as to which such director or executive officer shall
have been adjudged to be liable unless, and only to the extent that, the court
in which such proceeding was brought, or any other court of competent
jurisdiction, shall determine upon application that, despite the adjudication of
liability but in view of all circumstances of the case, such director or
executive officer is fairly and reasonably entitled to indemnity for such
expenses which such court shall deem proper.
(4) The corporation shall have power to indemnify any person, who was
or is a party to any proceeding by or in the right of the corporation to procure
a judgment in its favor by reason of the fact that he is or was an employee or
agent of the corporation or is or was serving at the request of the corporation
as a director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise, against expenses and amounts paid in
settlement not exceeding, in the judgment of the board of directors, the
estimated expense of litigating the proceeding to conclusion, actually and
reasonably incurred in connection with the defense or settlement of such
proceeding, including any appeal thereof. Such indemnification shall be
authorized if such person acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the corporation,
except that no indemnification shall be made under this subsection in respect of
any claim, issue, or matter as to which such person shall have been adjudged to
be liable unless, and only to the extent that, the court in which such
proceeding was brought, or any other court of competent jurisdiction, shall
determine upon application that, despite the adjudication of liability but in
view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court shall deem proper.
(5) To the extent that a director, officer, employee, or agent of the
corporation has been successful on the merits or otherwise in defense of any
proceeding referred to in subsections (1) or (2), or in defense of any claim,
issue, or matter therein, he shall be indemnified against expenses actually and
reasonably incurred by him in connection therewith.
(6) Any indemnification under subsections (1), (2), (3) and (4) unless
pursuant to a determination by a court, shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee, or agent is proper in the circumstances because he
has
<PAGE>
met the applicable standard of conduct set forth in subsections (1) or (2), (3)
and (4). Such determination shall be made:
(a) By the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such proceeding;
(b) If such a quorum is not obtainable or, even if obtainable,
by majority vote of a committee duly designated by the board of directors (in
which directors who are parties may participate) consisting solely of two or
more directors not at the time parties to the proceeding;
(c) By independent legal counsel:
(1) Selected by the board of directors prescribed in
paragraph (a) or the committee prescribed in paragraph (b); or
(2) If a quorum of the directors cannot be obtained
for paragraph (a) and the committee cannot be designed under paragraph (b),
selected by majority vote of the full board of directors (in which directors who
are parties may participate); or
(d) By the shareholders by a majority vote of a quorum
consisting of shareholders who were not parties to such proceeding or, if no
such quorum is obtainable, by a majority vote of shareholders who were not
parties to such proceeding.
(7) Evaluation of the reasonableness of expenses and authorization of
indemnification shall be made in the same manner as the determination that
indemnification is permissible. However, if the determination of permissibility
is made by independent legal counsel, persons specified by paragraph (6)(c)
shall evaluate the reasonableness of expenses and may authorize indemnification.
(8) Expenses incurred by an officer or director in defending a civil or
criminal proceeding may be paid by the corporation in advance of the final
disposition of such proceeding upon receipt of an undertaking by or on behalf of
such director or officer to repay such amount if he is ultimately found not to
be entitled to indemnification by the corporation pursuant to this section.
Expenses incurred by other employees and agents may be paid in advance upon such
terms or conditions that the board of directors deems appropriate.
(9) The indemnification and advancement of expenses provided pursuant
to this section are not exclusive, and the corporation may make any other or
further indemnification or advancement of expenses of any of its directors,
officers, employees, or agents, under any bylaw, agreement, vote of shareholders
or disinterested directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office.
<PAGE>
However, indemnification or advancement of expenses shall not be made to or on
behalf of any director, officer, employee, or agent if a judgment or other final
adjudication establishes that his actions, or omissions to act, were material to
the cause of action so adjudicated and constitute:
(a) A violation of the criminal law, unless the director,
officer, employee, or agent had reasonable cause to believe his conduct was
lawful or had no reasonable cause to believe his conduct was unlawful;
(b) A transaction from which the director, officer, employee,
or agent derived an improper personal benefit;
(c) In the case of a director, a circumstance under which the
liability provisions of Section 607.0834 under the Act are applicable; or
(d) Willful misconduct or a conscious disregard for the best
interests of the corporation in a proceeding by or in the right of the
corporation to procure a judgment in its favor or in a proceeding by or in the
right of a shareholder.
(10) Indemnification and advancement of expenses as provided in this
section shall continue as, unless otherwise provided when authorized or
ratified, to a person who has ceased to be a director, officer, employee, or
agent and shall inure to the benefit of the heirs, executors, and administrators
of such a person, unless otherwise provided when authorized or ratified.
(11) Notwithstanding the failure of the corporation to provide
indemnification, and despite any contrary determination of the board or of the
shareholders in the specific case, a director, officer, employee, or agent of
the corporation who is or was a party to a proceeding may apply for
indemnification or advancement of expenses, or both, to the court conducting the
proceeding, to the circuit court, or to another court of competent jurisdiction.
On receipt of an application, the court, after giving any notice that it
considers necessary, may order indemnification and advancement of expenses,
including expenses incurred in seeking court-ordered indemnification or
advancement of expenses, if it determines that:
(a) The director, officer, employee, or agent is entitled to
mandatory indemnification under subsection (5), in which case the court shall
also order the corporation to pay that person reasonable expenses incurred in
obtaining court-ordered indemnification or advancement of expenses;
(b) The director, officer, employee, or agent is entitled to
indemnification or advancement of expenses, or both, by
<PAGE>
virtue of the exercise by the corporation of its power pursuant to subsection
(9); or
(c) The director, officer, employee, or agent is fairly and
reasonably entitled to indemnification or advancement of expenses, or both, in
view of all the relevant circumstances, regardless of whether such person met
the standard of conduct set forth in subsection (1), subsection (2), subsection
(3), subsection (4) or subsection (9).
(12) For purposes of this section, the term "corporation~ includes, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger, so that
any person who is or was a director, officer, employee, or agent of a
constituent corporation, or is or was serving at the request of a constituent
corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust or other enterprise, is in the same position
under this section with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
(13) For purposes of this section:
(a) The term "other enterprises" includes employee benefit
plans;
(b) The term "expenses" includes counsel fees, including those
for appeal;
(c) The term "liability" includes obligations to pay a
judgment, settlement, penalty, fine (including an excise tax assessed with
respect to any employee benefit plan), and expenses actually and reasonably
incurred with respect to a proceeding;
(d) The term "proceeding" includes any threatened, pending, or
completed action, suit or other type of proceeding, whether civil, criminal,
administrative, or investigative and whether formal or informal;
(e) The term "agent" includes a volunteer;
(f) The term "serving at the request of the corporation~
includes any service as a director, officer, employee, or agent of the
corporation that imposes duties on such persons, including duties relating to an
employee benefit plan and its participants or beneficiaries; and
(g) The term "not opposed to the best interest of the
corporation describes the actions of a person who acts in good faith and in a
manner he reasonably believes to be in the best
<PAGE>
interests of the participants and beneficiaries of an employee benefit plan.
(14) The corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee,
or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise against any liability
asserted against him and incurred by him in any such capacity or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of this section.
ARTICLE VI
OFFICE AND AGENT
Section 6.01. REGISTERED OFFICE AND REGISTERED AGENT.
(1) The corporation shall have and continuously maintain in the State
of Florida:
(a) A registered office which may be the same as its place of
business; and
(b) A registered agent, who, may be either:
(1) An individual who resides in the State of Florida
whose business office is identical with such registered office; or
(2) Another corporation or not-for-profit corporation
as defined in Chapter 617 of the Act, authorized to transact business or conduct
its affairs in the State of Florida, having a business office identical with the
registered office; or
(3) A foreign corporation or not-for-profit foreign
corporation authorized pursuant to Chapter 607 or Chapter 617 of the Act to
transact business or conduct its affairs in the State of Florida, having a
business office identical with the registered office.
Section 6.02. CHANGE OF REGISTERED OFFICE OR REGISTERED AGENT: RESIGNATION OF
REGISTERED AGENT.
(1) The corporation may change its registered office or its registered
agent upon filing with the Department of State of the State of Florida a
statement of change setting forth:
(a) The name of the corporation;
<PAGE>
(b) The street address of its current registered office;
(c) If the current registered office is to be changed, the
street address of the new registered office;
(d) The name of its current registered agent;
(e) If its current registered agent is to be changed, the name
of the new registered agent and the new agent's written consent (either on the
statement or attached to it) to the appointment;
(f) That the street address of its registered office and the
street address of the business office of its registered agent, as changed, will
be identical;
(g) That such change was authorized by resolution duly adopted
by its board of directors or by an officer of the corporation so authorized by
the board of directors.
ARTICLE VII
SHARES, OPTIONS, DIVIDENDS AND DISTRIBUTIONS
Section 7.01. AUTHORIZED SHARES.
(1) The articles of incorporation prescribe the classes of shares and
the number of shares of each class that the corporation is authorized to issue,
as well as a distinguishing designation for each class, and prior to the
issuance of shares of a class the preferences, limitations, and relative rights
of that class must be described in the articles of incorporation.
(2) The articles of incorporation must authorize:
(a) One or more classes of shares that together have unlimited
voting rights, and
(b) One or more classes of shares (which may be the same class
or classes as those with voting rights) that together are entitled to receive
the net assets of the corporation upon dissolution.
(3) The articles of incorporation may authorize one or more classes of
shares that have special, conditional, or limited voting rights, or no rights,
or no right to vote, except to the extent prohibited by the Act;
(a) Are redeemable or convertible as specified in the articles
of incorporation;
<PAGE>
(b) Entitle the holders to distributions calculated in any
manner, including dividends that may be cumulative, noncumulative, or partially
cumulative;
(c) Have preference over any other class of shares with
respect to distributions, including dividends and distributions upon the
dissolution of the corporation.
(4) Shares which are entitled to preference in the distribution of
dividends or assets shall not be designated as common shares. Shares which are
not entitled to preference in the distribution of dividends or assets shall be
common shares and shall not be designated as preferred shares.
Section 7.02. TERMS OF CLASS OR SERIES DETERMINED BY BOARD OF DIRECTORS.
(1) If the articles of incorporation so provide, the board of directors
may determine, in whole or part, the preferences, limitations, and relative
rights (within the limits set forth in Section 7.01) of:
(a) Any class of shares before the issuance of any shares of
that class, or
(b) One or more series within a class before the issuance of
any shares of that series.
(2) Each series of a class must be given a distinguishing designation.
(3) All shares of a series must have preferences, limitations, and
relative rights identical with those of other shares of the same series and,
except to the extent otherwise provided in the description of the series, of
those of other series of the same class.
(4) Before issuing any shares of a class or series created under this
section, the corporation must deliver to the Department of State of the State of
Florida for filing articles of amendment, which are effective without
shareholder action, in accordance with Section 607.0602 of the Act.
Section 7.03. ISSUED AND OUTSTANDING SHARES.
(1) A corporation may issue the number of shares of each class or
series authorized by the articles of incorporation. Shares that are issued are
outstanding shares until they are reacquired, redeemed, converted, or canceled.
<PAGE>
(2) The reacquisition, redemption, or conversion of outstanding shares
is subject to the limitations of subsection (3) and to Section 607.06401 of the
Act.
(3) At all times that shares of the corporation are outstanding, one or
more shares that together have unlimited voting rights and one or more shares
that together are entitled to receive the net assets of the corporation upon
dissolution must be outstanding.
Section 7.04. ISSUANCE OF SHARES.
(1) The board of directors may authorize shares to be issued for
consideration consisting of any tangible or intangible property or benefit to
the corporation, including cash, promissory notes, services performed, promises
to perform services evidenced by a written contract, or other securities of the
corporation.
(2) Before the corporation issues shares, the board of directors must
determine that the consideration received or to be received for shares to be
issued is adequate. That determination by the board of directors is conclusive
insofar as the adequacy of consideration for the issuance of shares relates to
whether the shares are validly issued, fully paid, and non-assessable. When it
cannot be determined that outstanding shares are fully paid and non-assessable,
there shall be a conclusive presumption that such shares are fully paid and
non-assessable if the board of directors makes a good faith determination that
there is no substantial evidence that the full consideration for such shares has
not been paid.
(3) When the corporation receives the consideration for which the board
of directors authorized the issuance of shares, the shares issued therefor are
fully paid and non-assessable. Consideration in the form of a promise to pay
money or a promise to perform services is received by the corporation at the
time of the making of the promise, unless the agreement specifically provides
otherwise.
(4) The corporation may place in escrow shares issued for a contract
for future services or benefits or a promissory note, or make other arrangements
to restrict the transfer of the shares, and may credit distributions in respect
of the shares against their purchase price, until the services are performed,
the note is paid, or the benefits received. If the services are not performed,
the shares escrowed or restricted and the distributions credited may be canceled
in whole or part.
Section 7.05. FORM AND CONTENT OF CERTIFICATES.
(1) Shares may but need not be represented by certificates. Unless the
Act or another statute expressly provides otherwise, the
<PAGE>
rights and obligations of shareholders are identical whether or not their shares
are represented by certificates.
(2) At a minimum, each share certificate must state on its face:
(a) The name of the issuing corporation and that the
corporation is organized under the laws of the State of Florida;
(b) The name of the person to whom issued; and
(c) The number and class of shares and the designation of the
series, if any, the certificate represents.
(3) If the shares being issued are of different classes of shares or
different series within a class, the designations, relative rights, preferences,
and limitations applicable to each class and the variations in rights,
preferences, and limitations determined for each series (and the authority of
the board of directors to determine variations for future series) must be
summarized on the front or back of each certificate. Alternatively, each
certificate may state conspicuously on its front or back that the corporation
will furnish the shareholder a full statement of this information on request and
without charge.
(4) Each share certificate:
(a) Must be signed (either manually or in facsimile) by an
officer or officers designated by the board of directors, and
(b) May bear the corporate seal or its facsimile.
(5) If the person who signed (either manually or in facsimile) a share
certificate no longer holds office when the certificate is issued, the
certificate is nevertheless valid.
(6) Nothing in this section may be construed to invalidate any share
certificate validly issued and outstanding under the Act on July 1, 1990.
Section 7.06. SHARES WITHOUT CERTIFICATES.
(1) The board of directors of the corporation may authorize the issue
of some or all of the shares of any or all of its classes or series without
certificates. The authorization does not affect shares already represented by
certificates until they are surrendered to the corporation.
(2) Within a reasonable time after the issue or transfer of shares
without certificates, the corporation shall send the shareholder a written
statement of the information required on certificates by the Act.
<PAGE>
Section 7.07. RESTRICTION ON TRANSFER OF SHARES AND OTHER SECURITIES.
(1) The articles of incorporation, these bylaws, an agreement among
shareholders, or an agreement between shareholders and the corporation may
impose restrictions on the transfer or registration of transfer of shares of the
corporation. A restriction does not affect shares issued before the restriction
was adopted unless the holders of such shares are parties to the restriction
agreement or voted in favor of the restriction.
(2) A restriction on the transfer or registration of transfer of shares
is valid and enforceable against the holder or a transferee of the holder if the
restriction is authorized by this section, and effected in compliance with the
provisions of the Act, including having a proper purpose as referred to in the
Act.
Section 7.08. SHAREHOLDER'S PRE-EMPTIVE RIGHTS.
The shareholders of the corporation do not have a pre-emptive right to
acquire the corporation's unissued shares.
Section 7.09. CORPORATION'S ACQUISITION OF ITS OWN SHARES.
(1) The corporation may acquire its own shares, and, unless otherwise
provided in the articles of incorporation or except as provided in subsection
(4), shares so acquired constitute authorized but unissued shares of the same
class but undesignated as to series.
(2) If the articles of incorporation prohibit the reissue of acquired
shares, the number of authorized shares is reduced by the number of shares
acquired, effective upon amendment of the articles of incorporation.
(3) Articles of amendment may be adopted by the board of directors
without shareholder action, shall be delivered to the Department of State of the
State of Florida for filing, and shall set forth the information required by
Section 607.0631 of the Act.
(4) Shares of the corporation in existence on June 30, 1990, which are
treasury shares under Section 607.004(18), Florida Statutes (1987), shall be
issued, but not outstanding, until canceled or disposed of by the corporation.
Section 7.10. SHARE OPTIONS.
(1) Unless the articles of incorporation provide otherwise, the
corporation may issue rights, options, or warrants for the purchase of shares of
the corporation. The board of directors shall determine the terms upon which the
rights, options, or warrants are
<PAGE>
issued, their form and content, and the consideration for which the shares are
to be issued.
(2) The terms and conditions of stock rights and options which are
created and issued by the corporation, or its successor, and which entitle the
holders thereof to purchase from the corporation shares of any class or classes,
whether authorized by unissued shares, treasury shares, or shares to be
purchased or acquired by the corporation, may include, without limitation,
restrictions, or conditions that preclude or limit the exercise, transfer,
receipt, or holding of such rights or options by any person or persons,
including any person or persons owning or offering to acquire a specified number
or percentage of the outstanding common shares or other securities of the
corporation, or any transferee or transferees of any such person or persons, or
that invalidate or void such rights or options held by any such person or
persons or any such transferee or transferees.
Section 7.11. TERMS AND CONDITIONS OF STOCK RIGHTS AND OPTIONS.
The terms and conditions of the stock rights and options which are
created and issued by the corporation [or its successor], and which entitle the
holders thereof to purchase from the corporation shares of any class or classes,
whether authorized but unissued shares, treasury shares, or shares to be
purchased or acquired by the corporation, may include, without limitation,
restrictions or conditions that preclude or limit the exercise, transfer,
receipt or holding of such rights or options by any person or persons, including
any person or persons owning or offering to acquire a specified number or
percentage of the outstanding common shares or other securities of the
corporation, or any transferee or transferees of any such person or persons, or
that invalidate or void such rights or options held by any such person or
persons or any such transferee or transferees.
Section 7.12. SHARE DIVIDENDS.
(1) Shares may be issued pro rata and without consideration to the
corporation's shareholders or to the shareholders of one or more classes or
series. An issuance of shares under this subsection is a share dividend.
(2) Shares of one class or series may not be issued as a share dividend
in respect of shares of another class or series unless:
(a) The articles of incorporation so authorize,
(b) A majority of the votes entitled to be cast by the class
or series to be issued approves the issue, or
<PAGE>
(c) There are no outstanding shares of the class or series to
be issued.
(3) If the board of directors does not fix the record date for
determining shareholders entitled to a share dividend, it is the date of the
board of directors authorizes the share dividend.
Section 7.13. DISTRIBUTIONS TO SHAREHOLDERS.
(1) The board of directors may authorize and the corporation may make
distributions to its shareholders subject to restriction by the articles of
incorporation and the limitations in subsection (3).
(2) If the board of directors does not fix the record date for
determining shareholders entitled to a distribution (other than one involving a
purchase, redemption, or other acquisition of the corporation's shares), it is
the date the board of directors authorizes the distribution.
(3) No distribution may be made if, after giving it effect:
(a) The corporation would not be able to pay its debts as they
become due in the usual course of business; or
(b) The corporation's total assets would be less than the sum
of its total liabilities plus (unless the articles of incorporation permit
otherwise) the amount that would be needed, if the corporation were to be
dissolved at the time of the distribution, to satisfy the preferential rights
upon dissolution of shareholders whose preferential rights are superior to those
receiving the distribution.
(4) The board of directors may base a determination that a distribution
is not prohibited under subsection (3) either on financial statements prepared
on the basis of accounting practices and principles that are reasonable in the
circumstances or on a fair valuation or other method that is reasonable in the
circumstances. In the case of any distribution based upon such a valuation, each
such distribution shall be identified as a distribution based upon a current
valuation of assets, and the amount per share paid on the basis of such
valuation shall be disclosed to the shareholders concurrent with their receipt
of the distribution.
(5) Except as provided in subsection (7), the effect of a distribution
under subsection (3) is measured;
(a) In the case of distribution by purchase, redemption, or
other acquisition of the corporation's shares, as of the earlier of:
<PAGE>
1. The date money or other property is transferred or
debt incurred by the corporation, or
2. The date the shareholder ceases to be a
shareholder with respect to the acquired shares;
(b) In the case of any other distribution of indebtedness, as
of the date the indebtedness is distributed;
(c) In all other cases, as of:
1. The date the distribution is authorized if the
payment occurs within 120 days after the date of authorization, or
2. The date the payment is made if it occurs more
than 120 days after the date of authorization.
(6) A corporation's indebtedness to a shareholder incurred by reason of
a distribution made in accordance with this section is at parity with the
corporation's indebtedness to its general, unsecured creditors except to the
extent subordinated by agreement.
(7) Indebtedness of the corporation, including indebtedness issued as a
distribution, is not considered a liability for purposes of determinations under
subsection (3) if its terms provide that payment of principal and interest are
made only if and to the extent that payment of a distribution to shareholders
could then be made under this section. If the indebtedness is issued as a
distribution, each payment of principal or interest is treated as a
distribution, the effect of which is measured on the date the payment is
actually made.
ARTICLE VIII
AMENDMENT OF ARTICLES AND BYLAWS
Section 8.01. AUTHORITY TO AMEND THE ARTICLES OF INCORPORATION.
(1) The corporation may amend its articles of incorporation at any time
to add or change a provision that is required or permitted in the articles of
incorporation or to delete a provision not required in the articles of
incorporation. Whether a provision is required or permitted in the articles of
incorporation is determined as of the effective date of the amendment.
(2) A shareholder of the corporation does not have a vested property
right resulting from any provision in the articles of incorporation, including
provisions relating to management, control, capital structure, dividend
entitlement, or purpose or duration of the corporation.
<PAGE>
Section 8.02. AMENDMENT BY BOARD OF DIRECTORS.
The corporation's board of directors may adopt one or more amendments
to the corporation's articles of incorporation without shareholder action:
(1) To extend the duration of the corporation if it was incorporated at
a time when limited duration was required by law;
(2) To delete the names and addresses of the initial directors;
(3) To delete the name and address of the initial registered agent or
registered office, if a statement of change is on file with the Department of
State of the State of Florida;
(4) To delete any other information contained in the articles of
incorporation that is solely of historical interest;
(5) To change each issued and unissued authorized share of an
outstanding class into a greater number of whole shares if the corporation has
only shares of that class outstanding;
(6) To delete the authorization for a class or series of shares
authorized pursuant to Section 607.0602 of the Act, if no shares of such class
or series have been issued;
(7) To change the corporate name by substituting the word
"corporation," "incorporated," or "company," or the abbreviation "corp.," Inc.,"
or Co.," for a similar word or abbreviation in the name, or by adding, deleting,
or changing a geographical attribution for the name; or
(8) To make any other change expressly permitted by the Act to be made
without shareholder action.
Section 8.03. AMENDMENT OF BYLAWS BY BOARD OF DIRECTORS.
The corporation's board of directors may amend or repeal the
corporation's bylaws unless the Act reserves the power to amend a particular
bylaw provision exclusively to the shareholders.
Section 8.04. BYLAW INCREASING QUORUM OR VOTING REQUIREMENTS FOR DIRECTORS.
(1) A bylaw that fixes a greater quorum or voting requirement for the
board of directors may be amended or repealed:
(a) If originally adopted by the shareholders, only by the
shareholders;
<PAGE>
(b) If originally adopted by the board of directors, either by
the shareholders or by the board of directors.
(2) A bylaw adopted or amended by the shareholders that fixes a greater
quorum or voting requirement for the board of directors may provide that it may
be amended or repealed only by a specified vote of either the shareholders or
the board of directors.
(3) Action by the board of directors under paragraph (l)(b) to adopt or
amend a bylaw that changes the quorum or voting requirement for the board of
directors must meet the same quorum requirement and be adopted by the same vote
required to take action under the quorum and voting requirement then in effect
or proposed to be adopted, whichever is greater.
ARTICLE IX
RECORDS AND REPORTS
Section 9.01. CORPORATE RECORDS.
(1) The corporation shall keep as permanent records minutes of all
meetings of its shareholders and board of directors, a record of all actions
taken by the shareholders or board of directors without a meeting, and a record
of all actions taken by a committee of the board of directors in place of the
board of directors on behalf of the corporation.
(2) The corporation shall maintain accurate accounting records.
(3) The corporation or its agent shall maintain a record of its
shareholders in a form that permits preparation of a list of the names and
addresses of all shareholders in alphabetical order by class of shares showing
the number and series of shares held by each.
(4) The corporation shall maintain its records in written form or in
another form capable of conversion into written form within a reasonable time.
(5) The corporation shall keep a copy of the following records:
(a) Its articles or restated articles of incorporation and all
amendments to them currently in effect;
(b) Its bylaws or restated bylaws and all amendments to them
currently in effect;
<PAGE>
(c) Resolutions adopted by the board of directors creating one
or more classes or series of shares and finding their relative rights,
preferences, and limitations, if shares issued pursuant to those resolutions are
outstanding;
(d) The minutes of all shareholders' meetings and records of
all action taken by shareholders without a meeting for the past three years;
(e) Written communications to all shareholders generally or
all shareholders of a class or series within the past three years, including the
financial statements furnished for the past three years;
(f) A list of the names and business street addresses of its
current directors and off
(g) Its most recent annual report delivered to the Department
of State of the State of Florida.
Section 9.02. FINANCIAL STATEMENTS FOR SHAREHOLDERS.
(1) Unless modified by resolution of the shareholders within 120 days
of the close of each fiscal year, the corporation shall furnish its shareholders
annual financial statements which may be consolidated or combined statements of
the corporation and one or more of its subsidiaries, as appropriate, that
include a balance sheet as of the end of the fiscal year, an income statement
for that year, and a statement of cash flows for that year. If financial
statements are prepared for the corporation on the basis of generally-accepted
accounting principles, the annual financial statements must also be prepared on
that basis.
(2) If the annual financial statements are reported upon by a public
accountant, his report must accompany them. If not, the statements must be
accompanied by a statement of the president or the person responsible for the
corporation's accounting records:
(a) Stating his reasonable belief whether the statements were
prepared on the basis of generally-accepted accounting principles and, if not,
describing the basis of preparation; and
(b) Describing any respects in which the statements were not
prepared on a basis of accounting consistent with the statements prepared for
the preceding year.
(3) The corporation shall mail the annual financial statements to each
shareholder within 120 days after the close of each fiscal year or within such
additional time thereafter as is reasonably necessary to enable the corporation
to prepare its financial statements, if for reasons beyond the corporation's
control, it is unable to prepare its financial statements within
<PAGE>
the prescribed period. Thereafter, on written request from a shareholder who was
not mailed the statements, the corporation shall mail him the latest annual
financial statements.
Section 9.03. OTHER REPORTS TO SHAREHOLDERS.
(1) If the corporation indemnifies or advances expenses to any
director, officer, employee or agent otherwise than by court order or action by
the shareholders or by an insurance carrier pursuant to insurance maintained by
the corporation, the corporation shall report the indemnification or advance in
writing to the shareholders with or before the notice of the next shareholders'
meeting, or prior to such meeting if the indemnification or advance occurs after
the giving of such notice but prior to the time such meeting is held, which
report shall include a statement specifying the persons paid, the amounts paid,
and the nature and status at the time of such payment of the litigation or
threatened litigation.
(2) If the corporation issues or authorizes the issuance of shares for
promises to render services in the future, the corporation shall report in
writing to the shareholders the number of shares authorized or issued, and the
consideration received by the corporation, with or before the notice of the next
shareholders' meeting.
Section 9.04. ANNUAL REPORT FOR DEPARTMENT OF STATE.
(1) The corporation shall deliver to the Department of State of the
State of Florida for filing a sworn annual report on such forms as the
Department of State of the State of Florida prescribes that sets forth the
information prescribed by section 607.1622 of the Act.
(2) Proof to the satisfaction of the Department of State of the State
of Florida on or before July 1 of each calendar year that such report was
deposited in the United States mail in a sealed envelope, properly addressed
with postage prepaid, shall be deemed in compliance with this requirement.
(3) Each report shall be executed by the corporation by an officer or
director or, if the corporation is in the hands of a receiver or trustee, shall
be executed on behalf of the corporation by such receiver or trustee, and the
signing thereof shall have the same legal effect as if made under oath, without
the necessity of appending such oath thereto.
(4) Information in the annual report must be current as of the date the
annual report is executed on behalf of the corporation.
<PAGE>
(5) Any corporation failing to file an annual report which complies
with the requirements of this section shall not be permitted to maintain or
defend any action in any court of this state until such report is filed and all
fees and taxes due under the Act are paid and shall be subject to dissolution or
cancellation of its certificate of authority to do business as provided in the
Act.
ARTICLE X
MISCELLANEOUS
Section 10.01. DEFINITION OF THE "ACT."
All references contained herein to the "Act" or to sections of the
"Act" shall be deemed to be in reference to the Florida Business Corporation
Act.
Section 10.02. APPLICATION OF FLORIDA LAW.
Whenever any provision of these bylaws is inconsistent with any
provision of the Florida Business Corporation Act, Statutes 607, as they may be
amended from time to time, then in such instance Florida law shall prevail.
Section 10.03. FISCAL YEAR.
The fiscal year of the corporation shall be determined by resolution of
the board of directors.
Section 10.04. CONFLICTS WITH ARTICLES OF INCORPORATION.
In the event that any provision contained in these bylaws conflicts
with any provision of the corporation's articles of incorporation, as amended
from time to time, the provisions of the articles of incorporation shall prevail
and be given full force and effect, to the full extent permissible under the
Act.
Section 10.05. PARTIAL INVALIDITY.
If any provision of these bylaws shall, for any reason, be held by a
court of competent jurisdiction to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of these bylaws, and these bylaws shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
EXHIBIT 23.1
SPEAR, SAFER, HARMON & CO. LETTERHEAD
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this Form 10-KSB being filed under the Securities
Exchange Act of 1934 by Andean Development Corporation of our report dated
February 5, 1998, relating to our examinations of the consolidated financial
statements of Andean Development Corporation as of December 31, 1997 and 1996
appearing in the aforementioned Form 10-KSB.
/S/ SPEAR, SAFER, HARMON & CO.
- ------------------------------
Spear, Safer, Harmon & Co.
Miami, Florida
April 10, 1998
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<ARTICLE> 5
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 853,131
<SECURITIES> 0
<RECEIVABLES> 3,205,385
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 638,038
<PP&E> 774,826
<DEPRECIATION> (101,951)
<TOTAL-ASSETS> 10,807,014
<CURRENT-LIABILITIES> 1,844,578
<BONDS> 0
0
0
<COMMON> 282
<OTHER-SE> 8,756,083
<TOTAL-LIABILITY-AND-EQUITY> 10,807,014
<SALES> 3,879,062
<TOTAL-REVENUES> 3,879,062
<CGS> 1,773,165
<TOTAL-COSTS> 1,053,221
<OTHER-EXPENSES> (67,046)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,795
<INCOME-PRETAX> 1,080,040
<INCOME-TAX> 142,137
<INCOME-CONTINUING> 937,903
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 937,903
<EPS-PRIMARY> .33
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