FAN ENERGY
INC.
0000 Xxxxxxxx, Xxxxx 000 x Xxxxxx, Xxxxxxxx 00000-0000 °Tel: (000)
000-0000 ° Fax: (000) 000-0000
January 5, 2001
VIA FACSIMILE
Xx. Xxxx Xxxxxxxx
0000 Xxxxxxx Xxxxx, Xxxxx 000
Xxxx, Xxxxxx 00000
Re:
Purchase of Manufacturing Assets
Dear Xx. Xxxxxxxx:
This
letter constitutes the definitive agreement pursuant to which Fan Energy Inc., a
Nevada corporation (“Fan”), will purchase certain rights, property and
assets from you and persons or entities with which you are associated or who
will join you in the transaction described in this letter agreement (together
the “Sellers”). The purchase by Fan of the assets described in this
agreement shall be subject to the following agreements, terms and conditions.
For
consideration, the receipt and sufficient of which is hereby acknowledged by Fan
and the Sellers, it is agreed as follows:
1. Identification of Sellers. The Sellers, from whom Fan will acquire the
Assets (as described below), are those persons and entities described on
Exhibit A attached hereto and incorporated herein by reference.
2. Description of Assets. The assets, rights and property which Fan
will purchase from the Sellers at the Closing (hereafter the
“Assets”), are described in detail on Exhibit B attached hereto
and incorporated herein by reference. The parties agree that Exhibit B
shall be modified from time to time to add various items of equipment, parts or
other miscellaneous assets intended by the parties to be included in the
purchase by Fan but which were inadvertently omitted from Exhibit B.
3. Agreement to Sell and Purchase. At the Closing, Fan agrees to purchase and
Sellers agree to sell to Fan, the Assets for the purchase price described below.
4. Purchase Price. As consideration for the purchase of the Assets,
at the Closing, Fan shall issue to the Sellers a total of nineteen million two
hundred fifty thousand (19,250,000) shares of Fan’s restricted common stock
(the “Shares”). The Shares shall be issued to each of the Sellers in
the amounts set forth on Exhibit A. The Sellers represent and agree with
and among each of the other Sellers and with Fan that each Seller agrees to
accept the number of shares of Fan common stock set forth on Exhibit A as
full consideration to the Seller for all of his or its right, title and/or
interest in and to any and all of the Assets.
5. Conveyance of Assets. At the time of Closing (as defined below)
the Assets shall be transferred, assigned and conveyed to Fan free and clear of
any liens, restrictions, claims of third parties or other obligations whatsoever
except as is specifically referred to in this Agreement, or noted in writing on
Exhibit B. The parties acknowledge that certain of the Assets are owned
by certain of the Sellers and that not all of the Sellers hold an ownership or
other interest in some of the Assets. What the parties intend is that each
Seller with a direct or beneficial ownership interest in any of the Assets shall
transfer, assign and convey all of his right, title and/or interest in the
Assets to Fan. Until and unless a separate document of conveyance is executed
and delivered, this Agreement may be deemed by the parties to constitute a
formalization of the transfer by each of the Sellers to Fan of all ownership
interests in the Assets. It is understood and agreed that the individual Sellers
may, for the purpose of this transaction pool all, some or none of their assets
into one entity for tax purposes prior to the formalization of the transfer of
assets to Fan.
6. Lien on Shares. Each of the Sellers acknowledges and agrees that
those Shares Listed as Security Shares on Exhibit A shall be subject to a
security interest and lien in favor of Fan to secure the prompt payment in full
of promissory notes dated January 5, 2001, as summarized on Exhibit C
attached hereto and incorporated herein by reference (“Promissory
Notes”), from one investor, totaling [$600,000] in principal amount, due in
three equal payments of principal and accrued interest and required to be paid
in full on or before May 16, 2001. By signing this Agreement, that one investor
shall be deemed to create a security interest and lien in the Shares identified
as Security Shares on Exhibit A to secure payment in full of all of the
Promissory Notes. The investor agrees that while the Shares shall be issued as
described on Exhibit A at the Closing, possession of certificates
representing the Security Shares shall be retained by Fan until such time as all
of the Promissory Notes have been paid in full. If for any reason any of the
Promissory Notes shall be in default, then Fan may, upon 10 days written notice
to the Sellers, foreclose upon any or all of the Security Shares in accordance
with the Uniform Commercial Code as adopted in Nevada.
7. Representations and Warranties of the Sellers. Except as disclosed
in writing to Fan (which disclosure shall be attached to, and become a part of,
this Agreement), the Sellers joint and severely represent and warrant to Fan as
follows:
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(a) Authority. This Agreement and the conveyance and transfer of the
Assets to Fan has been duly authorized, executed and delivered by, and is a
valid and binding agreement of, each of the Sellers, enforceable in accordance
with its terms, and no further action, approvals or consents are necessary on
the part of any of the Sellers or any equity interest holder in any of the
Sellers or any governmental agency, or otherwise, to make this Agreement valid
and binding upon the Sellers in accordance with the terms of this Agreement, or
to enable Sellers to perform this Agreement and the transactions contemplated
hereby.
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(b) Title to Assets; Encumbrances. The Assets are all located at the
address set forth on the first page of this Agreement and constitute all of the
real, personal, intangible and intellectual property necessary for Fan to engage
in the 3.5” Micro Floppy Disk finish manufacturing business which Fan
intends to conduct using the Assets after the Closing of this transaction. No
property or assets held by any of the Sellers which are necessary or useful for
the conduct of such business by Fan following the Closing have been withheld or
deleted from Exhibit B and all such Assets shall be included in
Exhibit B. The Sellers have good and marketable title to all of the
Assets to be conveyed and transferred to Fan, whether real, personal, mixed,
tangible, intangible or intellectual property and all of the Assets are free and
clear of restrictions on, or conditions to, transfer or assignment, and are free
and clear of mortgages, liens, pledges, charges, encumbrances, equities, claims,
easements, rights of way, covenants, conditions or restrictions. The Assets will
be acquired by Fan free and clear of any adverse claims, liens, charges,
encumbrances whatsoever.
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(c) Leases. The real estate lease for the real property where the
Assets described on Exhibit B are housed are valid and binding
obligations of APG Associates, LLC is in full force and effect and has a
remaining term not less than one year and that there are reasonable extensions
available. The real estate lease may be assigned to Fan in accordance with the
terms of the lease or pursuant to written approval from the lessors, and the
current lessees under such leases may remain secondarily liable for the
obligations under the lease. As of the date of Closing, no party to any of the
leases is in default with respect to any term or condition thereof, and no event
has occurred or is expected to occur which, with the passage of time or the
giving of notice, or both, would constitute a default thereunder, or would cause
acceleration of any obligations of any party thereto or the creation of a lien
or encumbrance upon any properties or the Assets of any of the Sellers nor of
Fan following the Closing. The lease does not contain any provisions which, as a
result of, or after the sale of the Assets to Fan, would hinder or prevent Fan
from continuing to use any of the properties or the Assets in the manner in
which they are intended to be used as described in this Agreement, or would
impose additional costs as a condition to their continued effectiveness.
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(d) Costs of Assets. The Sellers reasonably believe that the net
auditable cost to the Sellers for all of the Assets is at least $3.75 million
and the Sellers reasonably believe that the fair market value of all such
Assets, taken together, would be approximately that amount. |
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(e)
Taxes. Any property, real estate, or similar taxes which have
been assessed or to which any of the Assets may be subject, have been paid in
full through the date of the last required payment, and Sellers have disclosed
to Fan all of such taxes applicable to the Assets, and there are no other taxes
or similar charges applicable against any of the Assets.
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(f) Insurance. The principal components of the Assets are insured for
appropriate coverage from fire, liability and other appropriate coverages, or
are insurable and will be placed under appropriate insurance coverage within 30
days following the Closing; the insurance contracts are assignable to Fan and
Fan will become a named beneficiary under all applicable policies within 30 days
from the Closing. |
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(g) Compliance With Law. To the knowledge of any of the Sellers,
there has not been, and there is not now existing, any violation of any federal,
state or local laws, regulations or orders relating to the use of the Assets, or
the planned business of manufacturing and selling 3.5" micro floppy disks,
and all licenses, permits and certificates from appropriate governmental
agencies necessary for the conduct of the 3.5” micro floppy disks
manufacturing business at their present location have been properly applied for
and have either been received or are expected to be received in the ordinary
course of business. No claim has been made by any governmental authority (and no
such claim is anticipated by any of the Sellers) to the effect that the proposed
business be conducted by Fan following the Closing fails to comply, in any
respect, with any law, rule, regulation or ordinance, or that a license, permit
or order is necessary with respect thereto.
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(h) Litigation and Proceedings. There are no actions, suits,
proceedings or investigations, pending or, to the knowledge of any of the
Sellers, threatened against or effecting the Assets or the use by any of the
Sellers of any of the Assets, at law or in equity, or before or by any
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, or before any arbitrator of any kind, and no Seller knows
of any valid basis for any such action, suit, proceeding or investigation. None
of the Assets is subject to any judgment, order, writ, injunction, decree or
award of any court, arbitrator or governmental department, commission, board,
bureau, agency or instrumentality. |
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(i) Truth of Representations and Warranties. No representation,
warranty or statement made, or information provided by any of the Sellers in
this Agreement or any written disclosure relating to any aspect of this
Agreement, including the above representations and warranties, contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact necessary to make the statements or facts contained therein not
misleading in light of the circumstances in which such statements are or will be
made. |
8. Representations and Warranties of Fan. Fan represents and warrants to the
Sellers as follows:
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(a) Organization and Related Matters. Fan is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Nevada and is authorized to conduct business as a foreign corporation in the
states of Colorado and California. Fan has the power and authority under its
corporate charter to carry on its business as now being conducted and to acquire
the Assets and enter into the business of developing, marketing and
manufacturing 3.5” micro floppy disks. |
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(b) Authorization of Transaction. In accordance with the Articles of
Incorporation and the Bylaws of Fan, the Board of Directors of Fan have duly
adopted resolutions authorizing this Agreement and the purchase of the Assets.
This Agreement has been duly executed and delivered by, and is a valid and
binding agreement of, Fan enforceable in accordance with its terms, and no
further action, approvals or consents are necessary on the part of Fan,
including any review or approval by stockholders of Fan. |
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(c) Public Reporting Entity. Fan is, and has been since 1999, a
public reporting corporation which files annual reports on Form 10-KSB,
quarterly reports on Form 10-QSB and current reports on Form 8-K under the
Securities Exchange Act of 1934, as amended. All such reports have been timely
filed through the date hereof. Fan has delivered or made available to each of
the Sellers copies of Fan’s most recent Quarterly Report on Form 10-QSB for
the quarter ended September 30, 2000 and the Annual Report on Form 10-KSB for
the fiscal year of Fan ended December 31, 1999. The information in the financial
statements, including the capitalization of Fan, included in such reports is
complete, accurate and in compliance with applicable regulations.
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(d) Authorization of Shares. Fan is authorized to issue the Shares as
described on Exhibit A. The Shares shall be “restricted
securities” as such term is defined in Rule 144 adopted under the
Securities Act of 1933, as amended, and may not be sold, conveyed, transferred
or hypothecated by any of the Sellers until and unless the Shares are registered
under the Act or the sale or transfer would be exempt from the registration
requirements of the Act in the reasonable determination of Fan.
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(e) Control of Board of Directors. No later than the date which is 10
days following notification of Fan’s stockholders that it intends to do so,
Fan shall appoint three persons designated by Sellers to the Board of Directors
of Fan. At the Closing, Xxxx X. Xxxxxxxx shall be appointed as the President of
Fan. Until the new members of the Board of Directors are appointed, Fan shall
take no action inconsistent with the completion of the purchase described in
this Agreement and entering into the business of developing, manufacturing and
marketing 3.5” micro floppy disks nor expend any material amount of funds
otherwise than was in the ordinary course of Fan’s business prior to the
Closing or implementation of the floppy disk business.
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9. Conduct of Business Pending the Closing. Between the date of this
Agreement and the Closing, and except as otherwise consented to by Fan and the
Sellers in writing, the Sellers shall cause the Assets to be maintained in their
present location and in their present condition and Fan shall take no action
other than in the ordinary course of its business as it existed prior to the
completion of this Agreement and otherwise inconsistent with the matters
described in this Agreement. No party will take any action of any nature which
would make, or might tend to make, any of the representations or warranties set
forth in this Agreement inaccurate or incomplete at the time of the Closing.
10. Independent Evaluation of Assets. Promptly upon completion of the
Closing, the parties shall arrange for a qualified independent evaluator,
reasonably acceptable to Fan and its independent outside auditors, to conduct an
independent appraisal or other evaluation of all of the Assets on an
item-by-item basis on the assumption that the Assets will be used to conduct the
business of developing, manufacturing and marketing 3.5” micro floppy
disks. The parties shall use their best reasonable efforts to complete such an
evaluation by no later than February 20, 2001. If the fair market value of all
the Assets, valued in a manner which will permit Fan to include that amount on
its Balance Sheet following the Closing, taken together or independently,
whichever is higher, as established by the evaluation, is less than $1.95
million, then the Sellers shall be obligated to pay to Fan an amount of cash
equal to the difference between $1.95 million and the permitted carrying value
for all of the Assets on Fan’s audited Balance Sheet within one (1) year
from the date of the evaluation. The cash which would be required to be paid by
the Sellers to Fan in such event shall be paid pro rata by the Sellers in
accordance with the relative number of the Shares to be issued to each by Fan in
the transaction. Each of the Sellers hereby agrees that Fan shall have a lien
against the number of Shares, at $0.10 per share, that are necessary to equal to
the amount calculated under this Section, if any such amount shall become
payable, in order to enforce the obligation of the Sellers to pay any amount due
as a result of an unsatisfactory evaluation as described in this Section.
Fan
shall pay fees and expenses of the qualified evaluator who appraises the Assets
as described in this Section.
11. Purchase for Investment. In connection with the acquisition of the
Shares, each of the undersigned Sellers represents and warrants the following to
Fan:
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(a) Purchase for Investment. Each Seller is purchasing the number of
Shares set forth opposite Sellers’ name on Exhibit A for such
person’s own account for investment purposes, and not on behalf of any
other person or entity and not with a view towards any distribution in violation
of applicable securities laws.
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(b) Restricted Securities. Acquisition of the Shares is made without
registration under the Securities Act of 1933, as amended, pursuant to an
exemption from the registration requirements of the Act and exemption from
registration or qualification requirements under applicable state laws. Each
Seller acknowledges the following restrictions applicable to the Shares being
issued pursuant to this Agreement:
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(i) The Seller understands that
an investment in the Shares is illiquid and that there is not now and may never
by a trading market in the Shares;
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(ii)
Seller cannot sell or otherwise transfer the Shares unless and until the
securities have been registered under the Act and any applicable state
securities laws or unless exemptions from such registration requirements are
applicable to the reasonable satisfaction of Fan;
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(iii) The following restrictive
legend will be placed on certificates evidencing the Shares:
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The
securities represented by this certificate may not be offered for sale, sold or
otherwise transferred except pursuant to an effective registration statement
under the Securities Act of 1933 (the “Act”), or pursuant to an
exemption from registration under the Act, the availability of which is to be
established to the satisfaction of the company. |
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(iv) The Shares are restricted
securities as that term is defined under the Act and no Seller will be able to
sell any of such securities without compliance with the terms of the Act and any
applicable state securities laws; and |
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(v) No Seller has any right to
require Fan to register the securities under federal or state securities laws at
any time or to join in any future registration thereof. |
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(c) Accredited Investor.
Each Seller qualifies as an "accredited investor" as such term is defined under
Regulation D adopted under the Securities Act of 1933, as amended. |
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(d) Access to Information. Each Seller has had full access to all
publicly filed information concerning the business and affairs of Fan and has
received such information concerning the financial and business condition of Fan
and its present and planned business, its officers and directors and the
potential risks which Fan will face as it attempts to enter into the business of
developing, manufacturing and marketing 3.5” micro floppy disks.
Accordingly, each Seller has received or had access to all information which the
Sellers, individually and collectively, deemed to be material to the investment
decision by each Seller to enter into this transaction and to receive the Fan
Shares.
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12. Nature and Survival of Covenants, Representations and Warranties.
All of the covenants, representations and warranties set forth in this Agreement
shall remain in full force and effect for a period of 24 months from the Closing
regardless of any investigation, verification or approval by any party hereto or
by anyone or on behalf of any party hereto.
13. Conditions to Closing. The obligations of the parties to complete the
transaction at the Closing shall be subject to the following conditions:
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(a) Accuracy of
Representations and Warranties. All representations and warranties by the
Sellers and by Fan shall be true and correct on and as of the Closing as though
made at that time.
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(b) No Material Adverse Changes. Through the Closing, there shall not
have been any material adverse changes in the financial condition or the results
of operations of Fan, and none of the Assets shall have been subject to any
material adverse changes, whether or not insured, which materially affects the
value or utility of the Assets.
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(c) Absence of Litigation. No action, suit or proceeding before any
court or any governmental body or authority, pertaining to the transaction
contemplated by this Agreement or to the title to any of the Assets shall have
been instituted or threatened on or before the Closing.
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14. Closing.
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(a) Date and Place. The transfer of title of the Assets to Fan and
the issuance of the Shares to the Sellers (the “Closing”) shall take
place at the earliest practicable date but not later than January 5, 2001 (the
“Closing Date”). The Closing shall take place at the offices of
Xxxxxxx Xxxxxxx in Scottsdale, Arizona.
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(b) Sellers’ Obligations at Closing. At the Closing, the Sellers
shall deliver to Fan any and all Bills of Sale, assignments of title, title
certificates, assignments of right and other indicia of transfer of title as Fan
shall reasonably request relating to all of the Assets and all other assets
intended to be included in the sale by Sellers to Fan. Preparation and delivery
or specific title transfer instruments for each Asset may be deferred for up to
15 days; in such event this Agreement shall be deemed by the parties to
constitute an assignment and transfer of all of the Assets.
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(c) Fan's Obligation at Closing. At the Closing, Fan shall issue the Shares
as described on Exhibit A. Fan shall retain possession of all such
certificates as described elsewhere in this Agreement. Xxxx Xxxxxxxx shall be
elected the President of Fan.
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(d) Documents of Further Assurance. Each of the Sellers agrees and
undertakes that upon any request from Fan, any requested Seller shall
immediately sign, acknowledge and deliver to Fan any document or instrument
reasonably required to properly evidence the transfer, assignment or conveyance
of any of the Asset to Fan.
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15. Indemnification. Each of the Sellers hereby agree that each will,
jointly and severally, indemnify, defend and hold Fan, and each of the present
directors of Fan, harmless from and against all liabilities, damages, losses,
demands, claims, actions, suits, legal or other proceedings, and all
liabilities, judgments, damages, losses, costs and expenses including, without
limitation, reasonable attorneys’ fees (collectively “Liabilities and
Costs”), which Fan or any of the directors of Fan incur, suffer, or which
arise or result from or relate to any material breach of or inaccuracy in any of
the representations and warranties of any of the Sellers contained herein.
Without limiting any other right or remedies which Fan or any of Fan’s
directors may have under applicable law and pursuant to this indemnity provision
and in respect of any such breach or default, upon the occurrence of any such
Liability or Cost, Fan or any director of Fan shall have the right to set off
the full amount of such Liability or Cost against an equivalent value of the
Shares, pro rata, from all of the Shares issued to all of the Sellers, or to
take any other action against any one or more of the Sellers as may be required
or appropriate to effect the indemnification hereby agreed to. This
indemnification obligation shall survive the Closing for 12 months.
16. Brokers Fees. Each party hereto represents and warrants that has not
utilized the services of, and that it does not and will not have any liability
to, any broker or finder in connection with this Agreement or the transactions
contemplated hereby.
17. Notices. All notices, demands, requests or other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered in person or mailed to the Sellers at the addresses set forth on
Exhibit A or to Fan at the address set forth on the first page of this
Agreement.
18. Counterparts. This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument.
However, this Agreement must be signed by all the parties.
19. Governing Law. This Agreement shall be construed in accordance with, and
governed by, the laws of the state of Nevada.
IN
WITNESS WHEREOF, the parties to this Agreement have duly signed it effective on
the 5th day of January 2001.
FAN ENERGY INC.
By /s/ W. Grafham
SELLERS:
/s/ Xxxx Xxxxx Xxxxxxxx
/s/ Xxxxxx Xxxxxxx
/s/ Xxxx Xxxxx Xxxxxxxx
APG Associates, LLC
EXHIBIT A
Identification
of Sellers
Name of Address of Each Seller Number of Shares
------------------------------ ----------------
Xxxx Xxxxxxxx
0000 Xxxxxxx Xxxxx, Xxxxx 000
Xxxx, Xxxxxx 00000 4,900,000
Xxxxxx Xxxxxxx
0000 Xxxx Xxxxxx Xxxxxx
Xxxxxxxxxx, Xxxxxxx 00000 1,000,000
Xxxx Xxxxxxx
0000 Xxxxxx Xxx, Xxxxx 00X
Xxxx, Xxxxxx 00000 4,900,000
APG Associates, LLC
0000 Xxxxxx Xxx, Xxxxx 00X
Xxxx, Xxxxxx 00000 8,450,000
--------------------------------------------------------------------------
Total Number of Shares 19,250,000
Security
Shares
The
following Shares shall be held as Security against the note(s) summarized in
Exhibit C attached to and incorporated xxxxxx.
Xxxx of Address of Sellers giving Security Number of Shares
------------------------------------------ ----------------
APG Associates, LLC
0000 Xxxxxx Xxx, Xxxxx 00X
Xxxx, Xxxxxx 00000 3,000,000
--------------------------------------------------------------------------
Total Number of Security Shares 3,000,000
EXHIBIT B
Assets, Rights
and Property
Equipment List
Item Number FMV EFMV
---- ------ --- ----
Burnishers 11 $ 105,000 $ 1,155,000
High Clip Conveyors 3 $ 45,000 $ 135,000
Low Clip Conveyors 3 $ 45,000 $ 135,000
Formatter Conveyor 1 $ 125,000 $ 125,000
Certifiers 81 $ 7,500 $ 607,500
Formatters 27 $ 7,500 $ 202,500
Certifier Tables 9 $ 92,000 $ 828,000
Formatter Tables 3 $ 87,000 $ 261,000
Standalone Certifiers 16 $ 3,495 $ 55,920
Silk Screen Printer 1 $ 75,000 $ 75,000
-------
$3,579,920
Fixtures and Equipment
----------------------
Packaging Conveyors $ 30,000
Rolling Conveyors 3,000
3 Carts 5,000
Automatic Box Taper 35,000
Pallet Xxxx 500
Compressor 25,000
Plumbing and Compressor Tank 5,000
Clean Room Equipment (HEPA Filters, Associated Controls) 200,000
Racking 5,000
Certification Server 15,000
------
Total $ 323,500
EXHIBIT C
Name of Maker of Principal Amount
----------------
Promissory Note Date of Note of Note
--------------------- ------------ ------------
APG Associates, LLC January 5, 2001 600,000
