-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R41bb5ZpOVKXV9pHTbGjveltFvJ9bsQxlWtRH58bURItz2cON7OksM0cvNeRJXr9 gsM7QsmTKd/cOH70LSuYLQ== 0001025894-99-000245.txt : 19991021 0001025894-99-000245.hdr.sgml : 19991021 ACCESSION NUMBER: 0001025894-99-000245 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980131 FILED AS OF DATE: 19991020 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEWGOLD INC CENTRAL INDEX KEY: 0000878808 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AUTOMOTIVE REPAIR, SERVICES & PARKING [7500] IRS NUMBER: 161400479 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10KSB/A SEC ACT: SEC FILE NUMBER: 000-20722 FILM NUMBER: 99730839 BUSINESS ADDRESS: STREET 1: 35265 WILLOW AVE STREET 2: P O BOX 95612 CITY: CLARKSBURG STATE: CA ZIP: 95612 BUSINESS PHONE: 9166651840 MAIL ADDRESS: STREET 1: 35265 WILLOW AVE STREET 2: P O BOX 230 CITY: CLARKSBURG STATE: CA ZIP: 95612 FORMER COMPANY: FORMER CONFORMED NAME: WAREHOUSE AUTO CENTERS INC /DE DATE OF NAME CHANGE: 19950510 10KSB/A 1 U.S. Securities and Exchange Commission Washington, D.C. 20549 FORM 10-KSB AMENDMENT NO. 1 TO [ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal year ended January 31, 1998 [ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission file number 0-20722 NEWGOLD, INC. ------------- (Name of small business issuer in its charter) Delaware 16-1400479 - ------------------------ -------------------- (State of other juris- (I.R.S. Employer diction of incorporation Identification No.) or organization) P.O. Box 4155, El Dorado Hills, CA 95672-0013 --------------------------------------------- (Address of principal (Zip Code) executive offices) Issuer's telephone number: (530)672-1116 ---------------- Securities registered under Section 12(b) of the Exchange Act: None -------- Securities registered under Section 12(g) of the Exchange Act: Common Stock, par value $0.001 per share (Title of Class) Check whether the issuer (1) 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 registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes No X --- Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of the registrant'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 [ ]. Issuer's revenues for its most recent fiscal year: $0. Aggregate market value of the voting stock held by non-affiliates as of July 31, 1999: $19,302,389 Number of shares of Common Stock outstanding as of July 31, 1999: 37,866,882 Documents Incorporated by Reference: None. Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes No X --- Transitional Small Business Disclosure Format (check one): Yes No X --- PART I ITEMS 1 AND 2: BUSINESS AND PROPERTIES - --------------------------------------- Newgold, Inc., a Delaware corporation, (the "Company") was engaged in the acquisition, development and exploration of gold-bearing properties in the continental United States. The Company currently has placed its only remaining property, the Relief Canyon Mine, located in Pershing County, Nevada, on a care and maintenance status. Under care and maintenance, the Company will provide security for the plant and equipment and will maintain the mine facilities according to requirements of Nevada Department of Environmental Protection. A mine in care and maintenance is considered operational to the extent allowed by permits in place and may not be required to complete reclamation. The Company no longer plans to pursue mine development operations. As discussed under Item 6, Management's Discussion Of Financial Condition, the Company has executed a "Plan of Reorganization and Merger" "Merger Agreement" with Business Web, Inc., a Texas corporation, (BWI) dba Comercis to effect a merger of the Company and BWI. The Companies intend to submit the Merger Agreement to their respective shareholders for approval. The president of the Company has investigated other merger opportunities; if the shareholders of both companies do not approve this Merger Agreement, the president believes there are other merger opportunities available to the Company as an alternative to a merger with BWI. However, there can be no guarantee that other merger opportunities will be consummated. The Company originally was incorporated as Newgold, Inc. under the laws of Nevada on September 1, 1993 (NGNV). The Company began operations as Newgold, Inc., a Delaware corporation, on November 21, 1996, on the effective date of a reverse merger between itself and a company known as Warehouse Auto Centers. The Company's headquarters are located at 3090 Boeing Road, Cameron Park, CA 95682; and its telephone number is (530) 672-1116. All references to the "Company" refer to the merged entity operating as Newgold, Inc. For financial information regarding the Company, see "Item 7: Financial Statements And Supplementary Data." The Company's capital requirements have been and will continue to be significant. The Company has recorded no revenues from mining operations to date. The Company had been dependent primarily upon the private placements of its common stock and loans from its shareholders. The Company anticipates, based on its current plans and assumptions, that it will be unable to raise sufficient proceeds from any private placements of the Company's equity securities or borrowings, and planned revenues will not be sufficient to satisfy the Company's contemplated cash requirements. In the event the Merger is not approved by the shareholders of both companies, then the Company will be required to raise additional funds immediately. If the Company is unable to obtain additional financing, the Company will have to cease operations. Any additional equity financing, if available, may involve substantial dilution to the Company's existing shareholders. The Company's independent accountants have included an explanatory 2 paragraph in their report dated July 20, 1999, on the Company's financial statements for the year ended January 31, 1998, indicating substantial doubt about the Company's ability to continue as a going concern. If the shareholders of the Company and Business Web, Inc. vote to approve the merger as discussed under Item 6, the Company will be required to divest itself of its mining property pursuant to the terms of the Merger Agreement. However if the merger is not approved by the shareholders of both companies, then the Company will have no other recourse than to seek protection of the Federal Bankruptcy Courts. BUSINESS WEB, INC. BWI was incorporated in the state of Texas on October 1, 1998. BWI was formed to provide Internet services of web site development, web site move-in and support, and online Internet tradeshows with exhibitors under one roof in a virtual exhibition hall. BWI has signed a contract to acquire the assets of Netgate Medical, Inc. With the addition of this technology, BWI plans to offer secure Intranet and Extranet communications without the need for additional networking software. The established Netgate operation currently provides service to thirty healthcare entities and thousands of networked physicians, pharmacist, hospitals and pharmaceutical companies. BWI has signed contracts to provide their core "web creation services" to Netopia, Inc., Xoom, Inc. and Bell South. RELIEF CANYON MINE The Relief Canyon Mine is an open-pit, heap leaching operation located approximately 110 miles northeast of Reno, Nevada. The Company currently holds 50 unpatented mining claims. The mine is readily accessible by improved roads. Water for mining and processing of operations is provided by two wells located on the property in close proximity to the mine and processing facilities. Power is provided by a local rural electric association and phone lines are present at the mine site. Background and History The Relief Canyon gold deposit was discovered by Duval Corporation, ("Duval") in 1981. Lacana Mining, ("Lacana") purchased the property from Duval, drilled additional holes to establish reserves, and commenced mining in 1984 as an open-pit cyanide heap leach operation. In 1986, Pegasus Gold, Inc. ("Pegasus"), purchased the mine from Lacana, drilled additional holes for a total of approximately 400 with approximately 120,000 linear feet to confirm reserves, and mined a cumulative total of approximately 6.3 million tons of gold ore containing an average of 0.035 ounces of gold per ton from 1986-1989. Pegasus ceased mining activities in 1989 and began the reclamation process of the mine site from 1990-1992. In 1993, Pegasus sold the Relief Canyon Mine to its reclamation contractor, J.D. Welsh & Associates ("Welsh"). Welsh continued to rinse the heaps to detoxify them of their cyanide 3 content and recovered minor amounts of gold in the process. By December 1994, Welsh had completed detoxification of the heaps and was required only to submit quarterly water quality reports to the state of Nevada for the next five years. On January 10, 1995, the former NGNV purchased the mine from Welsh for $500,000.The mine at that time consisted of 39 unpatented lode mining claims, an empty building except for three carbon tanks and a boiler for carbon strip solution, four detoxified leach pads, a preg pond for gold bearing solution, a barren pond for solution from which gold had been removed, water rights, and various permits. From acquisition through November 1997, the Company refurbished the processing facilities by the purchase and installation of all equipment required to process the gold bearing leach solution when the mine was returned to production. There also was a sub-lease (the "Santa Fe Lease") to fee simple real property, contiguous to the mine, between Welsh and Santa Fe Gold Company, which subsequently has merged with Newmont Gold Company ("Santa Fe"). Welsh assigned the Santa Fe Lease to the Company at its base annual lease payment of $12,500, plus an advance royalty payment of a similar amount. The Santa Fe Lease required that Santa Fe consent to any assignment. Santa Fe never consented formally to the assignment. Santa Fe previously had accepted the Company's lease and royalty payments and it is the Company's position that such acceptance constituted consent. Subsequent to the signing of the contract for sale, the parties reduced the amount due Welsh to $450,000 because of Welsh's inability to secure Santa Fe's acceptance of assignment of the Santa Fe Lease. On October 19, 1998, Santa Fe terminated the Welsh lease as a result of the Company's inability to maintain the required insurance and the Company's inability to post a reclamation bond for the property. The loss of the Santa Fe property does not affect significantly the Company's mining position. If mining operations are not resumed, it is possible the Company may be required to reclaim the mine. Reclamation consists of recontouring the four heaps to a 3:1 slope, sale and removal of the building and its contents, evaporation of all water in both ponds and burial of the building foundation and floor within the ponds' liners under the soil contained in the pond birms. Finally, native vegetation must be re-established in all areas of disturbance. While it is the Company's position that sale of the building and its contents will cover the costs of the remaining reclamation, it has established an additional reserve of $50,500 for reclamation. Repadre Capital Corporation ("Repadre") purchased a 3% NSR royalty, that was allocated to two properties, from the Company for $500,000 during 1996 (the "Repadre royalty"). These funds were applied to the Company's ongoing reserve confirmation and expansion program at the Relief Canyon Mine. Under the terms of Repadre royalty, Repadre had the option to reallocate the Repadre royalty to the Relief Canyon Mine. In 1997, Repadre purchased a 1% NSR royalty on the Relief Canyon mine by payment of $300,000 to the Company. This $800,000 has been recorded as deferred revenue by the Company. 4 Mining Operations At the Relief Canyon Mine, the Company has placed its mining operations on hold and has placed the mine into a care and maintenance status. The Company now has two experienced personnel in place at the mine site. The personnel currently are lowering the water levels of the preg and barren ponds under a plan approved and monitored by the Nevada Department of Environmental Protection (NDEP). Prior to suspending operations in November 1997, the mining facilities to recover gold from ore were completed by the Company with the exception of an upgrade to leach pad four, which has been approved by NDEP. At the Mission Mine, (a mine which the Company was in the process of purchasing pursuant to a contract (Exhibit 10.2 filed with the Company's 1997 Form 10-KSB and incorporated by reference) the Company engaged an independent geologist and laboratory to examine and report on samples taken from the mine and throughout the property. The reports were not considered satisfactory for further development and the Company allowed the lease to go into default in October 1997. Since the Company did not cure the default, the lease was terminated by the land owner. The Company lost all rights to the property and to underground mining equipment left on the property by prior mine operators. The terms of the lease had assigned $300,000 as the value of this existing equipment. This amount was charged to loss on disposal of assets in the Statement of Operations for the year ended January 31, 1998. Under an option agreement for the Bruner property between the Company and Miramar Mining Corporation (a copy of said Agreement is attached to the Company's 1997 Form 10-KSB as Exhibit 10.7 and incorporated by reference) the Company chose to terminate the agreement in August 1997 as a result of information brought to the Company's attention regarding possible environmental hazards located on the property. The agreement was canceled and all information was returned to Miramar Mining Co., the owners of the property. The Company sold its full right, title and interest and all associated liabilities in the Montana property known as the "Washington Gulch Mine" in July of 1998, for $185,000. INSURANCE The business of gold mining is subject to certain types of risks, including environmental hazards, industrial accidents, and theft. Prior to suspending operations, the Company carried insurance against certain property damage loss (including business interruption) and comprehensive general liability insurance. While the Company maintained insurance consistent with industry practice, it is not possible to insure against all risks associated with the mining business, or prudent to assume that insurance will continue to be available at a reasonable cost. The Company has not obtained environmental liability insurance because such coverage is not considered by management to be cost effective. The Company currently carries no insurance on any of its properties due to the current status of the mine and the Company's current financial condition. 5 GOVERNMENT CONTROLS AND REGULATIONS As long as the Company retains control and has not divested itself of the Relief Canyon Mine and any liability related thereto, the Company is subject to extensive governmental controls and regulations which are subject to amendment from time to time. The Company is unable to predict what additional legislation or amendments may be proposed that might affect care and maintenance of the mine or the time at which any such proposals, if enacted, might become effective. Such legislation or amendments, however, could require increased capital and operating expenditures and could prevent or delay divesture of the mine by the Company. Outlined below are some of the more significant aspects of governmental controls and regulations which materially affect the Company's interests in the mine. Regulation of Mining Activity The Relief Canyon Mine, including care and maintenance, exploration, development and production activities, is subject to environmental laws, policies and regulations. These laws, policies and regulations regulate, among other matters, emissions to the air, discharges to water, management of waste, management of hazardous substances, protection of natural resources, protection of endangered species, protection of antiquities and reclamation of land. The mine also is subject to numerous other federal, state and local laws and regulations. At the federal level, the mine is subject to inspection and regulation by the Division of Mine Safety and Health Administration of the Department of Labor ("MSHA") under provisions of the Federal Mine Safety and Health Act of 1977. The Occupation and Safety Health Administration ("OSHA") also has jurisdiction over certain safety and health standards not covered by MSHA. Mining operations and all future exploration and development will require a variety of permits. Although the Company believes the permits can be obtained in a timely fashion, permitting procedures are complex, costly, time consuming and subject to potential regulatory delay. The Company does not believe that existing permitting requirements or other environmental protection laws and regulations would have a material adverse effect on its ability to dispose of the mine. However, the Company cannot be certain that future changes in laws and regulations would not result in significant additional expenses, capital expenditures, restrictions or delays associated with the divestiture of the Company's property. The Company cannot predict whether it will be able to renew its existing permits or whether material changes in existing permit conditions will be imposed. Non-renewal of existing permits or the imposition of additional conditions could have a material adverse effect on the Company's ability to dispose of Relief Canyon. The State of Nevada, where the Company's mine property is located, adopted the Mined Land Reclamation Act (the "Nevada Act") in 1989 which established design, operation, monitoring and closure requirements for all mining facilities. The Nevada Act has increased the cost of designing, operating, monitoring and closing mining facilities and could affect the cost of operating, monitoring and closing existing mine facilities. The State of Nevada also has adopted reclamation regulations pursuant to which reclamation plans have been prepared and financial 6 assurances established for existing facilities. Environmental Regulations Legislation and implementation of regulations adopted or proposed by the United States Environmental Protection Agency ("EPA"), the BLM and by comparable agencies in various states directly and indirectly affect the mining industry in the United States. These laws and regulations address the environmental impact of mining and mineral processing, including potential contamination of soil and water from tailings discharges and other wastes generated by mining companies. In particular, legislation such as the Clean Water Act, the Clean Air Act, the Federal Resource Conservation and Recovery Act ("RCRA"), the Environmental Response, Compensation and Liability Act and the National Environmental Policy Act require analysis and/or impose effluent standards, new source performance standards, air quality antimycin standards and other design or operational requirements for various components of mining and mineral processing, including gold-ore mining and processing. Such statutes also may impose liability on the Company for remediation of waste it has disposed. Gold mining and processing operations by another entity would generate large quantities of solid waste which is subject to regulation under the RCRA and similar state laws. The majority of the waste which was produced by such operations is "extraction" waste that EPA has determined not to regulate under RCRA's "hazardous waste" program. Instead, the EPA is developing a solid waste regulatory program specific to mining operations under the RCRA. Of particular concern to the mining industry is a proposal by the EPA entitled "Recommendation for a Regulatory Program for Mining Waste and Materials Under Subtitle D of the Resource Conservation and Recovery Act" ("Strawman II") which, if implemented, would create a system of comprehensive Federal regulation of the entire mine site. Many of these requirements would be duplicates of existing state regulations. Strawman II as currently proposed would regulate not only mine and mill wastes but also numerous production facilities and processes which could limit internal flexibility in operating a mine. To implement Strawman II the EPA must seek additional statutory authority, which is expected to be requested in connection with Congress' reauthorization of RCRA. The Company also is subject to regulations under (i) the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA" or "Superfund") which regulates and establishes liability for the release of hazardous substances and (ii) the Endangered Species Act ("ESA") which identifies endangered species of plants and animals and regulates activities to protect these species and their habitats. Revisions to "CERCLA" and "ESA" are being considered by Congress; the impact of these revisions on the Company is not clear at this time. Moreover, the Clean Air Act, as recently amended, mandates the establishment of a Federal air permitting program, identifies a list of hazardous air pollutants, including various metals and cyanide, and establishes new enforcement authority. The EPA has published final regulations establishing the minimum elements of state operating permit programs. The states had 7 until November 15, 1993 to submit their permit programs to the EPA for review and approval. Until the state regulations are promulgated and approved by the EPA, the full impact of the new regulations on the Company cannot accurately be predicted. In addition, the Company is required to mitigate long-term environmental impacts by stabilizing, contouring, resloping, and revegetating various portions of a site. While a portion of the required work was performed concurrently with prior operations, completion of the environmental mitigation occurs once removal of all facilities has been completed. These reclamation efforts are conducted in accordance with detailed plans which have been reviewed and approved by the appropriate regulatory agencies. The Company has posted security bonds and has made provision to cover the estimated costs of such reclamation as required by permit. The Company believes that its care and maintenance operation, as it exists today, is in substantial compliance with federal and state regulations and that no further significant capital expenditures for environmental control facilities will be required. COMPETITION The Company competed with other mining companies in connection with the acquisition of capital, mining claims and leases on precious metal properties. The Company also competed in the recruitment and retention of quality employees. There is significant competition for the limited number of precious metals acquisition opportunities in the continental United States. As a result of this competition, much of which is with companies with greater financial resources, the Company is unable to continue to acquire attractive mining properties and capital on terms it considers acceptable. RISK FACTORS The merger agreement has been approved by the Boards of Directors of both the Company and BWI. Should the shareholders of either Company fail to approve the merger, then the risk factors identified below should be considered in conjunction with the information contained under the caption "Cautionary Statement for Purposes of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995." Limited Relevant Operating History; Significant Operating Losses; Accumulated Deficit The Company had been engaged primarily in exploration and development of its mines and has had minimal revenues. Accordingly, the Company has had a limited relevant operating history upon which an evaluation of its prospects can be made. Such prospects must be considered in light of the risks, expenses and difficulties frequently encountered in the establishment of a new business in the mining industry, which is a continually evolving industry characterized by an 8 increasing number of market entrants and intense competition, as well as the risks, expenses and difficulties encountered in the commercialization of new mines. As of January 31, 1998, the Company had an accumulated deficit of approximately $8,872,000. Since such date, additional losses have been incurred. While the Company's monthly operating expenses have decreased, expenses can be expected to continue in the future in connection with the Company's efforts to keep the Relief Canyon Mine in a care and maintenance status. Accordingly, it is anticipated that the Company will continue to incur losses until it is able to dispose of the Relief Canyon Mine. There can be no assurance that the Company will be successful in disposal of the mine or the related costs of reclamation of the mine site. Late Payments Relating to Debt; Judgment As of the date of this Report, the Company is approximately $530,000 in arrears on interest and principal payments relating to outstanding, unsecured note payables. In addition, the Company currently owes judgment creditors approximately $550,000. In the event the Company is unable to settle these judgments its creditors could force the Company into bankruptcy. Litigation In the event that the merger is not completed the Company could be subject to law suits from its shareholders who have continued holding on to their investment in the Company in reliance on the merger becoming effective and to those shareholders who invested in the Company after the announcement of the Merger with BWI. Other The Company does not own any patents, trademarks, licenses, franchises or concessions except for mineral interests granted by governmental authorities. The Company's business is generally not seasonal in nature except to the extent that weather conditions at certain times of the year may affect the Company's access to its properties. The Company, as of January 31, 1999, had a total of 5 employees, 3 of whom are management and professional staff. None of the Company's employees are subject to any collective bargaining agreements or union affiliations. Relations between management and employees are considered to be good. 9 On August 1, 1999, as result of the signing of the Merger Agreement the Company's Chief Financial Officer, Robert W. Morris, and Corporate Counsel, Michael M. Kessler, assumed the same respective positions with BWI. Mr. Kessler, Corporate Counsel, received from both companies a letter waiving any potential conflict of interest. Mr. Kessler and Mr. Morris will continue to serve the Company in their respective positions until the merger is completed. ITEM 3: LEGAL PROCEEDINGS - -------------------------- a) On December 3, 1996, the case of Roy Christiansen v. Newgold, et al., a breach of contract action was filed in the Second Judicial District, Washoe County, Reno, Nevada. Plaintiff alleged that he was owed $250,000 relating to recovery of his investment in a property subsequently acquired by the Company. It was discovered during the pendency of this action that a former Secretary-Treasurer of Newgold, Inc., (prior to the Company going public through its merger with Warehouse Auto) signed a contract in 1994 which obligated the Company, Newgold, Inc. (the Delaware Corporation) to pay $250,000 to Christiansen, a former developer of the Golden Asset project which Newgold purchased and is located in Helena Montana. This obligation was unknown to the current principals of the Company. During the course of litigation, Plaintiff moved the court for summary judgment based on this signed agreement; this motion was granted and a judgment for $250,000 was entered against the Company. The Company is in the process of working out a payment schedule with the Plaintiff, however there can be no assurance that such a schedule can be worked out. b) On January 28, 1997, the case of Stewart v. Newgold, a purported breach of contract for the purchase of the Cerro Gordo Mine, in California, was filed in the Second Judicial District, Washoe County, Reno Nevada. Plaintiff was unable to present clear title to the property and the Company was unable to clear title and refused to make additional payments called for under the contract. Plaintiff was seeking $40,000 in damages. This case was settled for $20,000. Under the terms of the Settlement the Company stipulated to the issuance of a judgment against it in the amount of $20,000. The Company paid this judgment on October 21, 1998. c) On April 25, 1997, the Company filed a declaratory relief action in the case of Newgold v. Wirsing, et al. in the Sacramento County Superior Court. Mr. Wirsing and his fellow defendant, Mr. Wong, were each alleging that they were the owners of a 10% share of the net profits interest from Relief Canyon. The Company filed the action to seek declaratory relief that Messrs. Wirsing and Wong's claim was without merit. Mr. Wong filed a $100,000,000 mechanics lien on the Relief Canyon Mine. The Company believed that the use of a mechanics' lien was improper and that there was no merit in Messrs. Wirsing and Wong's claims. This matter was settled by the parties in November 1998 by an issuance of an additional 25,000 shares of the Company's common stock. Said stock is restricted and the settlement agreement gave no registration rights to the defendants. d) On June 24, 1998 the Company's former Reno landlord Bedford Properties initiated an unlawful detainer action against the Company for rents owed with regard to the Company's offices in Reno, Nevada. The parties stipulated to a judgment of $40,000 for all past and future rents owed and this judgment was entered against the Company on October 23, 1998 in the Second Judicial District, Washoe County, Reno, Nevada. The Company currently is attempting to work out a payment schedule on this judgment; however there is no assurance that a schedule acceptable to the Company can be worked out. 10 e) On March 11, 1998, the Company's former consulting firm, JBR Consultants, instituted a suit against the Company for sums due under a consultant engineering contract. On August 19, 1998 the court for the Second Judicial District entered a default judgment against the Company for $28,815. The Company is currently attempting to settle this matter with the Plaintiff. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ None. PART II ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS - ----------------------------------------------------------------- Under a Plan of Reorganization approved by the U.S. Bankruptcy Court on November 21, 1996, Warehouse Auto Centers, Inc. (WAC), a Delaware corporation, was merged into Newgold (NV) to form Newgold (DE). Prior to the Plan, the common stock of WAC was traded on the OTC Electronic Bulletin Board under the symbol "WHACQ". Trading of the Company's stock was cleared by NASD on July 7, 1997 and the first trade was on July 11, 1997 at $2.00 per share. The table on the next page sets forth the high and low bid prices for the Common Stock, as reported by the NASD's OTC Bulletin Board for the quarters indicated. The prices set forth represent quotes between dealers and do not include commissions, mark-ups or mark-downs, and may not represent actual transactions. 11 Common Stock ------------ Bid Asked --- ----- High Low High Low ---- --- ---- --- Fiscal Quarter Ended: October 31, 1995 0.25 0.1875 0.3125 0.25 January 31, 1996 0.0935 0.0625 0.15625 0.125 April 30, 1996 0.35 0.03125 0.09375 0.08 July 31, 1996 0.15625 0.0625 0.25 0.25 October 31, 1996 0.0625 0.0625 0.125 0.125 January 31, 1997 0.0625 0.0625 0.0625 0.0625 March 31, 1997 N/A N/A N/A N/A July 31, 1997 2.00 1.25 2.00 1.25 October 31, 1997 1.0625 0.625 1.0625 0.625 January 31, 1998 0.25 0.25 0.3125 0.25 April 30, 1998 0.375 0.375 0.375 0.375 July 31, 1998 0.125 0.125 0.50 0.50 October 31, 1998 N/A N/A N/A N/A January 31, 1999 0.07 0.07 0.07 0.07 April 30, 1999 0.46 0.46 0.52 0.52 July 31, 1999* 0.70 0.64 0.78 0.70 *After the effect of a 3 for 2 stock split which was effected by way of a dividend. 12 ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - ------------------------------------------------------------------ The Company was engaged primarily in the exploration and development of mining properties. The Company is the result of a merger between a Chapter 11 bankrupt shell, Warehouse Auto Centers, Inc. (WAC) and Newgold, Inc., a Nevada Corporation, (NGNV) pursuant to a Plan of reorganization approved by the U.S. Bankruptcy Court as of November 21, 1996. For accounting purposes, under the terms of the Merger, NGNV was treated as the acquirer. Accordingly, the historical financial statements prior to November 21, 1996 are those of NGNV and do not reflect any financial information of WAC as a separate entity. In addition, under the terms of the Merger, NGNV's fiscal year was changed from December 31 to January 31. Hence, the comparative financial information is for thirteen months ended January 31, 1997 and 12 months for the years ended January 31, 1998. The Company was engaged in the business of acquiring dormant, potential gold producing properties located in the continental United States and attempting to develop such properties into commercial gold mining operations. Considering the present depressed gold market, the Company's Board of Directors has approved plans for the Company to merge with Business Web, Inc. and to initiate the process of divesting itself of its mining assets and the associated liabilities. See "Merger of Newgold With BWI". As of the date of this Report, the Company has derived no significant revenue from its operations. The Company's capital requirements have been and will continue to be significant. The Company has been dependent primarily on the private placements of its securities to fund its operations and capital requirements. Financial Condition of the Company as of January 31, 1998 As of January 31, 1998, the Company had $2,310 in cash and a negative working capital of $1,842,032. If the Company were to attempt to continue pursuing mining operations, the Company would require approximately $4.3 million in additional working capital. Since January 1998, the Company has pursued several possible funding opportunities including the sale of royalties on other gold properties being investigated for acquisition by the Company; however the Company did not acquire these properties. Royalty financing was also considered on industrial minerals properties. The Company continues its efforts to obtain funding, but has no current commitments for funding operations. There can be no assurance that any of such opportunities will result in actual funding or that additional financing will be available when needed, on commercially reasonable terms, or at all. As the Company has been unable to obtain additional financing, it was required to curtail its development plans in November 1997 and cease operations except for care and maintenance of the Relief Canyon Mine. The Company's independent accountants have included an explanatory paragraph in their report on the Company's financial statements for the year ended January 31, 1998, indicating substantial doubt about the Company's ability to continue as a going concern. 13 FINANCIAL PLAN OF OPERATION FOR THE NEXT TWELVE MONTHS Merger of Newgold With BWI On April 2, 1999, the Company issued a Letter of Intent to BWI to effect a merger of the two companies. On June 25, 1999, the Board of Directors of the Company approved the Merger Agreement. On July 26, 1999, the Board of Directors of BWI approved the Merger Agreement and the agreement was executed by both companies at that time. The Merger Agreement will now be submitted to the Shareholders of both companies for their respective approval. Upon consummation of the Merger, BWI will be merged with and into the Company and the Company will continue as the surviving corporation (and, in such capacity is sometimes referred to herein as the "Surviving Corporation"), and BWI will cease to exist as a separate entity as a legal matter. Following approval of the Merger Agreement by the shareholders of the Company and BWI and the satisfaction or waiver of the other conditions to consummation of the Merger, the Merger will become effective at the time (the "Effective Time") of filing of the Agreement of Merger with the Secretary of State of Delaware and the Secretary of State of Texas. Upon consummation of the Merger, the Company will be renamed "Comercis, Inc." The Company will be managed by a management team composed of members of the Company's and BWI's current senior management, with Mr. Chris M. Meaux, BWI's co-founder and Chief Executive Officer, assuming the duties of Chief Executive Officer of the combined entity. Michael M. Kessler, the Company's Secretary and Corporate Counsel already will have joined BWI as its Corporate Counsel and will retain that position in the Surviving Company. Mr. Robert W. Morris, the Company's current Chief Financial Officer has assumed the position of Acting Chief Financial Officer and Controller of BWI and will assume the position of Controller in the Surviving Company when the Surviving Company finishes its search for a new Chief Financial Officer. In addition, the remaining operations of the combined entity will be performed by current BWI personnel in BWI's facilities. Upon the consummation of the Merger, the Company will effect a one for twelve reverse split of its outstanding and issued common stock, for shareholders currently holding common stock of the Company. Additionally, each share of BWI outstanding and each BWI Special Warrant shall be canceled and converted into the right of the former holder to receive, in the case of BWI shareholders, or to exchange, in the case of holders of the BWI Special Warrants at no additional cost, on a one for one basis of 15,501,942 shares of Common Stock. As a result of the merger current Company shareholders will own approximately 17% of the Surviving Corporation and the BWI shareholders will own 83% of the Surviving Corporation. Consummation of the Merger Consummation of the Merger is subject to satisfaction of various conditions, including approval of the Merger by shareholders of Newgold and BWI, and receipt of a legal opinion from 14 Gray Cary Ware & Freidenrich, counsel to Newgold, to the effect that the Merger will constitute a tax free reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), inclusion of the Common Stock to be issued to BWI shareholders in the Merger for quotation on the NASDAQ OTC-Electronic Bulletin Board Market, and various other conditions. Termination and Amendment The Merger Agreement may be terminated any time prior to the Effective Time (i) by mutual consent of the parties, (ii) by the non-breaching party, upon the other party's material breach or default of any representation, warranty, covenant, agreement or obligation under the Merger Agreement, (iii) by Newgold if the Company's Board of Directors adversely amends, withholds or withdraws its recommendation of the Merger or the Company's shareholders do not approve the Merger, (iv) by the BWI if the BWI Board of Directors adversely amends, withholds or withdraws its recommendation of the Merger or the BWI shareholders do not approve the Merger, and (v) by either party if the Merger shall not have been consummated by October 31, 1999. The Merger Agreement may be amended at anytime prior to the Effective Time by written agreement of the parties. To date, BWI has raised capital of approximately $8.6 million. Of this amount $500,000 has been loaned to Newgold for payment of liabilities and current operating costs. Under the terms of the Merger Agreement, the Company is to sell the Relief Canyon Mine and the funds received by the Company will be used to repay BWI, for any amounts of money loaned to the Company and in the event that excess funds are received these funds will be reinvested into the Surviving Company. Risks Associated With BWI You should carefully consider the following factors and other information in this Report prior to making any investment in the Company based upon the potential merger of the two respective companies. BWI HAS A LIMITED OPERATING HISTORY UPON WHICH TO EVALUATE IT BWI has only been in business since December 1997. Accordingly, it has a limited operating history upon which to evaluate it. In addition, BWI's revenue model is still evolving. Currently, its revenues are primarily generated from the sale of web site and community memberships and the attempts to establish additional vertical trade communities. In the future, BWI expects to generate revenue from multiple sources, including Ecommerce storefronts, booth space from eTradeshow, community platform licensing, site maintenance, and advertising revenue. BWI may not be able to sustain its increase in current revenues from Ecommerce, Etradeshow or the other business units business services revenues. If BWI does not generate such revenue, its business, financial condition and operating results will be affected materially and adversely. 15 BWI ANTICIPATES THAT IT WILL INCUR CONTINUED LOSSES FOR THE FORSEEABE FUTURE To date, BWI has not been profitable. BWI may never be profitable or, if it does become profitable, it may be unable to sustain profitability. It has incurred significant losses since inception. BWI reported a net loss of $808,532 for the three months ended April 30, 1999. BWI expects to continue to incur significant losses for the foreseeable future. As of April 30, 1999, the accumulated deficit was $1,286,893. Its limited operating history makes predicting its future operating results, including operating expenses, difficult. Its revenues may not grow or may not even continue at the current level. BWI EXPECTS ITS OPERATING EXPENSES TO INCREASE Some of the expenses are fixed, including non-cancelable agreements, equipment leases and real estate leases. If the revenues do not increase, BWI may not be able to compensate by reducing expenses in a timely manner. In addition, BWI plans to significantly increase its operating expenses to: o launch additional vertical trade communities; o increase its sales and marketing operations; o enter into additional sponsorship agreements; o broaden its customer support capabilities; and o pursue marketing and distribution alliances. Expenses may also increase due to the potential impact of goodwill and other charges resulting from completed and future acquisitions. Additionally, leading Web sites, browser providers and other Internet distribution channels may increase their rates to BWI thus making it more expensive to provide access to BWI's products and services. If any of these expenses are not accompanied by increased revenues, BWI's business, financial condition and operating results would be affected materially and adversely. BWI COULD EXPERIENCE FLUCTUATIONS IN ITS QUARTERLY RESULTS BWI expects that its quarterly operating results will fluctuate significantly due to many factors, including: o the uncertain adoption of the Internet as an advertising medium; o potential dependence on development of the electronic commerce market; o intense competition; o uncertain acceptance of BWI's Internet content; 16 o management of its growth; and o risks associated with potential acquisitions. CHANGES IN INDUSTRY WEB PAGE CREATION AND HOSTING RATES COULD ADVERSELY AFFECT BWI'S REVENUES Changes in industry pricing practices for web page creation and hosting rates could affect materially and adversely BWI's revenues in the future. ADOPTION OF THE INTERNET AS A MEANS OF DOING BUSINESS IS UNCERTAIN The growth of "doing business" over the Internet requires validation of the Internet as an effective business medium. This validation has yet to occur fully. Acceptance of the Internet among business also will depend on growth in the commercial use of the Internet. If widespread commercial use of the Internet does not develop, or if the Internet does not develop as an effective and measurable medium for doing business, BWI's, financial condition and operating results could be affected materially and adversely. No standards have been widely accepted to measure the effectiveness of Business on the Internet. If such standards do not develop, existing businesses may not continue to expand their business to the Internet and those businesses that currently are not doing business on the Internet may not enter the Internet business. BWI's business, financial condition and operating results would be affected adversely if the market for doing business over the Internet fails to develop or develops slower than expected. SIGNIFICANT REVENUES FROM ELECTRONIC COMMERCE MAY NOT DEVELOP WHICH COULD ADVERSELY AFFECT BWI'S FUTURE GROWTH For the three months ended April 30, 1999, approximately 3.5 % of BWI's revenues were generated from electronic commerce. If BWI does not generate increased revenue from electronic commerce, BWI's business, financial condition and operating results could be materially adversely affected. To generate significant electronic commerce revenues, BWI will have to continue to build its web site platforms and increase the number of vertical trade communities it services. BWI'S LONG-TERM SUCCESS DEPENDS ON THE DEVELOPMENT OF THE WEB SITE CREATION AND HOSTING MARKET, ELECTRONIC COMMERCE MARKET, THE ACCEPTANCE OF THE WORLD WIDE WEB AS A MEDIUM TO PRESENT TRADESHOWS AND AN EFFECTIVE AND SECURE MEANS OF DOING BUSINESS WHICH IS UNCERTAIN If BWI is unable to develop successfully its Web Site Services and create the Vertical communities it has targeted and integrate the services of its divisions into the Internet then its business, financial condition and operating results would be effected severely. BWI's long-term 17 success depends on widespread public acceptance of the Internet as a place to do business. A number of factors could prevent such acceptance, including the following: o electronic commerce on the Internet is in its infancy and buyers may be unwilling to shift their purchasing from traditional vendors to online vendors; o the necessary network infrastructure for substantial growth in usage of the Internet may not be developed adequately; o increased government regulation or taxation may affect adversely the viability of electronic commerce; o insufficient availability of telecommunication services or changes in telecommunication services could result in slower response times; and o adverse publicity and consumer concern about the security of electronic commerce transactions could discourage its acceptance and growth. THERE IS INTENSE COMPETITION FOR THE INTERNET PRODUCTS AND SERVICES, THAT BWI OFFERS Competition for the Internet products and services, which BWI offers in commerce is intense. BWI expects that competition will continue to intensify. Barriers to entry are minimal, and competitors can launch new Web sites at a relatively low cost. While BWI believes there are no companies which offer all of the services which it offers, especially with the addition of the Netgate technology, there are several companies that offer competitive vertical trade communities. We expect that additional companies will offer competing vertical trade communities on a standalone or portfolio basis. Additionally, BWI's competitors may develop Internet products or services that are superior to, or have greater market acceptance than, its solutions. If BWI is unable to compete successfully against its competitors, its business, financial condition and operating results will be adversely affected. Many of BWI's competitors have greater brand recognition and greater financial, marketing and other resources than BWI This may place BWI at a disadvantage in responding to BWI's competitors' pricing strategies, technological advances, advertising campaigns, strategic partnerships and other initiatives. CONCERNS REGARDING SECURITY OF TRANSACTIONS AND TRANSMITTING CONFIDENTIAL INFORMATION OVER THE INTERNET MAY NEGATIVELY IMPACT BWI'S ELECTRONIC COMMERCE BUSINESS BWI believes that concern regarding the security of confidential information transmitted over the Internet, such as credit card numbers, prevents many potential customers from engaging in online transactions. If BWI does not add sufficient security features to future product releases, 18 its products may not gain market acceptance or there may be additional legal exposure to BWI. BWI has included basic security features in some of the products to protect the privacy and integrity of customer data, such as password requirements for access to portions of our vertical trade communities. BWI does not currently use authentication technology, which requires passwords and other information to prevent unauthorized persons from accessing a customer's information, or encryption, which transforms information into a "code" designed to be unreadable by third parties, to protect confidential information such as credit card numbers. However, it intends to license encryption technology to protect confidential transaction data. Despite the measures BWI has taken, BWI's infrastructure is potentially vulnerable to physical or electronic break-ins, viruses or similar problems. If a person circumvents BWI's security measures, they could misappropriate proprietary information or cause interruptions in BWI's operations. Security breaches that result in access to confidential information could damage BWI's reputation and expose BWI to a risk of loss or liability. BWI may be required to make significant investments and efforts to protect against or remedy security breaches. Additionally, as electronic commerce becomes more prevalent (and consequently becomes one of the foci of BWI's development of direct marketing products), BWI's customers will become more concerned about security. If BWI does not adequately address these concerns, this could materially adversely affect its business, financial condition and operating results. MARKETING AND DISTRIBUTION ALLIANCES MAY NOT GENERATE THE EXPECTED NUMBER OF NEW CUSTOMERS OR MAY BE TERMINATED BWI uses marketing and distribution alliances with other Internet companies to create traffic to BWI's web site creation page and consequently, to assist BWI in generating revenues. These marketing and distribution alliances allow BWI to link our Web Site creation pages to other Internet companies web pages such as Xoom.com, Bell South.net and Netopia Virtual Office. The success of these relationships depends on the amount of increased traffic BWI receives from the alliance partners' Web sites. These arrangements may not generate the expected number of new customers. BWI also cannot assure you that it will be able to renew these marketing and distribution alliance agreements. If any of these agreements are terminated, the traffic on BWI's web site creation pages could decrease and therefore this could materially adversely affect its business, financial condition and operating results. BWI MAY NOT HAVE OPPORTUNITIES TO ENTER INTO NEW PARTNERSHIPS OR MARKETING AND DISTRIBUTION ALLIANCES BWI is interested in entering into additional partnerships with other Internet businesses to increase traffic to its web site creation site, but BWI can give no assurance that it will be able to enter into any new partnerships. If BWI is unable to enter into new arrangements the traffic on BWI's web site creation pages may not increase. 19 BWI'S BUSINESS DEPENDS ON THE GROWTH OF THE INTERNET, WHICH IS UNCERTAIN BWI's market is new and rapidly evolving. BWI's business would be adversely affected if Internet usage does not continue to grow. Internet usage may be inhibited by a number of reasons, such as: o Infrastructure; o Security concerns; o Inconsistent quality of service; and o Lack of availability of cost-effective, high-speed service. If Internet usage grows, the Internet infrastructure may not be able to support the demands placed on it by this growth or its performance or reliability may decline. In addition, Web sites may from time to time experience interruptions in their service as a result of outages and other delays occurring throughout the Internet network infrastructure. If these outages or delays frequently occur in the future, Internet usage, as well as usage of BWI's web site creation pages and possibly the vertical trade communities it creates, could be adversely affected. IF BWI DOES NOT DEVELOP THE "COMERCIS" BRAND AS ITS WEB SITE CREATION SITE AND VERTICAL TRADE COMMUNITY BRANDS, BUSINESS COULD DECREASE CAUSING A CORRESPONDING DECREASE IN REVENUES To be successful, BWI must establish and strengthen the brand awareness of the "Comercis" brand as well as the brands associated with each division (e.g. Cybermovers). If its brand awareness is weakened, it could decrease the attractiveness of BWI's audiences to business, which could result in decreasing advertising revenues. BWI believes that brand recognition will become more important in the future with the growing number of Internet sites. Its brand awareness could be diluted, which could affect adversely its business, financial condition and operating results if users do not perceive BWI products and services to be of high quality. BWI IS GROWING RAPIDLY AND EFFECTIVELY MANAGING GROWTH MAY BE DIFFICULT BWI has grown and expects to continue to grow rapidly both by adding new products and hiring new employees. This growth is likely to place a significant strain on its resources and systems. To manage growth, BWI must implement systems and train and manage its employees. 20 Many of BWI's senior management have only recently joined the Company. BWI can make no assurance that its management will be able to manage effectively or successfully the Company's growth. BWI MAY NOT BE ABLE TO PROTECT ITS PROPRIETARY RIGHTS AND BWI MAY INFRINGE THE PROPRIETARY RIGHTS OF OTHERS Proprietary rights are important to the Company's success and its competitive position. BWI has applied for several trademarks, none have been issued to date. Although BWI seeks to protect its proprietary rights, its actions may be inadequate to protect any trademarks and other proprietary rights or to prevent others from claiming violations of their trademarks and other proprietary rights. BWI currently has five pending trademark applications. In addition, effective copyright and trademark protection may be unenforceable or limited in certain countries, and the global nature of the Internet makes it impossible to control the ultimate destination of the Company's work. BWI also licenses programming code from third parties and it is possible that it could become subject to infringement actions based upon the content licensed from those third parties. BWI generally obtains representations as to the origin and ownership of such licensed content; however, this may not adequately protect the Company. Any of these claims, with or without merit, could subject BWI to costly litigation and the diversion of its technical and management personnel. BWI MAY NOT BE ABLE TO ACQUIRE OR MAINTAIN EASILY IDENTIFIABLE WEB ADDRESSES OR PREVENT THIRD PARTIES FROM ACQUIRING WEB ADDRESSES SIMILAR TO BWI'S AND ITS VARIOUS DIVISIONS BWI currently holds various Internet Web addresses relating to itself and its divisions. The company may not be able to prevent third parties from acquiring Web addresses that are similar to its addresses, which could affect materially and adversely BWI's business, financial condition and operating results. The acquisition and maintenance of Web addresses generally is regulated by governmental agencies and their designees. For example, in the United States, the National Science Foundation has appointed Network Solutions, Inc. as the exclusive registrar for the ".com," ".net" and ".org" generic top-level addresses. The regulation of Web addresses in the United States and in foreign countries is subject to change. As a result, BWI may not be able to acquire or maintain relevant Web addresses in all countries where it conduct business. Furthermore, the relationship between regulations governing such addresses and laws protecting trademarks is unclear. ACQUISITIONS MAY DISRUPT OR OTHERWISE HAVE A NEGATIVE IMPACT ON BWI'S BUSINESS BWI has made, and plans to continue to make, investments in complementary companies, technologies and assets. Future acquisitions are subject to the following risks: 21 o acquisitions may cause a disruption in ongoing business, distract management and other resources and make it difficult to maintain standards, controls and procedures; o BWI may acquire companies in markets in which BWI has little experience; o BWI may not be able to integrate successfully the services, products and personnel of any acquisition into its operations; o BWI may be required to incur debt or issue equity securities, which may be dilutive to existing shareholders, to pay for acquisitions; and o BWI's acquisitions may not result in any return on its investment or the Company may lose its entire investment. BWI MAY NOT BE ABLE TO EFFECT ITS GROWTH STRATEGY IF BWI IS NOT ABLE TO CONSUMMATE FUTURE ACQUISITIONS BWI's acquisition strategy is subject to the risk of not being able to identify additional suitable acquisition candidates available for sale at reasonable prices or on reasonable terms. Additionally, regardless of whether suitable candidates are available, BWI may not be able to consummate future acquisitions for other reasons such as the availability of capital. If BWI is unable to consummate future acquisitions, its business, financial condition and operating results could be adversely affected. BWI MAY BE SUBJECT TO LEGAL LIABILITY FOR PUBLISHING OR DISTRIBUTING CONTENT OVER THE INTERNET BWI may be subject to legal claims relating to the content in the web pages it creates for its customer or the vertical trade communities it establishes, or the downloading and distribution of such content. For example, persons may bring claims against the Company if material that is inappropriate for viewing by young children can be accessed from its vertical trade communities. Claims also could involve matters such as defamation, invasion of privacy, and copyright infringement. Providers of Internet products and services have been sued in the past, sometimes successfully, based on the content of material. In addition, some of the content provided on its created web sites and vertical trade communities is drawn from data compiled by other parties, including governmental and commercial sources, and BWI re-keys the data. This data may have errors. If the content is used improperly or if BWI supplied incorrect information, it could result in unexpected liability. The Company's insurance may not cover claims of this type, or may not provide sufficient coverage. BWI's business, financial condition and operating results could suffer a material adverse effect if costs resulting from these claims are not covered by insurance or exceed its coverage. RISK OF FAILURE OF COMPUTER AND COMMUNICATIONS HARDWARE SYSTEMS INCREASES WITHOUT BACK-UP FACILITIES BWI's business depends on the efficient and uninterrupted operation of its computer and communications hardware systems. Any system interruptions that cause its vertical trade 22 communities to be unavailable to Web browsers or any of the Web Pages which it has created and hosts on its resident computers may reduce the attractiveness of BWI's business and could affect materially and adversely its business, financial condition and operating results. BWI maintains its computer systems in Dallas, Texas and North Carolina. However, it does not have back-up or redundant facilities for its computer systems at this time. Interruptions could result from natural disasters as well as power loss, telecommunications failure and similar events. CAPACITY LIMITS ON BWI'S TECHNOLOGY, TRANSACTION PROCESSING SYSTEM AND NETWORK HARDWARE AND SOFTWARE MAY BE DIFFICULT TO PROJECT AND THE COMPANY MAY NOT BE ABLE TO EXPAND AND UPGRADE ITS SYSTEMS TO MEET INCREASED USE As traffic to the BWI's web site and the web sites created for its clients and the vertical trade communities created continues to increase, BWI must expand and upgrade its technology, transaction processing systems and network hardware and software. BWI may not be able to project accurately the rate of increased use. In addition, BWI may not be able to expand and upgrade its systems and network hardware and software capabilities quickly enough to accommodate increased use of its services and created vertical communities. If BWI does not upgrade appropriately its systems and network hardware and software, BWI's business, financial condition and operating results will be affected materially and adversely. BWI'S MARKET IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE WHICH IT MAY NOT BE ABLE TO MAINTAIN IN A COST-EFFECTIVE WAY BWI's market is characterized by rapid technological change and frequent new product announcements. Significant technological changes could render e-commerce on web pages and vertical trade community technology obsolete. If BWI is unable to respond successfully to these types of developments or does not respond in a cost-effective way, BWI's business, financial condition and operating results will be affected materially and adversely. To be successful, BWI must adapt to the rapidly changing market by continual improvement in its responsiveness, services and features of the web page creation and vertical trade communities and by developing new features to meet customer needs. BWI's success will depend, in part, on its ability to license or to purchase leading technologies useful in its business, to enhance existing services and to develop new services and new technology that address the needs of its customers. BWI also will need to respond to technological advances and emerging industry standards in a cost-effective and timely manner. BWI'S SUCCESS IS DEPENDENT ON ITS KEY PERSONNEL WHOM IT MAY NOT BE ABLE TO RETAIN AND IT MAY NOT BE ABLE TO HIRE ENOUGH ADDITIONAL PERSONNEL TO MEET ITS HIRING NEEDS 23 BWI believes that its success will depend on continued employment of the current senior management team and key technical personnel. If one or more members of the senior management team were unable or unwilling to continue in their present positions, the business, financial condition and operating results of BWI could be affected materially and adversely. Most of senior management do not have employment agreements. BWI carries key person life insurance on certain, but not on all, of its senior management personnel. BWI's success also depends on having a highly trained sales force and telesales group. BWI's telesales group was formed recently. BWI will need to continue to hire additional personnel as its business grows. A shortage in the number of trained salespeople could limit its ability to increase sales in its existing markets and to sell as it launches new and improved services . BWI plans to expand its employee base to manage the BWI's anticipated growth. Competition for personnel, particularly for employees with technical expertise, is intense. BWI's business, financial condition and operating results will be affected materially and adversely if it cannot hire and retain suitable personnel. BWI'S SYSTEMS MAY NOT BE YEAR 2000 COMPLIANT WHICH COULD CAUSE BWI'S SERVICES TO BE UNAVAILABLE FOR A PERIOD OF TIME AFTER JANUARY 1, 2000 WHICH COULD HAVE A NEGATIVE IMPACT ON ITS BUSINESS, OPERATING RESULTS AND FINANCIAL POSITION BWI may realize exposure and risk if the systems on which it is dependent to conduct operations are not Year 2000 compliant. Potential areas of exposure include products purchased from third parties, computers, software, telephone systems and other equipment used internally. If the Company's present efforts to address the Year 2000 compliance issues are not successful, or if distributors, suppliers and other third parties with which it conducts business do not address successfully such issues, BWI's business, operating results and financial position could be affected materially and adversely. In the event that its Web-hosting facilities are not Year 2000 compliant, the Company's production Web sites would be unavailable and the Company would not be able to deliver services to its users. In the event that the production and operational facilities that support the Web sites are not Year 2000 compliant, small portions of the Web sites may become unavailable. CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Statements in this report, including the exhibits, contain forward-looking statements and information relating to the Company that are based on the beliefs of management, as well as 24 assumptions made by and information currently available to management. Forward-looking statements included statements preceded by the words "anticipate," "believe," "estimate," "expect," "indicate," "intend," "will," and similar expressions. The purpose of this cautionary statement is to identify certain important factors and assumptions on which such forward-looking statements may be based or which could cause actual results to differ materially from those expressed in the forward-looking statements. The important factors and assumptions set forth below should be read in conjunction with the items contained under the heading "RISK FACTORS." COMPLIANCE WITH YEAR 2000 ISSUE Newgold, Inc. has had its computer systems, which consist of personal computers and third party software, tested for compliance with the year 2000 issue. Such testing included forward dating operation of the equipment and software that was represented as Year 2000 compliant by the third party vendors. The systems and software so tested performed without failure or interruption and the Company believes it is Year 2000 compliant. The Company does not have sufficient contact with third party vendors for these vendors to have a material effect upon the Company's operations beyond July 31, 1999. RESULTS OF OPERATIONS Year Ended January 31, 1998 as Compared to Thirteen Months Ended January 31, 1997. For the year ended January 31, 1998, operating expenses, which consist of general and administrative expenses, exploration costs and a provision for impairment of assets, were approximately $5,422,900 as compared to approximately $1,788,400 for the thirteen months ended January 31, 1997. As the Company has placed Relief Canyon Mine on care and maintenance status and has no current plan for placing the mine into production, the Company recorded a provision of approximately $3,311,700 as a loss on impairment of assets for the year ended January 31, 1998 as required by FASB No. 121. A former Secretary-Treasurer of Newgold, Inc. (the Nevada corporation) signed a contract in 1994 which obligated the Company, Newgold, Inc. (the Delaware Corporation) to pay $250,000 to Christiansen, a former developer of the Golden Asset project. The Company had written off Golden Asset as of December 31, 1995. This obligation, which the current principals of the Company believed to be a contingent obligation and payable only if profits were earned by Golden Asset, was recognized as an exploration and evaluation expense in the year ended January 31, 1998 (See Item 3, Legal). The balance of the approximately $515,000 of exploration and evaluation expenses for the year ended January 31, 1998 is approximately $231,000 versus exploration expenses of 25 approximately $283,900 for thirteen months ended January 31, 1997. The Company recorded a reserve for reclamation of $50,500 in the current year (See Item 2, Relief Canyon property). In October 1997, the Company terminated the purchase contract for $3,500,000 to acquire the Mission Mine. Exploration and geologic survey costs incurred for Mission Mine in the year ended January 31, 1998 were approximately $226,100 compared to $110,200 in the thirteen months ended January 31, 1997. The terms of the lease assigned a $300,000 payment as the value of existing mine equipment. This amount was charged to loss on disposal of assets in the Statement of Operations for the year ended January 31, 1998. Prior to January 31, 1997, the Company had terminated option contracts for the acquisition of the Cerro Gordo and Bruner properties which resulted in a net reduction of approximately $185,300 in exploration expenses for the year ended January 31, 1998. General and administrative expenses were approximately $1,596,000 for the year ended January 31, 1998 compared to approximately $1,505,000 for the thirteen months ended January 31, 1997. A one-time charge in the thirteen months ended January 31, 1997 of approximately $359,000 for common stock issued in settlement of commissions for capital raised in the merger of NGNV and WAC was offset partially by a charge of $205,000 for stock issuance costs for the year ended January 31, 1998. Aircraft operating expenses were approximately $106,800 for the year ended January 31, 1998 versus approximately $22,800 in the thirteen months ended January 31, 1997. Geologist and office payroll was approximately $388,000 for the year ended January 31, 1998 versus approximately $235,300 for the thirteen months ended January 31, 1997. Reno office rent for the year ended January 31, 1998 was approximately $106,600 through December 31, 1997, including a $40,000 lease termination charge. Reno rent for six months was approximately $31,300 in the thirteen months ended January 31, 1997. Officer salaries were approximately $189,800 for the year ended January 31, 1998 versus approximately $237,500 for the thirteen months ended January 31, 1997. Legal and professional expenses for the year ended January 31, 1998 were approximately $223,300, and included approximately $156,000 related to the audits and SEC filings of the Company. Legal and professional fees were approximately $331,800 for the thirteen months ended January 31, 1997 and included approximately $272,000 related to the WAC Merger. LIQUIDITY AND CAPITAL RESOURCES The Company has financed most of its operations principally through private placements of the Company's common stock. In the Cash Flow Statement for the thirteen months ended January 31, 1997, the Company recorded $4,806,970 for common stock at $1.00 per share from the conversion of debtor certificates issued under the authority of the U. S. Bankruptcy Court in the WAC merger. In the Cash Flow for the year ended January 31, 1998, Repadre exercised warrants for the purchase of 200,000 shares of Common Stock for an aggregate consideration of $200,000 in a private placement in July 1997. The Company sold a one-half interest in the Relief Canyon Mine to Casmyn Corporation in April 1996 for $775,000. The Company purchased the one-half 26 interest back from Casmyn in December 1996 for $900,000 in cash plus 1,000,000 shares of common stock as part of capital expenditures in the Cash Flow Statement for the thirteen months ended January 31, 1997. On November 26, 1996, the Company purchased two aircraft at a total cost of $553,500 to transport management and professional personnel to and from the Company's properties. Such equipment is usual and customary in the mining industry as project sites are in remote areas not serviced by commercial carriers and auto travel between project sites or from the Company's office to project sites is impracticable. One of the aircraft was sold on October l, 1997 to Sterling Air, Ltd. and the other was sold on January 16, 1998 to Thomas Aircraft Sales. The gross sales price for both aircraft was $542,500 prior to adjustment for a lien and a repair reserve. On August 31, 1995, the Company granted to Edward Mackay ("Mackay") a one-year option (the "Option") to purchase 40% of NGNV in exchange for a $50,000 option payment (the "Option Payment") and the contribution of the Washington Gulch Mine located in Montana. On January 1, 1996, in exchange for Mackay arranging a $350,000 debt financing for the Company, the Option was amended (the "Amendment") and exercised whereby the $50,000 Option Payment was converted into a promissory note granted to Mackay and Mackay would receive 3.8 million shares of Common Stock of the Company in exchange for the contribution of the Washington Gulch Mine("WGM") by Mackay. Mackay was an officer and director of the Company; however, he was not an officer or director at the execution of the Option or the Amendment. WGM, at the time of transfer from Mackay in January 1996, was recorded at its net value of $181,000. Certain elements of the operation, such as the plant and equipment on site, were offered for sale, after which the property would be reclaimed and the Company would request return of its $206,000 bond that was being held by the State of Montana. The equipment on site had not been given any value nor reported on the financial statements. The property, equipment and bond were sold in July 1998 for $185,000. In June 1999, the Company declared a stock split of 3 shares for 2 as of June 17, 1999 to shareholders of record as of June 10, 1999. This split increased the outstanding shares as of June 17, 1999 to 37,866,882. ITEM 7: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ---------------------------------------------------- See pages F-1 through F-18. 27 ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------------------------------------------------------------------------- FINANCIAL DISCLOSURE - -------------------- On September 3, 1998 the Company's auditors KPMG Peat Marwick LLP withdrew as the auditors for the Company. On April 28, 1999, the Company appointed the firm of Burnett Umphress & Company, LLP as the Company's new auditors. PART III ITEM 9: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT Listed below are the names and ages, as of August 1, 1999, of each of the present directors and executive officers of the Company together with the principal positions and offices with the Company held by each. Executive officers are appointed annually by the Board of Directors to serve for the ensuing year or until their successors have been appointed. No officer is related to any other by blood, marriage or adoption. Name Age Position(s) (1) - ---- --- --------------- A. Scott Dockter 43 President, Director and CEO Calvin Lim 42 Director John Mackay 50 Director Michael J. Morrison, Esq. 53 Director Robert W. Morris 59 Treasurer/Chief Financial Officer Michael M. Kessler 43 Secretary/ Corporate Counsel 28 (1) All Directors will hold their position until the next annual meeting of the Shareholders of the Company, or until their successors have been elected and qualified or until resignation, whichever occurs first. Background Information of Officers and Directors A. Scott Dockter has been Chairman of the Board, CEO and President of the Company since November 21, 1996. Mr. Dockter was the founder, Chairman of the Board, CEO and President of NGNV since 1993. Mr. Dockter is a founder, president and CEO of Riverfront Development Corporation. From June 1988 to June 1993, Mr. Dockter was the owner and founder of Earthco, a sole proprietorship, which was a general engineering contractor specializing in dams, levies and mining projects. In December 1992, Mr. Dockter, as the result of litigation, voluntarily filed a bankruptcy action pursuant to Chapter 11 of the U.S. Bankruptcy Code in the Eastern District of California. The proceeding was dismissed and the Court did not discharge Mr. Dockter's obligations. Mr. Dockter devotes a minimal amount of time to Riverfront Development Corporation. Robert W. Morris has been Chief Financial Officer and Treasurer of the Company since February 1997. From November 1996 to February 1997 he was the Vice President of Finance. Mr. Morris was the Chief Financial Officer of NGNV from July 1995 to November 1996. From July 1995 to the present, Mr. Morris has been CFO of Riverfront Development Corporation. From December 1993 to December 1995, Mr. Morris was the CFO of Tolson Construction Co. From July 1990 to November 1993, Mr. Morris was CFO of Elk Grove Ready Mix. Mr. Morris has been a Certified Public Accountant for 31 years with 13 years in public accounting and 18 years as a treasurer and controller. Mr. Morris devotes his full time to the business of the Company. He holds a BS degree in Business and Accounting from Indiana University. Calvin Lim was born in Hong Kong in 1957, holds an AA Degree in Art, and attended Sacramento State University in California majoring in business. He has owned several businesses and specifically had been in the restaurant business from 1976 till 1997. Mr. Lim has been involved in the import-export business between the United States and China since 1983 to the Present, exporting machinery to Mainland China. John Mackay, Esq. an attorney at law and is admitted to practice in the State of California and has specialized in real estate and insurance litigation for the last fifteen years. Mr. has been engaged by lenders as an independent contractor since 1985 to Present to develop plans for the effective utilization of real estate and to manage recoveries of large portfolios of non-performing real estate loans. He holds MBA and JD degrees from the University of Southern California. Michael J. Morrison, Esq. has been a director of the Company since November 1996 and has been a practicing attorney in Reno, Nevada for 20 years specializing in the areas of corporate, business and securities law. Mr. Morrison sits on no other boards. He is also admitted 29 to practice in the State of California and the District of Columbia. Michael M. Kessler, Esq. is the Corporate Secretary and Corporate Counsel to the Company. From 1989-1991 Mr. Kessler was an associate where he was in charge of business litigation and transactional affairs. From April 1991-November 1996 Mr. Kessler was in private practice where he concentrated in the areas of business litigation and transactional matters. From November 1996-Present Mr. Kessler has been the Company's in house corporate counsel. Mr. Kessler holds a Bachelors Degree in Business Administration from New York University. He received his Juris Doctor Degree from Western State University College of Law and is a member of the California Bar. Board of Directors Directors of the Company are elected to serve until the next annual meeting of the stockholders or until their earlier resignation or removal. Director Compensation Each non-employee director is reimbursed for all out-of-pocket expenses incurred by the director in attending Board meetings and performing other duties on behalf of the Company. Directors do not receive any additional compensation. Committees of the Board There is currently an Audit Committee for the Board of Directors. Directors John Mackay and Calvin Lim are the members of the Audit Committee. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities and Exchange Act of 1934 requires the Company's directors and executive officers, and persons who own more than ten percent of the Company's Common Stock, to file with the Securities and Exchange Commission, by a specified date, reports regarding their ownership of Common Stock. Arthur Scott Dockter, Michael J. Morrison, Calvin Lim and Robert W. Morris have each filed late a Form 3 and a Form 5. ITEM 10: EXECUTIVE COMPENSATION - -------------------------------- The following table sets forth the compensation paid by the Company for services performed on the Company's behalf during each of the completed fiscal years with respect to the Company's Chief Executive Officer and the Company's other executive officers whose annual compensation exceeded $100,000 during the last fiscal year (the "Named Executive Officer"): Summary Compensation Table 30 Other Annual All Other Name and Period Salary Bonus Compen- Options Compen- Principal Position Ended ($) ($) sation($) (In shares) sation($) ------------------------ ------- ------ ------- ----------- ----------- --------- Arthur Scott Dockter Chief Executive 1/31/98 -- -- -- -- -- Officer, President 1/31/97 45,000 229,651 -- -- -- 12/31/96 -- -- -- -- --
Options No stock options were granted to the directors, officers or employees of the Company during 1998. 31 Employment Contracts Mr. Dockter, Mr. Morris and Mr. Kessler had entered into employment contracts with the Company. The contracts were due to expire on of January 31, 2000. Under the terms of the Merger Agreement all three individuals contracts were cancelled as of the date of the signing of the Merger agreement. Whereupon, Messrs. Dockter, Morris, and Kessler became at-will employees of the Company. Subsequent to the signing of the Merger Agreement with BWI and with the consent of the Company and BWI, Mr. Morris accepted the position of Acting Chief Financial Officer of BWI and Controller with the understanding that he would continue to act as Chief Financial Officer of Newgold to facilitate the completion of the Merger. Mr. Morris has not received a contract of employment from BWI. Subsequent to the signing of the Merger Agreement and with the consent of the Company and BWI, Mr. Kessler accepted the position of Corporate Counsel for BWI, with the understanding that Mr. Kessler would continue in his role as Corporate Counsel for Newgold in order to facilitate the completion of the Merger. Mr. Kessler has obtained a waiver of conflict of interest from the Company and BWI. Mr. Kessler has not received a contract for employment from BWI. Mr. Dockter continues to be President and Chief Executive of the Company on an at-will basis. Mr. Dockter will step down from this position upon the completion of the Merger. 32 ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ------------------------------------------------------------------------ The table below sets forth certain information as of July 31, 1999 (the "Reference Date") with respect to the beneficial ownership of (i) each person who beneficially owns more than 5% of the outstanding shares of Common Stock, (ii) each director, (iii) the named executive officer and (iv) all officers and directors as a group. Except as otherwise indicated below, the address for each such person is: c/o Newgold, Inc., P.O. Box 4155, El Dorado Hills, CA 95762-0013. Number of Shares of Percent of Common Name of Beneficial Owner Common Stock Stock Outstanding (1) - ------------------------ ------------ --------------------- Arthur Scott Dockter 9,276,537 24.50% Robert W. Morris 7,500 * Michael J. Morrison, Esq. 18,750 * Calvin Lim 758,463 2.00% John Mackay 230,790 * All Officers and Directors as a Group (5 persons) 10,292,040 27.18% * Less than 1% (1) After 3:2 common stock split effective June 17, 1999. (2) Percentage figures based on 37,866,882 shares of Common Stock outstanding on the Reference Date. 33 ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------- On June 30, 1995, the Company purchased machinery and equipment from Riverfront Development Corporation, of which Mr. Dockter is president and the sole shareholder and Mr. Morris was chief financial officer, for the purchase price of $250,000. As of the date of this Report, the Company owes Riverfront Development Corporation approximately $130,335 relating to the purchase. On August 31, 1995, the Company granted to Edward Mackay ("Mackay") a one-year option (the "Option") to purchase 40% of NGNV in exchange for a $50,000 option payment (the "Option Payment") and the contribution of the Washington Gulch Mine located in Montana. On January 1, 1996, in exchange for Mackay arranging a $350,000 debt financing for the Company, the Option was amended (the "Amendment") and exercised whereby the $50,000 option payment was converted into a promissory note granted to Mackay and Mackay received 3.8 million shares of Common Stock of the Company (56.14360233 pre-Stock Dividend and approximately 35% of the outstanding shares of Common Stock on January 1, 1996) in exchange for the contribution of the Washington Gulch Mine by Mackay. Mackay was a director and officer of the Company; however, he was not a director or officer at the execution of the Option or the Amendment. The Washington Gulch Mine was never activated by the Company and was sold in July 1998 for $185,000. As of January 31, 1997, the Company had made advances totaling $92,486 to A. Scott Dockter, President and Chief Executive Officer of the Company. The advances were draws against future salary, did not bear interest and were repaid in April 1997. On April 2, 1997, Mr. Dockter, loaned $100,000 to the Company at 8% per annum, due and payable on demand. As of January 31, 1998, $77,258 of this loan has been repaid. On April 17, 1997, Mr. Dockter loaned $50,000 to the Company at 8% per annum, due and payable on demand. As of January 31, 1998, no payments have been on this loan. On April 30, 1997, Mr. Dockter loaned $20,000 to the Company at 8% per annum, due and payable on demand. As of January 31, 1998, no payments have been paid on this loan. On May 30, 1997, Mr. Dockter loaned $35,000 to the Company at 8% per annum, due and payable on demand. As of January 31, 1998, no payments have been made on this loan. Of the $205,000 loaned to the Company by Mr. Dockter, $77,258 has been repaid with $127,742 remaining unpaid. 34 The total interest accrued as of January 31, 1998 on the above loans is $10,568. None of the accrued interest has been paid to Mr. Dockter. As of January 31, 1998, there is accrued, but unpaid salary of $50,000 due Mr. Dockter. ITEM 13: EXHIBITS AND REPORTS ON FORM 8-K - ------------------------------------------ A. Exhibits. The following exhibits are filed herewith: -------- Exhibit No. Description of Exhibit ------- ---------------------- 1.1 Merger Agreement With Business Web, Inc. 2.1 Plan of Reorganization. (1) 3.1 Certificate of Incorporation of the Registrant.(2) 3.2 Certificate of Amendment to Certificate of Incorporation of the Registrant.(1) 3.3 Bylaws of the Registrant.(2) 10.1 Contract of Sale between the Registrant and J.D. Welsh & Associates.(1) 10.2 Agreement for Lease/Purchase and Sale of Property between the Registrant, Joie Jamison and T.K.M. Corporation dated September 2, 1996.(1) 10.3 Office Building Lease between the Registrant and Duffel Financial and Construction Company dated May 20, 1996.(1) 10.4 Option to Purchase Forty (40%) Percent of Newgold, Inc. and Riverfront Development, Inc., between Edward Mackay and the Company (the "Option Agreement"). (3) 10.5 First Amendment to the Option to Purchase Newgold Inc., between the Registrant and Edward Mackay dated as of January 1, 1996 (the "Option Amendment"). (3) 10.6 Clarification Agreement (clarifying the Option and Option Amendment) between A. Scott Dockter, Edward Mackay, Gold Bug, and the Company dated effective as of June 18, 1996. (3) 10.7 Letter of Intent between the Registrant and Miramar Mining Corporation dated October 8, 1996. (3) 35 10.8 Agreement and Plan of Merger by and between the Registrant and Newgold, Inc. dated August 1996. (3) 10.9 Promissory Note between the Company and A. Scott Dockter, dated April 2, 1997, for the principal amount of $100,000. 10.10 Promissory Note between the Company and A. Scott Dockter, dated April 17, 1997, for the principal amount of $50,000. (3) 10.11 Promissory Note between the Company and A. Scott Dockter, dated April 30, 1997, for the principal amount of $20,000. (3) 10.12 Promissory Note between the Company and A. Scott Dockter, dated May 30, 1997, for the principal amount of $35,000. (3) 27.1 Financial Data Schedule. - ------------------------------------- (1) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB-40 for the fiscal year ended January 31, 1996 filed with the Commission on January 22, 1997. (2) Incorporated by reference to the Registrant's Registration Statement on Form SB-2 (File No. 33-49920) filed with the Commission on October 14, 1993. (3) Incorporated by reference to the Registrant Annual Report on Form 10-KSB-40 for the fiscal year ended January 31, 1997 filed with the commission on June 30, 1997. B. Reports on Form 8-K ------------------- (1) The Registrant filed a Form 8-K with the Commission on March 19, 1997 reporting merger of Newgold, Inc. with Warehouse Auto Centers through the U.S. Bankruptcy Court, Western District of New York. (2) The Registrant filed a Form 8-K with the Commission on August 28, 1998 reporting the issuance of a Letter of Intent for merger of Newgold, Inc. with Vauquelin Mines Ltd. of Montreal, Canada. (3) The Registrant filed a Form 8-K with the Commission on September 17, 1998 reporting the resignation of KPMG, LLP as the Company's independent accountants. (4) The Registrant filed a Form 8-K with the Commission on June 8, 1999 reporting a 3:2 stock split in preparation for a 1:12 reverse stock split required by a pending merger agreement between the Company and Business Web Inc. (5) The Registrant filed a Form 8-K with the Commission on July 27, 1999 reporting the signing of the definitive merger agreement on July 26, 1999 between the Company and Business Web Inc. 36 INDEX TO FINANCIAL STATEMENTS Report of Burnett, Umphress & Company, LLP ........................................................F-1 Report of KPMG LLP.................................................................................F-2 Balance Sheet as of January 31, 1998...............................................................F-3 Statements of Operations for the thirteen months ended January 31, 1997 and for the year ended January 31, 1998.............................................................................F-4 Statements of Stockholders' Deficit for the thirteen months ended January 31, 1997 and for the year ended January 31, 1998...................................................................F-5 Statements of Cash Flows for the thirteen months ended January 31, 1997 and for the year ended January 31, 1998 ............................................................................F-6 Notes to Financial Statements..............................................................F-7 to F-18
37 To the Board of Directors NEWGOLD, INC. El Dorado Hills, California INDEPENDENT AUDITORS' REPORT We have audited the accompanying balance sheet of NEWGOLD, INC. as of January 31, 1998, and the related statements of operations, stockholders' deficit and cash flows for the year 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 audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of NEWGOLD, INC. as of January 31, 1998 and the results of its operations and cash flows for the year then ended in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has been dependent primarily upon cash proceeds from private placement of its common stock. The Company anticipates that current working capital and anticipated revenues will not be sufficient to satisfy its future cash needs, and accordingly, the Company will need to raise additional capital in the near term. Currently, the Company has no commitments for additional funding. Management's plans in regard to these matters are also described in Note 1. These matters raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/Burnett, Umphress & Company, LLP Rancho Cordova, California July 20, 1999 F-1 Independent Auditors' Report The Board of Directors Newgold, Inc.: We have audited the statements of operations, stockholders' equity, and cash flows of Newgold, Inc. for the thirteen month period ended January 31, 1997. 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 audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of Newgold, Inc.'s operations and cash flows for the thirteen month period ended January 31, 1997, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note 1 to the financial statements, the Company has been dependent primarily upon cash proceeds from private placement of its common stock. The Company anticipates that current working capital and anticipated revenues will not be sufficient to satisfy its future cash needs, and accordingly, the Company will need to raise additional capital in the near term. Currently, the Company has no commitments for additional funding. Management's plans in regard to these matters are also described in note 1. These matters raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/KPMG L.L.P. Sacramento, California June 18, 1997, except as to paragraph 2 of note 11, which is as of June 8, 1999 F-2 NEWGOLD, INC. BALANCE SHEET January 31, 1998 ASSETS CURRENT ASSETS Cash $ 2,310 Prepaid expenses 979 ------------ Total current assets 3,289 PROPERTY, PLANT AND EQUIPMENT, including undeveloped mineral properties of $800,000, net of $27,752 of accumulated depreciation 871,011 Reclamation bonds 256,500 ------------ Total assets $ 1,130,800 ============ LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES Account payable $ 666,574 Accrued expenses 270,670 Accrued reclamation costs 75,500 Due to affiliate 130,335 Notes payable to individuals and related parties 702,242 ------------ Total current liabilities 1,845,321 DEFERRED REVENUE 800,000 ------------ Total liabilities 2,645,321 STOCKHOLDERS' DEFICIT Common stock, $.001 par value, 50,000,000 shares authorized, 19,462,611 shares issued and outstanding 19,463 Additional paid in capital 7,328,779 Accumulated deficit (8,862,763) ------------ Total stockholders' deficit (1,514,521) ------------ Total liabilities and stockholders' deficit $ 1,130,800 ============
The accompanying notes are an integral part of the financial statements. F-3 NEWGOLD, INC., STATEMENTS OF OPERATIONS For the Thirteen Months Ended January 31, 1997 and the Year Ended January 31, 1998 Thirteen Months Ended Year Ended January 31, January 31, 1997 1998 ------------- ------------- SALES Net sales $ -0- $ -0- Cost of sales -0- -0- ------------- ------------- Gross margin -0- -0- OPERATING EXPENSES General and administrative expenses 1,504,539 1,596,160 Impairment of assets -0- 3,311,672 Exploration costs 283,876 515,050 ------------- ------------- Total operating expenses 1,788,415 5,422,882 ------------- ------------- Loss from operations (1,788,415) (5,422,882) OTHER INCOME (EXPENSE) Interest income 35,807 1,799 Other income (expense) 16,800 (7,235) Interest expense (67,976) (137,423) Loss on disposal of property, plant and equipment -0- (317,568) ------------- ------------- Total other expense (15,369) (460,427) ------------- ------------- NET LOSS $ (1,803,784) $ (5,883,309) ============= ============= LOSS PER SHARE (after giving effect to the Three-for-two stock split declared on June 8, 1999 - See Note 11) (.09) (.21) ------------- ------------- WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (after giving effect to the Three-for-two stock split declared on June 8, 1999 - See Note 11) 19,169,904 28,701,450 ============= =============
The accompanying notes are an integral part of the financial statements. F-4 NEWGOLD, INC. STATEMENTS OF STOCKHOLDERS' DEFICIT For the Thirteen Months Ended January 31, 1997 and the Year Ended January 31, 1998 Common Common Additional Total Stock Stock Paid in Accumulated Shareholders' Shares $ Capital Deficit Deficit ----------- ----------- ----------- ------------ ------------- Balances, December 31, 1995 6,768,358 $ 6,768 $ -0- $ (869,961) $ (863,193) Shares issued to purchase Washington Gulch 3,800,000 3,800 177,200 -0- 181,000 Shares issued in exchange for net profit interests 1,431,642 1,432 440,605 -0- 442,037 Shares issued to creditors and shareholders of Warehouse Auto Center, Inc. 305,709 306 305,403 (305,709) -0- Shares issued to investors and underwriters 5,135,130 5,135 4,701,835 -0- 4,706,970 Shares issued to others 221,000 221 220,779 -0- 221,000 Shares issued to Repadre 100,000 100 99,900 -0- 100,000 Shares issued to repurchase 50% interest in Relief Canyon Mine, Ltd. 1,000,000 1,000 999,000 -0- 1,000,000 Net loss for period from January 1,1996 to January 31, 1997 -0- -0- -0- (1,803,784) (1,803,784) ----------- ----------- ----------- ------------ ----------- Balances, January 31, 1997 18,761,839 18,762 6,944,722 (2,979,454) 3,984,030 =========== =========== =========== ============ =========== Shares issued to Warehouse Auto Center, Inc. shareholders subsequently cancelled (25,242) (25) (25,217) -0- (25,242) Shares issued to others 12,500 13 4,987 -0- 5,000 Additional shares issued to investors and underwriters for delay in share trading 513,514 513 204,487 -0- 205,000 Shares issued to Repadre 200,000 200 199,800 -0- 200,000 Net loss for period from February 1,1997 to January 31, 1998 -0- -0- -0- (5,883,309) ----------- ----------- ----------- ------------ ----------- (5,883,309) Balances, January 31, 1998 19,462,611 $ 19,463 $ 7,328,779 $(8,862,763) $(1,514,521) =========== =========== =========== ============ ===========
The accompanying notes are an integral part of the financial statements. F-5 NEWGOLD, INC. STATEMENTS OF CASH FLOWS For the Thirteen Months Ended January 31, 1997 and the Year Ended January 31, 1998 Thirteen Months Ended Year Ended January 31, January 31, 1997 1998 ---------------- ---------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (1,803,784) $ (5,883,309) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 23,466 52,734 Loss on disposal of property, plant and equipment -0- 317,568 Impairment in value of Relief Canyon Mine -0- 3,311,672 Assigned value of common stock issued for services 221,000 184,758 Judgement loss accrued -0- 250,000 Changes in operating assets and liabilities: Refundable payroll taxes (154,357) 154,357 Prepaid expenses 150 -0- Other assets (12,885) 11,906 Accounts payable -0- 497,252 Accrued expenses 55,526 125,033 Accrued reclamation costs (69,470) 50,500 ---------------- ---------------- Net cash used in operating activities (1,740,354) (927,529) ---------------- ---------------- CASH FLOWS FROM INVESTING ACTIVITIES Advances from stockholder/(repayment of advances) (66,847) 92,486 Contribution from joint venture partner 775,000 -0- Purchase of joint venture partner interest (900,000) -0- Capital expenditures (1,684,892) (957,953) Proceeds from disposal of property, plant and equipment -0- 278,783 ---------------- ---------------- Net cash used in investing activities (1,876,739) (586,684) ---------------- ---------------- CASH FLOWS FROM FINANCING ACTIVITIES Advance from affiliate/(repayment of advances) (190,308) 12,708 Deferred revenue 500,000 300,000 Proceeds from issuance of notes payable 115,996 772,000 Payments on notes payable (739,903) (644,758) Proceeds from sale of common stock 4,806,970 200,000 ---------------- ---------------- Net cash provided by financing activities 4,492,755 639,950 ---------------- ---------------- NET INCREASE (DECREASE) IN CASH 875,662 (874,263) CASH, beginning of year 911 876,573 ---------------- ---------------- CASH, end of year $ 876,573 $ 2,310 ================ ================ SUPPLEMENTAL DISCLOSURES REGARDING CASH FLOWS Cash paid for interest $ 37,246 $ 71,556 ================ ================ Cash paid for income taxes $ -0- $ -0- ================ ================
The accompanying notes are an integral part of the financial statements. F-6 NEWGOLD, INC. NOTES TO THE FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Company's Activities - NEWGOLD, Inc. ("the Company") was in the business of acquiring, exploring, developing, and producing gold properties. The Company had rights to mine properties in Nevada, California, and Montana. Its primary focus was on the Relief Canyon Mine located near Lovelock, Nevada, where it has performed development and exploratory drilling and was in the process of obtaining permits to allow operation of the Relief Canyon Mine. In December 1997, the Company placed the Relief Canyon Mine on care and maintenance status. In the thirteen months ended January 31, 1997, the Company also entered into a lease with an option to buy the Mission Mine located near Twenty-Nine Palms, California. Mission Mine is an abandoned underground mine complex. The Company also conducted exploration at its Washington Gulch Mine property in Montana. Merger - In November 1996, Newgold, Inc. of Nevada (Old Newgold) was merged into Warehouse Auto Centers, Inc. (WAC), a public company, which had previously filed an involuntary petition under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Western District of New York. Pursuant to the plan of reorganization and merger (the Plan), (i) WAC which was the surviving corporation for legal purposes, changed its name to Newgold Inc. (the Company), (ii) the outstanding shares of Old Newgold were converted into the right to receive an aggregate of 12,000,000 shares or approximately 69% of the post merger outstanding common stock of the Company, (iii) each outstanding share of WAC was converted into the right to receive 1/65 share of the common stock of the Company, for an aggregate of 51,034 shares or less than 1% of the post merger outstanding common stock, (iv) unsecured trade debts and other unsecured pre-petition liabilities were paid in full via the issuance of one share of the Company's stock, for each $42 of debt, for an aggregate of 63,374 shares or less than 1% of the post merger outstanding common stock, and (v) post petition creditors received 1 share of stock for each $1 of debt, for an aggregate of 191,301 shares or approximately 1% of the post merger outstanding common stock. The Plan also required an amendment to the Company's capital structure to increase the number of shares authorized to 50,000,000 and to reduce the corresponding par value to $.001. In connection with the Plan, the Company raised $4,707,000 of cash through the issuance of convertible debtor certificates. Shortly after confirmation of the Plan, the debtor certificates were exchanged for 5,135,130 shares of common stock (including 428,130 shares issued in lieu of paying cash for underwriter's fees) representing approximately 29% of the post merger outstanding common stock. An additional 513,514 shares were issued to investors and underwriters during the year ended January 31, 1998, for delay in the effective date of the Company's stock trading. For accounting purposes, Old Newgold has been treated as the acquirer (reverse acquisition). Accordingly, the historical financial statements prior to November 21, 1996 are those of Old Newgold. There were no assets or liabilities acquired in this transaction and there is no impact on the statement of operations. In connection with the merger with WAC, the Company changed its fiscal year end from December 31, to January 31. As such, the financial statements for the period ended January 31, 1997, include thirteen months of activity. F-7 NEWGOLD, INC. NOTES TO THE FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Basis for Presentation - The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company's current plans are to suspend development and operation of the Relief Canyon Mine and to keep the mine on care and maintenance status until the Company receives additional funding. Currently, the Company's plans indicate that it will be unable to continue operating unless it receives significant additional funding. Management is exploring various means of raising additional capital. Strategic alternatives being considered include: (i) entering into an agreement to merge with another company, (ii) the sale of Company assets, (iii) the sale of Relief Canyon Mine to another entity to develop the mine, and (iv) conversion of certain debt to equity. There can be no assurance that the Company will be successful in its attempts to consummate one or more of these strategic alternatives. Failure to do so will necessitate that the Company curtail its plans and cease its operations. The financial statements do not include any adjustments that might result from the outcome of this uncetainity. (See Note 11). Currency - The Company presents its financial statement information in United States dollars as all of its assets and operations are located in the United States. Cash and Cash Equivalents - For financial statement purposes, the Company considers all highly liquid instruments with original maturities of 90 days or less to be cash equivalents. Property and Equipment - Depreciation, depletion and amortization of mining properties, mine development costs and major plant facilities will be computed principally by the units-of-production method based on estimated proven and probable ore reserves. Proven and probable ore reserves reflect estimated quantities of ore which can be economically recovered in the future from known mineral deposits. Such estimates are based on current and projected costs and prices. Other equipment is depreciated using the straight-line method principally over the estimated useful life of seven years. Exploration Costs - Exploration costs are expensed as incurred. All costs related to property acquisitions are capitalized. Mine Development Costs - Mine development costs consist of all costs associated with bringing mines into production, to develop new ore bodies and to develop mine areas substantially in advance of current production. The decision to develop a mine is based on assessment of the commercial viability of the property and the availability of financing. Once the decision to proceed to development is made, development and other expenditures relating to the project will be deferred and carried at cost with the intention that these will be depleted by charges against earnings from future mining operations. No depreciation will be charged against the property until production commences. After a mine has been brought into production, any additional work on that property will be expensed as incurred, except for large development programs, which will be deferred and depleted. F-8 NEWGOLD, INC. NOTES TO THE FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Financing Costs - Financing costs, including interest, are capitalized when they arise from indebtedness incurred to finance development and construction activities on properties that are not yet subject to depreciation or depletion. Financing costs are charged against earnings from the time that mining operations commence. Capitalization is based upon the actual interest on debt specifically incurred or on the average borrowing rate for all other debt except where shares are issued to fund the cost of the project. As of January 31, 1998, an aggregate of $45,441 of interest has been capitalized. Depreciation, Depletion and Amortization - Assets other than mining properties and mineral rights are depreciated using the straight-line method over their estimated useful lives. Capitalized development costs are amortized on the units of production method considering proven and probable reserves. Aircraft are depreciated ratable over their estimated total useful hours. Depreciation and depletion rates are subject to periodic review to ensure that asset costs are amortized over their useful lives. Impairment - Mining projects and properties are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. If estimated future cash flows expected to result from the use of the mining project or property and its eventual disposition are less than the carrying amount, an impairment is recognized based on the estimated fair market value of the mining project or property. Fair value generally is based on the present value of estimated future net cash flows for each mining project or property, calculated using estimates of proven and probable mineable reserves, geological resources, future prices, operating costs, capital requirements and reclamation costs. A provision for impairment in the valuation of development costs and property, plant and equipment amounted to $3,311,672 for the year ended January 31, 1998 and was charged to operating expense. The remaining book value of the mine after the impairment write-down approximates the amount of the deferred revenue recognized upon the sale of the net smelter return royalty. Management's estimates of future cash flows are subject to risks and uncertainties. Therefore, it is reasonably possible that changes could occur which may affect the recoverability of the Company's investment in mineral properties. Reclamation Costs - Reclamation costs and related accrued liabilities, which are based on the Company's interpretation of current environmental and regulatory requirements, are accrued and expensed, upon determination. Based on current environmental regulations and known reclamation requirements, management has included its best estimates of these obligations in its reclamation accruals. However, it is reasonably possible that the Company's best estimates of its ultimate reclamation liabilities could change as a result of changes in regulations or cost estimates. Revenue Recognition - Revenues will be recognized when deliveries of gold are made. Deferred revenue represents non-refundable cash received in exchange for royalties on net smelter returns on the Relief Canyon Mine Mine. Deferred revenue will be amortized to earnings based on estimated production in accordance with the royalty agreement. F-9 NEWGOLD, INC. NOTES TO THE FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Income Taxes - The Company accounts for income taxes using the liability method, which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the deferred tax assets are recorded to the extent management estimates that the future benefit will be realized. Loss Per Share - Loss per share is calculated based on the weighted average number of common shares outstanding during each period. Estimates, Risks and Uncertainties - 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 liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Fair Value of Financial Instruments - The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of SFAS No. 107, "Disclosures about Fair Value of Financial Instruments." The estimated fair value amounts have been determined by the Company, using available market information and appropriate valuation methodologies. The fair value of financial instruments classified as current assets or liabilities including cash and cash equivalents, receivables and accounts payable approximate carrying value due to the short-term maturity of the instruments. The fair value of notes payable approximates carrying value based on their effective interest rates compared to current market rates. Recent Pronouncements - In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard (SFAS) No. 128, earnings per share, which is effective for periods beginning after December 15, 1997. SFAS No. 128 has simplified the existing computational guidelines as well as revised the existing disclosure requirements. The Company adopted the provisions of SFAS No. 128 for the year ended January 31, 1998. Statement of Financial Accounting Standards (SFAS) 129, "Disclosure of Information About Capital Structure", establishes standards for disclosure about an entity's capital structure including rights, liquidation preferences, participation and conversion features. The Company has adopted the provisions of this SFAS for the year ended January 31, 1998. The financial statements are unaffected by the implementation of this new standard. Statement of Financial Accounting Standards (SFAS) 130, "Reporting Comprehensive Income", establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS 130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The Company has adopted the provisions of this SFAS for the year ended January 31, 1998. Results of operations and financial position are unaffected by implementation of this new standard. F-10 NEWGOLD, INC. NOTES TO THE FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Statement of Financial Accounting Standard (SFAS) 131, "Disclosure about Segments of a Business Enterprise", establishes standards for the way that public enterprises report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public. It also establishes standards for disclosures regarding products and services, geographic areas and major customers. SFAS 131 defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Because the Company considers its operations to be in one industry segment, this accounting pronouncement will not have an effect on the Company's financial statements. Statement of Financial Accounting Standards (SFAS) 132, "Employers' Disclosure about Pensions and Other Post-retirement Benefits," revises standards for disclosures regarding pensions and other post-retirement benefits. It also requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis. The Company has adopted the provisions of this SFAS for the year ended January 31, 1998. The financial statements are unaffected by the implementation of this new standard. Statement of Financial Accounting Standards (SFAS) 133, "Accounting for Derivative Instruments and Hedging Activities," establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments as fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-denominated forecasted transaction. The Company has adopted the provisions of this SFAS for the year ended January 31, 1998. Because the Company has no derivatives, this accounting pronouncement has no effect on the Company's financial statements. F-11 NEWGOLD, INC. NOTES TO THE FINANCIAL STATEMENTS 2. PROPERTY, PLANT AND EQUIPMENT A summary of changes in property, plant and equipment and related accumulated depreciation accounts is as follows: Machinery & Development Capitalized Buildings Equipment Costs Interest Total --------- ---------- ------------- ----------- ------------ Cost: Balances at January 31, 1997 $ 215,510 $1,013,521 $ 2,635,942 $ 34,403 $ 3,899,376 Additions -0- 14,622 932,293 11,038 957,953 Disposals, retirements and reclassifications -0- (603,948) (42,946) -0- (646,894) Impairment (48,125) (3,263,547) -0- (3,311,672) --------- ---------- ------------- ----------- ------------ Balances at January 31, 1998 215,510 376,070 261,742 45,441 898,763 ========= ========== ============= =========== ============ Accumulated depreciation: Balances at January 31, 1997 -0- 25,561 -0- -0- 25,561 Depreciation and amortization -0- 52,734 -0- -0- 52,734 Disposals, retirements and reclassifications -0- (50,543) -0- -0- (50,543) --------- ---------- ------------- ----------- ------------ Balances at January 31, 1998 -0- 27,752 -0- -0- 27,752 ========= ========== ============= ============== ========= Property, plant and equipment, net, January 31, 1998: Relief Canyon Mine 215,510 277,307 261,742 45,441 800,000 Other -0- 71,011 -0- -0- 71,011 --------- ---------- ------------- ----------- ------------ Total Company $ 215,510 $ 348,318 $ 261,742 $ 45,441 $ 871,011 ========= ========== ============= =========== ============
3. NOTES PAYABLE TO INDIVIDUALS AND RELATED PARTIES Unsecured notes payable to individuals and related parties consists of the following at January 31, 1998: Loan was extended by a stockholder in June 1996 in the original amount of $215,000. The note bears interest at 8% per year. Full repayment was due September 30, 1996. The Company is in default with respect to this loan. $ 105,000 Loan from individual. The note bears interest at 10% per year. The note is currently due. The Company is in default with respect to this loan. 200,000 Loans were extended by an officer and significant stockholder for various amounts totaling $205,000 net of payments of $77,258 at January 31, 1998. The notes bear interest at 8% per year. The note is due on demand. 127,742 F-12 NEWGOLD, INC. NOTES TO THE FINANCIAL STATEMENTS 3. NOTES PAYABLE TO INDIVIDUALS AND RELATED PARTIES, Continued A judgement payable to an individual was rendered on October 23, 1997. The judgement accrues interest at 10% per year until paid. The Company is in default with respect to this judgement. 250,000 Other non-interest bearing advances 19,500 ---------- Total notes payable to individuals and related parties $ 702,242 ========== The Company recorded $137,423 of interest expense in the current period. Interest of $11,038 and $14,089 was capitalized during the year ended January 31, 1998 and for the thirteen months ended January 31, 1997, respectively. 4. LEASES Except for the advance royalty and rent payments noted below, the Company is not obligated under any capital leases or noncancelable operating lease with initial or remaining lease terms in excess of one year as of January 31, 1998. However, minimum annual royalty payments are required to retain the lease rights to the Company's properties. Relief Canyon Mine - The Company purchased the Relief Canyon Mine from J.D. Welsh Associates (Welsh) in January 1995. The mine consisted of 39 claims and a lease for access to an additional 800 acres contiguous to the claim. During 1997, the Company staked an additional 402 claims. Subsequent to January 31, 1998, the Company reduced the total claims to 50 (approximately 1,000 acres). As part of the original purchase of Relief Canyon Mine, Welsh assigned the lease from Santa Fe Gold Corporation (Santa Fe) to the Company. The lease granted Santa Fe the sole right of approval of transfer to any subsequent owner of the Relief Canyon Mine. Santa Fe had accepted lease and minimum royalty payments from the Company, but has declined to approve the transfer. Due to Welsh's inability to transfer the Santa Fe lease, the original purchase price of $500,000 for Relief Canyon Mine was reduced by $50,000 in 1996 to $450,000. Subsequent to January 31, 1998, the lease was terminated by Santa Fe. Management believes loss of the Santa Fe lease will have no material adverse affect on the remaining operations of the mine or the financial position of the Company. Mission Mine Property - The Company entered into a seven-year lease purchase of the Mission Mine property for an aggregate purchase price, of $3,500,000. The Mission Mine property is an inactive underground mining operation in California which includes, 22 unpatented mining claims on approximately 440 acres. This lease was cancelled during the year ended January 31, 1998. The terms of the lease assigned a $300,000 payment as the value of existing mine equipment. This was charged to loss on disposal of assets in the Statement of Operations for the year ended January 31, 1998. F-13 NEWGOLD, INC. NOTES TO THE FINANCIAL STATEMENTS 5. INCOME TAXES As of January 31, 1998 and 1997, the Company had net operating loss carryforwards of approximately $3,800,000 and $1,500,000, respectively, available to reduce future Federal taxable income which, if not used, will expire at various dates through January 31, 2013. Due to changes in the ownership of the Company, the utilization of these loss carryforwards may be subject to substantial annual limitations. Deferred tax assets (liabilities) are comprised of the following at January 31, 1998 and 1997: January 31, January 31, 1997 1998 ---------- ---------- Deferred tax assets: Net operating loss carryforwards $ 510,000 $1,330,000 Deferred revenue 170,000 280,000 Impairment of value on Relief Canyon Mine -0- 1,120,000 Valuation allowance for deferred tax assets (340,000) (2,730,000) ---------- ---------- Net deferred tax assets $ 340,000 $ -0- ========== ========== Deferred tax liabilitites: Net book value of property, plant and equipment (340,000) -0- ---------- ---------- Net deferred tax asset and liabilities $ -0- $ -0- ========== ==========
The net change in the total valuation allowance for the year ended January 31, 1998 and the thirteen months ended January 31, 1997 was $2,390,000 and $340,000, respectively. The valuation allowance is provided to reduce the deferred tax asset to a level which, more likely than not, will be realized. The expected Federal income tax benefit, computed based on the Company's pre-tax losses at January 31, 1998 and the thirteen months ended January 31, 1997 and the statutory Federal income tax rate, is reconciled to the actual tax benefit reflected in the accompanying financial statements as follows: January 31, January 31, 1997 1998 ---------- ---------- Expected tax benefit at statutory rates $ 613,000 $ 975,000 Decrease resulting from valuation allowance for benefits from net operating loss carryforwards and other (613,000) (975,000) ---------- ---------- Total $ -0- $ -0- ========== ========== Previous to June 21, 1996, the stockholder of the Company elected under Internal Revenue Code Section 1362 to have the Company taxed as an S Corporation. As such, all Federal and substantially all State income tax attributes passed through the Company directly to the stockholder until that date. F-14 NEWGOLD, INC. NOTES TO THE FINANCIAL STATEMENTS 6. STOCKHOLDERS' EQUITY As discussed in Note 1, Newgold, Inc. and WAC merged to form the Company in November, 1996. Additionally, the following common stock transactions occurred during the year ended January 31, 1998 and the thirteen months ended January 31, 1997. During January 1996, Edward Mackay exercised an option to purchase approximately 3,800,000 shares of common stock in exchange for a $50,000 note payable owed to Mr. Mackay and the title to the Washington Gulch Mine in Montana. During June 1996, the Company completed a 67,684 to 1 stock split and issued additional shares bringing the total shares of common stock outstanding to 12,000,000. As part of this stock issuance, the Company issued 1,431,642 shares of common stock and paid $393,664 in exchange for $1,114,537 in participating notes payable. The addition of new stockholders resulted in a termination of the Company's election to be taxed under Sub-Chapter S of the Internal Revenue Code. In November 1996, the Company merged with WAC to form a new publicly traded corporation called NEWGOLD, INC. (A Delaware Corporation). All of the outstanding shares of the Company's stock were exchanged for 305,709 shares of stock to creditors and shareholders and 5,135,130 shares of stock to investors and underwriters in NEWGOLD, INC. (A Delaware Corporation) in the ratio of 1:1. In November 1996, an aggregate of 221,000 shares were issued to others in exchange for general and administrative services rendered valued at $221,000. In November 1996, the Company sold 100,000 shares in exchange for $100,000 in cash to Repadre Capital Corporation. During 1996, a joint venture was formed to develop the Relief Canyon Mine mining property. The joint venture terminated in December 1996 when the Company acquired its partner's share of the venture and was relieved of $623,000 in debt in exchange for $900,000 plus one million shares of common stock. In the bankruptcy reorganization of WAC, all creditors were issued stock in settlement of accounts payable. Post petition creditors had the option of receiving cash in lieu of stock. Five creditors returned 25,242 shares to the Company, resulting in a charge to stockholders' deficit of $25,242. On May 9, 1997, the Company issued 12,500 shares to a note holder of Newgold-Nevada in payment of a $5,000 note, which had originally been issued in exchange for an agreement to defer filing a judgement for collection of the $200,000 note. F-15 NEWGOLD, INC. NOTES TO THE FINANCIAL STATEMENTS 6. STOCKHOLDERS' EQUITY, Continued The Company's stock was approved by NASD for trading on July 7, 1997. On May 27, 1997, the investors in the WAC bankruptcy reorganization, which had been approved by the court on November 21, 1996, were issued a ten-percent bonus of 470,700 shares for the delay in trading. An additional 42,814 shares issued to the investment bankers for a total of 513,514 shares. A total of $205,000 was credited to stockholders' deficit for the transaction. Repadre Capital Corp. exercised warrants to purchase 200,000 shares in October 1997 at $1.00 per share. 7. COMMITMENTS, CONTINGENCIES AND UNCERTAINTIES Environmental Obligations - The Company's mining and exploration activities are subject to various federal and state laws and regulations governing the protection of the environment. These laws and regulations are continually changing and are generally becoming more restrictive. The Company strives to conduct its operations so as to protect the public health and environment and believes its operations are in compliance with all applicable laws and regulations. The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations. Reclamation Costs - The ultimate amount of reclamation obligations to be incurred is uncertain. The Company has on deposit cash bonds for Relief Canyon Mine and Washington Gulch of $50,500 and $206,000, respectively. At January 31, 1998, the Company had accrued reclamation costs of $50,500. There can be no assurances given that the estimate accurately reflects the actual costs of all reclamation activities that may be required. Legal - The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate dispositions of these matters will not have a material adverse effect on the Company's financial position, results or operations or liquidity. 8. RELATED PARTY TRANSACTIONS Advances from Shareholders - As of January 31, 1997, the Company had made unsecured, non-interest bearing demand advances totaling $92,486 to A. Scott Dockter, President and Chairman of the Company. This balance was repaid during the year ended January 31, 1998. A. Scott Dockter loaned the Company an aggregate of $205,000 and was paid $77,258 during the year ended January 31, 1998. As of January 31, 1998, the net balance owing to A. Scott Dockter was $127,742. (Note 3) The advances are due on demand, unsecured and bear interest at 8% per annum. Due to Affiliate - As of January 31, 1998 the Company owed $130,335 to Riverfront Development, Inc. for equipment purchases. Riverfront Development, Inc. is a related entity owned by A. Scott Dockter. F-16 NEWGOLD, INC. NOTES TO THE FINANCIAL STATEMENTS 8. RELATED PARTY TRANSACTIONS, Continued Purchase From Related Party - During the thirteen months ended January 31, 1997, the Company purchased the Washington Gulch mill site from Edward Mackay, a stockholder and former officer of the Company, in exchange for approximately 35% of the outstanding stock of the Company. During the thirteen months ended January 31, 1997, the Company also repaid $150,000 of loans from Mr. Mackay. The loans were unsecured, due on demand and non-interest bearing. Note Payable to Stockholder - At January 31, 1998 the Company owed Calvin Lim, a stockholder and board member, $105,000. The Company is in default with respect to this loan. Relief Canyon Mine - During 1996, Repadre Capital Corporation ("Repadre") purchased for $500,000 a net smelter return royalty (Repadre Royalty). Repadre was to receive a 1.5% royalty from production at each of the Relief Canyon Mine and Mission Mines. In July 1997, an additional $300,000 was paid by Repadre for an additional 1% royalty from the Relief Canyon Mine. In October, 1997, when the Mission Mine lease was terminated, Repadre exercised its option to transfer the Repadre Royalty solely to the Relief Canyon Mine resulting in a total 4% royalty. The total amount received of $800,000 has been recorded as deferred revenue in the accompanying financial statements. 9. INVESTMENT BY CASMYN CORPORATION In April 1996, the Company entered into a 50:50 joint venture with Casmyn Corporation (Casmyn), a public company based in Sparks, Nevada, for the development of the Relief Canyon Mine. Casmyn committed to contribute $1,398,000 for their 50% interest in the Venture. Newgold contributed their entire interest in Relief Canyon Mine to the Venture. As of September 30, 1996, Casmyn had contributed approximately $775,000 towards its 50% interest in the venture. On October 18, 1996, the Company repurchased Casmyn's 50% interest for $900,000 cash and 1,000,000 restricted shares of common stock, valued at $1 per share, and they released Casmyn from its remaining $623,000 obligation. At January 31, 1997, a loss on the buyout was recorded in the amount of $125,000. The Company capitalized the resulting $1,152,000 to property, plant and equipment of Relief Canyon Mine. 10. SUPPLEMENTAL CASH FLOWS Non-cash transactions for the year ended January 31, 1998, consist of the assigned value of common stock issued and returned in the amount of $184,758 which results from WAC creditors returning 25,242 shares of stock to the Company, 12,500 shares issued to a note holder in lieu of judgment being filed and 205,000 shares issued to investors and underwriters due to a delay in stock trading. Additionally, the Company executed a note payable in the amount of $250,000 in satisfaction of a judgment payable by the Company. F-17 NEWGOLD, INC. NOTES TO THE FINANCIAL STATEMENTS 11. SUBSEQUENT EVENTS In July 1998, the Company sold its interest in the Washington Gulch Mine and related reclamation bond for $185,000. The Company was also relieved of any future liability in connection with the Washington Gulch Mine. On June 8, 1999 the Board of Directors approved a three-for-two stock split, to be effected in the form of a 50% stock dividend, payable to stockholders of record on June 10, 1999. The weighted average shares outstanding and the loss per share for the year ended January 31, 1998 and the thirteen months ended January 31, 1997 have been presented giving effect to this stock split. On April 2, 1999, the Company issued a Letter of Intent to Business Web, Inc. (BWI) to effect a reverse merger of Newgold, Inc. and BWI, with BWI being the acquiring corporation. A merger agreement, which has been approved by the Boards of Directors, will be submitted to the shareholders of both companies for their expected approval. Terms of the agreement provide for a 3 for 2 split of the Company's common stock. After the merger, the Company's shareholders will receive one share of BWI stock for each twelve shares of Newgold stock, representing approximately 14 percent of the outstanding shares of BWI. BWI, a Texas corporation, is an Internet company specializing in the development of web sites for communities of like businesses and the development of e-trade shows on the internet for industries and professional organizations. Subsequent to January 31, 1998, BWI has loaned $500,000 to the Company for payment of liabilities and current operating costs. It is anticipated that other liabilities of the Company will be settled with BWI stock and cash as required. Although no agreement has been negotiated, the Relief Canyon Mine is expected to be sold or transferred to another corporation and a portion of any funds raised by the Company will be committed to repay BWI for loans and other payments made for the benefit of the Company. On May 15, 1999, the note payable due to an officer and significant stockholder was assigned by the stockholder to BWI in exchange for 200,000 shares of BWI common stock. F-18 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on September 15, 1999. NEWGOLD, INC. By: /s/Arthur Scott Dockter ------------------------------------- Arthur Scott Dockter, President and Chief Executive Officer In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Robert W. Morris Chief Financial Officer, September 15, 1999 - ------------------------ Treasurer (Principal Robert W. Morris Financial Officer) /s/ Arthur Scott Dockter President, Chief Executive September 15, 1999 - ------------------------ Officer, Director Arthur Scott Dockter (Principal Executive Officer) /s/ John Mackay Director September 15, 1999 - ------------------------ John Mackay /s/ Calvin Lim Director September 15, 1999 - ------------------------ Calvin Lim /s/ Michael J. Morrison Director September 15, 1999 - -------------------------- Michael J. Morrison INDEX TO EXHIBITS Exhibit No. Description of Exhibit - ------- ---------------------- 1.1 Merger Agreement With Business Web, Inc. 2.1 Plan of Reorganization.(1) 3.1 Certificate of Incorporation of the Registrant.(2) 3.2 Certificate of Amendment to Certificate of Incorporation of the Registrant.(1) 3.3 Bylaws of the Registrant.(2) 10.1 Contract of Sale between the Registrant and J.D. Welsh & Associates.(1) 10.2 Agreement for Lease/Purchase and Sale of Property between the Registrant, Joie Jamison and T.K.M. Corporation dated September 2, 1996.(1) 10.3 Office Building Lease between the Registrant and Duffel Financial and Construction Company dated May 20, 1996.(1) 10.4 Option to Purchase Forty (40%) Percent of Newgold, Inc. and Riverfront Development, Inc., between Edward Mackay and the Company (the "Option Agreement"). (3) 10.5 First Amendment to the Option to Purchase Newgold Inc., between the Registrant and Edward Mackay dated as of January 1, 1996 (the "Option Amendment"). (3) 10.6 Clarification Agreement (clarifying the Option and Option Amendment) between A. Scott Dockter, Edward Mackay, Gold Bug, and the Company dated effective as of June 18, 1996. (3) 10.7 Letter of Intent between the Registrant and Mirimar Mining Corporation dated October 8, 1996. (3) 10.8 Agreement and Plan of Merger by and between the Registrant and Newgold, Inc. dated August 1996. (3) 10.9 Promissory Note between the Company and A. Scott Dockter, dated April 2, 1997, for the principal amount of $100,000. (3) 10.10 Promissory Note between the Company and A. Scott Dockter, dated April 17, 1997, for the principal amount of $50,000. (3) 10.11 Promissory Note between the Company and A. Scott Dockter, dated April 30, 1997, for the principal amount of $20,000. (3) 10.12 Promissory Note between the Company and A. Scott Dockter, dated May 30, 1997, for the principal amount of $35,000. (3) 27.1 Financial Data Schedule. - ------------------------------------- (1) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB-40 for the fiscal year ended January 31, 1997 filed with the commission on June 30, 1997. (3) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB-40 for the fiscal year ended January 31, 1996 filed with the Commission on January 22, 1997. (2) Incorporated by reference to the Registrant's Registration Statement on Form SB-2 (File No. 33-49920) filed with the Commission on October 14, 1993. EX-1.1 2 MERGER AGREEMENT PLAN OF REORGANIZATION AND MERGER AGREEMENT This Plan of Reorganization and Merger Agreement (the "Agreement") dated effective as of July __, 1999 (the "Effective Date"), is made and entered into by and between NEWGOLD, INC., a Delaware corporation (the "Company") and BUSINESS WEB, INC., a Texas corporation doing business as "Comercis, Inc." ("BWI"). WITNESSETH: WHEREAS, the Company is a business corporation duly incorporated and validly existing under the laws of the State of Delaware, having its registered office at 35265 Willow Avenue, Clarksburg, California 95612, with authorized capital stock consisting of 50,000,000 shares of common stock, $0.001 par value per share (the "Company Stock"), of which 37,754,382 shares are currently issued and outstanding as of the Effective Date; WHEREAS, BWI is a business corporation duly organized and validly existing under the laws of the State of Texas having its registered office at 2105 East Southlake Boulevard, Southlake, Texas 76092, with authorized capital stock consisting of (a) 30,000,000 shares of common stock, $0.01 par value per share (the "BWI Stock"), of which 11,819,732 shares are currently issued and outstanding as of the Effective Date; (b) 1,258,081 Special Warrants convertible into shares of BWI Stock for no additional consideration, as set forth and further described on Schedule 4.04 attached hereto (the "Special Warrants"); and (c) 1,000,000 shares of preferred stock, $0.01 par value per share (the "BWI Preferred Stock") none of which have been issued or are outstanding; and WHEREAS, the boards of directors of the Company and BWI have approved the terms and conditions of this Agreement pursuant to which BWI will be merged (the "Merger") with and into the Company with the Company surviving the Merger; NOW, THEREFORE, in consideration of the foregoing premises and of the mutual covenants and undertakings contained herein, and for such other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows: ARTICLE I --------- MERGER 1.01. General. At the Effective Time (as defined in Article XI below) of the Merger and pursuant to the provisions of this Agreement, the corporate existence of BWI will be merged with and into the Company (hereinafter referred to as the "Surviving Corporation" whenever reference is made to it as of the Effective Time or thereafter) and continued in the Surviving Corporation, and the Surviving Corporation shall be deemed to be a continuation of the entities and identities of the Company and BWI. 1 1.02. Name and Organization. The name of the Surviving Corporation shall be "Comercis, Inc." The Restated Certificate of Incorporation of the Company and the Bylaws, in the forms attached hereto as Exhibit 1.02, to be approved by the stockholders of the Company as provided in Section 6.04 below, shall be the Restated Certificate of Incorporation and Bylaws of the Surviving Corporation until changed as provided therein or pursuant to the General Corporation Law of the State of Delaware (the "DGCL"). The established offices and facilities of BWI shall become the established offices and facilities of the Surviving Corporation. 1.03. Rights and Interests. At the Effective Time, the Surviving Corporation shall become the owner, by operation of law and without other transfer, of all the right, title, and interest that the Company and BWI now have, or may have in the future, in and to all of their respective properties (both real and personal) and assets (both tangible and intangible) of every kind and nature whatsoever, whether choate or inchoate, now existing or arising in the future (the "Assets"). At the Effective Time, all rights, franchises, and interests of the Company and BWI in and to every type of intellectual property, including all of their respective trademarks, registrations, trademark applications, and goodwill associated therewith, shall be transferred to and vested in the Surviving Corporation by virtue of the Merger without any deed or other transfer. The Surviving Corporation at the Effective Time, and without any order or other action on the part of any court or otherwise, shall hold and enjoy all rights of property, franchises, and interests, including appointments, powers, designations, and nominations, and all other rights and interests as trustee, executor, administrator, agent, transfer agent, registrar of stocks and bonds, administrator of estates, assignee, and receiver, and in every other fiduciary and agency capacity in the same manner and to the same extent as such rights, franchises, and interests were held or enjoyed by the Company and BWI, respectively, immediately prior to the Effective Time. 1.04. Liabilities and Obligations. At the Effective Time, the Surviving Corporation shall be liable for all liabilities of the Company and BWI. All debts, liabilities, obligations, and contracts of BWI, matured or unmatured, whether accrued, absolute, contingent, or otherwise, and whether or not reflected or reserved against on the balance sheets, books of account, or records of BWI, as the case may be, shall be those of, and are hereby expressly assumed by, the Surviving Corporation and shall not be released or impaired by the Merger. All rights of creditors and other obligees and all liens on property of either the Company or BWI shall be preserved unimpaired. 1.05. Directors and Officers. The directors, advisory directors, and officers of the Surviving Corporation at the Effective Time shall be the following persons, pursuant to the Amended and Restated Articles of Incorporation and Bylaws of the Company the Board of Directors will be divided into three tiers. Over the succeeding three years the Members of the Board in each respective tier may be re-elected to a new three-year term. Members of Tier One shall stand for re-election (if selected by the nominating Committee) at the Annual Shareholders Meeting in the Year 2002. Members of Tier Two shall stand for re-election (if selected by the nominating Committee) at the Annual Shareholders Meeting in the Year 2001. Members of Tier Three shall stand for re-election (if selected by the Nominating Committee) at the Annual Shareholders Meeting in the Year 2000. 2 Directors: Tier One: Chris M. Meaux (Chairman) Robert W. Gallagher Tier Two: Pat Dane John Mackay August J. Rantz III Tier Three: A. Scott Dockter Estaban Morales Officers: Chris M. Meaux - President and Chief Executive Officer Jamie Cutburth - Chief Operating Officer Robert W. Gallagher - Treasurer Robert W. Morris - Acting Chief Financial Officer Larry Miller - Vice President of Support Services Michael M. Kessler - Secretary / Corporate Counsel 1.06. Stock Option Plan. The 1999 NewGold Stock Option Plan, a copy of which is attached hereto as Exhibit 1.06 (the "Stock Option Plan"), to be approved by the stockholders of the Company as provided in Section 6.04 below, shall be the Stock Option Plan for the Surviving Corporation, and all vested and non-vested incentive and non-statutory options under all stock option plans of BWI and the Company shall be converted into vested and non-vested incentive and non-statutory options, as the case may be, to purchase shares of Company Stock under the Stock Option Plan and shall retain the same exercise price, vesting schedule, and term as they had immediately prior to such conversion. 1.07. Adoption. Unless contrary to the laws of the State of Delaware, the State of Texas, the United States of America, or other applicable laws, all corporate acts, plans, policies, applications, agreements, orders, registrations, licenses, approvals, and authorizations of the Company and BWI, their respective shareholders, boards of directors, committees elected or appointed by their boards of directors or officers, and agents that were valid and effective immediately before the Effective Time shall be taken for all purposes at and after the Effective Time as the acts, plans, policies, applications, agreements, orders, registrations, licenses, approvals, and authorizations of the Surviving Corporation and shall be effective and binding thereon as the same were with respect to the Company and BWI immediately before the Effective Time. 1.08. Accounting Treatment; Federal Income Tax Treatment. The parties hereby agree that it their intention that the Merger will be treated as a "purchase" for accounting purposes. The parties further agree that it is their intention that the Merger will be treated as a tax-free reorganization for federal income tax purposes under Section 368 of the Internal Revenue Code of 1986, as amended. Counsel for the Company shall give a legal opinion, in the form of Exhibit 1.08 attached hereto, that the Merger shall be tax-free to BWI, the Company, the shareholders of BWI, and the stockholders 3 of the Company. The parties hereby mutually agree that they will give such notices, file such instruments, give such consents, and take or cause to have taken such actions as are reasonably necessary to ensure the accounting treatment and federal income tax treatment described herein. 1.09. Officer and Director Lock-Ups. The parties hereby mutually agree to obtain the execution of lock-up agreements from each of the officers and directors set forth in Section 1.05 above, whereby such persons will agree not to sell, assign, convey, transfer, pledge, or otherwise dispose of any of their respective shares of Company Stock during the six-month period following the Effective Time of the Merger. Thereafter, and subject to federal and state securities laws, regulations, and rulings, and subject further to any other restrictions against transfer to which an officer or director may be subject, no officer or director shall dispose of more than 5% of his or her Company Stock in any one calendar month unless the Board of Directors of the Surviving Corporation shall have approved of such disposition. ARTICLE II ---------- CONVERSION AND CANCELLATION OF BWI STOCK 2.01. General. The manner of exchanging and converting the issued and outstanding shares of BWI Stock shall be as hereinafter provided in this Article II. 2.02. Conversion of BWI Stock. At the Effective Time, (a) each outstanding share of BWI Stock held or record by persons who do not dissent from the Merger shall, without any action on the part of the holder thereof, be converted into one share of Company Stock; (b) each share of BWI Stock held by persons who dissent from the Merger shall be governed by Articles 5.11 through 5.13 of the Texas Business Corporation Act (the "TBCA"); (c) (i) if the Effective Time shall have occurred on or prior to August 31, 1999, each Special Warrant shall, without any action on the part of the holder thereof, be converted into one share of Company Stock; or (ii) if the Effective Time shall have occurred after August 31, 1999, each Special Warrant shall be converted into 1.2 shares of Company Stock; and (d) all of the outstanding shares of BWI Stock and Special Warrants shall thereafter be canceled. 2.03. Transmittal Instructions. As soon as is practical after the Effective Time, shareholders of BWI will be sent transmittal forms for use in forwarding for surrender their stock certificates representing BWI Stock for the purpose of exchanging them for certificates representing Company Stock. The transmittal forms and certificates must be sent to Transfer Online, attention Laurie Livingston, 227 Southwest Pine Street, Suite 300, Portland, Oregon 97204, who will be the transfer agent (the "Transfer Agent") and registrar for the Company Stock. The provisions of this Section 2.03 shall not apply to any share of BWI Stock in respect of which the holder thereof pursues the remedy of dissent in accordance with Articles 5.11 through 5.13 of the TBCA unless and until such holder has exhausted his right of dissent thereunder, at which time the provisions of Sections 2.02 and 2.03 shall apply in their entirety thereto. 4 2.04. Issued in Name Other than Current Ownership. If any share of Company Stock is to be issued in a name other than that in which the certificate surrendered in exchange therefor is registered, it shall be a condition of the issuance thereof that the certificate so surrendered shall be properly endorsed and otherwise in proper form for transfer and that the person requesting such exchange shall pay to the Transfer Agent any transfer or other taxes required by reason of the issuance of a share of Company Stock in any name other than that of the registered holder of the certificate surrendered, or shall establish to the satisfaction the Transfer Agent that such tax has been paid or is not payable. 2.05. Consideration in Full Satisfaction. All rights to receive Company Stock for which shares of BWI Stock shall have been converted pursuant to this Article II shall be deemed to have been issued in full satisfaction of all rights pertaining to such exchanged shares of BWI Stock. 2.06. Subsequent Transfer of Stock. After the Effective Time, there shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of the shares of BWI Stock that were outstanding immediately prior to the Effective Time. If after the Effective Time certificates representing such shares are presented to the Surviving Corporation, they shall be canceled and exchanged for Company Stock as provided in this Article II. 2.07. Adjustments. If between the date of this Agreement and the Effective Time the outstanding shares of Company Stock or BWI Stock shall have been changed into a different number of shares or a different class by reason of any reclassification, recapitalization, split-up, combination, exchange of shares, readjustment, or stock dividend declared thereon with a record date within such period, the exchange rate described in Section 2.02 above for each share of BWI Stock shall be adjusted so that the total fair market value of the shares of Company Stock that would have been issued for BWI Stock, in the absence of such reclassification, recapitalization, split-up, combination, exchange of shares, readjustment, or stock dividend, will be preserved. ARTICLE III ----------- REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents warrants to and with BWI as of the Effective Date and as of the Closing Date (as defined in Article XI below) as follows: 3.01. Organization and Qualification. The Company (a) is a corporation duly incorporated, validly existing, and in good standing under the laws of the State of Delaware, and has all requisite corporate power and authority to own, operate, and lease its properties and to carry on its business as it is currently being conducted; and (b) is qualified to do business in every jurisdiction in which the character and location of the assets owned by it or the nature of its business require such qualification. 5 3.02. Licenses and Permits. The Company has all licenses, permits, consents, orders, approvals, and other authorizations necessary for the conduct of its business as now being conducted and proposed to be conducted. Except as provided in Sections 6.04 and 6.05 below, no approval, consent, authorization, or other order of, and no designation, filing, registration, qualification, or recording with any governmental authority, domestic or foreign, is required for the Company's performance of this Agreement or the consummation of the transactions contemplated hereby. 3.03. Capitalization. (a) On the Effective Date, the authorized capital stock of the Company consists of 50,000,000 shares of Company Stock, of which 37,754,382 shares are currently issued and outstanding as of the Effective Date. The 37,754,382 shares of Company Stock outstanding constitute 100% of the issued and outstanding shares of capital stock of the Company. (b) Immediately prior to the Effective Time, the authorized capital stock of the Company will consist of 50,000,000 shares of Company Stock, of which no fewer than 3,146,199 and no greater than 3,147,005 shares will be issued and outstanding. The shares of Company Stock outstanding immediately prior to the Effective Time will constitute 100% of the issued and outstanding shares of capital stock of the Company. 3.04. Options, Warrants, and Subscriptions. (a) Except as set forth in Schedule 3.04, the Company has outstanding (i) no shares of any class of capital stock other than the Company Stock, (ii) no options, warrants, subscription, or other rights to purchase from the Company any capital stock of the Company; (iii) no securities convertible into or exchangeable for capital stock of the Company; and (iv) no other commitments of any kind for the issuance of additional shares of capital stock or options, warrants, or other securities of the Company. (b) Except as set forth in Schedule 3.04, no Person (as defined in Article XII below), including, but not limited to, any officer or director of the Company, has any right (preemptive or otherwise) to acquire any capital stock of the Company. 3.05. Subsidiaries. There is no corporation, partnership, limited liability company, or other business enterprise in which the Company has any direct or indirect equity interest. 6 3.06. Authorization, Execution, and Delivery. The Company has all requisite power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. No proceedings on the part of the Company are necessary to authorize the execution and delivery of this Agreement and, except as provided in Sections 6.04 and 6.05 below, the consummation of such transactions. This Agreement and all other agreements herein contemplated to be executed by the Company have been duly executed and delivered by the Company and constitute legal, valid, and binding obligations of the Company enforceable against the Company in accordance with their respective terms, subject as to enforceability to applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the enforcement of creditors' rights generally and to the application of equitable principles and judicial discretion. 3.07. No Conflict With Judgments and Decrees. The consummation of the Merger in accordance with the terms, conditions, and provisions of this Agreement will not conflict with, or result in a breach of, any term, condition, or provision of any judgment, order, injunction, decree, writ, or ruling of any court or tribunal, either domestic or foreign, to which the Company or either Stockholder is subject. 3.08. Government Approvals. Except for the approvals to be obtained pursuant to Section 6.04 below, no consent, approval, order, or authorization of, or registration, declaration, or filing with, any federal, state, or local governmental authority is required to be made or obtained by the Company in connection with the execution and delivery of this Agreement by the Company or the consummation by the Company of the transactions contemplated hereby. 3.09. Financial Statements. The Company has previously delivered to BWI true, correct, and complete copies of the following financial statements: (a) audited balance sheets of the Company dated as of January 31, 1999, 1998, and 1997; income statements for the years ended January 31, 1999, 1998, and 1997; statements of cash flows for the years ended January 31, 1999, 1998, and 1997; and statements of changes in stockholders' equity for the years ended January 31, 1999, 1998, and 1997 (referred to collectively as the "Year-End Statements"); and (b) unaudited balance sheets of the Company dated as of April 30, 1999, and 1998; income statements for the quarters ended April 30, 1999, and 1998; a statement of cash flows for the quarter ended April 30, 1999; and a statement of changes in stockholders' equity for the quarter ended April 30, 1999 (referred to collectively as the "Interim Statements"). The Year-End Statements, Interim Statements, and Monthly Statements (as defined in Section 6.01 below) are shall be referred to collectively as the "Financial Statements". Except as set forth in this Section 3.09, the Financial Statement (a) are and will continue to be a true and correct reflection of the financial condition of the Company as of the dates therein; (b) were and will continue to be prepared in accordance with generally accepted accounting principals applied on a consistent basis over the reported periods ("GAAP"); (c) were and will continue to be prepared in accordance 7 with the books and records of the Company; (d) fairly present the Company's financial condition and the results of its operations at the relevant dates thereof and for the years or periods covered thereby; (e) contain and reflect all necessary adjustments and accruals for a fair presentation of its financial condition and the results of its operations for the periods covered by such financial statements; and (f) contain and reflect reasonable provisions for reserves and for all reasonably anticipated liabilities for all taxes, federal, state, or local, with respect to the periods then ended and all prior periods. All of the receivables of the Company, net of any allowance for doubtful accounts, reflected in the balance sheets for the Interim Statements and Monthly Statements, are valid and legally binding, represent bona fide transactions, arose in the ordinary course of business, and are collectible in accordance with the terms of such receivables, without setoff or counterclaim. 3.10. Internal Accounting Controls. The Company (a) keeps books, records, and accounts that accurately, fairly, and in reasonable detail reflect its assets and transactions; and (b) maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are accurately and promptly recorded; (ii) transactions are executed in accordance with management's specific or general authorizations; and (iii) access to its assets is permitted only in accordance with management's general or specific authorization. 3.11. No Undisclosed Liabilities. Except as set forth in the Financial Statements, the Company has no liabilities or obligations of any nature, whether absolute, accrued, contingent, or otherwise, and whether due or to become due (including without limitation any liability for taxes and interest, penalties, and other charges payable with respect to any such liability or obligation) which have had or could have a Material Adverse Effect (as defined in Article XII below). 3.12. Absence of Certain Changes. Except as disclosed in Schedule 3.12 or as provided for or contemplated in this Agreement, since April 30, 1999, there has not been with respect to the Company: (a) any transaction not in the ordinary course of business that has had or could have a Material Adverse Effect; (b) any change in the business, property, assets, liabilities (whether absolute, accrued, contingent, or otherwise), operations, liquidity, income, condition (financial or otherwise), prospects, or net worth of the Company that has had or could have a Material Adverse Effect; (c) a declaration, or an agreement to declare or make any payment of dividends or distributions of any assets of any kind to the stockholders of the Company, or a redemption, or agreement or authorization to redeem any of the Company Stock; (d) any damage, destruction, or loss, extraordinary or otherwise and whether or not covered by insurance, that has had or could have a Material Adverse Effect; 8 (e) any amendment permitted or made with regard to any material contract, material license, or material agreement to which the Company is a party; (f) any acquisition or disposition by the Company of any property or asset, whether real or personal, having a fair market value in an amount greater than $10,000, except in the ordinary course of business and in conformity with past practice; (g) any mortgage, pledge, or subjection to lien, charge, or encumbrance of any kind or on any of the respective properties or assets of the Company, except to secure borrowings in the ordinary course of business and in conformity with past practice; (h) any increase in, or commitment to increase, the compensation payable or to become payable to any officer, director, employee, or agent of the Company, or any bonus payment or similar arrangement made to or with any of such officers, directors, employees, or agents, other than (except in the case of directors and officers) routine increases made in the ordinary course of business and in conformity with past practice; (i) any incurrence of, guarantee of, assumption of, or taking any property subject to, any liability, except for liabilities incurred or assumed or property taken in the ordinary course of business and in conformity with past practice; (j) any adoption of a plan or agreement or amendment to any plan or agreement providing any new or additional benefits for officers, directors, or employees; (k) any material alteration in the manner of keeping the books, accounts, or records of the Company, or in the accounting practices therein reflected; (l) any release or discharge of any obligation or liability of any Person to the Company of any nature whatsoever, except in the ordinary course of business and in conformity with past practice and except in cases that have not had and could not have a Material Adverse Effect; (m) any delay by the Company in paying any debt, charge, or amount owed by the Company in excess of 30 days past the date such amount was due; (n) any increase or decrease of (i) any amounts charged for services rendered or products sold by the Company; or (ii) inventory ordered, except, in either case, in the ordinary course of business and in conformity with past practice; (o) any facts or circumstances that may reasonably result in the loss of customers, suppliers, or vendors of the Company, including without limitation, any notices, statements, or circumstances indicating that any customer, supplier, or vendor has or will terminate or alter its business relationship with the Company; 9 (p) any loan by the Company to any officer or director of the Company, or any Affiliate (as defined in Article XII below) thereof; (q) any other event or condition of any character which has had or could have a Material Adverse Effect; or (r) any agreement or authorization to do any of the above. 3.13. Real and Personal Property. Except as set forth in Schedule 3.13: (a) the Company has good and marketable title to each of the items of real and personal tangible and intangible property recorded as owned in the Monthly Statements (except for property sold or otherwise disposed of since April 30, 1999, in the ordinary course of business and in conformity with past practice), free and clear of all mortgages, liens, security interests, conditional sales contracts, encumbrances, leases, equities, claims, charges, easements, rights-of-way, covenants, conditions, and restrictions, except (i) those incurred or created in conformity with past practice; (ii) mortgages and other encumbrances reflected in the Financial Statements; (iii) liens for current taxes not yet due and payable; and (iv) such imperfections of title and encumbrances as do not detract from, or interfere with, the present use of the properties subject thereto or affected thereby, or otherwise impair the value thereof or the operations thereat; and (b) no officer, director, or employee of the Company, nor any spouse, child, or other relative or Affiliate thereof, owns directly or indirectly in whole or in part, any of such real property or tangible or intangible personal property. 3.14. Environmental Compliance. With respect to the Company, (a) the Company and any property owned or operated by it are in compliance with all applicable Environmental Laws (as defined in Article XII below) and have obtained and are in compliance with all permits, licenses, and other authorizations required under any Environmental Law. There is no past or present event, condition, or circumstance that is likely to interfere with the conduct of the business of the Company in the manner now conducted relating to such entity's compliance with Environmental Laws or constitute a material violation thereof or which would have a Material Adverse Effect; (b) the Company does not now or has not leased, operated, owned, or exercised managerial functions at any facilities or real property with respect to which such entity, facility, or real property is subject to any actual Proceeding (as defined in Article XII below) under any Environmental Law, and the Company is not aware of any facts or circumstances that could give rise to such a Proceeding; 10 (c) there are no actions or Proceedings pending or, to the Knowledge (as defined in Article XII below) of the Company, threatened against the Company under any Environmental Law, and the Company has not received any notice (whether from any regulatory body or private person) of any violation, or potential or threatened violation, of any Environmental Law; (d) there are no actions or Proceedings pending or, to the Knowledge of the Company, threatened under any Environmental Law involving the release or threat of release of any Polluting Substances (as defined in Article XII below) at or on (i) any Property (as defined in Article XII below) currently or in the past owned, operated, or leased by the Company or over which the Company exercised managerial functions; or (ii) at any property where Polluting Substances generated by the Company have been disposed; (e) there is no Property for which the Company is or was required to obtain any permit under an Environmental Law to construct, demolish, renovate, occupy, operate, or use such Property or any portion of it; (f) the Company has not generated any Polluting Substances; (g) there has been no release of Polluting Substances in violation of any Environmental Law which would require any report or notification to any governmental or regulatory authority in or on any Property; (h) neither the Company nor any Property is subject to investigation or, to the Knowledge of the Company, threatened or pending litigation by federal, state, or local officials or a private litigant as a result of any previous on-site management, treatment, storage, release, or disposal of Polluting Substances or exposure to any Polluting Substances; (i) there are no underground or above ground storage tanks on or under any Property which are not in conformity with any Environmental Law and any Property previously containing such tanks has been remediated in compliance with all Environmental Laws; and (j) there is no asbestos containing material on any Property. 3.15. Tax Matters. Except as set forth in Schedule 3.15: (a) within the times and in the manner prescribed by law, the Company has filed all federal, state, and local tax returns for which the Company has had the responsibility for filing, and has timely paid all taxes, penalties, and interest (hereinafter collectively referred to as "Taxes" shown to be due and payable on such returns; 11 (b) all tax returns filed by the Company constitute complete and accurate representations of its Tax liabilities for such years and accurately sets forth all items (to the extent required to be included or reflected in such returns) relevant to its future Tax liabilities, including the tax bases of its properties and assets; (c) the Company has not waived or extended any applicable statute of limitations relating to the assessment of federal, state, local, or foreign Taxes; (d) no examination of the federal, state, or local tax returns of the Company is currently in progress, nor, to the Knowledge of the Company, is any such examination threatened; and (e) to the Knowledge of the Company, the Company has not received any communication from any taxing authority regarding any tax return of the Company with respect to any matter that has not been closed, settled, waived, or fully concluded, or would otherwise have a Material Adverse Effect. 3.16. No Litigation. Except as set forth on Schedule 3.16, there are no investigations, actions, suits, judgments, or claims outstanding, pending or, to the Knowledge of the Company, threatened against the Company or involving any of its properties or assets, whether at law or in equity, before or by any foreign, federal, state, municipal, or other governmental court, department, commission, board, bureau, agency, instrumentality, or other person (a "Proceeding"), which may result in a material liability to the Company or affect the Company Stock. 3.17. Transactions with Affiliates. Except as set forth on Schedule 3.17, there are no transactions by the Company with its officers, directors, employees, or any Affiliates thereof, and no such person has any interest in any property owned or used by the Company. 3.18. Personnel. Schedule 3.18 sets forth a true and complete list of the names and current salaries of all of the employees of the Company and the names and current billing arrangements for all independent contractors on continued retainer with the Company for the fiscal year ended December 31, 1998, and as of April 30, 1999. Except as set forth on Schedule 3.18, to the Knowledge of the Company, no employee of, or party or Person providing services to, the Company has any intention to terminate his, her, or its relationship with the Company or, in the case of employees, leave the employ of the Company. 3.19. Contracts. Except as set forth on Schedule 3.19, the Company is not a party to any oral or written: (a) contract for the employment or compensation of any officer or employee that is not terminable on 30 days (or less) notice without the payment of any amount on account of such termination; (b) agreement, contract, or indenture relating to the borrowing of money by the Company; (c) guaranty of any obligations for the borrowing of money or otherwise; (d) management agreement, consulting agreement, independent contractor agreement, or other similar contract or arrangement; (e) collective bargaining or labor agreement; (f) agreement with any present or former 12 officer, director, or shareholder; (g) employee pension, profit-sharing, or other benefit plan or arrangement; (h) lease for real or personal property; (i) any contract or agreement that will terminate upon a change in control of the Company; (j) any contract or agreement obligating the Company to provide products or services for a period of one year or more; (k) any contract relating to pending capital expenditures by the Company; (l) any non-competition or confidentiality agreements restricting the Company in any manner; (m) other material contracts or understandings, irrespective of subject matter and whether or not in writing, and not otherwise disclosed on the Schedules hereto; or (n) contract, agreement, or other commitment that involved a payment, or requires the payment by, the Company of more than $10,000 in any 12-month period. Such contracts, agreements, leases, and commitments shall be referred to collectively as "Contracts." The Company has furnished BWI with a true and complete copy of each such Contract, including all amendments thereto made through the Effective Date. Except as set forth on Schedule 3.19, each of such Contracts is a valid and binding agreement of the Company and all other parties thereto; there has not occurred any material default under any of the material terms and conditions thereof, nor has any event occurred that with the giving of notice or lapse of time, or both, would constitute any such material default. 3.20. Employment Matters. To the Knowledge of the Company, there is no activity or proceeding of any labor organization (or representative thereof) or employee group to organize any employees of the Company, or to effectuate or threaten to effectuate a strike, slowdown, work stoppage, or lockout with regard to the Company. 3.21. Compliance with Law. (a) The conduct of the business of the Company to date does not violate any federal, state, or local laws, statutes, ordinances, rules, regulations, decrees, orders, permits, or other similar items in force on the date hereof (including, but not limited to, any of the foregoing relating to employment discrimination, employment practices, withholding of taxes and other sums from employees, the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and environmental protection or conservation), the enforcement of which could have a Material Adverse Effect, nor has the Company received any notice of any such violation. (b) No prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"), has occurred or is continuing with respect to any employee pension benefit plan (as defined in Section 3(2) of ERISA) maintained by the Company or any welfare benefit plan (as defined in Section 3(1) of ERISA) maintained by the Company. No contributions are required to be made by the Company with respect to any employee pension benefit plan. (c) Except as provided on Schedule 3.21 attached hereto, the Company has properly and timely filed with the U.S. Securities and Exchange Commission (the "SEC") and the securities boards or commissions of all applicable states all reports (including all amendments thereto) and properly maintained all books and records required to be filed or 13 maintained by it under applicable federal and state securities laws, regulations, and rulings, including the Securities Act of 1933, as amended (the "Securities Act"), and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder. All information contained in such filings was true and complete on the date such filings were made. The Company is not subject to a formal or informal agreement or enforcement action by any regulatory agency or authority having jurisdiction over it. 3.22. Employee Benefits. (a) Neither the Company, nor any other corporation or trade or business under common control with the Company (an "ERISA Affiliate"), as determined under Section 414(b), (c), or (m) of the Code, sponsors, maintains, or otherwise is a party to, or is currently in default under, or has any current accrued obligations under any pension, profit sharing, or other retirement plan, fringe benefit plan, health, group insurance, or other welfare benefit plan, or other similar plan, agreement, policy, or understanding, including, without limitation, any "employee benefit plan" within the meaning of Section 3(3) of the ERISA, whether formal or informal and whether legally binding or not under which the Company or an ERISA Affiliate has any current or future obligation or liability or under which any present or future employee of the Company or an ERISA Affiliate, or such present or former employee's dependents or beneficiaries, has any current or future rights to benefits (each such plan, agreement, policy, or understanding being hereinafter referred to individually as a "Plan"). Neither the Company nor any ERISA Affiliate has any formal plan or commitment, whether legally binding or not, to create any additional Plan or modify or change any existing Plan that would affect any present or former employee of the Company, or such present or former employee's dependents or beneficiaries. The Company is not now, and has not been, a part of a controlled group of corporations within the meaning of Section 414(b) of the Code or a group of trades or businesses under common control within the meaning of Section 414(c) of the Code. (b) Neither the Company nor any ERISA Affiliate has ever sponsored, adopted, maintained, or been obligated to contribute to a single employer, multiple employer, or multiemployer defined benefit pension plan which is, or ever was, subject to the provisions of Title IV of ERISA. Neither the Company nor any ERISA Affiliate has ever sponsored, adopted, maintained, or been obligated to contribute to a Plan which is, or ever was, subject to the minimum funding standards of Section 302 of ERISA and Section 412 of the Code. Neither the Company nor any ERISA Affiliate has any obligation in connection with any Plan pursuant to the terms of a collective bargaining agreement. The Company and all ERISA Affiliates have made or will make all contributions required to be made by the Company and all ERISA Affiliates under each Plan for all periods through and including the Effective Date or adequate accruals therefore have been made or will be provided. 14 (c) Each Plan has been maintained and administered in all material respects in accordance with applicable laws, including, but not limited to, the Age Discrimination in Employment Act, as amended, Title X of the Consolidated Omnibus Budget Reconciliation Act of 1986, as amended ("COBRA"), ERISA, and the Code. All reports required by any governmental agency with respect to each Plan have been timely filed. The Company shall cooperate in full with any action deemed reasonably necessary by BWI to ensure compliance with any federal or state law applicable to a Plan, whether such action occurs prior to, on, or after the Effective Date. There are no pending, or to the Knowledge of the Company, threatened or anticipated, claims or actions with respect to any Plan (other than routine claims for benefits by employees covered under any such Plan and their beneficiaries). No "prohibited transaction") as defined in Section 406 of ERISA or Section 4975 of the Code has occurred with respect to any Plan, excluding transactions effected pursuant to a statutory or administrative exemption. No tax under Section 4980B of the Code has been incurred, or is reasonably expected to be incurred, in respect of any Plan that is a group health plan as defined in Section 162(i)(2) of the Code. No lien has been filed by any person or entity on the assets of the Company or any ERISA Affiliate relating to the operation or maintenance of a Plan, and no lien exists by operation of law or otherwise on the assets of the Company as a result of the operation or maintenance of a Plan or any other similar plan or plans, and neither the Company nor any ERISA Affiliate has knowledge of the existence of facts or circumstances that could result in the imposition of such a lien. (d) Each Plan that is intended to be "qualified" within the meaning of Section 401(a) of the Code is so qualified, both as to form and operation and all necessary governmental approvals, including a favorable determination as to the qualification under the Code of each such Plan, and each amendment thereto, have been obtained. (e) Neither the Company nor any ERISA Affiliate has any current or projected liability in respect of post-employment or post-retirement benefits for retired or former employees of the Company or an ERISA Affiliate, or such present or former employees' dependents or beneficiaries, except as required to avoid excise tax under Section 4980B of the Code. With respect to each Plan that is funded wholly or partially through an insurance policy, there will be no liability of the Company, as of the Effective Date, under any such insurance policy or ancillary agreement with respect to such insurance policy. (f) A true and complete copy of each Plan that covers any employee or former employee of the Company (and, if applicable, related trust agreements) and all amendments thereto and written interpretations thereof have been furnished to Purchaser together with (i) the most recent favorable determination letter, if any, with respect to each Plan; (ii) the two most recent annual reports prepared in connection with any such Plan (Form 5500, including all applicable schedules); (iii) the most recent actuarial valuation report, if any, prepared in connection with any such Plan; and (iv) the most recently disseminated summary plan description and an explanation of any material plan modifications made after the date thereof. 15 3.23. Absence of Unethical Business Practices. Neither the Company nor any director or officer thereof has directly or indirectly given or agreed to give any gift or similar benefit to any customer, contractor, government, employee, or other Person who was or is in a possible position to help or hinder the Company, which gift or benefit (a) might subject the Company to any damages or penalties in any civil or criminal proceeding; (b) might have had a Material Adverse Effect; or (c) might have a Material Adverse Effect if not continued. 3.24. No Conflict With Other Instruments. The consummation of the Merger in accordance with the terms, conditions, and provisions of this Agreement will not be in material conflict with, or result in a material breach of, any term, condition, or provision of, or constitute a material default under, any Contract, indenture, mortgage, deed of trust, or other material agreement or instrument to which the Company is a party and will not constitute an event that with the lapse of time or action by a third party could result in any material default under any of the foregoing, or result in the creation of any lien, charge, or encumbrance upon any of the assets or properties of the Company or the Company Stock. 3.25. Insurance. The Company has no insurance of any type. 3.26. Accounts Receivable. The accounts receivable of the Company have arisen in the ordinary course of business and are valid and enforceable subject to no defenses, setoffs, or counterclaims. 3.27. Intellectual Property. (a) The Company has full and exclusive right, title, and interest in and to, or license rights to, all patents, patent applications, registered or unregistered trademarks, service marks, and trade names, registered or unregistered copyrights and applications therefor, licenses, approvals, or governmental authorizations to conduct its business as now conducted, know-how, proprietary rights and processes, trade secrets, customer lists, methodologies (to the extent protectable), proprietary development and marketing information and know-how, inventions, inventors' notes (to the extent such notes exist), drawings, designs associated with the foregoing, and other confidential information (collectively, "Intellectual Property") relating to its business or otherwise used in or necessary for the proper conduct of its business, free and clear of all liens, security interests, claims and encumbrances of any nature; and the Company has no obligation to any other Person or entity with respect to the Intellectual Property or any product or process of the Company utilizing or embodying any Intellectual Property. (b) There is (i) no infringement, misuse, or misappropriation of any Intellectual Property owned, licensed or controlled by any third party arising out of any product or process now being used, manufactured, or distributed, or ever having been used, manufactured, or distributed at any time previously, by or on behalf of the Company; (ii) no pending or, to the Knowledge of the Company, threatened claim or challenge of or 16 proceeding for infringement, misuse or misappropriation of or interference with any Intellectual Property owned, licensed, or controlled by any third party arising out of any product or process now being used, manufactured, or distributed, or ever having been used, manufactured, or distributed at any time previously, by or on behalf of the Company; (iii) no pending or threatened or potential claim, challenge or proceeding by the Company against any third party for infringement, misuse, or misappropriation of or interference with any Intellectual Property owned, licensed, or controlled by the Company; or (iv) no notice or facts or information rendering any Intellectual Property owned, controlled, or licensed by the Company invalid or unenforceable, nor is there any allegation that any such Intellectual Property is invalid or unenforceable. (c) The Company has not disclosed any material confidential information developed or utilized by the Company to any third party except on a confidential basis, pursuant to a confidentiality agreement, and with no intention to entitle such third party to use such information other than for the purposes set forth in such confidentiality agreement. To the Knowledge of the Company, no third party has disclosed confidential information developed or utilized by the Company to any Person except as specifically authorized by the Company. 3.28. Minute Books. The minute books of the Company accurately reflect all material actions taken by the stockholders of the Company and its Board of Directors. 3.29. Hart-Scott. Within the meaning of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the applicable regulations thereunder, 16 C.F.R. Parts 801-803 (collectively, "Hart-Scott"), neither the Company nor any of its Affiliates (i) is engaged in manufacturing; (ii) has total assets of $10 million or more; or (iii) has annual net sales of $100 million or more. 3.30. Sufficiency of Assets. The assets and properties currently owned and operated by the Company constitute, in the aggregate, all of the assets and properties used in the conduct of the Company's business in the manner in which and to the extent to which such business is currently being conducted. The Company has not received any notice from any current supplier of items essential to the conduct of its business that such supplier intends to terminate or materially alter a business relationship for any reason, and no such supplier intends to terminate or materially alter any such business relationship with the Company. The Company has not received any notice from any customer that such customer intends to discontinue purchases of products or services from the Company, and, to the Knowledge of the Company, no such customer intends to discontinue or cancel purchases or orders. 3.31. Broker's Agents and Finder's Fees. There is no agent's, broker's, or finder's fee or commission payable, or that will be payable, in connection with the transactions contemplated by this Agreement by virtue of, or resulting from, any action or agreement by the Company or any Affiliate thereof. 17 3.32. Disclosure. The information with respect to the Company heretofore provided and to be provided by the Company pursuant to this Agreement, including the Schedules and Exhibits hereto, and each of the representations, agreements, documents, certificates and writings to be delivered to BWI or its representatives at the Closing, do not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated herein or therein or necessary in order to make the statements and writings contained herein or therein not false or misleading in the light of the circumstances under which they were made. ARTICLE IV ---------- REPRESENTATIONS AND WARRANTIES OF BWI BWI hereby represents and warrants to and with the Company as of the Effective Date and as of the Closing Date as follows: 4.01. Organization and Qualification. BWI (a) is a corporation duly incorporated, validly existing, and in good standing under the laws of the State of Texas, and has all requisite corporate power and authority to own, operate, and lease its properties and to carry on its business as it is currently being conducted; and (b) is qualified to do business in every jurisdiction in which the character and location of the assets owned by it or the nature of its business require such qualification. 4.02. Licenses and Permits. BWI has all licenses, permits, consents, orders, approvals, and other authorizations necessary for the conduct of its business as now being conducted and proposed to be conducted. Except as provided in Section 5.04 below, no approval, consent, authorization, or other order of, and no designation, filing, registration, qualification, or recording with any governmental authority, domestic or foreign, is required for BWI's performance of this Agreement or the consummation of the transactions contemplated hereby. 4.03. Capitalization. On the Effective Date, the authorized capital stock of BWI consists of (a) 30,000,000 shares of BWI Stock, of which 11,819,732 shares are currently issued and outstanding; (b) 1,258,081 Special Warrants convertible into shares of BWI Stock as described on Schedule 4.04; and (c) 10,000,000 shares of BWI Preferred Stock, none of which shares are issued or outstanding. The shares of BWI Stock and Special Warrants outstanding constitute 100% of the issued and outstanding shares of capital stock of BWI. 4.04. Options, Warrants, and Subscriptions. (a) Except as set forth in Schedule 4.04, BWI has outstanding (i) no shares of any class of capital stock other than BWI Stock, (ii) no options, warrants, subscription, or other rights to purchase from BWI any capital stock of BWI; (iii) no securities convertible into or exchangeable for capital stock of BWI; and (iv) no other commitments of any kind for the issuance of additional shares of capital stock or options, warrants, or other securities of BWI. 18 (b) Except as set forth in Schedule 4.04, no Person, including, but not limited to, any officer or director of BWI, has any right (preemptive or otherwise) to acquire any capital stock of BWI. 4.05. Subsidiaries. Except as set forth on Schedule 4.05, there is no corporation, partnership, limited liability company, or other business enterprise in which BWI has any direct or indirect equity interest. Each entity set forth on Schedule 4.05, unless otherwise noted, is a corporation or other entity duly incorporated or organized, validly existing, and in good standing, if applicable, under the laws of the state of its incorporation or organization as noted on such schedule, and has all requisite corporate power and authority to own, operate, and lease its properties and to carry on its business as it is currently being conducted; and is qualified to do business in every jurisdiction in which the character and location of the assets owned by it or the nature of its business requires such qualification; and has all licenses, permits, consents, orders, approvals, and other authorizations necessary for the conduct of its business as now being conducted and proposed to be conducted. 4.06. Authorization, Execution, and Delivery. BWI has all requisite power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. No proceedings on the part of BWI are necessary to authorize the execution and delivery of this Agreement and, except as provided in Section 5.04 below, the consummation of such transactions. This Agreement and all other agreements herein contemplated to be executed by BWI have been duly executed and delivered by BWI and constitute legal, valid, and binding obligations of BWI enforceable against BWI in accordance with their respective terms, subject as to enforceability to applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the enforcement of creditors' rights generally and to the application of equitable principles and judicial discretion. 4.07. No Conflict With Judgments and Decrees. The consummation of the Merger in accordance with the terms, conditions, and provisions of this Agreement will not conflict with, or result in a breach of, any term, condition, or provision of any judgment, order, injunction, decree, writ, or ruling of any court or tribunal, either domestic or foreign, to which BWI or either Stockholder is subject. 4.08. Government Approvals. Except as set forth on Schedule 4.08, no consent, approval, order, or authorization of, or registration, declaration, or filing with, any federal, state, or local governmental authority is required to be made or obtained by BWI in connection with the execution and delivery of this Agreement by BWI or the consummation by BWI of the transactions contemplated hereby. 4.09. Financial Statements. BWI has previously delivered to the Company true, correct, and complete copies of the following financial statements: 19 (a) an audited balance sheet of BWI dated as of January 31, 1999, and unaudited income statement for the period of inception through January 31, 1999; statement of cash flows for the period of inception through January 31, 1999; and statement of changes in stockholders' equity for the period of inception through January 31, 1999 (referred to collectively as the "Year-End Statements"); and (b) an unaudited balance sheet of BWI dated as of April 30, 1999; income statement for the quarter ended April 30, 1999; statement of cash flows for the quarter ended April 30, 1999; and statement of changes in stockholders' equity for the quarter ended April 30, 1999 (referred to collectively as the "Interim Statements"). The Year-End Statements, Interim Statements, and Monthly Statements (as defined in Section 5.01 below) are shall be referred to collectively as the "Financial Statements"). Except as set forth in this Section 4.09, the Financial Statement (a) are and will continue to be a true and correct reflection of the financial condition of BWI as of the dates therein; (b) were and will continue to be prepared in accordance with GAAP; (c) were and will continue to be prepared in accordance with the books and records of BWI; (d) fairly present BWI's financial condition and the results of its operations at the relevant dates thereof and for the years or periods covered thereby; (e) contain and reflect all necessary adjustments and accruals for a fair presentation of its financial condition and the results of its operations for the periods covered by such financial statements; and (f) contain and reflect reasonable provisions for reserves and for all reasonably anticipated liabilities for all taxes, federal, state, or local, with respect to the periods then ended and all prior periods. All of the receivables of BWI, net of any allowance for doubtful accounts, reflected in the balance sheets for the Interim Statements and Monthly Statements, are valid and legally binding, represent bona fide transactions, arose in the ordinary course of business, and are collectible in accordance with the terms of such receivables, without setoff or counterclaim. 4.10. Internal Accounting Controls. BWI (a) keeps books, records, and accounts that accurately, fairly, and in reasonable detail reflect its assets and transactions; and (b) maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are accurately and promptly recorded; (ii) transactions are executed in accordance with management's specific or general authorizations; and (iii) access to its assets is permitted only in accordance with management's general or specific authorization. 4.11. No Undisclosed Liabilities. Except as set forth in the Financial Statements, BWI has no liabilities or obligations of any nature, whether absolute, accrued, contingent, or otherwise, and whether due or to become due (including without limitation any liability for taxes and interest, penalties, and other charges payable with respect to any such liability or obligation) which have had or could have a Material Adverse Effect. 4.12. Absence of Certain Changes. Except as disclosed in Schedule 4.12 or as provided for or contemplated in this Agreement, since April 30, 1999, there has not been with respect to BWI: 20 (a) any transaction not in the ordinary course of business that has had or could have a Material Adverse Effect; (b) any change in the business, property, assets, liabilities (whether absolute, accrued, contingent, or otherwise), operations, liquidity, income, condition (financial or otherwise), prospects, or net worth of BWI that has had or could have a Material Adverse Effect; (c) a declaration, or an agreement to declare or make any payment of dividends or distributions of any assets of any kind to the stockholders of BWI, or a redemption, or agreement or authorization to redeem any of BWI Stock; (d) any damage, destruction, or loss, extraordinary or otherwise and whether or not covered by insurance, that has had or could have a Material Adverse Effect; (e) any amendment permitted or made with regard to any material contract, material license, or material agreement to which BWI is a party; (f) any acquisition or disposition by BWI of any property or asset, whether real or personal, having a fair market value in an amount greater than $10,000, except in the ordinary course of business and in conformity with past practice; (g) any mortgage, pledge, or subjection to lien, charge, or encumbrance of any kind or on any of the respective properties or assets of BWI, except to secure borrowings in the ordinary course of business and in conformity with past practice; (h) any increase in, or commitment to increase, the compensation payable or to become payable to any officer, director, employee, or agent of BWI, or any bonus payment or similar arrangement made to or with any of such officers, directors, employees, or agents, other than (except in the case of directors and officers) routine increases made in the ordinary course of business and in conformity with past practice; (i) any incurrence of, guarantee of, assumption of, or taking any property subject to, any liability, except for liabilities incurred or assumed or property taken in the ordinary course of business and in conformity with past practice; (j) any adoption of a plan or agreement or amendment to any plan or agreement providing any new or additional benefits for officers, directors, or employees; (k) any material alteration in the manner of keeping the books, accounts, or records of BWI, or in the accounting practices therein reflected; 21 (l) any release or discharge of any obligation or liability of any Person to BWI of any nature whatsoever, except in the ordinary course of business and in conformity with past practice and except in cases that have not had and could not have a Material Adverse Effect; (m) any delay by BWI in paying any debt, charge, or amount owed by BWI in excess of 30 days past the date such amount was due; (n) any increase or decrease of (i) any amounts charged for services rendered or products sold by BWI; or (ii) inventory ordered, except, in either case, in the ordinary course of business and in conformity with past practice; (o) any facts or circumstances that may reasonably result in the loss of customers, suppliers, or vendors of BWI, including without limitation, any notices, statements, or circumstances indicating that any customer, supplier, or vendor has or will terminate or alter its business relationship with BWI; (p) any loan by BWI to any officer or director of BWI, or any Affiliate thereof; (q) any other event or condition of any character which has had or could have a Material Adverse Effect; or (r) any agreement or authorization to do any of the above. 4.13. Real and Personal Property. Except as set forth in Schedule 4.13: (a) BWI has good and marketable title to each of the items of real and personal tangible and intangible property recorded as owned in the Monthly Statements (except for property sold or otherwise disposed of since April 30, 1999, in the ordinary course of business and in conformity with past practice), free and clear of all mortgages, liens, security interests, conditional sales contracts, encumbrances, leases, equities, claims, charges, easements, rights-of-way, covenants, conditions, and restrictions, except (i) those incurred or created in conformity with past practice; (ii) mortgages and other encumbrances reflected in the Financial Statements; (iii) liens for current taxes not yet due and payable; and (iv) such imperfections of title and encumbrances as do not detract from, or interfere with, the present use of the properties subject thereto or affected thereby, or otherwise impair the value thereof or the operations thereat; and (b) no officer, director, or employee of BWI, nor any spouse, child, or other relative or Affiliate thereof, owns directly or indirectly in whole or in part, any of such real property or tangible or intangible personal property. 22 4.14. Environmental Compliance. (a) BWI and any property owned or operated by it are in compliance with all applicable Environmental Laws and have obtained and are in compliance with all permits, licenses, and other authorizations required under any Environmental Law. There is no past or present event, condition, or circumstance that is likely to interfere with the conduct of the business of BWI in the manner now conducted relating to such entity's compliance with Environmental Laws or constitute a material violation thereof or which would have a Material Adverse Effect; (b) BWI does not now or has not leased, operated, owned, or exercised managerial functions at any facilities or real property with respect to which such entity, facility, or real property is subject to any actual Proceeding under any Environmental Law, and BWI is not aware of any facts or circumstances that could give rise to such a Proceeding; (c) there are no actions or Proceedings pending or, to the Knowledge of BWI, threatened against BWI under any Environmental Law, and BWI has not received any notice (whether from any regulatory body or private person) of any violation, or potential or threatened violation, of any Environmental Law; (d) there are no actions or Proceedings pending or, to the Knowledge of BWI, threatened under any Environmental Law involving the release or threat of release of any Polluting Substances at or on (i) any Property currently or in the past owned, operated, or leased by BWI or over which BWI exercised managerial functions; or (ii) at any property where Polluting Substances generated by BWI have been disposed; (e) there is no Property for which BWI is or was required to obtain any permit under an Environmental Law to construct, demolish, renovate, occupy, operate, or use such Property or any portion of it; (f) BWI has not generated any Polluting Substances; (g) there has been no release of Polluting Substances in violation of any Environmental Law which would require any report or notification to any governmental or regulatory authority in or on any Property; (h) neither BWI nor any Property is subject to investigation or, to the Knowledge of BWI, threatened or pending litigation by federal, state, or local officials or a private litigant as a result of any previous on-site management, treatment, storage, release, or disposal of Polluting Substances or exposure to any Polluting Substances; 23 (i) there are no underground or above ground storage tanks on or under any Property which are not in conformity with any Environmental Law and any Property previously containing such tanks has been remediated in compliance with all Environmental Laws; and (j) there is no asbestos containing material on any Property. 4.15. Tax Matters. Except as set forth in Schedule 4.15: (a) within the times and in the manner prescribed by law, BWI has filed all federal, state, and local tax returns for which BWI has had the responsibility for filing, and has timely paid all Taxes shown to be due and payable on such returns; (b) all tax returns filed by BWI constitute complete and accurate representations of its Tax liabilities for such years and accurately sets forth all items (to the extent required to be included or reflected in such returns) relevant to its future Tax liabilities, including the tax bases of its properties and assets; (c) BWI has not waived or extended any applicable statute of limitations relating to the assessment of federal, state, local, or foreign Taxes; (d) no examination of the federal, state, or local tax returns of BWI is currently in progress, nor, to the Knowledge of BWI, is any such examination threatened; and (e) to the Knowledge of BWI, BWI has not received any communication from any taxing authority regarding any tax return of BWI with respect to any matter that has not been closed, settled, waived, or fully concluded, or would otherwise have a Material Adverse Effect. 4.16. No Litigation. To the Knowledge of BWI, there are no Proceedings that may result in a material liability to BWI or affect BWI Stock. 4.17. Transactions with Affiliates. Except as set forth on Schedule 4.17, there are no transactions by BWI with its officers, directors, employees, or any Affiliates thereof, and no such person has any interest in any property owned or used by BWI. 4.18. Personnel. Schedule 4.18 sets forth a true and complete list of the names and current salaries of all of the employees of BWI and the names and current billing arrangements for all independent contractors on continued retainer with BWI for the fiscal year ended December 31, 1998, and as of April 30, 1999. Except as set forth on Schedule 4.18, to the Knowledge of BWI, no employee of, or party or Person providing services to, BWI has any intention to terminate his, her, or its relationship with BWI or, in the case of employees, leave the employ of BWI. 24 4.19. Contracts. Except as set forth on Schedule 4.19, BWI is not a party to any oral or written Contracts. BWI has furnished BWI with a true and complete copy of each such Contract, including all amendments thereto made through the Effective Date. Except as set forth on Schedule 4.19, each of such Contracts is a valid and binding agreement of BWI and all other parties thereto; there has not occurred any material default under any of the material terms and conditions thereof, nor has any event occurred that with the giving of notice or lapse of time, or both, would constitute any such material default. 4.20. Employment Matters. To the Knowledge of BWI, there is no activity or proceeding of any labor organization (or representative thereof) or employee group to organize any employees of BWI, or to effectuate or threaten to effectuate a strike, slowdown, work stoppage, or lockout with regard to BWI. 4.21. Compliance with Law. (a) To the Knowledge of BWI, the conduct of the business of BWI to date does not violate any federal, state, or local laws, statutes, ordinances, rules, regulations, decrees, orders, permits, or other similar items in force on the date hereof (including, but not limited to, any of the foregoing relating to employment discrimination, employment practices, withholding of taxes and other sums from employees, ERISA, and environmental protection or conservation), the enforcement of which could have a Material Adverse Effect, nor has BWI received any notice of any such violation. (b) No prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Code has occurred or is continuing with respect to any employee pension benefit plan (as defined in Section 3(2) of ERISA) maintained by BWI or any welfare benefit plan (as defined in Section 3(1) of ERISA) maintained by BWI. No contributions are required to be made by BWI with respect to any employee pension benefit plan. (c) BWI is not subject to a formal or informal agreement or enforcement action by any regulatory agency or authority having jurisdiction over it. 4.22. Employee Benefits. (a) To the Knowledge of BWI, neither BWI, nor any ERISA Affiliate, as determined under Section 414(b), (c), or (m) of the Code, sponsors, maintains, or otherwise is a party to, or is currently in default under, or has any current accrued obligations under any pension, profit sharing, or other retirement plan, fringe benefit plan, health, group insurance, or other welfare benefit plan, or other similar plan, agreement, policy, or understanding, including, without limitation, any "employee benefit plan" within the meaning of Section 3(3) of the ERISA, whether formal or informal and whether legally binding or not under which BWI or an ERISA Affiliate has any current or future obligation or liability or under which any present or future employee of BWI or an ERISA Affiliate, or such present or former employee's dependents or beneficiaries, has any current or future rights to benefits (each such plan, agreement, policy, or understanding being hereinafter referred to individually as a "Plan"). Neither BWI nor any ERISA Affiliate has any formal 25 plan or commitment, whether legally binding or not, to create any additional Plan or modify or change any existing Plan that would affect any present or former employee of BWI, or such present or former employee's dependents or beneficiaries. Except as disclosed of Schedule 4.22 hereto, BWI is not now, and has not been, a part of a controlled group of corporations within the meaning of Section 414(b) of the Code or a group of trades or businesses under common control within the meaning of Section 414(c) of the Code. (b) Neither BWI nor any ERISA Affiliate has ever sponsored, adopted, maintained, or been obligated to contribute to a single employer, multiple employer, or multiemployer defined benefit pension plan which is, or ever was, subject to the provisions of Title IV of ERISA. Neither BWI nor any ERISA Affiliate has ever sponsored, adopted, maintained, or been obligated to contribute to a Plan which is, or ever was, subject to the minimum funding standards of Section 302 of ERISA and Section 412 of the Code. Neither BWI nor any ERISA Affiliate has any obligation in connection with any Plan pursuant to the terms of a collective bargaining agreement. BWI and all ERISA Affiliates have made or will make all contributions required to be made by BWI and all ERISA Affiliates under each Plan for all periods through and including the Effective Date or adequate accruals therefore have been made or will be provided. (c) Each Plan has been maintained and administered in all material respects in accordance with applicable laws, including, but not limited to, the Age Discrimination in Employment Act, as amended, Title X of the COBRA, ERISA, and the Code. All reports required by any governmental agency with respect to each Plan have been timely filed. BWI shall cooperate in full with any action deemed reasonably necessary by BWI to ensure compliance with any federal or state law applicable to a Plan, whether such action occurs prior to, on, or after the Effective Date. There are no pending, or to the Knowledge of BWI, threatened or anticipated, claims or actions with respect to any Plan (other than routine claims for benefits by employees covered under any such Plan and their beneficiaries). No "prohibited transaction" as defined in Section 406 of ERISA or Section 4975 of the Code has occurred with respect to any Plan, excluding transactions effected pursuant to a statutory or administrative exemption. No tax under Section 4980B of the Code has been incurred, or is reasonably expected to be incurred, in respect of any Plan that is a group health plan as defined in Section 162(i)(2) of the Code. No lien has been filed by any person or entity on the assets of BWI or any ERISA Affiliate relating to the operation or maintenance of a Plan, and no lien exists by operation of law or otherwise on the assets of BWI as a result of the operation or maintenance of a Plan or any other similar plan or plans, and neither BWI nor any ERISA Affiliate has knowledge of the existence of facts or circumstances that could result in the imposition of such a lien. 26 (d) Each Plan that is intended to be "qualified" within the meaning of Section 401(a) of the Code is so qualified, both as to form and operation and all necessary governmental approvals, including a favorable determination as to the qualification under the Code of each such Plan, and each amendment thereto, have been obtained. (e) Neither BWI nor any ERISA Affiliate has any current or projected liability in respect of post-employment or post-retirement benefits for retired or former employees of BWI or an ERISA Affiliate, or such present or former employees' dependents or beneficiaries, except as required to avoid excise tax under Section 4980B of the Code. With respect to each Plan that is funded wholly or partially through an insurance policy, there will be no liability of BWI, as of the Effective Date, under any such insurance policy or ancillary agreement with respect to such insurance policy. (f) A true and complete copy of each Plan that covers any employee or former employee of BWI (and, if applicable, related trust agreements) and all amendments thereto and written interpretations thereof have been furnished to Purchaser together with (i) the most recent favorable determination letter, if any, with respect to each Plan; (ii) the two most recent annual reports prepared in connection with any such Plan (Form 5500, including all applicable schedules); (iii) the most recent actuarial valuation report, if any, prepared in connection with any such Plan; and (iv) the most recently disseminated summary plan description and an explanation of any material plan modifications made after the date thereof. 4.23. Absence of Unethical Business Practices. Neither BWI nor any director or officer thereof has directly or indirectly given or agreed to give any gift or similar benefit to any customer, contractor, government, employee, or other Person who was or is in a possible position to help or hinder BWI, which gift or benefit (a) might subject BWI to any damages or penalties in any civil or criminal proceeding; (b) might have had a Material Adverse Effect; or (c) might have a Material Adverse Effect if not continued. 4.24. No Conflict With Other Instruments. The consummation of the Merger in accordance with the terms, conditions, and provisions of this Agreement will not be in material conflict with, or result in a material breach of, any term, condition, or provision of, or constitute a material default under, any Contract, indenture, mortgage, deed of trust, or other material agreement or instrument to which BWI is a party and will not constitute an event that with the lapse of time or action by a third party could result in any material default under any of the foregoing, or result in the creation of any lien, charge, or encumbrance upon any of the assets or properties of BWI or BWI Stock. 4.25. Insurance. BWI has policies of insurance in effect in such amounts as are adequate to protect its assets and properties and consistent with its past practices. Schedule 4.25 sets forth a true and complete list of all of the insurance policies of BWI in effect as of the Effective Date; the amount of the premiums for each policy; and the date such premiums are due. Except as set forth on Schedule 4.25, there are no pending claims under any insurance policy of BWI nor, to the Knowledge of BWI, any facts or circumstances that may cause the cancellation of any insurance 27 policy held by BWI or the repudiation of any claims thereunder, nor prevent the insurance policies it presently has in force from being renewed or require onerous conditions to renewal that are not currently in effect with regard to such insurance policies. 4.26. Accounts Receivable. The accounts receivable of BWI have arisen in the ordinary course of business and are valid and enforceable subject to no defenses, setoffs, or counterclaims. 4.27. Intellectual Property. (a) Schedule 4.27 sets forth a true and complete list of intellectual property owned or licensed by BWI (other than off-the-shelf software). Except as indicated on Schedule 4.27, BWI has full and exclusive right, title, and interest in and to, or license rights to, all patents, patent applications, registered or unregistered trademarks, service marks, and trade names, registered or unregistered copyrights and applications therefor, licenses, approvals, or governmental authorizations to conduct its business as now conducted, know-how, proprietary rights and processes, trade secrets, customer lists, methodologies (to the extent protectable), proprietary development and marketing information and know-how, inventions, inventors' notes (to the extent such notes exist), drawings, designs associated with the foregoing, and other confidential information (collectively, "Intellectual Property") relating to its business or otherwise used in or necessary for the proper conduct of its business, free and clear of all liens, security interests, claims and encumbrances of any nature; and BWI has no obligation to any other Person or entity with respect to the Intellectual Property or any product or process of BWI utilizing or embodying any Intellectual Property. (b) There is (i) no infringement, misuse, or misappropriation of any Intellectual Property owned, licensed or controlled by any third party arising out of any product or process now being used, manufactured, or distributed, or ever having been used, manufactured, or distributed at any time previously, by or on behalf of BWI; (ii) no pending or, to the Knowledge of BWI, threatened claim or challenge of or proceeding for infringement, misuse or misappropriation of or interference with any Intellectual Property owned, licensed, or controlled by any third party arising out of any product or process now being used, manufactured, or distributed, or ever having been used, manufactured, or distributed at any time previously, by or on behalf of BWI; (iii) except as set forth in Schedule 4.27 hereto, no pending or threatened or potential claim, challenge or proceeding by BWI against any third party for infringement, misuse, or misappropriation of or interference with any Intellectual Property owned, licensed, or controlled by BWI; or (iv) no notice or facts or information rendering any Intellectual Property owned, controlled, or licensed by BWI invalid or unenforceable, nor is there any allegation that any such Intellectual Property is invalid or unenforceable. 28 (c) BWI has not disclosed any material confidential information developed or utilized by BWI to any third party except on a confidential basis, pursuant to a confidentiality agreement, and with no intention to entitle such third party to use such information other than for the purposes set forth in such confidentiality agreement. To the Knowledge of BWI, no third party has disclosed confidential information developed or utilized by BWI to any Person except as specifically authorized by BWI. 4.28. Minute Books. The minute books of BWI accurately reflect all material actions taken by the stockholders BWI and its Board of Directors. 4.29. Hart-Scott. Within the meaning of the Hart-Scott-Rodino, neither BWI nor any of its Affiliates (i) is engaged in manufacturing; (ii) has total assets of $10 million or more; or (iii) has annual net sales of $100 million or more. 4.30. Sufficiency of Assets. The assets and properties currently owned and operated by BWI constitute, in the aggregate, all of the assets and properties used in the conduct of BWI's business in the manner in which and to the extent to which such business is currently being conducted. BWI has not received any notice from any current supplier of items essential to the conduct of its business that such supplier intends to terminate or materially alter a business relationship for any reason, and no such supplier intends to terminate or materially alter any such business relationship with BWI. BWI has not received any notice from any customer that such customer intends to discontinue purchases of products or services from BWI, and, to the Knowledge of BWI, no such customer intends to discontinue or cancel purchases or orders. 4.31. Broker's Agents and Finder's Fees. There is no agent's, broker's, or finder's fee or commission payable, or that will be payable, in connection with the transactions contemplated by this Agreement by virtue of, or resulting from, any action or agreement by BWI or any Affiliate thereof. 4.32. Disclosure. The information with respect to BWI heretofore provided and to be provided by BWI pursuant to this Agreement, including the Schedules and Exhibits hereto, and each of the representations, agreements, documents, certificates and writings to be delivered to BWI or its representatives at the Closing, do not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated herein or therein or necessary in order to make the statements and writings contained herein or therein not false or misleading in the light of the circumstances under which they were made. ARTICLE V --------- COVENANTS OF BWI BWI hereby covenants and agrees with the Company to the following as of the Effective Date to the Effective Time: 29 5.01. Affirmative Covenants of BWI. BWI will operate its business only in the usual, regular, and ordinary manner, and to the extent consistent with such operations, BWI will use its best efforts to (a) preserve intact its present business organizations; (b) keep available all the services of its present officers and employees; (c) preserve its present business relationships with depositors, borrowers, and others having business dealings with it; (d) maintain and keep its material properties in good repair and condition as at present, except for deterioration due to ordinary wear and tear and damage due to casualty; (e) maintain, in full force and effect, insurance comparable in amount and in scope of coverage to that now maintained by it, including, but not limited to, bankers' blanket bond and director and officer liability insurance policies in effect as of the date of this Agreement; (f) perform all of their material obligations under contracts, leases, and documents relating to or affecting its assets, properties, and businesses; (g) on or before the 45th day following the end of each calendar month, commencing with the month of May, deliver to the Company an unaudited balance sheet, income statement, statement of cash flows, and statement of changes in stockholders' equity (the "Monthly Financial Statements"); and (h) comply with and perform all material obligations and duties imposed upon them by federal, state, and local laws, and all rules, regulations, and orders imposed by federal, state, or local governmental authorities, except as may be contested by it in good faith by appropriate proceedings. 5.02. Negative Covenants of BWI. Unless BWI shall have received the prior written consent of the Company, which consent shall not be unreasonably withheld, BWI shall not do or cause to have done any of the following: (a) enter into any transaction not in the ordinary course of business that could have a Material Adverse Effect; (b) make or allow any change in the business, property, assets, liabilities (whether absolute, accrued, contingent, or otherwise), operations, liquidity, income, condition (financial or otherwise), prospects, or net worth of BWI that could have a Material Adverse Effect; (c) declare or make any payment of dividends or distributions of any assets of any kind to the stockholders of BWI, or redeem or authorize the redemption of any of BWI Stock; (d) amend any material contract, material license, or material agreement to which BWI is a party; (e) acquire or dispose of any property or asset, whether real or personal, having a fair market value in an amount greater than $50,000, except in the ordinary course of business and in conformity with past practice; (f) mortgage, pledge, or subject to any lien, charge, or encumbrance of any kind any of the properties or assets of BWI, except to secure borrowings in the ordinary course of business and in conformity with past practice; 30 (g) increase, or commit to increase, the compensation payable or to become payable to any officer, director, employee, or agent of BWI, or any bonus payment or similar arrangement made to or with any of such officers, directors, employees, or agents, other than (except in the case of directors and officers) routine increases made in the ordinary course of business and in conformity with past practice; (h) incur, guarantee, assume, or take any property subject to any liability, except for liabilities incurred or assumed or property taken in the ordinary course of business and in conformity with past practice; (i) adopt a plan or agreement or amend any plan or agreement providing any new or additional benefits for officers, directors, or employees; (j) make or allow any material alteration in the manner of keeping the books, accounts, or records of BWI, or in the accounting practices therein reflected; (k) release or discharge any obligation or liability of any Person to BWI of any nature whatsoever, except in the ordinary course of business and in conformity with past practice and except in cases that have not had and could not have a Material Adverse Effect; (l) delay in paying any debt, charge, or amount owed by BWI in excess of 30 days past the date such amount was due; (m) amend, restate, or rescind the Restated Articles of Incorporation or Bylaws of BWI; (o) make any loan to any officer or director of BWI, or any Affiliate thereof; or (r) enter into any agreement or authorization to do any of the above. 5.03. Information for Applications. BWI will cooperate with and will use reasonable efforts to furnish the Company with all the information concerning BWI required for inclusion in (a) all applications filed or to be filed by the Company with the SEC and any other governmental or regulatory agency or department for authority to consummate the transactions contemplated by this Agreement; and (b) any other application or statement to be made by the Company to any governmental body in connection with such matters. BWI represents and warrants that all information so furnished for such statements and applications shall be true and correct in all material respects without omission of any material fact required to be stated to make the information stated therein not misleading. 31 5.04. Shareholder Approval and Best Efforts. As soon as is practical in no event later than August 15, 1999, BWI will cause a special meeting of shareholders to be duly called and held to authorize, approve, and adopt this Agreement and the transactions contemplated hereby. The Board of Directors of BWI will (a) recommend approval of this Agreement to its shareholders; and (b) use its best efforts to take or cause to be taken all other actions necessary, proper, or advisable to consummate this Agreement. ARTICLE VI ---------- COVENANTS OF THE COMPANY The Company hereby covenants and agrees with BWI to the following as of the Effective Date to the Effective Time: 6.01. Affirmative Covenants of the Company. The Company will operate its business only in the usual, regular, and ordinary manner, and to the extent consistent with such operations, the Company will use its best efforts to (a) preserve intact its present business organizations; (b) keep available all the services of its present officers and employees; (c) preserve its present business relationships with depositors, borrowers, and others having business dealings with it; (d) maintain and keep its material properties in good repair and condition as at present, except for deterioration due to ordinary wear and tear and damage due to casualty; (e) maintain, in full force and effect, insurance comparable in amount and in scope of coverage to that now maintained by it, including, but not limited to, bankers' blanket bond and director and officer liability insurance policies in effect as of the date of this Agreement; (f) perform all of their material obligations under contracts, leases, and documents relating to or affecting its assets, properties, and businesses; (g) on or before the 45th day following the end of each calendar month, commencing with the month of May, deliver to BWI an unaudited balance sheet, income statement, statement of cash flows, and statement of changes in stockholders' equity (the "Monthly Financial Statements"); and (h) comply with and perform all material obligations and duties imposed upon them by federal, state, and local laws, and all rules, regulations, and orders imposed by federal, state, or local governmental authorities, except as may be contested by it in good faith by appropriate proceedings. 6.02. Negative Covenants of the Company. Unless the Company shall have received the prior written consent of BWI, which consent shall not be unreasonably withheld, the Company shall not do or cause to have done any of the following: (a) enter into any transaction not in the ordinary course of business that could have a Material Adverse Effect; (b) make or allow any change in the business, property, assets, liabilities (whether absolute, accrued, contingent, or otherwise), operations, liquidity, income, condition (financial or otherwise), prospects, or net worth of the Company that could have a Material Adverse Effect; 32 (c) declare or make any payment of dividends or distributions of any assets of any kind to the stockholders of the Company, or redeem or authorize the redemption of any of the Company Stock; (d) amend any material contract, material license, or material agreement to which the Company is a party; (e) acquire or dispose of any property or asset, whether real or personal, having a fair market value in an amount greater than $50,000, except in the ordinary course of business and in conformity with past practice, and except for the sale of the Relief Canyon Mine; (f) mortgage, pledge, or subject to any lien, charge, or encumbrance of any kind any of the properties or assets of the Company, except to secure borrowings in the ordinary course of business and in conformity with past practice; (g) increase, or commit to increase, the compensation payable or to become payable to any officer, director, employee, or agent of the Company, or any bonus payment or similar arrangement made to or with any of such officers, directors, employees, or agents, other than (except in the case of directors and officers) routine increases made in the ordinary course of business and in conformity with past practice; (h) incur, guarantee, assume, or take any property subject to any liability, except for liabilities incurred or assumed or property taken in the ordinary course of business and in conformity with past practice; (i) adopt a plan or agreement or amend any plan or agreement providing any new or additional benefits for officers, directors, or employees; (j) make or allow any material alteration in the manner of keeping the books, accounts, or records of the Company, or in the accounting practices therein reflected; (k) release or discharge any obligation or liability of any Person to the Company of any nature whatsoever, except in the ordinary course of business and in conformity with past practice and except in cases that have not had and could not have a Material Adverse Effect; (l) delay in paying any debt, charge, or amount owed by the Company in excess of 30 days past the date such amount was due; (m) amend, restate, or rescind the Restated Articles of Incorporation or Bylaws of the Company; 33 (o) make any loan to any officer or director of the Company, or any Affiliate thereof; or (r) enter into any agreement or authorization to do any of the above. 6.03. Sale of the Relief Canyon Mine. The Company will use its best efforts to sell the Relief Canyon Mine as soon as reasonably practicable. A. Scott Dockter, or other authorized officer of the Company or the Surviving Corporation, will be responsible, with full Board approval, for negotiating the terms and conditions of the sale thereof and will attempt to maximize the value to be received by the Company or the Surviving Corporation, as the case may be. 6.04. Securities Laws Filings. On or before July 23, 1999, the Company (a) will file with the SEC an application on Form S-4 seeking the registration of the number of newly issued shares of Company Stock as set forth on Schedule 6.04, as may be amended from time to time, for public trading; and (b) will file with any other governmental or regulatory agency or department any other application or statement to be made by the Company necessary to consummate the transactions contemplated by this Agreement. At lease 10 days prior to its filing with the SEC, the Company will deliver a draft of the Form S-4 to BWI for its review and comment. The Company represents and warrants that all information so furnished for such statements and applications shall be true and correct in all material respects without omission of any material fact required to be stated to make the information stated therein not misleading. 6.05. Shareholder Approval and Best Efforts. On or before July 23, 1999, the Company will (a) prepare a notice of special meeting of stockholders and proxy statement in connection therewith seeking approval of (i) the Merger; (ii) the sale of the Relief Canyon Mine; (iii) the Reverse Stock Split (as defined in Section 6.06 below); (iv) the Company's Restated Certificate of Incorporation and Bylaws; and (v) the approval of the Stock Option Plan; (b) deliver a copy of the notice of special meeting and proxy statement to BWI for its review and comment; (c) after obtaining the necessary approvals of the SEC set forth in Section 6.04 above, send such notice of special meeting and proxy statement to each Record Holder (as defined in Section 6.06 below) calling a special meeting of the stockholders of the Company to be held no later than 20 days following the Record Date (as defined in Section 6.06 below); (d) recommend that the stockholders vote in favor of each item of business set forth in the notice of special meeting; and (e) use its best efforts to take or cause to be taken all other actions necessary, proper, or advisable to consummate this Agreement. 6.06. Reverse Stock Split. The Company will (a) cause every 12 shares of its Company Stock outstanding and held of record by stockholders immediately prior to the Effective Date (a "Record Holder"), to be combined into a single share of Company Stock with a par value of $0.001 per share, provided, however, that in the case of a Record Holder owning fewer than 12 shares or whose shares are not evenly divisible by 12, the fractional share resulting from the division of such Record Holder's shares shall be rounded up to a whole share of Company Stock (the "Reverse Stock Split"); and (b) send transmittal instructions to each Record Holder setting forth the procedure for 34 surrendering his, her, or its old certificates representing shares of Company Stock before the Reverse Stock Split and receiving new certificates. ARTICLE VII ----------- CONDITIONS TO OBLIGATIONS OF THE COMPANY TO CLOSE The obligations of the Company to cause the Merger to be consummated shall be subject to the satisfaction on or before the Closing Date of all of the following conditions, except as the Company may waive such conditions in writing: 7.01. Approval by Shareholders of BWI. At a meeting of shareholders of BWI duly called and held for such purpose, this Agreement shall have been duly approved by the requisite vote of such shareholders. 7.02. Regulatory Approvals. Orders, consents, and approvals in form and substance reasonably satisfactory to the Company shall have been entered by the SEC, NASDAQ, and any other applicable governmental or regulatory agency granting the authority necessary for consummation of the transactions contemplated by this Agreement. 7.03. Litigation. On the Closing Date, there shall not be pending or threatened litigation in any court or any proceeding by any governmental commission, board, or agency with a view to seeking, or in which it is sought, to restrain or prohibit consummation of the Merger, or in which it is sought to obtain divestiture, rescission, or damages in connection with the Merger or the consummation of the Merger, and to the knowledge of any of the parties hereto, no investigation by any governmental agency shall be pending or threatened that might result in any such suit, action, or other proceeding. 7.04. Representations and Warranties; Absence of Material Changes in Schedules. All representations and warranties of BWI contained in this Agreement shall be true in all material respects on and as of the Closing Date, and BWI shall have performed all agreements and covenants required by this Agreement to be performed by it on or prior to the Closing Date. BWI shall not have updated or amended its Schedules to reflect or disclose a material adverse effect in its business, financial condition, results of operations, or future prospects. 7.05. Fulfillment of Covenants. BWI shall have fulfilled all of the covenants set forth in Article V in all material respects. 7.06. Dissenting Shareholders. The percentage of outstanding BWI Stock held by shareholders who exercise dissenters' rights pursuant to Article 5.11 of the TBCA shall not exceed 10 percent. 35 ARTICLE VIII ------------ CONDITIONS TO OBLIGATIONS OF BWI TO CLOSE The obligation of BWI to cause the Merger to be consummated shall be subject to the satisfaction on or before the Closing Date of all the following conditions, except as BWI may waive such conditions in writing: 8.01. Approval by Stockholders. At a meeting of stockholders of the Company duly called and held for such purpose, each item of business described in Paragraph (a) of Section 6.04 above shall have been duly approved by the requisite vote of such stockholders. 8.02. Regulatory Approvals. Orders, consents, and approvals in form and substance reasonably satisfactory to BWI shall have been entered by the SEC, NASDAQ, and any other applicable governmental or regulatory agency granting the authority necessary for consummation of the transactions contemplated by this Agreement. 8.03. Litigation. On the Closing Date, there shall not be pending or threatened litigation in any court or any proceeding by any governmental commission, board, or agency with a view to seeking, or in which it is sought, to restrain or prohibit consummation of the Merger, or in which it is sought to obtain divestiture, rescission, or damages in connection with the Merger or the consummation of the Merger, and to the knowledge of any of the parties hereto, no investigation by any governmental agency shall be pending or threatened that might result in any such suit, action, or other proceeding. 8.04. Representations and Warranties; Absence of Material Changes in Schedules. All representations and warranties of the Company contained in this Agreement shall be true in all material respects on and as of the Closing Date, and the Company shall have performed all agreements and covenants required by this Agreement to be performed by it on or prior to the Closing Date. The Company shall not have updated or amended its Schedules to reflect or disclose a material adverse effect in its business, financial condition, results of operations, or future prospects. 8.05. Fulfillment of Covenants. The Company shall have fulfilled all of the covenants set forth in Article VI in all material respects. 8.06. Dissenting Shareholders. The stockholders of the Company shall not have the right to dissent from the Merger pursuant to the DGL. 36 ARTICLE IX ---------- EXPENSES Costs and expenses relating to the negotiation and drafting of this Agreement and the transactions contemplated hereby shall be borne and paid by the Surviving Corporation. ARTICLE X --------- RIGHTS OF DISSENTING SHAREHOLDERS Only those persons who comply with the procedural requirements set forth in Articles 5.12 and 5.13 of the TBCA will be recognized by BWI as valid dissenting shareholders. Neither BWI nor the Surviving Corporation will undertake to provide any notice to shareholders other than as expressly required by law. Persons who do not satisfy the procedural requirements of Articles 5.12 and 5.13 of the TBCA will be treated for all purposes by BWI and the Surviving Corporation as non-dissenting shareholders and will receive the consideration in the Merger as set forth in Section 2.02 above. ARTICLE XI ---------- CLOSING DATE AND EFFECTIVE TIME The closing of this Agreement and the transactions contemplated hereby shall be held on a mutually agreed upon time and date at the main office of BWI, or at such other time and place as the parties hereto may mutually agree upon. The "Closing Date" shall be the later of the dates (a) five days after the date of the special meeting of stockholders of the Company approving the Merger; (b) the fulfillment of all of the Company's covenants set forth in Article VI above; (c) such later date as the presidents of the Company and BWI, respectively, may agree upon in writing; or (d) with respect to any of the above, if such date is not a business day, then the next business day following. Subject to the terms and upon satisfaction on or before the Closing Date of all requirements of law and conditions specified in this Agreement, the Company and BWI shall, at the Closing Date, execute, acknowledge, and deliver such other documents and instruments and take such further action as may be necessary or appropriate to consummate the Merger. Immediately thereafter, the Company and BWI shall file, or cause to be filed, with the SEC, NASDAQ, the Delaware Secretary of State, and any other governmental or regulatory agency all necessary documents and instruments to consummate the Merger. The "Effective Time" is the date on which the Merger is effective, which shall be on the date specified in the Certificate of Merger to be issued by the Delaware Secretary of State, and if no date is specified in such certificate, then the Effective Time shall be the time of the opening of business on the date the certificate of merger is recorded by the Delaware Secretary of State. 37 ARTICLE XII ----------- DEFINITIONS The following terms as used in this Agreement shall have the meanings set forth below: "Affiliate" shall mean, as to any Person, any Person controlled by, controlling, or under common control with such Person, and, in the case of a Person who is an individual, a member of the family of such individual consisting of a spouse, sibling, in-law, lineal descendant, or ancestor (including by adoption), and the spouses of any such individuals. For purposes of this definition, control (including the terms, controlling, controlled by, and under common control with) of a Person means the possession, directly or indirectly, alone or in concert with others, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of securities, by contract or otherwise, and no Person shall be deemed in control of another solely by virtue of being a director, officer or holder of voting securities of any entity. A Person shall be presumed to control any partnership of which such Person is a general partner. "Environmental Inspection" means asbestos surveys and sampling, other environmental assessments and investigations, test borings, and any other environmental surveys and analyses including, without limitation, soil and ground water sampling, and phase I and phase II site assessments performed by qualified environmental professionals having appropriate workers' compensation, general liability, and professional liability insurance in amounts reasonably acceptable to Purchaser and the Company. "Environmental Laws" shall mean laws, including, without limitation, federal, state, or local laws, ordinances, rules, regulations, interpretations, and orders of courts or administrative agencies or authorities relating to pollution, environmental protection, health and safety, or similar laws (including, without limitation, ambient air, surface water, ground water, land surface, and subsurface strata), including, without limitation, the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended ("CERCLA"), the Federal Clean Water Act ("CWA"), the Safe Drinking Water Act ("SDWA"), the Resource Conservation and Recovery Act of 1976, as amended ("RCRA"), the Clean Air Act ("CAA"), the Emergency Planning and Community Right to Know Act ("EPCRA"), the Occupational Safety and Health Act ("OSHA"), and other laws relating to pollution or protection of the environment, or to the manufacturing, processing, distribution, use, treatment, handling, storage, disposal, or transportation of Polluting Substances. "Governmental Authority" means any nation or government, any state, regional, local, or other political subdivision thereof, and any entity or official exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Knowledge" shall mean, with respect to BWI, the knowledge of Chris M. Meaux or Jamie Cutburth, and shall mean, with respect to the Company, the knowledge of A. Scott Dockter or Michael M. Kessler. An individual shall be deemed to have "knowledge" of a particular fact or other 38 matter if (i) such individual is actually aware of such fact or other matter, or (ii) a prudent person serving in the same capacity as such individual would be expected to discover or otherwise become aware of such fact or other matter in the course of performing the official duties of such individual. "Material Adverse Effect" means any development, change, or effect that is materially adverse to the business, properties, tangible or intangible assets, net worth, condition (financial or other), results of operations, or prospects of the entity to which it refers. "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d)(3) and 14(d)(2) of such act. "Polluting Substances" shall be construed broadly to include (a) asbestos, (b) petroleum products or wastes, (c) biomedical or biological wastes, and (d) all pollutants, contaminants, chemicals, or industrial, toxic, or hazardous substances or wastes and shall include, without limitation, any flammable explosives, radioactive materials, oil, hazardous materials, hazardous or solid wastes, hazardous or toxic substances or regulated materials defined in CERCLA, CWA, SDWA, RCRA, EPCRA, and CAA and/or any other Environmental Laws, as amended, and in the regulations adopted and publications promulgated thereto; provided, to the extent that the laws of the State of Florida establish a meaning for, hazardous substance, hazardous waste, hazardous materials, solid waste, or toxic substance, which is broader than that specified in any of CERCLA, CWA, SDWA, RCRA, EPCRA, and CAA or other Environmental Laws such broader meaning shall apply. "Property" includes any property (whether real or personal) which the entity to which it refers currently or in the past has leased, operated, owned, or managed in any manner, including, without limitation, any property acquired by foreclosure or deed in lieu thereof and property held as security for a loan or other indebtedness by the Company on the date hereof. ARTICLE XIII ------------ AMENDMENTS This Agreement may be amended only by written agreement duly authorized by the boards of directors of the parties hereto prior to the Closing Date, provided that any amendments that are not material to the transactions contemplated by this Agreement may be approved by written agreement executed by the presidents of the Company and BWI, respectively. After the meetings of shareholders of BWI and the stockholders of the Company wherein this Agreement is considered and approved, no amendment hereto shall be made that would change the exchange rate specified in Section 2.02 above for which each share of BWI Stock shall be exchanged for Company Stock immediately prior to the consummation of the Merger. 39 ARTICLE XIV ----------- TERMINATION This Agreement shall terminate automatically if the Merger shall not become effective on or prior to October 31, 1999, unless the parties hereto, acting pursuant to the authority of their respective boards of directors, shall have otherwise agreed in writing on or prior to that date to extend such date. This Agreement may be terminated at any time prior to the Effective Time, whether before or after action thereon has been taken by the shareholders of BWI or the stockholders of the Company, as follows: (a) By mutual consent of the Company and BWI acting pursuant to the authority of their respective boards of directors; (b) By the Company, if any of the representations and warranties of BWI contained in this Agreement shall be false in any material respect as of the Closing Date, or BWI shall, as of the Closing Date, have failed to comply with any of its agreements or covenants contained in this Agreement to be performed at or prior to the Closing Date, or any conditions to the obligation of the Company contained in this Agreement shall not have been satisfied or waived as of the Closing Date; or (c) By BWI, if any of the representations and warranties of the Company contained in this Agreement shall be false in any material respect as of the Closing Date, or the Company shall, as of the Closing Date, have failed to comply with any of its agreements or covenants contained in this Agreement to be performed at or prior to the Closing Date, or if any of the conditions to the obligations of BWI contained in this Agreement shall not have been satisfied or waived as of the Closing Date. Should this Agreement be terminated for any reason, such termination shall not prevent the respective boards of directors of the Company and BWI from renegotiating the terms of this Agreement. An election by a party to this Agreement to terminate this Agreement and abandon the Merger as provided in Paragraphs (a) through (c) above shall be exercised on behalf of the Company and BWI by its board of directors and shall become effective when conveyed in writing and received by the other party. In the event of a termination of this Agreement pursuant to Paragraphs (a) through (c) above, this Agreement shall become void and shall have no effect and create no liability on the part of any of the parties hereto or their respective directors, officers, or shareholders. 40 ARTICLE XV ---------- NOTICES All notices, requests, demands, and other communications under this Agreement shall be in writing and shall be deemed to have been duly given at the time either personally delivered or sent by registered or certified mail, postage prepaid, as follows: If to the Company: Mr. A. Scott Dockter President and CEO NewGold, Inc. 35265 Willow Avenue Clarksburg, California 95612 with a copy to: Mr. Michael M. Kessler, Esq. NewGold, Inc. 35265 Willow Avenue Clarksburg, California 95612 If to BWI: Mr. Chris M. Meaux President and CEO Comercis, Inc. 2105 E. Southlake Boulevard Southlake, Texas 76092 with a copy to: Mr. Ray A. Balestri, P.C. Block & Balestri, P.C. 15851 Dallas Parkway Suite 1020 Addison, Texas 75001 ARTICLE XVI ----------- MISCELLANEOUS 16.01. Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which together shall constitute one agreement. 16.02. Entire Agreement. This Agreement and all other instruments, documents and Agreements executed and delivered in connection with this Agreement embody the final, entire Agreement among the parties hereto and supersede any and all prior commitments, agreements, representations and understandings, whether written or oral, relating to this Agreement, and may not 41 be contradicted or varied by evidence of prior, contemporaneous or subsequent oral agreements or discussions of the parties hereto. There are no oral agreements among the parties hereto. 16.03. Applicable Law; Venue. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas. Venue for any action brought hereunder shall be proper only in Dallas County, Texas. 16.04. Binding Nature of Agreement; Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, and the parties hereby may not assign or transfer rights or obligations under this Agreement without the prior written consent of the other parties hereto. 16.05. Gender, Etc. Words used herein, regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine, or neuter, as the context requires. 16.06. Section Headings. The section headings in this Agreement are for convenience only and form no part of this Agreement and shall not affect its interpretation. 16.07. Omissions or Delays. No omission or delay by the Company, the New Bank, or BWI in exercising any right or power under this Agreement shall impair such right or power or be construed to be a waiver of any default or acquiescence therein, and any single or partial exercise of any such right or power will not preclude other or further exercise of any right. No waiver will be valid unless in writing and signed by the party to be bound thereby, and then only to the extent specified. 16.08. Survivability of Representations and Warranties. The respective representations and warranties of the parties hereto contained in this Agreement shall survive the consummation of the Merger. 42 IN WITNESS WHEREOF, the duly authorized officers of the parties hereto have caused this Agreement to be executed as of the date first written above. BUSINESS WEB, INC. (Doing Business As "Comercis, Inc.") ------------------------------------ Mr. Chris M. Meaux, President and CEO ------------------------------------ Mr. Robert W. Gallagher, CFO NEWGOLD, INC. ------------------------------------ Mr. A. Scott Dockter, President and CEO ------------------------------------ Mr. Robert W. Morris, CFO 43 EX-27 3
5 12-MOS JAN-31-1998 JAN-31-1998 2,310 0 0 0 0 3,289 898,763 27,752 1,130,800 1,845,321 0 0 0 19,463 0 1,130,800 0 0 0 5,422,882 324,803 0 137,423 (5,883,309) 0 0 (5,883,309) 0 0 (5,883,309) (0.21) (0.21)
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