-----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, U4myOGcTrUrwgpBv0M9+3Mk13yKRFGt2vAlrm3T/t/aPFYMYZc/wCVuha9qKc4mv HXyoMXxoequji64kTZn3GQ== 0000890725-98-000010.txt : 19981123 0000890725-98-000010.hdr.sgml : 19981123 ACCESSION NUMBER: 0000890725-98-000010 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 DATE AS OF CHANGE: 19981120 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DEVELOPED TECHNOLOGY RESOURCE INC CENTRAL INDEX KEY: 0000890725 STANDARD INDUSTRIAL CLASSIFICATION: 5063 IRS NUMBER: 411713474 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-21394 FILM NUMBER: 98753333 BUSINESS ADDRESS: STREET 1: 7300 METRO BLVD SUITE 550 CITY: EDNA STATE: MN ZIP: 55439 BUSINESS PHONE: 6128200755 MAIL ADDRESS: STREET 1: 7300 METRO BLVD SUITE 550 STREET 2: SUITE 170 CITY: EDNA STATE: MN ZIP: 55439 10QSB 1 FORM 10-QSB U.S. Securities and Exchange Commission Washington, D.C. 20549 [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 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: 0-21394 Developed Technology Resource, Inc. (Exact name of issuer as specified in its charter) Minnesota 41-1713474 State of Incorporation I.R.S. Employer Identification No. 7300 Metro Boulevard, Suite 550 Edina, Minnesota 55439 Address of Principal Executive Office (612) 820-0022 Issuer's Telephone Number Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ As of November 13, 1998, there were 805,820 shares of the issuer's Common Stock, $0.01 par value per share, outstanding. DEVELOPED TECHNOLOGY RESOURCE, INC. INDEX For the Quarter Ended September 30, 1998 Page No. PART I. FINANCIAL INFORMATION Item 1. Condensed Unaudited Financial Statements Condensed Balance Sheets 3 Condensed Statements of Operations 4 Condensed Statements of Cash Flows 5 Notes to Condensed Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Shareholders 14 Item 6. Exhibits and Reports on Form 8-K 14 SIGNATURES 16 ITEM 1. CONDENSED UNAUDITED FINANCIAL STATEMENTS DEVELOPED TECHNOLOGY RESOURCE, INC. CONDENSED BALANCE SHEETS (Unaudited)
ASSETS September 30, December 31, 1998 1997 Current Assets: Cash and cash equivalents $ 205,887 $ 284,526 Receivables: Trade, net 44,569 80,820 Sale of discontinued operations 480,000 480,000 FoodMaster International LLCFMI) 960,436 371,801 Other 1,246 763 Note receivable -- 516,935 Prepaid and other current assets 102,574 41,352 Total current assets 1,794,712 1,776,197 Furniture and Equipment, net 44,670 39,381 Investment in FMI 1,090,973 834,917 $2,930,355 $2,650,495 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 93,727 $ 257,938 Accrued liabilities 129,262 147,337 Deferred gain short-term 467,065 467,065 Total current liabilities 690,054 872,340 Non-current Deferred Gain 34,977 38,986 Commitments and Contingencies -- -- Shareholders' Equity: Common stock 8,058 7,908 Additional paid-in capital 5,341,648 5,319,298 Accumulated deficit (3,144,382) (3,588,037) Total shareholders' equity 2,205,324 1,739,169 $2,930,355 $2,650,495
See accompanying notes to the financial statements. DEVELOPED TECHNOLOGY RESOURCE, INC. CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 1998 1997 1998 1997 (As Restated (As Restated See Note 4) See Note 4) Revenues: Sales $ 69,900 $ 68,800 $ 309,148 $1,564,966 Management fees from FMI joint venture 308,508 224,499 937,438 664,054 Commissions and other income 1,350 1,229 27,008 43,830 379,758 294,528 1,273,594 2,272,850 Cost and Expenses: Cost of sales 59,950 59,500 244,792 813,332 Selling, general and administrative 327,146 266,241 1,040,083 926,325 387,096 325,741 1,284,875 1,739,657 Operating (Loss) Income (7,338) (31,213) (11,281) 533,193 Other Income: Interest income, net 40,499 3,001 198,880 3,593 Equity in earnings of FMI joint venture 76,311 15,662 256,056 46,987 Income (Loss) before Minority Interest 109,472 (12,550) 443,655 583,773 Minority Interest in Earnings of FoodMaster -- -- -- (64,571) Income (Loss) from Continuing Operations 109,472 (12,550) 443,655 519,202 Gain from Discontinued Operations -- 200,000 -- 200,000 Net Income $109,472 $187,450 $443,655 $ 719,202 Continuing Income per Common Share: Basic $ 0.14 $ (0.02) $ 0.55 $ 0.66 Diluted $ 0.09 $ (0.02) $ 0.37 $ 0.59 Net Income per Common Share: Basic $ 0.14 $ 0.24 $ 0.55 $ 0.91 Diluted $ 0.09 $ 0.22 $ 0.37 $ 0.82
See accompanying notes to the financial statements. DEVELOPED TECHNOLOGY RESOURCE, INC. CONDENSED STATEMENTS OF CASH FLOWS Nine Months Ended September 30, 1998 and 1997 (Unaudited)
1998 1997 (As Restated See Note 4) OPERATING ACTIVITIES: Net Income $ 443,655 $ 719,202 Adjustments to Reconcile Net Income to Cash Used by Operating Activities: Depreciation 11,504 35,198 Provision for doubtful accounts 2,182 (222,092) Gain on sale of furniture and equipment -- (3,180) Gain on sale of discontinued operations -- (200,000) Minority interest in earnings of joint venture -- 64,571 Equity in earnings of FMI joint venture (256,056) (46,987) Changes in Operating Assets and Liabilities, net of transfers to joint venture: Receivables 550,521 189,041 Receivable from FMI joint venture (588,635) (467,704) Inventories -- (46,382) Prepaid and other current assets (61,222) 66,521 Accounts payable and accrued liabilities (182,286) 197,039 Deferred gains (4,009) (259,758) Customer deposits -- (68,667) Net cash used by operating activities (84,346) (43,198) INVESTING ACTIVITIES: Proceeds from Sale of Furniture and Equipment -- 75,875 Purchases of Furniture and Equipment (16,793) (63,691) Advances to Joint Venture -- (86,952) Deferred Acquisition Costs -- 87,730 Net cash (used) provided by investing activities (16,793) 12,962 FINANCING ACTIVITIES: Net proceeds on Note Payable -- 5,835 Proceeds from Exercise of Stock Options 22,500 -- Net cash provided by financing activities 22,500 5,835 DECREASE IN CASH AND CASH EQUIVALENTS (78,639) (24,401) CASH AND CASH EQUIVALENTS, Beginning of Period 284,526 425,366 CASH AND CASH EQUIVALENTS, End of Period $ 205,887 $ 400,965
See accompanying notes to the financial statements. DEVELOPED TECHNOLOGY RESOURCE, INC. NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies Business Developed Technology Resource, Inc. (DTR or the Company) owns and manages food businesses in the countries of the former Soviet Union (fSU) through FoodMaster International L.L.C. (FMI), its joint venture with Agribusiness Partners International L.P. (API). FMI purchases dairy manufacturing facilities in the fSU and provides equipment and necessary capital. DTR manages the dairies and pursues future acquisitions for FMI. Using modern marketing techniques and packaging equipment, the dairies provide customers in the fSU better quality branded dairy products. In 1998 and 1997, DTR also sold equipment to various customers throughout the fSU. During 1998, DTR's 100% owned subsidiary, SXD, Inc., distributed X-ray tubes under an exclusive arrangement with a Russian manufacturer and held ownership interests in the coatings technology business of Phygen, Inc. and the cancer detection business of Armed. These operations were formerly operated by DTR until October 1997. Basis of Presentation The interim financial statements of Developed Technology Resource, Inc. (DTR) are unaudited, but in the opinion of management, reflect all necessary adjustments for a fair presentation of the financial position, as well as the results of operations and cash flows for the periods presented. On June 30, 1998, the Company decided to change its year end from October 31 to December 31. As a result, a transition report was filed to show the results for the two-month period of November and December 1997 and 1996. This 10-QSB shows the nine-month results from January to September 1998 and 1997 based on the Company's new year end of December 31. From January 1997 through February 1997, the financial statements include the operations of DTR and FoodMaster Corporation (FoodMaster), DTR's 50% owned subsidiary in Almaty, Kazakhstan. All significant intercompany transactions and balances were eliminated in consolidation. On March 3, 1997, DTR contributed its 50% ownership of FoodMaster to the FMI joint venture for a 40% ownership in FMI. Effective March 1997, DTR records its proportionate share of the net income or loss of FMI in the statements of operations as equity in earnings of FMI joint venture under the equity method of accounting. The excess of DTR's underlying equity in net assets of FMI over the carrying value of its investment is being amortized to income over 15 years. The results of operations for any interim period are not necessarily indicative of results for the full year. These financial statements should be read in conjunction with the Company's Annual Report and Notes thereto on Form 10-KSB for the year ended October 31, 1997 and with the Company's Transition Report for the two month period ended December 31, 1997 as filed with the Securities and Exchange Commission. Segment Reporting In September 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of an Enterprise and Related Information. This statement is effective for fiscal years beginning after December 15, 1997. The Company has not yet evaluated the full impact of the adoption of SFAS 131. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expense during the reporting period. Actual results could differ from those estimates. 2. Ak-Bulak Option Effective August 1996, the Company obtained an option to purchase 80% of Ak-Bulak, an inactive company which owned the other 50% of the FoodMaster joint venture. This purchase of 80% of Ak-Bulak would give DTR an additional 40% ownership of FoodMaster. To exercise the option, the Company agreed to pay certain pre-defined outstanding debts of Ak-Bulak, the other owner of FoodMaster, and to make capital improvements to the dairy owned by FoodMaster. As of March 2, 1997, DTR had paid $171,774 in connection with the exercise of this option. On March 3, 1997, DTR contributed its 50% ownership in FoodMaster along with its option to acquire the additional 40% ownership to the FMI joint venture. FMI repaid DTR for all but $14,045 of the costs paid through March 2, 1997 to exercise the option (See Note 3). 3.Investment in FoodMaster International L.L.C. (FMI) On March 3, 1997, DTR and API established the FMI joint venture, to acquire and operate dairies in the former Soviet Union. DTR contributed to FMI its 50% ownership in FoodMaster, the Ak-Bulak option (See Note 2) and its opportunities for a future acquisition of a dairy in Moldova. API agreed to fund $2.945 million to further develop the dairy operations in Kazakhstan and Moldova and to provide an additional $3.055 million over two years to expand FMI. On September 11, 1998, DTR and API amended the FMI joint venture agreement to allow API to contribute an additional $6 million for an additional 10% ownership. Under the new ownership structure effective October 1, 1998, API will own 70% and DTR will own 30% of FMI. By September 30, 1998, API had contributed a total of $6 million of its initial commitment and $2.4 million of its additional commitment for a total of $8.4 to FMI. DTR has a right to earn a greater ownership interest of FMI by achieving certain defined performance targets based on returns to API. Effective March 1997, DTR records its proportionate share of the net income or loss of FMI in the statement of operations as equity in earnings of FMI joint venture under the equity method of accounting. DTR also entered into a management agreement with FMI, whereby DTR manages the day to day operations of FMI and the dairy operations owned by FMI, and pursues future dairy acquisitions for FMI for a management fee. The Company recorded management fee income of $937,438 and $664,054 for the nine months ended September 30, 1998 and 1997, respectively, in accordance with its management agreement with FMI which began March 3, 1997 and was amended on September 12, 1998. Summarized financial information from the unaudited financial statements of FMI carried on the equity basis is as follows: September 30, 1998 Current assets $8,308,319 Total assets 17,334,703 Noncurrent liabilities 1,237,966 Shareholders' equity 11,844,242 DTR's share of FMI 's equity 4,737,697 DTR's carrying value of FMI's equity 1,890,973 Nine Months Ended September 30, 1998 Sales $14,626,757 Gross profit 3,900,452 Net income 230,908 DTR's share of FMI's loss before adjustment of DTR's excess of net equity over carrying value of the investment 92,363 DTR's share of equity in earnings of FMI joint venture after adjustment 256,056 4.Restatement The Company has restated its financial statements to reflect the three and nine months ended September 30, 1997 to properly account for the transfer of DTR's FoodMaster operations to the FMI joint venture which occurred in March 1997. In the prior year, DTR reported its operations with a fiscal year end of October 31 and accordingly filed a nine month 10-QSB for the period ended July 31. 5.Stock Activity On November 6, 1997, the Board of Directors adopted the 1997 Outside Directors Stock Option Plan, superseding the 1993 Outside Directors Stock Option Plan. In exchange for the surrender of all stock options previously granted to the outside directors, the Board granted stock options of 15,000 shares of common stock to the two current outside directors at an exercise price of $1.50 per share, which was equal to the market price on the grant date. As of September 30, 1998, 15,000 of the 30,000 issued options were exercised. In exchange for services rendered, the outside members of the Board of Directors, upon election, receive 5,000 common stock options each year that vest equally over four quarters. The exercise price is set at the market price on the grant date. On September 30, 1998, the Company recognized an additional $800,000 increase in the value of its investment in FMI and additional paid-in-capital as a result of the additional partner contribution to FMI as discussed in Note 3. 6. Discontinued Operations Effective December 31, 1995, DTR entered into an agreement to sell certain assets and the rights to its airport security equipment in the FSU to Gate Technology, a United Kingdom company owned by a former DTR employee. DTR transferred assets, inventory, customer lists, promotional materials, and other items with a net book value on January 31, 1996 of $143,293. In exchange for these items, DTR received cash payments of $45,000 to reimburse DTR for expenses related to this business during the first quarter of fiscal 1996 and a receivable totaling $765,000 payable over 30 months. A portion of these payments is personally guaranteed by the former employee, and is collateralized by his ownership of 16,430 shares of DTR's common stock. Additional contingent payments may also be received based on future performance. DTR retained the right to pursue airport security management contracts. Due to the inherent risks associated with operating in the FSU, including credit risk, the gain on this sale has been deferred and will be recognized as payments are received. DTR received total payments of $200,000 and $170,000 during 1997 and fiscal 1996, respectively. As a result, DTR recorded a gain on discontinued operations of $200,000 in 1997. 7.Net Income per Common Share Effective November 1, 1997, DTR adopted Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share. Under this new standard, basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding. Diluted net income per share includes the dilutive effect of shares which would be issued upon the exercise of outstanding stock options and warrants, reduced by the number of shares which are assumed to be purchased by the Company from the resulting proceeds at the average market price during the period.
Three months ended Nine months ended September 30, September 30, 1998 1997 1998 1997 Numerator: Net income $ 109,472 $187,450 $ 443,655 $719,202 Denominator: Weighted average shares- basic earnings 805,820 790,820 805,545 790,820 Dilutive effect of stock options/warrants 376,987 74,034 382,296 85,214 Weighted average shares- diluted earnings 1,182,807 864,854 1,187,841 876,034 Net income per share - Basic $ 0.14 $ 0.24 $ 0.55 $ 0.91 Net income per share - Diluted$ 0.09 $ 0.22 $ 0.37 $ 0.82
Options and warrants to purchase 5,000 and 60,001 shares of common stock for the period ended September 30, 1998 and 1997, respectively, were not included in the computation of diluted earnings per share because their exercise prices were greater than the average market price of the common shares and, therefore, their inclusion would be antidilutive. 8. Supplemental Disclosures of Cash Flow Information: Non-cash operating, investing and financing activities: On March 2, 1997, the Company contributed $626,917 in net assets of its FoodMaster joint venture to FoodMaster International L.L.C. (FMI) for its 40% interest as discussed in Note 3. The non-cash effects of these transactions have been removed from the appropriate categories in the operating, investing and financing sections of the Company's Statements of Cash Flows for the nine months ended September 30, 1997. Supplemental cash flow information: For the nine months ended September 30, 1998 1997 Cash paid for: Interest $ 1,256 $ -- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Statements other than current or historical information included in this Management's Discussion and Analysis and elsewhere in this Form 10-QSB, in future filings by Developed Technology Resource, Inc. (the Company or DTR) with the Securities and Exchange Commission and in DTR's press releases and oral statements made with the approval of authorized executive officers, should be considered "forward-looking statements" made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. DTR wishes to caution the reader not to place undue reliance on any such forward-looking statements. On March 3, 1997, DTR and API established the FMI joint venture to acquire and operate dairies in the former Soviet Union. DTR contributed to FMI its 50% ownership in FoodMaster, the Ak-Bulak option and its opportunities for a future acquisition of a dairy in Moldova. API agreed to fund $2.945 million to further develop the dairy operations in Kazakhstan and Moldova and to provide an additional $3.055 million over two years to expand FMI. On September 11, 1998, DTR and API amended the FMI joint venture agreement to allow API to contribute an additional $6 million for an additional 10% ownership. Under the new ownership structure effective October 1, 1998, API will own 70% and DTR will own 30% of FMI. By September 30, 1998, API had contributed a total of $6 million of its initial commitment and $2.4 million of its additional commitment for a total of $8.4 to FMI.DTR has a right to earn a greater ownership interest of FMI by achieving certain defined performance targets based on returns to API. Effective March 1997, DTR records its proportionate share of the net income or loss of FMI in the statement of operations as equity in earnings of FMI joint venture under the equity method of accounting. DTR also entered into a management agreement with FMI on March 3, 1997 (subsequently amended on September 11, 1998), whereby DTR manages the day to day operations of FMI and the dairy operations owned by FMI, and pursues future dairy acquisitions for FMI for a management fee. In November 1997, DTR's Board of Directors voted to establish a wholly-owned subsidiary company called SXD, Inc. with an investment of $800,000 in cash and receivables. SXD now owns and operates DTR's x-ray tube distribution business, ownership interests in the coating technology business of Phygen, Inc., and the cancer detection business of Armed. Results of Operations Revenues The Company generated total revenues of $379,758 and $1,273,594 during the three and nine months ended September 30, 1998, respectively, compared to $294,528 and $2,272,850 during the three and nine months ended September 30, 1997, respectively. The 44% decrease from 1997 nine month revenue levels is primarily the result of the change from the consolidated method of reporting joint venture operating results to the equity method as discussed above and by less sales of equipment discussed below. Sales for the three months ended September 30, 1998 and 1997 totaled $69,900 and $68,800, respectively. Sales for the nine months ended September 30, 1998 and 1997 totaled $309,148 and $1,564,966, respectively. Sales resulted from three areas within DTR - dairy operations of FoodMaster (until March 2, 1997), equipment sales, and x-ray tube sales. Since March 3, 1997, the dairy operations of FoodMaster are no longer reported on a consolidated basis with DTR due to the transfer of FoodMaster to FMI. The dairy operations of FoodMaster are consolidated in the financial statements of FMI, and DTR recognizes 40% of FMI's income or loss as equity in earnings of FMI joint venture in DTR's Statements of Operations. Therefore, there are no sales of FoodMaster in 1998. However, FoodMaster sales from January 1997 through February 1997 were $965,359 or 61.7% of DTR's total sales for the nine months of 1997. For the nine months ended September 30, 1998 and 1997, sales of food packaging equipment was $120,748 (39.1%) and $429,177 (27.5%) of total sales, respectively. There were no sales of equipment in the three months ended September 30, 1998 and 1997. Sales of equipment occur sporadically throughout each year depending on the amount of new customers and growth among existing customers. In 1997, more locations were added to the FMI operations that demanded additional packaging equipment. There are no current orders for additional equipment sales for the remainder of 1998. Sales of x-ray tubes by SXD, Inc., DTR's 100% owned subsidiary, increased 10.5% to $188,400 in the nine months ended September 30, 1998 from $170,430 for the same period in 1997. The $14,555 increase occurred due to an increase in the quantity of orders from repeat customers during the first two quarters of 1998 compared to the first two quarters of 1997. Management fee income billed to FMI for services was $937,438 and $664,054 for the nine months ended September 30, 1998 and 1997. For the three months ended September 30, 1998 and 1997, management fee income was $308,508 and $224,499. The management fee began on March 3, 1997. Therefore, 1997 revenues reflect two months less management fee income than 1998. The $84,009 increase in the three months ended September 30 is the result of new FMI acquisitions in 1998 that did not exist during the same period in 1997. These new acquisitions required additional management personnel, travel, training, and other resources in 1998. Cost of Sales Cost of sales for the three and nine months ended September 30, 1998 was $59,950 and $244,792, respectively. For the three and nine months ended September 30, 1997, cost of sales was $59,500 and $813,332. The 69.9% decrease in cost of sales between the nine months ended September 30, 1998 and 1997 is the result of the change in accounting methods discussed above. Cost of sales reflects the cost of manufacturing the dairy products of FoodMaster for the two months of 1997 and the cost of purchasing food packaging equipment and x-ray tubes. There is no cost of sales reflected for FoodMaster in fiscal 1998. FoodMaster cost of sales was $369,305 or 45.4% of FoodMaster sales for the nine months ended September 30, 1997. Cost of sales on equipment sales was $82,592 resulting in a gross profit of $38,156 or 31.6% for the nine months of 1998 compared to $296,382 resulting in a gross profit of $132,795 or 30.9% in the nine months of 1997. During 1997, the Company spent more on sales commissions causing a lower gross profit. X-ray tubes cost of sales were $162,200 and $147,645 in the nine months of 1998 and 1997, respectively. Gross profit remained consistent with a 13% to 14% margin received on sales. Management does not expect these trends to change significantly for the remainder of 1998. Selling, general and administrative Selling, general and administrative expenses for the three months ended September 30, 1998 and 1997 were $327,146 and $266,241, respectively. Selling, general and administrative expenses for the nine months ended September 30, 1998 and 1997 were $1,040,083 and $926,325, respectively. During the first three months of fiscal 1997, FoodMaster operations comprised $226,750 of the $926,325 SG&A expenses. Therefore, the Company's 1997 SG&A expenses excluding the FoodMaster operations was $699,575. The $60,905 and the $340,508 increase in three and nine months ended September 30, 1998 over 1997 excluding FoodMaster operations is the result of DTR hiring additional employees and consultants and increasing their travel to manage the expanding dairy operations of FMI. However, these costs are offset by the management fees billed to FMI as discussed above under Revenues. Liquidity and Capital Resources Operating Activities DTR used net cash of $84,346 in the nine months of 1998 compared to cash used of $43,198 in the nine months of 1997. In 1997, the Company received a $200,000 installment payment resulting from the sale of a discontinued business in fiscal 1996 (See Note 6). This lowered the Company's cash usage in 1997 compared to 1998. In 1998, the Company received an increase in cash because a majority of the operating expenses were paid in accordance with the management agreement between DTR and FMI during all nine months of 1998 compared to seven months in 1997. Investing Activities In 1998, DTR purchased $16,793 in new software and equipment for its office in Minneapolis, MN. In the nine months of 1997, DTR sold $72,695 of net equipment primarily to its FMI subsidiary receiving proceeds of $75,875. Additionally, DTR purchased $63,691 of equipment during this period in 1997. Financing Activities In the first quarter of 1998, options to purchase 15,000 shares of DTR's Common Stock were exercised for a purchase price of $1.50 per share. DTR's FoodMaster operations obtained $5,835 in net proceeds from bank financing during the period from January 1997 to February 1997, before the operations were transferred to FMI. The Company has recently begun addressing the Year 2000(Y2k) issues. Since the Company is not a direct manufacturer of products and since all of its assets are less than six years old, most of its exposure to the Y2k issue falls in the area of third parties. All of the Company's information technology systems are Y2k compliant, but the Company is still determining the effect on non-information technology systems. The Company plans to be Y2k compliant by mid-1999. The Company does not believe that the costs related to the Y2k issue will be greater than $25,000 due to the reasons stated above. The Company may use these funds for an outside consultant to provide an evaluation of its entire system. The most risk that the Company faces in its operations is that of the failure of third party vendors to be ready for the Y2k. The most direct risk could be a failure on the part of telecommunication companies which would impede the daily communication between the Company and its subsidiaries. Indirectly, the subsidiaries could experience a failure to receive timely shipments of supplies which would result in a loss of an indeterminable amount of revenues. The Company is currently developing its contingency plan for the aforementioned risks. It expects to have this plan fully created by early 1999. Based on current projections and with the receipt of the additional investment from API, the Company believes there will be sufficient working capital and liquidity to fund its current operations through the coming year. Management is continually looking for opportunities for growth and market dominance for its subsidiaries FMI and SXD. PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS No matters were submitted to a vote of the shareholders during the quarter ended September 30, 1998. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K The following new Exhibits are filed as part of this Form 10-QSB: (a) List of Exhibits 10.6 Limited Liability Company Agreement of FoodMaster International L.L.C. as amended and restated September 11, 1998 10.9 Management Agreement between DTR and FoodMaster International L.L.C. as amended and restated September 11, 1998 27.1 Financial Data Schedule (September 30, 1998) 27.2 Financial Data Schedule (September 30, 1997 Restated) (b) Reports on Form 8-K The Company filed no reports on Form 8-K during the quarter ended September 30, 1998. EXHIBIT INDEX The following Exhibits are filed as part of this Form 10-QSB: No. Exhibit Description 10.7 Limited Liability Company Agreement of FoodMaster International L.L.C. as amended and restated September 11, 1998 10.10 Management Agreement between DTR and FoodMaster International L.L.C. as amended and restated September 11, 1998 27.1 Financial Data Schedule (September 30, 1998) 27.2 Financial Data Schedule (September 30, 1997 Restated) SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DEVELOPED TECHNOLOGY RESOURCE, INC. Date: November 16, 1998 By: /s/ John P. Hupp Name: John P. Hupp Title: President Date: November 16, 1998 By: /s/ LeAnn H. Davis Name: LeAnn H. Davis, CPA Title: Chief Financial Officer Principal Financial & AccountingOfficer) EX-1 2 AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF FOODMASTER INTERNATIONAL L.L.C. THIS AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT ("Agreement") is made and entered into as of this 11th day of September, 1998 by and between (i) API DAIRY PARTNERS L.P. ("API I") and AGRIBUSINESS PARTNERS INTERNATIONAL L.P. II ("API II"), both of which are limited partnerships organized and existing under the laws of the State of Delaware, with their principal offices at 1004 Farnam Street, Omaha, Nebraska, 68102 (API I and API II hereinafter collectively referred to as "API"), and (ii) DEVELOPED TECHNOLOGY RESOURCE, INC., a Minnesota corporation organized and existing under the laws of the State of Minnesota with its principal office at 7300 Metro Boulevard, Suite 550, Edina, Minnesota, 55439 (hereinafter referred to as "DTR"). WITNESSETH WHEREAS, API I is a holding company formed to hold dairy investments made by Agribusiness Partners International, L.P., which is an investment fund formed for the purpose of investing in agribusiness in the former Soviet Union and which is guaranteed by the Overseas Private Investment Corporation ("OPIC") and governed by an OPIC financing agreement; WHEREAS, API II is an affiliate of API I and has also been formed for the purpose of investing in agribusiness in the former Soviet Union, but which is not guaranteed by OPIC; WHEREAS, API and DTR entered into that certain Limited Liability Company Agreement (the "Original Agreement"), dated as of March 3, 1997 (the "Closing"), pursuant to which API and DTR established Foodmaster International L.L.C., a Delaware limited liability company (the "Company"); and WHEREAS, API and DTR desire to amend and restate the Original Agreement as set forth herein. NOW, THEREFORE, for and in consideration of the premises and mutual covenants set forth herein, the parties hereto agree as follows: ARTICLE I DEFINITIONS 1.1 Certain Defined Terms. In addition to the other terms defined in this Agreement, the following terms shall have the respective meanings set forth below: (a) "Capital Contribution" means, with respect to any Member, the amount of capital contributed by such Member to the Company as set forth in Article 3 hereof. (b) "Certificate of Formation" means the certificate of formation of the Company as filed in the Office of the Secretary of State of the State of Delaware on February 27, 1997, as amended from time to time. (c) "Current Ratio" means current assets divided by current liabilities. (d) "Debt Ratio" means the sum of total current liabilities and long term debt divided by total assets. (e) "Dollars" means the lawful currency of the United States of America. (f) "GAAP" means generally accepted accounting principles as used in the United States. (g) "Interest" means the ownership interest of a Member in the Company (which shall be considered personal property for all purposes), consisting of (i) such Member's right to receive profits, losses, allocations, and distributions, (ii) such Member's right to vote or grant or withhold consents with respect to Company matters as provided herein or in the Delaware Act, and (iii) such Member's other rights and privileges as herein provided. (h) "Members" means API and DTR and all other persons who may become Members of the Company as provided herein. (i) "Percentage Interest" means the interests of API and DTR as determined pursuant to Section 5.2. The Percentage Interests of API I an API II, shall be equal to 95% and 5%, respectively, of API's Percentage Interest as determined pursuant to the terms of this Agreement. 1.2 Other Definitional Provisions. Unless the context of this Agreement clearly requires otherwise, references to the plural include the singular; references to the singular include the plural; and references to the masculine gender include the feminine and neuter genders. The words "hereof", "herein", and similar terms refer to this Agreement as a whole. The term "including" is not limiting and the term "or" has the inclusive meaning represented by the term "and/or." ARTICLE II THE COMPANY 2.1 Purposes and Activities. The business and purpose of the Company shall be to produce, package and distribute high- quality branded dairy and juice products, and such other products as are unanimously agreed to by the Members, in the former Soviet Union. 2.2 Principal Office. The principal place of business of the Company shall be located at the offices of DTR at 7300 Metro Boulevard, Suite 550, Edina, Minnesota, 55439 or such other place as the Members may from time to time determine. The registered office of the Company in the State of Delaware shall be located at 1209 Orange Street, Wilmington, Delaware, 19801, and the registered agent of the Company for service of process at such address shall be The Corporation Trust Company (or such other registered office and registered agent as the Members may from time to time select). 2.3 Term. The provisions of this Agreement shall be deemed to take effect as of the Closing. The Company shall dissolve in accordance with the provisions of Section 7.1. ARTICLE III CAPITAL STRUCTURE 3.1 Capital Contributions. (a) As of the date of this Agreement, API has made Capital Contributions to the Company in the amount of Six Million Dollars ($6,000,000) and DTR has made Capital Contributions to the Company in the amount of Four Million Dollars ($4,000,000). (b) In addition to the Capital Contributions made by API to the Company as set forth in Section 3.1(a), API shall make Capital Contributions to the Company of up to Four Million Dollars ($4,000,000) (the "API Contribution") (the percentage of each Capital Contribution to be made by API pursuant to this Agreement shall be contributed by API I and API II based on their respective Percentage Interests), in one or more installments in such amounts and at such times as requested by the Company (each a "Capital Request"), which shall be contributed by bank transfer to the Company's Dollar-denominated bank account maintained at U.S. Bank, International Moscow Bank or another bank acceptable to API. The amount of the API Contribution may be increased to an amount not to exceed Six Million Dollars ($6,000,000), upon agreement of the Members, provided that such agreement is reached by October 15, 1998. (c) In addition to the Capital Contributions made by DTR to the Company as set forth in Section 3.1(a), with respect to each Capital Request, DTR shall be entitled to make a Capital Contribution in an amount equal to forty percent (40%) of the amount of the Capital Request. In the event that DTR elects to make such a Capital Contribution pursuant to this Section 3.1(c) with respect to a Capital Request, the amount of the Capital Contribution to be made by API with respect to such Capital Request shall be reduced by the amount of DTR's Contribution. 3.2 Additional Capital Contributions. Except as unanimously agreed to by the Members, no Member shall be required or permitted to make any additional Capital Contributions to the Company except as specified in Section 3.1. 3.3 Failure to Contribute. In the event that API is required to make a Capital Contribution pursuant to Sections 3.1(b) and fails to make such Contribution, the number of Directors that API and DTR shall each be entitled to appoint pursuant to Article IV shall be adjusted to reflect the Capital Contributions as of such date, provided that the rights contained in Article IV shall be restored upon the making of such contribution by API. 3.4 Return of Capital. No Member has a right to withdraw its Capital Contribution except upon liquidation of the Company or as otherwise provided for in this Agreement. No interest shall accrue or be paid by the Company with respect to any Capital Contribution. ARTICLE IV MANAGEMENT 4.1 Management/Voting. (a) The management of the Company shall be vested in a Board of Directors (the "Board") consisting of five (5) members, three (3) of whom shall be appointed by API and two (2) of whom shall be appointed by DTR. The Board may appoint, employ, or otherwise contract with any persons or entities for the transaction of the business of the Company or the performance of services for or on behalf of the Company, and the Board may delegate to any such person (who may be designated an officer of the Company) or entity such authority to act on behalf of the Company as the Board may from time to time deem appropriate. The Company shall enter into an amended and restated management agreement with DTR, dated as of the date of this Agreement and in the form of Exhibit A hereto (the "Management Agreement"), pursuant to which DTR shall manage the business of the Company. (b) With respect to all matters submitted to a vote of the Members, API shall be entitled to cast sixty percent (60%) of all votes and DTR shall be entitled to cast forty percent (40%) of all votes. 4.2 Removal/Vacancy. Any Director may be removed by the Member appointing such Director. Upon the death, retirement or removal of any Director, the Member appointing such Director may appoint a replacement. 4.3 Actions by the Board. Except as otherwise specified in this Agreement, any action to be taken or approved by the Board requires the approval of a majority of the Directors. 4.4 Committees of the Board. The Directors may appoint from among their number one or more committees and may delegate to such committee any of the powers of the Directors. 4.5 Meetings of Board. Meetings of the Board may be called by any Director provided that the Board shall meet at least once during each calendar quarter. Three (3) Directors shall constitute a quorum for the transaction of business and notwithstanding any vacancy on the Board, a quorum may exercise all powers of the Board. Meetings of the Board shall be held at such time and place as determined by the Board. Notice of such meetings shall be provided to each Director at least ten (10) days prior to the meeting. The Board may act without a meeting provided that such action is consented to in writing by each Director then in office. Directors may participate in any meeting of the Board by conference call or similar communications equipment by means of which all persons can hear each other, and participation by such means shall constitute attendance at such meeting. 4.6 Distribution. Distributions to Members shall be made in such amounts and at such times as determined by the Board based on the budget and business plan in effect and on the current and expected cash flow needs of the Company. 4.7 Financial Statements. (a) The Company shall cause annual audited financial statements for the Company to be prepared in accordance with GAAP and provided to Members within ninety (90) days of the end of the Company's fiscal year. The Company shall also cause an audit to be performed on an annual basis of each entity controlled by the Company which audit shall be performed in accordance with GAAP and in accordance with any applicable local accounting principles and practices. (b) The Company shall cause monthly financial statements for the Company to be prepared and provided to Members within twenty (20) days of the end of each calendar month. 4.8 Extraordinary Actions. In addition to other actions identified herein requiring unanimous approval of the Members, the Company shall not (i) sell or otherwise dispose of all or substantially all of its assets unless such sale or disposition is unanimously approved by the Members provided that such approval shall not be unreasonably withheld, (ii) undertake any new investment projects unless such projects are unanimously approved by the Members, or (iii) terminate the Management Agreement unless such termination is unanimously approved by the Members. ARTICLE V ALLOCATIONS/PERCENTAGE INTERESTS 5.1 Allocations. All items of Company income, gain, loss, deduction, credit, or the like shall be allocated among the Members in accordance with their respective Percentage Interests (as adjusted pursuant to Section 5.2) as of the end of the fiscal year with respect to which such items were incurred. 5.2 Percentage Interests. (a) Subject to adjustment pursuant to subparagraphs (b) and (c), the Percentage Interests of each of the Members shall be determined as follows: (i) The Percentage Interest of API shall be equal to (x) the sum of $10.8 million plus the amount of all Capital Contributions made by API pursuant to Section 3.1(b), divided by (y) $18 million plus the sum of all Capital Contributions made by API and DTR pursuant to Section 3.1(b) and 3.1(c), respectively. (ii) The Percentage Interest of DTR shall be equal to the sum of (x) $7.2 million plus the amount of all Capital Contributions made by DTR pursuant to Section 3.1(c) divided by (y) $18 million plus the sum of all Capital Contributions made by API and DTR pursuant to Section 3.1(b) and 3.1(c), respectively. (b) As of the last day ("Adjustment Date") of each calendar year ("Calculation Period") in the five year period commencing on January 1, 1998, DTR's Percentage Interest shall be increased (and API's Percentage Interest correspondingly decreased) in the event that the net income of the Company, calculated in accordance with GAAP as audited by the Company's independent auditors, for the Calculation Period ending on the Adjustment Date exceeds a target return of twenty percent (20%) of the Members' Equity (as defined below), calculated in accordance with GAAP as audited by the Company's independent auditors, as of the beginning of the first day of the Calculation Period (the "Target Return"), in accordance with the following formula: A = [(B x ME) + [C x (1 - B)]] ? [ME] where A = DTR's Percentage Interest after annual adjustment pursuant to this Section 5.2(b); B = DTR's Percentage Interest prior to annual adjustment pursuant to this Section 5.2(b); ME = "Members' Equity" which shall be equal to all capital invested in the Company by the Members, plus retained earnings and other adjustments made pursuant to GAAP, as set forth on the Company's balance sheet as of the beginning of the Calculation Period; and C = Twenty percent (20%) of the amount by which the net income of the Company for the Calculation Period, determined in accordance with GAAP as audited by the Company's independent auditors, exceeds the Target Return for such Calculation Period. Notwithstanding the foregoing, the aggregate increase to DTR's Percentage Interest pursuant to this Section 5.2(b) shall not exceed ten (10) percentage points in excess of the Percentage Interest determined pursuant to Section 5.2(a) (e.g. a Percentage Interest of 30% could not be increased to a Percentage Interest of greater than 40% pursuant to this Section 5.2(b)). No reductions in DTR's Percentage Interest shall be made pursuant to this Section 5.2(b). (c) In addition to any adjustments that may be made pursuant to Section 5.2(b), it is the intent of the Members that, upon the sale, transfer, liquidation or other disposition by API of its Interest, DTR's Percentage Interest shall be increased to the extent that API earns an actual Internal Rate of Return over the term of its investment in the Company ("IRR") in excess of thirty-five percent (35%). To effect the foregoing, in the event that API's IRR, calculated as of the date that API sells, transfers, liquidates, or otherwise disposes of its Interest ("Termination Date") exceeds thirty-five percent (35%), API's Percentage Interest shall be increased in accordance with the following formula: for each percentage point (or portion thereof) by which API's IRR exceeds thirty-five percent (35%), DTR's Percentage Interest shall be increased (and API's Percentage Interest correspondingly reduced) in the ratio of one percentage point for each two percentage points by which API's IRR exceeds thirty-five percent (35%). The calculation of API's IRR shall be based upon actual cash amounts received by API as of the Termination Date and the actual value received by API with respect to the sale, transfer, liquidation or other disposition of its Interest, calculated as of the Termination Date. Notwithstanding the foregoing, the increase of DTR's Percentage Interest pursuant to this Section 5.2(c) combined with the increase pursuant to this Section 5.2(b) shall not exceed thirteen and 33/100 percent (13.33%). (d) The adjustment of Percentage Interests pursuant to this Section 5.2 shall not alter the voting/management provisions contained in this Agreement. ARTICLE VI TRANSFERS 6.1 New Members. Additional Members shall not be admitted in the absence of unanimous consent of the existing Members except as provided herein. 6.2 Transfers to Third Parties. No Member may sell, assign, pledge, or otherwise transfer or encumber (collectively "transfer") all or any part of its Interest and no transferee of all or any part of any Member's Interest shall be admitted as a substituted Member, without the unanimous consent of all Members, provided that if DTR refuses to consent to a transfer proposed by API, the put-right provided pursuant to Section 6.4 shall become immediately exercisable. 6.3 Transfer by API After Five Years by Sale or IPO. If after five years from the Closing, API has not sold its Interest in the Company, then at API's election, DTR will, at the request of API, either assist API in the sale of its Interest to a third party, subject to the consent provisions set forth in Section 6.2, or assist in an initial public offering ("IPO") of Interests in the Company. 6.4 Put Right. If any time after five years from the Closing, API has not sold or otherwise liquidated its Interest in the Company, then API may elect to require the Company to purchase API's Interest at its fair market value at the time of election determined as: (a) The Members shall select a qualified independent third party who shall provide the Members with an appraisal of the fair market value of API's Interest. (b) Based upon the appraisal provided pursuant to Section 6.4(a), the Members shall agree on a fair market value of API's Interest. (c) If the Members fail to reach an agreement on the fair market value of API's Interest, then the fair market value shall be determined by arbitration pursuant to Article X, except that each Member shall select an arbitrator qualified to provide an appraisal of the fair market value of API's Interest. If the highest valuation does not exceed the lowest valuation by ten percent (10%) of each other, then the fair market value will be the average of the values provided by both of the arbitrators. If the highest valuation exceeds the lowest valuation by 10% or greater, then an additional qualified arbitrator shall be selected by the original arbitrators. The additional arbitrator shall set the fair market value of API's Interest at a value between the appraised values provided by the first two arbitrators. (d) The Company shall pay API cash in full payment within forty-five (45) days of the Company's purchase of API's Interest unless the Current Ratio of the Company is less than 2 to 1 and the Debt Ratio of the Company is greater than 30%. The Company may then elect to pay for the purchase of API's Interest with a senior note (or combination of cash and senior note). The senior note will be superior in right of payment to all debt obligations of the Company except for debt obligations of the Company existing at the time of issuance of the note which cannot by their terms be subordinated to such note. Interest will accrue on the unpaid principal amount of the senior note at a rate of twenty-five percent (25%) per annum. Principal and interest shall be amortized and payable in equal monthly installments over a term of twenty-four (24) months. The Company shall have the right to prepay any principal due under the senior note without penalty. ARTICLE VII TERMINATION OF AGREEMENT/LIQUIDATION 7.1 Termination of Agreement. This Agreement shall terminate and the Company shall be liquidated (i)upon the unanimous agreement of the Members, (ii) on the date that is thirty (30) years after the filing of the Certificate of Formation with the Delaware Secretary of State, or (iii) upon the withdrawal, bankruptcy, or dissolution of any Member or the occurrence of any other event that terminates the continued membership of any Member in the Company under Delaware law unless the remaining Members unanimously agree to continue the business of the Company within ninety (90) days of such event. Upon termination, this Agreement shall be of no further force and effect provided that the indemnification provisions of Section 12.1 and the confidentiality provision contained in Section 8.2 shall continue in full force and effect. 7.2 API Priority Distribution. If the Company is liquidated for any reason, sold or refinanced prior to API's receipt of distributions in an amount equivalent to its Capital Contributions to the Company, then API shall have priority over DTR's right to receive any distribution of the assets of the Company in an amount equal to the amount of API's Capital Contribution less distributions to API after the payment of all amounts owed by the Company to creditors. Proceeds in excess of such amount shall be distributed in accordance with the following priority: (i) to DTR to the extent of its Capital Contribution less distributions received, and (ii) to the Members in proportion to their Percentage Interests. The priority payment set forth in this Section 7.2 is not intended to prohibit the making of distributions to Members. ARTICLE VIII NON-COMPETITION/CONFIDENTIALITY 8.1 Non-competition. (a) Subject to the provisions of the following sentence, neither DTR, nor any affiliate thereof, shall directly or indirectly own, manage, invest or participate in any corporation, partnership, joint venture or other enterprise involved in the production or distribution of dairy or juice, or other food products produced or distributed by the Company, in the former Soviet Union except through the Company. The provisions of this Section 8.1(a) shall not apply to DTR's interest, as of the date of this Agreement, in a project in Kazakstan that is involved in the production and distribution of potato chips provided that DTR does not control or participate in the management of such project. (b) API shall not directly or indirectly own, manage, invest or participate in any corporation, partnership, joint venture or other enterprise involved in the production or distribution of dairy products in the former Soviet Union except through the Company. The prohibition contained in this Section 8.1(b) shall not apply to (i) API's investment in the Borisoglebsk project, or (ii) any investment by API in any project provided that API does not participate in the management of such project. (c) As used in this Section 8.1, the term "affiliate" with respect to DTR shall mean any person or entity directly or indirectly controlling, controlled by, or under common control with DTR, as the case may be. 8.2 Confidentiality. (a) Unless otherwise specifically agreed by API and DTR, during the term of this Agreement and for a period of five (5) years thereafter, the Company and each Member shall maintain in confidence, and shall refrain from using or disclosing, all Confidential Information. For the purposes of this Section 8.2, "Confidential Information" means all know-how, financial data, technical data (including the terms of the transactions contemplated in this Agreement), trade secrets or other confidential information that the Company has disclosed to any Member, or that a Member has disclosed to any other Member or the Company, under or in connection with this Agreement. The Company and each Member shall cause its directors, current and past employees, agents and contractors to refrain from using or disclosing any Confidential Information in any manner, except as expressly permitted by this Section 8.2. (b) Notwithstanding the foregoing, this Section 8.2 shall not restrict the use or disclosure of Confidential Information to the extent that: (i) the information becomes generally available to the public without breach of this Section 8.2; (ii) the recipient lawfully obtains the information from a third party who is not subject to the terms of this Agreement; (iii) the recipient has independently developed the information prior to disclosure; or (iv) applicable law requires disclosure of the information to governmental, legislative or judicial authorities, provided that the recipient shall give prior notice to the disclosing party and use its best efforts to require such authorities to continue to accord confidential treatment to the information. (c) Notwithstanding the foregoing, this Section 8.2 shall not restrict the use or disclosure of Confidential Information to the extent necessary to permit either API or DTR to undertake any project not prohibited by the provisions of Section 8.1. ARTICLE IX FORCE MAJEURE 9.1 Force Majeure Defined. "Force Majeure" means the occurrence of circumstances beyond the reasonable control of the Member affected, and which such Member could not have prevented by the exercise of reasonable diligence. Events of Force Majeure include: (a) earthquakes, floods, fires or other natural physical disasters; wars or hostilities; riots or civil disturbances; acts of terrorism or sabotage; governmental regulations, decrees or actions; and legislative or judicial actions; or (b) actions of any persons or groups of persons (i) with the purpose of obtaining money or property from the Company or from employees or representatives of the Company by coercion or intimidation; (ii) threatening the life and/or health of employees or representatives of the Company or (iii) causing or threatening to cause material loss to the Company, provided that adequate evidence of such circumstances is presented to the satisfaction of the other Members; or (c) actions of any governmental authority to seize, confiscate, expropriate or nationalize the Interest of any Member or its share in the Company or any property of the Company, or otherwise to prevent any Member from exercising its rights with respect to the Company as set forth in this Agreement or applicable law in force on the date hereof. 9.2 Effect of Force Majeure. If an event of Force Majeure causes a Member's failure or delay in its performance of any obligations under this Agreement, then such failure or delay shall be excused (and thus shall not constitute a breach of this Agreement for as long as the Force Majeure remains in effect). 9.3 Notice of Force Majeure. A Member that fails or delays to perform any obligations under this Agreement due to Force Majeure shall so notify the other Members in writing, as promptly as possible after such occurrence. The notice shall describe the nature of the Force Majeure, furnish adequate evidence of the existence and circumstances of the event of Force Majeure and, to the extent possible, estimate its duration and its likely effects on the Member's performance of its obligations under this Agreement. 9.4 Cessation of Force Majeure. A Member whose performance is affected by a Force Majeure shall use its best efforts to terminate the effects of such Force Majeure. Upon the cessation of the Force Majeure, the affected Member shall resume performance of its obligations as soon as possible. The affected Member shall notify the other Members as soon as it learns that the Force Majeure has ceased or appears likely to cease. ARTICLE X RESOLUTION OF DISPUTES 10.1 Arbitration. Any dispute, claim or grievance arising out of or relating to the interpretation or application of this Agreement, or to the breach, termination of validity thereof, shall be settled by arbitration in accordance with the then- current Center for Public Resources Rules of Non-Administered Arbitration of Business Disputes, by a sole arbitrator. The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. et seq. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The place of the arbitration shall be a neutral city in the midwestern United States. ARTICLE XI REPRESENTATIONS AND WARRANTIES 11.1 API. API I and API II each represent and warrant to DTR: (a) It is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware. It has the power and authority to own, lease, and operate its assets, properties, and businesses and to enter into this Agreement and to carry out its obligations hereunder. The execution, delivery, and performance of this Agreement by it have been duly authorized by all necessary action on its part, and this Agreement is legally binding upon it in accordance with its terms. (b) The execution, delivery, and performance by it of this Agreement and the transactions contemplated hereby will not (i) violate the provisions of any order, judgment, or decree of any court or other governmental agency or any arbitrator applicable to it, (ii) result in a material breach of or constitute (with due notice or lapse of time or both) a material default under any contract or agreement to which it is a party or by which it is bound; or (iii) violate any provision of law applicable to it, the violation of which is likely to have a material adverse effect on the business, operations or condition (financial or otherwise) of it or the Company. 11.2 DTR. DTR represents and warrants: (a) DTR is a corporation duly organized, validly existing and in good standing under the laws of the State of Minnesota. DTR has the corporate power and authority to own, lease and operate its assets, properties, and business and to enter into this Agreement and to carry out its obligations hereunder. The execution, delivery, and performance of this Agreement by DTR have been duly authorized by all necessary corporate actions on the part of DTR, and this Agreement is legally binding upon DTR in accordance with its terms. (b) The execution, delivery, and performance by DTR of this Agreement and the transactions contemplated hereby will not (i) violate the provisions of any order, judgment, or decree of any court or other governmental agency or any arbitrator applicable to DTR or the Articles of Incorporation or Bylaws of DTR; (ii) result in a material breach of or constitute (with due notice or lapse of time or both) a material default under any contract or agreement to which DTR is a party or by which DTR is bound; or (iii) violate any provision of law applicable to DTR, the violation of which is likely to have a material adverse effect on the business, operations or condition (financial or otherwise) of DTR or the Company. (c) DTR has or will have at the time of contribution, full legal right to transfer and assign all rights and properties to be contributed to the Company as Capital Contributions pursuant to the terms of this Agreement (including the Original Agreement), free and clear mortgage, pledge, claim, lien charge, obligation, liability (including liability for taxes) or other encumbrances, and the Company will receive full legal and beneficial title to all such rights and properties. ARTICLE XII INDEMNIFICATION 12.1 Extent of Responsibility for Damages. Each Member shall indemnify and hold harmless the other Member for losses, claims, damages, liabilities, including without limitation reasonable legal and other expenses incurred in connection with investigating any loss, claim, damage or liability, that such Member may incur or suffer by reason of (i) any inaccuracy in any representation or the breach of any warranty made by the Member hereunder, or (ii) the failure of such Member to fully perform or observe any term, provision, covenant, agreement to be performed under this Agreement. 12.2 Indemnification of Members and Directors. The Company shall indemnify and hold harmless each Member and its Affiliates and each Director (each an "Indemnified Person") against any and all losses, claims, damages, expenses and liabilities of any kind whatsoever that such Indemnified Person may at any time become subject to or liable for by reason of the formation, operation, or termination of the Company, or the Indemnified Person acting as a Member or Director of the Company, or the authorized actions of such Indemnified Person in connection with the conduct of the affairs of the Company, provided that no Indemnified Person shall be entitled to indemnification to the extent that liability otherwise indemnified for results from (i) any act or omission of such Indemnified Person that involves actual fraud or willful misconduct, or (ii) any transaction from which such Indemnified Person derived improper personal benefit. 12.3 Limitation of Liability. No Member shall have any personal liability whatsoever to the Company or any other Member on account of such Member's status as a Member or by reason of such Member's acts or omissions in connection with the conduct of the business of the Company; provided, however, that nothing contained herein shall protect any Member against any liability to the Company or the Members to which such Member would otherwise be subject by reason of (i) any act or omission of such Manager that involves actual fraud or willful misconduct or (ii) any transaction from which such Member derived improper personal benefit. ARTICLE XIII GENERAL PROVISIONS 13.1 Limitation on Liability. The debts, obligations, and liabilities of the Company, whether arising in contract, tort, or otherwise, shall be solely the debts, obligations, and liabilities of the Company, and no Member of the Company shall be obligated personally for any such debt, obligation, or liability of the Company solely by reason of being a Member. 13.2 Tax Treatment. It is the intention of the Members that the Company shall be taxed as a "partnership" for federal, state, local, and foreign income tax purposes. The Members agree to take all reasonable actions, including the amendment of this Agreement and the execution of other documents, as may reasonably be required in order for the Company to qualify for and receive "partnership" treatment for federal, state, local, and foreign income tax purposes. 13.3 Cooperation. The parties hereto shall in good faith undertake to perform their obligations under this Agreement. Upon execution of this Agreement and thereafter, each party shall do such things as may be reasonably requested by the other party hereto in order to more effectively carry out the intent of this Agreement. 13.4 Notices. Except as otherwise provided in this Agreement, any and all notices, consents, waivers, directions, requests, votes or other instruments or communications among the Members, Member representatives and the Company under this Agreement shall be communicated and be effective only if the original is sent in writing by hand or by registered mail, and a copy is sent by telex or facsimile. Any notice so given shall be deemed to have been received as of the date the original is received, or as of the date on which a copy was sent by telex or facsimile and a confirmation of receipt indicated on the sending telex or facsimile machine, whichever is earlier. 13.5 Applicable Law. This Agreement shall be governed by and interpreted in accordance with the substantive law of the State of Delaware. The Company shall be governed by and operate in accordance with the applicable legislation of Delaware. 13.6 Severability. In case one or more of the provisions contained in this Agreement, or any application thereof, shall be invalid, illegal or unenforceable in any respect under applicable law, the validity, legality and enforceability of the remaining provisions contained therein and any other application thereof shall not be affected or impaired in any way. 13.7 Entire Agreement. This Agreement sets forth the entire agreement among the Members relating to the subject matter contained herein and shall create binding rights and obligations of the Members, and between the Members and the Company. All other prior agreements or understandings, both written and oral, are of no further force or effect. This Agreement shall not be amended or replaced except by unanimous written agreement of the Members. 13.8 Headings. The headings contained in this Agreement are for convenience only and shall not be used to construe or interpret the substantive meaning or intent of any provision thereof. 13.9 Counterparts. This Agreement may be executed in one or more counterparts, each of which is an original but all of which shall constitute one instrument. IN WITNESS WHEREOF, the undersigned have caused this Agreement to be signed in four (4) originals on the date first written above. FOR AND ON BEHALF OF: DEVELOPED TECHNOLOGY RESOURCE, INC. By: Name: John P. Hupp Title: President FOR AND ON BEHALF OF: API DAIRY PARTNERS L.P. By Agribusiness Holding Company L.L.C. its general partner By: Name: Robert H. Peyton Title: President FOR AND ON BEHALF OF: AGRIBUSINESS PARTNERS INTERNATIONAL L.P. II By C.I.S. Management Company L.L.C. its general partner By: Name: Robert H. Peyton Title: President EX-2 3 AMENDED AND RESTATED MANAGEMENT AGREEMENT THIS AMENDED AND RESTATED AGREEMENT ("Agreement") is made and entered into as of the 11th day of September, 1998, by and between DEVELOPED TECHNOLOGY RESOURCE, INC., a corporation organized under the laws of the State of Minnesota (hereinafter the "Manager"), and FOODMASTER INTERNATIONAL L.L.C., a limited liability company organized under the laws of the State of Delaware (hereinafter the "Company"). WITNESSETH: WHEREAS, the Company has been formed by the Manager and certain other parties (collectively the "Members") for the purpose of producing, packaging and distributing high-quality, branded dairy products and fruit juice, and other products as agreed to by the Members, in the former Soviet Union; WHEREAS, the Members have entered into that certain Amended and Restated Limited Liability Company Agreement, as of the date hereof (the "Operating Agreement"), with respect to the operation of the Company; WHEREAS, as an inducement to the Members to form the Company, Manager agreed to manage the business of the Company pursuant to the terms of that certain Management Agreement, made and entered into as of March 3, 1997, by the Manager and the Company (the "Original Agreement"); and WHEREAS, Manager and the Company desire to amend and restate the Original Agreement as set forth herein." NOW, THEREFORE, for and in consideration of the foregoing and the premises and mutual covenants hereinafter contained, the parties hereto hereby agree as follows: 1. Engagement of Manager. The Company hereby engages the Manager to develop, manage and operate all business activities of the Company and to do and perform any and all things in the management of those business activities customarily performed by managers of similar businesses, subject to the terms and conditions imposed by this Agreement. 2. Acceptance by Manager/Priority of Resources. Manager hereby agrees to manage the business of the Company on the terms and conditions provided herein. In addition to the provisions of Section 5(a) of this Agreement, it is understood and agreed that the Manager will devote all resources necessary to the performance of its obligations under this Agreement and shall not undertake any other projects or commitments which may adversely affect its ability to perform its obligations under this Agreement. 3. Control by the Company. Notwithstanding any other provision of this Agreement, the Manager shall be subject to the direction and control of the Company with respect to all aspects of the performance of its obligations under this Agreement 4. Duties of Manager. Subject to the provisions of Section 3, Manager agrees to perform all actions reasonably necessary to develop, manage and operate the business activities of the Company, including without limitation the following: a. Manage all business activities of the Company. b. Conduct all business activities of the Company's operations in Kazakstan, Moldova and the Ukraine, and in any other location in which the Company undertakes operations. c. Investigate other dairy, juice and related products operations in the former Soviet Union for possible investment by the Company. d. Establish and maintain bank accounts for the Company, provided that such accounts shall be approved by the Company prior to being established, and keep the books and records of all business activities of the Company, to pay all debts and obligations, to execute contracts as authorized by the Company. e. Engage accountants for the Company and for the businesses owned and controlled by the Company, provided that such accountants shall be approved by the Company prior to engagement. Select, employ, supervise, direct, pay and discharge all employees or independent contractors necessary, in Manager's opinion, for the development, management, and operation of the Company's businesses in the former Soviet Union, and all such persons shall be employees or agents of Manager and not of the Company. Manager shall carry workers' compensation insurance, written in such manner as also to protect the Company in an appropriate amount, covering all such employees, and shall withhold for tax purposes and make all deductions and file all reports required under all applicable laws and regulations. f. Such other duties and responsibilities reasonably requested from time to time by the Company. 5. Exclusivity/Employee Non-Competes. (a) The Manager shall cause John P. Hupp, Erlan Sagadiev, Denis Gablenko, Lydia L. Bauer, Kevin Cuthill, and LeAnn Davis, and all other persons employed by the Manager during the term of this Agreement to perform duties or functions similar to those performed by the foregoing (collectively "Senior Management"), to work exclusively on behalf of the Company to the exclusion of all other projects or business during the terms of this Agreement. Without limiting the foregoing, Senior Management shall not participate or be involved, in any manner or capacity, in the management or operations of SXD, Inc., a subsidiary of the Manager. Notwithstanding the foregoing, John Hupp may serve as President, Chief Executive Officer and a Director of the Manager and devote such time as is necessary to fulfill his fiduciary duties as an officer and director of the Manager and LeAnn Davis may serve as chief financial officer and secretary of the Manager. (b) The Manager shall cause each member of Senior Management to enter into non-competition agreements pursuant to which such person agrees that during their employment with the Manager and for a period of one year after termination thereof (whether voluntary or involuntary), such employee shall not (i) directly or indirectly maintain an ownership interest in, operate, or work for any entity which produces, packages or distributes dairy, juice or other food products in any of the Republics of the former Soviet Union in which the Company engages, or proposes to engage, in such activities, (ii) solicit, do business with, or deliver products or services to any person or entity who was a client or customer of the Company, or (iii) employ or offer to employ any individual who was employed by the Manager or the Company or in any way associated with the Manager or the Company. Manager shall provide copies of all agreements entered into pursuant to this Section 5(b) to the Company upon request. 6. Independent Contractor. The Manager shall operate as an independent contractor and neither Manager nor its employees shall be considered employees of the Company. 7. Property of the Company. It is understood and agreed that all books, records, files, reports, business products, discoveries, improvements, know-how or techniques made, developed or created by the Manager (or its agents or employees) in connection with the performance of the Manager's obligations under this Agreement, shall be the property of the Company and shall be assigned to the Company upon request. Nothing in this Agreement is intended to preclude the Manager from using (i) any products, discoveries, improvements, know-how or techniques in connection with projects which the Manager is not precluded from undertaking under the terms of the Operating Agreement, or (ii) products, discoveries, improvements, know-how or techniques unrelated to the production, packaging or distribution of dairy, juice or other food related products in the former Soviet Union. 8. Insurance. The Company shall provide liability insurance in an amount satisfactory to the Manager. The Manager shall be named insured on such liability insurance policies and certificates of insurance shall be provided to the Manager. 9. Reports. The Manager will submit to the Company monthly financial statements for all businesses in which the Company has an investment and will provide such other information and reports as may be requested from time to time by the Company. 10. Preparation of Annual Budget. Manager shall prepare a preliminary annual budget forty-five (45) days prior to the end of each fiscal year. The Company shall provide the Manager with an approved budget for each fiscal year prior to the beginning of that fiscal year. The Company must approve any expenses incurred by the Manager in excess of amounts specified in the approved budget. 11. Indemnification. (a) The Company shall indemnify and hold harmless the Manager from and against any and all claims or liabilities for damage or injury to property or persons or death of persons occurring on or about the premises of any businesses owned or controlled by the Company and managed by the Manager, except for such claims as arise due to the negligent act or omission of Manager, its agents or employees. (b) The Manager shall indemnify and hold harmless the Company against any and all claims or liabilities for damage or injury to property or persons or death of persons resulting or arising from the negligent acts or omissions of the Manager, its agents or employees, except for such claims as arise due to the negligent acts or omissions of the Company which do not involve any negligent acts or omissions of the Manager, its agents or employees. 12. Compensation and Expense Reimbursement. As consideration for performing the services identified in this Agreement, the Company shall reimburse the Manager for all expenses reasonably incurred by the Manager in connection with the performance of services under this Agreement provided that such expenses are specified in the budget approved pursuant to Section 10 or have been pre-approved by the Company. The Manager shall provide the Company with monthly invoices (in form and detail as reasonably acceptable to the Company) of expenses to be reimbursed under this Agreement. The Company shall pay the Manager for expenses identified in such invoice within thirty (30) days of the receipt of an invoice. 13. Option Plans. During the term of this Agreement, the Manager shall not, without the prior approval of the Company which shall not be unreasonably withheld, alter or amend any of the plans or programs in existence as of the date of this Agreement, pursuant to which options to purchase stock of the Manager ("Options") are granted to Senior Management. The foregoing prohibition shall include, without limitation, the issuance of any Options subsequent to the date of this Agreement. 14. Shareholder Agreements. The obligations of the Company under this Agreement are conditioned upon each of John P. Hupp and Erlan Sagadiev having entered into an agreement with the Manager (a "Shareholder Agreement") pursuant to which Messrs. Hupp and Sagadiev each agree that, until and unless (a) API (as defined in the Operating Agreement) sells, transfers or liquidates its interest in the Company, (b) API exercises its rights set forth in either Section 6.3 or Section 6.4 of the Operating Agreement, (c) he is involuntarily terminated from the Manager, (d) one year after API becomes entitled to exercise the put right provided for in Section 6.4 of the Operating Agreement, or (e) the termination of this Agreement pursuant to Section 15 other than termination by the Company for cause, he will not, without the prior consent of the Company, sell, pledge or transfer any shares of stock of the Manager in excess of that number of shares equal to thirty-five percent (35%) of the number of shares of stock of the Manager subject to all vested Options, whether exercised or unexercised, owned by Messrs. Hupp or Sagadiev, as the case may be, at the time of such sale, pledge or transfer, provided that neither Messrs. Hupp or Sagadiev shall be permitted to sell any shares of stock of the Manager unless written notice thereof has been provided to the Company at least thirty (30) days prior to such sale. Manager shall not give effect to any attempted transfers of shares of its stock in violation of the Shareholder Agreements. Notwithstanding the other provisions of this Section 14, the Shareholders Agreement shall not prohibit either Messrs. Hupp or Sagadiev from selling, pledging or transferring any shares of stock of the Manager to the extent that such shares are acquired other than through the exercise of the Options. 15. Contracts. Contracts and agreements entered into in accordance with Section 4 of this Agreement in connection with the development, management or operation of the businesses owned or controlled by the Company and managed by the Manager shall be executed by the Manager as agent of the Company, and the Company agrees to indemnify and hold harmless the Manager from and against all existing and future liabilities under such contracts and agreements, provided that the Manager shall have no authority to incur any obligation on behalf of the Company that exceeds [U.S.]$25,000 unless (i) the amount of such obligation, the identity of the party to whom the obligation is to be incurred, and the purpose for which the obligation is to be incurred is specified in a budget approved by the Company, or (ii) such obligation is otherwise specifically approved by the Company. 16. Term. This Agreement shall be effective as of the date of the Original Agreement and shall remain in effect until terminated in accordance with the following sentence. This Agreement shall not terminate except (i) by mutual consent of the parties hereto, (ii) by either party for cause, (iii) by the Company upon sixty (60) day prior written notice, or (iv) upon the liquidation of the Company. For purposes of this Agreement, "cause" shall mean the breach of any term hereof which breach is not cured within thirty (30) days of the delivery of notice of such breach by the party seeking termination. 17. Cooperation Between Parties. The parties agree to give each other full cooperation and assistance to the end that both parties may discharge their responsibilities hereunder. Without limiting the foregoing or any other provision of this Agreement, the Manager shall provide the Company, upon request with copies of all agreements, contracts and other documents entered into in connection with, or pursuant to the terms of this Agreement. 18. Notices. Wherever in this Agreement it shall be required or permitted that notice or demand be given or served by either party to this Agreement to or on the other, such notice or demand shall be given or served either personally or forwarded by registered or certified mail, postage prepaid, and a copy sent by telex or facsimile. Any notice so given shall be deemed to have been received as of the date the original is received, or as of the date on which a copy was sent by telex or facsimile and a confirmation of receipt indicated on the sending telex or facsimile machine, whichever is earlier. The addresses for the parties are as follows: To the Manager: Developed Technology Resource, Inc. 7300 Metro Blvd., Suite 550 Edina, MN 55439 Telecopy: 612-820-0011 To the Company: c/o Agribusiness Management Co. 1004 Farnham Street, Suite 400 Omaha, NE 68102 Telecopy: 402-345-8966 Such addresses may be changed from time to time by either party by serving notice as above provided. 19. Assignment. This Agreement shall be binding upon the successors and assigns of the parties hereto and may not be assigned by Manager, except to an entity controlled by Manager, without the prior written consent of the Company. 20. Amendment or Modification. This Agreement constitutes the entire agreement between the parties hereto, and no variance or modification hereof shall be valid or enforceable, except by an amendment or supplemental agreement in writing executed by the parties hereto. 21. Choice of Law. This Agreement shall be construed in accordance with and governed by the laws of the State of Delaware, without giving effect to principles of conflicts of laws. 22. Counterparts. This Agreement may be executed in one or more counterparts, each of which is an original but all of which shall constitute one instrument. IN WITNESS WHEREOF, the parties hereof have caused this instrument to be duly executed as of the day and year first above written. FOODMASTER INTERNATIONAL L.L.C. By API Dairy Partners L.P., Member By Agribusiness Holding Company L.L.C., its general partner By__________________________ Robert H. Peyton, President DEVELOPED TECHNOLOGY RESOURCE, INC. By_________________________________ John P. Hupp, President EX-27.1 4
5 3-MOS 9-MOS DEC-31-1998 DEC-31-1998 SEP-30-1998 SEP-30-1998 205,887 205,887 0 0 1,498,940 1,498,940 12,689 12,689 0 0 1,794,712 1,794,712 160,130 160,130 115,460 115,460 3,730,355 3,730,355 690,054 690,054 0 0 0 0 0 0 8,058 8,058 2,997,266 2,997,266 3,730,355 3,739,355 69,900 309,148 379,758 1,273,594 59,950 244,792 387,096 1,284,875 (76,311) (256,056) 0 0 (40,499) (198,880) 109,472 443,655 0 0 109,472 443,655 0 0 0 0 0 0 109,472 443,655 0.14 0.55 0.09 0.37
EX-27.2 5
5 3-MOS 9-MOS DEC-31-1997 DEC-31-1997 SEP-30-1997 SEP-30-1997 400,965 400,965 0 0 959,865 959,865 12,908 12,908 0 0 1,414,289 1,414,289 181,588 181,588 134,183 134,183 2,234,815 2,234,815 640,668 640,668 0 0 0 0 0 0 7,908 7,908 1,586,239 1,586,239 2,234,815 2,234,815 68,800 1,564,966 294,528 2,272,850 59,500 813,332 325,741 1,739,657 (15,662) 17,584 0 0 (3,001) (3,593) (12,550) 519,202 0 0 (12,550) 519,202 200,000 200,000 0 0 0 0 187,450 719,202 0.24 0.91 0.22 0.82
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