-----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, KaZHjZZ7U590K1p7y5v5/u/2K7L6ECFivD2Ber4+c1urJh2gtjd7QQv9FuY5s4S8 UIWT+Ok76EsCb2LVJGXZWQ== 0000950144-97-007851.txt : 19970716 0000950144-97-007851.hdr.sgml : 19970716 ACCESSION NUMBER: 0000950144-97-007851 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970715 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOOD IDEAS ENTERPRISES INC CENTRAL INDEX KEY: 0000916714 STANDARD INDUSTRIAL CLASSIFICATION: GAMES, TOYS & CHILDREN'S VEHICLES (NO DOLLS & BICYCLES) [3944] IRS NUMBER: 752206675 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 033-73494 FILM NUMBER: 97641064 BUSINESS ADDRESS: STREET 1: 10410 TRADEMARK STREET CITY: RANCHO CUCAMONGA STATE: CA ZIP: 91730 BUSINESS PHONE: 9094668378 MAIL ADDRESS: STREET 1: 10410 TRADEMARK ST CITY: RANCHO CUCAMONGA STATE: CA ZIP: 91730 10-K 1 GOOD IDEAS ENTERPRISES FORM 10-K DATED 03/31/97 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996). FOR THE FISCAL YEAR ENDED MARCH 31, 1997 COMMISSION FILE NO. 1-12362 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE TRANSITION PERIOD FROM ____________ TO ____________
GOOD IDEAS ENTERPRISES, INC. (Exact name of registrant as specified in its charter) --------------------- DELAWARE 75-2206675 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
4517 N.W. 31(ST) AVENUE, FORT LAUDERDALE, FLORIDA 33309 (954) 739-9600 (Address including zip code, and telephone number, including area code, of registrant's principal executive offices) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT Common Stock, $.001 par value SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this Form 10-K. As of June 30, 1997, there were 3,948,680 shares of Common Stock outstanding. The Registrant has only one class of voting stock outstanding, the Common Stock. As of June 30, 1997, the aggregate market value of the Common Stock held by non-affiliates was $217,536 based on the closing sale price of such stock on December 31, 1996, the last date for which there was a market price reported. ================================================================================ 2 PART I ITEM 1. BUSINESS OVERVIEW Good Ideas Enterprises, Inc. ("Good Ideas Texas") was incorporated under the laws of the State of Texas on December 18, 1987. On May 7, 1992, Substance Abuse Technologies, Inc. ("SAT"), a publicly-owned corporation, the Common Stock, $.01 par value (the "SAT Common Stock"), of which is traded on the American Stock Exchange, acquired a majority interest in Good Ideas Texas. On June 5, 1992, Good Ideas Enterprises, Inc. ("Good Ideas") was incorporated under the laws of the State of Delaware. On December 17, 1992, Good Ideas Texas was merged with and into Good Ideas. In February and March 1994, Good Ideas has a public offering of its Common Stock, $.001 par value (the "Good Ideas Common Stock"), in which an aggregate of 1,320,000 shares of the Good Ideas Common Stock were sold. As of June 30, 1997, SAT owned 2,400,000 of the 3,948,680 shares of the Good Ideas Common Stock outstanding or 60.8%. Good Ideas designed, marketed and distributed a variety of traditional toy products for children of various ages. Good Ideas' sales historically had been derived from a line of traditional wooden construction toys. Good Ideas' historic strategy had been to design and develop enduring traditional lines of toys and to create enhancements to, and extensions of, these toy lines which maximized product line sales while minimizing development and advertising expenses for new and enhanced products. Good Ideas enhanced and extended its existing toy lines through the addition of accessories and through the incorporation of plastic figures and components into themed playsets which provided the consumer with a creative play environment. Commencing in the fiscal year ended 1995 ("fiscal 1995"), Toys R Us, Inc. ("Toys R Us"), the major customer of Good Ideas, significantly reduced its orders for Good Ideas' toy products. The customer attributed its reduction in orders to its large inventories and declining sales and customer traffic. Management believes that other manufacturers in the toy industry were facing these same problems -- their distributors or retailers to which they sold had large inventories of products and declining sales and customer traffic. In addition, management believes that many retailers were minimizing their number of vendors and reducing the number of items carried in inventory, which had the result of squeezing out the smaller companies like Good Ideas with their limited products lines. See "Good Ideas' Management's Discussion and Analysis of Financial Condition and Results of Operations -- Results of Operations." As a result of the continuing losses and the foregoing problems which management believes were prevalent in the toy industry generally, as well as management's conclusion that Good Ideas would have to develop a whole new line or lines of toys to compete effectively, at a substantial expenditure of money and time, with no assurance of success, management concluded that it would be preferable to seek a buyer for Good Ideas. In February 1996, SAT determined to seek to acquire the minority stock interests in Good Ideas by an offer of shares of the SAT Common Stock to the minority stockholders of Good Ideas (the "Good Ideas Minority Stockholders") as consideration for their consent to a merger (the "Good Ideas Merger") of Good Ideas Acquisition Corp. ("Good Ideas Acquisition"), a Delaware corporation and a wholly-owned subsidiary of SAT, with and into Good Ideas pursuant to an Agreement and Plan of Merger dated as of February 17, 1997 (the "Good Ideas Merger Agreement") among SAT, Good Ideas and Good Ideas Acquisition. Such consent will be sought from the holders of the Minority Good Ideas Common Stock pursuant to Section 228 of the GCL in lieu of holding a meeting of stockholders of Good Ideas. In order to effectuate the foregoing, the Company has filed with the Commission a Registration Statement on Form S-4, File No. 333-3734 (the "Good Ideas Registration Statement"), under the Securities Act of 1933, as amended (the "Securities Act"), with respect to securing the requisite contents of the Good Ideas Minority Stockholders and with respect to the shares of the SAT Common Stock to be issued upon consummation of the Good Ideas Merger. Amendment No. 2 to the Good Ideas Registration Statement provided for the offer of .36 of a share of the SAT Common Stock for each share of the Good Ideas Common Stock held by a Good Ideas Minority Stockholder or an aggregate of 557,524 shares of the SAT Common Stock for the 1,548,680 shares of the Good Ideas Common Stock held by the Good Ideas Minority Shareholders. The Good Ideas Registration Statement has not been declared effective under the Securities Act and, accordingly, SAT's offer to the Good Ideas Minority Stockholders has not commenced as yet. 2 3 All operations of Good Ideas have been terminated and, since March 31, 1996, Good Ideas has been presented under the liquidation basis of accounting in the financial statements of Good Ideas in this Report and reported as a discontinued operation in SAT's consolidated financial statements. It is the current intention of the SAT Board that, whether or not the Good Ideas Merger is consummated, to sell or liquidate Good Ideas as soon after the results of the consent solicitation for the Good Ideas Merger are known. At March 31, 1997, Good Ideas has written off all remaining inventory since no offer to purchase the inventory is outstanding and its liquidation value is questionable. In addition to the products described in the ensuing sections, Good Ideas had also manufactured and sold a construction toy consisting of a set of corrugated cardboard bricks marketed under the trademark Bill's Bric Builders(TM). Due to increasing paper costs, the line of corrugated cardboard bricks was discontinued after fiscal 1995. SALES BY PRODUCTS The next following table sets forth Good Ideas' net sales by product in dollar volume (in thousands) and as a percentage of net sales for the two years ended March 31, 1997. There were no sales in fiscal year ended March 31, 1997 ("fiscal 1997").
YEAR ENDED MARCH 31, ----------------------------------------- 1996 1995 ------------------- ------------------- CATEGORY AMOUNT PERCENTAGE AMOUNT PERCENTAGE - -------- ------ ---------- ------ ---------- Wood Construction Toys.................................... $ 967 64.1% $2,841 61.7% Equestrian Toys........................................... 531 35.2 1,213 26.3 Corrugated Cardboard Construction Toys*................... 8 0.6 344 7.5 Other Products............................................ 2 0.1 208 4.5 ------ ----- ------ ----- Total........................................... $1,508 100.0% $4,606 100.0% ====== ===== ====== =====
- --------------- * Due to increasing paper costs, the line of corrugated cardboard bricks was discontinued after fiscal 1995. WOODEN CONSTRUCTION TOYS Good Ideas marketed a full line of wooden interlocking log and wooden block construction toys sets. Good Ideas shipped classic stained log sets marketed under the trademark Paul Bunyan Log Builders(TM) and brightly-painted, multi-colored combination log and building block sets under the trademark Paul Bunyan Wood Builders(TM). Good Ideas believes that it was a major supplier of wooden interlocking-log construction toys in the United States. Good Ideas also shipped a themed playset, marketed as General Custer's Fort Apache(TM), combining standard wood logs with plastic figures and accessories. In 1993, Good Ideas commenced shipping additional themed playsets, such as Log Town(TM) and Log Village(TM), which included plastic roofs, windows, doors and other accessories. Good Ideas' wooden construction toys typically ranged in retail price from $4.99 to $39.99, depending upon the number of pieces in the set and the addition of plastic components in themed sets. EQUESTRIAN TOYS Good Ideas' line of equestrian toys consisted of flocked plastic horses ranging in height from five to eleven inches, which were marketed under the trademark Black Beauty and Friends(TM). This line included a variety of different styles of horses to encourage collection of the entire line. These styles included the Appaloosa, Chestnut, Carrousel, Palomino, Dappled Gray, Paint, Leopard and Black Beauty horses. Individual horses typically ranged in retail price from $3.99 for a five-inch horse to $7.99 for an eight-inch horse and $14.99 for an eleven-inch horse. Combination sets of one five-inch pony and one eight-inch mare typically retailed for $9.99. In addition, Good Ideas separately offered accessories and playsets scaled to the most popular eight- inch horses, including an assortment of cotton blankets and leggings made in a variety of colors and real leather saddles. Good Ideas also marketed two playsets under the trademark Black Beauty and Friends(TM): the 3 4 Equestrian Center(TM) and the Stable and Corral(TM) set. Both of these sets contained different styles of horses, which were not available for purchase separately. The Equestrian Center typically retailed for $11.99 and the Stable and Corral typically retailed for $29.99. COLORFORMS FLIP-TOP ACTIVITY CENTER(TM) In October 1994, Good Ideas acquired a license allowing Good Ideas to manufacture certain products bearing the Colorforms brand name and logo, including an activity table utilizing the products of both Good Ideas and Colorforms under the trademark Colorforms Flip-Top Activity Center(TM). The activity table was included in Good Ideas' 1995 product line and was introduced at the New York Toy Fair in February of 1995. The activity table's suggested retail price was $129.99. There were limited sales of these products during the six months ended September 30, 1995. The license expired in October 1995 and was not renewed. SALES AND MARKETING Good Ideas had distributed its products primarily to national mass merchandisers, such as Toys R Us, Wal-Mart Stores, Inc. ("Wal-Mart") and J.C. Penney Company, Inc. ("Penney"), and to wholesale clubs, such as Price Costco Wholesale Corporation ("Costco") and BJ's Wholesale Club, Inc. ("BJ's"). Good Ideas had sold its toy products to high-end specialty retailers, including F.A.O. Schwarz and Imaginarium. As indicated in the table below, none of the foregoing customers had sales to them of 10% or more of the Good Ideas sales during fiscal 1995 and the fiscal year ended March 31, 1996 ("fiscal 1996") other than Toys R Us (in excess of 50% in fiscal 1995 and 1996) and Costco (only in fiscal 1995). Sales in fiscal 1997 were not significant and were primarily to the purchaser of its inventory. Several of Good Ideas' products appeared in the 1995 Sears Wish Book which markets toys manufactured and distributed by many different toy manufacturers and distributors. The following table sets forth net sales to Good Ideas' largest customers for each of the specified periods by dollar volume (in thousands) and as a percentage of net sales:
YEARS ENDED MARCH 31, ------------------------------------------ 1996 1995 ------------------- ------------------- CUSTOMER AMOUNT PERCENTAGE AMOUNT PERCENTAGE - -------- ------ ---------- ------ ---------- Toys R Us....................................... $ 779 51.7% $2,726 59.2% Costco.......................................... 50 3.3 963 20.9 Other(1)........................................ 697 45.0 917 19.9 ------ ----- ------ ----- Total................................. $1,508 100.0% $4,606 100.0% ====== ===== ====== =====
- --------------- (1) "Other" includes all customers with sales of less than 10% of total sales. Good Ideas maintained, until December 31, 1995, a small internal sales and marketing staff and relied primarily upon 20 sales representatives in the United States, one in Mexico and one in Canada, all of whom were independent contractors. These sales representatives made on-site visits to customers to solicit orders for products and marketed Good Ideas' products at the major toy trade shows in New York City and Hong Kong and at regional trade shows. Good Ideas had no long-term commitments from any of its customers, but instead relied upon its independent sales representatives and personal relationships with its customers to sell its products. MANUFACTURING Good Ideas contracted with manufacturers in China, Mexico and the United States to produce its products. Decisions related to the choice of manufacturer were based on price, quality of merchandise, reliability and the ability of a manufacturer to meet Good Ideas' timing requirements for delivery. Good Ideas did not have long-term contracts with any of its manufacturers and competes with other companies for production facilities with respect to certain of its products. 4 5 The principal raw materials used in the production of Good Ideas' products were wood and plastic. Raw materials were generally purchased by Good Ideas' contract manufacturers which delivered the completed products to Good Ideas. Good Ideas also purchased packaging for certain of its products. Good Ideas' wooden construction toys were rough-cut by manufacturers located in China and Mexico. Following rough-cut foreign manufacturing, all of Good Ideas' wooden construction toys were finished by a domestic manufacturer. The flocked horses sold by Good Ideas were purchased from a single manufacturer in China. Good Ideas' supplier owned the molds for the plastic horses that made up the core of its equestrian line of toys. Good Ideas' supplier of plastic horses was under no obligation to refrain from selling such products to other purchasers in the United States. Plastics components used in Good Ideas' themed construction sets were manufactured by a number of manufacturers. Tooling and molding for unique plastic components were owned by Good Ideas. BACKLOG Total order backlog at March 31, 1995, 1996 and 1997 was approximately $322,000, $-0-, and $-0-, respectively. Good Ideas' experience had been that cancellations, rejections or returns of orders did not materially reduce the amount of sales realized from its backlog. PROPRIETARY TRADEMARKS Good Ideas' name Good Ideas(TM) and Big Bill's Bric Builders(TM) are registered trademarks of Good Ideas and have been published by the U.S. Patent and Trademark Office (the "PTO"). Additionally, the Company had filed trademark applications with the PTO for the following trademarks: Paul Bunyan Log Builders(TM) and Black Beauty and Friends(TM). COMPETITION The toy industry is highly fragmented and extremely competitive. Good Ideas marketed a full line of wooden interlocking log and wooden block construction playsets which competed primarily with Lincoln Log, a product manufactured and distributed by Playskool, a division of Hasbro, Inc. ("Hasbro"), one of the five largest toy companies in the United States. Good Ideas also marketed a line of equestrian toys consisting of plastic horses ranging in height from five to eleven inches which competed primarily with products offered by Breyer, Inc., the dominant manufacturer of injection-molded collectible horses, and Marchon, Inc., a United States importer of injection-molded toy horses. Management believes that Good Ideas offered a high quality line of wooden log playsets and equestrian toys. However, there could not be any assurance that Playskool/ Hasbro, which has greater financial resources available to it than Good Ideas, would not have attempted to expand its presence in the wooden log playsets category, nor could there be any assurance that other toy companies would not attempt to enter into this category. Due to relatively low barriers to entry in the toy industry, Good Ideas could have faced competition from a number of smaller toy companies as well if it were not to be sold or liquidated. GOVERNMENT REGULATION Good Ideas was subject to the Federal Hazardous Substances Act and the Federal Consumer Product Safety Act, among other laws. These laws empower the Consumer Products Safety Commission (the "CPSC") to protect children from hazardous toys and other articles. Pursuant to federal law, all toy products must meet certain product safety standards established by the CPSC. Similar laws exist in some states and cities in the United States and in many jurisdictions throughout the world. Further, in order to gain widespread acceptance by toy retailers, toy products must meet additional product safety standards established by the Toy 5 6 Manufactures Association (the "TMA"). The CPSC has the authority to exclude from the market articles which are found to be hazardous and can require a manufacturer to repurchase such toys under certain circumstances. RELATIONSHIPS WITH SAT As of June 30, 1997, 60.8% of the outstanding shares of the Good Ideas Common Stock was held by SAT. James C. Witham, Chairman of the Board and a director of Good Ideas from June 1992 until May 31, 1996, served as the Chairman of the Board, the President, the Chief Executive Officer and a director of SAT from its incorporation until April 18, 1996. Karen B. Laustsen, a director of Good Ideas from June 1992 until May 28, 1996, was an Executive Vice President and a director of SAT from its incorporation until April 18, 1996. From June 1992 until July 3, 1996, Gary S. Wolff was the Treasurer, the Chief Financial Officer, the Chief Accounting Officer and a director of Good Ideas and, from its incorporation until July 3, 1996, he was the Treasurer, the Chief Financial Officer and the Chief Accounting Officer of SAT and, prior to September 26, 1995, was a director of SAT. Glenn A. Bergenfield and William DiTuro, also directors of SAT until November 16, 1995, were directors of SAT prior to September 26, 1995. Michael J. Witham was a director of Good Ideas and a Vice President of Good Ideas until September 26, 1996. On May 31, 1996, Robert M. Stutman, the Chairman of the Board, the Chief Executive Officer and a director of SAT since April 18, 1996, Linda H. Masterson, the President from May 13, 1996 to May 28, 1997, a director of SAT since September 26, 1995, and, from May 13, 1996 to November 19, 1996, Chief Operating Officer of SAT, and Michael S. McCord, then a consultant to the SAT Board of Directors and a former member of the Committee, were elected directors of Good Ideas, with Mr. Stutman also being elected as the Chairman of the Board of Good Ideas on May 31, 1996 and Ms. Masterson becoming its President on January 23, 1997. On October 22, 1996, Mr. McCord was elected as a director of SAT. All of the foregoing persons except Messrs. Bergenfield, DiTuro and McCord were or are employees of SAT. William D. Robbins, the other current director of Good Ideas, was an employee of Good Ideas until December 31, 1996. All of the persons named in this paragraph are securityholders of SAT. NO LOANS TO GOOD IDEAS FROM SAT OUTSTANDING From time to time commencing in July 1992, SAT made loans to Good Ideas for working capital bearing interest at a rate of 12% per annum. Effective October 1, 1993, the interest rate on such loans was reduced to eight percent per annum. As of March 31, 1993, the outstanding balance of all borrowings from SAT was $1,960,000 and interest expense for the 12 months then ended was $143,000. On December 15, 1993, SAT received 170,000 shares of the Good Ideas Common Stock as payment for $748,682 in indebtedness owed by Good Ideas to SAT. As of March 31, 1994, the outstanding balance of all borrowings from SAT was $437,000 and interest expense for fiscal 1994 was $164,000. The balance was paid in fiscal 1995 and no further loans have been made by SAT to Good Ideas. LOANS FROM GOOD IDEAS TO SAT AND AFFILIATES During fiscal 1995, Good Ideas made short-term loans to SAT and U.S. Rubber Recycling, Inc. ("USRR"), then, a wholly owned subsidiary of SAT, in the amounts of $1,196,000 and $1,027,000, respectively. During fiscal 1996, SAT made net loan repayments of $171,000 and SAT assumed the loan due to Good Ideas from USSR. There was, accordingly, a note receivable from SAT of $2,032,455 at March 31, 1997. The loans are evidenced by notes which bear interest at the rate of 8% per annum. This indebtedness was originally due on December 31, 1995, but has been extended initially until June 30, 1996 and then to December 31, 1996. Good Ideas extended in December 1995 the repayment date on its loan to SAT because Good Ideas wanted to continue to receive interest payments under the loan while it considered whether or not to invest in a new product line and in June 1996 while it waited to ascertain whether the Good Ideas Merger would be consummated. For the same reason in December 1996, Good Ideas extended the maturity date until the earliest to occur of (a) five business days after the end of the consent solicitation period for the Merger, which ends 60 days from the Record Date, (b) five business days after the effective date of the Good Ideas Merger or (c) April 30, 1997. Subsequently, the Good Ideas Merger Agreement provides that the loan will be 6 7 forgiven if the Good Ideas Merger is consummated and that the term of the loan will be extended until the earlier of (a) five business days after the end of the consent solicitation period for the Good Ideas Merger if the Merger is not approved or (b) the effective date of the Good Ideas Merger. The loans were made with funds in excess of amounts required for operating capital and carry interest rates in excess of those available to Good Ideas on short-term money market investments. At March 31, 1997, because of the financial condition of SAT, Good Ideas has fully reserved the amount due under this Note. MANAGEMENT SERVICES AGREEMENT For the period July 1992 through September 1996, SAT provided management and administrative services to Good Ideas. Pursuant to the Management Services Agreement effective as of October 1, 1993 (the "Management Services Agreement"), SAT's management fees were computed on the basis of a fixed monthly fee of $25,000, plus five percent of Good Ideas' annual gross sales in excess of $5,000,000. The fee charged by SAT for its management services was determined arbitrarily by its Board of Directors after taking into consideration the anticipated diversion of SAT resources required to provide such services to Good Ideas, both in terms of employee time and allocated overhead costs. The services provided to Good Ideas by SAT pursuant to the Management Services Agreement included management, administrative, accounting and other financial services and advice, including, without limitation, the following: services performed by the Treasurer of Good Ideas (who is also the Treasurer of SAT), for which he was not directly compensated by Good Ideas; services relating to Good Ideas' financial and banking relationships; services relating to the preparation of financial statements, budgets, forecasts and cash flow projections; cash management advice; and other miscellaneous services and advice. As of February 26, 1996, the services previously provided to Good Ideas by SAT relating to the negotiation of licensing arrangements and the acquisition of complementary product lines and businesses, although material in value, had been preliminary in nature and had not resulted in any agreement with respect to terms for any such transaction. The initial term of the Management Services Agreement expired on September 30, 1994 and this Agreement was automatically renewed for successive one-year terms, the last of which expired on September 30, 1996. The management of Good Ideas believes that the Management Services Agreement with SAT was fair and reasonable and that Good Ideas' costs would have been greater if it had to obtain such services from an unaffiliated party with commensurate industry experience, if available, or maintain the internal staff required to provide such services itself. In view of the SAT Board's decision on February 26, 1996 to sell or liquidate Good Ideas, as well as the cost reduction actions previously implemented, the SAT Board suspended SAT's management fees to Good Ideas retroactive to January 1, 1996. Even though the term of the Management Services Agreement has expired, SAT officers continue to furnish certain of the services thereunder to Good Ideas. EMPLOYEES As of June 30, 1997, Good Ideas employed no persons, excluding the personnel employed by SAT who provide management and administrative services to Good Ideas. ITEM 2. PROPERTIES Good Ideas currently shares office space with SAT in Fort Lauderdale, Florida, for no rental charge. Good Ideas' principal executive offices were located in Fort Worth, Texas, where Good Ideas leased approximately 22,000 square feet of office/warehouse space under a lease that expired in December 1995. The base rent for Good Ideas' former space was approximately $5,300 per month. Good Ideas leased an additional 5,000 square feet of warehouse space in Fort Worth for $1,500 per month on a month-to-month basis. Good Ideas is currently subleasing this space from a former vendor of the Company. 7 8 ITEM 3. LEGAL PROCEEDINGS Good Ideas is not a party to any material litigation and is not aware of any pending litigation that could have a material adverse effect on Good Ideas' business, results of operations or financial condition. ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS No Applicable. 8 9 PART II ITEM 5. MARKET INFORMATION MARKET DATA The Good Ideas Common Stock was traded on the Pacific Stock Exchange under the symbol "KID" through December 31, 1996 and thereafter has been traded in the over-the-counter market also under symbol "KID." The following table sets forth the quarterly high and low sales prices for the shares of the Good Ideas Common Stock as reported by the Pacific Stock Exchange during the periods indicated:
QUARTER ENDED HIGH LOW - ------------- ------- -------- FISCAL 1996 June 30, 1995............................................... $1.25 $.625 September 30, 1995.......................................... .75 .50 December 31, 1995........................................... .75 .125 March 31, 1996.............................................. .6875 .25 FISCAL 1997 June 30, 1996............................................... $ .8125 $.125 September 30, 1996.......................................... .6875 .125 December 31, 1996........................................... .50 .015625 March 31, 1997.............................................. * *
- --------------- *According to the National Quotation Bureau, Inc. there were no sales reported during the quarter ended March 31, 1997 and there were no high bid and low asked prices available. On December 31, 1996, the last day on which there was a reported market price, the closing sales price was $.01625. The foregoing quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions. EXCHANGE LISTING On November 18, 1995, the Pacific Exchange advised Good Ideas that the share bid price of the Good Ideas Common Stock was below $1.00 per share, which did not meet the minimum Tier II listing maintenance requirement of the Pacific Exchange, which requirement had become effective January 23, 1995. Good Ideas had been granted an extended compliance period, not to exceed six months from May 9, 1996, to demonstrate that the Good Ideas Common Stock was in compliance. By letter dated November 11, 1996, the Pacific Stock Exchange advised Good Ideas that, should the Good Ideas Merger not be consummated by December 31, 1996 and/or the Good Ideas Common Stock remained in noncompliance with the Pacific Exchange's maintenance requirements, the Good Ideas Common Stock would be delisted effective January 1, 1997. Such delisting has occurred. As a result, the Good Ideas Common Stock now trades in the over-the-counter market. Good Ideas management intends that, if the Good Ideas Merger is consummated, Good Ideas will deregister the Good Ideas Common Stock under Section 12(b) of the Exchange Act and trading in the Good Ideas Common Stock will cease on the effective date of the Good Ideas Merger. In such event, the Good Ideas Minority Stockholders will thereafter be able to trade their shares of the SAT Common Stock on the American Stock Exchange. As an alternative to the Good Ideas Merger, the Board of Directors of Good Ideas had reconsidered in February 1996 the possibility of effecting a reverse stock split of the Good Ideas Common Stock in an amount sufficient to increase the market value of the Good Ideas Common Stock to a level above the minimum requirement of the Pacific Exchange. This approach has been previously rejected because the Board recognized that, unless Good Ideas reversed its adverse operational trends of declining revenues and increasing 9 10 losses, as to which there could be no assurance, it was likely that, after the split, the market price would begin to decline and again reach a level not complying with the Pacific Exchange's maintenance requirement. The Board also recognized that, if delisting occurred, the Good Ideas Common Stock would not meet the market price requirement for listing on the American Stock Exchange or reporting on the Nasdaq System and that, if the Good Ideas Common Stock was reported in the OTC Bulletin Board or in the "pink sheets," it was unlikely that the Good Ideas Common Stock would rise in market value in such over-the-counter market in view of its operational problems. Because the bid price of the Good Ideas Common Stock was below $5.00 when it was delisted, the security became subject to Rule 15g-9 promulgated under the Exchange Act, which Rule imposes additional sales practices requirements on a broker-dealer which sells Rule 15g-9 securities to persons other than the broker-dealer's established customers and institutional accredited investors (as such term is defined in Rule 501(a) under the Securities Act). For transactions covered under Rule 15g-9, the broker-dealer must make a suitability determination of the purchaser and receive the purchaser's written agreement to the transaction prior to the sale. In addition, broker-dealers, particularly if they are market makers in the Common Stock, have to comply with the disclosure requirements of Rules 15g-2, 15g-3, 15g-4, 15g-5 and 15g-6 under the Exchange Act unless the transaction is exempt under Rule 15g-1. Consequently, Rule 15g-9 and these other Rules may adversely affect the ability of broker-dealers to sell or to make markets in the Good Ideas Common Stock. HOLDERS As of June 30, 1997, there were 180 holders of record (including SAT) and, based on prior requests for Annual Reports, management believed that there were approximately 1,100 beneficial holders of the Good Ideas Common Stock. DIVIDENDS Good Ideas' Board of Directors has not declared any dividends on the Good Ideas Common Stock through the date hereof and, in view of the financial condition of Good Ideas and the intention to sell or liquidate Good Ideas, the Board has no current intention to pay any such dividends. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data of Good Ideas for the three fiscal years ended March 31, 1996, 1995 and 1994, the three-month period ended March 31, 1993 and the twelve-month period ended December 31, 1992. This selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Financial Statements and related notes thereto.
THREE MONTHS YEAR ENDED MARCH 31, ENDED YEAR ENDED ------------------------- MARCH 31 DECEMBER 31, 1996 1995 1994 1993(1) 1992 ------- ------ ------ ------------ ------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA(2) Net Sales............................................ $ 1,508 $4,606 $5,544 $ 436 $3,773 Cost of sales........................................ 1,345 3,282 4,057 325 2,845 ------- ------ ------ ------ ------ Gross profit......................................... 163 1,324 1,487 111 928 ------- ------ ------ ------ ------ Operating expenses: Selling, general and administrative................ 1,278 1,924 1,488 297 1,015 Management fees -- parent.......................... 225 305 425 75 150 Write down of Fixed Assets and Inventory to Net Realizable Value................................... 258 -- -- -- -- Projected Cost through Sale or Liquidation........... 110 -- -- -- -- ------- ------ ------ ------ ------ Total Operating Expenses............................. 1,872 2,229 1,913 372 1,165 ------- ------ ------ ------ ------
10 11
THREE MONTHS YEAR ENDED MARCH 31, ENDED YEAR ENDED ------------------------- MARCH 31 DECEMBER 31, 1996 1995 1994 1993(1) 1992 ------- ------ ------ ------------ ------------ Income (Loss) from Operations........................ (1,708) (905) 426) (261) (237) Other income (expense)............................... 142 107 156) (57) (85) ------- ------ ------ ------ ------ Net income (Loss).................................... $(1,566) $ (798) $ (582) $ (318) $ (322) ======= ====== ====== ====== ====== Weighted Average Common Shares Outstanding........... 3,968 4,065 2,942 2,788 2,788 ======= ====== ====== ====== ====== Net Loss Per Common Share................... $ (.39) $ (.20) $ (.20) $ (.11) $ (.12) ======= ====== ====== ====== ====== BALANCE SHEET(2): Cash (overdraft) and cash equivalents................ $ 83 $ 351 $3,608 $ 430 $ 322 Working capital (deficiency)......................... 2,175 3,572 4,114 (769) (422) Note receivable -- parent............................ 2,052 1,196 -- -- -- Note receivable -- affiliated company................ -- 1,027 -- -- -- Total assets......................................... 2,423 3,951 5,604 1,909 1,857 Loan payable -- parent............................... -- -- 437 1,960 1,815 Stockholders' equity (deficit)....................... 2,175 3,735 4,253 (650) (332)
- --------------- NOTE: Net assets (liabilities) in liquidation for fiscal year end 1997 were $(7). (1) Good Ideas changed its fiscal year end date from December 31 to March 31 effective March 31, 1993. (2) The numbers presented in this table have been rounded and, accordingly, may not exactly reflect the numbers which appear in Good Ideas' financial statements. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL SAT acquired an interest in Good Ideas in May 1992. For the period from July 1992 through September 1996, SAT provided management and administrative services to Good Ideas. Pursuant to the Management Services Agreement effective as of October 1, 1993, such fees were computed on the basis of a fixed monthly charge of $25,000, plus five percent of annual gross sales in excess of $5,000,000. On February 26, 1996, SAT suspended payment of management fees by Good Ideas to SAT retroactive to January 1, 1996. Because of the declining sales of Good Ideas and what management believed to be the problems generally in the toy industry (see the section "Results of Operations, Fiscal 1996 vs Fiscal 1995" under this caption), the SAT Board of Directors concluded on February 26, 1996 that Good Ideas was not likely to reverse the trend of increasing losses during the next 12 months. The Board believed that, whether or not the Good Ideas Merger (see the section "Good Ideas Effect of Merger" under this caption) was consummated, the only way to improve operational results was to secure new toy products, whether through licensing arrangements or otherwise; however, this type of program, even if successful, as to which there could be no assurance, would require substantial cash investments, which was contrary to the Board's conclusion that the best opportunity for SAT and its then subsidiaries to maximize revenues and secure profitability was by concentrating on its alcohol and drug testing and human resource provider segments as its core businesses. Accordingly, on February 26, 1996, the SAT Board authorized management to seek a buyer for Good Ideas. The Good Ideas Board believed that, pending receipt of an acceptable offer, as to which there could be no assurance, Good Ideas' cash resources and expected cash flow from operations, coupled with its cost reduction actions (such as not renewing the lease for office and warehouse facilities and eliminating the management fee,) would be sufficient to meet Good Ideas' cash requirements for the next 12 months if such time was required to sell or liquidate. However, there could be no assurance that additional funds would not have been required. The SAT Board and the Good Ideas Board each believes that liquidation of Good Ideas as soon after the results of the consent solicitation for the Good Ideas Merger are known would be preferable to investing at that time substantial additional funds in Good Ideas, other than repaying SAT's indebtedness to Good Ideas due the 11 12 earlier of (a) five business days after the end of the consent solicitation period for the Good Ideas Merger if the Good Ideas Merger is not approved or (b) the effective date of the Good Ideas Merger. Even if the indebtedness was repaid, neither SAT's nor Good Ideas' management believes that amount would be sufficient to purchase the new toy lines necessary to attempt to effect a turnaround on Good Ideas' operations, assuming that were the intention. Repayment would be made only if necessary to complete the liquidation if the Good Ideas Merger is not approved. LIQUIDITY AND CAPITAL RESOURCES During fiscal 1997 through December 31, 1996, Good Idea's primary activity was seeking purchases for its stock or assets, although for a period its Chief Executive Officer (through December 31, 1996 when his employment agreement was not renewed) and made certain efforts to secure orders. Because all operations have ceased, there were no revenues in fiscal 1997 and not expected thereafter and SAT may charge any of its expenses incurred on behalf of Good Ideas against the loan balance, there is no requirement for Good Ideas to seek financing pending consummation of the Good Ideas Merger or its liquidation. On February 26, 1996, the SAT Board determined to sell or liquidate Good Ideas, a conclusion concurred with by the Good Ideas Board. As a result of the above decision, the assets of Good Ideas are included in the consolidated balance sheet at management's estimate of liquidation value and the results of operations of Good Ideas are presented on a liquidation basis. As a result there was no Statement of Operations for fiscal 1997. The change in assets (liabilities) held for liquidation included a reserve for $2,032,000 for a note receivable due from SAT leaving a net deficit of $7,000. Cash used by operations was $444,000 for fiscal 1996. The net loss for the period was $1,566,000. Significant non-cash operating charges of depreciation in the amount of $60,000, writedown of assets to realizable value of $258,000 and projected costs through sale or liquidation of $110,000 reduced the cash loss. Cash was provided through payments received on accounts receivable of $251,000, decreases in inventories of $370,000 and prepaid expenses of $103,000, and cash was used to pay down accounts payable and accrued expenses by $68,000. Cash was provided by investing activities during fiscal 1996 through the net disposal of property and equipment in the amount of $13,000. Cash provided from financing activities was $162,000 for fiscal 1996 related to net repayments by SAT with respect to its loan from Good Ideas in the amount of $171,000, offset by $9,000 in payments made on capital leases. EFFECT OF GOOD IDEAS MERGER During April, 1996, SAT filed the Good Ideas Registration Statement to solicit the consents of the Good Ideas Minority Stockholders to a merger of a wholly-owned subsidiary of SAT with and into Good Ideas and to register shares of the SAT Common Stock to be issued to the Good Ideas Minority Stockholders if the Good Ideas Merger is consummated. Amendment No. 2 to the Registration Statement filed on April 21, 1997 provided for an exchange offer of .36 of a share of the SAT Common Stock for each share of the Good Ideas Common Stock or an aggregate of 557,524 shares of the SAT Common Stock for the 1,548,680 shares held by the Good Ideas Minority Stockholders. SAT intends to file Amendment No. 3 to the Registration Statement, including the audited financial statements reported in this Report and in the Good Ideas Annual Report on Form 10-K, and then to seek to have such Registration Statement declared effective. SAT may delay the filing in order to give the Staff of the Commission time to review the audited financial statements and to permit mailing of proxy material for a Special Meeting of Stockholders to approve a proposed increase in authorized shares of the SAT Common Stock. There can be no assurance as to when the Good Ideas Registration Statement will be declared effective in view of the past delays. 12 13 RESULTS OF OPERATIONS Fiscal 1997 vs. Fiscal 1996 On February 26, 1996 the SAT Board determined to sell or liquidate Good Ideas, a conclusion concurred with by the Good Ideas Board. As a result of the above decision, the assets of Good Ideas are included in the consolidated balance sheet at management's estimate of liquidation value and the results of operations of Good Ideas are presented on a discontinued basis. All operations of Good Ideas have been terminated and, since March 31, 1996, Good Ideas has been presented under the liquidation basis of accounting in the financial statements of Good Ideas in this Report and reported as a discontinued operation in SAT's consolidated financial statements. It is the current intention of the SAT Board that, whether or not the Good Ideas Merger is consummated, to sell or liquidate Good Ideas as soon after the results of the consent solicitation for the Good Ideas Merger are known. In fiscal 1997 Good Ideas liquidated a portion of its inventory resulting in $48,900 in revenue compared to net sales for fiscal of $1,508,000. Fiscal 1996 vs. Fiscal 1995 Net sales for fiscal 1996 were $1,508,000, a decrease of $3,098,000 or 67.3% from the net sales in the prior year. Of this decrease, $1,944,000 or 62.8% was attributable to Toys R Us, the major customer of Good Ideas, not placing orders for Good Ideas' toy products. The customer attributed its reduction in orders to its large inventories and declining sales and customer traffic. Management believes that other manufacturers in the toy industry are currently facing these same problems -- their distributors or retailers to which they sell have large inventories of products and declining sales and customer traffic. In addition, management believes that many retailers are minimizing their number of vendors and reducing the number of items carried in inventory, which has the result of squeezing out the smaller companies with their limited product lines. Net sales from Good Ideas' wooden construction toy category for the fiscal 1996 were $967,000, a decrease of $1,874,000 or 66.0% from the net sales in the comparable period in fiscal 1995. Net sales from Good Ideas' equestrian line of toys, consisting of horses, saddles and accessories, for fiscal 1996 were $531,000, representing a decrease of $682,000 or 56.2% from those in the prior year. Net sales of Good Ideas' other product lines for fiscal 1996 were $10,000, a decrease of $542,000 or 98.2% from the prior year. The decrease was attributable to the discontinuance of Good Ideas' line of corrugated cardboard construction toys because of significant increases in the cost of materials. Gross profit for fiscal 1996 was $163,000, or 10.8% of net sales, as compared to $1,324,000, or 28.7% of net sales, for the prior year. The decrease in gross profit as a percentage of net sales was primarily due to lower sales volumes in relation to fixed costs and the write-off of obsolete inventory in the amount of $192,000. Good Ideas had reviewed its inventory for obsolescence annually and written off to cost of sales inventory determined to be obsolete. The fiscal 1996 write-off is more significant in relation to gross profit than past years due to the lower sales level and the pending sale or liquidation of assets. Prior year provisions for obsolescence were not significant in relation to higher cost of sales and gross profit levels. Selling, general and administrative expenses for fiscal 1996 decreased to $1,279,000 from $1,924,000 in fiscal 1995, which decrease was attributable to reductions in payroll and related costs during fiscal 1996. Good Ideas recognized interest income from its loans to its major stockholder, SAT, and "USRR", a wholly owned subsidiary of SAT, of $158,000 during fiscal 1996 compared to $68,000 during fiscal 1995. Good Ideas also recognized interest income from money market investments of $3,500 and $42,000 in fiscal 1996 and 1995, respectively. Management fees paid to SAT were $225,000 for fiscal 1996, representing a decrease of $80,000 from the $305,000 of fees paid for fiscal 1995. The decrease resulted from SAT's suspension of the management fee retroactive to January 1, 1996. The net loss for the fiscal 1996 was $1,566,000, representing an increase of $768,000 from the net loss of $798,000 for fiscal 1995. The increase in the net loss was due to the decreases in sales and gross profit offset by 13 14 the decreases in selling, general and administrative expenses and management fees, all as described in the preceding paragraphs. The net loss for the current year was also increased by writedown of assets in the amount of $258,000 and projected costs through sale or liquidation in the amount of $110,000. As March 31, 1996, Good Ideas had net operating loss carryforwards of approximately $3,085,000 for federal income tax purposes. Good Ideas adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," effective January 1, 1992. The adoption of this statement did not have a material effect on Good Ideas' financial condition or results of operations. Net operating loss carryforwards can be used to offset federal taxable income during a 15-year period from the date of the loss. Under the Tax Reform Act of 1986, the amounts of, and the benefit from, net operating losses that can be carried forward may be impaired or limited in certain circumstances. Events which may offset these carryforwards include, but are not limited to, a cumulative stock ownership change of greater than 50%, as defined, over a three-year period. Unless Good Ideas were to add new products to its lines, as to which there could not be any assurance or there were a stronger demand for the toy products in the industry generally, management did not believe that a turnaround in Good Ideas' operations would occur during the next 12 months, if not at a later date. Although management of Good Ideas' had considered plans to expand the product line, it was reluctant to implement these plans absent a change in the industry conditions described above. As indicated in the section "General" under this caption "Good Ideas' Management Discussion and Analysis of Financial Condition and Results of Operations," on February 26, 1996, management determined to seek a buyer for Good Ideas. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Good Ideas' financial statements appear in a separate section of this Annual Report. See Item 14 of this Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTS ON ACCOUNTING AND FINANCIAL DISCLOSURES On November 3, 1995, SAT named Ernst & Young LLP ("E&Y") as new independent auditors for SAT and its subsidiaries, which included Good Ideas, for fiscal 1996 replacing Wolinetz, Gottlieb & Lafazan, P.C. ("Wolinetz"), which firm had served as the Company's independent auditors since its inception. The report of Wolinetz on the financial statements of good Ideas for fiscal 1995 did not contain an adverse opinion or disclaimer of opinion, nor was such report qualified as to uncertainty, audit scope or accounting principles. There had been no disagreements between Good Ideas and Wolinetz in fiscal 1995 or any subsequent interim period preceding the engagement of E&Y as the principal auditors on any matter of accounting principles or practice, financial statement disclosure, auditing scope or procedures. Wolinetz has filed a letter to the Commission stating that it agreed with the above statements. Good Ideas did not consult E&Y, prior to its engagement, regarding the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on its financial statements, nor was a written report or oral advise provided to SAT that E&Y concluded was an important factor considered by the Company in reaching a decision as to an accounting, auditing or financial reporting issue. 14 15 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS DIRECTORS AND EXECUTIVE OFFICERS The following table contains certain information relating to the directors and executive officers of Good Ideas as of June 30, 1997:
NAME AGE POSITION - ---- --- -------- Robert M. Stutman.................................... 54 Chairman of the Board and a Director Linda H. Masterson................................... 46 President and Director Michael S. McCord.................................... 53 Director William D. Robbins................................... 47 Director Robert Muccini....................................... 55 Vice President, Finance, Treasurer, Chief Financial Officer and Chief Accounting Officer
The Certificate of Incorporation of Good Ideas provides for the division of the Board of Directors into three classes, each class serving for a period of three years. The foregoing notwithstanding, directors serve until their successors have been duly elected and qualified or until they resign, become disqualified or disabled, or are otherwise removed. If a vacancy is created in any class, the Board may elect a director who will serve until the next Annual Meeting or Stockholders at which time he or she, if the director is to be reelected, bust be designated to a class. Of the directors named above, Mr. Robbins' term is scheduled to expire with the Annual Meeting of Stockholders in 1997. Messrs. McCord and Stutman and Ms. Masterson were elected by the Board on May 31, 1996 and, accordingly, must be designated to a class if they stand for reelection a the next Annual Meeting of Stockholders, which will not be held because either the Good Ideas Merger will be consummated or Good Ideas will be sold or liquidated. Glenn A. Bergenfield and William DiTuro, who were elected by stockholders to serve until the Annual Meeting of Stockholders in 1995, resigned as directors on November 16, 1995. Karen B. Laustsen, James C. Witham and Gary S. Wolff, who were elected by stockholders to serve until the Annual Meeting of Stockholders in 1996, resigned as directors on May 28, 1996, May 31, 1996 and July 3, 1996, respectively. Michael J. Witham, who was elected to serve until and Annual Meeting of Stockholders in 1997, resigned on September 26, 1995. Each officer of Good Ideas is elected by the Board and serves at the discretion of the Board until his or her successor is elected and qualifies or until he or she resigns, becomes disqualified or disabled, or is otherwise removed. BUSINESS HISTORY Robert M. Stutman was elected Chairman of the Board and a director of SAT on April 18, 1996 and designated as its Chief Executive Officer. For more than five years prior thereto, he had been serving as the President of Robert Stutman & Associates, Inc. ("RSA"), a provider of corporate "Drug-Free Workplace" programs. Prior to forming RSA, he was Special Agent in charge of the New York office of the United States Drug Enforcement administration (the "DEA"). He also currently serves as a special consultant in substance abuse for CBS News Division. SAT acquired RSA on May 21, 1996. On May 31, 1996, Mr. Stutman was elected as Chairman of the Board and a director of Good Ideas. Linda H. Masterson has had substantial experience in marketing, sales and business development in the medical diagnostics, healthcare and biotechnology fields. On September 26, 1995, she was elected a director of SAT. Effective May 14, 1996, she became the President and Chief Operating Officer of SAT. Effective November 19, 1996, she relinquished her duties as Chief Operating Officer in order to devote more time to supervising the development program of SAT's subsidiary U.S. Drug Testing, Inc. ("US Drug") and the operations of the Alcohol Products and BioTox Divisions of SAT. On May 23, 1997, she resigned as the 15 16 President of SAT in order to become Chief Executive Officer of U.S. Drug (the was already its President) as part of the program to study the feasibility of separating the interlocking relationships between SAT and U.S. Drug. Until May 13, 1996, she was employed as the Executive Vice President of Cholestech, Inc., a start-up diagnostic company, for which she develop and restructured the company business strategy. In 1993, Ms. Masterson founded Masterson & Associates, a company of which she was the President and owner until she joined Cholestech, Inc. in May 1994, which was engaged in the business of providing advice to start-up companies, including the preparation of technology and market assessments and the preparation of strategic and five-year business plans for biotech, medical device, pharmaceutical and software applications companies. From 1992 to 1993, Ms. Masterson was employed as the Vice President of Marketing and Sales of BioStar, Inc., a start-up biotech company focused on the commercialization of a new detection technology applicable to both immunoassay and hybridization based systems. From 1989 to 1992, she was employed as Senior Vice President of Marketing, Sales and Business Development by Gen-Probe, Inc., a specialized genetic probe biotechnology company focused on infectious diseases, cancer and therapeutics. Prior to 1989, Ms. Masterson was employed for 12 years in various domestic and international marketing and sales positions as Johnson & Johnson, Inc., Baxter International Inc. and Warner Lambert Co. Ms. Masterson has a BS in Medical Technology from the University of Rhode Island, a MS in Microbiology/Biochemistry from the University of Maryland and attended the Executive Advanced Management Program at the Wharton School of Business at the University of Pennsylvania. She was elected President and a director of Good Ideas on May 31, 1996. Robert Muccini was elected on February 17, 1997 as Vice President, Finance and Treasurer of SAT and designated Chief Financial Officer and Chief Accounting Officer of SAT effective with the then anticipated resignation of Dennis A. Wittman (who had served since September 5, 1996) as a result of the then intended relocation of SAT's Finance and Accounting Department from Rancho Cucamonga, California to its corporate headquarters in Fort Lauderdale, Florida, which resignation and, accordingly, Mr. Muccini's election and designation became effective on February 25, 1997. In anticipation of the contemplated relocation of SAT's Finance and Accounting department to corporate headquarters in Fort Lauderdale, Florida, he joined SAT on December 16, 1996. From May 1996 until he joined SAT, Mr. Muccini acted as a consultant on accounting matters to Precision Response Corporation, a provider of telemarketing services. From December 1994 to April 1996, he was Chief Financial Officer of Expert Software, Inc., a developer of consumer software. From November 1991 to July 1994, he was Vice President of Finance of Bird Corporation, a building products manufacturer and environmental services provider. From 1983 to 1990, he was Senior Vice President of Finance of MicroAmerica, Inc. (now Merisel, Inc.), computer distributor. From 1981 to 1983, he was Controller and Chief Financial Officer of Hyde Athletic Industries, an importer and distributor of athletic footwear. From 1979 to 1981, he was Controller and Treasurer of Stride-Rite Corporation, also an importer and distributor of athletic footwear. From 1967 to 1979, he was an accounting manager in the Construction Products Division of W.R. Grace & Company. Mr. Muccini holds a B.S./B.A. degree in accounting from Northeastern University. On February 17, 1997, Mr. Muccini was elected Vice President, Finance and Treasurer and designated as Chief Financial Officer and Chief Accounting Officer of Good Ideas. Michael S. McCord is the owner of McCord Investments, a sole proprietorship formed in 1980 which primarily invests in various capital markets. Mr. McCord is also a stockholder, director and officer of McCord Brothers, Inc. and a partner of McCord Brothers Partnership, a privately-owned company and partnership, respectively, each of which invests in oil, gas and real estate properties. From 1974 to 1980, Mr. McCord served as Financial Vice President of the Wedge Group, a privately held holding company which acquired and hold control of international multi-industry (including agricultural, construction, energy, manufacturing and service) companies with aggregate revenues in excess of $1 billion. Mr. McCord was elected as a director of Good Ideas and SAT on May 31, 1996 and October 22, 1977, respectively. From October 12, 1995 to October 22, 1996, he served SAT as a consultant to its Board of Directors. William D. Robbins, a co-founder of Good Ideas Texas, has served as Chief Executive Officer and a director of Good Ideas or its predecessor Good Ideas Texas since the letter's inception in December 1987. His designation as Chief Executive Officer ended with the termination of his employment with Good Ideas on December 31, 1996. From September 1986 to December 1987, Mr. Robbins was employed by LJN Toy 16 17 Company. Prior to September 1986, Mr. Robbins was employed by Toys R Us for 18 years, most recently as General Merchandising Manager of Imports and Director of Product Development. FAMILY RELATIONSHIPS There are no family relationships among the directors and executive officers of the Company. COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT Based solely on a review of Forms 3 and 4 furnished to Good Ideas under Rule 16a-3(e) promulgated under the Exchange Act with respect to fiscal 1997, Good Ideas is not aware of any director or officer of Good Ideas who failed to file on a timely basis, as disclosed in such forms, reports required by Section 16(a) of the Exchange Act during fiscal 1997 or prior years. As of March 31, 1997, Good Ideas is not aware of any beneficial owner of 10% or more of Good Ideas Common Stock other than SAT which has advised Good Ideas that it had no transactions in the Good Ideas Common Stock during fiscal 1997. SUMMARY COMPENSATION TABLE The following table sets forth certain information as to the cash compensation of the Chief Executive Officer of Good Ideas through December 31, 1996. The Chief Executive Officer (Robert M. Stutman) subsequent thereto receives no compensation from Good Ideas. There was no other executive officer of Good Ideas whose cash compensation exceeded $100,000 in fiscal 1997.
ANNUAL COMPENSATION LONG TERM COMPENSATION NAME AND PRINCIPAL ------------------------ ------------------------------------- POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION - ------------------ ---- -------- ----- ------------ ------- ------------ William D. Robbins................... 1997 $120,000(1) -- -- -- -- Chief Executive Officer.............. 1996 160,000 -- -- -- -- 1995 $160,615 -- -- -- --
- --------------- (1) Through December 31, 1996 when his employment agreement terminated. OPTION/SAR GRANTS IN LAST FISCAL YEAR Good Ideas did not grant any stock options during fiscal 1997 and has never granted any stock appreciation rights. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES There were no stock options exercised in fiscal 1997; as indicated in the preceding subsection, no stock appreciation rights were ever granted; and, as indicated in the ensuring paragraph, there were no stock options outstanding as of March 31, 1997. In December 1993, the Board of Directors approved a stock option/stock issuance plan which covered 500,000 shares of the Good Ideas Common Stock. In December 1993, stock options expiring December 17, 2003 (the "Good Ideas Options") to purchase an aggregate of 37,500 shares of the Good Ideas Common Stock at $4.40 per share were granted to the then five directors. Good Ideas Options to purchase 7,500 shares each granted to Glenn A. Bergenfield and William DiTuro, who resigned as directors on November 16, 1995, terminated on February 16, 1996. Good Ideas Options to purchase 7,500 shares each granted to Karen B. Laustsen, Mames C.Witham and Gary S. Wolff, who resigned as directors on May 28, 1996, May 31, 1996 and July 3, 1996, respectively, terminated on August 26, 1996, August 29, 1996 and October 1, 1996, respectively. As a result, there were no Good Ideas Options outstanding on March 31, 1997. OTHER COMPENSATION Good Ideas currently has no pension plan in effect and has in effect no stock option plan, no restricted stock plan, no stock appreciation rights nor any other long-term incentive plan under which grants or allocations may be made in fiscal 1997 or thereafter. 17 18 DIRECTOR COMPENSATION Good Ideas previously paid each director who is not a compensated officer of Good Ideas $1,000 for each Board meeting attended, plus reimbursement of reasonable out-of-pocket expenses. This policy has been suspended as part of the cost reduction actions. EMPLOYMENT CONTRACTS Messrs. William D. Robbins and Richard Snyder entered into employment agreements with Good Ideas, which provided for terms from January 1, 1994 to December 31, 1996 and from June 1, 1995 to May 31, 1997 respectively. Pursuant to these agreements, Mr. Robbins was employed as Chief Executive Officer and Mr. Snyder was employed as Chief Operating Officer and President. Under the agreements, the Company agreed to pay Mr. Robbins and Mr. Snyder a base annual salary of $160,000 and $110,000 respectively. Such base salaries were subject to increase at the discretion of the Board of Directors. Mr. Robbins' employment agreement further provided that Mr. Robbins would receive bonuses at the discretion of the Board of Directors. Mr. Snyder's employment agreement provided for a performance bonus equal to 2% of the increase in gross revenues over the prior 12-month period first payable after May 31, 1996. In September 1995, Mr. Snyder was transferred, with his full consent, to USRR, a former wholly-owned subsidiary of SAT whose operations were discontinued on April 30, 1996, and was dissolved on December 31, 1996, upon the same terms and conditions as his former employment with Good Ideas. Mr. Robbins agreement was not renewed and, accordingly, his employment by Good Ideas terminated on December 31, 1996. In December 1993 and April 1994, William Rodish and Jody Harding entered into employment agreements with Good Ideas, which provided for three-year terms from January 1, 1994 to December 31, 1996 and from April 1, 1994 to March 31, 1997, respectively, at base annual salaries of $60,000 and $55,000, respectively. On October 13, 1995, Mr. Rodish resigned as the Vice President of marketing of Good Ideas. Mr. Rodish's employment contract was terminated with no further financial obligation on Good Ideas' part. In April 1996, Ms. Harding resigned as the Controller and the Secretary of Good Ideas. Ms. Harding's employment contract was terminated and Good Ideas made a $10,000 severance payment to Ms. Harding. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of June 30, 1997, certain information with respect to (1) any person who beneficially owned more than 5% of the Good Ideas Common Stock, (2) each director of Good Ideas, (3) the then Chief Executive Officer of Good Ideas who received no compensation from Good Ideas in fiscal 1997 and his predecessor who was the only executive officer of Good Ideas whose total annual salary and bonus exceeded $100,000 in fiscal 1996; and (4) all directors and executive officers as a group. Each beneficial owner who is a natural person has advised Good Ideas that he or she has sole voting and investment power as to the shares of the Good Ideas Common Stock reported in the table, except that, with respect to the beneficial ownership of SAT's shares, the voting and investment power is shared by the seven directors of SAT, a majority of whom must approve any vote or disposition of such shares.
PERCENTAGE OF NUMBER OF SHARES COMMON STOCK NAME AND ADDRESS OF COMMON STOCK BENEFICIALLY OF BENEFICIAL OWNER BENEFICIALLY OWNED OWNED(1) - ------------------- ------------------ ------------------ Substance Abuse Technologies, Inc........................... 2,400,000 60.8% 4517 N.W. 31st Avenue Ft. Lauderdale, FL 33309 William D. Robbins(2)....................................... 200,000 5.1 c/o Good Ideas Enterprises, Inc. 10410 Trademark Street Rancho Cucamonga, CA 91730
18 19
PERCENTAGE OF NUMBER OF SHARES COMMON STOCK NAME AND ADDRESS OF COMMON STOCK BENEFICIALLY OF BENEFICIAL OWNER BENEFICIALLY OWNED OWNED(1) - ------------------- ------------------ ------------------ Robert M. Stutman(3)........................................ 2,400,000(4) 60.8 4517 N.W. 31st Avenue Ft. Lauderdale, FL 33309 Linda H. Masterson(5)....................................... 0 0 10410 Trademark Street Rancho Cucamonga, CA 91730 Michael S. McCord(6)........................................ 10,000 nil Suite 701 2001 Kirby Drive Houston, TX 77019 All directors and executive officers as a group (5 persons).................................................. 210,000 5.3
- --------------- (1) The percentages computed in this column of the table are based upon 3,948,680 shares of the Good Ideas Common Stock outstanding on June 30, 1997. No effect is given, pursuant to Rule 13d-3(d)(3)(i) under the Exchange Act, to shares issuable upon the exercise of Good Ideas Common Stock warrants because no person named in the table owns such a Warrant. (2) Former Chief Executive Officer and a director of Good Ideas. (3) Chairman of the Board and a director of Good Ideas and Chairman of the Board, Chief Executive Officer and a director of SAT. (4) Mr. Stutman, as the Chairman of the Board the Chief Executive Officer and a director of SAT, may be deemed to be the beneficial owner of the SAT shares of the Good Ideas Common Stock. See, however, the introductory paragraph to this section. (5) President and a director of Good Ideas and a director of SAT. (6) A director of Good Ideas and SAT. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See the section "Management Services Agreement," "Relationships With SAT" and "Loans From Good Ideas to SAT and Affiliate" in Item 1 of this Report. For information as to the relationship of Mr. Stutman and Ms. Masterson to SAT, see the sections "Directors and Executive Officers" and "Employment Agreements" in Item 10 of this Report. 19 20 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K (A)(1) FINANCIAL STATEMENTS: Good Idea's financial statements appear in a separate section of this Annual Report on Form 10-K commencing on the pages referenced below:
PAGE ---- Report of Ernst & Young LLP................................. F-1 Report of Wolinetz, Gottlieb & Lafazan P.C.................. F-2 Statements of Net Assets in Liquidation as of March 31, 1997 and 1996.................................................. F-3 Statement of Changes in Net Assets (Liabilities) in Liquidations for the year ended March 31, 1997............ F-4 Statements of Operations for the years ended March 31, 1997, 1996 and 1995............................................. F-5 Statements of Stockholders' Equity for the years ended March 31, 1997, 1996 and 1995................................... F-6 Statements of Cash Flows for the years ended March 31, 1997, 1996 and 1995............................................. F-7 Notes to Financial Statements............................... F-8
(2) FINANCIAL STATEMENT SCHEDULES Schedules are omitted as they are not required or are not applicable or the required information is shown in the financial statements or notes thereto. (3) EXHIBITS All of the following exhibits designated with a footnote reference are incorporated herein by reference to a prior registration statement filed under the Securities Act or a periodic report filed by Good Ideas or SAT pursuant to Section 13 or 15(d) of the Exchange Act. If no footnote reference is made, the exhibit is filed with this Report.
EXHIBIT NUMBER EXHIBITS - -------- -------- 2(a) -- Copy of Exchange of Stock Agreement and Plan of Reorganization dated May 7, 1992 between Good Ideas, U.S. Alcohol & Drug Testing International N.V. and David Brooks.(1) 2(b) -- Copy of Agreement and Plan of Merger dated as of April 12, 1996 by and among SAT, Good Ideas Acquisition Corp. and Good Ideas.(4) 2(b)(1) -- Copy of Agreement and Plan of Merger dated as of February 17, 1997 by and among SAT, Good Ideas Acquisition Corp. and Good Ideas.
3(a)(1) -- Copy of the Certificate of Incorporation of Good Ideas as filed in Delaware on June 5, 1992.(1) 3(a)(2) -- Copy of the Certificate of Merger of Good Ideas Enterprises, Inc., a Texas corporation, with and into Good Ideas as filed on December 17, 1992.(1) 3(a)(3) -- Copy of the Restated Certificate of Incorporation of Good Ideas as filed in Delaware on February 3, 1994.(1) 3(b) -- Copy of By-Laws of Good Ideas.(1) 10(a) -- Copy of Employment Agreement dated as of December 15, 1993 between William D. Robbins and Good Ideas.(1) 10(b) -- Copy of Employment Agreement dated as of December 15, 1993 between William Rodish and Good Ideas.(1) 10(c) -- Copy of Employment Agreement dated as of June 1, 1995 between Richard Snyder and Good Ideas.(1) 10(d) -- Copy of Management Services Agreement dated December 29, 1993 by and between Good Ideas and USAT.(1) 10(e) -- Copy of Lease dated December 9, 1992 by and between Melvin E. Evans as landlord and Good Ideas as tenant.(1) 10(f) -- Copy of Contribution Agreement dated December 15, 1993 by and between Good Ideas and SAT.(1) 20 21
EXHIBIT NUMBER EXHIBITS - -------- -------- 10(g) -- Copy of Letter Agreement dated December 17, 1993 executed by and between Good Ideas and SAT.(1) 10(h) -- Copy of Letter Agreement dated December 17, 1993 executed by SAT.(1) 10(i) -- Copy of Demand Promissory Note dated March 31, 1995 executed by U.S. Rubber Recycling, Inc. in favor of Good Ideas.(2) 10(j) -- Copy of Demand Promissory Note dated March 31, 1995 executed by SAT in favor of Good Ideas.(2) 10(k) -- Copy of 1993 Stock Option Plan of Good Ideas.(1) 10(k)(1) -- Form of Notice of Grant of Stock Option.(1) 10(k)(2) -- Form of Stock Option Agreement.(1) 10(k)(3) -- Form of Stock Issuance Agreement.(1) 10(l) -- Copy of Employment Agreement dated April 1, 1994 between Jody Harding and Good Ideas.(4) 16 -- Letter dated November 16, 1995 from Wolinetz, Gottlieb & Lafazan, P.C. to the Securities and Exchange Commission relating to SAT.(3)
- --------------- (1) Filed as an exhibit to the Registration Statement on Form S-1, File No. 33-73494, of Good Ideas and incorporated herein by this reference. (2) Filed as an exhibit to Good Ideas' Annual Report on Form 10-K for the fiscal year ended March 31, 1995 and incorporated herein by this reference. (3) Filed as an exhibit to USAT's Current Report on Form 8-K/A filed on November 22, 1995 and incorporated herein by this reference. (4) Filed as an exhibit to Good Ideas' Annual Report on Form 10-K for the fiscal year ended March 31, 1996 and incorporated herein by this reference. 21 22 SIGNATURES Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on July 14, 1997. GOOD IDEAS ENTERPRISES, INC. (Company) By: ------------------------------------ Robert M. Stutman Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Company and in the capacities indicated on July 14, 1997.
SIGNATURE TITLE DATE --------- ----- ---- Principal Executive Officer - ----------------------------------------------------- and Director Robert M. Stutman Principal Financial and - ----------------------------------------------------- Accounting Officer Robert Muccini Director - ----------------------------------------------------- Linda H. Masterson Director - ----------------------------------------------------- William D. Robbins
22 23 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors and Shareholders Good Ideas Enterprises, Inc. Rancho Cucamonga, California We have audited the statements of net assets in liquidation of Good Ideas Enterprises, Inc. as of March 31, 1997 and 1996 and the related statement of changes in net assets (liabilities) in liquidation for the year ended March 31, 1997. In addition, we have audited the statements of operations, stockholders' equity, and cash flows for the year ended March 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the 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 audits provide a reasonable basis for our opinion. As more fully described in Note 1 to the financial statements, on February 26, 1996, the majority stockholder of the Company approved a plan to liquidate and dispose of the net assets of the Company, and the Company commenced liquidation shortly thereafter. As a result, the Company changed its basis of accounting as of March 31, 1996, and for the periods subsequent to that date, from the going-concern basis to a liquidation basis. In our opinion, the statements referred to above present fairly, in all material respects, the net assets in liquidation of Good Ideas Enterprises, Inc. as of March 31, 1997 and 1996, the change in net assets (liabilities) in liquidation for the year ended March 31, 1997, and the results of its operations and its cash flows for the year ended March 31, 1996, in conformity with generally accepted accounting principles applied on the basis described in the preceeding paragraph. Miami, Florida July 3, 1997 F-1 24 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors and Shareholders Good Ideas Enterprises, Inc. Rancho Cucamonga, California We have audited the accompanying statements of operations, stockholders' equity and cash flows of Good Ideas Enterprises, Inc. for the year ended March 31, 1995. These statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these 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 statements referred to above present fairly, in all material respects, the results of operations and cash flows of Good Ideas Enterprises, Inc. for the year ended March'31, 1995, in conformity with generally accepted accounting principles. WOLINETZ, GOTTLIEB & LAFAZAN, P.C. Rockville Centre, New York May 26, 1995 F-2 25 GOOD IDEAS ENTERPRISES, INC. STATEMENTS OF NET ASSETS IN LIQUIDATION
MARCH 31 ------------------------- 1997 1996 ----------- ----------- ASSETS Cash and cash equivalents................................. $ 1,484 $ 82,701 Accounts receivable (net of allowance for bad debts of $77,000 in 1996)....................................... -- 61,612 Inventories............................................... -- 196,209 Prepaid expenses.......................................... -- 7,358 Note receivable -- parent................................. -- 2,052,243 Equipment, net............................................ -- 15,801 Other assets.............................................. -- 6,808 ----------- ----------- Total assets................................................ 1,484 2,422,732 LIABILITIES Accounts payable.......................................... 8,880 86,830 Accrued expenses.......................................... -- 28,858 Capital lease obligations................................. -- 22,519 Reserve for sale or liquidation costs..................... -- 110,000 ----------- ----------- Total liabilities........................................... 8,880 248,207 Commitments and contingencies............................... -- -- ----------- ----------- Net assets (liabilities) in liquidation*.................... $ (7,396) $ 2,174,525 =========== =========== * Comprised of the following: Preferred stock, $.001 par value; 2,000,000 shares authorized, none issued and outstanding................... -- -- Common stock; $001 par value, 20,000,000 shares authorized; 3,948,680 shares issued and outstanding in 1997 and 1996...................................................... $ 3,949 $ 3,949 Additional paid-in capital.................................. 5,768,662 5,768,662 Accumulated deficit......................................... (5,780,007) (3,598,086) ----------- ----------- $ (7,396) $ 2,174,525 =========== ===========
See accompanying notes. F-3 26 GOOD IDEAS ENTERPRISES, INC. STATEMENT OF CHANGES OF NET ASSETS (LIABILITIES) IN LIQUIDATION MARCH 31, 1997 Expenses incurred in liquidation............................ $ (311,755) Interest income -- parent................................... 162,289 Reserve for note receivable -- parent....................... (2,032,455) ----------- Decrease in net assets...................................... (2,181,921) Net assets at April 1, 1996................................. 2,174,525 ----------- Net deficit at March 31, 1997............................... $ (7,396) ===========
See accompanying notes. F-4 27 GOOD IDEAS ENTERPRISES, INC. STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, ------------------------- 1996 1995 ----------- ----------- Net sales................................................... $ 1,508,819 $ 4,606,039 Cost of sales............................................... 1,345,349 3,281,999 ----------- ----------- Gross profit................................................ 163,470 1,324,040 Operating expenses: Selling, general and administrative expenses.............. 1,278,633 1,924,078 Management fees -- parent................................. 225,000 305,121 Write down of fixed assets and inventory to net realizable value.................................................. 258,388 -- Projected costs through sale or liquidation............... 110,000 -- ----------- ----------- Total operating expenses.................................... 1,872,021 2,229,199 ----------- ----------- Loss from operations........................................ (1,708,551) (905,159) ----------- ----------- Other income (expense): Loss on sale of assets.................................... (19,930) -- Interest expense -- parent................................ -- (3,862) Interest income (expense)................................. 3,516 41,930 Interest income -- parent................................. 157,813 20,803 Interest income -- affiliated Company..................... -- 47,379 Other income.............................................. 860 602 ----------- ----------- Total other income.......................................... 142,259 106,852 ----------- ----------- Net loss.................................................... $(1,566,292) $ (798,307) =========== =========== Weighted average common shares outstanding.................. $ 3,968,372 $ 4,065,200 =========== =========== Net loss per common share................................... $ (.39) $ (.20) =========== ===========
See accompanying notes. F-5 28 GOOD IDEAS ENTERPRISES, INC. STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED MARCH 31, 1996 AND 1995
ADDITIONAL COMMON PAID-IN ACCUMULATED STOCK CAPITAL DEFICIT TOTAL ------ ---------- ----------- ----------- Balance at April 1, 1994................... $4,000 $5,482,341 $(1,233,487) $ 4,252,854 Sale of 65,200 shares of Common Stock in connection with over-allotment provision of initial public offering, net of offering costs of $44,731................ 65 281,204 -- 281,269 Net loss for the year ended March 31, 1995..................................... -- -- (798,307) (798,307) ------ ---------- ----------- ----------- Balance at March 31, 1995.................. 4,065 5,763,545 (2,031,794) 3,735,816 Surrender of 126,520 shares of Common Stock by former officer in connection with resignation.............................. (126) 127 -- 1 Issuance of 10,000 shares of Common Stock to officer for compensation.............. 10 4,990 -- 5,000 Net loss for the year ended March 31, 1996..................................... -- -- (1,566,292) (1,566,292) ------ ---------- ----------- ----------- Balance at March 31, 1996.................. $3,949 $5,768,662 $(3,598,086) $ 2,174,525 ====== ========== =========== ===========
See accompanying notes F-6 29 GOOD IDEAS ENTERPRISES, INC. STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31 -------------------------- 1996 1995 ----------- ----------- OPERATING ACTIVITIES Net loss.................................................... $(1,566,292) $ (798,307) Adjustments to reconcile net loss to net cash used by operating activities: Provision for bad debts and allowances.................... 4,575 27,273 Depreciation.............................................. 60,137 45,038 Loss on sale of assets.................................... 19,930 -- Value of common stock issued to officer for services...... 5,000 -- Writedown of fixed assets and inventory to net realizable value.................................................. 258,388 -- Change in provision for projected costs through sale or liquidation............................................ 110,000 -- Changes in operating assets and liabilities: Change in account receivable........................... 251,020 713,198 Change in inventories.................................. 370,400 (90,235) Change in prepaid expenses............................. 102,599 (15,764) Change in other assets................................. 8,535 (5,508) Change in accounts payable............................. (55,391) (585,791) Change in accrued expenses............................. (12,459) (102,101) ----------- ----------- Net cash used by operating activities....................... (443,558) (812,197) INVESTING ACTIVITIES Purchase of property and equipment........................ (14,846) (54,715) Disposition of property and equipment..................... 28,187 -- ----------- ----------- Net cash provided (used) by investing activities............ 13,341 (54,715) FINANCING ACTIVITIES Proceeds of long-term debt................................ -- 21,703 Payments of obligations under capital leases.............. (9,108) (32,819) Proceeds from sale of common stock pursuant to initial public offering........................................ -- 326,000 Expenses of initial public offering....................... -- (44,731) Net repayment of loan from parent......................... -- (437,283) Net loans from (to) parent................................ 170,671 (1,195,580) Loans to affiliated company............................... -- (1,027,334) ----------- ----------- Net cash provided (used) by financing activities............ 161,563 (2,390,044) ----------- ----------- Decrease in cash and cash equivalents....................... (268,654) (3,256,956) Cash and cash equivalents -- beginning of year.............. 351,355 3,608,311 ----------- ----------- Cash and cash equivalents -- end of year.................... $ 82,701 $ 351,355 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION Cash paid for interest...................................... $ 1,047 $ 1,999 =========== ===========
See accompanying notes. F-7 30 GOOD IDEAS ENTERPRISES, INC. NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997 1. PLAN OF SALE OR LIQUIDATION AND BASIS OF PRESENTATION The Board of Directors of Substance Abuse Technologies, Inc., formerly U.S. Alcohol Testing of America, Inc., (SAT or Parent), owner of 60.8% of the Common Stock of Good Ideas Enterprises, Inc. (Good Ideas or the Company), decided in its February 26, 1996 meeting to focus on its drug and alcohol testing and human resource provider business and to dispose of what it considered to be non-core businesses, such as the Company. The SAT directors concluded that, because of the history of losses in the Company and what it believed to be the problems general in the toy industry, it would be difficult to make the Company's operations profitable in a reasonable amount of time, if ever. SAT management was authorized by its Board to seek offers to purchase the Company. Effective March 31, 1996, the Company changed its basis of accounting from the going concern basis to a liquidation basis. Under the liquidation basis of accounting assets are adjusted to amounts estimated to be realizable, liabilities are stated at anticipated settlement amounts and estimated costs of liquidating the Company are provided to the extent reasonably determinable. Accordingly, the Company has recorded a reserve for the estimated costs to sell or liquidate the Company. The statements of operations, stockholders equity and cash flows for the year ended March 31, 1995 has been prepared using the historical cost (going concern) basis of accounting on which the Company had previously been reporting its results of operations. The financial statements for 1997 and 1996 reflect a write-down of inventory and fixed assets in the amount of approximately $147,000 and $258,000, respectively, to reduce the carrying values of these assets to estimated net realizable value. In addition in fiscal 1996, the Company projected cost of operations through the date of sale or liquidation of $110,000. This reserve was netted against costs incurred by the Company in 1997, including the aforementioned write-offs. Through July 3, 1997, the Company has not received an acceptable offer to purchase the Company and there is no assurance that an acceptable offer will be received. In April 1997, SAT filed a Registration Statement on Form S-4 under the Securities Act of 1933, as amended (the Securities Act) to register shares of SAT's common stock to be issued to the minority stockholders of the Company upon consummation of a proposed merger of a wholly-owned subsidiary of SAT with and into the Company. There are no assurances that the minority stockholders will approve the merger. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND BUSINESS The Company, which operates in a single industry segment, designs, manufactures, markets and distributes a variety of toy products for children. USE OF ESTIMATES Liquidation accounting includes management's best estimates of the amounts expected to be realized on the sale or liquidation of the Company's business. The amounts the Company will ultimately receive could differ from management's estimates. CASH AND CASH EQUIVALENTS The Company considers all highly liquid cash investments with an original maturity of three months or less when purchased to be cash equivalents. INVENTORIES In accordance with liquidation accounting described in Note 1, inventories are stated at net realizable value. F-8 31 GOOD IDEAS ENTERPRISES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) PROPERTY AND EQUIPMENT In accordance with liquidation accounting described in Note 1, property and equipment is stated at net realizable value. The Company had no property and equipment at March 31, 1997. Through March 31, 1996, depreciation was computed by straight-line method over the estimated useful lives of the related assets which range from 5 to 7 years. Expenditures for maintenance and repairs are charged to expense as incurred whereas major betterments and renewals are capitalized. MANAGEMENT SERVICES AGREEMENT The amount of management fees charged to the Company by SAT has been determined by the estimated cost of SAT's resources required to provide such services to the Company. In view of the decision to sell or liquidate the Company, management fees charged by SAT pursuant to this agreement were suspended after December 31, 1995. REVENUE RECOGNITION Sales are recorded as products are shipped. The Company provides a reserve for returns and allowances as a percentage of recorded sales. The Company does not make consignment sales. INCOME TAXES The Company accounts for income taxes under Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. The objective of the asset and liability method is to establish deferred tax assets and liabilities for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. ACCOUNTING FOR STOCK BASED COMPENSATION The Company accounts for shares of Common Stock and warrants issued to employees in accordance with the provisions of the Accounting Principles Board Opinion No. 25 (APB 25) Accounting for Stock Issued to Employees. NET LOSS PER COMMON SHARE Loss per common share is based upon the weighted average number of common shares outstanding during the periods reported. Common stock equivalents have not been included in this calculation since their inclusion would be antidilutive. 3. INVENTORIES Inventories are summarized as follows:
MARCH 31 -------------------- 1997 1996 -------- -------- Finished goods.............................................. $113,504 $ 74,976 Work in process............................................. 29,094 43,463 Raw Materials............................................... 201,137 274,770 -------- -------- 343,735 393,209 Less: Reserve for writedown to net realizable value......... 343,735 197,000 -------- -------- $ -- $196,209 ======== ========
F-9 32 GOOD IDEAS ENTERPRISES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 4. PROPERTY AND EQUIPMENT Equipment at March 31,1996 is summarized as follows: Warehouse equipment......................................... $27,088 Less: Accumulated depreciation.............................. 11,287 ------- $15,801 =======
5. NOTE RECEIVABLE -- PARENT The note receivable from SAT consists of demand loans bearing interest at the rate of 8% per annum, and the due date has been extended to five days after the end of the consent solicitation for the merger with SAT. The note is secured by SAT's shares in the Company. Based on the financial condition of SAT, this note has been fully reserved at March 31, 1997. 6. CAPITAL LEASE OBLIGATIONS As of March 31, 1996, the Company had capital lease obligations of $22,519. In fiscal 1997, these obligations were transferred to SAT. 7. STOCKHOLDERS' EQUITY On February 17,1994, the Company completed an initial public offering of its Common Stock. The Company sold 1,200,000 shares at $5.00 per share and netted approximately $4,735,000. In connection with the offering, the underwriters were granted, for a nominal fee, Common Stock Purchase Warrants entitling the underwriters to purchase up to 120,000 shares of Common Stock at $7.50 per share. As a result of the sales of these securities, SAT had its ownership reduced to 60%. In April 1994, an additional 65,200 shares of Common Stock were sold pursuant to the initial public offering's over-allotment provision and the Company netted approximately $281,000. As a result of the sales of these securities, SAT had its ownership reduced to 59%. On May 5, 1995, Keith Parten resigned as director, Chief Operating Officer and President of the Company. Mr. Parten returned to the Company 126,520 shares of Common Stock. Such shares were canceled by the Company. The cancellation of these shares increased SAT's ownership interest in the Company from 59% to 60.8%. On December 1, 1995, 10,000 shares of Common Stock were issued to an officer for compensation. 8. STOCK OPTION/STOCK ISSUANCE PLAN In December 1993, the Board of Directors approved a stock option/stock issuance plan which covers 500,000 shares of the Company's Common Stock. Both the Discretionary Option Grant Program and the Stock Issuance Program call for options to be granted at an exercise price not less than 85% of fair market value of such shares on the grant date. Each option granted will have a maximum term of ten years, subject to earlier termination following the optionee's cessation of service with the Company. The vesting period may vary subject to each program's terms. In December 1993, a total of 37,000 stock options with an exercise price of $4.40 per share were granted to five directors. F-10 33 GOOD IDEAS ENTERPRISES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) A summary of stock option activity follows:
INCENTIVE STOCK OPTIONS NUMBER OF PRICE RANGE SHARES PER SHARE --------------- ----------- Outstanding, April 1, 1995................................. 37,500 $4.40 Granted.................................................... -- -- Expired.................................................... (15,000) 4.40 ------- Outstanding, March 31, 1996................................ 22,500 4.40 Granted.................................................... -- -- Expired.................................................... (22,500) 4.40 ------- Outstanding, March 31, 1997................................ -- -- =======
9. MAJOR CUSTOMERS AND SUPPLIERS The Company discontinued operations on March 31, 1996. During the years ended March 31, 1996 and 1995, a small group of customers accounted for the major share of the Company's net sales for such periods. The following is a summary of customers comprising 10% or greater of the Company's net sales:
NUMBER OF PERCENTAGE YEAR ENDED MARCH 31 CUSTOMERS OF NET SALES - ------------------- --------- ------------ 1996........................................................ One 52% 1995........................................................ Two 59% and 21%
Included in accounts receivable as of March 31, 1996 are amounts due from its major customers totaling $3,000, respectively. During the year ended March 31, 1996, the Company contracted for the manufacture of a majority of its products from three suppliers. 10. COMMITMENTS AND CONTINGENCIES EMPLOYMENT AGREEMENTS On May 12, 1995, the Company entered into a two-year employment agreement, effective June 1, 1995, with a new Chief Operating Officer. The agreement provided for an aggregate minimum annual salary of $110,000 as well as reimbursement of related business expenses incurred. The executive and his employment agreement were transferred to another subsidiary of SAT, the common Parent, during September 1995. MANAGEMENT AGREEMENT -- PARENT On April 1, 1993, the Company entered into a Management Agreement with SAT which obligates the Company to pay ten (10.0%) percent of its product sales as consideration for administrative management services to be provided by SAT. In December 1993, the Company entered into a new Management Services Agreement with SAT. Under the terms of the revised agreement, which is retroactive to October 1, 1993, the Company is obligated to pay a management fee of $25,000 per month plus five (5.0%) percent of its annual gross revenue in excess of $5,000,000. The new agreement expired on September 30, 1994, and pursuant to the terms of the agreement, was automatically renewed for one year. At September 30, 1995, the agreement was automatically renewed for another year. The Board of Directors of SAT suspended the management fee retroactive to January 1, 1996, at its February 26, 1996 meeting in view of its decision to sell or liquidate the Company. F-11 34 GOOD IDEAS ENTERPRISES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 11. INCOME TAXES For income tax purposes, the Company has net operating loss carryforwards at March 31, 1997 of approximately $3,163,500, expiring from 2007 to 2012 if not offset against future federal taxable income. Pursuant to Section 382 of the Internal Revenue Code, due to changes in the ownership of the Company, the utilization of these loss carryforwards may be subject to an annual limitation based on a long-term tax exempt rate. Income tax benefit attributable to net loss differed from the amounts computed by applying the statutory Federal Income tax rate as a result of the following:
MARCH 31 ---------------------------------- 1997 1996 1995 -------- --------- --------- Computed expected tax benefit.................... $ 50,818 $ 532,539 $ 263,000 Decrease in tax benefit resulting from: Net operating loss for which no benefit is currently available......................... (50,818) (532,539) (263,000) -------- --------- --------- $ -- $ -- $ -- ======== ========= =========
The tax effects of temporary differences that give rise to significant portions of the net deferred tax asset are presented below.
MARCH 31 ------------------------------------ 1997 1996 1995 ---------- ---------- -------- Net operating loss carryforward................. $1,076,000 $1,025,000 $492,000 Less: valuation allowance under SFAS No. 109.... 1,076,000 1,025,000 492,000 ---------- ---------- -------- Net deferred tax assets......................... $ -- $ -- $ -- ========== ========== ========
SFAS 109 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of all the evidence, both positive and negative, management has determined that a $1,076,000 valuation allowance at March 31, 1997 is necessary to reduce the deferred tax assets to the amount that will more likely than not be realized. The change in the valuation allowance for the current year is $51,000. F-12 35 GOOD IDEAS ENTERPRISES, INC. ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR ENDED MARCH 31, 1997 EXHIBIT FILED WITH REPORT
EXHIBIT PAGE NUMBER EXHIBIT NUMBER - ------- ------- ------ 2(b)(1) -- Agreement and Plan of Merger dated as of February 17, 1997 by and among SAT, Good Ideas Acquisition Corp. and Good Ideas Enterprises, Inc...................................... E-2
E-1 EX-2.B.1 2 AGREEMENT & PLAN OF MERGER 1 EXHIBIT 2(B)(1) AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER dated as of February 17, 1997 by and among Substance Abuse Technologies, Inc., a Delaware corporation ("SAT"), Good Ideas Acquisition Corp., a Delaware corporation ("Acquisition Corp."), and Good Ideas Enterprises, Inc., a Delaware corporation ("Good Ideas"). WITNESSETH: WHEREAS, of the 3,948,680 shares of the common stock, $.001 par value (the "Good Ideas Common Stock"), of Good Ideas outstanding as of the date hereof, SAT is the owner of 2,400,000 shares and 1,548,680 shares (the "Minority Good Ideas Common Stock") are owned by persons other than SAT (the "Good Ideas Minority Stockholders"); WHEREAS, the Board of Directors of each of SAT and Acquisition Corp. have each adopted, approved and authorized the execution and delivery of this Agreement and Plan of Merger (the "Agreement") so as to implement the subject merger in compliance with the provisions of Section 251 of the General Corporation Law of the State of Delaware (the "GCL"); WHEREAS, because of the relationships of three of the four directors of Good Ideas to SAT as current directors and/or officers thereof and of all four directors of Good Ideas as securityholders of SAT, the Board of Directors of Good Ideas has only authorized execution and delivery of the Agreement on the condition that approval of the subject merger by Good Ideas shall only be effected as a result of the obtaining of consents thereto from the holders of more than 50% of the Minority Good Ideas Common Stock; WHEREAS, the Board of Directors of Good Ideas intends to, and shall, submit this Agreement and the subject merger to the stockholders of Good Ideas for approval to the extent required by the applicable provision of GCL; and WHEREAS, in connection with the subject merger and solicitation of stockholder consent thereto, SAT has filed a Registration Statement on Form S-4, File No. 333-3734 (the "Registration Statement"), pursuant to the Securities Act of 1933, as amended (the "Securities Act"), the Registration Statement to include as Part I thereof the prospectus and consent solicitation statement to be transmitted to the Good Ideas Minority Stockholders (such prospectus and consent solicitation statement, as from time to time amended and/or supplemented, hereinafter referred to as the "Consent Solicitation Statement-Prospectus") (a) with respect to the solicitation of consents from the Good Ideas Minority Stockholders to the subject merger pursuant to Section 228 of the GCL and Section 14(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and (b) with respect to the distribution of the shares of the SAT common stock, $.01 par value (the "SAT Common Stock"), to the Good Ideas Minority Stockholders in exchange for their shares of the Good Ideas Common pursuant to the terms of this Agreement and the subject merger; NOW THEREFORE, in consideration of the premises and the mutual representations, warranties, covenants and agreements herein contained, the parties hereto do hereby agree as follows: 1. THE MERGER. Subject to the terms and conditions hereinbelow set forth, on the Effective Date (as hereinafter defined in Section 10 hereof) Acquisition Corp. shall be merged with and into Good Ideas (the "Merger") and, in connection therewith: (a) except to the extent provided or permitted by applicable law, the separate existence of Acquisition Corp. shall cease and terminate; (b) Good Ideas, as the surviving corporation, shall continue its corporate existence under the laws of the State of Delaware and shall possess all of the rights, privileges, immunities, powers, franchises and authority (both public and private) of, and be subject to all of the restrictions, disabilities and duties of, Acquisition Corp.; E-2 2 (c) all of the assets and property of Acquisition Corp. of every kind, nature and description (real, personal and mixed and both tangible and intangible) and every interest therein, wheresoever located, including, without limitation, all debts or other obligations belonging or due to Acquisition Corp., all stock subscriptions, claims and chooses in action shall be, and be deemed to be, vested, absolutely and unconditionally, in Good Ideas (to the same extent, degree and manner as previously vested in Acquisition Corp.); and (d) all debts and obligations of Acquisition Corp., all rights of creditors of Acquisition Corp. and all liens or security interests encumbering any of the property of Acquisition Corp. shall be vested in Good Ideas and shall remain in full force and effect without modification or impairment and shall be, and be deemed to be, enforceable against Good Ideas and its assets and properties with the same full force and effect as if such debts, obligations, liens or security interests had been originally incurred or created by Good Ideas in its own name and for its own behalf. Without limiting the generality of the foregoing, Good Ideas specifically assumes all continuing obligations which Acquisition Corp. would otherwise have to indemnify its officers and directors, to the fullest extent currently provided in Acquisition Corp.'s By-Laws and/or by resolution of its Board of Directors and pursuant to the GCL, with respect to any and all claims arising out of actions taken or omitted by such officers and directors prior to the Effective Date. 2. INSTRUMENTS OF CONVEYANCE. Without limiting the generality of the provisions of Section 1 hereof and/or the succession provisions of applicable law, the officers and directors of Acquisition Corp. last in office shall (to the extent they, or any of them, possess and/or may exercise the power to do so) execute, deliver and/or record such deeds and/or other instruments of transfer and/or conveyance, and take or cause to be taken, such other and further actions, as the case may be, as shall be reasonably requested by Good Ideas or SAT, or their legal counsel, to vest, perfect, confirm, implement the transfer of, or establish in the name, on behalf or for the account or the benefit of Good Ideas, title and/or possession of any or all of the assets, property, property interests, rights, privileges, immunities, powers and franchises owned and/or exercisable by Acquisition Corp. (or in which Acquisition Corp. had an interest and/or the power to exercise immediately prior to the Effective Date) and which was vested, or intended to be vested, in Good Ideas pursuant to the provisions of this Agreement and the Merger. 3. CONSTITUTIONAL DOCUMENTS, DIRECTORS AND OFFICERS. On and as of the Effective Date: (a) The Certificate of Incorporation of Good Ideas on such date in full force and effect shall be the Certificate of Incorporation of Good Ideas, as the surviving corporation, until the same shall be altered, amended, modified, terminated or rescinded in the manner provided by the GCL, which rights of alteration, amendment, modification, termination and/or rescission are hereby expressly reserved by Good Ideas; (b) The By-Laws of Good Ideas on such date in full force and effect shall be the By-Laws of Good Ideas, as the surviving corporation, until the same shall be altered, amended, modified, terminated or rescinded in the manner provided in the Certificate of Incorporation of Good Ideas and/or the GCL, which rights of alteration, amendment, modification, termination and/or rescission are hereby expressly reserved by Good Ideas. (c) The members of the Board of Directors and the officers of Good Ideas, the surviving corporation, shall consist of the persons described on Exhibit "A" annexed hereto and made a part hereof, each of such persons to hold such membership and/or officership as provided in the By-Laws and/or the GCL. (d) The Certificate of Incorporation of SAT on such date in full force and effect shall be the Certificate of Incorporation of SAT until the same shall be altered, amended, modified, terminated or rescinded in the manner provided by the GCL, which rights of alteration, amendment, modification, termination and/or rescission are hereby expressly reserved by SAT. (e) The By-Laws of SAT on such date in full force and effect shall be the By-Laws of SAT until the same shall be altered, amended, modified, terminated or rescinded in the manner provided E-3 3 in the Certificate of Incorporation of SAT and/or the GCL, which rights of alteration, amendment, modification, termination and/or rescission are hereby expressly reserved by SAT. 4. CONVERSION RATES. On the Effective Date the shares of the Good Ideas Common Stock shall be converted and exchanged into shares of the SAT Common Stock (and warrants and similar rights exercisable with respect to shares of the Good Ideas Common Stock shall become exercisable with respect to shares of the SAT Common Stock) in the following manner: (a) Each issued and outstanding share of the Good Ideas Common Stock shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted and exchanged into .36 of a share of the SAT Common Stock; provided, however, that to the extent any holder of the Good Ideas Common Stock shall be entitled, as a result of the foregoing conversion and exchange, to receive less than a whole share of the SAT Common Stock, then and in any such event: (i) no fractional share and/or fractional interest in a whole share shall be issued and (ii) the fractional interest of such holder shall be liquidated for cash equivalent calculated on the basis of the closing sales price of the SAT Common Stock on the Effective Date or on the first day thereafter that such price is available. The portion of a share of the SAT Common Stock to be exchanged for each share of the Good Ideas Common Stock was determined by assuming that a share of the SAT Common Stock has a market value of $1.625 per share (which was the closing sales price reported by the American Stock Exchange on February 14, 1997, the last trading date before the date of this Agreement) and that the Good Ideas Minority Stockholder should receive between .25 of a share if the market value of the SAT Common Stock was $2.50 per share and .375 of a share if the market value of the SAT Common Stock was $1.50 per share for each share of the Minority Good Ideas Common Stock. (b) Each outstanding warrant expiring February 16, 1999 (the "Warrant") to purchase shares of the Good Ideas Common Stock shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted and exchanged into a warrant to purchase shares of the Good Ideas Common Stock equal to the number of shares that the holder would have received under Section 4(a) hereof had the warrant been exercised immediately prior to the Effective Date. The exercise price shall be adjusted to the product of $7.50 and a fraction, the numerator of which shall be the number of shares of the Good Ideas Common Stock issuable upon the exercise of the Warrant prior to the Merger and the denominator of which shall be the number of shares of the SAT Common Stock issuable upon the exercise of the Merger Warrant. The expiration date of the Warrant shall not be changed. (c) Anything in this Section 4 to the contrary notwithstanding: (i) Any and all issued shares of the Good Ideas Common Stock owned by Good Ideas and held as treasury stock shall be canceled and retired and no shares of the SAT Common Stock shall be issued with respect thereto; (ii) Any and all issued shares of the Good Ideas Common Stock owned by SAT, except for ten (10) shares, shall be canceled and retired and no shares of the SAT Common Stock shall be issued to SAT with respect thereto; (iii) Upon the issuance of shares of the SAT Common Stock to the Good Ideas Minority Stockholders in exchange for their shares of the Good Ideas Common Stock, there shall be credited to the capital account of SAT an amount equal to $1.625 and, of the amount so credited, the portion thereof in excess of the aggregate par value thereof shall be credited to the capital surplus account; and E-4 4 (iv) Upon the issuance of shares of the SAT Common Stock to the Good Ideas Minority Stockholders all shares of the Good Ideas Common Stock shall be canceled except for the ten (10) shares held by SAT as described in subsection (d)(ii) of this Section 4. 5. APPOINTMENT OF EXCHANGE AGENT. Prior to the Effective Date SAT shall, subject to the provisions of Paragraph 8 hereof: (a) Designate U.S. Stock Transfer Corporation (the "Exchange Agent") to implement the exchange (subsequent to the Effective Date) of certificates representing shares of the Good Ideas Common Stock (the "Old Certificates") for certificates representing shares of the SAT Common Stock (the "New Certificates"); (b) engage the Exchange Agent for a period of the lesser of (i) 12 consecutive months following the Effective Date and (ii) the date on which all of the Old Certificates held by the Good Ideas Minority Stockholders have been surrendered for the New Certificates; and (c) provide to the Exchange Agent sufficient supplies of New Certificates so as to enable a holder of an Old Certificate(s) to surrender such Certificate(s) and receive New Certificate(s). 6. CERTIFICATE EXCHANGE. Subsequent to the Effective Date the issuance and distribution of New Certificates in exchange for Old Certificates shall be implemented as follows: (a) As promptly after the Effective Date as shall be reasonably possible, the Exchange Agent shall be directed to, and shall, notify (the "Notification") each holder of an Old Certificate of the consummation of the Merger, the availability of New Certificates and a description of the procedure to be followed (and documents to be executed and submitted) in connection with the surrender of the Old Certificate and the issuance of the New Certificate. Upon compliance by a holder thereof with the requirements for the certificate surrender and issuance specified in the Notification, the Exchange Agent shall be directed to, and shall, issue and transmit to such holder New Certificates (representing that number of shares of the SAT Common Stock to which such holder shall be entitled as herein provided). Until surrendered and replaced as aforesaid: (i) each Old Certificate shall, and be deemed to, represent and evidence (for all corporate purposes other than the payment of dividends and other distributions) that number of shares of the SAT Common Stock into which the shares of the Good Ideas Common Stock therein referred to are convertible and exchangeable as herein provided and (ii) each Old Certificate shall not be transferable on the books and records of Good Ideas and/or SAT. (b) From and after the Effective Date any and all dividends and/or distributions of every kind, nature or description declared and payable by SAT on, or with respect to, the SAT Common Stock to any holder of an Old Certificate (collectively "Distributions") shall be paid, retained, invested and paid over as follows: (i) Until such time as the Old Certificate is surrendered for replacement by a New Certificate(s) as herein provided, no Distribution shall be paid over by SAT and/or the Exchange Agent to such holder on, or with respect to, the shares of the SAT Common Stock evidenced by such Old Certificate; (ii) All Distributions payable on, or with respect to, shares of the SAT Common Stock represented by Old Certificates shall be paid over by SAT to the Exchange Agent and dealt in and with by the Exchange Agent as follows: (A) All Distributions in cash shall be deposited by the Exchange Agent in an interest bearing account (the "Distribution Account") and retained and disposed of as hereinbelow provided; (B) Upon surrender by, or on behalf of, a holder of an Old Certificate for surrender and replacement as hereinabove provided (or satisfactory proof of loss and an indemnity in E-5 5 favor of, and acceptable to, SAT and the Exchange Agent), the Exchange Agent shall pay over and/or deliver to such holder (in addition to the New Certificate(s) to which such holder shall be entitled) (y) the principal amount of any cash dividends and any property (other than shares of the SAT Common Stock) previously received by the Exchange Agent with respect to the shares of the SAT Common Stock evidenced by such Old Certificate and (z) a certificate representing any shares of the SAT Common Stock forming part of any Distribution made prior to the date of any such surrender; (C) Any and all interest earned and/or credited on, or with respect to, Distributions shall be applied by the Exchange Agent to the payment of its fees and disbursements and the remainder, if any, paid over to SAT upon the termination of the engagement of the Exchange Agent. (c) From and after the Effective Date the sole rights of the holders of Old Certificates (except as otherwise provided by law) shall be those to which they are entitled as owners of the SAT Common Stock into which the shares of the Good Ideas Common Stock evidenced by such Old Certificates shall have been converted as herein provided. 7. TRANSFERS. If the holder of any Old Certificate desires that the New Certificate to be issued in replacement therefor (as hereinabove provided) is to be issued in a name other than that on the Old Certificate which it replaces, any such issuance shall be subject to and conditioned upon: (a) Delivery to the Exchange Agent of the Old Certificate duly endorsed in blank or accompanied by a duly executed stock assignment power and otherwise in form for transfer acceptable to the Exchange Agent and (b) Payment to SAT or the Exchange Agent of any and all transfer and/or other taxes payable, in the opinion of the Exchange Agent, by reason of the issuance and/or transfer of such New Certificate and/or the shares of the SAT Common Stock evidenced thereby. 8. TERMINATION OF EXCHANGE AGENT. Upon the termination of the Exchange Agent's engagement as hereinabove provided, the Exchange Agent shall deliver to SAT the then balance of the Distribution Account and, upon such delivery, the Exchange Agent shall have no further duties or obligations as exchange agent to SAT, Acquisition Corp., Good Ideas or their respective stockholders. Thereafter, the duties to be performed by the Exchange Agent as described in Sections 6 and 7 hereof shall be performed by SAT in lieu of, and instead of, the Exchange Agent. All blank stock certificates evidencing the SAT Common Stock shall be retained by the Exchange Agent for utilization by it in the performance of its duties as transfer agent for, and with respect to, the SAT Common Stock. 9. THE CLOSING. The closing of the transactions contemplated by this Agreement shall take place on such date, at such place and at such time within five (5) business days after the satisfaction or waiver of the last of the conditions set forth in Sections 17 and 18 hereof as shall be designated by SAT. The closing of such transactions shall be referred to herein as the "Closing" and the date of the Closing shall be referred to herein as the "Closing Date"; and the Closing Date may be the same as the Effective Date. 10. THE EFFECTIVE DATE. Subject to the satisfaction and/or waiver of the conditions herein described, the Merger shall become effective (the "Effective Date") as at the close of business on the date specified in the Certificate of Merger to be filed in the manner required by the GCL or, if none, on the date of filing. Upon the receipt by Good Ideas of consents from the holders of more than 50% of the outstanding shares of the Minority Good Ideas Common Stock held by the Good Ideas Minority Stockholders and of a consent from SAT to the Merger, Good Ideas and Acquisition Corp. shall cause to be filed the Certificate of Merger in the manner required by the GCL. Subject to the provisions of Section 19 hereof, such filing shall be made on, or as soon as practicable after, the Closing Date; and the parties hereto shall thereafter execute, acknowledge, deliver and/or record such other and further instruments, documents or certificates and/or take and perform such other and further actions as may be required to effect and/or implement the Merger. If the Merger is consummated, SAT will take such E-6 6 actions as are necessary to deregister the Good Ideas Common Stock pursuant to Section 12(b) of the Exchange Act. 11. THE REGISTRATION STATEMENT AND CONSENT SOLICITATION STATEMENT. In connection with the preparation, utilization and/or distribution of the Consent Solicitation Statement-Prospectus to be issued and distributed to the Good Ideas Minority Stockholders in connection with the Merger and the preparation and utilization of the Registration Statement of which the Consent Solicitation Statement-Prospectus constitutes Part I thereof, the parties shall follow the procedures as provided in this Section 11: (a) The parties hereto shall cooperate in the preparation thereof consistent with the applicable requirements of the GCL, the Securities Act and the Exchange Act and the rules and regulations promulgated under the Securities Act and the Exchange Act by the Securities and Exchange Commission (the "SEC"); and, without limiting the generality of the foregoing, each of SAT and Good Ideas shall promptly supply to the other any and all information and material (relating to itself and/or the subject transaction) as may be requested or required in connection with the preparation and filing of the Registration Statement, including, without limitation, all information concerning their respective officers, directors and principal stockholders that is reasonably requested for inclusion in the Consent Solicitation Statement-Prospectus; and each shall take and perform such other and further acts and actions as shall be necessary or appropriate to cause the prompt preparation, completion, filing, review, finalization and clearance of the Registration Statement. (b) Subject to the Registration Statement being declared effective by the SEC, the Consent Solicitation Statement-Prospectus and any other communication required by the Exchange Act or the rules and regulations promulgated thereunder or reasonably requested by SAT shall be mailed by Good Ideas or its transfer agent to the Good Ideas Minority Stockholders as soon after such effective date as is reasonably possible. Subsequent thereto Good Ideas shall transmit to the Good Ideas Minority Stockholders such amended and/or supplemental consent solicitation materials as may be necessary, in light of subsequent developments or otherwise, to render the Consent Solicitation Statement-Prospectus, as so amended or supplemented, not false or misleading with respect to any material fact and so as not to omit to state any information necessary to make the statements made, within the context made, not misleading. Prior to the Effective Date (or earlier termination of this Agreement) neither party hereto shall distribute any material (other than the Consent Solicitation Statement-Prospectus as herein provided) which might constitute, or be deemed to constitute, a "prospectus" relating to the Merger within the meaning of the Securities Act without the prior written consent of all of the parties hereto in each instance. (c) Good Ideas hereby authorizes the utilization by SAT in the Registration Statement or in any filing with a state securities administrator of all information concerning Good Ideas either provided to SAT by Good Ideas in connection with or contained in the Consent Solicitation Statement-Prospectus and/or contained in any filings heretofore made by Good Ideas pursuant to the Securities Act and/or the Exchange Act. Good Ideas shall promptly advise SAT if at any time any of such information or material is or becomes incorrect, inaccurate or incomplete in any material respect and, in connection therewith, Good Ideas shall provide SAT with such information and material as shall be needed to correct any such inaccuracy or omission. SAT shall promptly advise Good Ideas if at any time any of the information or material contained in the Registration Statement and supplied by SAT is or becomes incorrect, inaccurate or incomplete in any material respect. SAT shall cause the preparation, review, clearance, approval and distribution of such amended or supplemented material as shall be necessary to correct or eliminate any such inaccuracies and/or omissions as provided in this Section 11(c). (d) Each of SAT and Good Ideas covenants and warrants to the other that any and all information and/or material supplied by it to the other and/or in connection with the Registration Statement and/or the within transactions (i) will, at the time made and at each Relevant Date (as hereinafter defined), be true and correct in all material respects; (ii) will comply in all material E-7 7 respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations promulgated thereunder by the SEC; and (iii) will not contain any statement which, at the time made and at each Relevant Date and in light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein made not false or misleading. For the purposes of this Agreement, the term "Relevant Date" shall be and mean each of (x) the effective date of the Registration Statement, (y) the mailing date of the Consent Solicitation Statement-Prospectus and (z) the Effective Date. Each of SAT and Good Ideas specifically agrees to indemnify and hold harmless the other (and their respective officers, directors, employees, agents and representatives) from and against any and all costs, expenses, losses, demands, claims and liabilities of every kind, nature and description (including reasonable attorneys' fees) arising out of, or relating to, any breach or anticipatory breach by it of its duties and obligations pursuant to this Section 11(d). (e) SAT does hereby agree to indemnify and hold harmless Good Ideas and each of its directors and officers, and each person, if any, other than SAT who controls Good Ideas within the meaning of Section 15 of the Securities Act, from and against any and all losses, claims, damages, expenses or liabilities, joint or several (including, without limitation, reasonable attorneys' fees as herein provided), to which they or any of them may become subject under the Securities Act, any other statute, common law or otherwise and, except as provided below, shall reimburse Good Ideas and each such director, officer or controlling person for any legal or other expenses reasonably incurred by them or any of them in connection with investigating or defending any actions and/or claims, whether or not resulting in any liability, insofar as such losses, claims, damages, expenses, liabilities or actions result from a breach or alleged breach of the representations and warranties contained in Sections 13 or 14 hereof or are based upon any untrue statement of alleged untrue statement of a material fact contained in the Registration Statement or the Consent Solicitation/Prospectus or arise out of, or are based upon, the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but only insofar as any such untrue statement or omission or alleged untrue statement or omission is with respect to the description of SAT or as to the terms of its offer. Promptly after receipt by a party to be indemnified pursuant to this Section 11(e) (the "Indemnitee") of notice of the commencement of any action in respect of which indemnity may be sought against SAT hereunder, the Indemnitee will promptly notify SAT in writing of the commencement thereof and SAT shall, subject to the provisions stated below, assume the defense of the action (including the employment of counsel, who shall be counsel reasonable satisfactory to Good Ideas), and shall make payment of expenses (including attorneys' fees as herein provided) insofar as such action shall relate to any alleged liability in respect of which indemnity may be sought against SAT. The Indemnitee or Indemnitees shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such separate counsel shall not be at the expense of SAT unless the employment of such separate counsel has been specifically authorized by SAT or there is a conflict of interest which under the canon of ethics requires the employment of separate counsel. SAT shall not be liable to any Indemnitee for any settlement of any action effected without SAT's consent. Notwithstanding any provision of this Agreement to the contrary, the obligations of SAT hereunder shall survive the consummation of the transactions contemplated by this Agreement. 12. GOOD IDEAS REPRESENTATIONS AND WARRANTIES. In order to induce SAT and Acquisition Corp. to execute and perform this Agreement, Good Ideas does hereby represent, warrant, covenant and agree (which representations, warranties, covenants and agreements shall be, and be deemed to be, continuing and survive the execution and delivery of this Agreement, the Closing and the Effective Date) as follows: (a) Good Ideas is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, with full power and authority, corporate and otherwise, and with all licenses, permits, certifications, registrations, approvals, consents and franchises necessary to own or lease and operate its properties and to conduct its business as presently being conducted. E-8 8 (b) Subject only to the consent of its stockholders as required by the GCL: (i) Good Ideas has the full power and authority, corporate and otherwise, to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby; (ii) the execution, delivery and performance of this Agreement, the consummation by Good Ideas of the transactions herein contemplated and the compliance by Good Ideas with the terms of this Agreement have been duly authorized by Good Ideas; (iii) this Agreement is the valid and binding obligation of Good Ideas, enforceable in accordance with its terms, subject, as to enforcement of remedies, to applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting the rights of creditors generally and the discretion of courts in granting equitable remedies; (iv) the execution, delivery and performance of this Agreement by Good Ideas and the consummation by Good Ideas of the transactions herein contemplated do not, and will not, with or without the giving of notice or the lapse of time, or both, (A) result in any violation of the Certificate of Incorporation or By-Laws of Good Ideas or (B) result in a breach of, or a conflict with, any of the terms or provisions of, or constitute a default under, or result in the modification or termination of, or result in the creation or imposition of any lien, security interest, charge or encumbrance upon any of the properties or assets of Good Ideas pursuant to, any indenture, mortgage, note, contract, commitment or other agreement or instrument to which Good Ideas is a party or by which it is, or any of its respective properties or assets are, or may be, bound or affected. 13. SAT REPRESENTATIONS AND WARRANTIES. In order to induce Good Ideas to execute and perform this Agreement, SAT does hereby represent, warrant, covenant and agree (which representations, warranties, covenants and agreements shall be, and be deemed to be, continuing and survive the execution and delivery of this Agreement, the Closing and the Effective Date) as follows: (a) SAT is a corporation duly organized, validly existing and in standing under the laws of the State of Delaware, with full power and authority, corporate and otherwise, and with all licenses, permits, certifications, registrations, approvals, consents and franchises necessary to own or lease and operate its properties and to conduct its business as presently being conducted. SAT is duly qualified to do business as a foreign corporation, and is in good standing, in all jurisdictions, if any, wherein such qualification is necessary and where failure so to qualify would have a material adverse effect on the business, properties or financial conditions of SAT. SAT has no subsidiaries other than as set forth on Exhibit "B" annexed hereto and made a part hereof (the "Subsidiaries"). SAT owns and has and marketable title in and to 100% of the issued and outstanding capital stock (of all classes) of each of the Subsidiaries, free and clear of all liens, security interests, claims and encumbrances and rights and options of others, except as set forth on Exhibit "B". (b) Each of the Subsidiaries (other than Good Ideas as to which SAT makes no representation) is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation, with full power and authority, corporate and otherwise, and with all licenses, permits, certifications, registrations, approvals, consents and franchises necessary to own or lease and operate its properties and to conduct its business as presently being conducted. Each such Subsidiary is duly qualified to do business as a foreign corporation, and is in good standing, in all jurisdictions, if any, wherein such qualification is necessary and where failure so to qualify would have a material adverse effect on the business, properties or finances of such Subsidiary. (c) (i) SAT has the full power and authority, corporate and otherwise, to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby; (ii) the execution, delivery and performance of this Agreement, the consummation by SAT of the transactions herein contemplated and the compliance by SAT with the terms of this Agreement have been duly authorized by SAT; (iii) this Agreement is the valid and binding obligation of SAT, enforceable in accordance with its terms, subject, as to enforcement of remedies, to applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting the rights of creditors generally and the discretion of courts in granting equitable remedies; (iv) the execution, delivery and performance of this Agreement by SAT and the consummation by SAT of the transactions herein contemplated do not, and will not, with or without the giving of notice or the lapse of time, or both, E-9 9 (A) result in any violation of the Certificate of Incorporation (except possibly as indicated in Section 16(g) hereof) or By-Laws of SAT, (B) result in a breach of, or a conflict with, any of the terms or provisions of, or constitute a default under, or result in the modification or termination of, or result in the creation or imposition of any lien, security interest, charge or encumbrance upon any of the properties or assets of SAT pursuant to, any indenture, mortgage, note, contract, commitment or other agreement or instrument to which SAT is a party or by which it is, or any of its respective properties or assets are, or may be, bound or affected; (C) to the best knowledge of SAT, after due investigation, violate any existing applicable law, rule, regulation, judgment, order or decree of any governmental agency or court, domestic or foreign, having jurisdiction over SAT and/or any of the Subsidiaries (other than Good Ideas as to which SAT makes no representation), or any of their respective properties or businesses; or (D) have any effect on any license, permit, certification, registration, approval, consent or other authorization necessary for SAT and/or any of the Subsidiaries (other than Good Ideas as to which SAT makes no representation) to own or lease and operate any of its respective properties and to conduct its businesses or the ability of SAT and/or any of the Subsidiaries (other than Good Ideas as to which SAT makes no representation) to make use thereof. No consent, approval, authorization or order of any court, governmental agency, authority or body (other than as required pursuant to the Securities Act, the Exchange Act and/or state securities or "take over" statutes and the rules and regulations promulgated under any of the foregoing and/or any party to an agreement to which SAT is a party and/or by which it is bound) is required in connection with the execution, delivery and performance of this Agreement and/or the consummation by SAT of the transactions contemplated by this Agreement. (d) Neither SAT nor any of the Subsidiaries (other than Good Ideas as to which SAT makes no representation) is in violation of, or in default under, (i) any term or provision of its Certificate of Incorporation or By-Laws; (ii) any material term or provision of any financial covenant of any indenture, mortgage, contract, commitment or other agreement or instrument to which it is a party or by which it or any or its properties or business is, or may be, bound or affected; or (iii) any existing applicable law, rule, regulation, judgment, order or decree of any governmental agency or court, domestic or foreign, having jurisdiction over it or any of its properties or business, including, without limitation, all reporting obligations pursuant to the Exchange Act and the rules and regulations promulgated thereunder. SAT and each Subsidiary (other than Good Ideas as to which SAT makes no representation) owns, possesses or has obtained all governmental and other licenses, permits, certifications, registrations, approvals or consents and other authorizations necessary to own or lease, as the case may be, and to operate its properties and to conduct its business or operations as presently conducted and all such governmental and other licenses, permits, certifications, registrations, approvals, consents and other authorizations are outstanding and in good standing and there are no proceedings pending or, to the best of its knowledge, threatened or any basis therefor existing, seeking to cancel, terminate or limit such licenses, permits, certifications, registrations, approvals or consents or authorizations. (e) Prior to the date hereof SAT has delivered to Good Ideas the audited consolidated financial statements (the "SAT Audited Financial Statements") and unaudited interim financial statements (the "SAT Interim Financial Statements") described on Exhibit "C" annexed hereto and made a part hereof (collectively the "SAT Financial Statements"). The SAT Audited Financial Statements fairly present the financial position of SAT and the Subsidiaries as of the respective dates thereof and the results of operations, and the changes in financial position of SAT and the Subsidiaries, for each of the periods covered thereby. The SAT Audited Financial Statements have been prepared in conformity with generally accepted accounting principles, applied on a consistent basis throughout the entire periods involved. The SAT Unaudited Financial Statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Item 310 of Regulation S-K of the SEC. Accordingly, the interim financial statements may not include all of the information and footnotes required by generally accepted accounting principles. In the opinion of SAT's management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been E-10 10 included. As of the date of any balance sheet forming a part of the SAT Financial Statements and, except as and to the extent reflected or reserved against therein, neither SAT nor any of the Subsidiaries (other than Good Ideas as to which SAT makes no representation) had any material liabilities, debts, obligations or claims (absolute or contingent) asserted against it or them and/or which should have been reflected in a balance sheet or the notes thereto; and all assets reflected thereon are properly reported and present fairly the value of the assets therein stated in accordance with generally accepted accounting principles. (f) The financial and other books and records of SAT and each of the Subsidiaries (other than Good Ideas as to which SAT makes no representation) are in all material respects true, complete and correct and have, at all times, been maintained in accordance with good business and accounting practices. (g) SAT and the Subsidiaries (other than Good Ideas as to which SAT makes no representation) own and have good and marketable title in and to all of their respective assets, properties and interests in properties (both real and personal) which are reflected in the latest balance sheet included in the SAT Financial Statements and/or are utilized in connection with the operation of the business of SAT and such Subsidiaries as presently constituted and/or acquired after that date (except to the extent any of the same were disposed of since such date in the ordinary course of business), in all cases free and clear of all liens, security interests, claims and encumbrances of every kind, nature and description and rights and options of others except as expressly set forth in such balance sheet. (h) Except as is set forth on Exhibit "D" hereto, SAT and the Subsidiaries (other than Good Ideas as to which SAT makes no representation) own all trademarks, service marks, tradenames, copyrights, similar rights and their registrations, trade secrets, methods, practices, systems, ideas, know how and confidential materials used or proposed to be used in the conduct of their respective businesses as conducted as of the date hereof (collectively the "Intangibles") free and clear of all liens, security interests, claims and encumbrances and rights and options of third parties (including, without limitation, former or current officers, directors, stockholders, employees and agents); neither SAT nor any such Subsidiary has licensed or leased any of the Intangibles and/or any interest therein to any person and/or entity except a Subsidiary; neither SAT nor any such Subsidiary has infringed, nor is infringing, upon the rights of others with respect to the Intangibles; neither SAT nor any such Subsidiary has received any notice of conflict with the asserted rights of others with respect to the Intangibles which could, singly or in the aggregate, materially adversely affect its business as currently conducted or prospects, financial condition or results of operations and SAT knows of no basis therefor; and, to the best of the knowledge of SAT, no others have infringed upon the Intangibles. (i) Except as and to the extent reflected or reserved against in the SAT Financial Statements and/or as set forth on Exhibit "E" annexed hereto and made a part hereof, neither SAT nor any of the Subsidiaries (other than Good Ideas as to which SAT makes no representation) had, as at the respective date of such SAT Financial Statements, any material liabilities, debts, obligations or claims asserted against it, whether accrued, absolute, contingent or otherwise, and whether due or to become due, including, but not limited to, liabilities on account of due and unpaid taxes, other governmental charges or lawsuits. (j) Since the date of the most recent balance sheet included in the SAT Financial Statements, neither SAT nor any Subsidiary (other than Good Ideas as to which SAT makes no representation) has, except as set forth on Exhibit "F" annexed hereto and made a part hereof, (i) incurred any obligation or liability (absolute or contingent, secured or unsecured) except obligations and liabilities incurred in the ordinary course of the operation of its business as carried on at and prior to such date; (ii) canceled, without payment in full, any notes, loans or other obligations receivable or other debts or claims held by it other than in the ordinary course of business; (iii) sold, assigned, transferred, abandoned, mortgaged, pledged or subjected to lien or security interest any of its E-11 11 material properties, tangible or intangible, or rights under any contract, permit, license, franchise or other agreement other than sales or other dispositions of goods or services in the ordinary course of business at customary prices; (iv) entered into any line of business other than that conducted by it on such date or entered into any transaction not in the ordinary course of its business; (v) conducted any line of business in any manner except by transactions customary in the operation of its business as conducted on such date; or (vi) declared, made or paid, or set aside for payment, any cash or non-cash dividends or other distribution on any shares of its capital stock. (k) Except as set forth on Exhibit "G" annexed hereto and made a part hereof, neither SAT nor any of the Subsidiaries (other than Good Ideas as to which SAT makes no representation) is in default, in any material respect, under the terms of any outstanding agreement which is material to the business, operations, properties, assets or condition of SAT and/or the Subsidiaries (other than Good Ideas as to which SAT makes no representation); and there exists no event of default or event which, with notice and/or the passage of time, or both, would constitute any such default. (l) Except as reported in the SAT Financial Statements and/or as set forth on Exhibit "H" hereto and made a part hereof, there are no claims, actions, suits, proceedings, arbitration's, investigations or inquiries before any court or governmental agency, court or tribunal, domestic, or foreign, or before any private arbitration tribunal, pending or, to the best of the knowledge of SAT, threatened against SAT and/or any Subsidiary (other than Good Ideas as to which SAT makes no representation) or involving their respective properties or businesses which, if determined adversely to SAT or such Subsidiary, would, individually or in the aggregate, result in a material adverse change in the financial position, stockholders' equity, results of operations, properties, business, management or affairs of SAT or such Subsidiary, or which question the validity of this Agreement or of any action taken, or to be taken, by SAT pursuant to, or in connection with, this Agreement; nor, to the best of the knowledge of SAT, is there any basis for any such claim, action, suit, proceeding, arbitration, investigation or inquiry to be made by any person and/or entity, including, without limitation, any customer, supplier, lender, stockholder, former or current employee, agent or landlord. There are no outstanding orders, judgments or decrees of any court, governmental agency or other tribunal specifically naming SAT and/or any Subsidiary (other than Good Ideas as to which SAT makes no representation) and/or enjoining SAT and/or any such Subsidiary from taking, or requiring SAT and/or any such Subsidiary to take, any action and/or by which SAT and/or any such Subsidiary is, and/or their respective properties or businesses are, bound or subject. (m) SAT and each of the Subsidiaries (other than Good Ideas as to which SAT makes no representation) has filed all federal, state, municipal and local tax returns (whether relating to income, sales, franchise, withholding, real or personal property or otherwise) required to be filed under the laws of the United States and all applicable states and has paid in full all taxes which are due pursuant to such returns or claimed to be due by any taxing authority or otherwise due and owing. No penalties or other charges are, or will become, due with respect to the late filing of any such return. To the best of the knowledge of SAT, after due investigation, each such tax return heretofore filed by SAT and each of such Subsidiaries correctly and accurately reflects the amount of its tax liability thereunder. SAT has withheld, collected and paid all other levies, assessments, license fees and taxes to the extent required and, with respect to payments, to the extent that the same have become due and payable. (n) The authorized and outstanding capitalization of SAT is as set forth on Exhibit "I" annexed hereto and made a part hereof; as of the date hereof and the Closing Date, there shall not be authorized and/or issued and outstanding any shares of capital stock of SAT and/or rights to purchase shares of capital stock of SAT except as set forth on Exhibit "I" or upon the exercise of outstanding warrants or the conversion of outstanding shares of preferred stock or convertible notes. The issued and outstanding shares of the SAT Common Stock and outstanding options, warrants and other similar rights to purchase or convert into the SAT Common Stock have been duly authorized and validly issued. All such outstanding shares of the SAT Common Stock are fully paid and nonassessable. All such outstanding warrants and similar rights to purchase or convert into the E-12 12 SAT Common Stock constitute the valid and binding obligations of SAT, enforceable in accordance with their respective terms, subject, as to enforcement of remedies, to applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting the rights of creditors generally and the discretion of courts in granting equitable remedies. There are no preemptive rights. SAT has no reason to believe that any holder of such outstanding shares of the SAT Common Stock is subject to personal liability solely by reason of being such a holder. The offers and sales of such outstanding shares of the SAT Common Stock and outstanding warrants and similar rights to purchase or convert into the SAT Common Stock were, at all relevant times, either registered under the applicable provisions of the Securities Act and the applicable state securities laws or exempt from such registration or prospectus filing requirements pursuant to an exemption for which SAT and/or such offering or sale fully qualified, or any claim arising out of, or relating to, any such offering and/or sale are barred by the statute of limitations. The authorized shares of the SAT Common Stock and outstanding warrants and similar rights to purchase or convert into the SAT Common Stock conform to the description thereof contained in the current filings by SAT pursuant to the Exchange Act. No dividends or other distributions of the assets of SAT have been or will be declared and/or paid prior to the Closing Date on or with respect to the SAT Common Stock. (o) Except as is set forth on Exhibit "J" hereto, since the date of the most recent balance sheet included in the SAT Financial Statements, there has not been, with respect to SAT and/or the Subsidiaries (other than Good Ideas as to which SAT makes no representation), except as set forth in or permitted by this Agreement, or, in the ordinary course of business: (i) Any change in their respective business, operations or financial condition, or the manner of managing or conducting their respective business and operations; none of which changes, if any, has had a material adverse effect on such business, operations or financial condition, taken as a whole; (ii) Any change in their respective accounting methods or practices (including, without limitation, any change in depreciation, amortization and/or good will policies or rates); (iii) Any damage, destruction or loss (whether or not covered by insurance) materially and adversely affecting their respective assets, business, operations or financial condition; (iv) Any declaration, setting, or payment of a dividend or other distribution with respect to the SAT Common Stock or any direct or indirect redemption, purchase or other acquisition by SAT of any of the shares of the SAT Common Stock; (v) Any issuance or sale of any shares of their respective capital stock of any class or any other securities, except for the exercise of warrants to purchase shares of the SAT Common Stock outstanding prior to the date hereof; (vi) Any loan by any of them to any person or entity and/or the issuance of any guaranty by any of them for or with respect to their own or another's obligations; (vii) Any waiver or release of any material right or claim; (viii) Any sale, lease, abandonment, assignment, transfer, license or other disposition (including any agreement and/or option for, or with respect to, any of the foregoing) by any of them of any material real property or tangible or intangible assets, property or rights (and/or interest therein); (ix) Any incurrence of any material obligation or liability, absolute or contingent; (x) Any payment of any material obligation or liability, absolute or contingent, except for current liabilities reflected in, or shown on, the SAT Financial Statements and/or incurred subsequent to the date thereof in the ordinary course of business and/or in connection with the transactions contemplated by this Agreement; E-13 13 (xi) Any labor problems and/or other events or conditions of any character materially and/or adversely affecting, or which might materially and/or adversely affect, the financial condition, business, assets or prospects of any of them; (xii) Any amendment, termination or modification of any material agreement or license to which any of them is a party which has or may have a material affect on the financial condition, business, assets or prospects of any of them; and (xiii) Any agreement by any of them to do or perform any of the things described in this Section 13(o). (p) At the Closing, all of the shares of the SAT Common Stock to be issued by SAT pursuant to this Agreement shall be, and be deemed to be, duly and validly authorized and, when issued to the Good Ideas Minority Stockholders in exchange for their shares of the Good Ideas Common Stock, duly and validly issued, fully paid and nonassessable and free and clear of all federal and state issuance, stock and/or company taxes, liens, claims, encumbrances and charges. 14. ACQUISITION CORP. REPRESENTATIONS AND WARRANTIES. In order to induce Good Ideas to execute and perform this Agreement, Acquisition Corp. does hereby represent, warrant, covenant and agree (which representations, warranties, covenants and agreements shall be, and be deemed to be, continuing and survive the execution and delivery of this Agreement, the Closing and the Effective Date) as follows: (a) Acquisition Corp. is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, with full power and authority, corporate and otherwise, and with all licenses, permits, certifications, registrations, approvals, consents and franchises necessary to own or lease and operate its properties and to conduct its business as presently being conducted. Neither prior to the date hereof has Acquisition Corp. engaged, nor prior to the Closing Date will Acquisition Corp. engage, in any business activity of any kind nature or description except in connection with the implementation of the transactions herein described. Acquisition Corp. has no subsidiaries, nor, at the present time is it, or at the Closing will it be, a partner or joint venturer with any other person or entity. (b) (i) Acquisition Corp. has the full power and authority, corporate and otherwise, to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby; (ii) the execution, delivery and performance of this Agreement, the consummation by Acquisition Corp. of the transactions herein contemplated and the compliance by Acquisition Corp. with the terms of this Agreement have been duly authorized by Acquisition Corp.; (iii) this Agreement is the valid and binding obligation of Acquisition Corp., enforceable in accordance with its terms, subject, as to enforcement of remedies, to applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting the rights of creditors generally and the discretion of courts in granting equitable remedies; (iv) the execution, delivery and performance of this Agreement Corp. by Acquisition Corp. and the consummation by Acquisition Corp. of the transactions herein contemplated do not, and will not, with or without the giving of notice or the lapse of time, or both, (A) result in any violation of the Certificate of Incorporation or By-Laws of Acquisition, (B) result in a breach of, or a conflict with, any of the terms or provisions of, or constitute a default under, or result in the modification or termination of, or result in the creation or imposition of any lien, security interest, charge or encumbrance upon any of the properties or assets of Acquisition Corp. pursuant to, any indenture, mortgage, note, contract, commitment or other agreement or instrument to which Acquisition Corp. is a party or by which it is, or any of its respective properties or assets are, or may be, bound or affected; or (C) to the best knowledge of Acquisition, after due investigation, violate any existing applicable law, rule, regulation, judgment, order or decree of any governmental agency or court, domestic or foreign, having jurisdiction over Acquisition Corp. or its assets. No consent, approval, authorization or order of any court, governmental agency, authority or body (other than as required pursuant to the Securities Act, the Exchange Act and/or state securities or "take over" statutes and/or any party to an agreement to which Acquisition Corp. is a party and/or by which it is E-14 14 bound, is required in connection with the execution, delivery and performance of this Agreement, and/or the consummation by Acquisition Corp. of the transactions contemplated by this Agreement. (c) Acquisition is not in violation of, or in default under, (i) any term or provision of its Certificate of Incorporation or By-Laws; (ii) any material term or provision of any financial covenant of any indenture, mortgage, contract, commitment or other agreement or instrument to which it is a party or by which it or any or its properties is, or may be, bound or affected; or (iii) any existing applicable law, rule, regulation, judgment, order or decree of any governmental agency or court, domestic or foreign, having jurisdiction over it or any of its assets. (d) Acquisition was incorporated on December 18, 1995 and its sole asset is the $1,000 which SAT paid in subscription for 100 shares of its authorized 1,500 shares of common stock, without par value, and it has incurred no liabilities other than its incorporation costs. Prior to the date hereof, Acquisition Corp. has conducted no business operations and, prior to the Effective Date, its sole activities will be in connection with the transactions contemplated by this Agreement. (e) The financial and other books and records of Acquisition Corp. are in all material respects true, complete and correct and have, at all times, been maintained in accordance with good business and accounting practices. (f) Except as set forth on Exhibit "K" hereto and made a part hereof, there are no claims, actions, suits, proceedings, arbitration's, investigations or inquiries before any court or governmental agency, court or tribunal, domestic, or foreign, or before any private arbitration tribunal, pending or, to the best of the knowledge of Acquisition, threatened against Acquisition Corp. or involving its assets which, if determined adversely to Acquisition, would, individually or in the aggregate, result in a material adverse change in the financial position, stockholders' equity, results of operations, properties, business, management or affairs of Acquisition, or which question the validity of this Agreement or of any action taken or to be taken by Acquisition Corp. pursuant to, or in connection with, this Agreement; nor, to the best of the knowledge of Acquisition, is there any basis for any such claim, action, suit, proceeding, arbitration, investigation or inquiry to be made by any person and/or entity. There are no outstanding orders, judgments or decrees of any court, governmental agency or other tribunal specifically naming Acquisition Corp. and/or enjoining Acquisition from taking, or requiring Acquisition Corp. to take, any action, and/or by which Acquisition Corp. is, and/or its assets are, bound or subject. 15. GOOD IDEAS COVENANTS. Good Ideas shall, during the period commencing on the date hereof and terminating immediately following the close of business on the Effective Date (or earlier, upon the failure or refusal of the Good Ideas Minority Stockholders to approve this Agreement and/or the termination of this Agreement as herein provided): (a) Take and perform any and all actions necessary to render accurate, and/or maintain the accuracy of, all of the representations and warranties of Good Ideas herein contained and/or satisfy each covenant or condition required to be performed or satisfied by Good Ideas at or prior to the Closing and/or to cause or permit the implementation of the Merger; (b) Not take or perform any action which would or might cause any representation or warranty made by Good Ideas herein to be rendered inaccurate, in whole or in part, and/or which would prevent, inhibit or preclude the satisfaction, in whole or in part, of any covenant required to be performed or satisfied by Good Ideas at or prior to the Closing and/or the implementation of the Merger; (c) Not make, or permit to be made on its behalf, any announcement to the public in general and/or within its industry and/or otherwise with respect to this Agreement, the Merger and the current or future business or operations of any party hereto without the prior written consent of SAT or, in the case of an announcement required by applicable securities laws, prior consultation with SAT; and E-15 15 (d) Immediately advise SAT of any event, condition or occurrence which constitutes, or may, with the passage of time and/or giving of notice, constitute, a breach of any representation or warranty of Good Ideas herein contained and/or which prevents, inhibits or limits or may prevent, inhibit or limit Good Ideas from satisfying, in full and on a timely basis, any covenant, term or condition herein contained and/or implementing this Agreement; and (e) Extend the terms of the notes due from SAT to Good Ideas, if and only if the consent solicitation for the Merger is still in progress on April 30, 1997, to the earlier of (i) five business days after the results of the solicitation are known and the results are that the Merger has not been approved or (ii) the Effective Date. 16. SAT COVENANTS. SAT shall, during the period commencing on the date hereof and terminating immediately following the close of business on the Effective Date (or earlier, upon the failure or refusal of the Good Ideas Minority Stockholders to approve this Agreement and/or the termination of this Agreement as herein provided): (a) Take and perform any and all actions necessary to render accurate, and/or maintain the accuracy of, all of the representations and warranties of SAT herein contained and/or satisfy each covenant or condition required to be performed or satisfied by SAT at or prior to the Closing and/or to cause or permit the implementation of the Merger; (b) Not take or perform any action which would or might cause any representation or warranty made by SAT herein to be rendered inaccurate, in whole or in part, and/or which would prevent, inhibit or preclude the satisfaction, in whole or in part, of any covenant required to be performed or satisfied by SAT at or prior to the Closing and/or the implementation of the Merger; (c) Carry on and maintain its business in substantially the same form, style and manner as heretofore operated by it; perform, in all material respects, all of its obligations under all material agreements, leases and documents relating to or affecting its assets, properties and business; and use its best efforts to preserve intact its business organization and the good will and relationships with its suppliers, customers and others having business relations with it; (d) Not make any announcement to the public in general and/or within its industry and/or otherwise with respect to this Agreement, the Merger and the current or future business or operations of any party hereto without the prior written consent of Good Ideas or, in the case of an announcement required by applicable securities laws, prior consultation with Good Ideas; and (e) Immediately advise Good Ideas of any event, condition or occurrence which constitutes, or may, with the passage of time and/or giving of notice, constitute, a breach of any representation or warranty of SAT herein contained and/or which prevents, inhibits or limits or may prevent, inhibit or limit SAT from satisfying, in full and on a timely basis, any covenant, term or condition herein contained and/or implementing this Agreement. (f) Subject to Good Ideas' compliance with its obligations under Section 11 hereof, use its best efforts to have the Registration Statement declared effective under the Securities Act; and (g) Call a Special Meeting of Stockholders to approve an amendment to SAT's Certificate of Incorporation to increase the authorized shares of the SAT Common Stock in an amount sufficient to permit the Merger, the merger of U.S. Drug Testing with and into U.S. Drug Acquisition Corp., the conversion of all outstanding convertible notes and shares of the preferred stock and the exercise of all outstanding warrants. E-16 16 17. SAT AND ACQUISITION CORP. CONDITIONS PRECEDENT. The obligations of SAT and Acquisition to implement this Agreement and consummate the Merger are, at their respective elections, subject to, and conditioned upon, the satisfaction (and/or waiver except as to Section 17(a), (b) and (g)) of each of the following conditions: (a) Prior to the Closing Date the holders of more than 50% of the shares of the Good Ideas Common Stock owned by the Good Ideas Minority Stockholders shall have adopted this Agreement by consenting to the adoption of this Agreement pursuant to the Consent Solicitation Statement-Prospectus. (b) The Registration Statement shall have been declared effective by the SEC and all appropriate state securities administrators and no "stop orders" shall have been issued and/or be in effect or a proceeding for such purpose shall have been instituted and be pending. (c) The representations and warranties of Good Ideas contained in this Agreement shall be true and correct in all respects as of the Effective Date with the same effect as if made on and as of the Effective Date and Good Ideas shall have performed in all material respects all of its covenants and obligations contemplated hereunder to be performed on or prior to the Effective Date. At the Closing, SAT shall have received a certificate, executed by the President and the Secretary of Good Ideas (effective as of the Closing and the Effective Date) and in form reasonably acceptable to SAT, certifying as of both the date of this Agreement and the Closing Date, the truth and accuracy of (and the remaking of) the representations and warranties of Good Ideas herein contained, including, without limitation, those set forth in Section 12 hereof. (d) Prior to the Closing, all corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be in form and content reasonably satisfactory to SAT and its counsel and SAT and its counsel shall have received all counterpart originals or certified or other copies of such documents and instruments as they may reasonably request. (e) No action or proceeding shall have been instituted and be pending by any private party and/or governmental agency or authority challenging the legality of this Agreement or the Merger and/or seeking to prevent or delay consummation of the transactions herein contemplated, which action or proceeding shall have resulted in an order granting preliminary or permanent injunctive relief prohibiting consummation of this Agreement and/or the Merger and which order shall not have been vacated as of the Closing. (f) All statutory requirements for the valid consummation by Good Ideas of the transactions herein described shall have been fully and timely satisfied; all authorizations, consents and approvals of all Federal, state and local governmental agencies and authorities required to be obtained in order to permit consummation by Good Ideas of the transactions herein described and/or to permit the businesses currently carried on by Good Ideas to continue unimpaired in all material respects immediately following the Effective Date shall have been obtained and shall be in full force and effect; and no action or proceeding to suspend, revoke, cancel, terminate, modify or alter any of such authorizations, consents or approvals shall be pending or threatened. (g) Good Ideas shall have received a written opinion from Whale Securities Co., L.P., satisfactory to SAT in form and content, regarding the fairness, from a financial point of view, to the Good Ideas Minority Stockholders of (i) the terms of the Merger and (ii) the agreements among SAT, Good Ideas and Acquisition Corp. described in this Agreement. E-17 17 18. GOOD IDEAS CONDITIONS PRECEDENT. The obligation of Good Ideas to implement this Agreement and consummate the Merger is, at its election, subject to, and conditioned upon, the satisfaction (and/or waiver except as to Section 18(a), (c) and (i)) of each of the following conditions: (a) Prior to the Closing Date the holders of a majority of the shares of Good Ideas Common owned by the Good Ideas Minority Stockholders shall have adopted this Agreement by consenting to the adoption of this Agreement pursuant to the Consent Solicitation/Prospectus. (b) Prior to the Closing Date SAT shall have adopted this Agreement by filing with Good Ideas a consent to its adoption. (c) The Registration Statement shall have been declared effective by the SEC and all appropriate state securities administrators and no "stop orders" shall have been issued and/or be in effect or a proceeding for such purpose shall have been instituted and be pending. (d) The representations and warranties of SAT and Acquisition Corp. contained in this Agreement shall be true and correct in all material respects as of the Effective Date with the same effect as if made on and as of the Effective Date. At the Closing, Good Ideas shall have received a certificate, executed by the Chairman of the Board and the Secretary of SAT and Acquisition Corp. (effective as of the Closing and the Effective Date) and in form and content reasonably acceptable to Good Ideas, certifying, as to both the date of this Agreement and the Closing Date the truth and accuracy of (and the remaking of) the representations and warranties of SAT and Acquisition Corp. herein contained, including, without limitation, those set forth in Sections 13 and 14 hereof. (e) Prior to the Closing, there shall not have occurred any material adverse change in the financial condition, business or operations of SAT and the Subsidiaries (excluding Good Ideas) as a consolidated entity, nor shall any event have occurred or condition exist which, with the passage of time or the giving of notice, may cause or create any such adverse material change. (f) Prior to the Closing, all corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be in form and content reasonably satisfactory to Good Ideas and its counsel and Good Ideas and its counsel shall have received all counterpart originals or certified or other copies of such documents and instruments as they may reasonably request. (g) No action or proceeding shall have been instituted and be pending by any private party and/or governmental agency or authority challenging the legality of this Agreement or the Merger and/or seeking to prevent or delay consummation of the transactions herein contemplated, which action or proceeding shall have resulted in an order granting preliminary or permanent injunctive relief prohibiting consummation of this Agreement and/or the Merger and which order shall not have been vacated as of the Closing. (h) All statutory requirements for the valid consummation by SAT of the transactions herein described shall have been fully and timely satisfied; all authorizations, consents and approvals of all Federal, state and local governmental agencies and authorities required to be obtained in order to permit consummation by SAT of the transactions herein described and/or to permit the businesses currently carried on by SAT to continue unimpaired in all material respects immediately following the Effective Date shall have been obtained and shall be in full force and effect; and no action or proceeding to suspend, revoke, cancel, terminate, modify or alter any of such authorizations, consents or approvals shall be pending or threatened. (i) Good Ideas shall have received a written opinion from Whale Securities Co., L.P., satisfactory to Good Ideas in form and content, regarding the fairness, from a financial point of view, to the Good Ideas Minority Stockholders of (i) the terms of the Merger and (ii) the agreements among SAT, Good Ideas and Acquisition Corp. described in this Agreement. 19. TERMINATION. (a) This Agreement may be terminated and the Merger abandoned at any time prior to the Effective Date, whether before or after submission to, or approval by, the Good Ideas E-18 18 Minority Stockholders as herein provided either: (a) by mutual agreement of the Boards of Directors of Good Ideas and SAT; or (b) by the Board of Directors of either Good Ideas or SAT if either (i) the Closing shall not have taken place by September 30, 1997 (other than by reason of the default hereunder by the terminating party) or (ii) there is any statute, rule or regulation which makes consummation of the Merger illegal or otherwise prohibited or any order, decree, injunction or judgment enjoining SAT, Good Ideas or Acquisition Corp. from consummating the Merger is issued by a court of competent jurisdiction and such order, decree, injunction or judgment has become final and non-appealable; or (c) by the Board of Directors of either SAT or Good Ideas if, based upon the opinion of its outside counsel, the Board of Directors determines that making a recommendation to the Good Ideas Minority Stockholders to adopt the Merger Agreement would reasonably cause the members of such Board of Directors to breach their fiduciary duties under applicable law to their respective stockholders. (b) If this Agreement shall be terminated and/or the Merger abandoned pursuant to the provisions of subsection (a) of this Section 19 hereof (other than by reason of the default of any party hereunder), then and in that event SAT shall bear all of the costs and its special expenses except for those of Whale Securities Co., L.P. and of special counsel to Good Ideas and there shall be no liability on the part of any party hereto (and/or their respective officers, directors, agents and employees) to any other party hereto (and/or their respective officers, directors, agents and employees). 20. COSTS AND EXPENSES. SAT shall pay all costs and expenses relating to the transactions contemplated by this Agreement, including, without limitation, the costs and expenses relating to the preparation of this Agreement and the Registration Statement, such as attorneys' fees, accounting fees, printing expenses and consent solicitation expenses, except that Good Ideas will pay all costs and expenses of Whale Securities Co., L.P. and of its special counsel. 21. NOTICES. Any and all notices, requests or instructions desired to be given by any party hereto to any other party hereto shall be in writing and shall be either be hand delivered or mailed to the recipient first class, postage prepaid, certified, return receipt requested at the following respective addresses: To: Good Ideas Enterprises, Inc. 10410 Trademark Street Rancho Cucamonga, California 91730 Attn: President With a copy to: Rosenman & Colin LLP 575 Madison Avenue New York, New York 10022 Attn: Edward H. Cohen, Esq. To: SAT or Acquisition Corp. 4517 N.W. 31st Avenue Fort Lauderdale, Florida 33309 Attn: Chairman of the Board With a copy to: Wachtel & Masyr, LLP 110 East 59th Street New York, New York 10022 Attn: Robert W. Berend, Esq. or to such other address as any party hereto shall designate in a writing complying with the provisions of this Section 21. E-19 19 22. WAIVER. Each of the parties hereto may, by written instrument, (a) extend the time for the performance of any of the obligations or other acts of any party hereto; (b) waive any inaccuracies of such other party in the representations and warranties contained herein or in any document delivered pursuant to this Agreement; (c) waive compliance with any of the covenants of such other party contained in this Agreement; (d) waive such other party's performance of any of such party's obligations set out in this Agreement; and (e) waive any condition to its obligation to effect the Merger. Anything in this Section 22 to the contrary notwithstanding, no party hereto may waive the requirement that the holders of a majority of the shares of the Good Ideas Common owned by the Good Ideas Minority Stockholders must consent to the adoption of this Agreement and the Merger. 23. AMENDMENTS. This Agreement may be amended at any time prior to the Effective Date (whether before or after the consent of stockholders of Good Ideas as herein provided) by a writing executed by the respective Presidents of SAT, Good Ideas and Acquisition (upon due authorization by their respective Boards of Directors); provided, however, that after the satisfaction of the condition set forth in Sections 17(a) and 18(a) in no event may the amount or the form of the consideration to be received by the holders of the Good Ideas Minority Stockholders be changed without the approval of the Good Ideas Minority Stockholders. 24. GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware applicable to contracts executed and to be fully performed therein and without regard to principles of conflicts of laws. 25. EFFECTIVENESS. This Agreement shall inure to the benefit of, and be binding upon, the parties hereto and any controlling person of any party hereof as provided in Section 15 of the Securities Act and their respective successors, transferees, heirs, assigns and beneficiaries. 26. COUNTERPARTS. This Agreement may be executed in multiple copies, each of which shall constitute an original, but all of which shall constitute one and the same agreement. 27. PARTIAL INVALIDITY. If any term, covenant or condition in this Agreement, or the application thereof to any person or circumstance, shall be invalid or unenforceable, the remainder of this Agreement or the application of such term, covenant or condition to persons or circumstances, other than those as to which it is held invalid, shall be unaffected thereby and each term, covenant or condition of this Agreement shall be enforced to fullest extent permitted by law. 28. INTEGRATION. This Agreement (including the Exhibits hereto, the documents and instruments delivered by the parties hereto and any other documents executed and delivered and/or to be executed and delivered pursuant to the provisions of this Agreement as herein provided) sets forth the entire agreement among the parties hereto with respect to the subject matter herein contained. There are no covenants, promises, agreements, conditions or understandings, either oral or written, between or among the parties hereto with respect to the subject matter hereof except as herein and in such ancillary documents provided. This Agreement can only be altered, amended, modified, terminated or rescinded by a writing executed by the party to be charged. E-20 20 IN WITNESS WHEREOF, the parties hereto have executed this Agreement and Plan of Merger as of the date first above written. ATTEST: SUBSTANCE ABUSE TECHNOLOGIES, INC. By: - ----------------------------------------------------- ------------------------------------------------- Secretary Chairman of the Board GOOD IDEAS ACQUISITION CORP. By: - ----------------------------------------------------- ------------------------------------------------- Secretary Chairman of the Board GOOD IDEAS ENTERPRISES, INC. By: - ----------------------------------------------------- ------------------------------------------------- Secretary President
E-21 EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 YEAR MAR-31-1997 APR-01-1996 MAR-31-1997 1 0 0 0 0 1 0 0 0 9 0 0 0 4 (12) (8) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
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