U. S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
HDF, INC.
--------------------------------------------
(Name of Small Business Issuer in its charter)
Colorado 84-1455320
-------- ----------
State or other jurisdiction of IRS Employer ID Number
incorporation or organization
1050 Seventeenth Street, Suite 1700, Denver, Colorado 80265
-----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (303) 292-3883
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
------------------- ------------------------------
Not Applicable Not Applicable
Securities to be registered under Section 12(g) of the Act:
Common Stock, $0.001 par value
------------------------------
(Title of class)
<PAGE>
PART I
Item 1. Description of Business.
General
HDF, Inc. (the "Company") was incorporated under the laws of the State of
Colorado on April 21, 1997, and is in the early developmental and promotional
stages. To date the Company's only activities have been organizational ones,
directed at developing its business plan and raising its initial capital. The
Company has not commenced any commercial operations. The Company has no
full-time employees and owns no real estate.
The Company's business plan is to seek, investigate and, if warranted,
acquire one or more properties or businesses and to pursue other related
activities intended to enhance shareholder value. The acquisition of a business
opportunity may be made by purchase, merger, exchange of stock or otherwise, and
may encompass assets or a business entity, such as a corporation, joint venture
or partnership. The Company has very limited capital, and it is unlikely that
the Company will be able to take advantage of more than one such business
opportunity. The Company intends to seek opportunities demonstrating the
potential of long-term growth as opposed to short-term earnings.
At the present time the Company has not identified any business opportunity
that it plans to pursue, nor has the Company reached any agreement or definitive
understanding with any person concerning an acquisition. The Company's sole
officer and director has a number of contacts within the field of corporate
finance and is an officer and director of another public shell corporation. As a
result, he has had preliminary contacts with representatives of numerous
companies concerning the general possibility of a merger or acquisition by a
public shell company. However, none of these preliminary contacts or discussions
involved the possibility of a merger or acquisition transaction with the
Company.
It is anticipated that the Company's sole executive officer and director
will contact broker-dealers and other persons with whom he is acquainted who are
involved in corporate finance matters to advise them of the Company's existence
and to determine if any companies or businesses they represent have an interest
in considering a merger or acquisition with the Company. No assurance can be
given that the Company will be successful in finding or acquiring a desirable
business opportunity, given the limited funds that are available for
acquisitions, or that any acquisition that occurs will be on terms that are
favorable to the Company or its stockholders.
The Company's search will be directed toward small and medium-sized
enterprises which have a desire to become public corporations and which are able
to satisfy, or anticipate in the reasonably near future being able to satisfy,
the minimum asset requirements in order to qualify shares for trading on NASDAQ
or a stock exchange. (See "Investigation and Selection of Business
Opportunities," below.) The Company anticipates that the business opportunities
presented to it will (i) be recently organized with no operating history, or a
history of losses attributable to under-capitalization or other factors; (ii) be
experiencing financial or operating difficulties; (iii) be in need of funds to
develop a new product or service or to expand into a new market; (iv) be relying
upon an untested product or marketing concept; or (v) have a combination of the
characteristics mentioned in (i) through (iv). The Company intends to
concentrate its acquisition efforts on properties or businesses that it believes
to be undervalued. Given the above factors, investors should expect that any
acquisition candidate may have a history of losses or low profitability.
-2-
<PAGE>
The Company does not propose to restrict its search for investment
opportunities to any particular geographical area or industry, and may,
therefore, engage in essentially any business, to the extent of its limited
resources. This includes industries such as service, finance, natural resources,
manufacturing, high technology, product development, medical, communications and
others. The Company's discretion in the selection of business opportunities is
unrestricted, subject to the availability of such opportunities, economic
conditions and other factors.
As a consequence of this registration of its securities, any entity which
has an interest in being acquired by, or merging into the Company, is expected
to be an entity that desires to become a public company and establish a public
trading market for its securities. In connection with such a merger or
acquisition, it is highly likely that an amount of stock constituting control of
the Company would be issued by the Company or purchased from the current
principal shareholders of the Company by the acquiring entity or its affiliates.
If stock is purchased from the current shareholders, the transaction is very
likely to result in substantial gains to them relative to their purchase price
for such stock. In the Company's judgment, its sole executive officer and
director would not thereby become an "underwriter" within the meaning of Section
2(11) of the Securities Act of 1933, as amended (the "Securities Act"). The sale
of a controlling interest by certain principal shareholders of the Company could
occur at a time when other shareholders of the Company, if any, remain subject
to restrictions on the transfer of their shares.
Depending upon the nature of the transaction, the current sole executive
officer and director of the Company may resign his management positions with the
Company in connection with the Company's acquisition of a business opportunity.
(See "Form of Acquisition" and "Risk Factors - Lack of Continuity in
Management," below.) In the event of such resignations, the Company's current
management would not have any control over the conduct of the Company's business
following the Company's combination with a business opportunity.
It is anticipated that business opportunities will come to the Company's
attention from various sources, including its sole executive officer and
director, its other stockholders, professional advisors such as attorneys and
accountants, securities broker-dealers, venture capitalists, members of the
financial community and others who may present unsolicited proposals. The
Company has no plans, understandings, agreements or commitments with any
individual for such person to act as a finder of opportunities for the Company.
The Company does not foresee that it would enter into a merger or
acquisition transaction with any business with which its sole executive officer
and director is currently affiliated. Should the Company determine in the
future, contrary to foregoing expectations, that a transaction with an affiliate
would be in the best interests of the Company and its stockholders, the Company
is in general permitted by Colorado law to enter into such a transaction if:
1. The material facts as to the relationship or interest of the affiliate and as
to the contract or transaction are disclosed or are known to the Board of
Directors, and the Board in good faith authorizes the contract or transaction by
the affirmative vote of a majority of the disinterested directors, even though
the disinterested directors constitute less than a quorum; or
2. The material facts as to the relationship or interest of the affiliate and as
to the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
3. The contract or transaction is fair as to the Company as of the time it is
authorized, approved or ratified by the Board of Directors or the stockholders.
-3-
<PAGE>
Investigation and Selection of Business Opportunities
To a large extent, a decision to participate in a specific business
opportunity may be made upon management's analysis of the quality of the other
company's management and personnel, the anticipated acceptability of new
products or marketing concepts, the merit of technological changes, the
perceived benefit the company will derive from becoming a publicly held entity
and numerous other factors which are difficult, if not impossible, to analyze
through the application of any objective criteria. In many instances, it is
anticipated that the historical operations of a specific business opportunity
may not necessarily be indicative of the potential for the future because of the
possible need to shift marketing approaches substantially, expand significantly,
change product emphasis, change or substantially augment management or make
other changes. The Company will be dependent upon the owners of a business
opportunity to identify any such problems which may exist and to implement, or
be primarily responsible for the implementation of, required changes. Because
the Company may participate in a business opportunity with a newly organized
firm or with a firm which is entering a new phase of growth, it should be
emphasized that the Company will incur further risks, because management in many
instances will not have proved its abilities or effectiveness, the eventual
market for such company's products or services will likely not be established
and such company may not be profitable when acquired.
It is anticipated that the Company will not be able to diversify, but will
essentially be limited to one such venture because of the Company's limited
financing. This lack of diversification will not permit the Company to offset
potential losses from one business opportunity against profits from another, and
should be considered an adverse factor affecting any decision to purchase the
Company's securities.
It is emphasized that management of the Company may effect transactions
having a potentially adverse impact upon the Company's shareholders pursuant to
the authority and discretion of the Company's management to complete
acquisitions without submitting any proposal to the stockholders for their
consideration. Holders of the Company's securities should not anticipate that
the Company necessarily will furnish such holders, prior to any merger or
acquisition, with financial statements, or any other documentation, concerning a
target company or its business. In some instances, however, the proposed
participation in a business opportunity may be submitted to the stockholders for
their consideration, either voluntarily by the director to seek the
stockholders' advice and consent or because state law so requires.
The analysis of business opportunities will be undertaken by or under the
supervision of the Company's President, who is not a professional business
analyst. (See Item 5, "Directors, Executive Officers, Promoters and Control
Persons.") Although there are no current plans to do so, Company management
might hire an outside consultant to assist in the investigation and selection of
business opportunities, and might pay a finder's fee. Since Company management
has no current plans to use any outside consultants or advisors to assist in the
investigation and selection of business opportunities, no policies have been
adopted regarding use of such consultants or advisors, the criteria to be used
in selecting such consultants or advisors, the services to be provided, the term
of service or regarding the total amount of fees that may be paid. However,
because of the limited resources of the Company, it is likely that any such fee
the Company agrees to pay would be paid in stock and not in cash. Otherwise, the
Company anticipates that it will consider, among other things, the following
factors:
1. Potential for growth and profitability, indicated by new technology,
anticipated market expansion or new products;
2. The Company's perception of how any particular business opportunity will be
received by the investment community and by the Company's stockholders;
-4-
<PAGE>
3. Whether, following the business combination, the financial condition of the
business opportunity would be, or would have a significant prospect in the
foreseeable future of becoming sufficient to enable the securities of the
Company to qualify for listing on an exchange or on a national automated
securities quotation system, such as NASDAQ, so as to permit the trading of such
securities to be exempt from the requirements of Rule 15c2-6 recently adopted by
the Securities and Exchange Commission. See "Risk Factors - Regulation of Penny
Stocks;"
4. Capital requirements and anticipated availability of required funds to be
provided by the Company or from operations, through the sale of additional
securities, through joint ventures or similar arrangements or from other
sources;
5. The extent to which the business opportunity can be advanced;
6. Competitive position as compared to other companies of similar size and
experience within the industry segment as well as within the industry as a
whole;
7. Strength and diversity of existing management, or management prospects that
are scheduled for recruitment;
8. The cost of participation by the Company as compared to the perceived
tangible and intangible values and potential; and
9. The accessibility of required management expertise, personnel, raw materials,
services, professional assistance and other required items.
In order to be included in NASDAQ's SmallCap Market, a company must satisfy
the requirements described below. A company must meet one or more of the
following three requirements: (i) net tangible assets of $4 million ($2 million
for continued inclusion), (ii) have a market capitalization of $50 million ($35
million for continued inclusion), or (iii) have net income (in the latest fiscal
year or 2 of the last 3 fiscal years) of $750,000 ($500,000 for continued
inclusion). In addition, a company must also satisfy the following requirements:
(i) 1 million shares in the public float (500,000 for continued inclusion), (ii)
$5 million of market value of the public float ($1 million for continued
inclusion), (iii) a minimum bid price of $4 ($1 for continued inclusion), (iv)
3 market makers (2 for continued inclusion), (v) 300 (round lot) shareholders,
(vi) an operating history of 1 year or market capitalization of $50 million, and
(vii) certain corporate governance standards. Many, and perhaps most, of the
business opportunities that might be potential candidates for a combination with
the Company would not satisfy the NASDAQ listing criteria.
No one of the factors described above will be controlling in the selection
of a business opportunity, and management will attempt to analyze all factors
appropriate to each opportunity and make a determination based upon reasonable
investigative measures and available data. Potentially available business
opportunities may occur in many different industries and at various stages of
development, all of which will make the task of comparative investigation and
analysis of such business opportunities extremely difficult and complex.
Potential investors must recognize that, because of the Company's limited
capital available for investigation and management's limited experience in
business analysis, the Company may not discover or adequately evaluate adverse
facts about the opportunity to be acquired.
The Company is unable to predict when it may participate in a business
opportunity. It expects, however, that the analysis of specific proposals and
the selection of a business opportunity may take several months or more.
-5-
<PAGE>
Prior to making a decision to participate in a business opportunity, the
Company will generally request that it be provided with written materials
regarding the business opportunity containing such items as a description of
products, services and company history; management resumes; financial
information; available projections, with related assumptions upon which they are
based; an explanation of proprietary products and services; evidence of existing
patents, trademarks or service marks, or rights thereto; present and proposed
forms of compensation to management; a description of transactions between such
company and its affiliates during relevant periods; a description of present and
required facilities; an analysis of risks and competitive conditions; a
financial plan of operation and estimated capital requirements; audited
financial statements, or if they are not available, unaudited financial
statements, together with reasonable assurances that audited financial
statements would be able to be produced within a reasonable period of time not
to exceed 60 days following completion of a merger transaction; and other
information deemed relevant.
As part of the Company's investigation, the Company's executive officer and
director may meet personally with management and key personnel, may visit and
inspect material facilities, obtain independent analysis or verification of
certain information provided, check references of management and key personnel
and take other reasonable investigative measures, to the extent of the Company's
limited financial resources and management expertise.
It is possible that the range of business opportunities that might be
available for consideration by the Company could be limited by the impact of
Securities and Exchange Commission regulations regarding purchase and sale of
"penny stocks." The regulations would affect, and possibly impair, any market
that might develop in the Company's securities until such time as they qualify
for listing on NASDAQ or on another exchange which would make them exempt from
applicability of the "penny stock" regulations. See "Risk Factors - Regulation
of Penny Stocks."
Company management believes that various types of potential merger or
acquisition candidates might find a business combination with the Company to be
attractive. These include acquisition candidates desiring to create a public
market for their shares in order to enhance liquidity for current shareholders,
acquisition candidates which have long-term plans for raising capital through
the public sale of securities and which believe that the possible prior
existence of a public market for their securities would be beneficial and
acquisition candidates which plan to acquire additional assets through issuance
of securities rather than for cash, and which believe that the possibility of
development of a public market for their securities will be of assistance in
that process. Acquisition candidates which have a need for an immediate cash
infusion are not likely to find a potential business combination with the
Company to be an attractive alternative.
Form of Acquisition
It is impossible to predict the manner in which the Company may participate
in a business opportunity. Specific business opportunities will be reviewed as
well as the respective needs and desires of the Company and the promoters of the
opportunity and, upon the basis of that review and the relative negotiating
strength of the Company and such promoters, the legal structure or method deemed
by management to be suitable will be selected. Such structure may include, but
is not limited to leases, purchase and sale agreements, licenses, joint ventures
and other contractual arrangements. The Company may act directly or indirectly
through an interest in a partnership, corporation or other form of organization.
Implementing such structure may require the merger, consolidation or
reorganization of the Company with other corporations or forms of business
organization, and although it is likely, there is no assurance that the Company
would be the surviving entity. In addition, the present management and
stockholders of the Company most likely will not have control of a majority of
the voting shares of the Company following a reorganization transaction. As part
of such a transaction, the Company's existing director may resign and new
directors may be appointed without any vote by stockholders.
-6-
<PAGE>
It is likely that the Company will acquire its participation in a business
opportunity through the issuance of common stock ("Common Stock") or other
securities of the Company. Although the terms of any such transaction cannot be
predicted, it should be noted that in certain circumstances the criteria for
determining whether or not an acquisition is a so-called "tax free"
reorganization under the Internal Revenue Code of 1986 (the "Internal Revenue
Code") depends upon the issuance to the stockholders of the acquired company of
a controlling interest (i.e. 80% or more) of the common stock of the combined
entities immediately following the reorganization. If a transaction were
structured to take advantage of these provisions rather than other "tax free"
provisions provided under the Internal Revenue Code, the Company's current
stockholders would retain in the aggregate 20% or less of the total issued and
outstanding shares. This could result in substantial additional dilution in the
equity of those who were stockholders of the Company prior to such
reorganization. Any such issuance of additional shares might also be done
simultaneously with a sale or transfer of shares representing a controlling
interest in the Company by the current sole executive officer and director and
principal shareholders. See "General," above.
It is anticipated that any new securities issued in any reorganization
would be issued in reliance upon exemptions, if any are available, from
registration under applicable federal and state securities laws. In some
circumstances, however, as a negotiated element of the transaction, the Company
may agree to register such securities either at the time the transaction is
consummated, or under certain conditions or at specified times thereafter. The
issuance of substantial additional securities and their potential sale into any
trading market that might develop in the Company's securities may have a
depressive effect upon such market.
The Company will participate in a business opportunity only after the
negotiation and execution of a written agreement. Although the terms of such
agreement cannot be predicted, generally such an agreement would require
specific representations and warranties by all of the parties thereto, specify
certain events of default, detail the terms of closing and the conditions which
must be satisfied by each of the parties thereto prior to such closing, outline
the manner of bearing costs if the transaction is not closed, set forth remedies
upon default and include miscellaneous other terms.
As a general matter, the Company anticipates that it, and/or its sole
executive officer and principal shareholders will enter into a letter of intent
with the management, principals or owners of a prospective business opportunity
prior to signing a binding agreement. Such a letter of intent will set forth the
terms of the proposed acquisition but will not bind any of the parties to
consummate the transaction. Execution of a letter of intent will by no means
indicate that consummation of an acquisition is probable. Neither the Company
nor any of the other parties to the letter of intent will be bound to
consummate the acquisition unless and until a definitive agreement concerning
the acquisition as described in the preceding paragraph is executed. Even
after a definitive agreement is executed, it is possible that the acquisition
would not be consummated should any party elect to exercise any right provided
in the agreement to terminate it on specified grounds.
It is anticipated that the investigation of specific business opportunities
and the negotiation, drafting and execution of relevant agreements, disclosure
documents and other instruments will require substantial management time and
attention and substantial costs for accountants, attorneys and others. If a
decision is made not to participate in a specific business opportunity, the
costs theretofore incurred in the related investigation would not be
recoverable. Moreover, because many providers of goods and services require
compensation at the time or soon after the goods and services are provided, the
inability of the Company to pay until an indeterminate future time may make it
impossible to procure goods and services.
-7-
<PAGE>
Investment Company Act and Other Regulation
The Company may participate in a business opportunity by purchasing,
trading or selling the securities of such business. The Company does not,
however, intend to engage primarily in such activities. Specifically, the
Company intends to conduct its activities so as to avoid being classified as an
"investment company" under the Investment Company Act of 1940 (the "Investment
Act"), and therefore to avoid application of the costly and restrictive
registration and other provisions of the Investment Act and the regulations
promulgated thereunder.
Section 3(a) of the Investment Act contains the definition of an
"investment company," and it excludes any entity that does not engage primarily
in the business of investing, reinvesting or trading in securities, or that does
not engage in the business of investing, owning, holding or trading "investment
securities" (defined as "all securities other than government securities or
securities of majority-owned subsidiaries") the value of which exceeds 40% of
the value of its total assets (excluding government securities, cash or cash
items). The Company intends to implement its business plan in a manner which
will result in the availability of this exception from the definition of
"investment company." Consequently, the Company's participation in a business or
opportunity through the purchase and sale of investment securities will be
limited.
The Company's plan of business may involve changes in its capital
structure, management, control and business, especially if it consummates a
reorganization as discussed above. Each of these areas is regulated by the
Investment Act, in order to protect purchasers of investment company securities.
Since the Company will not register as an investment company, stockholders will
not be afforded these protections.
Any securities which the Company might acquire in exchange for its Common
Stock are expected to be "restricted securities" within the meaning of the
Securities Act. If the Company elects to resell such securities, such sale
cannot proceed unless a registration statement has been declared effective by
the Securities and Exchange Commission or an exemption from registration is
available. Section 4(1) of the Securities Act, which exempts sales of securities
not involving a distribution, would in all likelihood be available to permit a
private sale. Although the plan of operation does not contemplate resale of
securities acquired, if such a sale were to be necessary, the Company would be
required to comply with the provisions of the Securities Act to effect such
resale.
An acquisition made by the Company may be in an industry which is regulated
or licensed by federal, state or local authorities. Compliance with such
regulations can be expected to be a time-consuming and expensive process.
Competition
The Company expects to encounter substantial competition in its efforts to
locate attractive opportunities, primarily from business development companies,
venture capital partnerships and corporations, venture capital affiliates of
large industrial and financial companies, small investment companies and wealthy
individuals. Many of these entities will have significantly greater experience,
resources and managerial capabilities than the Company and will therefore be in
a better position than the Company to obtain access to attractive business
opportunities. The Company also will experience competition from other public
"blind pool" companies, many of which may have more funds available than does
the Company.
Administrative Offices
The Company currently maintains a mailing address at 1050 Seventeenth
Street, Suite 1700, Denver, Colorado 80265, which is the office address of its
legal counsel. The Company's telephone number is (303) 292-3883. Other than this
mailing address, the Company does not currently maintain any other office
facilities, and does not anticipate the need for maintaining office facilities
at any time in the foreseeable future. The Company pays no rent or other fees
for the use of this mailing address.
-8-
<PAGE>
Employees
The Company is a development stage company and currently has no employees.
Management of the Company expects to use consultants, attorneys and accountants
as necessary, and does not anticipate a need to engage any full-time employees
so long as it is seeking and evaluating business opportunities. The need for
employees and their availability will be addressed in connection with the
decision of whether or not to acquire or participate in specific business
opportunities. Although there is no current plan with respect to its nature or
amount, remuneration may be paid to or accrued for the benefit of, the Company's
sole executive officer prior to, or in conjunction with, the completion of
a business acquisition. See Item 6, "Executive Compensation" and Item 7,
"Certain Relationships and Related Transactions."
Risk Factors
Conflicts of Interest. Certain conflicts of interest exist between the
Company and its sole executive officer and director. He has other business
interests to which he devotes his attention, and he may be expected to continue
to do so although management time should be devoted to the business of the
Company. As a result, conflicts of interest may arise that can be resolved only
through his exercise of such judgment as is consistent with his fiduciary duties
to the Company. See Item 5, "Directors, Executive Officers, Promoters and
Control Persons--Biographical Information and--Conflicts of Interest."
The sole executive officer and director and the other shareholders of the
Company are officers, directors and/or principal shareholders of other blank
check companies and, therefore, could face conflicts of interest with respect
to potential acquisitions. In addition, the sole executive officer and director
and the other shareholders of the Company may in the future participate in
business ventures which could be deemed to compete directly with the Company.
Additional conflicts of interest and non-arms length transactions may also arise
in the future in the event the Company's sole executive officer and director
or its other shareholders are involved in the management of any firm with
which the Company transacts business. The Company's Board of Directors has
adopted a policy that the Company will not seek a merger with, or acquisition
of, any entity in which management serves as an officer or director, or in which
he or his family members own or hold a controlling ownership interest. Although
the sole director of the Company could elect to change this policy, he has no
present intention to do so. In addition, if the Company and any other blank
check company with which the Company's sole executive officer and director is
affiliated both desire to take advantage of a potential business opportunity,
then the sole director of the Company has determined that said opportunity
should be available to each such company in the order in which such companies
registered or became current in the filing of annual reports under the
Securities Exchange Act of 1934 (the "Exchange Act") subsequent to January 1,
1997. See Item 5, "Directors, Executive Officers, Promoters and Control Persons
- -- Biographical Information."
The Company's sole executive officer and director may elect, in the future,
to form one or more additional public shell companies with a business plan
similar or identical to that of the Company. Any such additional public shell
companies would also be in direct competition with the Company for available
business opportunities. See Item 5, "Directors, Executive Officers, Promoters
and Control Persons - Conflicts of Interest."
It is anticipated that the Company's sole executive officer and director
may actively negotiate or otherwise consent to the purchase of a portion of his
Common Stock as a condition to, or in connection with, a proposed merger or
acquisition transaction. In this process, the Company's President may consider
his own personal pecuniary benefit rather than the best interests of other
Company shareholders, and the other Company shareholders are not expected to be
afforded the opportunity to approve or consent to any particular stock
buy-out transaction. See Item 5, "Directors, Executive Officers, Promoters and
Control Persons - Conflicts of Interest."
-9-
<PAGE>
Possible Need For Additional Financing. The Company has very limited funds,
and such funds may not be adequate to take advantage of any available business
opportunities. Even if the Company's funds prove to be sufficient to acquire an
interest in, or complete a transaction with, a business opportunity, the Company
may not have enough capital to exploit the opportunity. The ultimate success of
the Company may depend upon its ability to raise additional capital. The Company
has not investigated the availability, source or terms that might govern the
acquisition of additional capital and will not do so until it determines a need
for additional financing. If additional capital is needed, there is no assurance
that funds will be available from any source or, if available, that they can be
obtained on terms acceptable to the Company. If not available, the Company's
operations will be limited to those that can be financed with its modest
capital.
Regulation of Penny Stocks. The Company's securities, when available for
trading, will be subject to a Securities and Exchange Commission rule that
imposes special sales practice requirements upon broker-dealers who sell such
securities to persons other than established customers or accredited investors.
For purposes of the rule, the phrase "accredited investors" means, in general
terms, institutions with assets in excess of $5,000,000 or individuals having a
net worth in excess of $1,000,000 or having an annual income that exceeds
$200,000 (or that, when combined with a spouse's income, exceeds $300,000). For
transactions covered by the rule, the broker-dealer must make a special
suitability determination for the purchaser and receive the purchaser's written
agreement to the transaction prior to the sale. Consequently, the rule may
affect the ability of broker-dealers to sell the Company's securities and also
may affect the ability of the Company's shareholders to sell their securities in
any market that might develop therefor.
In addition, the Securities and Exchange Commission has adopted a number of
rules to regulate "penny stocks." Such rules include Rules 3a51-1, 15g-1, 15g-2,
15g-3, 15g-4, 15g-5, 15g-6 and 15g-7 under the Exchange Act. Because the
securities of the Company may constitute "penny stocks" within the meaning of
the rules, the rules would apply to the Company and to its securities. The rules
may further affect the ability of owners of Common Stock to sell the securities
of the Company in any market that might develop for them.
Shareholders should be aware that, according to Securities and Exchange
Commission Release No. 34-29093, the market for penny stocks has suffered in
recent years from patterns of fraud and abuse. Such patterns include (i) control
of the market for the security by one or a few broker-dealers that are often
related to the promoter or issuer; (ii) manipulation of prices through
prearranged matching of purchases and sales and false and misleading press
releases; (iii) "boiler room" practices involving high-pressure sales tactics
and unrealistic price projections by inexperienced sales persons; (iv) excessive
and undisclosed bid-ask differentials and markups by selling broker-dealers; and
(v) the wholesale dumping of the same securities by promoters and broker-dealers
after prices have been manipulated to a desired level, along with the resulting
inevitable collapse of those prices and with consequent investor losses. The
Company's management is aware of the abuses that have occurred historically in
the penny stock market. Although the Company does not expect to be in a position
to dictate the behavior of the market or of broker-dealers who participate in
the market, management will strive within the confines of practical limitations
to prevent the described patterns from being established with respect to the
Company's securities.
No Operating History. The Company was formed in April 1997 for the purpose
of registering its Common Stock under the Exchange Act and acquiring a business
opportunity. The Company has no operating history, revenues from operations or
assets other than cash from private sales of stock. The Company faces all of the
risks of a new business and the special risks inherent in the investigation,
acquisition or involvement in a new business opportunity. The Company must be
regarded as a new or "start-up" venture with all of the unforeseen costs,
expenses, problems and difficulties to which such ventures are subject.
-10-
<PAGE>
No Assurance of Success or Profitability. There is no assurance that the
Company will acquire a favorable business opportunity. Even if the Company
should become involved in a business opportunity, there is no assurance that it
will generate revenues or profits, or that the market price of the Company's
Common Stock will be increased thereby.
Possible Business - Not Identified and Highly Risky. The Company has not
identified and has no commitments to enter into or acquire a specific business
opportunity and therefore can disclose the risks and hazards of a business or
opportunity that it may enter into in only a general manner, and cannot disclose
the risks and hazards of any specific business or opportunity that it may enter
into. An investor can expect a potential business opportunity to be quite risky.
The Company's acquisition of or participation in a business opportunity will
likely be highly illiquid and could result in a total loss to the Company and
its stockholders if the business or opportunity proves to be unsuccessful. See
"--General," above.
Type of Business Acquired. The type of business to be acquired may be one
that desires to avoid effecting its own public offering and the accompanying
expense, delays, uncertainties and federal and state requirements which purport
to protect investors. Because of the Company's limited capital, it is more
likely than not that any acquisition by the Company will involve other parties
whose primary interest is the acquisition of control of a publicly traded
company. Moreover, any business opportunity acquired may be currently
unprofitable or present other negative factors.
Impracticability of Exhaustive Investigation. The Company's limited funds
and the lack of full-time management will likely make it impracticable to
conduct a complete and exhaustive investigation and analysis of a business
opportunity before the Company commits its capital or other resources thereto.
Management decisions, therefore, will likely be made without detailed
feasibility studies, independent analysis, market surveys and the like which, if
the Company had more funds available to it, would be desirable. The Company will
be particularly dependent in making decisions upon information provided by the
promoter, owner, sponsor or others associated with the business opportunity
seeking the Company's participation. A significant portion of the Company's
available funds may be expended for investigative expenses and other expenses
related to preliminary aspects of completing an acquisition transaction, whether
or not any business opportunity investigated is eventually acquired.
Lack of Diversification. Because of the Company's limited financial
resources, it is unlikely that the Company will be able to diversify its
acquisitions or operations. The Company's probable inability to diversify its
activities into more than one area will subject the Company to economic
fluctuations within a particular business or industry and therefore increase the
risks associated with the Company's operations.
Possible Reliance upon Unaudited Financial Statements. The Company
generally will require audited financial statements from companies that it
proposes to acquire. No assurance can be given, however, that audited financials
will be available to the Company. In cases where audited financials are
unavailable, the Company will have to rely upon unaudited information received
from target companies' management that has not been verified by outside
auditors. The lack of the type of independent verification which audited
financial statements would provide increases the risk that the Company, in
evaluating an acquisition with such a target company, will not have the benefit
of full and accurate information about the financial condition and operating
history of the target company. This risk increases the prospect that the
acquisition of such a company might prove to be an unfavorable one for the
Company or the holders of the Company's securities.
Moreover, the Company will be subject to the reporting provisions of the
Exchange Act, and thus will be required to furnish certain information about
significant acquisitions, including audited financial statements for any
business that it acquires. Consequently, acquisition prospects that do not have,
or are unable to provide reasonable assurances that they will be able to obtain,
-11-
<PAGE>
the required audited financial statements would not be considered by the Company
to be appropriate for acquisition so long as the reporting requirements of the
Exchange Act are applicable. Should the Company, during the time it remains
subject to the reporting provisions of the Exchange Act, complete an acquisition
of an entity for which audited financial statements prove to be unobtainable,
the Company would be exposed to enforcement actions by the Securities and
Exchange Commission (the "Commission") and to corresponding administrative
sanctions, including permanent injunctions against the Company and its
management. The legal and other costs of defending a Commission enforcement
action would have material, adverse consequences for the Company and its
business. The imposition of administrative sanctions would subject the Company
to further adverse consequences.
In addition, the lack of audited financial statements would prevent the
securities of the Company from becoming eligible for listing on NASDAQ, or on
any existing stock exchange. Moreover, the lack of such financial statements is
likely to discourage broker-dealers from becoming or continuing to serve as
market makers in the securities of the Company. Without audited financial
statements, the Company would almost certainly be unable to offer securities
under a registration statement pursuant to the Securities Act, and the ability
of the Company to raise capital would be significantly limited until such
financial statements were to become available.
Other Regulation. An acquisition made by the Company may be of a business
that is subject to regulation or licensing by federal, state or local
authorities. Compliance with such regulations and licensing can be expected to
be a time-consuming, expensive process and may limit other investment
opportunities of the Company.
Dependence upon Management; Limited Participation of Management. The
Company currently has a single individual who is serving as its sole executive
officer and director. The Company will be heavily dependent upon his skills,
talents and abilities to implement its business plan, and may, from time to
time, find that the inability of the sole executive officer and director to
devote his full time and attention to the business of the Company results in a
delay in progress toward implementing its business plan. Furthermore, since one
individual is serving as the sole executive officer and director of the Company,
it will be entirely dependent upon his experience in seeking, investigating and
acquiring a business and in making decisions regarding the Company's operations.
(See Item 5, "Directors, Executive Officers, Promoters and Control Persons.")
Because investors will not be able to evaluate the merits of possible business
acquisitions by the Company, they should critically assess the information
concerning the Company's sole executive officer and director.
Lack of Continuity in Management. The Company does not have an employment
agreement with its sole executive officer and director and, as a result, there
is no assurance that he will continue to manage the Company in the future. In
connection with the acquisition of a business opportunity, it is likely that the
current sole executive officer and director of the Company may resign. A
decision to resign will be based upon the identity of the business opportunity
and the nature of the transaction, and is likely to occur without the vote or
consent of the stockholders of the Company.
Indemnification of Officers and Directors. The Company's Articles of
Incorporation provide for the indemnification of its directors, officers,
employees and agents, under certain circumstances, against attorney's fees and
other expenses incurred by them in any litigation to which they become a party
arising from their association with or activities on behalf of the Company. The
Company will also bear the expenses of such litigation for any of its directors,
officers, employees or agents, upon such person's promise to repay the Company
therefor if it is ultimately determined that any such person shall not have been
entitled to indemnification. This indemnification policy could result in
substantial expenditures by the Company which it will be unable to recoup.
-12-
<PAGE>
Director's Liability Limited. The Company's Articles of Incorporation
exclude personal liability of its directors to the Company and its stockholders
for monetary damages for breach of fiduciary duty except in certain specified
circumstances. Accordingly, the Company will have a much more limited right of
action against its directors than otherwise would be the case. This provision
does not affect the liability of any director under federal or applicable state
securities laws.
Dependence upon Outside Advisors. To supplement the business experience of
its sole executive officer and director, the Company may be required to employ
accountants, technical experts, appraisers, attorneys or other consultants or
advisors. The selection of any such advisors will be made by the Company's
President without any input from stockholders. Furthermore, it is anticipated
that such persons may be engaged on an "as needed" basis without a continuing
fiduciary or other obligation to the Company. In the event the President of the
Company considers it necessary to hire outside advisors, he may elect to hire
persons who are affiliates, if they are able to provide the required services.
Leveraged Transactions. There is a possibility that any acquisition of a
business opportunity by the Company may be leveraged, i.e., the Company may
finance the acquisition of the business opportunity by borrowing against the
assets of the business opportunity to be acquired, or against the projected
future revenues or profits of the business opportunity. This could increase the
Company's exposure to larger losses. A business opportunity acquired through a
leveraged transaction is profitable only if it generates enough revenues to
cover the related debt and expenses. Failure to make payments on the debt
incurred to purchase the business opportunity could result in the loss of a
portion or all of the assets acquired. There is no assurance that any business
opportunity acquired through a leveraged transaction will generate sufficient
revenues to cover the related debt and expenses.
Competition. The search for potentially profitable business opportunities
is intensely competitive. The Company expects to be at a disadvantage when
competing with many firms that have substantially greater financial and
management resources and capabilities than the Company. These competitive
conditions will exist in any industry in which the Company may become
interested.
No Foreseeable Dividends. The Company has not paid dividends on its Common
Stock and does not anticipate paying such dividends in the foreseeable future.
Loss of Control by Present Management and Stockholders. The Company may
consider an acquisition in which the Company would issue as consideration for
the business opportunity to be acquired an amount of the Company's authorized
but unissued Common Stock that would, upon issuance, represent the great
majority of the voting power and equity of the Company. The result of such an
acquisition would be that the acquired company's stockholders and management
would control the Company, and the Company's management could be replaced by
persons unknown at this time. Such a merger would result in a greatly reduced
percentage of ownership of the Company by its current shareholders. In addition,
the Company's President could sell his control block of stock at a premium price
to the acquired company's stockholders.
No Public Market Exists. There is no public market for the Company's Common
Stock, and no assurance can be given that a market will develop or that a
shareholder ever will be able to liquidate his investment without considerable
delay, if at all. If a market should develop, the price may be highly volatile.
Factors such as those discussed in this "Risk Factors" section may have a
significant impact upon the market price of the securities. Owing to the low
price of the securities, many brokerage firms may not be willing to effect
transactions in the securities. Even if a purchaser finds a broker willing to
effect a transaction in these securities, the combination of brokerage
commissions, state transfer taxes, if any, and any other selling costs may
exceed the selling price. Further, many lending institutions will not permit the
use of such securities as collateral for any loans.
-13-
<PAGE>
Rule 144 Sales. All of the outstanding shares of Common Stock held by
present stockholders are "restricted securities" within the meaning of Rule 144
under the Securities Act. As restricted shares, these shares may be resold only
pursuant to an effective registration statement or under the requirements of
Rule 144 or other applicable exemptions from registration under the Securities
Act and as required under applicable state securities laws. Rule 144 provides in
essence that a person who has held restricted securities for a prescribed period
may, under certain conditions, sell every three months, in brokerage
transactions, a number of shares that does not exceed the greater of 1% of a
company's outstanding common stock or the average weekly trading volume during
the four calendar weeks prior to the sale. There is no limit on the amount of
restricted securities that may be sold by a nonaffiliate after the restricted
securities have been held by the owner for a period of two years. A sale under
Rule 144 or under any other exemption from the Securities Act, if available, or
pursuant to subsequent registrations of shares of Common Stock of present
stockholders, may have a depressive effect upon the price of the Common Stock in
any market that may develop. An aggregate of 1,500,000 shares of Common Stock
held by present stockholders of the Company will become available for resale
under Rule 144 90 days after the Company registers its Common Stock under
Section 12(g) of the Exchange Act, subject to applicable volume restrictions
under Rule 144.
Blue Sky Considerations. Because the securities registered hereunder have
not been registered for resale under the blue sky laws of any state, the holders
of such shares and persons who desire to purchase them in any trading market
that might develop in the future, should be aware that there may be significant
state blue-sky law restrictions upon the ability of investors to sell the
securities and of purchasers to purchase the securities. Some jurisdictions may
not under any circumstances allow the trading or resale of blind-pool or
"blank-check" securities. Accordingly, investors should consider the secondary
market for the Company's securities to be a limited one.
Item 2. Management's Discussion and Analysis or Plan of Operation.
Liquidity and Capital Resources
The Company remains in the development stage and, since inception, has
experienced no significant change in liquidity or capital resources or
stockholders' equity other than the receipt of net cash proceeds in the amount
of $1,250 and a stock subscription receivable in the amount of $250 from the
sale of stock to its three existing shareholders. Consequently, the Company's
balance sheet for the period of April 21, 1997 (inception) through April 30,
1998, reflects current assets of $1,502 in the form of cash, and no other
assets.
The Company will carry out its plan of business as discussed above. The
Company cannot predict to what extent its liquidity and capital resources will
be diminished prior to the consummation of a business combination or whether its
capital will be further depleted by the operating losses (if any) of the
business entity which the Company may eventually acquire.
Results of Operations
During the period from April 21, 1997 (inception) through April 30, 1998,
the Company has engaged in no significant operations other than organizational
activities, acquisition of capital and preparation for registration of its
securities under the Exchange Act. No revenues were received by the Company
during this period.
For the current fiscal year, the Company anticipates incurring a loss as a
result of organizational expenses, expenses associated with registration under
the Exchange Act and expenses associated with locating and evaluating
acquisition candidates. The Company anticipates that until a business
combination is completed with an acquisition candidate, it will not generate
revenues other than interest income, and may continue to operate at a loss after
completing a business combination, depending upon the performance of the
acquired business.
-14-
<PAGE>
Need for Additional Financing
The Company believes that its existing capital will be insufficient to meet
the Company's cash needs for the next 12 months or to complete a business
transaction. The sole executive officer and director of the Company has advised
that he will pay certain costs and expenses of the Company from his personal
funds as interest free loans. There has been no specific agreement upon a dollar
cap of any such loans. Further, the Company's sole executive officer and
director recognizes that the only opportunity to have these loans repaid will be
from a prospective merger or acquisition candidate and has agreed that the
repayment of any loans made on behalf of the Company will not impede, or be made
conditional in any manner, on consummation of a proposed transaction. If the
prospective merger or acquisition candidate has insufficient capital with which
to repay any such loans or advances, or does not want to use its capital to
repay any such loans or advances, the Company's sole executive officer and
director may be required to convert such loans or advances into stock. The
Company's sole executive officer and director may under such circumstances agree
to convert any such advances or loans into stock in whole or in part rather than
being repaid by the acquisition candidate. Further, the Company's sole executive
officer and director may desire to convert such advances or loans into stock,
even if the prospective merger or acquisition candidate is willing to repay such
loans or advances, in which case the equity ownership of other shareholders
would be diluted. Once a business combination is completed, the Company's needs
for additional financing are likely to increase substantially.
No commitments to provide additional funds have been made by management or
other stockholders. Accordingly, there can be no assurance that any additional
funds will be available to the Company to allow it to cover its expenses.
Irrespective of whether the Company's cash assets prove to be inadequate to
meet the Company's operational needs, the Company might seek to compensate
providers of services by issuances of stock in lieu of cash. For information as
to the Company's policy in regard to payment for consulting services, see Item
7, "Certain Relationships and Related Transactions."
Item 3. Description of Property.
The Company does not currently maintain an office or any other facilities.
It does currently maintain a mailing address at 1050 Seventeenth Street, Suite
1700, Denver, Colorado 80265, which is the office address of its legal counsel.
The Company pays no rent for the use of this mailing address. The Company does
not believe that it will need to maintain an office at any time in the
foreseeable future in order to carry out its plan of operations described
herein. The Company's telephone number is (303) 292-3883.
-15-
<PAGE>
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of the date of this Registration
Statement, the number of shares of Common Stock owned of record and beneficially
by its sole executive officer and director and persons who hold 5% or more of
the outstanding Common Stock of the Company. Also included are the shares held
by all executive officers and directors as a group (one person).
Number of
Shares Owned Percent of
Name and Address Beneficially Class Owned
---------------- ------------ -----------
Frederick A. Huttner
13634 Taylor Crest Road
Houston, Texas 77079 1,000,000 33-1/3%
Henry F. Schlueter(1)
1050 Seventeenth Street, Suite 1700
Denver, Colorado 80265 1,000,000 33-1/3%
David Gregarek
71 Spyglass Drive
Littleton, Colorado 80123 1,000,000 33-1/3%
All directors and executive
officers as a group (1 person) 1,000,000 33-1/3%
- --------------------------------
(1) The person listed is the sole executive officer and director of the Company.
Item 5. Directors, Executive Officers, Promoters and Control Persons.
The sole director and executive officer currently serving the Company is as
follows:
Name Age Positions Held and Tenure
---- --- -------------------------
Henry F. Schlueter 46 President, Secretary, Treasurer,
and Director since April 1997
The director named above will serve until his successor has been duly
elected and qualified. Directors will be elected for one-year terms at the
annual stockholders' meeting. Officers will hold their positions at the pleasure
of the Board of Directors, absent any employment agreement, of which none
currently exists or is contemplated. There is no arrangement or understanding
between the sole executive officer and director of the Company and any other
person pursuant to which any officer or director was or is to be selected as a
director or officer.
The sole director and executive officer of the Company will devote his time
to the Company's affairs on an "as needed" basis. As a result, the actual amount
of time which he will devote to the Company's affairs is unknown and is likely
to vary substantially from month to month.
-16-
<PAGE>
Biographical Information
Henry F. Schlueter has served as President, Secretary, Treasurer and sole
director of the Company since April 22, 1997. Since 1992, Mr. Schlueter has been
the managing director of Schlueter & Associates, P.C., a law firm, practicing in
the areas of securities, mergers and acquisitions, finance and corporate law.
From 1989 to 1991, prior to establishing Schlueter & Associates, P.C., Mr.
Schlueter was a partner in the Denver, Colorado office of Kutak, Rock (formerly
Kutak, Rock & Campbell), and from 1984 to 1989, he was a partner in the Denver
office of Nelson & Harding. Mr. Schlueter is a member of the American Institute
of Certified Public Accountants, the Colorado Society of CPA's, the Colorado and
Denver Bar Associations and the Wyoming State Bar. Mr. Schlueter received his
law degree from the University of Wyoming College of Law in 1978.
Since August 1997, Mr. Schlueter has been an officer and director of JNS
Marketing, Inc. ("JNS"), a blank check company which conducted its initial
public offering in July 1984 and raised gross proceeds of $283,320 through the
sale of 283,320 units at $1.00 per unit, with each unit consisting of one share
of common stock and two warrants to purchase common stock. From inception
through the fiscal year ended September 30, 1988, JNS was engaged in the
business of searching for and obtaining, on a buyout basis or a right to market
basis, products to be sold to the general public primarily through the
television media. Since 1989, JNS has not engaged in any business or had any
revenues, and its sole activity has been to seek to acquire assets of or an
interest in a company or venture actively engaged in a business generating
revenues or having immediate prospects of generating revenues. JNS is an
Exchange Act reporting company.
Indemnification of Officers and Directors
As permitted by Colorado law, the Company's Articles of Incorporation
provide that the Company will indemnify its directors and officers against
expenses and liabilities they incur to defend, settle or satisfy any civil or
criminal action brought against them on account of their being or having been
Company directors or officers unless, in any such action, they are adjudged to
have acted with gross negligence or willful misconduct. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling the Company pursuant to
the foregoing provisions, the Company has been informed that, in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in that Act and is, therefore, unenforceable.
Exclusion of Liability
Pursuant to the Colorado Business Corporation Act, the Company's Articles
of Incorporation exclude personal liability for its directors for monetary
damages based upon any violation of their fiduciary duties as directors, except
as to liability for any breach of the duty of loyalty, acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, acts in violation of Section 7-106-401 of the Colorado Business Corporation
Act or any transaction from which a director receives an improper personal
benefit. This exclusion of liability does not limit any right which a director
may have to be indemnified and does not affect any director's liability under
federal or applicable state securities laws.
Conflicts of Interest
The sole executive officer and director of the Company will not devote more
than a portion of his time to the affairs of the Company. There will be
occasions when the time requirements of the Company's business conflict with the
demands of his other business and investment activities. Such conflicts may
require that the Company attempt to employ additional personnel. There is no
assurance that the services of such persons will be available or that they can
be obtained upon terms favorable to the Company.
-17-
<PAGE>
The Company's sole executive officer and director is involved with another
blank check company and may, in the future, elect to form one or more additional
blind pool or blank check companies with a business plan similar or identical to
that of the Company. Any such additional blind pool or blank check companies
would also be in direct competition with the Company for available business
opportunities.
Although the Board of Directors of the Company has adopted policy
resolutions which will allow for the resolution of potential conflicts of
interest in a reasonable fashion, there is no procedure in place which would
allow Mr. Schlueter to resolve potential conflicts through the vote of a
disinterested majority of the Board of Directors. Accordingly, he will be
required to use his discretion to resolve them in a manner which he considers
appropriate.
The Company's sole executive officer and director may actively negotiate or
otherwise consent to the purchase of a portion of his Common Stock as a
condition to, or in connection with, a proposed merger or acquisition
transaction. It is anticipated that a substantial premium over the initial cost
of such shares may be paid by the purchaser in conjunction with any sale of
shares by the Company's officer and director which is made as a condition to, or
in connection with, a proposed merger or acquisition transaction. The fact that
a substantial premium may be paid to the Company's sole executive officer and
director to acquire his shares creates a potential conflict of interest for him
in satisfying his fiduciary duties to the Company and its other shareholders.
Even though such a sale could result in a substantial profit to him, he would be
legally required to make the decision based upon the best interests of the
Company and the Company's other shareholders, rather than his own personal
pecuniary benefit.
Item 6. Executive Compensation.
At inception of the Company, its sole executive officer and director, its
Assistant Secretary and its other principal shareholder each received 500,000
shares of Common Stock, valued at $0.001 per share, as consideration for
pre-incorporation services rendered to the Company for investigating and
developing the Company's proposed business plan and capital structure and for
completing the organization and incorporation of the Company. No officer,
director or other shareholder has received any other remuneration. Although
there is no current plan in existence, it is possible that the Company will
adopt a plan to pay or accrue compensation to its sole executive officer and
director for services related to seeking business opportunities and completing a
merger or acquisition transaction. (See Item 7, "Certain Relationships and
Related Transactions.") The Company has no stock option, retirement, pension or
profit-sharing programs for the benefit of directors, officers or other
employees, but the sole director of the Company may recommend adoption of one or
more such programs in the future.
Item 7. Certain Relationships and Related Transactions.
Prior to the date of this Registration Statement, the Company issued to its
sole executive officer and director, and to its other principal shareholders, a
total of 1,500,000 shares of Common Stock as consideration for a total of $1,500
in services, and an additional 1,500,000 shares of Common Stock for $1,500 in
cash. Certificates evidencing the Common Stock issued by the Company to these
persons have all been stamped with a restrictive legend, and are subject to stop
transfer orders by the Company. For additional information concerning
restrictions that are imposed upon the securities held by current stockholders,
and the responsibilities of such stockholders to comply with federal securities
laws in the disposition of such Common Stock, see Item 1, "Description of
Business -- Risk Factors - Rule 144 Sales."
-18-
<PAGE>
No officer, director, promoter or affiliate of the Company has or proposes
to have any direct or indirect material interest in any asset proposed to be
acquired by the Company through security holdings, contracts, options or
otherwise.
The Company has adopted a policy under which any consulting or finder's fee
that may be paid to a third party for consulting services to assist management
in evaluating a prospective business opportunity would be paid in stock or in
cash. Any such issuance of stock would be made on an ad hoc basis. Accordingly,
the Company is unable to predict whether or in what amount such a stock issuance
might be made.
Although there is no current plan in existence, it is possible that the
Company will adopt a plan to pay or accrue compensation to its sole executive
officer and director for services related to seeking business opportunities and
completing a merger or acquisition transaction.
The Company maintains a mailing address at the office of its legal counsel,
but otherwise does not maintain an office. As a result, it pays no rent and
incurs no expenses for maintenance of an office and does not anticipate paying
rent or incurring office expenses in the future. It is likely that the Company
will establish and maintain an office after completion of a business
combination.
Although management has no current plans to cause the Company to do so, it
is possible that the Company may enter into an agreement with an acquisition
candidate requiring the sale of all or a portion of the Common Stock held by the
Company's current stockholders to the acquisition candidate or principals
thereof, or to other individuals or business entities, or requiring some other
form of payment to the Company's current stockholders, or requiring the future
employment of specified officers and payment of salaries to them. It is more
likely than not that any sale of securities by the Company's current
stockholders to an acquisition candidate would be at a price substantially
higher than that originally paid by such stockholders. Any payment to current
stockholders in the context of an acquisition involving the Company would be
determined entirely by the largely unforeseeable terms of a future agreement
with an unidentified business entity.
Item 8. Description of Securities.
Common Stock
The Company's Articles of Incorporation authorize the issuance of
20,000,000 shares of Common Stock. Each record holder of Common Stock is
entitled to one vote for each share held on all matters properly submitted to
the stockholders for their vote. Cumulative voting for the election of directors
is not permitted by the Articles of Incorporation.
Holders of outstanding shares of Common Stock are entitled to such
dividends as may be declared from time to time by the Board of Directors out of
legally available funds; and, in the event of liquidation, dissolution or
winding up of the affairs of the Company, holders are entitled to receive,
ratably, the net assets of the Company available to stockholders after
distribution is made to the preferred stockholders, if any, who are given
preferred rights upon liquidation. Holders of outstanding shares of Common Stock
have no preemptive, conversion or redemptive rights. All of the issued and
outstanding shares of Common Stock are, and all unissued shares when offered and
sold will be, duly authorized, validly issued, fully paid and nonassessable. To
the extent that additional shares of the Company's Common Stock are issued, the
relative interests of then existing stockholders may be diluted.
-19-
<PAGE>
Preferred Stock
The Company's Articles of Incorporation authorize the issuance of
10,000,000 shares of preferred stock. The Board of Directors of the Company is
authorized to issue the preferred stock from time to time in series and is
further authorized to establish such series, to fix and determine the variations
in the relative rights and preferences as between series, to fix voting rights,
if any, for each series and to allow for the conversion of preferred stock into
Common Stock. No preferred stock has been issued by the Company. The Company
anticipates that preferred stock may be utilized in making acquisitions.
Transfer Agent
The Company is currently serving as its own transfer agent, and plans to
continue to serve in that capacity until such time as management believes it is
necessary or appropriate to employ an independent transfer agent in order to
facilitate the creation of a public trading market for the Company's securities.
Since the Company does not currently expect any public market to develop for its
securities until after it has completed a business combination, it does not
currently anticipate that it will seek to employ an independent transfer agent
until it has completed such a transaction.
Reports to Stockholders
The Company plans to furnish its stockholders with an annual report for
each fiscal year containing financial statements audited by its independent
certified public accountants. In the event the Company enters into a business
combination with another company, it is the present intention of management to
continue furnishing annual reports to stockholders. Additionally, the Company
may, in its sole discretion, issue unaudited quarterly or other interim reports
to its stockholders when it deems appropriate. The Company intends to comply
with the periodic reporting requirements of the Exchange Act for so long as it
is subject to those requirements.
PART II
Item 1. Market Price and Dividends on the Registrant's Common Equity and Other
Shareholder Matters.
No public trading market exists for the Company's securities and all of its
outstanding securities are restricted securities as defined in Rule 144. There
were three holders of record of the Company's Common Stock on May 1, 1998. No
dividends have been paid to date and the Company's sole director does not
anticipate paying dividends in the foreseeable future.
Item 2. Legal Proceedings.
The Company is not a party to any pending legal proceedings, and no such
proceedings are known to be contemplated.
No director, officer or affiliate of the Company, and no owner of record or
beneficial owner of more than 5% of the securities of the Company, or any
associate of any such director, officer or security holder is a party adverse to
the Company or has a material interest adverse to the Company in reference to
pending litigation.
Item 3. Changes in and Disagreements with Accountants.
Not applicable.
-20-
<PAGE>
Item 4. Recent Sales of Unregistered Securities.
Since April 21, 1997 (the date of the Company's formation), the Company
has sold its Common Stock to the persons listed in the table below in
transactions summarized as follows:
<TABLE>
<CAPTION>
Date of Shares Aggregate Purchase
Name Sale Purchased Purchase Price Price per Share
<S> <C> <C> <C> <C>
Frederick A. Huttner 4/22/97 500,000 $500.00(1) $0.001
3/31/98 250,000 $250.00 $0.001
4/23/98 250,000 $250.00 $0.001
Henry F. Schlueter 4/22/97 500,000 $500.00(1) $0.001
3/27/98 500,000 $500.00 $0.001
David J. Gregarek 4/22/97 500,000 $500.00(1) $0.001
3/27/98 500,000 $500.00 $0.001
- ------------------------------
</TABLE>
(1) Consideration consisted of pre-incorporation services, valued at $500.00,
rendered to the Company for investigating and developing the Company's
proposed business plan and capital structure and for completing the
organization and incorporation of the Company.
All of the listed sales were made in reliance upon the exemption from
registration offered by Section 4(2) of the Securities Act. Based upon Purchaser
Questionnaires completed by each of the subscribers and the pre-existing
relationship between the subscribers and the Company's sole executive officer
and director, the Company had reasonable grounds to believe, immediately prior
to making an offer to the private investors, and did in fact believe, when such
subscriptions were accepted, that such purchasers (i) were purchasing for
investment and not with a view to distribution, and (ii) had such knowledge and
experience in financial and business matters that they were capable of
evaluating the merits and risks of their investment and were able to bear those
risks. The purchasers had access to pertinent information enabling them to ask
informed questions. The shares were issued without the benefit of registration.
An appropriate restrictive legend is imprinted upon each of the certificates
representing such shares, and stop-transfer instructions have been entered in
the Company's transfer records. All such sales were effected without the aid of
underwriters, and no sales commissions were paid.
Item 5. Indemnification of Directors and Officers.
The Articles of Incorporation and the Bylaws of the Company, filed as
Exhibits 2.1 and 2.2, respectively, provide that the Company will indemnify its
officers and directors for costs and expenses incurred in connection with the
defense of actions, suits or proceedings where the officer or director acted in
good faith and in a manner he reasonably believed to be in the Company's best
interest and is a party by reason of his status as an officer or director,
absent a finding of negligence or misconduct in the performance of duty.
PART F/S
The audited financial statements of the Company, and related notes thereto,
as of April 30, 1998, and for the period from inception to April 30, 1998, are
accompanied by the independent auditors' report and are included herewith
commencing at page F-1.
PART III
Item 1. Index to Exhibits.
The following Exhibits are filed as part of this Registration Statement.
Exhibit
No. Document
--- --------
2.1 Articles of Incorporation
2.2 Bylaws
3.1 Specimen Stock Certificate
27.1 Financial Data Schedule
-21-
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
HDF, INC.
(Registrant)
Date: June 5, 1998 By: /s/ Henry F. Schlueter
-----------------------------------------
Henry F. Schlueter, President,
Secretary, Treasurer and Director
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
HDF, Inc.
We have audited the accompanying balance sheet of HDF, Inc. (a development stage
company) as of April 30, 1998, and the related statements of operations,
stockholders' equity, and cash flows for the period from April 21, 1997 (date of
inception) to April 30, 1998. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of HDF, Inc. (a development stage
company) as of April 30, 1998 and the results of its operations, and its cash
flows for the period from April 21, 1998 (date of inception) to April 30, 1998
in conformity with generally accepted accounting principles.
/s/ James E. Scheifley & Associates, P.C.
James E. Scheifley & Associates, P.C.
Certified Public Accountants
Denver, Colorado
May 13, 1998
F - 1
<PAGE>
HDF, Inc
(A Development Stage Company)
Balance Sheet
April 30, 1998
ASSETS
Current assets: 1998
----
Cash $1,252
Stock subscription receivable 250
------
Total current assets 1,502
------
$1,502
STOCKHOLDERS' EQUITY
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value
10,000,000 shares authorized --
Common stock, $.001 par value,
20,000,000 shares authorized, 3,000,000
shares issued and outstanding 3,000
(Deficit) accumulated during
development stage (1,498)
------
1,502
------
$1,502
------
See accompanying notes to financial statements.
F - 2
<PAGE>
HDF, Inc.
(A Development Stage Company)
Statement of Operations
For the Period From Inception (April 21, 1997) to April 30, 1998
Period From
Inception To
April 30,
1998
------------
Operating expenses $ 1,500
-------
(Loss from operations) (1,500)
Interest income 2
-------
Net (loss) $(1,498)
Per share information:
Basic (loss) per common share $(0.00)
Weighted average shares outstanding 3,000,000
See accompanying notes to financial statements.
F - 3
<PAGE>
<TABLE>
<CAPTION>
HDF, Inc.
(A Development Stage Company)
Statement of Changes in Stockholders' Equity
For the Period From Inception (April 21, 1997) to April 30, 1998
Deficit
Accumulated
Common Stock During Develop-
ACTIVITY Shares Amount ment Stage Total
------ ------ --------------- -----
<S> <C> <C> <C> <C>
Balance at inception -- $ -- $ -- $ --
Shares issued for services
April, 1997 @ $.001 1,500,000 1,500 -- 1,500
Shares issued for cash
March, 1998 @ $.001 1,250,000 1,250 -- 1,250
April, 1998 @ $.001 250,000 250 -- 250
Net (loss) for the period
ended April 30, 1998 -- -- (1,498) (1,498)
---------- ------ ------- ------
Balance, April 30, 1998 3,000,000 $3,000 $(1,498) $1,502
</TABLE>
See accompanying notes to financial statements.
F - 4
<PAGE>
HDF, Inc.
(A Development Stage Company)
Statement of Cash Flows
For the Period From Inception (April 21, 1997) to April 30, 1998
Period From
Inception To
April 30,
1998
------------
Net income (loss) $(1,498)
Adjustments to reconcile net income to net
cash provided by operating activities:
Services provided for common stock 1,500
-------
Total adjustments 1,500
-------
Net cash provided by (used in)
operating activities 2
Cash flows from financing activities:
Common stock sold for cash 1,250
-------
Net cash provided by (used in)
financing activities 1,250
-------
Increase (decrease) in cash 1,252
Cash and cash equivalents,
beginning of period --
-------
Cash and cash equivalents,
end of period $1,252
See accompanying notes to financial statements.
F - 5
<PAGE>
(A Development Stage Company)
Statement of Cash Flows
For the Period From Inception (April 21, 1997) to April 30, 1998
Period From
Inception To
April 30,
1998
------------
Supplemental cash flow information:
Cash paid for interest $ --
Cash paid for income taxes $ --
See accompanying notes to financial statements.
F - 6
<PAGE>
HDF, Inc.
(A Development Stage Company)
Notes to Financial Statements
Note 1. ORGANIZATION
The Company was incorporated on April 21, 1997, in the State of Colorado. The
Company is in the development stage and its intent is to locate suitable
business ventures to acquire. The Company has had no significant business
activity to date and has chosen April 30th as a fiscal year end.
SIGNIFICANT ACCOUNTING POLICIES
Estimates
The preparation of the Company's financial statements requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates.
Fair Value of Financial Instruments
The Company's short-term financial instruments consist of cash. The carrying
amounts of the Company's financial instruments approximate fair value because of
their short-term maturities. Financial instruments that potentially subject the
Company to a concentration of credit risk consist principally of cash. During
the period presented the Company did not maintain cash deposits at financial
institutions in excess of the $100,000 limit covered by the Federal Deposit
Insurance Corporation. The Company does not hold or issue financial instruments
for trading purposes nor does it hold or issue interest rate or leveraged
derivative financial instruments
Net loss per share
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings Per Share." SFAS No. 128 supersedes and simplifies the
existing computational guidelines under Accounting Principles Board ("APB")
Opinion No. 15, "Earnings Per Share."
The statement is effective for financial statements issued for periods ending
after December 15, 1997. Among other changes, SFAS No. 128 eliminates the
presentation of primary earnings per share and replaces it with basic earnings
per share for which common stock equivalents are not considered in the
computation. It also revises the computation of diluted earnings per share. The
Company has adopted SFAS No. 128 and there is no material impact to the
Company's earnings per share, financial condition, or results of operations. The
Company's earnings per share have been restated for all periods presented to be
consistent with SFAS No. 128.
F - 7
<PAGE>
The basic loss per share is computed by dividing the net loss for the period by
the weighted average number of common shares outstanding for the period. When
present, common stock equivalents are excluded from the computation if their
effect would be anti-dilutive. Shares issued at inception are considered to be
outstanding for the entire period presented.
Cash and cash equivalents
Cash and cash equivalents consist of cash and other highly liquid debt
instruments with an original maturity of less than three months.
Recent Pronouncements
SFAS No. 130, "Reporting Comprehensive Income", establishes guidelines for all
items that are to be recognized under accounting standards as components of
comprehensive income to be reported in the financial statements. The statement
is effective for all periods beginning after December 15, 1997 and
reclassification of financial statements for earlier periods will be required
for comparative purposes. To date, the Company has not engaged in transactions
which would result in any significant difference between its reported net loss
and comprehensive net loss as defined in the statement.
Note 2. STOCKHOLDERS' EQUITY
During the period covered by these financial statements the Company issued
securities in reliance upon an exemption from registration with the Securities
and Exchange Commission. Although the Company believes that the sales did not
involve a public offering and that it did comply with the exemptions from
registration, it could be liable for rescission of said sales if such exemption
was found not to apply. The Company has not received a request for rescission of
shares nor does it believe that it is probable that its shareholders would
pursue rescission nor prevail if such action were undertaken.
At inception, the Company issued 1,500,000 shares of common stock to certain
individuals, including its officers, for services provided in connection with
the organization of the Company. Fair value used for this transaction of $.001
per share is based upon the estimated value to the Company of the services
provided. The value of the services has been charged to operations for the
period ended April 30, 1998. Additionally, the Company sold an aggregate of
1,500,000 to these individuals for cash at $.001 per share during the period
ended April 30, 1998. At April 30, 1998, $250 was due from a shareholder arising
from the stock sale. The funds were received from the shareholder during May
1998.
F - 8
<PAGE>
Note 3. INCOME TAXES
Deferred income taxes may arise from temporary differences resulting from income
and expense items reported for financial accounting and tax purposes in
different periods. Deferred taxes are classified as current or non-current,
depending on the classifications of the assets and liabilities to which they
relate. Deferred taxes arising from temporary differences that are not related
to an asset or liability are classified as current or non-current depending on
the periods in which the temporary differences are expected to reverse. The
deferred tax asset related to the operating loss carryforward has been fully
reserved.
The Company has not provided current or deferred income taxes for the period
presented due to a loss from operations.
The Company currently has a net operating loss carryforward aggregating
approximately $1,500 which expires in 2013. The tax benefit of the loss,
estimated to be approximately $225, has been fully reserved as its realization
in future periods is not assured.
ARTICLES OF INCORPORATION
OF
HDF, INC.
The undersigned (who, if a natural person, is eighteen years of age or
older), acting as the incorporator of a corporation to be incorporated under the
laws of the State of Colorado, adopts these articles of incorporation.
ARTICLE I
NAME
The name of the Corporation is HDF, INC.
ARTICLE II
AUTHORIZED CAPITAL
The total number of shares of all classes of capital stock that the
Corporation shall have authority to issue is 30,000,000 Shares, of which
10,000,000 shares shall be shares of Preferred Stock, $.001 par value per share
and 20,000,000 shares shall be shares of Common Stock, $.001 par value per
share.
A. Preferred Stock. The designations and the powers, preferences and
rights, and the qualifications, limitations or restrictions of the Preferred
Stock, the establishment of different series of Preferred Stock, and variations
in the relative rights and preferences as between different series shall be
established in accordance with the Colorado Business Corporation Act by the
Board of Directors.
Except for such voting powers with respect to the election of directors or
other matters as may be stated in the resolutions of the Board of Directors
creating any series of Preferred Stock, the holders of any such series shall
have no voting power whatsoever.
B. Common Stock. The holders of Common Stock shall have and possess all
rights as shareholders of the Corporation, including such rights as may be
granted elsewhere by these Articles of Incorporation, except as such rights may
be limited by the preferences, privileges and voting powers, and the
restrictions and limitations of the Preferred Stock.
C. General. Subject to preferential dividend rights, if any, of the holders
of Preferred Stock, dividends upon the Common Stock may be declared by the Board
of Directors and paid out of any funds legally available therefor at such times
and in such amounts as the Board of Directors shall determine.
The capital stock, after the amount of the subscription price has been paid
in, shall not be subject to assessment to pay the debts of the Corporation.
Any stock of the Corporation may be issued for money, property, services
rendered, labor done, cash advances for the Corporation, or for any other assets
of value in accordance with the action of the Board of Directors, whose judgment
as to value received in return therefor shall be conclusive and said stock, when
issued, shall be fully paid and nonassessable.
-1-
<PAGE>
ARTICLE III
OFFICES
A. The street address of the initial registered office of the Corporation
is 1050 Seventeenth Street, Suite 1700, Denver, Colorado 80202, and name of the
initial registered agent at that address is Henry F. Schlueter. The written
consent of the initial registered agent to the appointment as such is stated
below.
B. The address of the Corporation's initial principal office is 1050
Seventeenth Street, Suite 1700, Denver, Colorado 80202.
ARTICLE IV
INCORPORATOR
The name and address of the incorporator are Henry F. Schlueter, 1050
Seventeenth Street, Suite 1700, Denver, Colorado 80202.
ARTICLE V
PURPOSES
The Corporation is organized to engage in any lawful purpose.
ARTICLE VI
PREEMPTIVE RIGHTS
The shareholders shall have no preemptive rights.
ARTICLE VII
QUORUM FOR SHAREHOLDERS' MEETINGS
One-third of the outstanding shares shall constitute a quorum at any
meeting of shareholders.
ARTICLE VIII
BOARD OF DIRECTORS
The corporate powers shall be exercised by or under the authority of, and
the business and affairs of the Corporation shall be managed under the direction
of a board of directors.
The name and address of the member of the initial board of directors are:
Henry F. Schlueter, 1050 Seventeenth Street, Suite 1700, Denver, Colorado 80202.
The directors shall be elected at each annual meeting of the shareholders,
provided that vacancies may be filled by election by the remaining directors,
though less than a quorum, or by the shareholders at a special meeting called
for that purpose. Despite the expiration of his or her term, a director
continues to serve until his or her successor is elected and qualifies.
-2-
<PAGE>
ARTICLE IX
NO CUMULATIVE VOTING
Cumulative voting shall not be permitted in the election of directors.
ARTICLE X
LIMITATION ON DIRECTOR LIABILITY
A director of the Corporation shall not be personally liable to the
Corporation or to its shareholders for monetary damages for breach of fiduciary
duty as a director; except that this provision shall neither eliminate nor limit
the liability of a director to the Corporation or to its shareholders for
monetary damages otherwise existing for (i) any breach of the director's duty of
loyalty to the Corporation or to its shareholders; (ii) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law; (iii) acts specified in Section 7-108-403 of the Colorado Business
Corporation Act; or (iv) any transaction from which the director directly or
indirectly derived any improper personal benefit. If the Colorado Business
Corporation Act is hereafter amended to eliminate or limit further the liability
of a director, then, in addition to the elimination and limitation of liability
provided by the preceding sentence, the liability of each director shall be
eliminated or limited to the fullest extent permitted by the Colorado Business
Corporation Act as so amended. Any repeal or modification of this Article shall
not adversely affect any right or protection of a director of the Corporation
under this Article , as in effect immediately prior to such repeal or
modification, with respect to any liability that would have accrued, but for
this Article , prior to such repeal or modification.
ARTICLE XI
INDEMNIFICATION
The Corporation shall indemnify, to the fullest extent permitted by
applicable law in effect from time to time, any person, and the estate and
personal representative of any such person, against all liability and expense
(including attorneys' fees) incurred by reason of the fact that he is or was a
director or officer of the Corporation or, while serving as a director or
officer of the Corporation, he is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee, fiduciary, or
agent of, or in any similar managerial or fiduciary position of another domestic
or foreign corporation or other individual or entity or of an employee benefit
plan. The Corporation shall also indemnify any person who is serving or has
served the Corporation as director, officer, employee, fiduciary, or agent, and
that person's estate and personal representative, to the extent and in the
manner provided in any bylaw, resolution of the shareholders or directors,
contract, or otherwise, so long as such provision is legally permissible.
ARTICLE XII
CORPORATE OPPORTUNITIES
The officers, directors and other members of management of this Corporation
shall be subject to the doctrine of corporate opportunities only insofar as it
applies to business opportunities in which this Corporation has expressed an
interest as determined from time to time by the Corporation's Board of Directors
as evidenced by resolutions appearing in the Corporation's minutes. When such
areas of interest are delineated, all such business opportunities within such
areas of interest that come to the attention of the officers, directors and
other members of management of this Corporation shall be disclosed promptly to
this Corporation and made available to it. The Board of Directors may reject any
business opportunity presented to it, and thereafter any officer, director or
other member of management may avail himself of such opportunity. Until such
time as this Corporation, through its Board of Directors, has designated an area
-3-
<PAGE>
of interest, the officers, directors and other members of management of this
Corporation shall be free to engage in such areas of interest on their own and
the provisions hereof shall not limit the rights of any officer, director or
other member of management of this Corporation to continue a business existing
prior to the time that such area of interest is designated by this Corporation.
This provision shall not be construed to release any employee of the Corporation
(other than an officer, director or member of management) from any duties that
he may have to the Corporation.
ARTICLE XIII
EFFECTIVE DATE
The existence of the Corporation shall begin on the date these articles of
incorporation are filed with the Secretary of State of Colorado.
ARTICLE XIV
TERM OF EXISTENCE
The Corporation shall have perpetual existence.
IN WITNESS WHEREOF, the above named incorporator signed these Articles
of Incorporation on April 21, 1997.
Incorporator
/s/ Henry F. Schlueter
-----------------------------------
Henry F. Schlueter
The undersigned consents to the appointment as the initial registered agent
of HDF, Inc.
/s/ Henry F. Schlueter
-----------------------------------
Henry F. Schlueter
-4-
BYLAWS
OF
HDF, INC.
Article I
SHAREHOLDERS
1. ANNUAL SHAREHOLDERS' MEETING. The annual shareholders' meeting shall be
held on the date and at the time and place fixed from time to time by the board
of directors; provided, however, that the first annual meeting shall be held on
a date that is within six months after the close of the first fiscal year of the
Corporation, and each successive annual meeting shall be held on a date that is
within the earlier of six months after the close of the last fiscal year or
fifteen months after the last annual meeting, or as otherwise provided by
resolution of the board of directors.
2. SPECIAL SHAREHOLDERS' MEETING. A special shareholders' meeting for any
purpose or purposes, may be called by the board of directors or the president.
The Corporation shall also hold a special shareholders' meeting in the event it
receives, in the manner specified in Section VII.3, one or more written demands
for the meeting, stating the purpose or purposes for which it is to be held,
signed and dated by the holders of shares representing not less than one-tenth
of all of the votes entitled to be cast on any issue at the meeting. Special
meetings shall be held at the principal office of the Corporation or at such
other place as the board of directors or the president may determine.
3. RECORD DATE FOR DETERMINATION OF SHAREHOLDERS.
(a) In order to make a determination of shareholders (1) entitled to
notice of or to vote at any shareholders' meeting or at any adjournment of
a shareholders' meeting, (2) entitled to demand a special shareholders'
meeting, (3) entitled to take any other action, (4) entitled to receive
payment of a share dividend or a distribution, or (5) for any other
purpose, the board of directors may fix a future date as the record date
for such determination of shareholders. The record date may be fixed not
more than seventy days before the date of the proposed action.
(b) Unless otherwise specified when the record date is fixed, the time
of day for determination of shareholders shall be as of the Corporation's
close of business on the record date.
(c) A determination of shareholders entitled to be given notice of or
to vote at a shareholders' meeting is effective for any adjournment of the
meeting unless the board of directors fixes a new record date, which the
board shall do if the meeting is adjourned to a date more than one hundred
twenty days after the date fixed for the original meeting.
(d) If no record date is otherwise fixed, the record date for
determining shareholders entitled to be given notice of and to vote at an
annual or special shareholders' meeting is the day before the first notice
is given to shareholders.
(e) The record date for determining shareholders entitled to take
action without a meeting pursuant to Section I.10 is the date a writing
upon which the action is taken is first received by the Corporation.
-1-
<PAGE>
4. VOTING LIST.
(a) After a record date is fixed for a shareholders' meeting, the
secretary shall prepare a list of the names of all its shareholders who are
entitled to be given notice of the meeting. The list shall be arranged by
voting groups and within each voting group by class or series of shares,
shall be alphabetical within each class or series, and shall show the
address of, and the number of shares of each such class and series that are
held by, each shareholder.
(b) The shareholders' list shall be available for inspection by any
shareholder, beginning the earlier of ten days before the meeting for which
the list was prepared or two business days after notice of the meeting is
given and continuing through the meeting, and any adjournment thereof, at
the Corporation's principal office or at a place identified in the notice
of the meeting in the city where the meeting will be held.
(c) The secretary shall make the shareholders' list available at the
meeting, and any shareholder or agent or attorney of a shareholder is
entitled to inspect the list at any time during the meeting or any
adjournment.
5. NOTICE TO SHAREHOLDERS.
(a) The secretary shall give notice to shareholders of the date, time,
and place of each annual and special shareholders' meeting no fewer than
ten nor more than sixty days before the date of the meeting; except that,
if the articles of incorporation are to be amended to increase the number
of authorized shares, at least thirty days' notice shall be given. Except
as otherwise required by the Colorado Business Corporation Act, the
secretary shall be required to give such notice only to shareholders
entitled to vote at the meeting.
(b) Notice of an annual shareholders' meeting need not include a
description of the purpose or purposes for which the meeting is called
unless a purpose of the meeting is to consider an amendment to the articles
of incorporation, a restatement of the articles of incorporation, a plan of
merger or share exchange, disposition of substantially all of the property
of the Corporation, consent by the Corporation to the disposition of
property by another entity, or dissolution of the Corporation.
(c) Notice of a special shareholders' meeting shall include a
description of the purpose or purposes for which the meeting is called.
(d) Notice of a shareholders' meeting shall be in writing and shall be
given
(1) by deposit in the United States mail, properly addressed to
the shareholder's address shown in the Corporation's current record of
shareholders, first class postage prepaid, and, if so given, shall be
effective when mailed; or
(2) by telegraph, teletype, electronically transmitted facsimile,
electronic mail, or private carrier or by personal delivery to the
shareholder, and, if so given, shall be effective when actually
received by the shareholder.
(e) If an annual or special shareholders' meeting is adjourned to a
different date, time, or place, notice need not be given of the new date,
time, or place if the new date, time, or place is announced at the meeting
before adjournment; provided, however, that, if a new record date for the
adjourned meeting is fixed pursuant to Section I.3.(c), notice of the
adjourned meeting shall be given to persons who are shareholders as of the
new record date.
(f) If three successive notices are given by the Corporation, whether
with respect to a shareholders' meeting or otherwise, to a shareholder and
are returned as undeliverable, no further notices to such shareholder shall
be necessary until another address for the shareholder is made known to the
Corporation.
-2-
<PAGE>
6. QUORUM. Shares entitled to vote as a separate voting group may take
action on a matter at a meeting only if a quorum of those shares exists with
respect to that matter. One-third of the votes entitled to be cast on the matter
by the voting group shall constitute a quorum of that voting group for action on
the matter. If a quorum does not exist with respect to any voting group, the
president or any shareholder or proxy that is present at the meeting, whether or
not a member of that voting group, may adjourn the meeting to a different date,
time, or place, and (subject to the next sentence) notice need not be given of
the new date, time, or place if the new date, time, or place is announced at the
meeting before adjournment. If a new record date for the adjourned meeting is or
must be fixed pursuant to Section I.3.(c), notice of the adjourned meeting shall
be given pursuant to Section I.5 to persons who are shareholders as of the new
record date. At any adjourned meeting at which a quorum exists, any matter may
be acted upon that could have been acted upon at the meeting originally called;
provided, however, that, if new notice is given of the adjourned meeting, then
such notice shall state the purpose or purposes of the adjourned meeting
sufficiently to permit action on such matters. Once a share is represented for
any purpose at a meeting, including the purpose of determining that a quorum
exists, it is deemed present for quorum purposes for the remainder of the
meeting and for any adjournment of that meeting unless a new record date is or
shall be set for that adjourned meeting.
7. VOTING ENTITLEMENT OF SHARES. Except as stated in the articles of
incorporation, each outstanding share, regardless of class, is entitled to one
vote, and each fractional share is entitled to a corresponding fractional vote,
on each matter voted on at a shareholders' meeting.
8. PROXIES; ACCEPTANCE OF VOTES AND CONSENTS.
(a) A shareholder may vote either in person or by proxy.
(b) An appointment of a proxy is not effective against the Corporation
until the appointment is received by the Corporation. An appointment is
valid for eleven months unless a different period is expressly provided in
the appointment form.
(c) The Corporation may accept or reject any appointment of a proxy,
revocation of appointment of a proxy, vote, consent, waiver, or other
writing purportedly signed by or for a shareholder, if such acceptance or
rejection is in accordance with the provisions of Sections 7-107-203 and
7-107-205 of the Colorado Business Corporation Act.
9. WAIVER OF NOTICE.
(a) A shareholder may waive any notice required by the Colorado
Business Corporation Act, the articles of incorporation or these bylaws,
whether before or after the date or time stated in the notice as the date
or time when any action will occur or has occurred. The waiver shall be in
writing, be signed by the shareholder entitled to the notice, and be
delivered to the Corporation for inclusion in the minutes or filing with
the corporate records, but such delivery and filing shall not be conditions
of the effectiveness of the waiver.
-3-
<PAGE>
(b) A shareholder's attendance at a meeting waives objection to lack
of notice or defective notice of the meeting, unless the shareholder at the
beginning of the meeting objects to holding the meeting or transacting
business at the meeting because of lack of notice or defective notice, and
waives objection to consideration of a particular matter at the meeting
that is not within the purpose or purposes described in the meeting notice,
unless the shareholder objects to considering the matter when it is
presented.
10. ACTION BY SHAREHOLDERS WITHOUT A MEETING. Any action required or
permitted to be taken at a shareholders' meeting may be taken without a meeting
if all of the shareholders entitled to vote thereon consent to such action in
writing. Action taken pursuant to this section shall be effective when the
Corporation has received writings that describe and consent to the action,
signed by all of the shareholders entitled to vote thereon. Action taken
pursuant to this section shall be effective as of the date the last writing
necessary to effect the action is received by the Corporation, unless all of the
writings necessary to effect the action specify another date, which may be
before or after the date the writings are received by the Corporation. Such
action shall have the same effect as action taken at a meeting of shareholders
and may be described as such in any document. Any shareholder who has signed a
writing describing and consenting to action taken pursuant to this section may
revoke such consent by a writing signed by the shareholder describing the action
and stating that the shareholder's prior consent thereto is revoked, if such
writing is received by the Corporation before the effectiveness of the action.
11. MEETINGS BY TELECOMMUNICATIONS. To the extent provided by resolution of
the board of directors or in the notice of the meeting, any or all of the
shareholders may participate in an annual or special shareholders' meeting by,
or the meeting may be conducted through the use of, any means of communication
by which all persons participating in the meeting may hear each other during the
meeting. A shareholder participating in a meeting by this means is deemed to be
present in person at the meeting.
Article II
DIRECTORS
1. AUTHORITY OF THE BOARD OF DIRECTORS. The corporate powers shall be
exercised by or under the authority of, and the business and affairs of the
Corporation shall be managed under the direction of, a board of directors.
2. NUMBER. The number of directors shall be fixed by resolution of the
board of directors from time to time and may be increased or decreased by
resolution adopted by the board of directors from time to time, but no decrease
in the number of directors shall have the effect of shortening the term of any
incumbent director.
3. QUALIFICATION. Directors shall be natural persons at least eighteen
years old but need not be residents of the State of Colorado or shareholders of
the Corporation.
4. ELECTION. The board of directors shall be elected at the annual meeting
of the shareholders or at a special meeting called for that purpose.
5. TERM. Each director shall be elected to hold office until the next
annual meeting of shareholders and until the director's successor is elected and
qualified.
6. RESIGNATION. A director may resign at any time by giving written notice
of his or her resignation to any other director or (if the director is not also
the secretary) to the secretary. The resignation shall be effective when it is
received by the other director or secretary, as the case may be, unless the
notice of resignation specifies a later effective date. Acceptance of such
resignation shall not be necessary to make it effective unless the notice so
provides.
-4-
<PAGE>
7. REMOVAL. Any director may be removed by the shareholders of the voting
group that elected the director, with or without cause, at a meeting called for
that purpose. The notice of the meeting shall state that the purpose, or one of
the purposes, of the meeting is removal of the director. A director may be
removed only if the number of votes cast in favor of removal exceeds the number
of votes cast against removal.
8. VACANCIES.
(a) If a vacancy occurs on the board of directors, including a vacancy
resulting from an increase in the number of directors:
(1) The shareholders may fill the vacancy at the next annual
meeting or at a special meeting called for that purpose; or
(2) The board of directors may fill the vacancy; or
(3) If the directors remaining in office constitute fewer than a
quorum of the board, they may fill the vacancy by the affirmative vote
of a majority of all the directors remaining in office.
(b) Notwithstanding Section II.8.(a), if the vacant office was held by
a director elected by a voting group of shareholders, then, if one or more
of the remaining directors were elected by the same voting group, only such
directors are entitled to vote to fill the vacancy if it is filled by
directors, and they may do so by the affirmative vote of a majority of such
directors remaining in office; and only the holders of shares of that
voting group are entitled to vote to fill the vacancy if it is filled by
the shareholders.
(c) A vacancy that will occur at a specific later date, by reason of a
resignation that will become effective at a later date under Section II.6
or otherwise, may be filled before the vacancy occurs, but the new director
may not take office until the vacancy occurs.
9. MEETINGS. The board of directors may hold regular or special meetings in
or out of Colorado. The board of directors may, by resolution, establish dates,
times and places for regular meetings, which may thereafter be held without
further notice. Special meetings may be called by the president or by any two
directors and shall be held at the principal office of the Corporation unless
another place is consented to by every director. At any time when the board
consists of a single director, that director may act at any time, date, or place
without notice.
10. NOTICE OF SPECIAL MEETING. Notice of a special meeting shall be given
to every director at least twenty four hours before the time of the meeting,
stating the date, time, and place of the meeting. The notice need not describe
the purpose of the meeting. Notice may be given orally to the director,
personally or by telephone or other wire or wireless communication. Notice may
also be given in writing by telegraph, teletype, electronically transmitted
facsimile, electronic mail, mail, or private carrier. Notice shall be effective
at the earliest of the time it is received; five days after it is deposited in
the United States mail, properly addressed to the last address for the director
shown on the records of the Corporation, first class postage prepaid; or the
date shown on the return receipt if mailed by registered or certified mail,
return receipt requested, postage prepaid, in the United States mail and if the
return receipt is signed by the director to which the notice is addressed.
-5-
<PAGE>
11. QUORUM. Except as provided in Section II.8.(a)(3), a majority of the
number of directors fixed in accordance with these bylaws shall constitute a
quorum for the transaction of business at all meetings of the board of
directors. The act of a majority of the directors present at any meeting at
which a quorum is present shall be the act of the board of directors, except as
otherwise specifically required by law.
12. WAIVER OF NOTICE.
(a) A director may waive any notice of a meeting before or after the
time and date of the meeting stated in the notice. Except as provided by
Section II.12.(b), the waiver shall be in writing and shall be signed by
the director. Such waiver shall be delivered to the secretary for filing
with the corporate records, but such delivery and filing shall not be
conditions of the effectiveness of the waiver.
(b) A director's attendance at or participation in a meeting waives
any required notice to him or her of the meeting unless, at the beginning
of the meeting or promptly upon his or her later arrival, the director
objects to holding the meeting or transacting business at the meeting
because of lack of notice or defective notice and does not thereafter vote
for or assent to action taken at the meeting.
13. ATTENDANCE BY TELEPHONE. One or more directors may participate in a
regular or special meeting by, or conduct the meeting through the use of, any
means of communication by which all directors participating may hear each other
during the meeting. A director participating in a meeting by this means is
deemed to be present in person at the meeting.
14. DEEMED ASSENT TO ACTION. A director who is present at a meeting of the
board of directors when corporate action is taken shall be deemed to have
assented to all action taken at the meeting unless:
(1) The director objects at the beginning of the meeting, or
promptly upon his or her arrival, to holding the meeting or
transacting business at the meeting and does not thereafter vote for
or assent to any action taken at the meeting;
(2) The director contemporaneously requests that his or her
dissent or abstention as to any specific action taken be entered in
the minutes of the meeting; or
(3) The director causes written notice of his or her dissent or
abstention as to any specific action to be received by the presiding
officer of the meeting before adjournment of the meeting or by the
secretary (or, if the director is the secretary, by another director)
promptly after adjournment of the meeting.
The right of dissent or abstention pursuant to this Section as to a specific
action is not available to a director who votes in favor of the action taken.
15. ACTION BY DIRECTORS WITHOUT A MEETING. Any action required or permitted
by law to be taken at a board of directors' meeting may be taken without a
meeting if all members of the board consent to such action in writing. Action
shall be deemed to have been so taken by the board at the time the last director
signs a writing describing the action taken, unless, before such time, any
director has revoked his or her consent by a writing signed by the director and
received by the secretary or any other person authorized by the bylaws or the
board of directors to receive such a revocation. Such action shall be effective
at the time and date it is so taken unless the directors establish a different
effective time or date. Such action has the same effect as action taken at a
meeting of directors and may be described as such in any document.
-6-
<PAGE>
16. NOMINATIONS OF DIRECTORS. The board of directors may nominate persons
to stand for election to the board of directors at any time prior to a meeting
of shareholders at which directors are to be elected. Any shareholder may
nominate a person to stand for election to the board of directors provided such
shareholder provides written notification of the intention to nominate such
persons at the next shareholder meeting not less than 90 days in advance of such
meeting, and provided further such notice is accompanied by information
regarding the proposed nominee meeting the requirements of part III of SEC
Regulation SB or Regulation SK (as applicable to the Corporation) and
information regarding all direct and indirect business or personal relationships
between the shareholder and the proposed nominee.
Article III
COMMITTEES OF THE BOARD OF DIRECTORS
1. COMMITTEES OF THE BOARD OF DIRECTORS.
(a) Subject to the provisions of section 7-108-206, the board of
directors may create one or more committees and appoint one or more members
of the board of directors to serve on them. The creation of a committee and
appointment of members to it shall require the approval of a majority of
all the directors in office when the action is taken, whether or not those
directors constitute a quorum of the board.
(b) The provisions of these bylaws governing meetings, action without
meeting, notice, waiver of notice, and quorum and voting requirements of
the board of directors apply to committees and their members as well.
(c) To the extent specified by resolution adopted from time to time by
a majority of all the directors in office when the resolution is adopted,
whether or not those directors constitute a quorum of the board, each
committee shall exercise the authority of the board of directors with
respect to the corporate powers and the management of the business and
affairs of the Corporation; except that a committee shall not:
(1) Authorize distributions;
(2) Approve or propose to shareholders action that the Colorado
Business Corporation Act requires to be approved by shareholders;
(3) Fill vacancies on the board of directors or on any of its
committees;
(4) Amend the articles of incorporation pursuant to section
7-110-102 of the Colorado Business Corporation Act;
(5) Adopt, amend, or repeal bylaws;
(6) Approve a plan of merger not requiring shareholder approval;
(7) Authorize or approve reacquisition of shares, except
according to a formula or method prescribed by the board of directors;
or
(8) Authorize or approve the issuance or sale of shares, or a
contract for the sale of shares, or determine the designation and
relative rights, preferences, and limitations of a class or series of
shares; except that the board of directors may authorize a committee
or an officer to do so within limits specifically prescribed by the
board of directors.
-7-
<PAGE>
(d) The creation of, delegation of authority to, or action by, a
committee does not alone constitute compliance by a director with
applicable standards of conduct.
Article IV
OFFICERS
1. GENERAL. The Corporation shall have as officers a president, a
secretary, and a treasurer, who shall be appointed by the board of directors.
The board of directors may appoint as additional officers a chairman and other
officers of the board. The board of directors, the president, and such other
subordinate officers as the board of directors may authorize from time to time,
acting singly, may appoint as additional officers one or more vice presidents,
assistant secretaries, assistant treasurers, and such other subordinate officers
as the board of directors, the president, or such other appointing officers deem
necessary or appropriate. The officers of the Corporation shall hold their
offices for such terms and shall exercise such authority and perform such duties
as shall be determined from time to time by these bylaws, the board of
directors, or (with respect to officers whom are appointed by the president or
other appointing officers) the persons appointing them; provided, however, that
the board of directors may change the term of offices and the authority of any
officer appointed by the president or other appointing officers. Any two or more
offices may be held by the same person. The officers of the Corporation shall be
natural persons at least eighteen years old.
2. TERM. Each officer shall hold office from the time of appointment until
the time of removal or resignation pursuant to Section IV.3 or until the
officer's death.
3. REMOVAL AND RESIGNATION. Any officer appointed by the board of directors
may be removed at any time by the board of directors. Any officer appointed by
the president or other appointing officer may be removed at any time by the
board of directors or by the person appointing the officer. Any officer may
resign at any time by giving written notice of resignation to any director (or
to any director other than the resigning officer if the officer is also a
director), to the president, to the secretary, or to the officer who appointed
the officer. Acceptance of such resignation shall not be necessary to make it
effective, unless the notice so provides.
4. CHAIRMAN. Where a chairman has been appointed, the chairman shall serve
as chief executive officer of the Corporation, and shall have such duties in
such capacity as the board may deem appropriate. In such capacity, the chairman
shall have general and active management of the business of the Corporation and
shall see that all orders and resolutions of the board of directors are carried
into effect. The chairman shall preside at all meetings of shareholders and the
board of directors. The chairman shall have such additional authority and duties
as are appropriate and customary for the office of chairman and chief executive
officer, except as the same may be expanded or limited by the board of directors
from time to time.
5. PRESIDENT. Subject to the direction and control of the board of
directors and the chairman (if appointed), the president shall be the chief
operating officer of the Corporation and as such, and subject to the direction
and control of the chairman and the board of directors, shall have control over
the operations of the business of the Corporation and shall see that all orders
and resolutions of the board of directors are carried into effect. The president
may negotiate, enter into, and execute contracts, deeds, and other instruments
on behalf of the Corporation as are necessary and appropriate to the conduct to
the business and affairs of the Corporation or as are approved by the board of
directors. The president shall have such additional authority and duties as are
appropriate and customary for the office of president and chief operating
officer, except as the same may be expanded or limited by the board of directors
from time to time. When there is no chairman appointed, the president shall
assume the duties of the chairman.
-8-
<PAGE>
6. VICE PRESIDENT. The vice president, if any, or, if there are more than
one, the vice presidents in the order determined by the board of directors or
the president (or, if no such determination is made, in the order of their
appointment), shall be the officer or officers next in seniority after the
president. Each vice president shall have such authority and duties as are
prescribed by the board of directors or president. Upon the death, absence, or
disability of the president, the vice president, if any, or, if there are more
than one, the vice presidents in the order determined by the board of directors
or the president, shall have the authority and duties of the president.
7. SECRETARY. The secretary shall be responsible for the preparation and
maintenance of minutes of the meetings of the board of directors and of the
shareholders and of the other records and information required to be kept by the
Corporation under section 7-116-101 of the Colorado Business Corporation Act and
for authenticating records of the Corporation. The secretary shall also give, or
cause to be given, notice of all meetings of the shareholders and special
meetings of the board of directors, keep the minutes of such meetings, have
charge of the corporate seal and have authority to affix the corporate seal to
any instrument requiring it (and, when so affixed, it may be attested by the
secretary's signature), be responsible for the maintenance of all other
corporate records and files and for the preparation and filing of reports to
governmental agencies (other than tax returns), and have such other authority
and duties as are appropriate and customary for the office of secretary, except
as the same may be expanded or limited by the board of directors from time to
time.
8. ASSISTANT SECRETARY. The assistant secretary, if any, or, if there are
more than one, the assistant secretaries in the order determined by the board of
directors or the secretary (or, if no such determination is made, in the order
of their appointment) shall, under the supervision of the secretary, perform
such duties and have such authority as may be prescribed from time to time by
the board of directors or the secretary. Upon the death, absence, or disability
of the secretary, the assistant secretary, if any, or, if there are more than
one, the assistant secretaries in the order designated by the board of directors
or the secretary (or, if no such determination is made, in the order of their
appointment), shall have the authority and duties of the secretary.
9. TREASURER. The treasurer shall have control of the funds and the care
and custody of all stocks, bonds, and other securities owned by the Corporation,
and shall be responsible for the preparation and filing of tax returns. The
treasurer shall receive all moneys paid to the Corporation and, subject to any
limits imposed by the board of directors, shall have authority to give receipts
and vouchers, to sign and endorse checks and warrants in the Corporation's name
and on the Corporation's behalf, and give full discharge for the same. The
treasurer shall also have charge of disbursement of funds of the Corporation,
shall keep full and accurate records of the receipts and disbursements, and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as shall be designated by the
board of directors. The treasurer shall have such additional authority and
duties as are appropriate and customary for the office of treasurer, except as
the same may be expanded or limited by the board of directors from time to time.
10. ASSISTANT TREASURER. The assistant treasurer, if any, or, if there are
more than one, the assistant treasurers in the order determined by the board of
directors or the treasurer (or, if no such determination is made, in the order
of their appointment) shall, under the supervision of the treasurer, have such
authority and duties as may be prescribed from time to time by the board of
directors or the treasurer. Upon the death, absence, or disability of the
treasurer, the assistant treasurer, if any, or if there are more than one, the
assistant treasurers in the order determined by the board of directors or the
treasurer (or, if no such determination is made, in the order of their
appointment), shall have the authority and duties of the treasurer.
-9-
<PAGE>
11. COMPENSATION. Officers shall receive such compensation for their
services as may be authorized or ratified by the board of directors. Election or
appointment of an officer shall not of itself create a contractual right to
compensation for services performed as such officer.
Article V
INDEMNIFICATION
1. DEFINITIONS. As used in this article:
(a) "Corporation" includes any domestic or foreign entity that is a
predecessor of the Corporation by reason of a merger or other transaction
in which the predecessor's existence ceased upon consummation of the
transaction.
(b) "Director" means an individual who is or was a director of the
Corporation or an individual who, while a director of the Corporation, is
or was serving at the Corporation's request as a director, officer,
partner, trustee, employee, fiduciary, or agent of another domestic or
foreign corporation or other person or of an employee benefit plan. A
director is considered to be serving an employee benefit plan at the
Corporation's request if his or her duties to the Corporation also impose
duties on, or otherwise involve services by, the director to the plan or to
participants in or beneficiaries of the plan. "Director" includes, unless
the context requires otherwise, the estate or personal representative of a
director.
(c) "Expenses" includes counsel fees.
(d) "Liability" means the obligation incurred with respect to a
proceeding to pay a judgment, settlement, penalty, fine, including an
excise tax assessed with respect to an employee benefit plan, or reasonable
expenses.
(e) "Official capacity" means, when used with respect to a director,
the office of director in the Corporation and, when used with respect to a
person other than a director as contemplated in Section V.1.(b), the office
in the Corporation held by the officer or the employment, fiduciary, or
agency relationship undertaken by the employee, fiduciary, or agent on
behalf of the Corporation. "Official capacity" does not include service for
any other domestic or foreign corporation or other person or employee
benefit plan.
(f) "Party" includes a person who was, is, or is threatened to be made
a named defendant or respondent in a proceeding.
(g) "Proceeding" means any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or
investigative and whether formal or informal.
2. AUTHORITY TO INDEMNIFY DIRECTORS.
(a) Except as provided in Section V.2.(d), the Corporation may
indemnify a person made a party to a proceeding because the person is or
was a director against liability incurred in the proceeding if:
(1) The person conducted himself or herself in good faith; and
-10-
<PAGE>
(2) The person reasonably believed:
(A) In the case of conduct in an official capacity with the
Corporation, that his or her conduct was in the Corporation's
best interests; and
(B) In all other cases, that his or her conduct was at least
not opposed to the Corporation's best interests; and
(3) In the case of any criminal proceeding, the person had no
reasonable cause to believe his or her conduct was unlawful.
(b) A director's conduct with respect to an employee benefit plan for
a purpose the director reasonably believed to be in the interests of the
participants in or beneficiaries of the plan is conduct that satisfies the
requirement of Section V.2.(a)(2)(B). A director's conduct with respect to
an employee benefit plan for a purpose that the director did not reasonably
believe to be in the interests of the participants in or beneficiaries of
the plan shall be deemed not to satisfy the requirements of Section
V.2.(a)(1).
(c) The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent is not, of
itself, determinative that the director did not meet the standard of
conduct described in this Section V.2.
(d) The Corporation may not indemnify a director under this Section
V.2.
(1) connection with a proceeding by or in the right of the
Corporation in which the director was adjudged liable to the
Corporation; or
(2) In connection with any other proceeding charging that the
director derived an improper personal benefit, whether or not
involving action in an official capacity, in which proceeding the
director was adjudged liable on the basis that he or she derived an
improper personal benefit.
(e) Indemnification permitted under this Section V.2 in connection
with a proceeding by or in the right of the Corporation is limited to
reasonable expenses incurred in connection with the proceeding.
3. MANDATORY INDEMNIFICATION OF DIRECTORS. The Corporation shall indemnify
a person who was wholly successful, on the merits or otherwise, in the defense
of any proceeding to which the person was a party because the person is or was a
director, against reasonable expenses incurred by him or her in connection with
the proceeding.
4. ADVANCE OF EXPENSES TO DIRECTORS.
(a) The Corporation may pay for or reimburse the reasonable expenses
incurred by a director who is a party to a proceeding in advance of final
disposition of the proceeding if:
(1) The director furnishes to the Corporation a written
affirmation of the director's good faith belief that he or she has met
the standard of conduct described in Section V.2.
-11-
<PAGE>
(2) The director furnishes to the Corporation a written
undertaking, executed personally or on the director's behalf, to repay
the advance if it is ultimately determined that he or she did not meet
the standard of conduct; and
(3) A determination is made that the facts then known to those
making the determination would not preclude indemnification under this
article.
(b) The undertaking required by Section V.4.(a)(2) shall be an
unlimited general obligation of the director but need not be secured and
may be accepted without reference to financial ability to make repayment.
(c) Determinations and authorizations of payments under this Section
V.4 shall be made in the manner specified in Section V.6.
5. COURT-ORDERED INDEMNIFICATION OF DIRECTORS. A director who is or was a
party to a proceeding may apply for indemnification to the court conducting the
proceeding or to another court of competent jurisdiction. On receipt of an
application, the court, after giving any notice the court considers necessary,
may order indemnification in the following manner:
(1) If it determines that the director is entitled to mandatory
indemnification under Section V.3., the court shall order
indemnification, in which case the court shall also order the
Corporation to pay the director's reasonable expenses incurred to
obtain court-ordered indemnification.
(2) If it determines that the director is fairly and reasonably
entitled to indemnification in view of all the relevant circumstances,
whether or not the director met the standard of conduct set forth in
Section V.2.(a) or was adjudged liable in the circumstances described
in Section V.2.(d), the court may order such indemnification as the
court deems proper; except that the indemnification with respect to
any proceeding in which liability shall have been adjudged in the
circumstances described in Section V.2.(d) is limited to reasonable
expenses incurred in connection with the proceeding and reasonable
expenses incurred to obtain court-ordered indemnification.
6. DETERMINATION AND AUTHORIZATION OF INDEMNIFICATION OF DIRECTORS.
(a) The Corporation may not indemnify a director under Section V.2
unless authorized in the specific case after a determination has been made
that indemnification of the director is permissible in the circumstances
because the director has met the standard of conduct set forth in Section
V.2. The Corporation shall not advance expenses to a director under Section
V.4 unless authorized in the specific case after the written affirmation
and undertaking required by Section V.4(a)(1) and V.4.(a)(2) are received
and the determination required by Section V.4.(a)(3) has been made.
(b) The determinations required by Section V.6.(a) shall be made:
(1) By the board of directors by a majority vote of those present
at a meeting at which a quorum is present, and only those directors
not parties to the proceeding shall be counted in satisfying the
quorum; or
(2) If a quorum cannot be obtained, by a majority vote of a
committee of the board of directors designated by the board of
directors, which committee shall consist of two or more directors not
parties to the proceeding; except that directors who are parties to
the proceeding may participate in the designation of directors for the
committee.
-12-
<PAGE>
(c) If a quorum cannot be obtained as contemplated in Section
V.6.(b)(1), and a committee cannot be established under Section V.6.(b)(2)
if a quorum is obtained or a committee is designated, if a majority of the
directors constituting such quorum or such committee so directs, the
determination required to be made by Section V.6.(a) shall be made:
(1) By independent legal counsel selected by a vote of the board
of directors or the committee in the manner specified in Section
V.6.(b)(1) or V.6.(b)(2), or, if a quorum of the full board cannot be
obtained and a committee cannot be established, by independent legal
counsel selected by a majority vote of the full board of directors; or
(2) By the shareholders.
(d) Authorization of indemnification and advance of expenses shall be
made in the same manner as the determination that indemnification or
advance of expenses is permissible; except that, if the determination that
indemnification or advance of expenses is permissible is made by
independent legal counsel, authorization of indemnification and advance of
expenses shall be made by the body that selected such counsel.
7. INDEMNIFICATION OF OFFICERS, EMPLOYEES, FIDUCIARIES, AND AGENTS.
(a) An officer is entitled to mandatory indemnification under Section
V.3. and is entitled to apply for court-ordered indemnification under
Section V.5., in each case to the same extent as a director;
(b) The Corporation may indemnify and advance expenses to an officer,
employee, fiduciary, or agent of the Corporation to the same extent as to a
director; and
(c) The Corporation may also indemnify and advance expenses to an
officer, employee, fiduciary, or agent who is not a director to a greater
extent than is provided in these bylaws, if not inconsistent with public
policy, and if provided for by general or specific action of its board of
directors or shareholders or by contract.
8. INSURANCE. The Corporation may purchase and maintain insurance on behalf
of a person who is or was a director, officer, employee, fiduciary, or agent of
the Corporation, or who, while a director, officer, employee, fiduciary, or
agent of the Corporation, is or was serving at the request of the Corporation as
a director, officer, partner, trustee, employee, fiduciary, or agent of another
domestic or foreign corporation or other person or of an employee benefit plan,
against liability asserted against or incurred by the person in that capacity or
arising from his or her status as a director, officer, employee, fiduciary, or
agent, whether or not the Corporation would have power to indemnify the person
against the same liability under Section V.2., V.3., or V.7. Any such insurance
may be procured from any insurance company designated by the board of directors,
whether such insurance company is formed under the laws of this state or any
other jurisdiction of the United States or elsewhere, including any insurance
company in which the Corporation has an equity or any other interest through
stock ownership or otherwise.
9. NOTICE TO SHAREHOLDERS OF INDEMNIFICATION OF DIRECTOR. If the
Corporation indemnifies or advances expenses to a director under this article in
connection with a proceeding by or in the right of the Corporation, the
Corporation shall give written notice of the indemnification or advance to the
-13-
<PAGE>
shareholders with or before the notice of the next shareholders' meeting. If the
next shareholder action is taken without a meeting at the instigation of the
board of directors, such notice shall be given to the shareholders at or before
the time the first shareholder signs a writing consenting to such action.
Article VI
SHARES
1. CERTIFICATES. Certificates representing shares of the capital stock of
the Corporation shall be in such form as is approved by the board of directors
and shall be signed by the chairman or vice chairman of the board of directors
(if any), or the president or any vice president, and by the secretary or an
assistant secretary or the treasurer or an assistant treasurer. All certificates
shall be consecutively numbered, and the names of the owners, the number of
shares, and the date of issue shall be entered on the books of the Corporation.
Each certificate representing shares shall state upon its face
(a) That the Corporation is organized under the laws of the State of
Colorado;
(b) The name of the person to whom issued;
(c) The number and class of the shares and the designation of the
series, if any, that the certificate represents;
(d) The par value, if any, of each share represented by the
certificate;
(e) A conspicuous statement, on the front or the back, that the
Corporation will furnish to the shareholder, on request in writing and
without charge, information concerning the designations, preferences,
limitations, and relative rights applicable to each class, the variations
in preferences, limitations, and rights determined for each series, and the
authority of the board of directors to determine variations for future
classes or series; and
(f) Any restrictions imposed by the Corporation upon the transfer of
the shares represented by the certificate.
2. FACSIMILE SIGNATURES. Where a certificate is signed
(a) By a transfer agent other than the Corporation or its employee, or
(b) By a registrar other than the Corporation or its employee, any or
all of the officers' signatures on the certificate required by Section VI.1
may be facsimile. If any officer, transfer agent, or registrar who has
signed, or whose facsimile signature or signatures have been placed upon,
any certificate, shall cease to be such officer, transfer agent, or
registrar, whether because of death, resignation, or otherwise, before the
certificate is issued by the Corporation, it may nevertheless be issued by
the Corporation with the same effect as if he or she were such officer,
transfer agent, or registrar at the date of issue.
3. TRANSFERS OF SHARES. Transfers of shares shall be made on the books of
the Corporation only upon presentation of the certificate or certificates
representing such shares properly endorsed by the person or persons appearing
upon the face of such certificate to be the owner, or accompanied by a proper
transfer or assignment separate from the certificate, except as may otherwise be
expressly provided by the statutes of the State of Colorado or by order of a
court of competent jurisdiction. The officers or transfer agents of the
Corporation may, in their discretion, require a signature guaranty before making
any transfer. The Corporation shall be entitled to treat the person in whose
-14-
<PAGE>
name any shares are registered on its books as the owner of those shares for all
purposes and shall not be bound to recognize any equitable or other claim or
interest in the shares on the part of any other person, whether or not the
Corporation shall have notice of such claim or interest.
4. SHARES HELD FOR ACCOUNT OF ANOTHER. The board of directors may adopt by
resolution a procedure whereby a shareholder of the Corporation may certify in
writing to the Corporation that all or a portion of the shares registered in the
name of such shareholder are held for the account of a specified person or
persons. The resolution shall set forth
(a) The classification of shareholders who may certify;
(b) The purpose or purposes for which the certification may be made;
(c) The form of certification and information to be contained herein;
(d) If the certification is with respect to a record date or closing
of the stock transfer books, the time after the record date or the closing
of the stock transfer books within which the certification must be received
by the Corporation; and
(e) Such other provisions with respect to the procedure as are deemed
necessary or desirable. Upon receipt by the Corporation of a certification
complying with the procedure, the persons specified in the certification
shall be deemed, for the purpose or purposes set forth in the
certification, to be the holders of record of the number of shares
specified in place of the shareholder making the certification.
Article VII
MISCELLANEOUS
1. CORPORATE SEAL. The board of directors may adopt a seal, circular in
form and bearing the name of the Corporation and the words "SEAL" and
"COLORADO," which, when adopted, shall constitute the seal of the Corporation.
The seal may be used by causing it or a facsimile of it to be impressed,
affixed, manually reproduced, or rubber stamped with indelible ink. Even if the
Corporation has adopted a corporate seal, properly authorized actions of the
Corporation are effective whether or not any writing evidencing such action is
sealed.
2. FISCAL YEAR. The board of directors may, by resolution, adopt a fiscal
year for the Corporation.
3. RECEIPT OF NOTICES BY THE CORPORATION. Notices, shareholder writings
consenting to action, and other documents or writings shall be deemed to have
been received by the Corporation when they are received
(a) At the registered office of the Corporation in the State of
Colorado;
(b) At the principal office of the Corporation (as that office is
designated in the most recent document filed by the Corporation with the
Secretary of State for the State of Colorado designating a principal
office) addressed to the attention of the secretary of the Corporation;
(c) By the secretary of the corporation wherever the secretary may be
found; or
(d) By any other person authorized from time to time by the board of
directors, the president, or the secretary to receive such writings,
wherever such person is found.
-15-
<PAGE>
4. AMENDMENT OF BYLAWS. These bylaws may at any time and from time to time
be amended, supplemented, or repealed by the board of directors.
- --------------------------------------------------------------------------------
The undersigned secretary of the Corporation hereby certifies that the board of
directors has adopted the foregoing bylaws as the initial bylaws of HDF, Inc.,
effective as of April 22, 1997.
/s/ Frederick Huttner
----------------------------------------------
Frederick Huttner
-16-
RESTRICTED
INCORPORATED UNDER THE LAWS OF THE STATE OF COLORADO
NUMBER SHARES
-------- ------
HDF, INC.
Par Value $.001 Per Share
THIS CERTIFIES THAT: is the
-----------------------------------------------
registered holder of Shares
----------------------------------------------------
of HDF, INC.
transferable only on the books of the Corporation by the holder hereof in person
or by Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed.
this day of A.D. 98
--- ----------
- ------------------------------ S E A L -------------------------------
, Secretary , President
<PAGE>
[back of stock certificate]
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 ("THE ACT") AND ARE
"RESTRICTED SECURITIES" AS THAT TERM IS DEFINED IN RULE 144 UNDER
THE ACT. THE SHARES MAY NOT BE OFFERED FOR SALE OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE ACT, THE AVAILABILITY OF WHICH IS TO BE
ESTABLISHED TO THE SATISFACTION OF THE COMPANY.
NOTICE: the SIGNATURE on this assignment MUST correspond with the name as
written upon the face of the certificate, in every particular, without
alteration or enlargement, or any change whatever.
For value received, hereby sell, assign and transfer
----------------------
unto
---------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------
represented by the within Certificate, and do hereby irrevocably constitute and
appoint
------------------------------------------------------------------------
Attorney to transfer the said Shares on the books of the within-named
Corporation with full power of substitution in the premises.
Dated
-----------------------
--------------------------------------------
In the presence of
-----------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>I
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF HDF, INC AS OF APRIL 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> APR-30-1998
<CASH> 1,252
<SECURITIES> 0
<RECEIVABLES> 250
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,502
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,502
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 3,000
<OTHER-SE> (1,498)
<TOTAL-LIABILITY-AND-EQUITY> 1,502
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,500
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,498)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,498)
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
