UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
KINGSGATE ACQUISITIONS, INC.
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(Name of small business
issuer in its charter)
Delaware 6770 98-0211672
- ----------------------- ---------------------------- -------------------
(State of incorporation (Primary Standard Industrial (I.R.S. Employer
or jurisdiction Classification Code Number) Identification No.)
of organization)
950 11th Street, West Vancouver, British Columbia V7T 2M3 Canada (604) 926-6775
- -------------------------------------------------------------------------------
(Address and telephone number of principal executive offices)
950 11th Street, West Vancouver, British Columbia V7T 2M3 Canada (604) 926-6775
- --------------------------------------------------------------------------------
(Address of principal place of business or
intended principal place of business)
Roger L. Fidler, Esq. 163 South Street, Hackensack, NJ 07601 (201) 457-1221
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(Name, address, and telephone number of agent for service)
Approximate date of proposed sale to the public: as soon as practicable
after the effective date of the registration statement and date of the
prospectus.
The registrant hereby amends the registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that the registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
<PAGE>
CALCULATION OF REGISTRATION FEE
Title of Each Class of Amount Proposed Proposed Amount of
Securities Being Being Maximum Maximum Registration
Registered Registered Offering Aggregate Fee
Price Per Offering
Unit (1) Price(1)
- --------------------------------------------------------------------------------
Shares of Common Stock
Contained in Units 1,000,000 $ 0.10 $ 100,000 $ 30.30
Warrants 5,000,000 0 0
Shares of Common Stock
Underlying Warrants 5,000,000 1.00 5,000,000 1,515.15
--------- --------
TOTAL $ 5,100,000 $ 1,545.45
(1) Estimated for purposes of computing the registration fee pursuant to Rule
457.
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Cross Reference Sheet
Showing the Location In Prospectus of
Information Required by Items of Form SB-2
Part I. Information Required in Prospectus
Item
No. Required Item Location or Caption
- ---- ------------- --------------------
1. Front of Registration Statement Front of Registration
and Outside Front Cover of Statement and Outside
Prospectus Front Cover of Prospectus
2. Inside Front and Outside Back Inside Front Cover Page
Cover Pages of Prospectus of Prospectus and Outside
Front Cover Page of
Prospectus
3. Summary Information and Risk Prospectus Summary;
Factors High Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Prospectus Summary -
Price Determination of Offering
Price; High Risk Factors
6. Dilution Dilution
7. Selling Security Holders Not Applicable
8. Plan of Distribution Plan of Distribution
9. Legal Proceedings Litigation
10. Directors, Executive Officers, Management
Promoters and Control Persons
11. Security Ownership of Certain Principal Stockholders
Beneficial Owners and Management of Common Stock
12. Description of Securities Description of Securities
13. Interest of Named Experts and Legal Opinions; Experts
Counsel
14. Disclosure of Commission Position Statement as to
on Indemnification for Securities Indemnification
Act Liabilities
15. Organization Within Last Management; Certain
Five Years Transactions
16. Description of Business Proposed Business
17. Management's Discussion and Proposed Business -
and Analysis or Plan of Plan of Operation
Operation
18. Description of Property Proposed Business
19. Certain Relationships and Related Certain Transactions
Transactions
20. Market for Common Stock and Prospectus Summary;
Related Stockholder Matters Market for Registrant's
Common Stock and Related
Stockholders Matters;
High Risk Factors
21. Executive Compensation Remuneration
22. Financial Statements Financial Statements
23. Changes in and Disagreements Not Applicable
with Accountants on Accounting
and Financial Disclosure
<PAGE>
PROSPECTUS
KINGSGATE ACQUISITIONS, INC.
(A Delaware Corporation)
1,000,000 Units Offered at $0.10 per Unit
Kingsgate Acquisitions, Inc. hereby offers for sale 1,000,000 units, each
unit consisting of one share of common stock, $.001 par value per share, and
five redeemable common stock purchase warrants, at a purchase price of $0.10 per
unit. The warrants are exercisable for a period of two years from the date of
the prospectus at $1.00 subject to our right to reduce the exercise price and/or
extend the term of the warrants. We may redeem the warrants for $.001 each upon
30 days' prior notice, if the closing bid price of our common stock, as reported
by the market on which our common stock may trade, exceeds $1.25 per share, for
any twenty consecutive trading days ending within ten days of the date of the
notice of redemption. We are selling the units on a "best-efforts, all or none
basis" for a period of ninety (90) days. We will not use an underwriter or
securities dealer. We are making the offering in compliance with Rule 419 ("Rule
419") of Regulation C to the Securities Act of 1933, as amended (the "Securities
Act"). Pursuant to Rule 419, the proceeds of the offering as well as the
securities purchased will be placed in an escrow account. None of the securities
and only 10% of the funds may be removed from escrow until a business
combination has been negotiated and our stockholders have reconfirmed the
offering, including the terms and conditions of the business combination.
Pursuant to Rule 3a51-1(d) under the Securities Exchange Act of 1934,as amended,
(the "Securities Exchange Act"), the securities being offered constitute "penny
stock," and, as a result, sales restrictions which are described in "High Risk
Factors" apply to them. (See "Description of Securities"). Our officers,
directors, current stockholders and any of their affiliates or associates may
purchase up to 50% of the offering.
Underwriting
Price to Discounts and Proceeds to the
Public Commissions the Company(1)
- --------------------------------------------------------------------------------
Per Unit $ 0.10 $ 0 $ 0.10
TOTAL(1) $ 100,000.00 $ 0 $ 100,000.00
- ------------------
(1) Offering expenses which include blue sky fees, legal fees, accounting fees,
printing fees, filing fees, escrow agent fees, estimated in the aggregate
at $15,000, are being paid by us and will not be deducted from the proceeds
of the offering.
KINGSGATE ACQUISITIONS, INC.
950 11th Street, West Vancouver,
British Columbia V7T 2M3 Canada
(604) 926-6775
The date of the Prospectus is , 1999.
<PAGE>
Pursuant to the terms of an escrow agreement, we will immediately deposit
investors' funds in an escrow account maintained by Torrington Savings Bank, 129
Main Street, Torrington, Connecticut 06790-0478. All investors' checks or money
orders should be made payable to "Torrington Savings Bank as Escrow Agent for
Kingsgate Acquisitions, Inc." Unless all 1,000,000 units have been sold, and
$100,000 has been placed in escrow within 90 days from the date of the
prospectus, funds remaining in escrow will be returned to investors in full with
interest.
Upon our sale of all 1,000,000 units within the offering period, other
terms of the escrow agreement, which have been included to comply with Rule 419,
will govern the treatment of the funds tendered by investors and the securities
purchased by investors. Certificates evidencing the shares and warrants
(constituting the units) in the investors' names will be promptly deposited into
the escrow account upon issuance. Rule 419 permits 10% of the offering proceeds
to be disbursed to us from the escrow account prior to our consummating a
business combination. We intend to request release of these funds. We will
receive the remainder of the escrowed funds when we consummate a business
combination.
WE ARE CONDUCTING A BLANK CHECK OFFERING SUBJECT TO RULE 419. THE OFFERING
PROCEEDS OF $100,000 AND THE SECURITIES PURCHASED BY INVESTORS MUST BE DEPOSITED
INTO AN ESCROW ACCOUNT. AN AMOUNT OF UP TO 10% OF THE OFFERING ($10,000) MAY BE
WITHDRAWN FROM ESCROW. WHILE HELD IN ESCROW, THE SECURITIES MAY NOT BE TRADED OR
TRANSFERRED UNTIL WE MAKE AN ACQUISITION WHICH MEETS THE CRITERIA SPECIFIED IN
RULE 419 AND INVESTORS HOLDING A SUFFICIENT PERCENTAGE OF THE SECURITIES
RECONFIRM THEIR INVESTMENT IN ACCORDANCE WITH RULE 419'S PROCEDURES. PURSUANT TO
THESE PROCEDURES, WE WILL DELIVER TO ALL INVESTORS A NEW PROSPECTUS WHICH
DESCRIBES THE ACQUISITION CANDIDATE AND ITS BUSINESS AND INCLUDES AUDITED
FINANCIAL STATEMENTS. WE MUST RETURN THE PRO-RATA PORTION OF THE ESCROWED FUNDS
TO ANY INVESTOR WHO DOES NOT ELECT TO REMAIN AN INVESTOR. UNLESS INVESTORS
HOLDING 80% OF THE UNITS ELECT TO REMAIN, ALL INVESTORS WILL RECEIVE THEIR PRO-
RATA PORTION OF THE ESCROWED FUNDS; AND NONE OF THE ESCROWED SECURITIES WILL BE
ISSUED TO THEM. IN THE EVENT WE DO NOT CONSUMMATE AN ACQUISITION WITHIN 18
MONTHS OF THE DATE OF THE PROSPECTUS, THE ESCROWED FUNDS WILL BE RETURNED ON A
PRO-RATA BASIS TO ALL INVESTORS. (SEE "INVESTORS' RIGHTS AND SUBSTANTIVE
PROTECTIONS UNDER RULE 419.")
WHILE SECURITIES ARE HELD IN ESCROW, RULE 15g-8 UNDER THE SECURITIES
EXCHANGE ACT MAKES IT UNLAWFUL FOR ANY PERSON TO SELL OR OFFER TO SELL THE
ESCROWED SECURITIES OR ANY INTEREST IN THEM. AS A RESULT, INVESTORS WOULD BE
PROHIBITED FROM MAKING ANY ARRANGEMENTS TO SELL THE ESCROWED SECURITIES UNTIL
THEY ARE RELEASED FROM ESCROW. (SEE "HIGH RISK FACTORS #7 -- NO TRANSFER OF
ESCROWED SECURITIES, "INVESTORS' RIGHTS AND SUBSTANTIVE PROTECTIONS UNDER RULE
419 -- DEPOSIT OF OFFERING PROCEEDS AND SECURITIES."
2
<PAGE>
THESE SECURITIES ARE HIGHLY SPECULATIVE, INVOLVE A HIGH DEGREE OF RISK, AND
SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE
INVESTMENT. SEE "HIGH RISK FACTORS" FOR SPECIAL RISKS CONCERNING US AND SEE
"DILUTION" FOR INFORMATION CONCERNING DILUTION FROM THE PUBLIC OFFERING PRICE OF
THE BOOK VALUE OF THE SHARES CONTAINED IN THE UNITS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION (THE "SEC") NOR HAS THE SEC PASSED UPON THE ACCURACY OR
ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
PRIOR TO THE OFFERING THERE HAS BEEN NO PUBLIC MARKET FOR OUR SECURITIES.
WE CANNOT GUARANTEE THAT A TRADING MARKET IN THE UNITS (OR THE SHARES OF COMMON
STOCK OR WARRANTS WHICH CONSTITUTE THE UNITS) WILL EVER DEVELOP.
We have filed with the SEC under the Securities Act, a registration
statement with respect to the units. We have not included in the prospectus all
of the information in the registration statement and the attached exhibits.
Statements of the contents of any document are not necessarily complete. You
should be aware that copies of these documents are contained as exhibits to the
registration statement. We will provide to you a copy of any of the referenced
information if you contact us at 950 11th Street, West Vancouver, British
Columbia V7T 2M3 Canada, Attention: Chief Financial Officer, telephone (604)
926-6775.
As of the effective date of the registration statement, we will be a
reporting company and will be subject to the reporting requirements of the
Securities Exchange Act. We will file periodic reports voluntarily in the event
that our obligation to file such reports is suspended under Section 15(d) of the
Securities Exchange Act. Our filings may be inspected and copied without charge
at the SEC, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549 and at the following regional offices: Seven World Trade Center, 13th
Floor, New York, New York 10048, and Northwest Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of our filings can be
obtained from the Public Reference Section of the SEC, Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. We
will file registration statements (including this one) and other documents and
reports electronically through the Electronic Data Gathering, Analysis and
Retrieval System ("EDGAR") which are publicly available through the SEC's
Internet World Wide Web site (http://www.sec.gov).
We intend to furnish to our stockholders, after the close of each fiscal
year, an annual report containing audited financial statements examined and
reported upon by an independent certified public accountant relating to our
operations. In addition, we may furnish to our stockholders, from time to time,
such other reports as may be authorized by our board of directors. Our year -
end is December 31.
WE HAVE NOT AUTHORIZED ANYONE TO GIVE INFORMATION OR TO MAKE
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THE PROSPECTUS, AND IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY US. THE PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE DELIVERY OF THE PROSPECTUS SHALL
NOT UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY
CHANGE IN OUR AFFAIRS SINCE THE DATE OF THE PROSPECTUS. HOWEVER, WE DO NOT
CONSIDER ANY CHANGES THAT MAY HAVE OCCURRED MATERIAL TO AN INVESTMENT DECISION.
IN THE EVENT THERE HAS BEEN ANY MATERIAL CHANGE IN OUR AFFAIRS, WE WILL FILE A
POST-EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT DESCRIBING THE CHANGES.
WE RESERVE THE RIGHT TO REJECT ANY ORDER FOR THE PURCHASE OF UNITS, IN WHOLE OR
IN PART.
Until 90 days after the date when the escrowed funds and certificates
representing the common stock and warrants are released from escrow, all dealers
effecting transactions in the units, or shares or warrants contained in the
units, may be required to deliver a prospectus.
3
<PAGE>
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY.............................................
SUMMARY FINANCIAL INFORMATION..................................
INVESTORS' RIGHTS AND SUBSTANTIVE PROTECTION UNDER RULE 419....
HIGH RISK FACTORS..............................................
DILUTION.......................................................
USE OF PROCEEDS................................................
CAPITALIZATION.................................................
PROPOSED BUSINESS..............................................
MANAGEMENT.....................................................
STATEMENT AS TO INDEMNIFICATION................................
MARKET FOR OUR COMMON STOCK....................................
CERTAIN TRANSACTIONS...........................................
PRINCIPAL STOCKHOLDERS.........................................
DESCRIPTION OF SECURITIES......................................
PLAN OF DISTRIBUTION...........................................
EXPIRATION DATE................................................
LITIGATION.....................................................
LEGAL OPINIONS.................................................
EXPERTS........................................................
FURTHER INFORMATION............................................
FINANCIAL STATEMENTS...........................................
4
<PAGE>
PROSPECTUS SUMMARY
This section contains summaries of detailed information and financial
statements (including attached footnotes) which are part of the prospectus.
Investment in these securities involves a high degree of risk. You should
carefully consider the information set forth under "High Risk Factors."
The prospectus contains forward-looking statements. Because of risks and
uncertainties, our actual results may differ materially from the results
discussed in these forward-looking statements. You are urged to read the
prospectus in its entirety.
The Company
-----------
We were organized under the laws of the State of Delaware on September 28,
1999 as a vehicle to acquire or merge with a busines. Our management believes
that our characteristics as an enterprise with liquid assets, nominal
liabilities and flexibility in structuring will make us an attractive
combination candidate. None of our officers, directors, promoters, or their
affiliates or associates have had any preliminary contact or discussions with
any representative of the owners of any business regarding the possibility of
any acquisition or merger transaction. We have no present plans, proposals,
arrangements or understandings with any representative of the owners of any
business regarding the possibility of an acquisition or merger transaction. We
do not intend to engage in the business of investing, reinvesting or trading in
securities as our primary business or pursue any business which would render us
an "investment company" under the Investment Company Act of 1940 (the
"Investment Company Act"). (See "High Risk Factors #18 -- Regulation" and
"Proposed Business -- Regulation.")
Since our organization, our activities have been limited to the initial
sale of shares of our common stock in connection with our organization and the
preparation of the registration statement and the prospectus for our initial
public offering. We will not engage in any substantive commercial business
following the offering. (See "Proposed Business -- Plan of Operation.")
We maintain our office at 950 11th Street, West Vancouver, British Columbia
V7T 2M3 Canada. Our phone number is (604) 926-6775.
The Offering
Units offered.................................................... 1,000,000
(See "Description of Securities".) units
Common Stock outstanding
prior to the offering............................................ 2,000,000
shares
Common Stock to be
outstanding after the offering................................... 3,000,000
shares
Warrants outstanding
prior to the offering............................................ 0
warrants
Warrants to be
outstanding after the offering................................... 5,000,000
warrants
5
<PAGE>
Offering Conducted in Compliance with Rule 419
- ----------------------------------------------
We are a blank check company which is a development stage company. Our sole
business purpose is to merge with or acquire a presently unidentified company or
business. Consequently, the offering is being conducted in compliance with Rule
419. The securities purchased by investors and the funds received in the
offering will be deposited and held in an escrow account until an acquisition
meeting specific criteria is completed (except for 10% of the funds which we may
withdraw). Before the acquisition can be completed and before the remainder of
the investors' funds can be released to us and securities can be released to the
investors, we are required to update the registration statement with a post-
effective amendment, and within the five days after its effective date, we are
required to furnish investors with a prospectus. The prospectus, which is part
of the post-effective amendment, will contain the terms of a reconfirmation
offer and information regarding the proposed acquisition candidate and its
business, including audited financial statements. Investors must have no fewer
than 20 and no more than 45 business days from the effective date of the
post-effective amendment to decide to reconfirm their investment and remain an
investor or, alternately, require the return of their investment, minus certain
deductions. Any investor not making a decision within 45 days will automatically
have his or her invested funds returned. If we do not complete an acquisition
meeting specified criteria within 18 months of the date of the prospectus, all
of the funds in the escrow account must be returned to investors. If the
offering period is extended to its limit, we will have only 15 months in which
to consummate a merger or acquisition. (See "Investors' Rights and Substantive
Protection Under Rule 419 -- Reconfirmation Offering.")
High Risk Factors
- -----------------
An investment in our securities is highly speculative, involves a high
degree of risk and should be purchased only by a person who can afford to lose
his or her entire investment. See "High Risk Factors" for special risks
concerning us and "Dilution" for information concerning dilution of the book
value of the investors' shares which are contained in the units purchased in the
offering.
Determination of Offering Price
- -------------------------------
We arbitrarily determined the offering price of $0.10 per unit for the
securities we are offering. This price bears no relation to our assets, book
value, or any other customary investment criteria, including our lack of prior
operating history. Among the factors we considered in determining the offering
price were estimates of our business potential, our limited financial resources,
the amount of equity and control desired to be retained by the present
stockholders, the amount of dilution to public investors and the general
condition of the securities markets. (See "High Risk Factors #22 -- Arbitrary
Determination of Offering Price.")
Use of Proceeds
- ---------------
Of the offering proceeds of $100,000 to be placed in escrow, 10%, or
$10,000, may be released to us prior to an offering whereby investors reconfirm
their investment in accordance with procedures prescribed by Rule 419. We are
entitled to this percentage of the proceeds of the offering and our management
intends to request the release of these funds. We will receive the remainder of
the escrowed funds when we consummate a business combination. (See "Investors'
Rights and Substantive Protection Under Rule 419 -- Reconfirmation Offering.")
Funds received from investors in the offering will be deposited and will remain
in an interest-bearing account maintained by Torrington Savings Bank. We may not
commit any of the escrowed funds as consideration for the acquisition of a
target company. In the event that we use our common stock as consideration to
effect a business combination, the balance of the escrowed funds will be used to
finance the operations of the acquired business.
6
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We will not use any of the proceeds of the offering to repay debt. We have
not incurred, nor do we intend to incur, any debt in connection with our
organizational activities. Our management is not aware of any circumstances
under which this policy, through its own initiative, may be changed. Our
president will be paid $500 per month from the conclusion of the offering until
the consummation of a business combination. Based on an oral understanding
between us and our management, no additional management compensation will be
paid or will accrue. Our management is unaware of any circumstances under which
such policy, through its own initiative, may be changed. Since the role of our
present management after we consummate a business combination is uncertain, we
are unable to determine what remuneration, if any, will be paid to management
after we consummate a business combination. (See "Use of Proceeds.")
SUMMARY FINANCIAL INFORMATION
The following is a summary of our financial information and is qualified in
its entirety by our audited financial statements.
From September 28, 1999
to September 30, 1999
-----------------------
Statement of Income Data:
Net Sales $ 0
Net Loss $ 0
Net Loss Per Share $ 0
Shares Outstanding at 9/30/99 2,000,000
Pro-Forma
As of After
September 30, 1999 Offering (1)
------------------------------------
Balance Sheet Data
Working Capital $ 20,000 $ 119,500
Total Assets $ 20,500 $ 120,000
Long Term Debt $ 0 $ 0
Total Liabilities $ 500 $ 0
Shareholders' Equity $ 20,000 $ 120,000
(1) Upon the sale of all the units in the offering, we will receive funds of
$100,000, all of which must be deposited in an escrow account. We may
withdraw from escrow and use $10,000 as working capital in order to seek a
target company. Our management intends to request release of these funds
from escrow.
7
<PAGE>
INVESTORS' RIGHTS AND SUBSTANTIVE PROTECTION UNDER RULE 419
Deposit of Offering Proceeds and Securities
- -------------------------------------------
The proceeds from the offering and the securities purchased by investors in
the offering must be deposited into an escrow account. The escrowed securities
and funds (except for 10% of the escrowed funds which may be released prior to
the reconfirmation offering) may not be released to the investors and to us,
respectively, until after we have met these basic conditions:
(1) We must execute an agreement for an acquisition.
(2) We must file a post-effective amendment to the registration statement which
includes the terms of a reconfirmation offer. The post-effective amendment
must also contain information regarding the acquisition candidate and its
business, including audited financial statements.
(3) We must conduct the reconfirmation offering and satisfy all of the
prescribed conditions, including the condition that investors who
contributed 80% of the offering proceeds must elect to remain investors.
(4) We must submit a signed representation to the escrow agent that the
requirements of Rule 419 have been met and the acquisition is consummated.
Accordingly, we have entered into an escrow agreement with Torrington
Savings Bank, 129 Main Street, Torrington, Connecticut which provides that:
(1) The proceeds of the offering must be deposited promptly upon receipt into
an escrow account maintained by the escrow agent. 10% of the escrowed funds
may be released to us prior to the reconfirmation offering. The escrowed
funds can only be invested in bank deposits, money market mutual funds or
federal government securities or securities for which the principal or
interest is guaranteed by the federal government. Any dividends or
interest, if any, must be held for the sole benefit of the investors.
(2) All securities issued in connection with the offering and any other
securities issued with respect to such securities, such as securities
issued as a result of stock splits, stock dividends or similar rights, are
to be deposited directly into the escrow account promptly upon issuance.
The identities of the investors are to be included on the stock
certificates and other documents evidencing the escrowed shares and
warrants. The escrowed securities will remain as issued, and are to be held
for the sole benefit of the investors who retain the voting rights of the
shares of common stock held in their names. The escrowed securities may not
be transferred, disposed of nor any interest created in them other than by
will or the laws of descent and distribution, or pursuant to a qualified
domestic relations order as defined by the Internal Revenue Code of 1986 or
the Employee Retirement Income Security Act.
(3) Warrants, convertible securities or other derivative securities relating to
escrowed securities may be exercised or converted in accordance with their
terms. However, the securities received upon exercise or conversion
together with any cash or other consideration paid in connection with the
exercise or conversion are to be promptly deposited into the escrow
account.
8
<PAGE>
Prescribed Acquisition Criteria
- -------------------------------
Rule 419 mandates that before the escrowed funds and securities may be
released, we must first execute an agreement to acquire an acquisition candidate
for which the fair value of its business represents at least 80% of the maximum
offering proceeds. Maximum offering proceeds include the aggregate offering
price of the units and the aggregate exercise price of the warrants contained in
the units. The agreement must include, for it to be consummated, a provision
stating that investors who purchased at least 80% of the offering must elect to
reconfirm their investments. Thus, the fair value of the business or assets to
be acquired must be at least $4,080,000 (80% of $5,100,000).
Post-Effective Amendment
- ------------------------
Once an agreement governing the acquisition of a business meeting these
criteria has been executed, Rule 419 requires that we update the registration
statement with a post-effective amendment. The post-effective amendment must
contain information about the proposed acquisition candidate and its business or
range of businesses, including audited financial statements, the results of the
offering and the use of the funds disbursed from escrow. The post-effective
amendment must also include the terms of the reconfirmation offering.
Reconfirmation Offering
- -----------------------
Our reconfirmation offering cannot commence until after the effective date
of the post-effective amendment. Pursuant to Rule 419, the terms of the
reconfirmation offering must include the following conditions:
(1) We must send the prospectus contained in the post-effective amendment to
each investor within five business days after the effective date of the
post-effective amendment.
(2) Each investor will have no fewer than 20 and no more than 45 business days
from the effective date of the post-effective amendment to notify us in
writing that the investor elects to remain an investor.
(3) If we receive written notification that an investor has voted against the
proposed acquisition or if we do not receive written notification from any
investor within 45 business days following the effective date of the
registration statement, the pro rata portion of the escrowed funds (and any
related interest or dividends) held in the escrow account on that
investor's behalf will be returned to the investor within five business
days by first class mail or other equally prompt means.
(4) The acquisition will be consummated only if, at minimum, the number of
investors who own 80% of the units elect to reconfirm their investment.
(5) If a consummated acquisition has not occurred by 18 months from the date of
the prospectus, the escrowed funds shall be returned to all investors on a
pro rata basis within five business days by first class mail or other
equally prompt means.
9
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Release of Escrowed Securities and Escrowed Funds
- ---------------------------------------------------
The escrowed funds and securities may be released to us and the investors,
respectively, after:
(1) The escrow agent has received a signed representation from us and any other
evidence acceptable to it that:
(a) We have executed an agreement for the acquisition of a target business
for which the fair market value of the business represents at least
80% of the maximum offering proceeds, including the aggregate exercise
price of the warrants, and have filed the required post-effective
amendment; and
(b) The post-effective amendment has been declared effective; the mandated
reconfirmation offering having the conditions prescribed by Rule 419
has been complied with; and we have satisfied all of the prescribed
conditions of the reconfirmation offer.
(2) We have consummated the acquisition of the business with a fair value of at
least 80% of the maximum proceeds, including aggregate warrant exercise
price.
In the event we have satisfied all the prescribed conditions of the
reconfirmation offer, but certain investors vote against the reconfirmation
offer, the escrow agent will return their investments to them (plus interest but
less 10% of the invested funds if they have been previously released to us) and
return certificates representing the securities purchased by such investor to us
for cancellation. In the event, the prescribed conditions of the reconfirmation
offer are not met, the escrow agent will return all the invested funds (plus
interest but less 10% of the invested funds if they have previously been
released to us) to the investors on a pro rata basis and return certificates
representing the purchased securities to us for cancellation.
HIGH RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE IN NATURE AND INVOLVE AN
EXTREMELY HIGH DEGREE OF RISK AND SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN
AFFORD TO LOSE THEIR ENTIRE INVESTMENT. SEE "DILUTION" FOR INFORMATION
CONCERNING DILUTION OF THE BOOK VALUE OF THE INVESTORS' SHARES FROM THE PUBLIC
OFFERING.
1. Anticipated Change in Control and Management
--------------------------------------------
If the offering is sold, our management and current stockholders, will own
66.7% of our common stock. Therefore, our management and current stockholders
would continue to own a controlling interest and would able to elect all our
directors. Upon the successful completion of a business combination, we
anticipate that we will have to issue to the owners of the acquired company
authorized but unissued common stock which will comprise a majority of the then
issued and outstanding shares of our common stock. Therefore, we anticipate that
the consummation of a business combination will result in a change of control
which will most likely result in the resignation or removal of our present
officers and directors. If there is a change in management, we can provide no
assurance of the experience or qualification of the new management either in the
operation of the business, assets or property being acquired. (See "Proposed
Business.")
10
<PAGE>
2. New Business Development Stage
------------------------------
We were recently incorporated as a vehicle to effect a business combination
and have had no operations to date. We can give no assurance that we will
succeed in effecting a business combination and, even if we do, that the
business combination will result in revenue or profit. Since we have not yet
attempted to seek a business combination, and due to our lack of experience,
investors will have only a very limited basis upon which to evaluate the
prospectus. We face all risks associated with any new business. Any investment
should be considered an extremely high risk investment and should be purchased
only by persons who can afford to lose their entire investment. As of the date
of the prospectus, we have not entered into or negotiated any arrangements to
acquire a target business. (See "Proposed Business.")
3. Use of Proceeds.
----------------
Pursuant to Rule 419, we must hold at least 90% of the net proceeds of the
offering in escrow pending the consummation of a business combination which must
occur within 18 months of the date of the prospectus. The funds from the
offering may not be sufficient for us to find a business combination. We may
disburse 10% of the escrowed proceeds prior to our consummation of a business
combination. We intend to request release of these funds. If we do not request
release of these funds, we will receive the funds when we consummate a business
combination. (See "Use of Proceeds", "Proposed Business" and "Investors' Rights
and Substantive Protection under Rule 419.")
4. No Access to Investors' Funds While Held In Escrow
--------------------------------------------------
We are offering for sale 1,000,000 units, at $0.10 per unit. The maximum
offering period is 90 days. We cannot provide any assurance that all 1,000,000
units will be sold during the offering period. Investors have no right to the
return or the use of their funds and cannot receive interest on their invested
funds until the conclusion of the offering. Even upon the sale of the 1,000,000
units, the investor' funds (reduced by 10% for expenses as permitted by Rule
419) will remain in escrow, in an interest - bearing account. Investors will
have no right to the return of or the use of their funds or the securities
purchased for a period of up to 18 months from the date of the prospectus.
Investors will be offered the return of the pro rata portion of their funds
held in escrow only if
(a) they vote against reconfirmation in the reconfirmation offering
required to be conducted upon execution of an agreement to acquire a
suitable target business; or
(b) if we are unable to locate a target business meeting the mandated
acquisition criteria. However, in that event, investors may have to
wait 18 months from the date of the prospectus before a pro rata
portion of their funds is returned with interest.
(See "Investors' Rights and Substantive Protection Under Rule 419 --
Prescribed Acquisition Criteria.")
5. Failure of Sufficient Number of Investors to Reconfirm Investment
----------------------------------------------------------------
We cannot consummate a business combination with a target business unless,
in connection with the reconfirmation offering required by Rule 419, investors
owning at least 80% of the units elect to reconfirm their investments. If, after
completion of the reconfirmation offering, a sufficient number of investors do
not reconfirm their investment, the business combination will not be
consummated. In that event, the securities held in escrow will be cancelled and
the escrowed funds will be returned to investors on a pro rata basis.
Up to 50% of the units may be purchased by our officers, directors, current
stockholders and their affiliates or associates. Units purchased by these
insiders will be included in determining whether investors representing 80% of
the maximum offering proceeds elect to reconfirm their investment. Therefore,
the substantive benefit of an objective 80% reconfirmation by investors may be
reduced in the event of substantial insider purchases of units in the offering,
as it is likely that such insiders will elect to reconfirm a proposed business
combination.
11
<PAGE>
6. Extremely Limited Capitalization
--------------------------------
As of September 30, 1999, we had assets of $20,500 and $500 in liabilities.
Upon the sale of the units in the offering, we will receive net proceeds of
$100,000, all of which must be placed in escrow. We may use $10,000
(representing 10% of the offering proceeds) to seek a business combination. Our
management intends to request release of these funds from escrow. If we do not
request release of these funds, we will receive the funds in the event a
business combination is consummated. We will cover the costs of conducting our
business activities with money in our treasury. Even, assuming suitable
prospects are identified, we may be unable to complete an acquisition or merger
due to a lack of sufficient funds. Therefore, we may require additional
financing in the future in order to consummate a business combination. Such
financing may consist of the issuance of debt or equity securities. We cannot
give any assurances that such funds will be available, if needed, or whether
they will be available on terms acceptable to us. Although it is unlikely that
we will need additional funds, such need may occur if a target company insists
that we obtain additional capital. Such financing will not occur without
stockholder approval. We will not borrow funds from our officers, directors or
current stockholders. If we do not consummate an acquisition or purchase within
18 months of the date of the prospectus, we must return all the funds, (plus
interest but minus the funds, limited to a maximum of 10%, released from
escrow), on a pro rata basis, back to the investors. (See "Use of Proceeds,"
"Proposed Business," and "Investors' Rights and Substantive Protection Under
Rule 419.")
7. No Transfer of Escrowed Securities
----------------------------------
No transfer or other disposition of the escrowed securities shall be
permitted other than by will or the laws of descent and distribution, or
pursuant to a qualified domestic relations order as defined by the Internal
Revenue Code of 1986, or pursuant to the Employee Retirement Income Security
Act, or the rules thereunder. Pursuant to Rule 15g-8 of the Securities Exchange
Act, it is unlawful for any person to sell or offer to sell the securities (or
any interest in or related to the securities) held in escrow other than pursuant
to a qualified domestic relations order. Therefore, any and all contracts for
sale to be satisfied by delivery of the escrowed securities (e.g., contracts for
sale on a when, as, and if issued basis) and sales of derivative securities to
be settled by delivery of the securities are prohibited. It is further
prohibited to sell any interest in the escrowed securities (or any derivative
securities) whether or not physical delivery is required. (See "Investors'
Rights and Substantive Protection Under Rule 419.")
8. No Assurances of a Public Market
--------------------------------
Pursuant to Rule 419, all securities purchased in an offering by a blank
check company (as well as securities issued in connection with an offering to
underwriters, promoters or others as compensation or otherwise) must be placed
in an escrow account. [We do not intend to issue any securities to underwriters,
promoters or others in connection with the offering.] These securities will not
be released from escrow until the consummation of a merger or acquisition. There
is no present market for our common stock and there is little likelihood of any
active and liquid public trading market developing following the release of
securities from escrow. Thus, stockholders may find it difficult to sell their
shares. To date, neither we, nor anyone acting on our behalf, have taken any
affirmative steps to request or encourage any broker-dealer to act as a market
maker for our common stock. Further, there have been no discussions or
understandings, preliminary or otherwise, between us or anyone acting on our
behalf and any market maker regarding the participation of any such market maker
in the future trading market, if any, for our common stock. Our present
management has no intention of seeking a market maker for our common stock at
any time prior to the reconfirmation offer to be conducted prior to the
consummation of a business combination. However, we may, after the consummation
of a business combination, employ consultants or advisors to obtain market
makers. Our management expects, however, that activities in this area will
ultimately be undertaken by management in control after a business combination
is reconfirmed by the stockholders. (See "Market for Our Common Stock" and
"Investors' Rights and Substantive Protection Under Rule 419.")
12
<PAGE>
9. Unspecified Industry and Acquired Business; Unascertained Risks
- --------------------------------------------------------------- To date, we have
not selected any particular industry in which to concentrate our business
combination efforts. In relation to our competitors, we are and will continue to
be an insignificant participant in the business of seeking business
combinations. A large number of established and well-financed entities,
including investment banking and venture capital firms, have recently increased
their merger and acquisition activities. Nearly all such entities have
significantly greater financial resources, technical expertise and managerial
capabilities than we do and, consequently, we will be at a competitive
disadvantage in identifying suitable merger or acquisition candidates and
successfully consummating a proposed merger or acquisition. Also, we will be
competing with other blank check or public shell companies. (See "High Risk
Factors #10 -- Conflicts of Interest" "Management's Fiduciary Duties" and
"Proposed Business" )
10. Conflicts of Interest - Management's Fiduciary Duties
-----------------------------------------------------
A conflict of interest may arise between our management's personal
pecuniary interest and its fiduciary duty to our stockholders. Investors should
note that the present stockholders will own 66.7% of our outstanding common
stock after the offering is completed and would therefore continue to retain
control assuming none of them purchase units in the offering. Present
stockholders may purchase up to 50% of the units in the offering. Barney
Magnusson, President and Treasurer, and his wife, Leslie McGuffin, Secretary,
own a total of 250,000 shares comprising 12.5% of the outstanding shares before
the offering and 8.3% after the offering. Further, our management's interest in
its own pecuniary interest may at some point compromise their fiduciary duty to
our stockholders. No proceeds from the offering will be used to purchase,
directly or indirectly, any shares of our common stock owned by our management
or any present stockholder, director or promoter. (See "Management.")
11. Conflicts of Interest With Other Enterprises
--------------------------------------------
Our directors and officers are or may become, in their individual
capacities, officers, directors, controlling stockholders and/or partners of
other entities engaged in a variety of businesses. Each of our officers and
directors is engaged in outside business activities, and the amount of time they
will devote to our business is anticipated to be only about five to twenty hours
each per week. Conflicts with other blank check companies with which members of
our management may become affiliated in the future may arise in the pursuit of
business combinations. To aid the resolution of such conflicts, we have adopted
a procedure whereby in the confirmation offer to our stockholders to be called
to vote upon a business combination with an affiliated entity, stockholders who
also hold securities of such affiliated entity will be required to vote their
shares of our stock in the same proportion as the public shares of holders who
are not affiliates are voted. Such procedure has been orally agreed to with our
management and will be incorporated in any acquisition agreement with a target
company in which any of our shareholders has an interest.
Our officers and directors are not currently involved in other blank check
companies, but may become so involved in the future. A potential conflict of
interest may result if and when any of our officers becomes an officer or
director of another company, especially another blank check company. There is
presently no requirement contained in our certificate of incorporation, by-laws
or minutes which requires that our officers and directors disclose potential
target businesses which come to their attention. Our officers and directors do,
however, have a fiduciary duty of loyalty to disclose to us any target
businesses which come to their attention in their capacity as an officer or
director or otherwise. Through an oral understanding with our management, we
will not acquire any company in which more than a majority of its capital stock
is beneficially owned by any of our officers, directors, promoters, affiliates
or associates or a combination thereof. (See "Management.")
13
<PAGE>
12. Potential Related Party Business Combination
--------------------------------------------
We may acquire a business in which our promoters, management or their
affiliates own a minority beneficial interest. In such event, such transaction
may be considered a related party transaction and not at arms-length. We are not
presently contemplating a related party transaction. If a related party
transaction is considered in the future, we intend to seek stockholder approval
through a vote of stockholders. However, stockholders objecting to any such
related party transaction will be able only to request the return of the
pro rata portion of their invested funds held in escrow in connection with the
reconfirmation offering. (See "Investors' Rights and Substantive Protection
under Rule 419.")
13. Possible Disadvantages of Blank Check Offering
----------------------------------------------
Our business may involve the acquisition of or merger with a company which
does not need substantial additional capital but which desires to establish a
public trading market for its shares. A company which seeks our participation in
attempting to consolidate its operations through a merger, reorganization, asset
acquisition, or some other form of combination may desire to do so to avoid what
it may deem to be adverse consequences of itself undertaking a public offering.
Factors desired to be avoided by the target company may include time delays,
significant expense, loss of voting control and the inability or unwillingness
to comply with various federal and state laws enacted for the protection of
investors. Thus, in making an investment, each investor should recognize that he
or she may be doing so under terms which may ultimately be less favorable than
could be obtained by making an investment directly in a company with a specific
business. (See "Proposed Business.")
14. Lack of Market Research or Identification of Acquisition or Merger
Candidate
------------------------------------------------------------------
We have neither conducted nor have others made available to us results of
market research concerning the feasibility of any target business. Therefore,
our management has no assurances that market demand exists for an acquisition or
merger as contemplated in the prospectus. Our management has not identified any
particular industry or specific business within an industry for evaluation. We
can provide no assurance that we will be able to acquire a target business on
favorable terms. (See "Proposed Business.")
15. Success Dependent on Management
-------------------------------
Our officers and directors have no experience in the operation of a blank
check company and limited experience in locating and acquiring a target
business. However, our management believes it has sufficient experience to
implement our plan, although there is no assurance that we will not require
additional managerial assistance. Our success depends on the active parti-
cipation of our officers. We have not entered into employment agreements with
these officers and do not contemplate doing so. We have not obtained and do not
intend to purchase key man life insurance on any of our officers or directors.
(See "Proposed Business", "Management" and "Use Of Proceeds.")
16. No Current Contemplated Business Combinations
---------------------------------------------
As of the date of the prospectus, none of our officers, directors,
promoters, their affiliates or associates have had any preliminary contact or
discussions. There are no present plans, proposals, arrangements or
understandings with any representatives of the owners of any target business
regarding the possibility of a business combination.
14
<PAGE>
17. Lack of Diversification
-----------------------
In the event we are successful in identifying and evaluating a suitable
business combination, we will, in all likelihood, be required to issue our
common stock in an acquisition or merger transaction. Inasmuch as our
capitalization is limited and the issuance of additional common stock will
result in a dilution of interest for present and prospective stockholders, it is
unlikely we will be capable of negotiating more than one acquisition or merger.
Consequently, our lack of diversification may subject us to economic fluctuation
within a particular industry in which a target company conducts business. (See
"Proposed Business.")
18. Regulation
----------
Although we will be subject to regulation under the Securities Act and the
Securities Exchange Act, our management believes that we will not be subject to
regulation under the Investment Company Act. The Investment Company Act, which
was enacted principally for the purpose of regulating vehicles for pooled
investments in securities, extends generally to companies primarily in the
business of investing, reinvesting, owning, holding or trading securities. The
Investment Company Act may, however, also be deemed to be applicable to a
company which does not intend to be characterized as an investment company but
which, nevertheless, engages in activities which may be deemed to be within the
definition of the scope of certain of its provisions. We believe that our
principal activities will not subject us to such regulation. However, we cannot
offer assurances that we will not be deemed to be an "Investment Company."
Invested funds will be invested primarily in certificates of deposit, interest
bearing savings accounts or government securities. In the event we are deemed to
be an "Investment Company," we may be subject to certain restrictions relating
to our activities, including restrictions on the nature of our investments and
the issuance of securities. We have not obtained a formal determination from the
SEC as to our status under the Investment Company Act.
19. Taxation
--------
In the course of any acquisition or merger we may undertake, a substantial
amount of attention will be focused upon federal and state tax consequences for
us and the target company. Presently, under the provisions of federal and
various state tax laws, a qualified reorganization between business entities
will generally result in tax-free treatment to the parties to the
reorganization. While we expect to undertake any merger or acquisition so as to
minimize federal and state tax consequences to all parties, there is no
assurance that such business combination will meet the statutory requirements of
a tax-free reorganization or that the parties will obtain the intended tax-free
treatment upon a transfer of stock or assets. A non-qualifying reorganization
could result in the imposition of both federal and state taxes which would
constitute a substantial adverse effect. (See "Proposed Business --
Regulation.")
20. No Dividends
------------
We were only recently organized, have no earnings, and have paid no
dividends to date. Since we were formed as a blank check company with our only
intended business being the search for an appropriate business combination, we
do not anticipate having earnings until such time that a business combination is
effected. However, there are no assurances that, upon the consummation of a
business combination, we will have earnings or issue dividends. Therefore, it is
not expected that cash dividends will be paid, if at all, to stockholders until
after a business combination is effected. We anticipate that all profits after
the consummation of a business combination will be reinvested in the acquired
business and not disbursed as dividends. (See "Dividends.")
15
<PAGE>
21. Restricted Resale of the Securities
-----------------------------------
The 2,000,000 shares of our common stock presently issued and outstanding
are "restricted securities" as that term is defined under the Securities Act and
in the future may be sold in compliance with Rule 144 under that act or pursuant
to a registration statement filed under that act. Rule 144 provides, in essence,
that a person holding restricted securities for a period of one year may sell
those securities in unsolicited brokerage transactions or in transactions with a
market maker, every three months, in an amount equal to the greater of one (1%)
percent of our issued and outstanding common stock or one week's trading volume.
Sales of unrestricted shares by our affiliates are also subject to the same
limitation upon the number of shares that may be sold in any three month period.
If all the units are sold, the holders of the restricted shares may each sell,
at a minimum, 30,000 shares during any three month period commencing October 1,
2000. Additionally, Rule 144 requires that an issuer of securities make
available adequate current public information with respect to the issuer. Such
information is deemed available if the issuer satisfies the reporting
requirements of sections 13 or 15(d) of the Securities Exchange Act and of Rule
15c2-11 thereunder. Rule 144(k) also permits the termination of certain
restrictions on sales of restricted securities by persons who were not
affiliates at the time of the sale and have not been affiliates in the preceding
three months. Such persons must satisfy a two year holding period. There is no
limitation on such sales and there is no requirement regarding adequate current
public information. Investors should be aware that sales under Rule 144 or
144(k), or pursuant to a registration statement filed under the Securities Act,
may have a depressive effect on the market price of our securities in any market
which may develop for our shares.
22. Arbitrary Determination of Offering Price
-----------------------------------------
We arbitrarily determined the offering price of $0.10 per unit for the
securities we are offering. This price bears no relation to our assets, book
value, or any other customary investment criteria, including our lack of prior
operating history. Among the factors we considered in determining the offering
price were estimates of our business potential, our limited financial resources,
the amount of equity and control desired to be retained by the present
stockholders, the amount of dilution to public investors and the general
condition of the securities markets. (See "Prospectus Summary.")
23. Control by Present Management and Shareholders
----------------------------------------------
Our present stockholders will own 66.7% of our shares of common stock after
the offering is completed and would therefore continue to exercise control.
Barney Magnusson and Leslie McGuffin, our President/Treasurer and Secretary,
respectively, own 200,000 and 50,000 shares, comprising an aggregate of 12.5% of
the outstanding issued common stock before the offering and 8.3% after the
offering. Our certificate of incorporation does not provide for cumulative
voting. There are no arrangements, agreements or understandings between
non-management stockholders and management under which non-management
stockholders may directly or indirectly participate in or influence the
management of our affairs or to exercise their voting rights to continue to
elect the current directors. (See "Principal Stockholders", "Dilution" and
"Description of Securities").
24. Immediate Substantial Dilution
------------------------------
As of September 30, 1999, the net tangible book value of our common stock
was $0.01 per share, substantially less than the $0.10 per unit to be paid by
the public investors for each unit containing one share of common stock (and
five common stock purchase warrants). In the event all the units are sold,
public investors will sustain an immediate dilution of approximately $0.06 per
share in the book value of public investors' holdings. (See "Dilution.")
16
<PAGE>
25. Purchase of Shares
------------------
Our officers, directors, current stockholders and any of their affiliates
or associates may purchase a portion not to exceed an aggregate of 50% of the
units sold in the offering. Such purchases may be made in order to close the
offering as it is a "best efforts, all or none" offering. Shares purchased by
our officers, directors and principal stockholders will be acquired for
investment purposes and not with a view toward distribution. See "High Risk
Factors #5 -- Failure of Sufficient Number of Investors to Reconfirm
Investment.")
26. State Law Violations
--------------------
We will use our best efforts to ensure that sales of units will only occur
in those states in which such sales would not be a violation of any state laws.
We will request our transfer agent to aid us in assuring such compliance.
27. Business Combination Through A Leveraged Transaction
----------------------------------------------------
We are not prohibited from consummating a business combination through a
leveraged transaction in which we would borrow money to raise the necessary
funds for the acquisition. However, investors should be aware that such a
transaction could result in our assets being mortgaged and possibly foreclosed.
The use of leverage to consummate a business combination may reduce our ability
to incur additional debt or declare dividends. Such leverage may also subject
our operations to strict financial controls and significant interest expense.
28. Penny Stock Regulation
----------------------
Broker-dealer practices in connection with transactions in "penny stocks"
are regulated by certain penny stock rules adopted by the SEC. Penny stocks
generally are equity securities with a price of less than $5.00 (other than
securities registered on certain national securities exchanges or quoted on the
Nasdaq system, provided that current price and volume information with respect
to transactions in such securities is provided by the exchange or system). The
penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document prepared by the SEC that provides information about penny
stocks and the nature and level of risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customer's account. In addition,
the penny stock rules require that prior to a transaction in a penny stock not
otherwise exempt from such rules the broker-dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction. These
disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for a stock that becomes subject to the penny
stock rules. If our common stock becomes subject to these penny stock rules,
investors in the offering may find it more difficult to sell their shares.
29. Exercise of the Warrants May Have Dilutive Effect on Market
-----------------------------------------------------------
The warrants provide, during their term, opportunities for the holders to
exercise them and profit from the difference between the exercise price and the
market price of our common stock, causing dilution in the ownership interest in
us held by the then existing stockholders. Holders of warrants most likely would
exercise them and purchase the underlying common stock at a time when we may be
able to obtain capital on terms more favorable than those provided by the
warrants, in which event the terms on which we may be able to obtain additional
capital would be affected adversely.
17
<PAGE>
30. Warrants Subject to Redemption
------------------------------
Each warrant enables the holder to purchase one share of our common stock
at an exercise price of $1.00 for the two year period commencing the date of the
prospectus. We may redeem the warrants for $.001 each upon 30 days' prior
notice, if the closing bid price of our common stock, as reported by the Over
the Counter Bulletin Board or other market on which our common stock trades,
exceeds $1.25 per share, for any twenty consecutive trading days ending within
ten days of the notice of redemption. If the warrants are called for redemption,
holders may not be able to exercise their warrants if we have not updated the
prospectus in accordance with the requirements of the Securities Act or the
common stock has not been qualified for sale under the laws of the state where
the holder resides. (See "See "High Risk Factors # 31 -- Requirements of Current
Prospectus and State Blue Sky Registration in Connection With the Exercise of
the Warrants Which May Not Be Exercisable and May Therefore Be Valueless.")
In addition, a call for redemption of the warrants could force the holder
either to
(i) assume the necessary updating of the prospectus and state blue sky
qualifications, exercise the warrants and pay the exercise price at a
time when, in the event of a decrease in market price from the period
preceding the issuance of the call for redemption, it may be less than
advantageous economically to do so, or
(ii) accept the redemption price, which, in the event of an increase in the
price of our common stock, would be substantially less than the
difference between the exercise price and market value at the time of
redemption.
Upon 30 days' written notice to all holders of the warrants, we shall have
the right to reduce the exercise price and/or extend the term of the warrants in
compliance with the requirements of Rule 13e-4 to the Securities Exchange Act to
the extent applicable. (See "Description of Securities.")
31. Requirements of Current Prospectus and State Blue Sky Registration in
Connection with the Exercise of the Warrants Which May Not Be Exercisable
and May Therefore Be Valueless
---------------------------------------------------------------------------
We will be able to issue shares of our common stock upon the exercise of
the warrants only if (i) there is a current prospectus relating to the shares of
our common stock underlying the warrants as part of an effective registration
statement filed with the SEC and (ii) such stock is, to the extent required,
then qualified for sale or exempt therefrom under applicable state securities
laws of the jurisdictions in which holders of warrants reside. There can be no
assurance that we will be successful in maintaining a current registration
statement. After the registration statement becomes effective, it may require
updating by the filing of post-effective amendments.
A post-effective amendment is required under the Securities Act:
+ any time after nine months subsequent to the date of the prospectus when
any information contained in the prospectus is over sixteen months old;
+ when facts or events have occurred which represent a fundamental change in
the information contained in the registration statement; or
+ when any material change occurs in the information relating to the plan or
distribution of the securities registered by such registration statement.
18
<PAGE>
In addition, we will be prevented from issuing shares of our common stock
upon exercise of the warrants in those states where exemptions are unavailable
and we have failed to qualify our shares of common stock issuable upon exercise
of the warrants. We may decide not to seek or not be able to obtain
qualification of the issuance of such common stock in all of the states in which
the ultimate purchasers of the warrants reside. In such a case, the warrants of
those purchasers will expire and have no value if such warrants cannot be
exercised or sold. Accordingly, the market for the warrants may be limited
because of our obligation to fulfill both of the foregoing requirements. (See
"Description of Securities.")
DILUTION
Our net tangible book value as of September 30, 1999 was $20,000. Our net
tangible book value per share was $0.01. Net tangible book value represents our
net tangible assets which are our total assets less our total liabilities and
intangible assets. (See "Financial Statements.") The public offering price per
unit (each unit containing one share of common stock) is $0.10. The pro forma
net tangible book value after the offering will be $120,000. The pro forma net
tangible book value per share after the offering will be $0.04 per share. The
shares (contained in the units) purchased by investors in the offering will be
diluted $0.6 or 60.0%. As of September 30, 1999, there were 2,000,000 shares of
our common stock outstanding. (See "Certain Transactions").
Dilution represents the difference between the public offering price and
the net pro forma tangible book value per share immediately following the
completion of the public offering. The following table illustrates the dilution
which will be experienced by investors in the offering:
Public offering price per unit (containing one share) ........... $ 0.10
Net tangible book value per share before offering................ $ 0.01
Pro-forma net tangible book value per share after offering....... $ 0.04
Pro-forma increase per share attributable to offered shares...... $ 0.03
Pro-forma dilution to public investors........................... $ 0.06
Money Net Tangible
Received for Book Value per
Number of Shares Shares Before Share Before
Before Offering Offering Offering
- ---------------------------------------------------------------
2,000,000 $ 20,000 $ 0.01
- ---------------------------------------------------------------
Pro-forma
Total Net Tangible
Total Amount of Book Value
Number of Shares Money Received Per Share
After Offering For Shares After Offering
- ---------------------------------------------------------------
3,000,000 $ 120,000 $ 0.04
- ---------------------------------------------------------------
Pro-forma Pro-forma Increase
Net Tangible Net Tangible Per Share
Book Value Per Book Value Attributed
Share After Shares Before To Shares
Offering Offering Offered Hereby
- ---------------------------------------------------------------
$0.037 $ 0.01 $ 0.03
- ---------------------------------------------------------------
Pro-forma
Net Tangible
Book Value Per Pro-forma
Public Offering Share After Dilution to
Price Per Share Offering Public Investors
- ---------------------------------------------------------------
$ 0.10 $0.04 $ 0.06
- ---------------------------------------------------------------
19
<PAGE>
The following table sets forth, as of the date of the prospectus, the
percentage of equity to be purchased by the public investors compared to the
percentage of equity to be owned by the present stockholders, and the
comparative amounts paid for the units (each unit containing one share) by the
public investors as compared to the total consideration paid by our present
stockholders. (See "Certain Transactions" and Footnotes to Financial
Statements.)
Approximate Approximate
Percentage Percentage
Public Shares Total Shares Total Total
Stockholder Purchased Outstanding Consideration Consideration
- -------------------------------------------------------------------------------
New Investors 1,000,000 33.3% $ 100,000 83.3%
Existing
Shareholders 2,000,000 (1) 66.7% $ 20,000 16.7%
- -------------
(1) We sold 2,000,000 shares of common stock prior to the offering at $.01 per
share. These shares are not being registered. (See "Certain Transactions")
USE OF PROCEEDS
The gross proceeds of the offering will be $100,000. Pursuant to Rule
15c2-4 under the Securities Exchange Act, all of these proceeds must be placed
in escrow until all of the units are sold. However, pursuant to Rule 419, after
all of the units are sold, 10% of the escrowed funds ($10,000) may be released
to us. We intend to request release of these funds. If we do not request release
of these funds, we will receive these funds in the event a business combination
is consummated. All funds held in escrow at the time a business combination is
consummated will be released to us. The merged entity will have full discretion
as to the use of such funds.
Since we are a "blank check" company, the purpose of the offering is to
raise funds to enable us to merge with or acquire an operating company. Upon the
consummation of a business combination, the reconfirmation offering and the any
portion disbursed to us and any amount returned to investors who did not
reconfirm their investment) will be released to us.
Amount Percentage
-----------------------------------------
Escrowed funds pending
business combination (1)(2) $90,000 90%
(1) Does not include the estimated $15,000 of offering expenses. The expenses
of the offering will be paid by money in our treasury.
(2) We expect to request release of 10% of the escrowed funds ($10,000).
20
<PAGE>
While we presently anticipate that we will be able to locate and consummate
a business combination which adheres to the criteria discussed under "Investors'
Rights and Substantive Protection Under Rule 419 -- Prescribed Acquisition
Criteria," if we determine that a business combination requires additional
funds, we may seek such additional financing through loans, issuance of
additional securities or through other financing arrangements. No such financial
arrangements presently exist, and we can give no assurances that such additional
financing will be available or, if available, that such additional financing
will be on acceptable terms. Persons purchasing units in the offering will not,
unless required by law, participate in the determination of whether to obtain
additional financing or as to the terms of such financing. Because of our
limited resources, our management believes that we will become involved in only
one business combination.
We do not intend to advertise or promote. Instead, our management will
actively search for potential target businesses. In the event management decides
to advertise (in the form of an advertisement in a business publication) to
attract a target business, our management, in their individual capacities, will
assume the cost of such advertising.
Upon the consummation of a business combination, we anticipate that there
will be a change in our management. The new management may decide to change the
policies as to the use of proceeds. Our present management anticipates that the
escrowed funds will be used by the post-merger management at its sole
discretion. $500 per month will be paid to our President from the consummation
of the offering until the consummation of a business combination. In addition,
he will receive $500 per month during such period for provision of office space.
Such policy is based upon an oral agreement with our management. Our management
is unaware of any circumstances under which such policy through their own
initiative may be changed. We are not presently considering any outside
individual for a consulting position; however, we cannot rule out the need for
outside consultants in the future. No decisions have been made as to payment of
these consultants, if any are hired.
Our present management will not make any loans from the $10,000 (10% of the
escrowed funds), nor will our present management borrow funds using either our
working capital or escrowed funds as security. This policy is based upon an oral
agreement with our management. Our management is unaware of any circumstances
under which such policy through their own initiative, may be changed. Once the
escrowed funds are released, the then existing management may loan the proceeds
or borrow funds and use the proceeds as security for such loan, on terms it
deems appropriate.
Offering proceeds will be placed in escrow at Torrington Savings Bank, an
insured depository institution, in either a certificate of deposit, interest
bearing savings account or in short term government securities pending
consummation of a business combination and reconfirmation by investors.
21
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999,
and pro forma as adjusted to give effect to the sale of 1,000,000 units in the
offering.
September 30, 1999
----------------------------
Pro-forma
Actual As Adjusted
Long-term debt $ 0 $ 0
Stockholders' equity:
Common stock, $.001 par value;
authorized 50,000,000 shares,
issued and outstanding
2,000,000 shares; $ 2,000 $ 3,000
Preferred stock, $.001 par value;
authorized 5,000,000 shares,
issued and outstanding -0-.
Additional paid-in capital $ 18,000 $117,000
Deficit accumulated during
the development period $ 0 $ 0
-------- --------
Total stockholders' equity $ 20,000 $120,000
-------- --------
Total capitalization $ 20,000 $120,000
======== ========
PROPOSED BUSINESS
History and Organization
- ------------------------
We were organized under the laws of the State of Delaware on September 28,
1999. Since inception, our primary activity has been directed to organizational
efforts and obtaining initial financing. We were formed as a vehicle to pursue a
business combination. We have not engaged in any preliminary efforts intended to
identify a possible business combination and have neither conducted
negotiations, nor entered into a letter of intent concerning any target
business.
Our initial public offering will comprise 1,000,000 units, each consisting
of one share of common stock and five redeemable common stock purchase warrants
at a purchase price of $0.10 per unit. We are filing the registration statement
in order to effect a public offering for our securities. (See "Description of
Securities.")
Plan of Operation
- -----------------
We were organized to create a corporate vehicle to seek, investigate and,
if such investigation warrants, to acquire a target company or business which
desires to employ our funds and the potential funds from the exercise of our
warrants in its business or to seek the perceived advantages of a publicly-held
corporation. Our principal business objective will be to seek long-term growth
potential through the acquisition of a business rather than to seek immediate,
short-term earnings. We will not restrict our search to any specific business,
industry or geographical location, and we may acquire any type of business.
22
<PAGE>
We do not currently engage in any business activities which provide cash
flow. The costs of identifying, investigating and analyzing business
combinations will be paid with money in our treasury. Persons purchasing units
in the offering and other stockholders will most likely not have the opportunity
to participate in any of these decisions. We are sometimes referred to as a
"blank check" company because investors will entrust their investment monies to
our management without having a chance to analyze any ultimate use to which
their money may be put. Although substantially all of the proceeds of the
offering are intended to be utilized generally to effect a business combination,
such proceeds are not otherwise being designated for any specific purposes.
Pursuant to Rule 419, investors will have an opportunity to evaluate the
specific merits or risks of only the business combination our management decides
to enter into. Cost overruns will be borne equally by all current stockholders.
Based on an oral agreement with current stockholders, cost overruns will be
funded through current stockholders' voluntary contribution of capital.
We may seek a business combination in the form of entities which have
recently commenced operations, are developing companies in need of additional
funds for expansion into new products or markets, are seeking to develop a new
product or service, or are established businesses which may be experiencing
financial or operating difficulties and are in need of additional capital. A
business combination may involve the acquisition of, or merger with, a company
which does not need substantial additional capital, but which desires to
establish a public trading market for its shares, while avoiding what it may
deem to be adverse consequences of undertaking a public offering itself, such as
time delays, significant expense, loss of voting control and compliance with
various Federal and State securities laws.
Under Rule 419, we cannot acquire a target business unless its fair value
represents 80% of the offering proceeds, including the aggregate exercise price
of the warrants which are part of the units. To determine the fair market value
of a target business, our management will examine the audited financial
statements (including balance sheets and statements of cash flow and
stockholders' equity) of any candidate, focusing attention on its assets,
liabilities, sales and net worth. In addition, our management will participate
in a personal inspection of any potential target business. If we determine that
the financial statements of a proposed target business do not clearly indicate
that its fair value represents 80% of the offering proceeds, we will obtain an
opinion from an investment banking firm which is a member of the National
Association of Securities Dealers, Inc. with respect to the satisfaction of
such criteria. (See "Investors' Rights and Substantive Protection Under Rule
419.")
Based upon our management's knowledge of blank check companies, the
probable desire on the part of the owners of target businesses to assume voting
control (to avoid tax consequences or to have complete authority to manage the
business) will almost assure that we will combine with just one target business.
Our management also anticipates that the consummation of a business combination
will result in a change in control which will most likely result in the
resignation or removal of our present officers and directors.
None of our officers or directors have had any preliminary contact or
discussions with any representative of any other entity regarding a business
combination. Accordingly, any target business that is selected may be a
financially unstable company or an entity in its early stage of development or
growth (including entities without established records of sales or earnings). In
that event, we will be subject to numerous risks inherent in the business and
operations of financially unstable and early stage or potential emerging growth
companies. In addition, we may affect a business combination with an entity in
an industry characterized by a high level of risk, and, although our management
will endeavor to evaluate the risks inherent in a particular target business,
there can be no assurance that we will properly ascertain or assess all
significant risks. (See "High Risk Factors #9 -- Unspecified Industry and
Acquired Business; Unascertained Risks.")
23
<PAGE>
Our management anticipates that it may be able to effect only one business
combination, due primarily to our limited financing, and the dilution of
interest for present and prospective stockholders, which is likely to occur as a
result of our management's plan to offer a controlling interest to a target
business in order to achieve a tax-free reorganization. This lack of
diversification should be considered a substantial risk in investing in us
because it will not permit us to offset potential losses from one venture
against gains from another. (See "High Risk Factors #17 -- Lack of
Diversification.")
We anticipate that the selection of a business combination will be complex
and extremely risky. Because of general economic conditions, rapid technological
advances being made in some industries and shortages of available capital, our
management believes that there are numerous firms seeking even the limited
additional capital which we will have and/or the benefits of a publicly traded
corporation. Such perceived benefits of a publicly traded corporation may
include facilitating or improving the terms on which additional equity financing
may be obtained, providing liquidity for the principals of a business, creating
a means for providing incentive stock options or similar benefits to key
employees, providing liquidity (subject to restrictions of applicable statutes)
for all stockholders and other benefits. Potentially available business
combinations 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.
Evaluation of Business Combinations
- -----------------------------------
Our officers and directors will analyze or supervise the analysis of
business combinations. None of our officers and directors is a professional
business analyst. (See "Management.") Our management intends to concentrate on
identifying preliminary prospective business combinations which may be brought
to its attention through present associations. In analyzing prospective business
combinations, our management will consider such matters as the following:
+ available technical, financial, and managerial resources,
+ working capital and other financial requirements,
+ history of operations, if any,
+ prospects for the future,
+ nature of present and expected competition,
+ the quality and experience of management services which may be available
and the depth of that management,
+ the potential for further research, development, or exploration,
+ specific risk factors not now foreseeable but which then may be anticipated
to impact on our proposed activities,
+ the potential for growth or expansion,
+ the potential for profit,
+ the perceived public recognition or acceptance or products, services, or
trades and
+ name identification and other relevant factors.
24
<PAGE>
Our officers and directors will meet personally with management and key
personnel of the target business as part of their investigation. To the extent
possible, we intend to utilize written reports and personal investigation to
evaluate relevant factors.
Since we will be subject to Section 13 or 15 (d) of the Securities Exchange
Act, we will be required to furnish information about significant acquisitions,
including audited financial statements for the target company, covering one, two
or three years depending upon the relative size of the acquisition.
Consequently, acquisition prospects that do not have or are unable to obtain the
required audited statements may not be appropriate for acquisition so long as
the reporting requirements of the Securities Exchange Act are applicable. In the
event our obligation to file periodic reports is suspended under Section 15(d)
of that act, we intend on voluntarily filing such reports.
We anticipate that any business combination will present certain risks. We
may not be able adequately to identify many of these risks prior to selection;
and investors herein must, therefore, depend on the ability of our management to
identify and evaluate these risks. We anticipate that the principals of some of
the combinations which will be available to us were unable to develop a going
concern or that such business is in its development stage in that it has not
generated significant revenues from its principal business activity. The risk
exists that even after the consummation of such a business combination and the
related expenditure of our funds, and proceeds, if any, from warrant exercise,
that the combined enterprise will still be unable to become a going concern or
advance beyond the development stage. Many of the potential business
combinations may involve new and untested products, processes, or market
strategies. We may assume such risks although they may adversely impact on our
stockholders because we consider the potential rewards to outweigh them.
Business Combinations
- ---------------------
In implementing a structure for a particular business acquisition, we may
become a party to a merger, consolidation, reorganization, joint venture, or
licensing agreement with another corporation or entity. We may alternatively
purchase stock or assets of an existing business.
Any merger or acquisition can be expected to have a significant dilutive
effect on the percentage of shares held by our existing stockholders, including
purchasers in the offering. The target business we consider will, in all
probability, have significantly more assets than we do. Therefore, in all
likelihood, our management will offer a controlling interest in our company to
the owners of the target business. While the actual terms of a transaction to
which we may be a party cannot be predicted, we expect that the parties to the
business transaction will find it desirable to avoid the creation of a taxable
event and thereby structure the acquisition in a so-called "tax-free"
reorganization under Sections 368(a)(1) or 351 of the Internal Revenue Code. In
order to obtain tax-free treatment under the Internal Revenue Code, the owners
of the acquired business may need to own 80% or more of the voting stock of the
surviving entity. In such event, our stockholders, including investors in
the offering, would retain 20% or less of the issued and outstanding shares of
the surviving entity, which would result in significant dilution in percentage
of the entity after the combination, and may also result in a reduction in the
net tangible book value per share of our investors. Our management may choose to
avail ourselves of these provisions. In addition, a majority or all of our
directors and officers will probably, as part of the terms of the acquisition
transaction, resign as directors and officers. (See "High Risk Factors #1 --
Anticipated Change in Control and Management," High Risk Factors #19 --
Taxation" and "Dilution.")
25
<PAGE>
Our management will not actively negotiate or otherwise consent to the
purchase of any portion of their common stock as a condition to or in connection
with a proposed business combination, unless such a purchase is demanded by the
principals of the target company as a condition to a merger or acquisition. Our
officers and directors have agreed to this restriction which is based on an oral
understanding between members of our management. Members of our management are
unaware of any circumstances under which such policy, through their own
initiative, may be changed. (See "Management").
The issuance of substantial additional securities and their potential sale
into any trading market which may develop in our common stock may have a
depressive effect on our trading market.
As a part of the our investigation, our officers and directors will meet
personally with management and key personnel, 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 our limited financial
resources and management expertise.
The structure of the business combination will depend on, among other
factors:
+ the nature of the target business,
+ our needs and desires and the needs and desires of those persons
controlling of the target business,
+ the management of the target business and
+ our relative negotiating strength compared to the strength of the persons
controlling the target business.
If at any time prior to the completion of the offering, we enter
negotiations with a possible acquisition candidate and such a transaction
becomes probable, we will suspend the offering and file an amendment to the
registration statement which will include financial statements (including
balance sheets, statements of cash flow and stockholders' equity) of the
proposed target.
We will not purchase the assets of any company of which a majority of the
outstanding capital stock is beneficially owned by one or more or our officers,
directors, promoters or affiliates or associates. Furthermore, we intend to
adopt a procedure whereby a special meeting of our stockholders will be called
to vote upon a business combination with an affiliated entity, and stockholders
who also hold securities of such affiliated entity will be required to vote
their shares of stock in the same proportion as our publicly held shares are
voted. (See "High Risk Factors #12 -- Potential Related Party Business
Combination.") Our officers and directors have not approached and have not been
approached by any person or entity with regard to any proposed business venture
which desires to be acquired by us. We will evaluate all possible business
combinations brought to us. If at any time a business combination is brought to
us by any of our promoters, management, or their affiliates or associates,
disclosure as to this fact will be included in the post-effective amendment to
the registration statement, thereby allowing the public investors the
opportunity to evaluate the business combination before voting to reconfirm
their investment.
We have adopted a policy that we will not pay a finder's fee to any member
of management for locating a merger or acquisition candidate. No member of
management intends to or may seek and negotiate for the payment of finder's
fees. In the event there is a finder's fee, it will be paid at the direction of
the successor management after a change in management control resulting from a
business combination. Our policy regarding finder's fees is based on an oral
agreement among management. Our management is unaware of any circumstances under
which such policy through their own initiative may be changed.
26
<PAGE>
We will remain an insignificant player among the firms which engage in
business combinations. There are many established venture capital and financial
concerns which have significantly greater financial and personnel resources and
technical expertise than we will. In view of our combined limited financial
resources and limited management availability, we will continue to be at a
significant competitive disadvantage compared to our competitors. Also, we will
be competing with a number of other small, blank check public and shell
companies.
We do not intend to advertise or promote ourselves to potential target
businesses. Instead, our management intends actively to search for potential
target businesses among its associates. In the event our management decides to
advertise in a business publication to attract a target business, which is not
contemplated, our management will assume the cost of such advertising.
Regulation
----------
The Investment Company Act defines an "investment company" as an issuer
which is or holds itself out as being engaged primarily in the business of
investing, reinvesting or trading of securities. While we do not intend to
engage in such activities, we could become subject to regulations under the
Investment Company Act in the event we obtain or continue to hold a minority
interest in a number of enterprises. We could be expected to incur significant
registration and compliance costs if required to register under the Investment
Company Act. Accordingly, our management will continue to review our activities
from time to time with a view toward reducing the likelihood we could be
classified as an "Investment Company." (See "High Risk Factors #18 --
Regulation.")
Employees
- ---------
We presently have no employees. Our President/Treasurer and Secretary are
engaged in outside business activities and they anticipate that they each will
devote to the our business only between five and twenty hours per week until the
acquisition of a successful business opportunity has been consummated.
Facilities
- ----------
We are presently using the office of our President, Barney Magnusson, at no
cost as our office, an arrangement which we expect to continue until the
completion of the offering. At the completion of the offering and until a
business combination is consummated, we anticipate paying rent of $500 per
month. We presently do not own any equipment, and do not intend to purchase or
lease any equipment prior to or upon completion of the offering.
Year 2000 Issues
- ----------------
We currently have no operations and do not own or lease any equipment. As a
consequence, we do not anticipate incurring significant expense with regard to
Year 2000 issues.
27
<PAGE>
MANAGEMENT
Our officers and directors and further information concerning them are as
follows:
Name Age Position
- --------------------------------------------------------------------------------
Barney Magnusson(1)(2) 48 President, Treasurer
950 - 11th Street, and a Director
West Vancouver,
British Columbia V7T 2M3
Leslie McGuffin(1)(2) 47 Secretary and a
950 - 11th Street, Director
West Vancouver,
British Columbia V7T 2M3
- --------------------
(1) May be deemed our "Promoters" as that term is defined under the Securities
Act.
(2) Barney Magnusson and Leslie McGuffin are husband and wife.
Barney Magnusson recently became Chief Financial Officer and Secretary of
CST Coldswitch Technologies Inc., a Vancouver - based private technology company
developing platform photonic fiber optic technology. From 1996 to 1998, he was
Vice-President, Corporate Development, Chief Financial Officer and Director of
Patricia Mines Inc., a Toronto - based mining company, listed on the Vancouver
Stock Exchange, the major asset of which was the Island Gold Project located
near Hemlo, Ontario. From 1994 to 1995, Mr. Magnusson was a Principal of ADX
Trading Group, a financial derivative and stock trading enterprise. That
company's activities included trading futures, options on futures and stocks and
stock trading together with system design, testing and implementation for other
parties. From 1985 to 1993, he was Chief Financial Officer, Secretary/Treasurer
and Director of Dayton Mines Inc., based in Vancouver, British Columbia and
listed on both the Toronto Stock Exchange and American Stock Exchange. Dayton
Mines operated a mine in Chile that produced 140,000 ounces of gold per year.
From 1986 to 1988, Mr. Magnusson was Vice-President Finance and Director of High
River Gold Mines Ltd., a Vancouver based mining company listed on the Toronto
Stock Exchange, with a 50% interest in the Brittania Mine, Manitoba that
produced 80,000 ounces of gold per year. From 1982 to 1985, he was Chief
Financial Officer and Director of Brohm Resources Inc., based in Vancouver,
British Columbia, and listed on the Toronto Stock Exchange, which was the
predecessor to Dakota Mining Inc., headquartered in Denver, Colorado. Brohm
operated the Gilt Edge Mine in South Dakota. In 1981, he was Principal of
Venture Capital Associates, a Vancouver based venture capital firm that focused
on start-up companies. In 1981, he was Controller of First City Developments
Inc., a Vancouver based international real estate company owned by First City
Trust. Mr. Magnusson received his Bachelor of Arts from Simon Fraser University,
Vancouver, British Columbia in 1978. He is a Chartered Accountant and a Member
of the Canadian Institute of Chartered Accountants and Institute of the
Chartered Accountants of British Columbia.
Leslie McGuffin has been President of Western Legal Publications, a
Vancouver - based law publishing company, since 1995. From 1991 to 1995, she was
Legal Information Systems Coordinator for Ladner Downs, Barristers and
Solicitors in Vancouver, British Columbia. Ms. McGuffin served as Managing
Director of British Columbia International Commercial Arbitration Centre,
located in Vancouver, British Columbia, from 1988 to 1989. From 1981 to 1988,
she was Managing Editor of Carswell Legal Publications, Vancouver, B.C. Ms.
McGuffin received her Bachelor of Laws from the University of Alberta, Canada
and her Bachelor of Arts with Honors from Trinity College, University of
Toronto, Canada.
28
<PAGE>
Conflicts of Interest
- ---------------------
No member of our management is currently affiliated or associated with any
blank check company. Our management does not currently intend to promote other
blank check entities. However, our management may become involved with the
promotion of other blank check companies in the future. A potential conflict of
interest may occur in the event of such involvement. (See "High Risk Factors #11
- -- Conflicts of Interest With Other Enterprises.")
Remuneration
- ------------
None of our officers or directors has received any cash remuneration since
our inception. Our president will receive $500 per month upon completion of the
offering until the consummation of an acquisition. No remuneration of any nature
has been paid for or on account of services rendered by a director in such
capacity. None of the officers and directors intends to devote more than 20
hours a week of his or her time to our affairs.
Management Involvement
- ----------------------
We have conducted no business as of yet, aside from raising initial funding
associated with our offering. After the closing of the offering, our management
intends to contact business associates and acquaintances to search for target
businesses and then will consider and negotiate with target businesses until an
acquisition agreement is entered into. Our management has not divided these
duties among its members. No member of management has any distinct influence
over the other in connection with their participation in our affairs.
Management Control
- ------------------
Our management may not divest themselves of ownership of our shares of
common stock prior to the consummation of an acquisition or merger transaction.
This policy is based on an unwritten agreement among management. Management is
not aware of any circumstances under which such policy, through their own
initiative, may be changed.
STATEMENT AS TO INDEMNIFICATION
Section 145 of the Delaware General Corporation Law provides for
indemnification of our officers, directors, employees and agents. Under Article
XI of our by-laws, we will indemnify and hold harmless to the fullest extent
authorized by the Delaware General Corporation Law, any of our directors,
officers, agents or employees, against all expense, liability and loss
reasonably incurred or suffered by such person in connection with activities on
our behalf. Complete disclosure of relevant sections of our certificate of
incorporation and by-laws is provided in Part II of the registration statement.
This information can also be examined as described in "Further Information."
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers or control persons pursuant to the
foregoing provisions, we have been informed that in the opinion of the SEC such
indemnification is against the public policy as expressed in the Securities Act
and is, therefore, unenforceable.
29
<PAGE>
MARKET FOR THE OUR COMMON STOCK
Prior to the date of the prospectus, no trading market for the our common
stock has existed. Pursuant to the requirements of Rule 15g-8 of the Securities
Exchange Act, a trading market will not develop prior to or after the
effectiveness of the registration statement while certificates representing the
shares of common stock and warrants which constitute the units remain in escrow.
These stock and warrant certificates must remain in escrow until the
consummation of a business combination and its confirmation by our investors
pursuant to Rule 419. There are currently thirteen holders of our outstanding
common stock which was purchased in reliance upon an exemption from registration
contained in Section 4(2) of the Securities Act. All purchasers were
sophisticated investors. Current stockholders will own at least 66.7% of the
outstanding shares upon completion of the offering and will own a greater
percentage of the outstanding shares if they purchase units in the offering. We
can offer no assurance that a trading market will develop upon the consummation
of a business combination and the subsequent release of the stock and warrant
certificates from escrow. To date, neither we nor anyone acting on our behalf
has taken any affirmative steps to retain or encourage any broker-dealer to act
as a market maker for our common stock. Further, we have not entered into any
discussions, or understandings, preliminary or otherwise, through our management
or through anyone acting on our behalf and any market maker concerning the
participation of a market maker in the future trading market, if any, for our
common stock. (See "High Risk Factors #8 -- No Assurance of a Public Market" and
High Risk Factors #23 -- Control by Present Management and Shareholders.")
Present management does not anticipate that it will undertake any such
negotiations or discussions prior to the execution of an acquisition agreement.
Our management expects that discussions in this area will ultimately be
initiated by the party or parties controlling the entity or assets which we may
acquire. Such party or parties may employ consultants or advisors to obtain such
market makers but our management has no present intention of doing so.
We have not issued any options or warrants to purchase, or securities
convertible into, our common equity. The 2,000,000 shares of our common stock
currently outstanding are "restricted securities" as that term is defined in the
Securities Act. Pursuant to Rule 144 of the Securities Act, the holders of the
restricted securities may each sell during any three (3) month period after
September 30, 2000 an amount equal to the greater of one (1%) percent of our
issued and outstanding common stock or one week's trading volume. Therefore, if
we sell all the units being offered, those holders may each sell no less than
30,000 shares (i.e. 1% of 3,000,000 shares) during any three (3) month
period.(See "High Risk Factors # 31 -- Requirements of Current Prospectus and
State Blue Sky Registration in Connection with the Exercise of the Warrants
Which May Not Be Exercisable and May Therefore Be Valueless." .) We are offering
1,000,000 units (each consisting of one share of common stock and five common
stock purchase warrants) at $0.10 per unit. (See "Dilution.")
CERTAIN TRANSACTIONS
We were incorporated in the State of Delaware on September 28, 1999.
Between September 28, 1999 and September 30, 1999, we sold 2,000,000 shares of
our common stock to thirteen persons at $.01 per share, for a total of $20,000.
PRINCIPAL STOCKHOLDERS
The table on the following page sets forth certain information regarding
the beneficial ownership of our common stock as of the date of the prospectus,
and as adjusted to reflect the sale of the units in the offering, by (i) each
person who is known by us to own beneficially more than 5% of our outstanding
Common Stock; (ii) each of our officers and directors; and (iii) all of our
directors and officers as a group.
31
<PAGE>
Name/Address Shares of
Beneficial Common Stock Percent of Percent of
Owner Beneficially Class Owned Class Owned
Offering Owned Before Offering After Offering
- --------------------------------------------------------------------------------
Barney Magnusson(1)(2) 200,000 10.0% 6.7%
950 11th Street
West Vancouver
British Columbia
V7T 2M3 Canada
Leslie McGuffin(1)(2) 50,000 2.5% 1.7%
950 11th Street
West Vancouver
British Columbia
V7T 2M3 Canada
Tradewinds Investments Ltd. 190,000 9.5% 6.3%
Shirley House
50 Shirley Street
Nassau, Bahamas
Turf Holding Ltd. 190,000 9.5% 6.3%
Oakridge House
5 West Hill Street
Nassau, Bahamas
CCD Consulting, 190,000 9.5% 6.3%
Commerce Distribution AG
Glockengasse 4
Postfach 1220
4001 Basel
Switzerland
The Pembridge
Capital Establishment 180,000 9.0% 6.0%
P. O. Box 1617
Meierhofstrasse 5
Vadus FL-9490
Liechtenstein
Seloz Gestion & Finance SA 190,000 9.5% 6.3%
Boulevard St. Georges 71
1211 Geneva 4
Switzerland
HAPI Handels und
Beteiligungsqesellschaft mbh 110,000 5.5% 3.7%
Easlinggasse 2
1010 Vienna
Austria
Partner Marketing AG 190,000 9.5% 6.3%
Landweg 1
6052 Hergiswil
Switzerland
U. K. Menon 190,000 9.5% 6.3%
28, Jalar 17/21 C
Peteling Jaya
Selangor
Malaysia
Otto Zimmerli 190,000 9.5% 6.3%
Poststrasse 2
9050 Appenzil
Switzerland
Noreldin Siam 110,000 5.5% 3.7%
Sandyport Drive 49
Nassau
Bahamas
Total Officers 250,000 12.5% 8.3%
and Directors
(2 Persons)
- --------------------------
(See footnotes on following page.)
32
<PAGE>
(1) May be deemed "Promoters" as that term is defined under the Securities Act.
(2) Barney Magnusson and Leslie McGuffin are husband and wife. They disclaim
ownership of each other's shares.
None of the current stockholders have received or will receive any extra or
special benefits that were not shared equally by all holders of shares of our
common stock.
Prior Blank Check Companies
- ----------------------------
None of our officers, directors, founders, promoters or principal
stockholders has been involved as a principal of a "blank check" company.
DESCRIPTION OF SECURITIES
Common Stock
- ------------
We are authorized to issue 50 million shares of common stock, $.001 par
value per share, of which 2,000,000 shares are issued and outstanding as of the
date of the prospectus. Each outstanding share of common stock is entitled to
one vote, either in person or by proxy, on all matters that may be voted upon by
their holders at meetings of the stockholders.
Holders of our common stock (i) have equal ratable rights to dividends from
funds legally available therefor, if declared by our board of directors; (ii)
are entitled to share ratably in all of our assets available for distribution to
holders of common stock upon our liquidation, dissolution or winding up; (iii)
do not have preemptive, subscription or conversion rights, or redemption or
sinking fund provisions; and (iv) are entitled to one non-cumulative vote per
share on all matters on which stockholders may vote at all meetings of our
stockholders.
All shares of our common stock which are part of the units, or which
underlie the warrants, will be fully paid for and non-assessable when issued,
with no personal liability attaching to ownership. The holders of shares of our
common stock do not have cumulative voting rights, which means that the holders
of more than 50% of outstanding shares voting for the election of directors can
elect all of our directors if they so choose and, in such event, the holders of
the remaining shares will not be able to elect any of our directors. At the
completion of the offering, the present officers and directors and present
stockholders will beneficially own at least 66.7% of the outstanding shares of
common stock and a greater percentage of shares if they purchase units in the
offering. Accordingly, after completion of the offering, our present
stockholders will be in a position to control all of our affairs.
Preferred Stock
- ---------------
Up to 5,000,000 shares of our preferred stock may be issued from time to
time in one or more series. As of the date of the prospectus, no shares of
preferred stock have been issued. Our board of directors, without further
approval of our stockholders, is authorized to fix the dividend rights and
terms, conversion rights, voting rights, redemption rights, liquidation
preferences and other rights and restrictions relating to any such series.
Issuances of additional shares of preferred stock, while providing flexibility
in connection with possible financings, acquisitions and other corporate
purposes, could, among other things adversely affect the voting power of the
holders of other our securities and may, under certain circumstances, have the
effect of deterring hostile takeovers or delaying changes in control or
management.
Redeemable Common Stock Purchase Warrants
- -----------------------------------------
The warrants which are part of the units shall be exercisable for a period
of two years commencing the date of the prospectus. Each warrant entitles the
holder to purchase one share of our common stock at an exercise price of $1.00.
The common stock underlying the warrants will, upon exercise of the warrants, be
validly issued, fully paid and non-assessable. The warrants will be subject to
redemption, at any time, for $0.001 per warrant, upon 30 days' prior written
notice, if the closing bid price of our common stock, as reported by the market
on which the common stock trades, exceeds $1.25 per share for any twenty
consecutive trading days ending within ten days prior to the date of the notice
of redemption.
33
<PAGE>
The warrants can only be exercised when there is a current effective
registration statement covering the underlying shares of common stock. If we do
not obtain or are unable to maintain a current effective registration statement,
warrantholders will be unable to exercise them and they may become valueless.
Moreover, if the shares of common stock underlying the warrants are not
registered or qualified for sale in the state in which a warrantholder resides,
such holder might not be permitted to exercise any warrants. (See "High Risk
Factors #31 -- Requirements of Current Prospectus and State Blue Sky
Registration in Connection with the Exercise of the Warrants Which May Not Be
Exercisable and May Therefore Be Valueless.")
We will deliver warrant certificates representing five warrants for each
unit purchased, subject to the escrow provisions under which certificates
representing the warrants will be held in escrow until we enter into an
acquisition agreement with the owners of a target company, the effective date of
a reconfirmation offer and a favorable vote of our stockholders. Thereafter,
warrant certificates may be exchanged for new certificates of different
denominations, and may be exercised or transferred. Holders of warrants may sell
them if a market exists rather than exercise them. However, we can offer no
assurance that a market will develop or continue as to the warrants. If we are
unable to qualify our common stock underlying the warrants for sale in certain
states, holders of the warrants in those states will have no choice but either
to sell their warrants or allow them to expire.
Warrants may be exercised by surrendering the warrant certificate, with the
form of election to purchase printed on the reverse side of the warrant
certificate properly completed and executed, together with payment of the
exercise price, to us or the warrant agent. Warrants may be exercised in whole
or from time to time in part. If less than all of the warrants evidenced by a
warrant certificate are exercised, a new warrant certificate will be issued for
the remaining number of unexercised warrants.
Warrantholders are protected against dilution of the equity interest
represented by the underlying shares of common stock upon the occurrence of
certain events, including, but not limited to, issuance of stock dividends. If
we merge, reorganize or are acquired in such a way as to terminate the warrants,
they may be exercised immediately prior to such action. In the event of
liquidation, dissolution or winding up, holders of the warrants are not entitled
to participate in our assets.
For the life of the warrants, holders are given the opportunity to profit
from a rise in the market price of our common stock. The exercise of the
warrants will result in the dilution of the then book value of our common stock
and would result in a dilution of the percentage ownership of then existing
stockholders. The terms upon which we may obtain additional capital may be
adversely affected through the period in which the warrants remain exercisable.
The holders of these warrants may be expected to exercise them at a time when we
would, in all likelihood, be able to obtain equity capital on terms more
favorable than those provided for by the warrants.
In the event that we call the warrants for redemption, warrantholders may
not be able to exercise their warrants if we have not updated the prospectus in
accordance with the requirements of the Securities Act or the warrants have not
been qualified for sale under the laws of the state where the warrantholder
resides. (See "High Risk Factors #31 -- Requirements of Current Prospectus and
State Blue Sky Registration in Connection with the Exercise of the Warrants
Which May Not Be Exercisable and May Therefore Be Valueless.") In addition, in
the event we call the warrants for redemption, such call for redemption could
force the warrantholder either to (i) assume the necessary updating to the
prospectus and state blue sky qualifications, exercise the warrants and pay the
exercise price at a time when, in the event of a decrease in market price from
the period preceding the issuance of the call for redemption, it may be less
than advantageous economically to do so, or (ii) accept the redemption price,
which, in the event of an increase in the price of the stock, would be
substantially less than the difference between the exercise price and the market
value at the time of redemption.
34
<PAGE>
Future Financing
- ----------------
In the event the proceeds of the offering are not sufficient to enable us
to successfully fund a business combination, we may seek additional financing.
At this time we believe that the proceeds of the offering will be sufficient for
such purpose and therefore do not expect to issue any additional securities
before the consummation of a business combination. However, we may issue
additional securities, incur debt or procure other types of financing if needed.
We have not entered into any agreements, plans or proposals for such financing
and as of present have no plans to do so. We will not use the escrowed funds as
collateral or security for any loan or debt incurred. Further, the escrowed
funds will not be used to pay back any loan or debts incurred by us. If we
require additional financing, there is no guarantee that such financing will be
available to us or if available that such financing will be on terms acceptable
to us. (See "Use of Proceeds.")
Reports to Stockholders
- -----------------------
We intend to furnish our stockholders with annual reports containing
audited financial statements as soon as practicable after the end of each fiscal
year. Our fiscal year ends on December 31st.
Dividends
- ---------
We have only been recently organized, have no earnings and have paid no
dividends to date. Since we were formed as a blank check company with our only
intended business being the search for an appropriate business combination, we
do not anticipate having earnings or paying dividends until a business
combination is reconfirmed by our stockholders. However, we can give no
assurance that after we consummate a business combination, we will have earnings
or issue dividends. (See "High Risk Factors #20 -- No Dividends.")
Transfer Agent
- --------------
We have appointed Olde Monmouth Stock Transfer Co., Inc., 77 Memorial
Parkway, Suite 101, Atlantic Highlands, New Jersey 07716 as transfer agent for
our shares of common stock and warrants.
PLAN OF DISTRIBUTION
Conduct of the Offering
- -----------------------
We hereby offer the right to subscribe for 1,000,000 units at $.10 per unit
on an "best efforts, all or none basis." We will not compensate any person in
connection with the offer and sale of the units.
Our President, Barney Magnusson, shall distribute prospectuses related to
the offering. We estimate that he will distribute approximately 40 to 50
prospectuses, limited to acquaintances, friends and business associates.
Barney Magnusson shall conduct the offering of the units. Although Mr.
Magnusson is an "associated person" as that term is defined in Rule 3a4-1 under
the Securities Exchange Act, he will deemed not to be a broker because: (1) he
will not be subject to a statutory disqualification as that term is defined in
Section 3(a)(39) of the Securities Exchange Act at the time of his participation
in the sale of our securities; (2) he will not be compensated in connection with
his participation in the sale of our securities by the payment of commission or
other remuneration based either directly or indirectly on transactions in
securities; (3) he will be not an associated person of a broker or dealer at the
time of his participation in the sale of our securities; and (4) he shall
restrict his participation to the following activities:
35
<PAGE>
(a) preparing any written communication or delivering it through the mails or
other means that does not involve his oral solicitation of a potential
purchaser;
(b) responding to inquiries of a potential purchaser in a communication
initiated by the potential purchaser, provided however, that the content of
each response is limited to information contained in a registration
statement filed under the Securities Act or other offering document; or
(c) performing ministerial and clerical work involved in effecting any
transaction.
As of the date of the prospectus, we have not retained a broker in
connection with the sale of the units. In the event we retain a broker who may
be deemed an underwriter, we will file an amendment to the registration
statement with the SEC. We have no present intention of using a broker.
We will not (nor will we permit anyone acting on our behalf including our
stockholders, officers, directors, promoters, affiliates or associates) approach
a market maker or take any steps to request or encourage a market in these
securities prior to an acquisition of a business opportunity. We have not
conducted any preliminary discussions or entered into any understandings with
any market maker regarding the participation of any such market maker in the
future trading market (if any) in our securities, nor do we have any plans to
engage in such discussions. We do not intend to use consultants to obtain market
makers. No member of management, promoter or anyone acting at their direction
will recommend, encourage or advise investors to open brokerage accounts with
any broker-dealer that is obtained to make a market in the shares subsequent to
the acquisition of any business opportunity. Our investors shall make their own
decisions regarding whether to hold or sell their shares. We shall not exercise
any influence over investors' decisions.
Method of Subscribing
- ---------------------
Persons may subscribe by filling in and signing the subscription agreement
and delivering it to us prior to the expiration date. Subscribers must pay $0.10
per unit in cash or by check, bank draft or postal express money order payable
in United States dollars to "Torrington Savings Bank as Escrow Agent for
Kingsgate Acquisitions, Inc." The offering is being made on a "best efforts, all
or none basis." Thus, unless all 1,000,000 units are sold, none will be sold.
Our officers, directors, current stockholders and any of their affiliates
or associates may purchase up to 50% of the units. Such purchases may be made in
order to close the "all or none" offering. Units purchased by the our officers,
directors and principal stockholders will be acquired for investment purposes
and not with a view toward distribution.
Expiration Date
- ---------------
The offering will end 90 days from the date of the prospectus.
WHERE YOU CAN FIND MORE INFORMATION
We have not previously been required to comply with the reporting
requirements of the Securities Exchange Act. We have filed with the SEC a
registration statement on form SB-2 to register the offer and sale of the units,
the shares of common stock and warrants constituting the units and the shares of
common stock underlying the warrants. The prospectus is part of the registration
statement, and, as permitted by the SEC's rules, does not contain all of the
information in the registration statement. For further information about us and
the securities offered under the prospectus, you may refer to the registration
statement and to the exhibits and schedules filed as a part of this registration
statement. You can review the registration statement and its exhibits at the
public reference facility maintained by the SEC at Judiciary Plaza, Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of
the SEC at 7 World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference room. The registration statement is also available electronically on
the World Wide Web at http://www.sec.gov.
36
<PAGE>
You can also call or write us at any time with any questions you may have.
We would be pleased to speak with you about any aspect of our business and the
offering.
LEGAL PROCEEDINGS
We not a party to nor are we aware of any existing, pending or threatened
lawsuits or other legal actions.
LEGAL MATTERS
Roger L. Fidler, Esq., 163 South Street, Hackensack, New Jersey 07601 is
passing upon the validity of the shares of common stock and the warrants
constituting the units offered by the prospectus and the shares of common stock
underlying the warrants. Mr. Fiddler owns 20,000 shares of our common stock.
FINANCIAL STATEMENTS
The following are our financial statements, with independent auditor's
report, for the period from inception, September 28, 1999, to September 30,
1999.
37
<PAGE>
REPORT OF INDEPENDENT AUDITOR
To The Board of Directors and Shareholders
of Kingsgate Acquisitions, Inc. (a development stage company)
I have audited the accompanying balance sheet of Kingsgate Acquisitions,
Inc. (a development stage company) as of September 30, 1999, and the related
statements of operations, changes in stockholders' equity, and cash flows for
the period from inception, September 28, 1999, through September 30, 1999. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I 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 and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Kingsgate Acquisitions, Inc.
(a development stage company) as of September 30, 1999, and the related
statements of operations, changes in stockholders' equity, and cash flows for
the period from inception, September 28, 1999, through September 30, 1999 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
Kingsgate Acquisitions, Inc. (a development stage company) will continue as a
going concern. As more fully described in Note 2, the Company is a blank check
company that is dependent upon the success of management to successfully
complete a self underwriting and locate a potential business to acquire and may
require additional capital to enter into any business combination. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans as to these matters are described in Note 2.
The financial statements do not include any adjustments to reflect the possible
effects on the recoverability and classification of assets or the amounts and
classifications of liabilities that may result from the possible inability of
Kingsgate Acquisitions, Inc. (a development stage company) to continue as a
going concern.
/s/Thomas Monahan
----------------------------
THOMAS MONAHAN
Certified Public Accountant
Paterson, New Jersey
October 11, 1999
F-1
<PAGE>
KINGSGATE ACQUISITIONS, INC.
(A development stage company)
BALANCE SHEET
September 30, 1999
ASSETS
Current assets
Cash $ 20,000
Organization costs, Net 500
----------
Total $ 20,500
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accrued liabilities $ 500
---------
Total current liabilities $ 500
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value;
5,000,000 shares authorized;
-0- shares issued and outstanding
Common stock, $.001 par value;
50,000,000 shares authorized;
2,000,000 shares issued and outstanding $ 2,000
Additional paid-in capital 18,000
Deficit accumulated during the
development stage 0
---------
Total stockholders equity $ 20,000
---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 20,500
=========
See notes to financial statements.
F-2
<PAGE>
KINGSGATE ACQUISITIONS, INC.
(A development stage company)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION, SEPTEMBER 28, 1999, TO SEPTEMBER 30, 1999
Income $-0-
Costs of goods sold -0-
---
Gross profit -0-
Operations:
General and administrative -0-
Depreciation and Amortization -0-
---
Total costs -0-
Net profit (loss) $-0-
====
PER SHARE AMOUNTS:
Net profit (loss) per common
share outstanding - basic $ 0.00
====
SHARES OF COMMON STOCK OUTSTANDING 2,000,000
=========
See notes to financial statements.
F-3
<PAGE>
KINGSGATE ACQUISITIONS, INC.
(A development stage company)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM SEPTEMBER 28, 1999 (INCEPTION) THROUGH SEPTEMBER 30, 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ 0
Item not affecting cash flow from operations:
Amortization 0
Accrued expenses 500
------
NET CASH USED IN OPERATING ACTIVITIES 500
CASH FLOWS FROM INVESTING ACTIVITY:
Organization costs incurred (500)
-----
CASH USED IN INVESTING ACTIVITIES (500)
CASH FLOWS FROM FINANCING ACTIVITY:
Sales of common stock 20,000
-------
TOTAL CASH FLOWS FROM FINANCING ACTIVITIES 20,000
Increase (decrease) in cash 20,000
Cash balance beginning of period -0-
------
CASH, end of period $ 20,000
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ -
Cash paid for income taxes $ -
See notes to financial statements.
F-4
<PAGE>
KINGSGATE ACQUISITIONS, INC.
(A development stage company)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deficit
accumulated
Additional during
Preferred Preferred Common Common paid in development
stock stock stock stock capital stage Total
(shares) ($) (shares) ($) ($) ($) ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sale of 2,000,000
shares of
common stock 0 $ 0 2,000,000 $ 2,000 $ 18,000 $ 20,000
Net profit (loss) $ 0 0
- ------------------------------------------------------------------------------------------------------
Balance
September 30,1999 0 $ 0 2,000,000 $ 2,000 $ 18,000 $ 0 $ 20,000
</TABLE>
See notes to financial statements.
F-5
<PAGE>
KINGSGATE ACQUISITIONS, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM SEPTEMBER 28, 1999 (INCEPTION) THROUGH SEPTEMBER 30, 1999
NOTE 1 - ORGANIZATION AND DESCRIPTION OF THE COMPANY
Kingsgate Acquisitions, Inc. (the "Company"), was organized in Delaware on
September 28, 1999 and is authorized to issue 50,000,000 shares of common stock,
$0.001 par value each and 5,000,000 shares of preferred stock, $0.001 par value
each.
The Company is a "blank check" company which plans to search for a suitable
business to merge with or acquire. Operations since incorporation have consisted
primarily of obtaining capital contributions by the initial investors and
activities regarding the SEC registration of the offering.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company is a blank check
company that is dependent upon the success of management to successfully
complete a self underwriting and locate a potential business to acquire and may
require additional capital to enter into any business combination. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. The Company is dependent upon its ability to have positive cash
flows from operations to sustain any business activity. The Company's future
capital requirements will depend on numerous factors including, but not limited
to, continued progress in completing its self underwritten offering, finding a
business to acquire, completing the process of acquiring the business and
obtaining the needed investment capital and working capital to engage in
profitable operations. The Company plans to engage in such financing efforts on
a continuing basis.
The financial statements presented consist of the balance sheet of the
Company as at September 30, 1999 and the related statements of operations and
cash flows and stockholders' equity for period from inception, September 28,
1999, to September 30, 1999.
Deferred Offering Costs
Deferred offering costs, incurred in anticipation of the Company filing a
registration statement pursuant to Rule 419 under the Securities Act of 1933, as
amended, are being deferred until the registration is complete.
Organization Costs, Net
Organization costs are being amortized over a period of 60 months.
Accumulated amortization as of September 30, 1999, was $-0-.
F-6
<PAGE>
Income Taxes
The Company accounts for income taxes in accordance with the Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
requires the recognition of deferred tax liabilities and assets at currently
enacted tax rates for the expected future tax consequences of events that have
been included in the financial statements or tax returns. A valuation allowance
is recognized to reduce the net deferred tax asset to an amount that is more
likely than not to be realized. The tax provision shown on the accompanying
statement of operations is zero since the deferred tax asset generated from the
net operating loss is offset in its entirety by a valuation allowance. State
minimum taxes will be expensed as incurred.
Cash and Cash Equivalents
Cash and cash equivalents, if any, include all highly liquid debt
instruments with an original maturity of three months or less at the date of
purchase.
Fair Value of Financial Instruments
Cash, accounts payable and other current liabilities are recorded in the
financial statements at cost, which approximates fair market value because of
the short-term maturity of those instruments.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Significant Concentration of Credit Risk
At September 30, 1999, the Company has a concentration of its credit risk
by maintaining deposits in one bank. The maximum loss that could have resulted
from this risk totaled $-0- which represents the excess of the deposit
liabilities reported by the banks over the amounts that would have been covered
by the federal insurance.
NOTE 3 - STOCKHOLDERS' EQUITY
Common Stock
For the period from inception, September 28, 1999, to September 30, 1999,
the Company sold an aggregate of 2,000,000 shares of common stock to thirteen
investors for an aggregate consideration of $20,000 or $0.01 per share.
Preferred Stock
Up to 5,000,000 shares of preferred stock may be issued from time to time
in one or more series. The Company's board of directors, without further
stockholder approval, is authorized to fix the dividend rights and terms,
conversion rights, voting rights, redemption rights, liquidation preferences and
other rights and restrictions relating to any such series. Issuances of
additional shares of preferred stock, while providing flexibility in connection
with possible financings, acquisitions and other corporate purposes, could,
among other things adversely affect the voting power of the holders of other
securities and may, under certain circumstances, have the effect of deterring
hostile takeovers or delaying changes in control or management.
The number of shares of preferred stock outstanding at September 30, 1999
is 0.
F-7
<PAGE>
NOTE 4 - RULE 419 REQUIREMENTS
Rule 419 requires that offering proceeds be deposited into an escrow or
trust account (the "Deposited Funds" and "Deposited Securities", respectively)
governed by an agreement which contains certain terms and provisions specified
by that rule. The Company may receive 10% of the escrowed funds for working
capital. The remaining Deposited Funds and the Deposited Securities will be
released to the Company and to the investors, respectively, only after the
Company has met the following three basic conditions. First, the Company must
execute an agreement for an acquisition meeting certain prescribed criteria.
Second, the Company must file a post-effective amendment to its registration
statement which includes the terms of a reconfirmation offer that must contain
conditions prescribed by Rule 419. The post-effective amendment must also
contain information regarding the acquisition candidate and its business,
including audited financial statements. The agreement must include, as a
condition precedent to its consummation, a requirement that the number of
investors who contributed at least 80% of the offering proceeds must elect to
reconfirm their investments. Third, the Company must conduct the reconfirmation
offer and satisfy all of the prescribed conditions. The post-effective amendment
must also include the terms of the reconfirmation offer mandated by Rule 419.
After the Company submits a signed representation to the escrow agent that the
requirements of Rule 419 have been met and after the acquisition is consummated,
the escrow agent can release the Deposited Funds and Deposited Securities.
Investors who do not reconfirm their investments will receive the return of a
pro rata portion thereof; and in the event investors representing less than 80%
of the Deposited Funds reconfirm their investments, the Deposited Funds will be
returned to all the investors on a pro rata basis.
NOTE 5 - GAIN (LOSS) PER SHARE OF COMMON STOCK
Net gain (loss) per share of common stock outstanding, as shown on the
statement of operations, is based on the number of shares outstanding at each
balance sheet date. Weighted average shares outstanding was not computed since
it would not be meaningful in the circumstances, as all shares issued during the
period from incorporation through September 30, 1999 were for initial capital.
Therefore, the total shares outstanding at the end of each period was deemed to
be the most relevant number of shares to use for purposes of this disclosure.
For future periods, the Company will utilize the treasury stock method for
computing earnings per share, and will compute a weighted average number of
shares outstanding once additional shares of stock are issued to new
stockholders. Under the treasury stock method, the dilutive effect of
outstanding stock options and other convertible securities for determining
primary earnings per share is computed using the average market price during the
fiscal period, whereas the dilutive effect of outstanding stock options and
convertible securities for determining fully diluted earnings per share is
computed using the market price as of the end of the fiscal period, if greater
than the average market price.
F-8
<PAGE>
NOTE 6 - RELATED PARTY TRANSACTIONS
Office Facilities
Rental of office space and use of office, computer and telecommunications
equipment are provided by the President of the Company on a month to month basis
at a monthly rental of $500 per month commencing with the sale of the units in
the proposed offering until consummation of an acquisition. From the period from
inception, September 28, 1999, to September 30, 1999, the accrual for rent is
$-0-.
Officer Salaries
For the period from inception, September 28, 1999, to September 30, 1999,
no officer has received a salary in excess of $100,000. A monthly fee of $500 is
to be charged to operations by the President as his minimal compensation
commencing with the sale of the units in the proposed offering until a target
business can be acquired and the acquisition consummated.
NOTE 7 - PROPOSED OFFERING
The Company intends to prepare and file a registration statement with the
Securities and Exchange Commission pursuant to Rule 419 (see Note 4). The
offering, on a "best efforts all-or-none basis" will consist of 1,000,000 units
at $.10 per unit or an aggregate offering price of $100,000. Each unit will
consist of one share of common stock and five redeemable common stock purchase
warrants. Each warrant is exercisable at $1.00 for a period of two years from
the effective date of a registration statement relating to the underlying shares
of common stock. The warrants are redeemable at any time, upon thirty day's
written notice, in the event the average closing price of the common stock is at
least $1.25 for a period of twenty consecutive trading days ending within ten
days prior to the notice of redemption.
F-9
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
The Delaware General Corporation Law provides for the indemnification of
the officers, directors and corporate employees and agents of Kingsgate
Acquisitions, Inc. (the "Registrant") under certain circumstances as follows:
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS; INSURANCE.
(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstance of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such court shall deem
proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorney's fees) actually and reasonably
incurred by him in connection therewith.
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<PAGE>
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
(e) Expenses incurred by an officer or director in defending any civil,
criminal, administrative or investigative action, suit or proceeding may be paid
by the corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the corporation as authorized in this section. Such
expenses including attorneys' fees incurred by other employees and agents may be
so paid upon such terms and conditions, if any, as the board of directors deems
appropriate.
(f) The indemnification and advancement expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
(h) For purposes of this Section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers and employees or agents so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
39
<PAGE>
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors, and
administrators of such person.
Articles Ninth and Tenth of the Registrant's certificate of incorporate
provide as follows:
NINTH:
The personal liability of the directors of the Corporation is hereby
eliminated to the fullest extent permitted by the provisions of paragraph (7) of
subsection (b) of Section 102 of the Delaware General Corporation Law, as the
same may be amended and supplemented.
TENTH:
The Corporation shall, to the fullest extent permitted by the provisions of
Section 145 of the Delaware General Corporation Law, as the same may be amended
and supplemented, indemnify any and all persons whom it shall have power to
indemnify under said section from and against any and all of the expenses,
liabilities or other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any by-law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Article XII of the Registrant's by-laws provides as follows:
ARTICLE XII - INDEMNIFICATION OF DIRECTORS AND OFFICERS
1. INDEMNIFICATION. The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that such person is or
was a director, trustee, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, trustee,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, by itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed
to be in or not opposed to the best interest of the corporation, and with
respect to any criminal action or proceeding, had reasonable cause to
believe that such person's conduct was lawful.
40
<PAGE>
2. DERIVATIVE ACTION. The corporation shall indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in the corporation's favor by reason of the fact that such person
is or was a director, trustee, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, trustee, officer, employee or agent of any other corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding if such person acted in good faith and
in a manner such person reasonably believed to be in or not opposed to the
best interests of the corporation; provided, however, that no
indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable for gross
negligence or willful misconduct in the performance of such person's duty
to the corporation unless and only to the extent that the court in which
such action or suit was brought shall determine upon application that,
despite circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as such court shall deem proper.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, by itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed
to be in or not opposed to the best interest of the corporation.
3. SUCCESSFUL DEFENSE. To the extent that a director, trustee, officer,
employee or agent of the corporation has been successful, on the merits or
otherwise, in whole or in part, in defense of any action, suit or
proceeding referred to in paragraphs 1 and 2 above, or in defense of any
claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection therewith.
4. AUTHORIZATION. Any indemnification under paragraph 1 and 2 above (unless
ordered by a court) shall be made by the corporation only as authorized in
the specific case upon a determination that indemnification of the
director, trustee, officer, employee or agent is proper in the
circumstances because such person has met the applicable standard of
conduct set forth in paragraph 1 and 2 above. Such determination shall be
made (a) by the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or
proceeding, (b) by independent legal counsel (selected by one or more of
the directors, whether or not a quorum and whether or not disinterested) in
a written opinion, or (c) by the stockholders. Anyone making such a
determination under this paragraph 4 may determine that a person has met
the standards therein set forth as to some claims, issues or matters but
not as to others, and may reasonably prorate amounts to be paid as
indemnification.
5. ADVANCES. Expenses incurred in defending civil or criminal actions, suits
or proceedings shall be paid by the corporation, at any time or from time
to time in advance of the final disposition of such action, suit or
proceeding as authorized in the manner provided in paragraph 4 above upon
receipt of an undertaking by or on behalf of the director, trustee,
officer, employee or agent to repay such amount unless it shall ultimately
be determined by the corporation that the payment of expenses is authorized
in this Section.
41
<PAGE>
6. NONEXCLUSIVITY. The indemnification provided in this Section shall not be
deemed exclusive of any other rights to which those indemnified may be
entitled under any law, by-law, agreement, vote of stockholders or
disinterested director or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
trustee, officer, employee or agent and shall insure to the benefit of the
heirs, executors, and administrators of such a person.
7. INSURANCE. The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, trustee,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee or
agent of any corporation, partnership, joint venture, trust or other
enterprise, against any liability assessed against such person in any such
capacity or arising out of such person's status as such, whether or not the
corporation would have the power to indemnify such person against such
liability.
8. "CORPORATION" DEFINED. For purpose of this action, references to the
"corporation" shall include, in addition to the corporation, any
constituent corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate existence had
continued, would have had the power and authority to indemnify its
directors, trustees, officers, employees or agents, so that any person who
is or was a director, trustee, officer, employee or agent of such of
constituent corporation will be considered as if such person was a
director, trustee, officer, employee or agent of the corporation.
42
<PAGE>
Item 25. Expenses of Issuance and Distribution
The other expenses payable by the Registrant in connection with the
issuance and distribution of the securities being registered are estimated as
follows:
Escrow Fee $ 600.00
Securities and Exchange Commission Registration Fee 1545.45
Legal Fees 5,000.00
Accounting Fees 5,000.00
Printing and Engraving 1,000.00
Blue Sky Qualification Fees and Expenses 950.00
Miscellaneous 404.55
Transfer Agent Fee 500.00
---------
TOTAL $ 15,000.00
<PAGE>
Item 26. Recent Sales of Unregistered Securities
The Registrant issued 2,000,000 shares of common stock between September
28, 1999 and September 30, 1999 to thirteen investors at $.01 per share for an
aggregate investment of $20,000. Barney Magnusson, President, Treasurer and
Director, and Leslie McGuffin, Secretary and Director, purchased 200,000 shares
and 50,000 shares of common stock respectively. These shares of common stock
were sold under the exemption from registration provided by Section 4(2) of the
Securities Act.
Neither the Registrant nor any person acting on its behalf offered or sold
the securities by means of any form of general solicitation or general
advertising.
All purchasers represented in writing that they acquired the securities for
their own accounts. A legend was placed on the stock certificates stating that
the securities have not been registered under the Securities Act and cannot be
sold or otherwise transferred without an effective registration or an exemption
therefrom.
43
<PAGE>
EXHIBITS
Item 27.
3.1 Certificate of Incorporation
3.2 By-Laws
4.1 Specimen Certificate of Common Stock
4.2 Form of Warrant
4.6 Form of Escrow Agreement
5.1 Opinion of Counsel
23.1 Accountant's Consent to Use Opinion
23.2 Counsel's Consent to Use Opinion
44
<PAGE>
Item 28.
UNDERTAKINGS
The Registrant undertakes:
(1) To file, during any period in which offers or sales are being made,
post-effective amendment to this registration statement (the "Registration
Statement"):
(i) To include any prospectus required by Section 10 (a) (3) of the
Securities Act of 1933 (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after the
Effective Date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(iii)To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in this registration
statement, including (but not limited to) the addition of an
underwriter;
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be treated as a new
registration statement of the securities offered, and the offering of the
securities at that time to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
(4) To deposit into the Escrow Account at the closing, certificates in such
denominations and registered in such names as required by the Company to
permit prompt delivery to each purchaser upon release of such securities
from the Escrow Account in accordance with Rule 419 of Regulation C under
the Securities Act. Pursuant to Rule 419, these certificates shall be
deposited into an escrow account, not to be released until a business
combination is consummated.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to any provisions contained in its Certificate of
Incorporation, or by-laws, or otherwise, the Registrant has been advised that in
the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
45
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized the registration
statement to be signed on its behalf by the undersigned, in the City of
Vancouver, Province of British Columbia, Canada, on October 31, 1999.
KINGSGATE ACQUISITIONS, INC.
By: /s/Barney Magnusson
---------------------------
Barney Magnusson, President
In accordance with the requirements of the Securities Act of 1933, the
registration statement was signed by the following persons in the capacities and
on the dates stated.
/s/Barney Magnusson
- ------------------------------- Dated: October 31, 1999
Barney Magnusson
President, Treasurer, Director
/s/Leslie McGuffin
- ------------------------------- Dated: October 31, 1999
Leslie McGuffin
Secretary, Director
46
<PAGE>
CERTIFICATE OF INCORPORATION
OF
KINGSGATE ACQUISITIONS, INC.
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws
(particularly Chapter 1, Title 8 of the Delaware Code and the acts amendatory
thereof and supplemental thereto, and known, identified and referred to as the
"Delaware General Corporation Law") hereby certifies that:
FIRST:
The name of this corporation (hereinafter called the "Corporation") is
KINGSGATE ACQUISITIONS, INC.
SECOND:
The address, including street, number, city and county, of the registered
office of the Corporation in the State of Delaware is 1013 Centre Road,
Wilmington, New Castle County, Delaware 19805; and the name of the registered
agent of the Corporation is Corporation Service Company.
THIRD:
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the Delaware General Corporation
Law of the State of Delaware.
FOURTH:
The total number of shares of stock which the Corporation shall have
authority to issue is 55,000,000. The par value of each of such shares is $.001.
50,000,000 of such shares shall be shares of common stock.
5,000,000 of such shares shall be shares of preferred stock. The board of
directors of the Corporation is hereby granted the power to determine by
resolution from time to time the powers, preferences, rights, qualifications,
restrictions or limitations of the preferred stock.
FIFTH:
The name and mailing address of the incorporator are as follows
Steven I. Gutstein
276 Fifth Avenue
New York, New York 10001
SIXTH:
The Corporation is to have perpetual existence.
<PAGE>
SEVENTH:
Whenever a compromise or arrangement is proposed between the Corporation
and its creditors or any class of them and/or between the Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of the
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for the Corporation under the provisions of
Section 291 of Delaware General Corporation Law or on the application of
trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Delaware General Corporation
Law, order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement of the Corporation as
consequence and to any reorganization of such compromise or arrangement, the
said compromise or arrangement and the said reorganization shall, if sanctioned
by the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
EIGHTH:
For the management of the business and for the conduct of the affairs of
the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation and of its directors and of its stockholders or any
class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the affairs of the
Corporation shall be vested in its board of directors. The number of
directors which shall constitute the whole board of directors shall be
fixed by, or in the manner provided in, the by-laws. The phrase "whole
board" and the phrase "total number of directors" shall be deemed to have
the same meanings, to wit, the total number of directors which the
Corporation would have if there were no vacancies. No election of directors
need be by written ballot.
2. After the original or other by-laws of the Corporation have been adapted,
amended, or repealed, as the case may be, in accordance with the provisions
of Section 109 of the Delaware General Corporation Law, and after the
Corporation has received any payment for any of its stock, the power to
adopt, amend, or repeal the by-laws of the Corporation may be exercised by
the board of directors of the Corporation subject to the reserved power of
the stockholders to make, alter and repeal any by-laws adopted by the board
of directors; provided, however, that any provision for the classification
of directors of the Corporation for staggered terms pursuant to the
provisions of subsection (d) of Section 141 of the Delaware General
Corporation Law shall be set forth in an initial by-law or in a by-law
adopted by the stockholders of the Corporation entitled to vote.
3. Whenever the Corporation shall be authorized to issue only one class of
stock, each outstanding share shall entitle the holder thereof to notice
of, and the right to vote at, any meeting of stockholders. Whenever the
Corporation shall be authorized to issue more than one class of stock, no
outstanding share of any class of stock which is denied voting power under
the provisions of this certificate of incorporation shall entitle the
holder thereof to the right to vote at any meeting of stockholders except
as the provisions of paragraph (2) of subsection (b) to Section 242 of the
Delaware General Corporation Law shall otherwise require; provided, that no
share of any such class which is otherwise denied voting power shall
entitle the holder thereof to vote upon the increase or decrease in the
number of authorized shares of said class.
<PAGE>
4. With the consent in writing or pursuant to a vote of the holders of a
majority of the capital stock issued and outstanding, the board of
directors shall have the authority to dispose, in any manner, of the whole
property of the Corporation.
5. The by-laws shall determine whether and to what extent the accounts and
books of the Corporation, or any of them, shall be open to inspection by
the stockholders; and no stockholder shall have any right or inspecting any
account or book or document of the Corporation, except as conferred by law
or by the by-laws or by resolution of the stockholders.
6. The stockholders and directors shall have the power to hold their
respective meetings and to keep the books, documents and papers of the
Corporation outside the State of Delaware at such places as may be from
time to time designated by the by-laws or by resolution of the stockholders
or directors, except as otherwise required by the Delaware General
Corporation Law.
7. Any action required to be taken or which may be taken at any annual or
special meeting of stockholders of the Corporation may be taken without a
meeting, without prior notice and without a vote, if a consent or consents
in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting
at which all shares entitled to vote thereon were present and voted.
NINTH:
The personal liability of the directors of the Corporation is hereby
eliminated to the fullest extent permitted by the provisions of paragraph (7) of
subsection (b) of Section 102 of the Delaware General Corporation Law, as the
same may be amended and supplemented.
TENTH:
The Corporation shall, to the fullest extent permitted by the provisions of
Section 145 of the Delaware General Corporation Law, as the same may be amended
and supplemented, indemnify any and all persons whom it shall have power to
indemnify under said section from and against any and all of the expenses,
liabilities or other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any by-law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
ELEVENTH:
From time to time, any of the provisions of this certificate of
incorporation may be amended, altered or repealed; and other provisions
authorized by the laws at the time in force may be added or inserted in the
manner and at the time prescribed by said laws; and all rights at any time
conferred upon the stockholders of the Corporation by this certificate of
incorporation are granted subject to the provisions of this Article ELEVENTH.
TWELFTH:
The Corporation elects not to be governed by Section 203 of the Delaware
General Corporation Law.
Signed on September 27, 1999
/s/Steven I. Gutstein
---------------------
Steven I. Gutstein
Incorporator
<PAGE>
KINGSGATE ACQUISITIONS, INC.
A Delaware Corporation
BY-LAWS
ARTICLE I
Principal Executive Office
The principal executive office of Kingsgate Acquisitions, Inc. (the
"Corporation") shall be at 950 11th Street, West Vancouver, British Columbia V7T
2M3 Canada. The Corporation may also have offices at such other places within or
without the State of Delaware as the board of directors shall from time to time
determine.
ARTICLE II
Stockholders
SECTION 1. Place of Meetings. All annual and special meetings of the
stockholders shall be held at the principal executive office or at such other
place within or without the State of Delaware as the board of directors may
determine and as designated in the notice of such meeting.
SECTION 2. Annual Meeting. A meeting of the stockholders for the election
of directors and for the transaction of any other business shall be held
annually at such date and time as the board of directors may determine.
SECTION 3. Special Meetings. Special meeting of the stockholders for any
purpose or purposes may be called at any time by the board of directors, or by a
committee of the board of directors which as been duly designated by the board
of directors and whose powers and authorities, as provided in a resolution of
the board of directors or in these by-laws, include the power and authority to
call such meetings, or by stockholders owning at least twenty-five percent (25%)
of the entire voting power of the corporation's capital stock but such special
meetings may not be called by any other person or persons.
SECTION 4. Conduct of Meetings. Annual and special meetings shall be
conducted in accordance with these by-laws or as otherwise prescribed by the
board of directors. The chairman or the chief executive officer shall preside at
such meetings.
SECTION 5. Notice of Meeting. Written notice stating the place, day and
time of the meeting and the purpose or purposes for which the meeting is called
shall be mailed by the secretary or the officer performing his duties, not less
than ten days nor more than fifty days before the meeting to each stockholder of
record entitled to vote at such meeting. If mailed, such notice shall be deemed
to be delivered when deposited in the United States mail, addressed to the
stockholder at his address as it appears on the stock transfer books or records
as of the record date prescribed in Section 6, with postage thereon prepaid. If
a stockholder be present at a meeting, or in writing waive notice thereof before
or after the meeting, notice of the meeting to such stockholder shall be
unnecessary. When any stockholders' meeting, either annual or special, is
adjourned for thirty days or more, notice of the adjourned meeting shall be
given as in the case of an original meeting. It shall not be necessary to give
any notice of the time and place of any meeting adjourned for less than thirty
days or of the business to be transacted at such adjourned meeting, other than
an announcement at the meeting at which such adjournment is taken.
<PAGE>
SECTION 6. Fixing of Record Date. For the purpose of determining
stockholders entitled to notice of or to vote at any stockholders' meeting, or
any adjournment thereof, or stockholders entitled to receive payment of any
dividend, or in order to make a determination of stockholders for any other
proper purpose, the board of directors shall fix in advance a date as the record
date for any such determination of stockholders. Such date in any case shall be
not more than sixty days, and in case of a stockholders' meeting, not less than
ten days prior to the date on which the particular action, requiring such
determination of stockholders, is to be taken.
When a determination of stockholders entitled to vote at any stockholders'
meeting has been made as provided in this section, such determination shall
apply to any adjournment thereof.
SECTION 7. Voting Lists. The officer or agent having charge of the stock
transfer books for shares shall make, at least ten days before each
stockholders' meeting, a complete record of the stockholders entitled to vote at
such meeting or any adjournment thereof, with the address of and the number of
shares held by each. The record, for a period of ten days before such meeting,
shall be kept on file at the principal executive office, whether within or
outside the State of Delaware, and shall be subject to inspection by any
stockholder for any purpose germane to the meeting at any time during usual
business hours. Such record shall also be produced and kept open at the time and
place of the meeting and shall be subject to the inspection of any stockholder
for any purpose germane to the meeting during the whole time of the meeting. The
original stock transfer books shall be prima facie evidence as to the
stockholders entitled to examine such record or transfer books or to vote at any
stockholders' meeting.
SECTION 8. Quorum. One-fourth of the outstanding shares entitled to vote,
represented in person or by proxy, shall constitute a quorum at a stockholders'
meeting. If less than one-fourth of the outstanding shares are represented at a
meeting, a majority of the shares so represented may adjourn the meeting from
time to time without further notice. At such adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which might have
been transacted at the meeting as originally notified. The stockholders present
at a duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
SECTION 9. Proxies. At all stockholders' meetings, a stockholder may vote
by proxy executed in writing by such stockholder or by his duly authorized
attorney in fact. Proxies solicited on behalf of the management shall be voted
as directed by such stockholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy shall be valid
after eleven months from the date of its execution unless otherwise provided in
the proxy.
SECTION 10. Voting. At each election for directors every stockholder
entitled to vote at such election shall be entitled to one vote for each share
of stock held. Unless otherwise provided by the certificate of incorporation, by
statute, or by these by-laws, a majority of votes of the shares present in
person or by proxy at a lawful meeting and entitled to vote on the election of
directors shall be sufficient to pass on a transaction or matter, except in the
election of directors, which election shall be determined by a plurality of the
votes of the shares present in person or by proxy at the meeting and entitled to
vote on the election of directors.
<PAGE>
SECTION 11. Voting of Shares in the Name of Two or More Persons. When
ownership of stock stands in the name of two or more persons, in the absence of
written directions to the Corporation to the contrary, at any stockholders'
meeting any one or more of such stockholders may cast, in person or by proxy,
all votes to which such ownership is entitled. In the event an attempt is made
to cast conflicting votes, in person or by proxy, by the several persons in
whose name shares of stock stand, the vote or votes to which these persons are
entitled shall be cast as directed by a majority of those holding such stock and
present in person or by proxy at such meeting, but no votes shall be cast for
such stock without the direction of such a majority.
SECTION 12. Voting of Shares by Certain Holders. Shares of capital stock
standing in the name of another corporation may be voted by any officer, agent
or proxy as these by-laws of such corporation may prescribe, or, in the absence
of such provision, as the board of directors of such corporation may determine.
Shares held by an administrator, executor, guardian or conservator may be voted
by him, either in person or by proxy, without a transfer of such shares into his
name. Shares standing in the name of a trustee may be voted by him, either in
person or by proxy, but no trustee shall be entitled to vote shares held by him
without a transfer of such shares into his name. Shares standing in the name of
a receiver may be voted by such receiver, and shares held by or under the
control of a receiver may be voted by such receiver without the transfer thereof
into his name if authority to do so is contained in an appropriate order of the
court or other public authority by which such receiver was appointed.
A stockholder whose shares are pledged shall be entitled to vote such
shares at any stockholders' meeting until such shares have been transferred into
the name of the pledgee and thereafter such pledgee shall be entitled to vote
the shares so transferred.
Neither treasury shares of its own stock held by the Corporation, nor
shares held by another corporation, if a majority of the shares entitled to vote
for the election of directors of such other corporation are held by the
Corporation, shall be voted at any stockholders' meeting or counted in
determining the total number of outstanding shares at any given time for
purposes of any meeting.
SECTION 13. Inspectors of Election. In advance of any stockholders'
meeting, the chairman of the board or the board of directors may appoint any
persons, other than nominees for office, as inspectors of election to act at
such meeting or any adjournment thereof. The number of inspectors shall be
either one or three. If the board of directors appoints either one or three
inspectors, that appointment shall not be altered at the meeting. If inspectors
of election are not so appointed, the chairman of the board of directors may
make an appointment at the meeting. In case any person appointed as inspector
fails to appear or fails or refuses to act, the vacancy may be filled by
appointment in advance of the meeting or at the meeting by the chairman of the
board of directors or the president of the Corporation.
Unless otherwise prescribed by applicable law, the duties of such
inspectors shall include: determining the number of shares of stock and the
voting power of each share, the shares of stock represented at the meeting, the
existence of a quorum, the authenticity, validity and effect of proxies;
receiving votes, ballots or consents; hearing and determining all challenges and
questions in any way arising in connection with the right to vote; counting and
tabulating all votes or consents; determining the result; and such acts as may
be proper to conduct the election or vote with fairness to all stockholders.
<PAGE>
SECTION 14. Nominating Committee. The board of directors or a committee
appointed by the board of directors shall act as nominating committee for
selecting the management nominees for election as directors. Except in the case
of a nominee substituted as a result of the death or other incapacity of a
management nominee, the nominating committee shall deliver written nominations
to the secretary at least twenty days prior to the date of the annual meeting.
Provided such committee makes such nominations, no nominations for directors
except those made by the nominating committee shall be voted upon at the annual
meeting unless other nominations by stockholders are made in writing and
delivered to the secretary in accordance with the provisions of the
Corporation's certificate of incorporation.
SECTION 15. New Business. Any new business to be taken up at the annual
meeting shall be stated in writing and filed with the secretary in accordance
with the provisions of the Corporation's certificate of incorporation. This
provision shall not prevent the consideration and approval or disapproval at the
annual meeting of reports of officers, directors and committees, but in
connection with such reports no new business shall be acted upon at such annual
meeting unless stated and filed as provided in the Corporation's certificate of
incorporation.
ARTICLE III
Board of Directors
SECTION 1. General Powers. The business and affairs of the Corporation
shall be under the direction of the board of directors. The chairman shall
preside at all meetings of the board of directors.
SECTION 2. Number, Term and Election. The number of directors shall be such
number, not less than one nor more than seven (exclusive of directors, if any,
to be elected by holders of preferred stock), as shall be provided from time to
time in a resolution adopted by the board of directors, provided that no
decrease in the number of directors shall have the effect of shortening the term
of any incumbent director, and provided further that no action shall be taken to
decrease or increase the number of directors from time to time unless at least
two-thirds of the directors then in office shall concur in said action.
Exclusive of directors, if any, elected by holders of preferred stock, vacancies
in the board of directors, however caused, and newly created directorships shall
be filled by a vote of two-thirds of the directors then in office, whether or
not a quorum, and any director so chosen shall hold office for a term expiring
at the annual stockholders' meeting at which the term of the class to which the
director has been chosen expires and when the director's successor is elected
and qualified. The board of directors shall be classified in accordance with the
provisions of Section 3 of this Article III.
SECTION 3. Regular Meetings. A regular meeting of the board of directors
shall be held at such time and place as shall be determined by resolution of the
board of directors without other notice than such resolution.
SECTION 4. Special Meetings. Special meetings of the board of directors may
be called by or at the request of the chairman, the chief executive officer or
one-third of the directors. The person calling the special meetings of the board
of directors may fix any place as the place for holding any special meeting of
the board of directors called by such persons.
Members of the board of the directors may participate in special meetings
by means of telephone conference or similar communications equipment by which
all persons participating in the meeting can hear each other. Such participation
shall constitute presence in person.
<PAGE>
SECTION 5. Notice. Written notice of any special meeting shall be given to
each director at least two days previous thereto delivered personally or by
telegram or at least seven days previous thereto delivered by mail at the
address at which the director is most likely to be reached. Such notice shall be
deemed to be delivered when deposited in the United States mail so addressed,
with postage thereon prepaid if mailed or when delivered to the telegraph
company if sent by telegram. Any director may waive notice of any meeting by a
writing filed with the secretary. The attendance of a director at a meeting
shall constitute a waiver of notice of such meeting, except where a director
attends a meeting for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any meeting of the board of
directors need be specified in the notice or waiver of notice of such meeting.
SECTION 6. Quorum. A majority of the number of directors fixed by Section 2
shall constitute a quorum for the transaction of business at any meeting of the
board of directors, but if less than such majority is present at a meeting, a
majority of the directors present may adjourn the meeting from time to time.
Notice of any adjourned meeting shall be given in the same manner as prescribed
by Section 5 of this Article III.
SECTION 7. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is prescribed by these by-laws, the
certificate of incorporation, or the General Corporation Law of the State of
Delaware.
SECTION 8. Action Without a Meeting. Any action required or permitted to be
taken by the board of directors at a meeting may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the directors.
SECTION 9. Resignation. Any director may resign at any time by sending a
written notice of such resignation to the home office addressed to the chairman.
Unless otherwise specified therein such resignation shall take effect upon
receipt thereof by the chairman.
SECTION 10. Vacancies. Any vacancy occurring on the board of directors
shall be filled in accordance with the provisions of the Corporation's
certificate of incorporation. Any directorship to be filled by reason of an
increase in the number of directors may be filled by the affirmative vote of
two-thirds of the directors then in office or by election at an annual meeting
or at a special meeting of the stockholders held for that purpose. The term of
such director shall be in accordance with the provisions of the Corporation's
certificate of incorporation.
SECTION 11. Removal of Directors. Any director or the entire board of
directors may be removed only in accordance with the provisions of the
Corporation's certificate of incorporation.
SECTION 12. Compensation. Directors, as such, may receive compensation for
service on the board of directors. Members of either standing or special
committees may be allowed such compensation as the board of directors may
determine.
SECTION 13. Age Limitation. No person 72 years or more of age shall be
eligible for election, reelection, appointment or reappointment to the board. No
director shall serve as such beyond the annual meeting immediately following the
director becoming 72 years of age. This age limitation does not apply to an
advisory director.
<PAGE>
ARTICLE IV
Committees of the Board of Directors
The board of directors may, by resolution passed by a majority of the whole
board, designate one or more committees, as they may determine to be necessary
or appropriate for the conduct of the business, and may prescribe the duties,
constitution and procedures thereof. Each committee shall consist of one or more
directors appointed by the chairman. The chairman may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee.
The chairman shall have power at any time to change the members of, to fill
vacancies in, and to discharge any committee of the board. Any member of any
such committee may resign at any time by giving notice to the Corporation;
provided, however, that notice to the board, the chairman of the board, the
chief executive officer, the chairman of such committee, or the secretary shall
be deemed to constitute notice to the Corporation. Such resignation shall take
effect upon receipt of such notice or at any later time specified therein; and,
unless otherwise specified therein, acceptance of such resignation shall not be
necessary to make it effective. Any member of any such committee may be removed
at any time, either with or without cause, by the affirmative vote of a majority
of the authorized number of directors at any meeting of the board called for
that purpose.
ARTICLE V
Officers
SECTION 1. Positions. The officers shall be a chairman, a president, one or
more vice presidents, a secretary and a treasurer, each of whom shall be elected
by the board of directors. The board of directors may designate one or more vice
presidents as executive vice president or senior vice president. The board of
directors may also elect or authorize the appointment of such other officers as
the business may require. The officers shall have such authority and perform
such duties as the board of directors may from time to time authorize or
determine. In the absence of action by the board of directors, the officers
shall have such powers and duties as generally pertain to their respective
offices.
SECTION 2. Election and Term of Office. The officers shall be elected
annually by the board of directors at the first meeting of the board of
directors held after each annual meeting of the stockholders. If the election of
officers is not held at such meeting, such election shall be held as soon
thereafter as possible. Each officer shall hold office until his successor shall
have been duly elected and qualified, until his death or until he shall resign
or shall have been removed in the manner hereinafter provided. Election or
appointment of an officer, employee or agent shall not of itself create contract
rights. The board of directors may authorize the Corporation to enter into an
employment contract with any officer in accordance with state law; but no such
contract shall impair the right of the board of directors to remove any officer
at any time in accordance with Section 3 of this Article V.
SECTION 3. Removal. Any officer may be removed by vote of two-thirds of the
board of directors whenever, in its judgment, the best interests will be served
thereby, but such removal, other than for cause, shall be without prejudice to
the contract rights, if any, of the person so removed.
SECTION 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the board
of directors for the unexpired portion of the term.
SECTION 5. Remuneration. The remuneration of the officers shall be fixed
from time to time by the board of directors, and no officer shall be prevented
from receiving such salary by reason of the fact that he is also a director.
<PAGE>
ARTICLE VI
Contracts, Loans, Checks and Deposits
SECTION 1. Contracts. To the extent permitted by applicable law, and except
as otherwise prescribed by the Corporation's certificate of incorporation or
these by-laws with respect to certificates for shares, the board of directors or
the executive committee may authorize any officer, employee, or agent to enter
into any contract or execute and deliver any instrument in the name of and on
behalf. Such authority may be general or confined to specific instances.
SECTION 2. Loans. No loans shall be contracted on behalf and no evidence of
indebtedness shall be issued in its name unless authorized by the board of
directors. Such authority may be general or confined to specific instances.
SECTION 3. Checks, Drafts, Etc. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name
shall be signed by one or more officers, employees or agents in such manner,
including in facsimile form, as shall from time to time be determined by
resolution of the board of directors.
SECTION 4. Deposits. All funds not otherwise employed shall be deposited
from time to time to the credit in any of its duly authorized depositories as
the board of directors may select.
ARTICLE VII
Certificates for Shares and Their Transfer
SECTION 1. Certificates for Shares. The shares of capital stock shall be
represented by certificates signed by the chairman of the board of directors or
the president or a vice president and by the treasurer or an assistant treasurer
or the secretary or an assistant secretary, and may be sealed with the seal or a
facsimile thereof. Any or all of the signatures upon a certificate may be
facsimiles if the certificate is countersigned by a transfer agent, or
registered by a registrar, other than the Corporation itself or an employee. If
any officer who has signed or whose facsimile signature has been placed upon
such certificate shall have ceased to be such officer before the certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer at the date of its issue.
SECTION 2. Form of Share Certificates. All certificates representing shares
of capital stock shall set forth upon the face or back that the Corporation will
furnish to any stockholder upon request and without charge a full statement of
the designations, preferences, limitations, and relative rights of the shares of
each class authorized to be issued, the variations in the relative rights and
preferences between the shares of each such series so far as the same have been
fixed and determined, and the authority of the board of directors to fix and
determine the relative rights and preferences of subsequent series.
Each certificate representing shares shall state upon the face thereof:
that the Corporation is organized under the laws of the State of Delaware; the
name of the person to whom issued; the number and class of shares, the
designation of the series, if any, which such certificate represents; the par
value of each share represented by such certificate, or a statement that the
shares are without par value. Other matters in regard to the form of the
certificates shall be determined by the board of directors.
SECTION 3. Payment for Shares. No certificate shall be issued for any share
of capital stock until such share is fully paid.
SECTION 4. Form of Payment for Shares. The consideration for the issuance
of shares of capital stock shall be paid in accordance with the provisions of
the certificate of incorporation.
<PAGE>
SECTION 5. Transfer of Shares. Transfer of shares of capital stock shall be
made only on the stock transfer books of the Corporation. Authority for such
transfer shall be given only to the holder of record thereof or by his legal
representative, who shall furnish proper evidence of such authority, or by his
attorney thereunto authorized by power of attorney duly executed and filed with
the Corporation. Such transfer shall be made only on surrender for cancellation
of the certificate for such shares. The person in whose name shares of capital
stock stand on the books shall be deemed by the Corporation to be the owner
thereof for all purposes.
SECTION 6. Lost Certificates. The board of directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. When authorizing such issue of a new certificate,
the board of directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen, or destroyed
certificate, or his legal representative, to give the Corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.
ARTICLE VIII
Fiscal Year; Annual Audit
The fiscal year shall end on the last day of December of each year. The
Corporation shall be subject to an annual audit as of the end of its fiscal year
by independent public accountants appointed by and responsible to the board of
directors.
ARTICLE IX
Dividends
Dividends upon the capital stock, subject to the provisions of the
certificate of incorporation, if any, may be declared by the board of directors
at any regular or special directors' meeting, pursuant to law. Dividends may be
paid in cash, in property or in stock.
ARTICLE X
Corporation Seal
The corporate seal shall be in such form as the board of directors shall
prescribe.
ARTICLE XI
Amendments
Pursuant to the certificate of incorporation, these by-laws may be
repealed, altered, amended or rescinded by the stockholders only by vote of not
less than three-quarters of the voting power of the outstanding shares of
capital stock entitled to vote generally in the election of directors
(considered for this purpose as one class) cast at a stockholders' meeting
called for that purpose (provided that notice of such proposed repeal,
alteration, amendment or rescission is included in the notice of such meeting).
In addition, the board of directors may repeal, alter, amend or rescind these
by-laws by vote of two-thirds of the board of directors at a legal meeting held
in accordance with the provisions of these by-laws.
<PAGE>
ARTICLE XII
Indemnification of Directors and Officers
1. INDEMNIFICATION. The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that such person is or
was a director, trustee, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, trustee,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, by itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed
to be in or not opposed to the best interest of the corporation, and with
respect to any criminal action or proceeding, had reasonable cause to
believe that such person's conduct was lawful.
2. DERIVATIVE ACTION. The corporation shall indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in the corporation's favor by reason of the fact that such person
is or was a director, trustee, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, trustee, officer, employee or agent of any other corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding if such person acted in good faith and
in a manner such person reasonably believed to be in or not opposed to the
best interests of the corporation; provided, however, that no
indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable for gross
negligence or willful misconduct in the performance of such person's duty
to the corporation unless and only to the extent that the court in which
such action or suit was brought shall determine upon application that,
despite circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as such court shall deem proper.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, by itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed
to be in or not opposed to the best interest of the corporation.
3. SUCCESSFUL DEFENSE. To the extent that a director, trustee, officer,
employee or agent of the corporation has been successful, on the merits or
otherwise, in whole or in part, in defense of any action, suit or
proceeding referred to in paragraphs 1 and 2 above, or in defense of any
claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection therewith.
<PAGE>
4. AUTHORIZATION. Any indemnification under paragraph 1 and 2 above (unless
ordered by a court) shall be made by the corporation only as authorized in
the specific case upon a determination that indemnification of the
director, trustee, officer, employee or agent is proper in the
circumstances because such person has met the applicable standard of
conduct set forth in paragraph 1 and 2 above. Such determination shall be
made (a) by the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or
proceeding, (b) by independent legal counsel (selected by one or more of
the directors, whether or not a quorum and whether or not disinterested) in
a written opinion, or (c) by the stockholders. Anyone making such a
determination under this paragraph 4 may determine that a person has met
the standards therein set forth as to some claims, issues or matters but
not as to others, and may reasonably prorate amounts to be paid as
indemnification.
5. ADVANCES. Expenses incurred in defending civil or criminal actions, suits
or proceedings shall be paid by the corporation, at any time or from time
to time in advance of the final disposition of such action, suit or
proceeding as authorized in the manner provided in paragraph 4 above upon
receipt of an undertaking by or on behalf of the director, trustee,
officer, employee or agent to repay such amount unless it shall ultimately
be determined by the corporation that the payment of expenses is authorized
in this Section.
6. NONEXCLUSIVITY. The indemnification provided in this Section shall not be
deemed exclusive of any other rights to which those indemnified may be
entitled under any law, by-law, agreement, vote of stockholders or
disinterested director or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
trustee, officer, employee or agent and shall insure to the benefit of the
heirs, executors, and administrators of such a person.
7. INSURANCE. The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, trustee,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee or
agent of any corporation, partnership, joint venture, trust or other
enterprise, against any liability assessed against such person in any such
capacity or arising out of such person's status as such, whether or not the
corporation would have the power to indemnify such person against such
liability.
8. "CORPORATION" DEFINED. For purpose of this action, references to the
"corporation" shall include, in addition to the corporation, any
constituent corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate existence had
continued, would have had the power and authority to indemnify its
directors, trustees, officers, employees or agents, so that any person who
is or was a director, trustee, officer, employee or agent of such of
constituent corporation will be considered as if such person was a
director, trustee, officer, employee or agent of the corporation.
<PAGE>
KINGSGATE ACQUISITIONS, INC.
(INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE)
This certifies that ----------
is the registered owner of ----------------
fully paid and non-assessable shares of common stock, $.001 par value each of
KINGSGATE ACQUISITIONS, INC.
Transferable on the books of the Corporation in person or by attorney upon
surrender of this Certificate duly endorsed or assigned. This Certificate and
the shares represented hereby are subject to the laws of the State of Delaware,
and to the Certificate of Incorporation and By-laws of the Corporation, as now
or hereafter amended. This Certificate is not valid unless countersigned by the
Transfer Agent
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated: ----------------
KINGSGATE ACQUISITIONS, INC.
/s/ Leslie McGuffin CORPORATE SEAL /s/ Barney Magnusson
- ---------------- 1999 --------------------
Secretary DELAWARE President
Countersigned:
Olde Monmouth Stock Transfer Co., Inc.
Transfer Agent
AUTHORIZED SIGNATURE
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common and not as community property
UNIFORM GIFTS TO MINORS ACT
( Custodian) (Minor)
under the Uniform Gifts of Minors Act of the State of ------------------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto:
Please insert social security
or other identifying number: -----------------
(Insert name and address, including zip code):
- ----------------------------------------------------
- ----------------------------------------------------
- --------------------------------------------- shares
of the Common Stock represented by the within Certificate and do hereby
irrevocably constitute and appoint
- ----------------------------------------------------
to transfer the said shares on the books of the within named Corporation
with full power of substitution in the premises.
DATED: ------------- ---------------------------------------
NOTICE: The signature to this assignment must correspond with the name as
it is written upon the face of the Certificate in every particular without
alteration or enlargement or any change whatever.
SIGNATURE GUARANTEE:
KINGSGATE ACQUISITIONS, INC.
(INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE)
This certifies that: ----------------
the registered Holder or registered assign (the "Holder"), is the owner for
value received of: ---------- warrants (the "Warrants") (subject to adjustment
as hereinafter referred to), each of which Warrants entitles the Holder to
purchase during the period commencing --------- and expiring at 5:00 P.M.
Eastern Time on ------, 200-, one fully paid, non-assessable share of common
stock, $.001 par value per share ("Share") of Kingsgate Acquisitions, Inc., a
Delaware corporation (the "Company"), upon payment of $1.00 per share (the
"Exercise Price"), provided, however, that the number of Shares purchasable upon
exercise of each Warrant may be increased or reduced and the Exercise Price
adjusted in the event of a stock dividend, stock split, reclassification,
reorganization, consolidation, merger, sale of all or substantially all of the
property of the Company, sales of stock at less than the greater of market value
or the Exercise Price or other dilutive transactions. The Exercise Price of
Warrants represented by this Warrant Certificate is payable either in cash or by
bank draft to the order of the Company. No adjustment shall be made for any
dividends on any Shares issuable upon exercise of the Warrants represented by
this Warrant Certificate.
In order to exercise these Warrants, the form of election to purchase on
the reverse side must be properly completed and executed. If Warrants
represented by this Warrant Certificate are exercised with respect to fewer than
all Shares purchasable, certificates representing Warrants to purchase the
remaining number of Shares will be issued.
The Company shall not be required to issue fractions of Shares upon the
exercise of Warrants, but the holder shall have the right to purchase a whole
Share.
Warrants are transferable at the office of the Company by the Holder
thereof in person or by attorney duly authorized in writing, but only upon
surrender of the Warrant Certificate and the payment of transfer taxes, if any.
Upon any such transfer, a new Warrant Certificate or new Warrant Certificates of
different denominations of like tenor and representing in the aggregate the
right to purchase a like number of Shares, will be issued to the transferee in
exchange for this Warrant Certificate.
This Warrant Certificate, when surrendered at the office of the Company by
the Holder in person or by attorney duly authorized in writing, may be exchanged
for any other Warrant Certificates of different denominations of like tenor and
representing in the aggregate the right to purchase a like number of Shares.
If this Warrant Certificate shall be surrendered for exercise within any
period during which the transfer books for the Shares or other securities
purchasable upon the exercise of Warrants are closed for any reason, the Company
shall not be required to make delivery of Certificates for the securities
purchasable upon such exercise until the date of the reopening of said transfer
books.
The Holder shall not be entitled to any of the rights of a shareholder of
the Company prior to exercise hereof.
This Warrant Certificate is not valid unless countersigned by the Warrant
Transfer Agent.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
COUNTERSIGNED:
OLDE MONMOUTH STOCK TRANSFER CO., INC.
77 Memorial Parkway, Suite 101
Atlantic Highlands, New Jersey 07716
AUTHORIZED SIGNATURE
Dated: ----------------
KINGSGATE ACQUISITIONS, INC.
/s/ Leslie McGuffin CORPORATE SEAL /s/ Barney Magnusson
- ---------------- 1999 --------------------
Secretary DELAWARE President
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common and not as community property
UNIFORM GIFTS TO MINORS ACT
( Custodian) (Minor)
under the Uniform Gifts of Minors Act of the State of ------------------
EXERCISE
I or we hereby irrevocably elect to exercise the right of purchase
represented by this certificate to purchase ------ shares of the common stock of
the Company ("Shares") and hereby make payment of ----------------- (number of
shares purchased multiplied by $1.00) payable to the order of KINGSGATE
ACQUISITIONS, INC. in payment of the exercise price for such Shares, and request
that certificates for the Shares shall be issued in the name of:
Please insert social security or EIN number
or other identifying number: -------------------------
(Insert name address, including zip code):
- ------------------------------------------------------
- ------------------------------------------------------
And, if such number of Shares shall not be all of the shares purchasable
hereunder, that a new Warrant Certificate or like tenor for the balance of the
remaining Shares purchasable hereunder be delivered to the undersigned at the
address above.
IMPORTANT: The name of the person exercising this warrant must correspond
with the name of the Warrantholder written on the face of this Certificate in
every particular, without alteration or any change whatever, unless it has been
assigned by completing the Assignment form below.
DATED: ---------------- 19-- X---------------------------------------
Signature of Registered Holder
X---------------------------------------
Signature of Registered Holder
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto:
Please insert social security or EIN number
or other identifying number: -----------------
(Insert name and address, including zip code):
- ----------------------------------------------------
- ----------------------------------------------------
The right to purchase -------------- Shares evidenced by this Warrant, and
does hereby irrevocably constitute and appoint any officer of the Company or its
transfer agent and registrar as lawful Attorney to transfer such right on the
books of the Company with full power of substitution in the premises.
DATED: -------------, 19-- X---------------------------------------
Signature of Registered Holder
X---------------------------------------
Signature of Registered Holder
IMPORTANT: Every registered owner of this Certificate must sign it to
assign or otherwise transfer Warrants. The above signature or signatures must
correspond with the name or names written on the face of this Certificate in
every particular, without alteration, enlargement or any change whatever. Each
signature should be "medallion" guaranteed by an eligible guarantor institution
(Banks, Stockbrokers, Savings and Loan Associations and Credit Unions) with
membership in an approved signature guarantee Medallion Program pursuant to Rule
17Ad-15 of the Securities Exchange Act of 1934.
SIGNATURE GUARANTEE:
<PAGE>
WARRANT AGREEMENT
-------------------------
KINGSGATE ACQUISITIONS, INC.
AND
OLDE MONMOUTH STOCK TRANSFER CO., INC.
WARRANT AGENT
----------------- , 1999
<PAGE>
WARRANT AGREEMENT
THIS AGREEMENT dated as of ----------------, 1999, between Kingsgate
Acquisitions, Inc., a Delaware corporation (the "Company"), and Olde Monmouth
Stock Transfer Co., Inc. , a transfer agency located in Atlantic Highlands, New
Jersey (the "Warrant Agent") (collectively, the "Parties" and individually a
"Party").
WHEREAS: The Company is conducting a public offering (the "Public
Offering") of 1,000,000 units (the "Units") each Unit consisting of one share of
Common Stock, $.001 par value per share ("Common Stock") and five redeemable
common stock purchase warrants ("Warrants"); and
WHEREAS, the Company desires to provide for the issuance, registration,
transfer, exchange and exercise of certificates (the "Warrant Certificates")
representing the Warrants and for the exercise of the Warrants;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth and for the purpose of defining the terms and provisions
of the Warrant Certificates and the Warrants, and the respective rights and
obligations thereunder of the Company, the registered holders of the Warrant
Certificates and the Warrant Agent, the Parties agree as follows:
1. Definitions.
As used herein:
(a) "Common Stock" shall mean Common Stock of the Company, whether now or
hereafter authorized, holders of which have the right to participate
in the distribution of earnings and assets of the Company without
limit as to amount or percentage.
(b) "Corporate Office" shall mean the place of business of the Warrant
Agent (or its successor) which office is presently located at 77
Memorial Parkway, Suite 101, Atlantic Highlands, New Jersey 07716.
(c) "Effective Date" shall mean ------------------ , 1999, the date on
which the Company's Registration Statement is declared effective by
the Securities and Exchange Commission.
(d) "Exercise Date" shall mean the date of surrender for exercise of any
Warrant Certificate, provided the exercise form on the back of the
Warrant Certificate or a form substantially similar thereto has been
completed in full by the Registered Owner or a duly appointed attorney
and the Warrant Certificate is accompanied by payment in full of the
Exercise Price.
(e) "Exercise Period" shall mean the period commencing on the Effective
Date and extending to and through the Expiration Date.
(f) "Exercise Price" shall mean $1.00; provided, however, that in the
event the Company reduces the Exercise Price, the Exercise Price shall
be as established by the Company.
(g) "Expiration Date" shall mean 5:00 P.M. Eastern Time on the last day of
the two year period commencing on the Effective Date, subject to the
terms provided in Section 5 herein for redemption; provided however,
if such date shall be a holiday or a day on which banks are authorized
to close, then Expiration Date shall mean 5:00 p.m., Eastern Time on
the next following day which in the State of New Jersey is not a
holiday or a day on which banks are authorized to close. If the
Company redeems the Warrants as provided in Section 5 of this
Agreement, the Expiration Date shall be the date fixed for redemption.
<PAGE>
(h) "Warrants" shall mean 5,000,000 Warrants to purchase 5,000,000 shares
of Common Stock, all of which will be sold in the Public Offering as
part of the Units.
(i) "Registered Owner" shall mean the person in whose name any Warrant
Certificate shall be registered on the books maintained by the Warrant
Agent pursuant to Section 7 of this Agreement.
(j) "Registration Statement" shall mean the Company's Registration
Statement on Form SB-2 (S.E.C. File No. 333- ), as amended.
(k) "Warrant Agent" shall mean Olde Monmouth Stock Transfer Co., Inc. or
any successor, as the transfer agent and registrar of the Warrants.
(l) "Warrant Shares" shall mean and include up to 5,000,000 authorized and
unissued shares of Common Stock reserved for issuance on exercise of
the Warrants, and unless otherwise noted, and any additional shares of
Common Stock or other property which may hereafter be issuable or
deliverable on exercise of the Warrants pursuant to Section 9 of this
Agreement.
2. Warrants and Issuance of Warrant Certificates.
Each Warrant shall initially entitle the Registered Owner of a Warrant
Certificate representing Warrants to purchase one share of Common Stock on the
exercise of each Warrant, subject to modification and adjustment as hereinafter
provided in Section 9. Warrant Certificates representing 5,000,000 Warrants and
evidencing the right to purchase an aggregate of 5,000,000 shares of Common
Stock of the Company shall be executed by the proper officers of the Company and
delivered to the Warrant Agent for countersignature. Warrant Certificates to be
delivered to the Warrant Agent shall be in direct relation to the Units sold in
the Company's Public Offering and shall be attached to certificates representing
an equal number of shares of Common Stock. The Warrant Certificates representing
the Warrants will be issued and delivered on written order of the Company signed
by the proper officers of the Company. The Warrant Agent shall deliver Warrant
Certificates in required whole number denominations to the persons entitled
thereto in connection with any transfer or exchange permitted under this
Agreement.
Except as provided in Section 8 hereof, certificates representing the
Warrant Shares shall be issued only on or after the Exercise Date on exercise of
the Warrants or on transfer or exchange of the Warrant Shares.
3. Form and Execution of Warrant Certificates.
The Warrant Certificates shall be substantially in the form attached as
Exhibit "A" and may have such letters, numbers or other marks of identification
and such legends, summaries or endorsements printed, lithographed or engraved
thereon as the Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement. The Warrant Certificates shall be dated as of the
date of issuance, whether on initial issuance, transfer, exchange or in lieu of
mutilated, lost, stolen or destroyed Warrant Certificates.
Each Warrant Certificate shall be initially issued only when attached to a
certificate representing that number of Shares of Common Stock which is
one-fifth the number of Warrants represented by the Warrant Certificate and
shall be separately transferable from the certificate representing the Shares of
Common Stock immediately upon issuance.
<PAGE>
The Warrant Certificates shall be executed on behalf of the Company by its
duly authorized officers, by manual signatures or by facsimile signatures
printed thereon, and shall have imprinted thereon a facsimile of the Company's
seal. The Warrant Certificates shall be manually countersigned by the Warrant
Agent and shall not be valid for any purpose unless so countersigned. In the
event any officer of the Company who executed the Warrant Certificates shall
cease to be an officer of the Company before the date of issuance of the Warrant
Certificates or before countersignature and delivery by the Warrant Agent, such
Warrant Certificates may be countersigned, issued and delivered by the Warrant
Agent with the same force and effect as though the person who signed such
Warrant Certificates had not ceased to be an officer of the Company.
4. Exercise.
The exercise of Warrants in accordance with this Agreement shall only be
permitted during the Exercise Period.
Warrants shall be deemed to have been exercised immediately prior to the
close of business on the Exercise Date. The exercise form shall be executed by
the Registered Owner thereof or the Registered Owner's attorney duly authorized
in writing and shall be delivered together with payment to the Warrant Agent, in
cash or by official bank or certified check, of an amount in lawful money of the
United States of America. Such payment shall be in an amount equal to the
Exercise Price as hereinabove defined.
The person entitled to receive the number of Warrant Shares deliverable on
such exercise shall be treated for all purposes as the Registered Owner of such
Warrant Shares as of the close of business on the Exercise Date. The Company
shall not be obligated to issue any fractional share interests in Warrant
Shares. If Warrants represented by more than one Warrant Certificate shall be
exercised at one time by the same Registered Owner, the number of full Warrant
Shares which shall be issuable on exercise thereof shall be computed on the
basis of the aggregate number of full Warrant Shares issuable on such exercise.
As soon as practicable on or after the Exercise Date and in any event
within 30 days after such date, the Warrant Agent shall cause to be issued and
delivered to the person or persons entitled to receive the same, a certificate
or certificates for the number of Warrant Shares deliverable on such exercise.
No adjustment shall be made in respect of cash dividends on Warrant Shares
deliverable on exercise of any Warrant. The Warrant Agent shall promptly notify
the Company in writing of any exercise and of the number of Warrant Shares
caused to be delivered and shall cause payment of an amount in cash equal to the
Exercise Price to be made promptly to the order of the Company. The Parties
contemplate such payments will be made by the Warrant Agent to the Company on a
weekly basis and will consist of collected funds only. The Warrant Agent shall
hold any proceeds collected and not yet paid to the Company in a
Federally-insured escrow account at a commercial bank selected by agreement of
the Company and the Warrant Agent, at all times relevant hereto. Following a
determination by the Warrant Agent that collected funds have been received, the
Warrant Agent shall cause the Transfer Agent to issue share certificates
representing the number of Warrant Shares purchased by the Registered Owner.
Expenses incurred by the Warrant Agent, including administrative costs, and
the standard fees imposed by the Warrant Agent for the Warrant Agent's services,
shall be paid by the Company and shall be deducted from the Escrow Account prior
to distribution of funds to the Company.
<PAGE>
A detailed accounting statement setting forth the number of Warrants
exercised, the number of Warrant Shares issued, the net amount of exercised
funds and all expenses incurred by the Warrant Agent shall be transmitted to the
Company on payment of each exercise amount. Such accounting statement shall
serve as an interim accounting for the Company during the Exercise Period. The
Warrant Agent shall render to the Company, at the completion of the Exercise
Period, a complete accounting setting forth the number of Warrants exercised,
the identity of persons exercising such Warrants, the number of Warrant Shares
issued, the amounts distributed to the Company, and all expenses incurred by the
Warrant Agent.
The Company may be required to deliver a prospectus that satisfies the
requirements of Section 10 of the Securities Act of 1933, as amended (the "1933
Act") with delivery of the Warrant Shares and must have a registration statement
(or a post-effective amendment to an existing registration statement) effective
under the 1933 Act in order for the Company to comply with any such prospectus
delivery requirements. The Company will advise the Warrant Agent of the status
of any such registration statement under the 1933 Act and of the effectiveness
of the Company's registration statement or lapse of effectiveness.
No issuance of Warrant Shares shall be made unless there is an effective
registration statement under the 1933 Act, and registration or qualification of
the Warrant Shares, or an exemption therefrom, has been obtained from state or
other regulatory authorities in the jurisdiction in which such Warrant Shares
are sold. The Company will provide to the Warrant Agent written confirmation of
all such registration or qualification, or an exemption therefrom, when
requested by the Warrant Agent.
5. Redemption.
Commencing the Effective Date, the Company may, at its option, redeem the
Warrants in whole, but not in part, for a redemption price of $.001 per Warrant,
on not less than 30 days' notice to the Registered Owners. The right to redeem
the Warrants may be exercised by the Company during the Exercise Period only in
the event (i) the closing bid price for Company's shares of Common Stock has
equaled or exceeded $1.25 (125% of the Warrant Exercise Price) for 20
consecutive trading days, (ii) any notice of the call for redemption is given
not more than ten (10) business days after the conclusion of the 20 consecutive
trading days referred to in the foregoing (i), (iii) the Company has a
registration statement (or a post-effective amendment to an existing
registration statement) pertaining to the Warrant Shares effective with the
Securities and Exchange Commission, which registration statement would enable a
Registered Owner to exercise the Warrants, and (iv) the expiration of the 30 day
notice period is within the Exercise Period. In the event the Company exercises
its right to redeem the Warrants, the Expiration Date will be deemed to be, and
the Warrants will be exercisable until the close of business on, the date fixed
for redemption in such notice. If any Warrant called for redemption is not
exercised by such time, it will cease to be exercisable and the Registered Owner
thereof will be entitled only to the redemption price
6. Reservation of Shares and Payment of Taxes.
The Company covenants that it will at all times reserve and have available
from its authorized shares of Common Stock such number of Shares as shall then
be issuable on exercise of all outstanding Warrants. The Company covenants that
all Warrant Shares issuable shall be duly and validly issued, fully paid and
non-assessable, and free from all taxes, liens and charges with respect to the
issue thereof.
<PAGE>
The Registered Owner shall pay all documentary, stamp or similar taxes and
other government charges that may be imposed with respect to the issuance of the
Warrants, or the issuance, transfer or delivery of any Warrant Shares on
exercise of the Warrants. In the event the Warrant Shares are to be delivered in
a name other than the name of the Registered Owner of the Warrant Certificates,
no such delivery shall be made unless the person requesting the same has paid to
the Warrant Agent or Transfer Agent the amount of any such taxes or charges
incident thereto.
The Company will supply the Warrant Agent with blank Warrant Certificates,
so as to maintain an inventory satisfactory to the Warrant Agent. The Warrant
Agent will also serve as Transfer Agent for the Shares.
7. Registration of Transfer.
The Warrant Certificates may be transferred in whole or in part and may be
separately transferred from the Share Certificate to which such Warrant
Certificate is attached upon initial issuance, if any, at any time during the
Exercise Period. Warrant Certificates to be exchanged shall be surrendered to
the Warrant Agent at its corporate office. The Company shall execute and the
Warrant Agent shall countersign, issue and deliver in exchange therefor, the
Warrant Certificate or Certificates which the holder making the transfer shall
be entitled to receive.
The Warrant Agent shall keep transfer books at its corporate office on
which Warrant Certificates and the transfer thereof shall be registered. On due
presentment for registration of transfer of any Warrant Certificate at such
office, the Company shall execute and the Warrant Agent shall issue and deliver
to the transferee or transferees a new Warrant Certificate or Certificates
representing an equal aggregate number of Warrants.
All Warrant Certificates presented for registration of transfer or exercise
shall be duly endorsed or be accompanied by a written instrument or instruments
of transfer in form satisfactory to the Company and the Warrant Agent.
Prior to due presentment for registration of transfer thereof, the Company
and the Warrant Agent may treat the Registered Owner of any Warrant Certificate
as the absolute owner thereof (notwithstanding any notations of ownership or
writing thereon made by anyone other than the Company or the Warrant Agent) and
the Parties shall not be affected by any notice to the contrary.
8. Loss or Mutilation.
On receipt by the Company and the Warrant Agent of evidence satisfactory as
to the ownership of and the loss, theft, destruction or mutilation of any
Warrant Certificate, the Company shall execute and the Warrant Agent shall
countersign and deliver in lieu thereof, a new Warrant Certificate representing
an equal aggregate number of Warrants. In the case of loss, theft or destruction
of any Warrant Certificate, the Registered Owner requesting issuance of a new
Warrant Certificate shall be required to secure an indemnity bond from an
approved surety bonding company in favor of the Company and Warrant Agent in an
amount satisfactory to each of them. In the event a Warrant Certificate is
mutilated, such Certificate shall be surrendered and cancelled by the Warrant
Agent prior to delivery of a new Warrant Certificate. Applicants for a
substitute Warrant Certificate shall also comply with such other regulations and
pay such other reasonable charges as the Company may prescribe.
<PAGE>
9. Adjustment of Exercise Price and Shares.
(a) If at any time prior to the expiration of the Warrants by their terms
or by exercise, the Company increases or decreases the number of its
issued and outstanding shares of Common Stock, or changes in any way
the rights and privileges of such shares of Common Stock, by means of
(i) the payment of a share dividend or the making of any other
distribution on such shares of Common Stock payable in its shares of
Common Stock, (ii) a split or subdivision of shares of Common Stock,
or (iii) a consolidation or combination of shares of Common Stock,
then the Exercise Price in effect at the time of such action and the
number of Warrants required to purchase each Warrant Share at that
time shall be proportionately adjusted so that the numbers, rights and
privileges relating to the Warrant Shares then purchasable upon the
exercise of the Warrants shall be increased, decreased or changed in
like manner, for the same aggregate purchase price set forth in the
Warrants, as if the Warrant Shares purchasable upon the exercise of
the Warrants immediately prior to the event had been issued,
outstanding, fully paid and non-assessable at the time of that event.
Any dividend paid or distributed on the shares of Common Stock in
shares of any other class of shares of the Company or securities
convertible into shares of Common Stock shall be treated as a dividend
paid in shares of Common Stock to the extent shares of Common Stock
are issuable on the payment or conversion thereof.
(b) In the event, prior to the expiration of the Warrants by exercise or
by their terms, the Company shall be recapitalized by reclassifying
its outstanding shares of Common Stock into shares with a different
par value, or by changing its outstanding shares of Common Stock to
shares without par value or in the event of any other material change
in the capital structure of the Company or of any successor
corporation by reason of any reclassification, recapitalization or
conveyance, prompt, proportionate, equitable, lawful and adequate
provision shall be made whereby any Registered Owner of the Warrants
shall thereafter have the right to purchase, on the basis and the
terms and conditions specified in this Agreement, in lieu of the
Warrant Shares theretofore purchasable on the exercise of any Warrant,
such securities or assets as may be issued or payable with respect to
or in exchange for the number of Warrant Shares theretofore
purchasable on exercise of the Warrants had such reclassification,
recapitalization or conveyance not taken place; and in any such event,
the rights of any Registered Owner of a Warrant to any adjustment in
the number of Warrant Shares purchasable on exercise of such Warrant,
as set forth above, shall continue and be preserved in respect of any
stock, securities or assets which the Registered Owner becomes
entitled to purchase.
(c) In the event the Company, at any time while the Warrants shall remain
unexpired and unexercised, shall sell all or substantially all of its
property, or dissolves, liquidates or winds up its affairs, prompt,
proportionate, equitable, lawful and adequate provision shall be made
as part of the terms of such sale, dissolution, liquidation or winding
up such that the Registered Owner of a Warrant may thereafter receive,
on exercise thereof, in lieu of each Warrant Share which the
Registered Owner would have been entitled to receive, the same kind
and amount of any stock, securities or assets as may be issuable,
distributable or payable on any such sale, dissolution, liquidation or
winding up with respect to each share of Common Stock of the Company;
provided, however, that in the event of any such sale, dissolution,
liquidation or winding up, the right to exercise the Warrants shall
terminate on a date fixed by the Company, such date to be not earlier
than 5:00 P.M., Eastern Time, on the 30th day next succeeding the date
on which notice of such termination of the right to exercise the
Warrants has been given by mail to the Registered Owners thereof at
such addresses as may appear on the books of the Company.
<PAGE>
(d) In the event prior to the expiration of the Warrants by exercise or by
their terms, the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to purchase its shares
of Common Stock at a price per share more than 10% below the
then-current market price per share (as defined below) at the date of
taking such record, then, (i) the number of Warrant Shares purchasable
pursuant to the Warrants shall be redetermined as follows: the number
of Warrant Shares purchasable pursuant to a Warrant immediately prior
to such adjustment (taking into account fractional interests to the
nearest 1,000th of a share) shall be multiplied by a fraction, the
numerator of which shall be the number of shares of Common Stock of
the Company outstanding (excluding shares of Common Stock then owned
by the Company) immediately prior to the taking of such record, plus
the number of additional shares offered for purchase, and the
denominator of which shall be the number of shares of Common Stock of
the Company outstanding (excluding shares of Common Stock owned by the
Company) immediately prior to the taking of such record, plus the
number of shares which the aggregate offering price of the total
number of additional shares so offered would purchase at such current
market price; and (ii) the Exercise Price per Warrant Share
purchasable pursuant to a Warrant shall be redetermined as follows:
the Exercise Price in effect immediately prior to the taking of such
record shall be multiplied by a fraction, the numerator of which is
the number of Warrant Shares purchasable immediately prior to the
taking of such record, and the denominator of which is the number of
Warrant Shares purchasable immediately after the taking of such record
as determined pursuant to clause (i) above; provided, however, (i)
that any adjustment in the number of shares issuable as set forth
above shall be effective only to the extent sufficient shares of
Common Stock have bee registered through a registration statement
effective under the 1933 Act, and (ii) that any adjustment in the
Exercise Price does not cause the Company to receive proceeds in
excess of the amount authorized by any such registration statement.
For the purpose hereof, the current market price per share at any date
shall be determined as follows:
(i) The current market price shall be the average of the closing
prices of the Common Stock as reported by the exchange or system
on which the Company's Common Stock trades for 10 consecutive
business days commencing 30 business days prior to the record
date;
(ii) If the Common Stock is not so listed or admitted to unlisted
trading privileges or so quoted, the current market price shall
be the average of the last reported highest bid and the lowest
asked prices quoted on the National Association of Securities
Dealers, Inc. Automated Quotations System or, if not so quoted,
then by the National Quotation Bureau, Inc. for 10 consecutive
business days commencing 30 business days prior to the record
date; or
(iii)If the Common Stock is not so listed or admitted to unlisted
trading privileges or so quoted, and bid and asked prices are not
reported, the current market price shall be determined in such
reasonable manner as may be prescribed by the Board of Directors.
(e) On exercise of the Warrants by the Registered Owners, the Company
shall not be required to deliver fractions of Warrant Shares;
provided, however, that the Company shall make prompt, proportionate,
equitable, lawful and adequate provisions in respect of any such
fraction of one Warrant Share either on the basis of adjustment in the
then applicable Exercise Price or a purchase of the fractional
interest at the price of the Company's shares of Common Stock or such
other reasonable basis as the Company may determine.
<PAGE>
(f) In the event, prior to expiration of the Warrants by exercise or by
their terms, the Company shall determine to take a record of the
holders of its shares of Common Stock for the purpose of determining
stockholders entitled to receive any stock dividend, distribution or
other right which will cause any change or adjustment in the number,
amount, price or nature of the shares of Common Stock or other stock,
securities or assets deliverable on exercise of the Warrants pursuant
to the foregoing provisions, the Company shall give to the Registered
Owners of the Warrants at the addresses as may appear on the books of
the Company at least 30 days' prior written notice to the effect that
it intends to take such a record. Such notice shall specify the date
as of which such record is to be taken; the purpose for which such
record is to be taken; and the number, amount, price and nature of the
shares of Common Stock or other stock, securities or assets which will
be deliverable o exercise of the Warrants after the action for which
such record will be taken has been completed. Without limiting the
obligation of the Company to provide notice to the Registered Owners
of the Warrants of any corporate action hereunder, the failure of the
Company to give notice shall not invalidate such corporate action of
the Company.
(g) The Warrants shall not entitle the Registered Owner thereof to any of
the rights of stockholders or to any dividend declared on the shares
of Common Stock unless the Warrant is exercised and the Warrant Shares
purchased prior to the record date fixed by the Board of Directors of
the Company for the determination of holders of shares of Common Stock
entitled to such dividend or other right.
(h) Any reduction in the applicable Exercise Price shall be effective upon
written notice to the Warrant Agent, which notice shall be given
pursuant to a duly and validly authorized resolution of the Board of
Directors of the Company. Any such reduction in the Exercise Price
shall not entitle the Registered Owners to issuance of any additional
Common Shares pursuant to the adjustment provisions set forth
elsewhere herein, regardless of whether the reduction in the Exercise
Price was effected either prior to or following exercise of Warrants
by the Registered Owners thereof. A nonexercising Registered Owner
shall have no remedy or rights to receive any additional Warrant
Shares as a result of any reduction in any applicable Exercise Price
pursuant to this subsection.
10. Duties, Compensation and Termination of Warrant Agent.
The Warrant Agent shall act hereunder as agent and in a ministerial
capacity for the Company, and its duties shall be determined solely by the
provisions hereof. The Warrant Agent shall not, by issuing and delivering
Warrant Certificates or by any other act hereunder, be deemed to make any
representations as to the validity, value or authorization of the Warrant
Certificate or the Warrants represented thereby or of the Warrant Shares or
other property delivered on exercise of any Warrant. The Warrant Agent shall not
be under any duty or responsibility to any holder of the Warrant Certificates to
make or cause to be made any adjustment of the Exercise Price or to determine
whether any fact exists which may require any such adjustment.
<PAGE>
The Warrant Agent shall not (i) be liable for any recital or statement of
fact contained herein or for any action taken or omitted by it in reliance on
any Warrant Certificate or other document or instrument believed by it in good
faith to be genuine and to have been signed or presented by the proper Party or
Parties, (ii) be responsible for any failure on the part of the Company to
comply with any of its covenants and obligations contained in this Agreement or
in the Warrant Certificates, or (iii) be liable for any act or omission in
connection with this Agreement except for its own negligence or willful
misconduct.
The Warrant Agent may at any time consult with counsel satisfactory to it
(who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken or omitted by it in good faith in accordance
with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order or demand of
the Company shall be sufficiently evidenced by an instrument signed by an
officer of the Company. The Warrant Agent shall not be liable for any action
taken or omitted by it in accordance with such notice, statement, instruction,
request, direction, order or demand.
The Company agrees to pay the Warrant Agent reasonable compensation for its
services hereunder and to reimburse the Warrant Agent for its reasonable
expenses. The Company further agrees to indemnify the Warrant Agent against any
and all losses, expenses and liabilities, including judgments, costs and counsel
fees, for any action taken or omitted by the Warrant Agent in the execution of
its duties and powers hereunder, excepting losses, expenses and liabilities
arising as a result of the Warrant Agent's negligence or willful misconduct.
The Warrant Agent may resign its duties or the Company may terminate the
Warrant Agent and the Warrant Agent shall be discharged from all further duties
and liabilities hereunder (except liabilities arising as a result of the Warrant
Agent's own negligence or willful misconduct) on 30 days' prior written notice
to the other Party. Upon notice by the Company to the Warrant Agent, the Warrant
Agent shall cause a copy of such notice of resignation to be mailed to the
Registered Owner of each Warrant Certificate. The expenses the Warrant Agent
incurs in mailing such notice shall be paid by the Company. On such resignation
or termination, the Company shall appoint a new Warrant Agent. If the Company
shall fail to make such appointment within a period of 30 days after it has been
notified in writing of the resignation by the Warrant Agent, then the Registered
Owner of any Warrant Certificate may apply to any court of competent
jurisdiction for the appointment of a new Warrant Agent. Any new Warrant Agent
shall have its principal office in the United States.
After acceptance in writing of an appointment of a new warrant agent is
received by the Company, such new warrant agent shall be vested with the same
powers, rights, duties and responsibilities as if it had been originally named
herein as the Warrant Agent, without any further assurance, conveyance, act or
deed; provided, however, if it shall be necessary or expedient to execute and
deliver any further assurance, conveyance, act or deed, the same shall be done
at the expense of the Company and shall be legally and validly executed. The
Company shall file a notice of appointment of a new warrant agent with the
resigning Warrant Agent and shall forthwith cause a copy of such notice to be
mailed to the Registered Owner of each Warrant Certificate.
<PAGE>
Any corporation into which the Warrant Agent or any new Warrant Agent may
be converted or merged, or any corporation resulting from any consolidation to
which the Warrant Agent or any new Warrant Agent shall be a party, or any
corporation succeeding to the corporate trust business of the Warrant Agent
shall be a successor Warrant Agent under this Agreement, provided that such
corporation is eligible for appointment as a successor to the Warrant Agent. Any
such successor Warrant Agent shall promptly cause notice of its succession as
Warrant Agent to be mailed to the Company and to the Registered Owner of each
Warrant Certificate. No further action shall be required for establishment and
authorization of such successor Warrant Agent.
The Warrant Agent, its officers or directors and it subsidiaries or
affiliates may buy, hold or sell Warrants or other securities of the Company and
otherwise deal with the Company in the same manner and to the same extent and
with like effect as though it were not the Warrant Agent. Nothing herein shall
preclude the Warrant Agent from acting in any other capacity for the Company.
11. Modification of Agreement.
The Warrant Agent and the Company may by supplemental agreement make any
changes or corrections in this Agreement they shall deem appropriate to cure any
ambiguity or to correct any defective or inconsistent provision or mistake or
error herein contained. Additionally, the Parties may make any changes or
corrections deemed necessary which shall not adversely affect the interests of
the Registered Owners of Warrant Certificates; provided, however, this Agreement
shall not otherwise be modified, supplemented or altered in any respect except
with the consent in writing of the Registered Owners of Warrant Certificates
representing not less than a majority of the Warrants outstanding. Additionally,
no change in the number or nature of the Warrant Shares purchasable on exercise
of a Warrant or the Exercise Price therefor shall be made without the consent in
writing of the Registered Owner of the Warrant Certificate representing such
Warrant, other than such changes as are specifically prescribed by this
Agreement.
12. Notices.
All notices, demands, elections, opinions or requests (however
characterized or described) required or authorized hereunder shall be deemed
given sufficiently in writing and sent by registered or certified mail, return
receipt requested and postage prepaid, or by tested telex, telegram or cable to:
in the case of the Company:
Kingsgate Acquisitions, Inc.
950 11th Street
West Vancouver, British Columbia V7T 2M3
Canada
and in the case of the Warrant Agent:
Olde Monmouth Stock Transfer Co., Inc.
77 Memorial Parkway (Suite 101)
Atlantic Highlands New Jersey 07716
and, if requested by the Company to the Registered Owner of a Warrant
Certificate, at the address of such Registered Owner as set forth on the books
maintained by the Warrant Agent.
<PAGE>
13. Persons Benefiting.
This Agreement shall be binding upon and inure to the benefit of the
Company, the Warrant Agent and their respective successors and assigns, and the
Registered Owners and beneficial owners from time to time of the Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer on any other person any right, remedy or claim or to impose on any other
person any duty, liability or obligation.
14. Further Instruments.
The Parties shall execute and deliver any and all such other instruments
and shall take any and all such other actions as may be reasonable or necessary
to carry out the intention of this Agreement.
15. Severability.
If any provision of this Agreement shall be held, declared or pronounced
void, voidable, invalid, unenforceable or inoperative for any reason by any
court of competent jurisdiction, government authority or otherwise, such
holding, declaration or pronouncement shall not affect adversely any other
provision of this Agreement, which shall otherwise remain in full force and
effect and be enforced in accordance with its terms, and the effect of such
holding, declaration or pronouncement shall be limited to the territory or
jurisdiction in which made.
16. Waiver.
All the rights and remedies of either Party under this Agreement are
cumulative and not exclusive of any other rights and remedies as provided by
law. No delay or failure on the part of either Party in the exercise of any
right or remedy arising from a breach of this Agreement shall operate as a
waiver of any subsequent right or remedy arising from a subsequent breach of
this Agreement. The consent of any Party where required hereunder to any act or
occurrence shall not be deemed to be a consent to any other action or
occurrence.
17. General Provisions.
This Agreement shall be construed and enforced in accordance with, and
governed by, the local laws of the State of New Jersey. Except as otherwise
expressly stated herein, time is of the essence in performing hereunder. This
Agreement embodies the entire agreement and understanding between the Parties
and supersedes all prior agreements and understandings relating to the subject
matter hereof, and this Agreement may not be modified or amended or any term or
provision hereof waived or discharged except in writing signed by the Party
against whom such amendment, modification, waiver or discharge is sought to be
enforced. The headings of this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning thereof. This Agreement may
be executed in any number of counterparts, each of which shall be deemed an
original, but all of which taken together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly
executed as of the date first above mentioned.
THE COMPANY:
KINGSGATE ACQUISITIONS, INC.
(CORPORATE SEAL)
By:
-----------------------------------
Barney Magnusson, President
ATTEST:
/s/
- -----------------------------------
Leslie McGuffin, Secretary
THE WARRANT AGENT:
OLDE MONMOUTH STOCK TRANSFER CO., INC.
By: /s/
------------------------------------
Title:
ATTEST:
/s/
- -------------------------------------
, Secretary
<PAGE>
Roger L. Fidler
Attorney at Law
163 South Street
Hackensack, New Jersey 07601
October 31, 1999
Securities and Exchange Commission
Washington, D.C.
Re: Kingsgate Acquisitions, Inc.
To Whom It May Concern:
Kingsgate Acquisitions, Inc. (the "Company") is a corporation duly
incorporated and validly existing and in good standing under the laws of the
State of Delaware. The Company has full corporate powers to own its property and
conduct its business, as such business is described in the prospectus which is a
part of a registration statement on Form SB-2. The Company is qualified to do
business as a foreign corporation in good standing in every jurisdiction in
which the ownership of property and the conduct of business requires such
qualification.
This opinion is given in connection with the registration with the
Securities and Exchange Commission of one million (1,000,000) units, ("Units")
each Unit consisting of one share of common stock ("Share") and five common
stock purchase warrants ("Warrant") at a price per unit of $0.10, for sale in
the Company's proposed public offering.
I have acted as counsel to the company in connection with the preparation
of the Registration Statement on Form SB-2, pursuant to which the Units (each
consisting of one Share and Five Warrants), and Shares underlying the Warrants
are being registered and, in so acting, I have examined the originals and copies
of the corporate instruments, certificates and other documents of the Company
and interviewed representatives of the Company to the extent I deemed it
necessary in order to form the basis for the opinion hereafter set forth. In
such examination, I have assumed the genuineness of all signatures and
authenticity of all documents submitted to me as certified or photostatic
copies. As to all questions of fact material to this opinion which have not been
independently established, I have relied upon statements or certificates of
officers or representatives of the Company.
All of the 1,000,000 Shares contained in the Units and 5,000,000 Shares
underlying the Warrants which are being registered are now authorized but
unissued Shares. The Warrants which are part of the Units have been authorized
by the board of directors of the Company
Based upon the foregoing, I am of the opinion that the 1,000,000 Shares,
being registered for sale by the Company as part of the Units when issued and
sold pursuant to this Registration Statement and the 5,000,000 Shares underlying
the Warrants which are likewise part of the Units, when exercised, will be
legally issued, fully paid and non-assessable and there will be no personal
liability to investors and holders of the Warrants who exercise them.
/s/Roger L. Fidler
---------------------
Roger L. Fidler
ESCROW AGREEMENT IN ACCORDANCE WITH RULE 419
UNDER THE SECURITIES ACT OF 1933
ESCROW AGREEMENT dated as of ------- --, 1999 (the "Agreement") by and
between Kingsgate Acquisitions, Inc., a Delaware corporation (the "Company") and
Torrington Savings Bank (the "Escrow Agent") (collectively the "Parties" and,
individually, a "Party").
The Company, through its President, will sell in its public offering (the
"Offering") up to 1,000,000 units (the "Units") each Unit consisting of one
share of common stock, par value $.001 (the "Shares") and five redeemable common
stock purchase warrants (the "Warrants"), as more fully described in the
Company's definitive Prospectus dated ---------------- , 1999 comprising part of
the Company's Registration Statement on Form SB-2 (the "Registration Statement")
under the Securities Act of 1933, (the "Securities Act") (File No.-------)
declared effective on -------------, 1999 (the "Prospectus").
The Company desires that the Escrow Agent accept all offering proceeds,
with no deductions for amounts permitted to be released to the Company under
Rule 419 to the Securities Act ("Rule 419"), a copy of which rule is attached
hereto and made a part hereof, to be derived by the Company from the sale of the
Units (the "Offering Proceeds"), as well as the share and warrant certificates
representing the Shares and Warrants, which constitute the Units, issued in
connection with the Offering, in escrow, to be held and disbursed as hereinafter
provided.
NOW, THEREFORE, in consideration of the promises and mutual covenants
hereinafter set forth, the Parties agree as follows:
1. Appointment of Escrow Agent.
The Company hereby appoints the Escrow Agent to act in accordance with and
subject to the terms of this Agreement; and the Escrow Agent hereby accepts such
appointment and will act in accordance with and subject to such terms.
2. Deposit of Offering Proceeds and Share Certificates.
Subject to Rule 419, upon the Company's receipt and acceptance of
subscriptions and Offering Proceeds, the Company shall promptly deliver to the
Escrow Agent such checks in the aggregate amount of the Offering Proceeds drawn
to the order of the Escrow Agent or, alternatively, in the event that checks are
drawn to the order of the Company, they shall be endorsed by the Company for
collection by the Escrow Agent and credited to the Escrow Account.
All share and warrant certificates representing the Shares and Warrants,
respectively, issued in connection with the Offering shall also be deposited by
the Company directly into the Escrow Account promptly upon issuance. The
identity of the purchasers of the securities shall be included on the stock and
warrant certificates and other documents evidencing such securities. Securities
held in the Escrow Account are to remain as issued and deposited and shall be
held for the sole benefit of the purchasers, who shall have voting rights with
respect to securities held in their names. No transfer or other disposition of
securities held in the Escrow Account or any interest related to such securities
shall be permitted other than by will or the laws of descent and distribution,
or pursuant to a qualified domestic relations order as defined by the Internal
Revenue Code of 1986 as amended, or Title 1 of the Employee Retirement Income
Security Act and the rules thereunder.
<PAGE>
Warrants, convertible securities or other derivative securities, if any,
relating to securities held in the Escrow Account may be exercised or converted
in accordance with their terms; provided however, that securities received upon
exercise or conversion, together with any cash or other consideration paid in
connection with the exercise or conversion, are promptly deposited into the
Escrow Account.
3. Disbursement of the Escrow Account.
Upon the earlier of (i) receipt by the Escrow Agent of a signed
representation from the Company to the Escrow Agent, that the requirements of
Rule 419 have been met, and consummation of an acquisition meeting the
requirements of Rule 419 or (ii) written notification from the Company to the
Escrow Agent to deliver the Offering Proceeds to another escrow agent in
accordance with Paragraph 4 then, in such event, the Escrow Agent shall disburse
the Offering Proceeds (inclusive of any interest thereon) to the Company and the
securities to the purchasers or registered holders identified on the deposited
securities or deliver the Offering Proceeds and securities to such other escrow
agent, as the case may be, whereupon the Escrow Agent shall be released from
further liability hereunder.
Notwithstanding the foregoing, if the Company has not informed the Escrow
Agent within 18 months after the date of the Prospects in writing that an
acquisition meeting the requirements of Rule 419 has occurred, funds held in the
Escrow Account shall be returned by first class mail or equally prompt means
pro rata to the purchasers and all securities held in the Escrow Account shall
be returned to the Company within five business days following that date.
4. Concerning the Escrow Agent.
The Escrow Agent shall not be liable for any actions taken or omitted by
it, or any action suffered by it to be taken or omitted by it, in good faith and
in the exercise of its own best judgment, and may rely conclusively and shall be
protected in acting upon any order, notice demand, certificate, opinion or
advice of counsel (including counsel chosen by the Escrow Agent), statement,
instrument, report or other paper or document (not only as to its due execution
and the validity and effectiveness of its provision, but also as to the truth
and acceptability of any information therein contained) which is believed by the
Escrow Agent to be genuine and to be signed or presented by the proper person or
person.
The Escrow Agent shall not be bound by any notice or demand, or any waiver,
modification, termination or rescission of this Agreement unless evidenced by a
writing delivered to the Escrow Agent signed by the proper Party or Parties and,
if the duties or rights of the Escrow Agent are affected, unless it shall have
given its prior written consent thereto.
The Escrow Agent shall not be responsible for the sufficiency or accuracy,
the form of, or the execution validity, value or genuineness of any document or
property received, held or delivered by it hereunder, or of any signature or
endorsement thereon, or for any lack of endorsement thereon, or for any
description therein, nor shall the Escrow Agent be responsible or liable in any
respect on account of the identity, authority or rights of the person executing
or delivering or purporting to execute or deliver any document or property paid
or delivered by the Escrow Agent under the provisions hereof.
<PAGE>
The Escrow Agent shall not be liable for any loss which may be incurred by
reason of any investment of any monies or properties which it holds hereunder.
The Escrow Agent shall have the right to assume, in the absence of written
notice to the contrary from the proper person or persons, that a fact or an
event by reason of which an action would or might be taken by the Escrow Agent
does not exist or has not occurred, without incurring liability for any action
taken or omitted, in good faith and in the exercise of its own best judgment, in
reliance upon such assumption.
The Escrow Agent shall be indemnified and held harmless by the Company from
and against any expenses, including counsel fees and disbursements, or loss
suffered by the Escrow Agent in connection with any action, suit or other
proceeding involving any claim, or in connection with any claim or demand, which
in any way directly or indirectly arises out of or relates to this Agreement,
the services of the Escrow Agent hereunder, the monies or other property held by
it hereunder or any such expense or loss. Promptly after the receipt by the
Escrow Agent of notice of any demand or claim or the commencement of any action,
suit or proceeding, the Escrow Agent shall, if a claim in respect thereof shall
be made against the other Parties, notify such Parties in writing; but the
failure by the Escrow Agent to give such notice shall not relieve any Party form
any liability which such Party may have to the Escrow Agent hereunder. Upon the
receipt of such notice, the Escrow Agent, in its sole discretion, may commence
an action in the nature of interpleader in an appropriate court to determine
ownership or disposition of the Escrow Account or it may deposit the Escrow
Account with the clerk of any appropriate court or it may retain the Escrow
Account pending receipt of a final, non-appealable order of a court having
jurisdiction over all of the Parties directing to whom and under what
circumstances the Escrow Account is to be disbursed and delivered.
The Escrow Agent shall be entitled to reasonable compensation from the
Company for all services rendered by it hereunder.
From time to time on and after the date hereof, the Company shall deliver
or cause to be delivered to the Escrow Agent such further documents and
instruments and shall do or cause to be done such further acts as the Escrow
Agent shall reasonably request (it being understood that the Escrow Agent shall
have no obligation to make such request) to carry out more effectively the
provisions and purposes of this Agreement, to evidence compliance herewith or to
assure itself that it is protected in acting hereunder.
The Escrow Agent may resign at any time and be discharged from its duties
as Escrow Agent hereunder by its giving the Company at least thirty (30) days'
prior written notice thereof. As soon as practicable after its resignation, the
Escrow Agent shall turn over to a successor escrow agent appointed by the
Company, all monies and property held hereunder upon presentation of the
document appointing the new escrow agent and its acceptance thereof. If no new
escrow agent is so appointed in the sixty (60) day period following the giving
of such notice of resignation, the Escrow Agent may deposit the Escrow Account
with any court it deems appropriate.
The Escrow Agent shall resign and be discharged form its duties as Escrow
Agent hereunder if so requested in writing at any time by the Company, provided,
however, that such resignation shall become effective only upon acceptance of
appointment by a successor escrow agent as provided above. Notwithstanding
anything herein to the contrary, the Escrow Agent shall not be relieved from
liability thereunder for its own gross negligence or its own willful misconduct.
<PAGE>
5. Miscellaneous.
This Agreement shall for all purposes be deemed to be made under and shall
be construed in accordance with the internal laws of the State of Delaware.
This Agreement contains the entire agreement of the Parties with respect to
the subject matter hereof and, except as expressly provided herein, may not be
changed or modified except by an instrument in writing signed by the Party to be
charged.
The headings contained in this Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation thereof.
This Agreement shall be binding upon and inure to the benefit of the
respective Parties and their legal representatives, successors and assigns.
Any notice or other communication required or which may be given hereunder
shall be in writing and either be delivered personally or be mailed, certified
or registered mail, return receipt requested, postage prepaid, and shall be
deemed given when so delivered personally or, if mailed, two (2) days after the
date of mailing. The Parties may change the persons and addresses to which the
notices or other communications are to be sent by giving written notice to any
such change in the manner provided herein for giving notice.
WITNESS the execution of this Agreement as of the date first above written.
KINGSGATE ACQUISITIONS, INC.
By: /s/
------------------------------
Barney Magnusson, President
This Escrow Agreement is accepted as of the ----- day of ----------, 1999.
TORRINGTON SAVINGS BANK
By: ------------------------------
Authorized Representative
<PAGE>
Exhibit 23.1
Consent of Thomas Monahan CPA
<PAGE>
CONSENT
I, Thomas Monahan, hereby consent to the use of my report dated October 11,
1999, relating to the audited financial statements for period from inception
(September 28, 1999) to September 30, 1999 in a registration statement on SB-2
of Kingsgate Acquisitions, Inc. to be filed with the Securities and Exchange
Commission.
October 31, 1999
/s/Thomas Monahan
------------------
Thomas Monahan CPA
Exhibit 23.2
Consent of Roger L. Fidler, Esq.
<PAGE>
CONSENT
I, Roger L. Fidler, hereby consent to the use of my opinion dated October
31, 1999, and my name under the caption "Legal Matters" in the SB-2 Registration
Statement and prospectus, and any amendments thereto, as filed with the
Securities and Exchange Commission. of Kingsgate Acquisitions, Inc. to be filed
with the Securities and Exchange Commission.
/s/Roger L. Fidler
---------------------
Roger L. Fidler
Dated: October 31, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Financial Data Schedule September 30, 1999
</LEGEND>
<CIK> 1096141
<NAME> Kingsgate Acquisitions, Inc.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> SEP-28-1999
<PERIOD-END> SEP-30-1999
<CASH> 20,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 20,500
<CURRENT-LIABILITIES> 500
<BONDS> 0
0
0
<COMMON> 2,000
<OTHER-SE> 18,000
<TOTAL-LIABILITY-AND-EQUITY> 20,500
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
</TABLE>
