U. S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
Kushi Natural Foods Corp.
(Name of Small Business Issuer in its charter)
Delaware 13-3912047
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
c/o Madison Venture Capital II, Inc.
150 East 58th Street, New York, NY 10022 10022
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (212) 583-1363
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
Not Applicable Not Applicable
Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $.0001 per share
(Title of class)
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FORWARD LOOKING STATEMENTS
THIS FORM 10-SB12G AND OTHER STATEMENTS ISSUED OR MADE FROM TIME TO TIME BY
KUSHI NATURAL FOODS CORP. (HEREINAFTER REFERRED TO AS "KUSHI AND/OR THE
"COMPANY") OR ITS REPRESENTATIVES CONTAIN STATEMENTS WHICH MAY CONSTITUTE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE SECURITIES ACT OF 1933
AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED BY THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. FIFTEEN U.S.C.A. SECTIONS 77Z-2 AND 78U-5 (SUPP.
1996). THOSE STATEMENTS INCLUDE STATEMENTS REGARDING THE INTENT, BELIEF OR
CURRENT EXPECTATIONS OF KUSHI AND MEMBERS OF ITS MANAGEMENT TEAM AS WELL AS THE
ASSUMPTIONS ON WHICH SUCH STATEMENTS ARE BASED. PROSPECTIVE INVESTORS ARE
CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE
PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS.
IMPORTANT FACTORS CURRENTLY KNOWN TO MANAGEMENT THAT COULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE IN FORWARD-LOOKING STATEMENTS ARE SET FORTH IN
THE SAFE HARBOR COMPLIANCE STATEMENT FOR FORWARD-LOOKING STATEMENTS INCLUDED AS
EXHIBIT 99.1 TO THIS FORM 10-SB12G, AND ARE HEREBY INCORPORATED HEREIN BY
REFERENCE. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE OR REVISE
FORWARD-LOOKING STATEMENTS TO REFLECT CHANGED ASSUMPTIONS, THE OCCURRENCE OF
UNANTICIPATED EVENTS OR CHANGES TO FUTURE OPERATING RESULTS OVER TIME.
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RISK FACTORS
1. Control by Principal Shareholders, Officers and Directors.
The Company's principal shareholders, officers and directors will
beneficially own approximately ninety percent (90%) of the Company's Common
Stock. As a result, such persons may have the ability to control the Company and
direct its affairs and business. Such concentration of ownership may also have
the effect of delaying, deferring or preventing change in control of the
Company. See "Principal Stockholders."
2. Conflicts of Interest.
None of the Company's management is engaged by the Company on a full time
basis. In addition, both Dr. Eugene Stricker and Mark Schindler are engaged in
the venture capital business through entities other than the Company.
Accordingly, certain conflicts of interest exist between the Company and its
officers and directors. They have other business interests to which they devote
their attention, and they may be expected to continue to do so. As a result,
conflicts of interest may arise that can be resolved only through their exercise
of such judgment as is consistent with each officer's understanding of his
fiduciary duties to the Company. See "Management," and "Conflicts of Interest."
3. Possible Need for Additional Financing.
The Company has very limited funds, and such funds may not be adequate to
take advantage of any available business opportunities. Even if the Company's
funds prove to be sufficient to acquire an interest in, or complete a
transaction with, a business opportunity, the Company may not have enough
capital to exploit the opportunity. The ultimate success of the Company may
depend upon its ability to raise additional capital. The Company has not
investigated the availability, source, or terms that might govern the
acquisition of additional capital and will not do so until it determines a need
for additional financing. If additional capital is needed, there is no assurance
that funds will be available from any source or, if available, that they can be
obtained on terms acceptable to the Company. If not available, the Company's
operations will be limited to those that can be financed with its modest
capital.
4. Regulation of Penny Stocks.
The Company's securities, if and when available for trading, will be
subject to a Securities and Exchange Commission rule that imposes special sales
practice requirements upon broker-dealers who sell such securities to persons
other than established customers or accredited investors. For purposes of the
rule, the phrase "accredited investors" means, in general terms, institutions
with assets in excess of $5,000,000, or individuals having a net worth in excess
of $1,000,000 or having an annual income that exceeds $200,000 (or that, when
combined with a spouse's income, exceeds $300,000). For transactions covered by
the rule, the broker-dealer must make a special suitability
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determination for the purchaser and receive the purchaser's written agreement to
the transaction prior to the sale. Consequently, the rule may affect the ability
of broker- dealers to sell the Company's securities and also may affect the
ability of purchasers in this offering to sell their securities in any market
that might develop therefor.
In addition, the Securities and Exchange Commission has adopted a number of
rules to regulate "penny stocks." Such rules include Rules 3a51-1, 15g-1, 15g-2,
15g-3, 15g-4, 15g-5, 15g-6, and 15g-7 under the Securities Exchange Act of 1934,
as amended. Because the securities of the Company may constitute "penny stocks"
within the meaning of the rules, the rules would apply to the Company and to its
securities. The rules may further affect the ability of owners of Shares to sell
the securities of the Company in any market that might develop for them.
Shareholders should be aware that, according to Securities and Exchange
Commission Release No. 34-29093, the market for penny stocks has suffered in
recent years from patterns of fraud and abuse. Such patterns include (i) control
of the market for the security by one or a few broker-dealers that are often
related to the promoter or issuer; (ii) manipulation of prices through
prearranged matching of purchases and sales and false and misleading press
releases; (iii) "boiler room" practices involving high-pressure sales tactics
and unrealistic price projections by inexperienced sales persons; (iv) excessive
and undisclosed bid-ask differentials and markups by selling broker- dealers;
and (v) the wholesale dumping of the same securities by promoters and
broker-dealers after prices have been manipulated to a desired level, along with
the resulting inevitable collapse of those prices and with consequent investor
losses. The Company's management is aware of the abuses that have occurred
historically in the penny stock market. Although the Company does not expect to
be in a position to dictate the behavior of the market or of broker-dealers who
participate in the market, management will strive within the confines of
practical limitations to prevent the described patterns from being established
with respect to the Company's securities.
5. No Operating History.
The Company was formed in August of 1996 in connection with the merger of
Kushi Macrobiotics Corp. and American Phoenix Group, Inc. Pursuant to the terms
of the merger agreement between Kushi Macrobiotics Corp. and American Phoenix
Group, Inc., the Company's shares were spun off to the Kushi Macrobiotics Corp.
holders on a three for one basis and all of Kushi Macrobiotics Corp.'s assets
related to its Kushi Cuisine business and approximately $115,000 in cash were
transferred to the Company. The Company entered into a joint venture to continue
to promote the Kushi Cuisine business, but the joint venture failed and the
Company lost its investment therein of approximately $48,000. The Company was
inactive for several years and is now registering its common stock under the
1934 Act in order to better pursue its purpose of acquiring a business
opportunity. The Company has no operating history, revenues from operations, or
assets other than cash transferred to the Company at the time of its formation
(of which approximately $50,000 remains on hand). The Company faces all of the
risks of a new business and the special risks inherent in the investigation,
acquisition, or involvement in a new business
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opportunity. The Company must be regarded as a new or "start-up" venture with
all of the unforeseen costs, expenses, problems, and difficulties to which such
ventures are subject.
6. No Assurance of Success or Profitability.
There is no assurance that the Company will acquire a favorable business
opportunity. Even if the Company should become involved in a business
opportunity, there is no assurance that it will generate revenues or profits, or
that the market price of the Company's Common Stock will be increased thereby.
7. Reporting Requirements May Delay Or Preclude Acquisition.
Section 13 of the Securities Exchange Act of 1934 (the "Exchange Act"),
requires companies subject thereto to provide certain information about
significant acquisitions, including certified financial statements for the
company acquired, covering one or two years, depending on the relative size of
the acquisition. The time and additional costs that may be incurred by some
target entities to prepare such statements may significantly delay or
essentially preclude consummation of an otherwise desirable acquisition by the
Company. 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 1934 Act are applicable.
8. Lack of Market Research or Marketing Organization.
The Company has neither conducted, nor have others made available to it,
results of market research indicating that market demand exists for the
transactions contemplated by the Company. Moreover, the Company does not have,
and does not plan to establish, a marketing organization. Even in the event
demand is identified for a merger or acquisition contemplated by the Company,
there is no assurance the Company will be successful in completing any such
business combination.
9. Possible Business - Not Identified and Highly Risky.
The Company has not identified and has no commitments to enter into or
acquire a specific business opportunity and therefore can disclose the risks and
hazards of a business or opportunity that it may enter into except in a general
manner, and cannot disclose the risks and hazards of any specific business or
opportunity that it may enter into. An investor can expect a potential business
opportunity to be quite risky. The Company's acquisition of or participation in
a business opportunity will likely be highly illiquid and could result in a
total loss to the Company and its stockholders if the business or opportunity
proves to be unsuccessful. See Item 1 "Description of Business."
10. Type of Business Acquired.
The type of business to be acquired may be one that desires to avoid
effecting its own public
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offering and the accompanying expense, delays, uncertainties, and federal and
state requirements which purport to protect investors. Because of the Company's
limited capital, it is more likely than not that any acquisition by the Company
will involve other parties whose primary interest is the acquisition of control
of a publicly traded reporting company. Moreover, any business opportunity
acquired may be currently unprofitable or present other negative factors.
11. Impracticability of Exhaustive Investigation.
The Company's limited funds and the lack of full-time management will
likely make it impracticable to conduct a complete and exhaustive investigation
and analysis of a business opportunity before the Company commits its capital or
other resources thereto. Management decisions, therefore, will likely be made
without detailed feasibility studies, independent analysis, market surveys and
the like which, if the Company had more funds available to it, would be
desirable. The Company will be particularly dependent in making decisions upon
information provided by the promoter, owner, sponsor, or others associated with
the business opportunity seeking the Company's participation. A significant
portion of the Company's available funds may be expended for investigative
expenses and other expenses related to preliminary aspects of completing an
acquisition transaction, whether or not any business opportunity investigated is
eventually acquired.
12. Lack of Diversification.
Because of the limited financial resources that the Company has, it is
unlikely that the Company will be able to diversify its acquisitions or
operations. The Company's probable inability to diversify its activities into
more than one area will subject the Company to economic fluctuations within a
particular business or industry and therefore increase the risks associated with
the Company's operations.
13. Possible Reliance upon Unaudited Financial Statements.
The Company generally will require audited financial statements from
companies that it proposes to acquire. No assurance can be given, however, that
audited financials will be available to the Company. In cases where audited
financials are unavailable, the Company will have to rely upon unaudited
information received from target companies' management that has not been
verified by outside auditors. The lack of the type of independent verification
which audited financial statements would provide, increases the risk that the
Company, in evaluating an acquisition with such a target company, will not have
the benefit of full and accurate information about the financial condition and
operating history of the target company. This risk increases the prospect that
the acquisition of such a company might prove to be an unfavorable one for the
Company or the holders of the Company's securities. Moreover, the Company will
be subject to the reporting provisions of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and thus will be required to furnish certain
information about significant acquisitions, including audited financial
statements for any business that it acquires. Consequently, acquisition
prospects that do not have, or are unable
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to provide reasonable assurances that they will be able to obtain, the required
audited statements would not be considered by the Company to be appropriate for
acquisition so long as the reporting requirements of the Exchange Act are
applicable. Should the Company, during the time it remains subject to the
reporting provisions of the Exchange Act, complete an acquisition of an entity
for which audited financial statements prove to be unobtainable, the Company
would be exposed to enforcement actions by the Securities and Exchange
Commission (the "Commission") and to corresponding administrative sanctions,
including permanent injunctions against the Company and its management. The
legal and other costs of defending a Commission enforcement action are likely to
have material, adverse consequences for the Company and its business. The
imposition of administrative sanctions would subject the Company to further
adverse consequences.
In addition, the lack of audited financial statements would prevent the
securities of the Company from becoming eligible for listing on NASDAQ, the
automated quotation system sponsored by the National Association of Securities
Dealers, Inc., the Over the Counter Bulletin Board, or on any existing stock
exchange. Moreover, the lack of such financial statements is likely to
discourage broker-dealers from becoming or continuing to serve as market makers
in the securities of the Company. Without audited financial statements, the
Company would almost certainly be unable to offer securities under a
registration statement pursuant to the Securities Act of 1933, and the ability
of the Company to raise capital would be significantly limited until such
financial statements were to become available.
14. Other Regulation.
An acquisition made by the Company may be of a business that is subject to
regulation or licensing by federal, state, or local authorities. Compliance with
such regulations and licensing can be expected to be a time-consuming, expensive
process and may limit other investment opportunities of the Company.
15. Dependence upon Management; Limited Participation of Management.
The Company currently has four individuals who are serving as its officers
and directors. The Company will be heavily dependent upon their skills, talents,
and abilities to implement its business plan, and may, from time to time, find
that the inability of the sole officers and directors to devote their full time
attention to the business of the Company results in a delay in progress toward
implementing its business plan. Furthermore, since only four individuals are
serving as the officers and directors of the Company, it will be entirely
dependent upon their experience in seeking, investigating, and acquiring a
business and in making decisions regarding the Company's operations. See
"Management." Because investors will not be able to evaluate the merits of
possible business acquisitions by the Company, they should critically assess the
information concerning the Company's three officers and directors.
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16. Lack of Continuity in Management.
The Company does not have an employment agreement with any of its officers
and directors, and as a result, there is no assurance that they will continue to
manage the Company in the future. In connection with acquisition of a business
opportunity, it is likely the current officers and directors of the Company may
resign. A decision to resign will be based upon the identity of the business
opportunity and the nature of the transaction, and is likely to occur without
the vote or consent of the stockholders of the Company.
17. Indemnification of Officers and Directors.
The Company's Articles of Incorporation and applicable Delaware Law provide
for the indemnification of its directors, officers, employees, and agents, under
certain circumstances, against attorney's fees and other expenses incurred by
them in any litigation to which they become a party arising from their
association with or activities on behalf of the Company. The Company will also
bear the expenses of such litigation for any of its directors, officers,
employees, or agents, upon such person's promise to repay the Company therefor
if it is ultimately determined that any such person shall not have been entitled
to indemnification. This indemnification policy could result in substantial
expenditures by the Company which it will be unable to recoup.
18. Director's Liability Limited.
The Company's Articles of Incorporation exclude personal liability of its
directors to the Company and its stockholders for monetary damages for breach of
fiduciary duty except in certain specified circumstances. Accordingly, the
Company will have a much more limited right of action against its directors than
otherwise would be the case. This provision does not affect the liability of any
director under federal or applicable state securities laws.
19. Dependence upon Outside Advisors.
To supplement the business experience of its officers and directors, the
Company may be required to employ accountants, technical experts, appraisers,
attorneys, or other consultants or advisors. The selection of any such advisors
will be made by the Company's officers and directors without any input from
stockholders. Furthermore, it is anticipated that such persons may be engaged on
an "as needed" basis without a continuing fiduciary or other obligation to the
Company. In the event the President of the Company considers it necessary to
hire outside advisors, he may elect to hire persons who are affiliates, if they
are able to provide the required services.
20. Leveraged Transactions.
There is a possibility that any acquisition of a business opportunity by
the Company may be leveraged, i.e., the Company may finance the acquisition of
the business opportunity by borrowing against the assets of the business
opportunity to be acquired, or against the projected future revenues
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or profits of the business opportunity. This could increase the Company's
exposure to larger losses. A business opportunity acquired through a leveraged
transaction is profitable only if it generates enough revenues to cover the
related debt and expenses. Failure to make payments on the debt incurred to
purchase the business opportunity could result in the loss of a portion or all
of the assets acquired. There is no assurance that any business opportunity
acquired through a leveraged transaction will generate sufficient revenues to
cover the related debt and expenses.
21. Competition.
The search for potentially profitable business opportunities is intensely
competitive. The Company expects to be at a disadvantage when competing with
many firms that have substantially greater financial and management resources
and capabilities than the Company. These competitive conditions will exist in
any industry in which the Company may become interested. In addition, some
acquisition candidates may negatively regard the transaction in which the
Company was formed as no registration statement under the Securities Act of
1933, as amended, was filed at that time.
22. No Foreseeable Dividends.
The Company has not paid dividends on its Common Stock and does not
anticipate paying such dividends in the foreseeable future.
23. Loss of Control by Present Management and Stockholders.
The Company may consider an acquisition in which the Company would issue as
consideration for the business opportunity to be acquired an amount of the
Company's authorized but unissued Common Stock that would, upon issuance,
represent the great majority of the voting power and equity of the Company. The
result of such an acquisition would be that the acquired company's stockholders
and management would control the Company, and the Company's management could be
replaced by persons unknown at this time. Such a merger would result in a
greatly reduced percentage of ownership of the Company by its current
shareholders. In addition, the Company's officers could sell their control block
of stock at a premium price to the acquired company's stockholders.
24. No Public Market Exists.
There is no public market for the Company's common stock, and no assurance
can be given that a market will develop or that a shareholder ever will be able
to liquidate his investment without considerable delay, if at all. If a market
should develop, the price may be highly volatile. Factors such as those
discussed in this "Risk Factors" section may have a significant impact upon the
market price of the securities offered hereby. Owing to the low price of the
securities, many brokerage firms may not be willing to effect transactions in
the securities. Even if a purchaser finds a broker willing to effect a
transaction in these securities, the combination of brokerage commissions, state
transfer
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taxes, if any, and any other selling costs may exceed the selling price.
Further, many lending institutions will not permit the use of such securities as
collateral for any loans.
25. Rule 144 Sales.
All of the outstanding shares of Common Stock held by present stockholders
are "restricted securities" within the meaning of Rule 144 under the Securities
Act of 1933, as amended.
As restricted shares, these shares may be resold only pursuant to an
effective registration statement or under the requirements of Rule 144 or other
applicable exemptions from registration under the Act and as required under
applicable state securities laws. Rule 144 provides in essence that a person who
has held restricted securities for a prescribed period may, under certain
conditions, sell every three months, in brokerage transactions, a number of
shares that does not exceed the greater of 1.0% of a company's outstanding
common stock or the average weekly trading volume during the four calendar weeks
prior to the sale. As a result of revisions to Rule 144 which became effective
on or about April 29, 1997, there will be no limit on the amount of restricted
securities that may be sold by a non-affiliate after the restricted securities
have been held by the owner for a period of two years. A sale under Rule 144 or
under any other exemption from the Act, if available, or pursuant to subsequent
registrations of shares of Common Stock of present stockholders, may have a
depressive effect upon the price of the Common Stock in any market that may
develop. Of the total 10,588,718 shares of common stock held by present
stockholders of the Company, 8,603,718 shares which were issued more than three
years ago and are presently available for resales under Rule 144, and the
remaining 1,985,000 shares will become available for resale starting in December
2000.
26. Blue Sky Considerations.
Because the securities registered hereunder have not been registered for
resale under the blue sky laws of any state, the holders of such shares and
persons who desire to purchase them in any trading market that might develop in
the future, should be aware that there may be significant state blue-sky law
restrictions upon the ability of investors to sell the securities and of
purchasers to purchase the securities. Some jurisdictions may not under any
circumstances allow the trading or resale of blind-pool or "blank-check"
securities. Accordingly, investors should consider the secondary market for the
Company's securities to be a limited one.
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PART I
ITEM I. DESCRIPTION OF BUSINESS.
General
The Company was incorporated under the laws of the State of Delaware on
August 1, 1996, and is in the early developmental and promotional stages. To
date the Company's only activities have been acquiring the "Kushi Assets", as
defined below, liquidating the same and activities directed at developing its
present business plan and raising its initial capital. The Company has not
commenced any commercial operations. The Company has no full-time employees and
neither owns nor leases any real estate. The Company was formed in connection
with the merger acquisition of Kushi Macrobiotics Corp. ("KMC") with American
Phoenix Group, Inc. (APGI") in 1996. Prior to such acquisition, KMC had operated
a business of marketing a line of natural foods (the "Kushi Cuisine"). This
business was not successful and management determined that it would be in the
shareholder's interest for KMC to operate a different business. In the APGI
reverse merger, the shareholders of APGI became the owners of 85% of the shares
of KMC, which changed its name to American Phoenix Group, Inc. As a condition to
the merger, KMC was required to divest itself of all assets related to the Kushi
Cuisine business. This divestiture was effected by transferring all of the
assets related to the Kushi Cuisine business, principally inventory and
receivables, and approximately $115,000 to a newly formed entity, the Company,
and spinning off the shares of the Company to the KMC shareholders on a three
for one basis simultaneously with the consummation of the KMC merger with APGI.
The Kushi Cuisine assets and a portion of the cash were contributed to a joint
venture which failed and the Company lost its investment therein of
approximately $48,000. See. "Notes to Financial Statements- Note 4." To the best
of the Company's knowledge, the Company's shares have never traded, nor have any
such shares been transferred from their original holders except by the laws of
descent and distribution.
The proposed business activities described herein classify the Company as a
"blank check" or "shell company" whose sole purpose at this time is to locate
and consummate a merger or acquisition with a private entity. Many states have
enacted statutes, rules and regulations limiting the sale of securities of
"blank check" companies in their respective jurisdictions. Management does not
believe it will undertake any efforts to cause a market to develop in the
Company's securities until such time as the Company has successfully implemented
its business plan described herein. However, if the Company intends to
facilitate the eventual creation of a public trading market in its outstanding
securities, it must consider that the Company's securities, when available for
trading, will be subject to a Securities and Exchange Commission rule that
imposes special sales practice requirements upon broker-dealers who sell such
securities to persons other than established customers or accredited investors.
For purposes of the rule, the phrase "accredited investors" means, in general
terms, institutions with assets in excess of $5,000,000, or individuals having a
net worth in excess of $1,000,000 or having an annual income that exceeds
$200,000 (or that, when combined with a spouse's income, exceeds $300,000). For
transactions covered by the rule, the broker- dealer must make a special
suitability determination for the purchaser and receive the purchaser's written
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agreement to the transaction prior to the sale. Consequently, the rule may
affect the ability of broker-dealers to sell the Company's securities and also
may affect the ability of purchasers in this offering to sell their securities
in any market that might develop therefor.
In addition, the Securities and Exchange Commission has adopted a number of
rules to regulate "penny stocks." Such rules include Rules 3a51-1, 15g-1, 15g-2,
15g-3, 15g-4, 15g-5, 15g-6, and 15g-7 under the Securities Exchange Act of 1934,
as amended. Because the securities of the Company may constitute "penny stocks"
within the meaning of the rules, the rules would apply to the Company and to its
securities. The rules may further affect the ability of owners of Shares to sell
the securities of the Company in any market that might develop for them.
Shareholders should be aware that, according to Securities and Exchange
Commission Release No. 34-29093, the market for penny stocks has suffered in
recent years from patterns of fraud and abuse. Such patterns include (i) control
of the market for the security by one or a few broker-dealers that are often
related to the promoter or issuer; (ii) manipulation of prices through
prearranged matching of purchases and sales and false and misleading press
releases; (iii) "boiler room" practices involving high-pressure sales tactics
and unrealistic price projections by inexperienced sales persons; (iv) excessive
and undisclosed bid-ask differentials and markups by selling broker- dealers;
and (v) the wholesale dumping of the same securities by promoters and
broker-dealers after prices have been manipulated to a desired level, along with
the resulting inevitable collapse of those prices and with consequent investor
losses. The Company's management is aware of the abuses that have occurred
historically in the penny stock market. Although the Company does not expect to
be in a position to dictate the behavior of the market or of broker- dealers who
participate in the market, management will strive within the confines of
practical limitations to prevent the described patterns from being established
with respect to the Company's securities.
As part of its business plan, this Company is filing this registration
statement on Form 10-SB on a voluntary basis in order to become a "public"
company by virtue of being subject to the reporting requirements of the
Securities Exchange Act of 1934.
The Company's business plan is to seek, investigate, and, if warranted,
acquire one or more properties or businesses, and to pursue other related
activities intended to enhance shareholder value. The acquisition of a business
opportunity may be made by purchase, merger, exchange of stock, or otherwise,
and may encompass assets or a business entity, such as a corporation, joint
venture, or partnership. The Company has limited capital, and it is unlikely
that the Company will be able to take advantage of more than one such business
opportunity. The Company intends to seek opportunities demonstrating the
potential of long-term growth as opposed to short-term earnings.
At the present time the Company has not identified any business opportunity
that it plans to pursue, nor has the Company reached any agreement or definitive
understanding with any person concerning an acquisition. The Company's officers
and directors have previously been in discussions involving a possible merger
between an established company and a shell entity, and have
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a number of contacts within the field of corporate finance. As a result, they
have had preliminary contacts with representatives of several companies
concerning the general possibility of a merger or acquisition by a shell
company. However, none of these preliminary contacts or discussions have
developed into a possible merger or acquisition transaction with the Company.
It is anticipated that the Company's officers and directors may in the
future contact broker-dealers and other persons with whom they are acquainted
who are involved in corporate finance matters to advise them of the Company's
existence and to determine if any companies or businesses they represent have an
interest in considering a merger or acquisition with the Company. In connection
with any transaction which may occur, the Company may be required to pay finders
fees in stock, cash or a combination thereof. No assurance can be given that the
Company will be successful in finding or acquiring a desirable business
opportunity, given the limited funds that are expected to be available for
acquisitions, or that any acquisition that occurs will be on terms that are
favorable to the Company or its stockholders.
The Company's search will be directed toward small and medium-sized
enterprises which have a desire to become public corporations and which are able
to satisfy, or anticipate in the reasonably near future being able to satisfy,
the minimum asset requirements in order to qualify shares for trading on NASDAQ
or on a stock exchange (See "Investigation and Selection of Business
Opportunities"). The Company anticipates that the business opportunities
presented to it will (i) be recently organized with no operating history, or a
history of losses attributable to under-capitalization or other factors; (ii) be
experiencing financial or operating difficulties; (iii) be in need of funds to
develop a new product or service or to expand into a new market; (iv) be relying
upon an untested product or marketing concept; or (v) have a combination of the
characteristics mentioned in (i) through (iv). The Company intends to
concentrate its acquisition efforts on properties or businesses that it believes
to be undervalued. Given the above factors, investors should expect that any
acquisition candidate may have a history of losses or low profitability.
The Company does not propose to restrict its search for investment
opportunities to any particular geographical area or industry, and may,
therefore, engage in essentially any business, to the extent of its limited
resources. This includes industries such as service, finance, natural resources,
manufacturing, high technology, product development, medical, communications and
others. The Company's discretion in the selection of business opportunities is
unrestricted, subject to the availability of such opportunities, economic
conditions, and other factors.
As a consequence of this registration of its securities, any entity which
has an interest in being acquired by, or merging into the Company, is expected
to be an entity that desires to become a public company and establish a public
trading market for its securities. In connection with such a merger or
acquisition, it is highly likely that an amount of stock constituting control of
the Company would be issued by the Company or purchased from the current
principal shareholders of the Company by the acquiring entity or its affiliates.
Depending upon the nature of the transaction, the current officers and
directors of the
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Company may resign their management positions with the Company in connection
with the Company's acquisition of a business opportunity. See "Form of
Acquisition," below, and "Risk Factors - The Company - Lack of Continuity in
Management." In the event of such a resignation, the Company's current
management would not have any control over the conduct of the Company's business
following the Company's combination with a business opportunity.
It is anticipated that business opportunities will come to the Company's
attention from various sources, including its officers and directors, its other
stockholders, professional advisors such as attorneys and accountants,
securities broker-dealers, venture capitalists, members of the financial
community, and others who may present unsolicited proposals. The Company has no
plans, understandings, agreements, or commitments with any individual for such
person to act as a finder of opportunities for the Company.
The Company does not foresee that it would enter into a merger or
acquisition transaction with any business with which its officers or directors
are currently affiliated. Should the Company determine in the future, contrary
to the foregoing expectations, that a transaction with an affiliate would be in
the best interests of the Company and its stockholders, the Company is in
general permitted by Delaware law to enter into such a transaction if:
1. The material facts as to the relationship or interest of the affiliate and as
to the contract or transaction are disclosed or are known to the Board of
Directors, and the Board in good faith authorizes the contract or transaction by
the affirmative vote of a majority of the disinterested directors, even though
the disinterested directors constitute less than a quorum; or
2. The material facts as to the relationship or interest of the affiliate and as
to the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
3. The contract or transaction is fair as to the Company as of the time it is
authorized, approved or ratified, by the Board of Directors or the stockholders.
Investigation and Selection of Business Opportunities
To a large extent, a decision to participate in a specific business
opportunity may be made upon management's analysis of the quality of the other
company's management and personnel, the anticipated acceptability of new
products or marketing concepts, the merit of technological changes, the
perceived benefit the company will derive from becoming a publicly held entity,
and numerous other factors which are difficult, if not impossible, to analyze
through the application of any objective criteria. In many instances, it is
anticipated that the historical operations of a specific business opportunity
may not necessarily be indicative of the potential for the future because of the
possible need to shift marketing approaches substantially, expand significantly,
change product emphasis, change or substantially augment management, or make
other changes. The Company will be dependent upon the owners of a business
opportunity to identify any such problems which may
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exist and to implement, or be primarily responsible for the implementation of,
required changes. Because the Company may participate in a business opportunity
with a newly organized firm or with a firm which is entering a new phase of
growth, it should be emphasized that the Company will incur further risks,
because management in many instances will not have proved its abilities or
effectiveness, the eventual market for such company's products or services will
likely not be established, and such company may not be profitable when acquired.
It is anticipated that the Company will not be able to diversify, but will
essentially be limited to one such venture because of the Company's limited
financing. This lack of diversification will not permit the Company to offset
potential losses from one business opportunity against profits from another, and
should be considered an adverse factor affecting any decision to purchase the
Company's securities.
It is emphasized that management of the Company may effect transactions
having a potentially adverse impact upon the Company's shareholders pursuant to
the authority and discretion of the Company's management to complete
acquisitions without submitting any proposal to the stockholders for their
consideration. Holders of the Company's securities should not anticipate that
the Company necessarily will furnish such holders, prior to any merger or
acquisition, with financial statements, or any other documentation, concerning a
target company or its business. In some instances, however, the proposed
participation in a business opportunity may be submitted to the stockholders for
their consideration, either voluntarily by such directors to seek the
stockholders' advice and consent or because state law so requires.
The analysis of business opportunities will be undertaken by or under the
supervision of the Company's President, who is not a professional business
analyst. See "Management." Since Company management has no current plans to use
any outside consultants or advisors to assist in the investigation and selection
of business opportunities, no policies have been adopted regarding use of such
consultants or advisors, the criteria to be used in selecting such consultants
or advisors, the services to be provided, the term of service, or regarding the
total amount of fees that may be paid.
The Company anticipates that it will consider, among other things, the
following factors:
1. Potential for growth and profitability, indicated by new technology,
anticipated market expansion, or new products;
2. The Company's perception of how any particular business opportunity will be
received by the investment community and by the Company's stockholders;
3. Whether, following the business combination, the financial condition of the
business opportunity would be, or would have a significant prospect in the
foreseeable future of becoming sufficient to enable the securities of the
Company to qualify for listing on an exchange or on a national automated
securities quotation system, such as NASDAQ, so as
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to permit the trading of such securities to be exempt from the requirements
of Rule 15c2-6 recently adopted by the Securities and Exchange Commission.
See "Risk Factors - The Company - Regulation of Penny Stocks."
4. Capital requirements and anticipated availability of required funds, to be
provided by the Company or from operations, through the sale of additional
securities, through joint ventures or similar arrangements, or from other
sources;
5. The extent to which the business opportunity can be advanced;
6. Competitive position as compared to other companies of similar size and
experience within the industry segment as well as within the industry as a
whole;
7. Strength and diversity of existing management, or management prospects that
are scheduled for recruitment;
8. The cost of participation by the Company as compared to the perceived
tangible and intangible values and potential; and
9. The accessibility of required management expertise, personnel, raw
materials, services, professional assistance, and other required items.
In regard to the possibility that the shares of the Company would qualify
for listing on NASDAQ, the current standards include the requirements that the
issuer of the securities that are sought to be listed have total assets of at
least $4,000,000 and total capital and surplus of at least $2,000,000, and
proposals have recently been made to increase these qualifying amounts. Many,
and perhaps most, of the business opportunities that might be potential
candidates for a combination with the Company would not satisfy the NASDAQ
listing criteria.
No one of the factors described above will be controlling in the selection
of a business opportunity, and management will attempt to analyze all factors
appropriate to each opportunity and make a determination based upon reasonable
investigative measures and available data. Potentially available business
opportunities may occur in many different industries and at various stages of
development, all of which will make the task of comparative investigation and
analysis of such business opportunities extremely difficult and complex.
Potential investors must recognize that, because of the Company's limited
capital available for investigation and management's limited experience in
business analysis, the Company may not discover or adequately evaluate adverse
facts about the opportunity to be acquired.
The Company is unable to predict when it may participate in a business
opportunity. It expects, however, that the analysis of specific proposals and
the selection of a business opportunity may take several months or more.
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Prior to making a decision to participate in a business opportunity, the
Company will generally request that it be provided with written materials
regarding the business opportunity containing such items as a description of
products, services and company history; management resumes; financial
information; available projections, with related assumptions upon which they are
based; an explanation of proprietary products and services; evidence of existing
patents, trademarks, or services marks, or rights thereto; present and proposed
forms of compensation to management; a description of transactions between such
company and its affiliates during relevant periods; a description of present and
required facilities; an analysis of risks and competitive conditions; a
financial plan of operation and estimated capital requirements; audited
financial statements, or if they are not available, unaudited financial
statements, together with reasonable assurances that audited financial
statements would be able to be produced within a reasonable period of time not
to exceed 60 days following completion of a merger transaction; and other
information deemed relevant.
As part of the Company's investigation, the Company's executive officers and
directors may meet personally with management and key personnel, may visit and
inspect material facilities, obtain independent analysis or verification of
certain information provided, check references of management and key personnel,
and take other reasonable investigative measures, to the extent of the Company's
limited financial resources and management expertise. There will be no loan
agreements or understandings between the Company and third parties, nor does the
Company intend to raise any operating capital by implementing private placements
of restricted stock and/or public offerings of its common stock.
It is possible that the range of business opportunities that might be
available for consideration by the Company could be limited by the impact of
Securities and Exchange Commission regulations regarding purchase and sale of
"penny stocks." The regulations would affect, and possibly impair, any market
that might develop in the Company's securities until such time as they qualify
for listing on NASDAQ or on another exchange which would make them exempt from
applicability of the "penny stock" regulations. See "Risk Factors - - Regulation
of Penny Stocks."
Company management believes that various types of potential merger or
acquisition candidates might find a business combination with the Company to be
attractive. These include acquisition candidates desiring to create a public
market for their shares in order to enhance liquidity for current shareholders,
acquisition candidates which have long-term plans for raising capital through
the public sale of securities and believe that the possible prior existence of a
public market for their securities would be beneficial, and acquisition
candidates which plan to acquire additional assets through issuance of
securities rather than for cash, and believe that the possibility of development
of a public market for their securities will be of assistance in that process.
Acquisition candidates which have a need for an immediate cash infusion are not
likely to find a potential business combination with the Company to be an
attractive alternative.
Form of Acquisition
It is impossible to predict the manner in which the Company may participate
in a business
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opportunity. Specific business opportunities will be reviewed as well as the
respective needs and desires of the Company and the promoters of the opportunity
and, upon the basis of that review and the relative negotiating strength of the
Company and such promoters, the legal structure or method deemed by management
to be suitable will be selected. Such structure may include, but is not limited
to leases, purchase and sale agreements, licenses, joint ventures and other
contractual arrangements. The Company may act directly or indirectly through an
interest in a partnership, corporation or other form of organization.
Implementing such structure may require the merger, consolidation or
reorganization of the Company with other corporations or forms of business
organization, and although it is likely, there is no assurance that the Company
would be the surviving entity. In addition, the present management and
stockholders of the Company most likely will not have control of a majority of
the voting shares of the Company following a reorganization transaction. As part
of such a transaction, the Company's existing directors may resign and new
directors may be appointed without any vote by stockholders.
Management may actively negotiate or otherwise consent to the purchase of
any portion of their common shares as a condition to or in connection with a
proposed merger or acquisition transaction. It is emphasized that management of
the Company may effect transactions having a potentially adverse impact upon the
Company's shareholders pursuant to the authority and discretion of the Company's
management to complete acquisitions without submitting any proposal to the
stockholders for their consideration. Holders of the Company's securities should
not anticipate that the Company necessarily will furnish such holders, prior to
any merger or acquisition, with financial statements, or any other
documentation, concerning a target company or its business. In some instances,
however, the proposed participation in a business opportunity may be submitted
to the stockholders for their consideration, either voluntarily by such
directors to seek the stockholders' advice and consent or because state law so
requires.
It is likely that the Company will acquire its participation in a business
opportunity through the issuance of Common Stock or other securities of the
Company. Although the terms of any such transaction cannot be predicted, it
should be noted that in certain circumstances the criteria for determining
whether or not an acquisition is a so-called "tax free" reorganization under the
Internal Revenue Code of 1986, depends upon the issuance to the stockholders of
the acquired company of a controlling interest (i.e. 80% or more) of the common
stock of the combined entities immediately following the reorganization. If a
transaction were structured to take advantage of these provisions rather than
other "tax free" provisions provided under the Internal Revenue Code, the
Company's current stockholders would retain in the aggregate 20% or less of the
total issued and outstanding shares. This could result in substantial additional
dilution in the equity of those who were stockholders of the Company prior to
such reorganization. (See "Description of Business - General").
It is anticipated that any new securities issued in any reorganization
would be issued in reliance upon exemptions, if any are available, from
registration under applicable federal and state securities laws. In some
circumstances, however, as a negotiated element of the transaction, the Company
may agree to register such securities either at the time the transaction is
consummated, or under certain conditions or at specified times thereafter. The
issuance of substantial additional
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securities and their potential sale into any trading market that might develop
in the Company's securities may have a depressive effect upon such market.
The Company will participate in a business opportunity only after the
negotiation and execution of a written agreement. Although the terms of such
agreement cannot be predicted, generally such an agreement would require
specific representations and warranties by all of the parties thereto, specify
certain events of default, detail the terms of closing and the conditions which
must be satisfied by each of the parties thereto prior to such closing, outline
the manner of bearing costs if the transaction is not closed, set forth remedies
upon default, and include miscellaneous other terms.
As a general matter, the Company anticipates that it, and/or its officers
and principal shareholders will enter into a letter of intent with the
management, principals or owners of a prospective business opportunity prior to
signing a binding agreement. Such a letter of intent will set forth the terms of
the proposed acquisition but will not bind any of the parties to consummate the
transaction. Execution of a letter of intent will by no means indicate that
consummation of an acquisition is probable. Neither the Company nor any of the
other parties to the letter of intent will be bound to consummate the
acquisition unless and until a definitive agreement concerning the acquisition
as described in the preceding paragraph is executed. Even after a definitive
agreement is executed, it is possible that the acquisition would not be
consummated should any party elect to exercise any right provided in the
agreement to terminate it on specified grounds.
It is anticipated that the investigation of specific business opportunities
and the negotiation, drafting and execution of relevant agreements, disclosure
documents and other instruments will require substantial management time and
attention and substantial costs for accountants, attorneys and others. If a
decision is made not to participate in a specific business opportunity, the
costs theretofore incurred in the related investigation would not be
recoverable. Moreover, because many providers of goods and services require
compensation at the time or soon after the goods and services are provided, the
inability of the Company to pay until an indeterminate future time may make it
impossible to procure goods and services.
Investment Company Act and Other Regulation
The Company may participate in a business opportunity by purchasing,
trading or selling the securities of such business. The Company does not,
however, intend to engage primarily in such activities. Specifically, the
Company intends to conduct its activities so as to avoid being classified as an
"investment company" under the Investment Company Act of 1940 (the "Investment
Act"), and therefore to avoid application of the costly and restrictive
registration and other provisions of the Investment Act, and the regulations
promulgated thereunder.
Section 3(a) of the Investment Act contains the definition of an
"investment company," and it excludes any entity that does not engage primarily
in the business of investing, reinvesting or trading in securities, or that does
not engage in the business of investing, owning, holding or trading
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"investment securities" (defined as "all securities other than government
securities or securities of majority-owned subsidiaries") the value of which
exceeds 40% of the value of its total assets (excluding government securities,
cash or cash items). The Company intends to implement its business plan in a
manner which will result in the availability of this exception from the
definition of "investment company." Consequently, the Company's participation in
a business or opportunity through the purchase and sale of investment securities
will be limited.
The Company's plan of business may involve changes in its capital
structure, management, control and business, especially if it consummates a
reorganization as discussed above. Each of these areas is regulated by the
Investment Act, in order to protect purchasers of investment company securities.
Since the Company will not register as an investment company, stockholders will
not be afforded these protections.
Any securities which the Company might acquire in exchange for its Common
Stock will be "restricted securities" within the meaning of the Securities Act
of 1933, as amended (the "Act"). If the Company elects to resell such
securities, such sale cannot proceed unless a registration statement has been
declared effective by the Securities and Exchange Commission or an exemption
from registration is available. Section 4(1) of the Act, which exempts sales of
securities not involving a distribution, would in all likelihood be available to
permit a private sale. Although the plan of operation does not contemplate
resale of securities acquired, if such a sale were to be necessary, the Company
would be required to comply with the provisions of the Act to effect such
resale.
An acquisition made by the Company may be in an industry which is regulated
or licensed by federal, state or local authorities. Compliance with such
regulations can be expected to be a time-consuming and expensive process.
Competition
The Company expects to encounter substantial competition in its efforts to
locate attractive opportunities, primarily from business development companies,
venture capital partnerships and corporations, venture capital affiliates of
large industrial and financial companies, small investment companies, and
wealthy individuals. Many of these entities will have significantly greater
experience, resources and managerial capabilities than the Company and will
therefore be in a better position than the Company to obtain access to
attractive business opportunities. The Company also will experience competition
from other public "blind pool" companies, many of which may have more funds
available than does the Company.
Offices
The Company currently maintains a mailing address at 150 East 58th Street -
24th Floor, New York, New York 10022, which is the office address of Madison
Venture Capital II, Inc., a company owned by Messrs. Stricker and Schindler. The
Company's telephone number is (212) 583-1363 which is the telephone number of
Madison Venture Capital II, Inc. which is used without expense
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to the Company. Other than this mailing address, the Company does not currently
maintain any other office facilities, and does not anticipate the need for
maintaining office facilities at any time in the foreseeable future. The Company
pays no rent or other fees for the use of this mailing address and facilities.
Employees
The Company is a development stage company and currently has no employees.
Management of the Company expects to use consultants, attorneys and accountants
as necessary, and does not anticipate a need to engage any full-time employees
so long as it is seeking and evaluating business opportunities. The need for
employees and their availability will be addressed in connection with the
decision whether or not to acquire or participate in specific business
opportunities. Although there is no current plan with respect to its nature or
amount, remuneration may be paid to or accrued for the benefit of, the Company's
officers prior to, or in conjunction with, the completion of a business
acquisition. The Company's officers have accepted common stock for services
rendered for consulting, organizing the corporation, seeking merger candidates
and evaluating these candidates. See "Executive Compensation" and under "Certain
Relationships and Related Transactions."
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
Plan of Operations
The Registrant intends to seek to acquire assets or shares of an entity
actively engaged in business which generates revenues, in exchange for its
securities. The Registrant has no particular acquisitions in mind and has not
entered into any negotiations regarding such an acquisition. None of the
Company's officers, directors, promoters or affiliates have engaged in any
preliminary contact or discussions with any representative of any other company
regarding the possibility of an acquisition or merger between the Company and
such other company as of the date of this registration statement.
While the Company will attempt to obtain audited financial statements of a
target entity, there is no assurance that such audited financial statements will
be available. The Board of Directors does intend to obtain certain assurances of
value of the target entity's assets prior to consummating such a transaction,
with further assurances that an audited statement would be provided within
seventy-five days after closing of such a transaction. Closing documents
relative thereto will include representations that the value of the assets
conveyed to or otherwise so transferred will not materially differ from the
representations included in such closing documents.
The Company is filing this registration statement on a voluntary basis
because a significant attraction of the Registrant as a merger partner or
acquisition vehicle will be its status as an SEC reporting company. Any business
combination or transaction will likely result in a significant issuance of
shares and substantial dilution to present stockholders of the Registrant.
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The Company has, and will continue to have, no capital with which to
provide the owners of business opportunities with any significant cash or other
assets. However, management believes the Company will be able to offer owners of
acquisition candidates the opportunity to acquire a controlling ownership
interest in a publicly registered company without incurring the cost and time
required to conduct an initial public offering. The owners of the business
opportunities will, however, incur significant legal and accounting costs in
connection with the acquisition of a business opportunity, including the costs
of preparing Form 8-K's, 10-K's or 10-KSB's, agreements and related reports and
documents. The Securities Exchange Act of 1934 (the "34 Act"), specifically
requires that any merger or acquisition candidate comply with all applicable
reporting requirements, which include providing audited financial statements to
be included within the numerous filings relevant to complying with the 34 Act.
Nevertheless, the officers and directors of the Company have not conducted
market research and are not aware of statistical data which would support the
perceived benefits of a merger or acquisition transaction for the owners of a
business opportunity.
As stated hereinabove, the Company will not acquire or merge with any
entity which cannot provide independent audited financial statements within a
reasonable period of time after closing of the proposed transaction. The Company
intends to become subject to all of the reporting requirements included in the
34 Act. Included in these requirements is the affirmative duty of the Company to
file independent audited financial statements as part of its Form 8-K to be
filed with the Securities and Exchange Commission upon consummation of a merger
or acquisition, as well as the Company's audited financial statements included
in its annual report on Form 10-K (or 10-KSB, as applicable). If such audited
financial statements are not available at closing, or within time parameters
necessary to insure the Company's compliance with the requirements of the 34
Act, or if the audited financial statements provided do not conform to the
representations made by the candidate to be acquired in the closing documents,
the closing documents may provide that the proposed transaction will be
voidable, at the discretion of the present management of the Company.
Liquidity and Capital Resources
The Company has on hand approximately $50,000 which represents the net
remaining of the $115,000 cash that it received in the spin off. Such assets are
maintained in a checking account and a money market account and earn nominal
interest. In the opinion of Management, these assets should be sufficient to
enable the Company to effect this registration under the Exchange Act and file
periodic reports until such time as it is able to locate an acquisition partner
and complete its business plan.
The Company will carry out its plan of business as discussed above. The
Company cannot predict to what extent its liquidity and capital resources will
be diminished prior to the consummation of a business combination or whether its
capital will be further depleted by the operating losses (if any) of the
business entity which the Company may eventually acquire.
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Results of Operations
The Company has not conducted any operations in the last year and, other
than activities incident to locating an acquisition partner and effecting an
acquisition, does not expect to conduct substantial operations in the current
year.
Need for Additional Financing
The Company believes that its existing capital will be sufficient to meet
the Company's cash needs, including the costs of compliance with the continuing
reporting requirements of the Securities Exchange Act of 1934, as amended, for a
period of more than two years. Accordingly, in the event the Company is able to
complete a business combination during this period, it anticipates that its
existing capital will be sufficient to allow it to accomplish the goal of
completing a business combination. There is no assurance, however, that the
available funds will ultimately prove to be adequate to allow it to complete a
business combination, and once a business combination is completed, the
Company's needs for additional financing are likely to increase substantially.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109") issued by the Financial Accounting Standards Board ("FASB"), under which
deferred tax assets and liabilities are provided on differences between the
carrying amounts for financial reporting and the tax basis of assets and
liabilities for income tax purposes using the enacted tax rates.
Under SFAS 109, deferred tax assets may be recognized for temporary
differences that will result in deductible amounts in future periods. A
valuation allowance is recognized, if on the weight of available evidence, it is
more likely than not that some portion or all of the deferred tax asset will not
be realized.
Federal Income Tax Aspects of Investment in the Company
The discussion contained herein has been prepared by the Company and is
based on existing law as contained in the Code, amended United States Treasury
Regulations ("Treasury Regulations"), administrative rulings and court decisions
as of the date of this Registration Statement. No assurance can be given that
future legislative enactments, administrative rulings or court decisions will
not modify the legal basis for statements contained in this discussion. Any such
development may be applied retroactively to transactions completed prior to the
date thereof, and could contain provisions having an adverse affect upon the
Company and the holders of the Common Stock. In addition, several of the issues
dealt with in this summary are the subject of proposed and temporary Treasury
Regulations. No assurance can be given that these regulations will be finally
adopted in their present form.
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Basis in Common Stock
The tax basis that a Shareholder will have in his Common Stock will equal
his cost in acquiring his Common Stock. If a Shareholder acquires Common Stock
at different times or at different prices, he must maintain records of those
transactions so that he can accurately report gain or loss realized upon
disposition of the Common Stock.
Dividends on Common Stock
Distributions made by the Company with respect to the Common Stock will be
characterized as dividends that are taxable as ordinary income to the extent of
the Company's current or accumulated earnings and profits ("earnings and
profits"), if any, as determined for U.S. federal income tax purposes. To the
extent that a distribution on the Common Stock exceeds the holder's allocable
share of the Company's earnings and profits, such distribution will be treated
first as a return of capital that will reduce the holder's adjusted tax basis in
such Common Stock, and then as taxable gain to the extent the distribution
exceeds the holder's adjusted tax basis in such Common Stock. The gain will
generally be taxed as a long-term capital gain if the holder's holding period
for the Common Stock is more than one year.
The availability of earnings and profits in future years will depend on
future profits and losses which cannot be accurately predicted. Thus, there can
be no assurance that all or any portion of a distribution on the Common Stock
will be characterized as a dividend for general income tax purposes. Corporate
shareholders will not be entitled to claim the dividends received deduction with
respect to distributions that do not qualify as dividends. See the discussion
regarding the dividends received deduction below.
Redemption of Common Stock
The Company does not have the right to redeem any Common Stock. However,
any redemption of Common Stock, with the consent of the holder, will be a
taxable event to the redeemed holder.
The Company does not believe that the Common Stock will be treated as debt
for federal income tax purposes. However, in the event that the Common Stock is
treated as debt for federal tax purposes, a holder generally will recognize gain
or loss upon the redemption of the Common Stock measured by the difference
between the amount of cash or the fair market value of property received and the
holder's tax basis in the redeemed Common Stock. To the extent the cash or
property received are attributable to accrued interest, the holder may recognize
ordinary income rather than capital gain. Characterization of the Common Stock
as debt would also cause a variety of other tax implications, some of which may
be detrimental to either the holders, the Company, or both (including, for
example, original issue discount treatment to the Investors). Potential
Investors should consult their tax advisors as to the various ramifications of
debt characterization for federal income tax purposes.
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Other Disposition of the Common Stock
Upon the sale or exchange of shares of Common Stock, to or with a person
other than the Company, a holder will recognize capital gain or loss equal to
the difference between the amount realized on such sale or exchange and the
holder's adjusted basis in such stock. Any capital gain or loss recognized will
generally be treated as a long-term capital gain or loss if the holder held such
stock for more than one year. For this purpose, the period for which the Common
Stock was held would be included in the holding period of the Common Stock
received upon a conversion.
State, Local and Foreign Taxes
In addition to the federal income tax consequences described above,
prospective investors should consider potential state, local and foreign tax
consequences of an investment in the Common Stock.
ERISA Considerations for Tax-Exempt Investors/Shareholders
General Fiduciary Requirements
Title I of ERISA includes provisions governing the responsibility of
fiduciaries to their Qualified Plans. Qualified Plans must be administered
according to these rules. Keogh plans that cover only partners of a partnership
or self-employed owners of a business are not subject to the fiduciary duty
rules of ERISA, but are subject to the prohibited transaction rules of the Code.
Under ERISA, any person who exercises any authority or control respecting
the management or disposition of the assets of a Qualified Plan is considered to
be a fiduciary of such Qualified Plan (subject to certain exceptions not here
relevant).
ERISA Section 404(a)(1) requires a fiduciary of a Qualified Plan to
"discharge his duties with respect to a plan solely in the interest of the
participants and beneficiaries and (A) for the exclusive purpose of: (i)
providing benefits to participants and their beneficiaries, and (ii) defraying
reasonable expenses of administering the plan; (B) with the care, skill,
prudence, and diligence under the circumstances then prevailing that a prudent
man acting in a like capacity and familiar with such matters would use in the
conduct of an enterprise of a like character and with like aims; (C) by
diversifying the investments of a plan so as to minimize the risk of large
losses, unless under the circumstances it is clearly prudent not to do so; and
(D) in accordance with the documents and instruments governing the plan."
Fiduciaries who breach the duties that ERISA imposes may suffer a wide variety
of legal and equitable remedies, including (i) the requirement to restore
qualified plan losses and to pay over any fiduciary's profits to the qualified
plan; (ii) removal as fiduciary of the qualified plan; and (iii) liability for
excise taxes that Section 4975 of the Code imposes
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ITEM III. DESCRIPTION OF PROPERTY.
The Company does not currently maintain an office or any other facilities.
It does currently maintain a mailing address at c/o Madison Venture Capital II,
Inc., 150 East 58th Street - 24th Floor, New York, New York 10022. Madison
Venture Capital II, Inc. is owned by Dr. Eugene Stricker and Mark Schindler. The
Company pays no rent for the use of this mailing address. The Company does not
believe that it will need to maintain an office at any time in the foreseeable
future in order to carry out its plan of operations described herein. The
Company's telephone number is (212) 583- 1363, which is also the telephone
number of Madison Venture Capital II, Inc. The Company does not pay any separate
charges for the use of this telephone number.
ITEM IV. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth as of December 31, 1999, information with
respect to the beneficial ownership of the Company's outstanding Common Stock by
(i) each director and executive officer of the Company, (ii) all directors and
executive officers of the Company as a group, and (iii) each shareholder who was
known by the Company to be the beneficial owner of more than 5% of the Company's
outstanding Common Stock. Except as otherwise indicated, the persons or entities
listed below have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them.
NUMBER PERCENTAGE
NAME OF SHARES OF CLASS
---- --------- --------
Dr. Eugene Stricker 1,052,127(1) 9.9%
Mark Schindler 827,695(2) 7.8%
Daniel A. France 253,113 2.4%
Frank J. Hariton 162,000 1.5%
All officers and
directors as a group (4 persons) 2,294,935(1)(2) 21.7%
(1) Does not include 70,044 shares owned by the Eugene Stricker Irrevocable
Trust. Dr. Stricker disclaims beneficial ownership of such shares.
(2) Does not includes: (i) 140,088 shares owned by the Mark Schindler
Irrevocable Trust; and (ii) 140,088 shares owned by Mr. Schindler's fiance,
Ms. Barbara Serota. Mr. Schindler disclaims beneficial ownership of these
shares. Includes 565,000 shares owned by The SBS
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Limited Partnership, a limited partnership where Mr. Schindler is the
general partner.
Management has no plans to issue any additional securities to management,
promoters or their affiliates or associates and will do so only if such issuance
is in the best interests of shareholders of the Company and complies with all
applicable federal and state securities rules and regulations.
Although the Company has a very large amount of authorized but unissued
common and preferred stock that may be issued without further shareholder
approval or notice, it is the intention of the Company to avoid inhibiting
certain transactions with prospective acquisition or merger candidates, based
upon the perception by such candidate that they may be engaged in a rapidly
expanding industry (i.e. Internet) and cannot afford to proxy shareholders each
time their management needs to authorize additional shares.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The directors and executive officers currently serving the Company are as
follows:
Name Age Positions Held and Tenure
Dr. Eugene Stricker 62 President and a Director since inception
Mark Schindler 78 Vice President, Secretary and a Director since
inception
Daniel A. France 51 Treasurer a Director since February 1999
Frank J. Hariton 51 Assistant Secretary since December 1999
The directors named above will serve until the first annual meeting of the
Company's stockholders. Thereafter, directors will be elected for one-year terms
at the annual stockholders' meeting. Officers will hold their positions at the
pleasure of the board of directors, absent any employment agreement, of which
none currently exists or is contemplated. There is no arrangement or
understanding between the sole directors and officers of the Company and any
other person pursuant to which any director or officer was or is to be selected
as a director or officer.
The sole directors and officers of the Company will devote their time to
the Company's affairs on an "as needed" basis. As a result, the actual amount of
time which they will devote to the Company's affairs is unknown and is likely to
vary substantially from month to month.
Biographical Information
Dr. Eugene Stricker was elected a Director upon the organization of the
Company and has served the Company as President and Director since inception. He
has been a partner with Mr.
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Schindler in Madison Venture Capital II, Inc., a venture capital firm, for more
than the past five years. From 1968 until 1991, he held various administrative
positions within the New York State Department of Health, including serving as
special assistant to the Commissioner. Dr. Stricker is a graduate of the
University of Maryland, received his Doctor of Dentistry from Howard University,
Washington, D.C., and received a Masters in Public Health from the University of
Michigan at Ann Arbor. He was a Director of Servtex International, Inc. from
September 1991 until its merger with Hymedix, Inc. (HYMX:OTCBB) in February
1994. From December 1991 to November 1994 he was a Director of Natural Child
Care, Inc. which merged into Winners All International, Inc. in September 1992
and which later became Erecotes Industries, Inc. (UREC:OTCBB). In July 1993, he
became a Director of Light Savers USA, Inc. and served until February 1995 when
that company was merged into Hospitality World Wide, Inc. (HWS:AMEX) which later
became Hotel Works.com. Dr. Stricker was a Director and Secretary of Kushi
Macrobiotics Corp ("KMC") from May 1994 to October 1996 when it merged with
American Phoenix Group, Inc. ("APGI") which later merged with Tal Wireless
Networks, Inc. (TALW:OTCBB) .
Mark Schindler has been a Director, Vice President and Secretary of the
Company since inception. He has been a partner with Dr. Stricker in Madison
Venture Capital II, Inc., a venture capital firm, for more than the past five
years. He was the owner, until 1984, of his own business engaged in electronics
distribution. Mr. Schindler was a founder of Astrex, Inc. and its Chairman from
September 1960 to August 1984. While he remains a Director of that entity, he
devotes no time to it other than attending Board Meetings. He was a Director of
Servtex International, Inc. from September 1991 until its merger with Hymedix,
Inc. (HYMX: OTCBB) in February 1994. From December 1991 to November 1994 he was
a Director of Natural Child Care, Inc. which merged into Winners All
International, Inc. in September 1992 and which later became Erecotes
Industries, Inc. (UREC:OTCBB). In July 1993, he became a Director of Light
Savers USA, Inc. and served until February 1995 when that company was merged
into Hospitality World Wide, Inc. (HWS:AMEX) which became Hotel Works.com. Mr.
Schindler was a Director and Treasurer of KMC from May 1994 to October 1996 when
it merged with APGI which later merged with Tal Wireless Networks, Inc.
(TALW:OTCBB) .
Daniel A. France, was a co-founder of KMC and became Vice President/Finance
and Chief Financial Officer of KMC on July 6, 1994 and Assistant Secretary on
December 15, 1994. Mr. France was the Chief Financial Officer of Natural Child
Care, Inc. from May 1992 until September 1993. Following its merger with Winners
All International, Inc. ("WAI"), he maintained the accounting records of WAI and
Light Savers USA, Inc. until December 1994 when he resigned from both to devote
full time to KMC. Mr. France served as KMC's Vice President/Finance and Chief
Financial Officer from July 1994 until shortly after KMC's merger with APGI in
September 1996. Since such time Mr. France has be self employed as a financial
and business consultant. Mr. France was elected treasurer and a director of the
Company in February 1999. Mr. France is a CPA.
Frank J. Hariton is an attorney in private practice with offices in White
Plains, New York and New York City. He has been engaged in the private practice
of law for more than the last five years. He received a B.A. in 1971 and a J.D.
in 1974 from Case Western Reserve University. He
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is also assistant secretary of Vitafort International Corporation (VRFT:OTCBB),
a company engaged in developing, marketing and distributing snack foods and low
fat and fat free snacks.
Indemnification of Officers and Directors
Article Seventh of the Company's Certificate of Incorporation provides for
indemnification of the Company's officers and directors to the fullest extent
permitted under the General Corporation Law of the State of Delaware ("DGCL").
SECTION 145 of the DGCL, as amended, applies to the Company and the
relevant portion of the DGCL provides as follows:
145. 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
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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 circumstances of the case, such person
is fairly and reasonably entitled to indemnity for such expenses which the
Court of Chancery or such other 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 attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(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 (including attorneys' fees) 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 or officer to repay such
amount if it shall ultimately be
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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 of 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 of expenses 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.
(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, officer 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 if its separate existence had
continued.
(i) For purpose 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
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respect to any 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.
(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 a person.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, may be permitted to directors, officers or persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed
that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act of
1933 and is therefore unenforceable.
Conflicts of Interest
The officers and directors of the Company will devote only a small portion
of their time to the affairs of the Company, estimated to be no more than
approximately 10 hours per month, except at times when a business combination
may be imminent. There will be occasions when the time requirements of the
Company's business conflict with the demands of their other business and
investment activities. Such conflicts may require that the Company attempt to
employ additional personnel. There is no assurance that the services of such
persons will be available or that they can be obtained upon terms favorable to
the Company. Messrs Stricker and Schindler will devote most of their time to the
affairs of Madison Venture Capital II, Inc., and this may result in conflicts
with the Company. In addition, in the future, one or more members of management
may become involved in the management of other "blank check" companies. Messrs.
Schindler and Stricker, or Madison Venture Capital II, Inc. may receive
consulting fees for investment banking or business consulting services which
they may offer to a party to a business combination with the Company. While,
Messrs. Stricker and Schindler believe that any such fees will be consistent
with fees that they or Madison Venture Capital II, Inc. may charge to entities
in similar circumstances, the presence of such fees may impact upon the number
of shares received by the Company's shareholders in the business combination.
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There is no procedure in place which would allow the Company's management
to resolve potential conflicts in an arms-length fashion. Accordingly, they will
be required to use their discretion to resolve them in a manner which they
consider appropriate.
ITEM VI. EXECUTIVE COMPENSATION
No officer or director has received any remuneration from the Company. The
Company's officers and directors have purchased the Company's stock in the
December 1999 Private Placement. See "Certain Relationships and Related
Transactions." The Company has no stock option, retirement, pension, or
profit-sharing programs for the benefit of directors, officers or other
employees, but the Board of Directors may recommend adoption of one or more such
programs in the future.
It is possible that, after the Company successfully consummates a merger or
acquisition with an unaffiliated entity, that entity may desire to employ or
retain one or more members of the Company's management for the purposes of
providing services to the surviving entity, or otherwise provide other
compensation to such persons. However, the Company has adopted a policy whereby
the offer of any post-transaction remuneration to members of management will not
be a consideration in the Company's decision to undertake any proposed
transaction. Each member of management has agreed to disclose to the Company's
Board of Directors any discussions concerning possible compensation to be paid
to them by any entity which proposes to undertake a transaction with the Company
and further, to abstain from voting on such transaction. Therefore, as a
practical matter, if each member of the Company's Board of Directors is offered
compensation in any form from any prospective merger or acquisition candidate,
the proposed transaction will not be approved by the Company's Board of
Directors as a result of the inability of the Board to affirmatively approve
such a transaction.
No member of management of the Company will receive any finders fee, either
directly or indirectly, as a result of their respective efforts to implement the
Company's business plan outlined herein. Also, there are no plans, proposals,
arrangements or understandings with respect to the sale or issuance of
additional securities by the Company prior to the location of an acquisition or
merger candidate. Please also see "Item I, Description of Business-General" for
information regarding the seeking out and selection of a target company,
addressing matters such as the manner of solicitation of potential investors,
the approximate number of persons who will be contacted or solicited, their
relationships to the Company's management, etc.
ITEM VII. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company was formed in August, 1996 . Each of the then shareholders of
KMC received three shares of the Company's common stock for each share of KMC
that they owned in connection with the spin off of the Company by KMC. See. Item
1. Description of Business - General. Included in such shareholders were the
then officers and directors of KMC.
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During December 1999, the Company sold 1,985,000 shares of its common stock
to eleven investors in a private placement for $1,985 or $.001 per share. Among
the Purchasers in such private placement were: Dr. Eugene Stricker, an officer
and director of the Company, who purchased 580,000 shares for $580; The SBS
Limited Partnership, a New York limited partnership of which Mark Schindler, an
officer and director of the Company is the general partner, purchased 565,000
shares for $565; Daniel A. France, on officer and director of the Company,
purchased 78,000 shares for $78; and Frank J. Hariton, an officer of the
Company, purchased 162,000 shares for $162. The purchase was at par value and
therefor below book value.
ITEM VIII. DESCRIPTION OF SECURITIES
General
The authorized capital stock of the Company currently consists of (i)
35,000,000 shares of Common Stock, par value $.0001 per share, of which
10,588,718 were issued and outstanding on December 31, 1999, and (ii) 5,000,000
shares of Preferred Stock, par value $.0001 per share, none of which have ben
designated or issued.
Common Stock
Holders of Common Stock are entitled to one vote per share on all matters
to be voted on by stockholders generally, including the election of directors.
Holders of Common Stock do not have cumulative voting rights, which means that
the holders of more than 50% of the shares voting for the election of directors
can elect all of the directors if they chose to do so, and in such event, the
holders of the remaining shares will not be able to elect any persons to the
Board of Directors. The holders of Common Stock have no preemptive or other
subscription or conversion rights with respect to any stock issued by the
Company, The Common Stock is not subject to redemption, and the holders thereof
are not liable for further calls or assessments. Holders of Common Stock are
entitled to receive such dividends as may be declared by the Board of Directors
out of funds legally available therefore and to share pro-rata in any
distributions to the holders of Common Stock.
Preferred Stock
The Preferred Stock is issuable with such rights, preferences, privileges
and such number of shares constituting each series to be fixed by the Board of
Directors without further action by the holders of Common Stock or Preferred
Stock. The Board of Directors could, without stockholder approval, issue
Preferred Stock with voting and conversion rights, which could dilute the voting
power of the holders of the Common Stock. The issuance of shares of Preferred
Stock by the Board of Directors could be utilized, under certain circumstances,
as a method of preventing a takeover of the Company. As of the date hereof, the
Board of Directors as not authorized any series of Preferred Stock and has no
plans to do so.
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Transfer Agent
Continental Stock Transfer & Trust Company, Two Broadway, New York, NY
10004 is Transfer Agent for the Common Stock.
Reports to Stockholders
The Company plans to furnish its stockholders with an annual report for
each fiscal year containing financial statements audited by its independent
certified public accountants. In the event the Company enters into a business
combination with another company, it is the present intention of management to
continue furnishing annual reports to stockholders. Additionally, the Company
may, in its sole discretion, issue unaudited quarterly or other interim reports
to its stockholders when it deems appropriate. The Company intends to comply
with the periodic reporting requirements of the Securities Exchange Act of 1934
for so long as it is subject to those requirements.
PART II
ITEM I. MARKET PRICE AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER SHAREHOLDER MATTERS
No public trading market exists for the Company's securities and all of its
outstanding securities are restricted securities as defined in Rule 144. There
were approximately 200 holders of record of the Company's common stock on
December 31, 1999. No dividends have been paid to date and the Company's Board
of Directors does not anticipate paying dividends in the foreseeable future.
The Company does not plan to take affirmative steps to request or encourage
any broker-dealer to act as a market maker for the Company's securities. There
are to date no understandings, agreements or discussions in place with any such
broker-dealer. Although management has set forth disclosure throughout this
registration statement indicating it would consider the public "trading" of its
securities if such activity was in the best interests of its shareholders, it
presently has no plans to do so.
(a) MARKET PRICE. The Registrant's Common Stock is not quoted at the
present time.
Effective August 11, 1993, the Securities and Exchange Commission adopted
Rule 15g-9, which established the definition of a "penny stock," for purposes
relevant to the Company, as any equity security that has a market price of less
than $5.00 per share or with an exercise price of less than $5.00 per share,
subject to certain exceptions. For any transaction involving a penny stock,
unless exempt, the rules require: (i) that a broker or dealer approve a person's
account for transactions in penny stocks; and (ii) the broker or dealer receive
from the investor a written agreement to the transaction, setting forth the
identity and quantity of the penny stock to be purchased. In order to approve a
person's account for transactions in penny stocks, the broker or dealer must (i)
obtain financial information and investment experience and objectives of the
person;
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and (ii) make a reasonable determination that the transactions in penny stocks
are suitable for that person and that person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny
stock, a disclosure schedule prepared by the Commission relating to the penny
stock market, which, in highlight form, (i) sets forth the basis on which the
broker or dealer made the suitability determination; and (ii) that the broker or
dealer received a signed, written agreement from the investor prior to the
transaction. Disclosure also has to be made about the risks of investing in
penny stocks in both public offerings and in secondary trading, and about
commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities and the rights and remedies available to
an investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks.
The National Association of Securities Dealers, Inc. (the "NASD"), which
administers NASDAQ, has recently made changes in the criteria for initial
listing on the NASDAQ Small Cap market and for continued listing. For initial
listing, a company must have net tangible assets of $4 million, market
capitalization of $50 million or net income of $750,000 in the most recently
completed fiscal year or in two of the last three fiscal years. For initial
listing, the common stock must also have a minimum bid price of $4 per share. In
order to continue to be included on NASDAQ, a company must maintain $1,000,000
in net tangible assets and a $1,000,000 market value of its publicly-traded
securities. In addition, continued inclusion requires two market-makers and a
minimum bid price of $1.00 per share.
Management intends to strongly consider undertaking a transaction with any
merger or acquisition candidate which will allow the Company's securities to be
traded without the aforesaid limitations. However, there can be no assurances
that, upon a successful merger or acquisition, the Company will qualify its
securities for listing on NASDAQ or some other national exchange, or be able to
maintain the maintenance criteria necessary to insure continued listing. The
failure of the Company to qualify its securities or to meet the relevant
maintenance criteria after such qualification in the future may result in the
discontinuance of the inclusion of the Company's securities on a national
exchange. In such events, trading, if any, in the Company's securities may then
continue in the non-NASDAQ over-the-counter market. As a result, a shareholder
may find it more difficult to dispose of, or to obtain accurate quotations as to
the market value of, the Company's securities.
(b) HOLDERS. There are approximately 200 holders of record the Company's Common
Stock , inclusive of the purchasers in the December 1999 private placement.
Certificates evidencing the Common Stock issued by the Company to these
persons have all been stamped with a restrictive legend, and are subject to stop
transfer orders by the Company. For additional information concerning
restrictions that are imposed upon the securities held by current stockholders,
and the responsibilities of such stockholders to comply with federal securities
laws in
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the disposition of such Common Stock.
The Company has taken the following action to ensure that a public
re-distribution of the Shares does not take place:
(i) a "restrictive" legend has been and will be placed on each stock certificate
issued to the present shareholders of the Company and their permitted
transferees;
(ii) "stop transfer" order instructions have or will be placed with respect to
each such certificate;
(iii) all shareholders have or will be placed on notice that their securities
will need to be sold in compliance with Rule 144 of the Act, and may not be
transferred otherwise;
(iv) disclosure has been set forth throughout this Form 10SB describing the
above restrictions.
Redistribution - Rule 144
Rule 144 of the Securities Act lists criteria under which restricted
securities and securities held by affiliates or control persons may be resold
without registration. The rule prevents the creation of public markets in
securities when the issuers have not made adequate current information available
to the public. Preliminary Note to Securities Act Rule 144. The requirements of
Rule 144(b) through (i) include provisions that: 1) current public information
be available regarding the issuer of the securities; 2) at least one year elapse
between the time the securities are acquired from an issuer or affiliate and the
date the securities are resold under the rule; 3) the amount of securities able
to be sold is limited, depending on whether the sale is by an affiliate or not;
4) the securities be sold in brokers' transactions or with a market maker; 5)
Commission Form 144 be filed depending on the size of the transaction; and 6)
the person filing the form has a bona fide intention to sell the securities
within a reasonable time following the filing of the form.
For non affiliated seller under Rule 144 there are exceptions to certain of
the requirements listed above for shares held for over two years.
(c) DIVIDENDS. The Company has not paid any dividends to date, and has no plans
to do so in the immediate future.
ITEM II. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings, and no such
proceedings are known to be contemplated.
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No director, officer or affiliate of the Company, and no owner of record or
beneficial owner of more than 5.0% of the securities of the Company, or any
associate of any such director, officer or security holder is a party adverse to
the Company or has a material interest adverse to the Company in reference to
pending litigation.
ITEM III. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Not applicable.
ITEM IV. RECENT SALES OF UNREGISTERED SECURITIES
During December 1999, the Company sold 1,985,000 shares of its common stock
for $1,985, $.001 per share, to eleven investors in a private placement
conducted pursuant to Rule 506 under the Securities Act of 1933, as amended.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Seventh of the Company's Certificate of Incorporation provides for
indemnification of the Company's officers and directors to the fullest extent
permitted under the General Corporation Law of the State of Delaware ("DGCL").
SECTION 145 of the DGCL, as amended, applies to the Company and the
relevant portion of the DGCL provides as follows:
145. 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
38
<PAGE>
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 circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other 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 attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(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
39
<PAGE>
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 (including attorneys' fees) 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 or officer 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 of 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 of expenses 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.
(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, officer and
employees or agents, so that any person who is or was a director, officer,
employee or agent
40
<PAGE>
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 if its separate existence had continued.
(i) For purpose 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 any 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.
(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 a person.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, may be permitted to directors, officers or persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed
that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act of
1933 and is therefore unenforceable.
41
<PAGE>
FINANCIAL STATEMENTS
See Financial Statement Pages
42
<PAGE>
PART III
ITEM I. INDEX TO EXHIBITS
(b) Exhibits
3(a) Articles of Incorporation of the Registrant
3(b) Bylaws of the Registrant
3(c) Certificate of Renewal and Revival of the Registrant
4 Specimen Stock Certificate
5 Opinion of Frank J. Hariton, Esq.
10.1 Spin - Off Agreement, dated September 19, 1996, between the Registrant
and Kushi Macrobiotics Corp.
10.2. Amended and Restated Agreement and Plan of Merger by and among Kushi
Macrobiotics Corp. and American Phoenix Group, Inc. and the
Registrant, dated August 12, 1996
21 Subsidiaries of the Registrant - None
99.1 Other Exhibits. - Private Securities Litigation Reform Act of 1995
Safe Harbor Compliance Statement for Forward Looking Statements
ITEM 2. DESCRIPTION OF EXHIBITS
See Item I above.
43
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
KUSHI NATURAL FOODS CORP.
By: /s/ Dr. Eugene Stricker
- - --------------------------------
Dr. Eugne Stricker, President
Date: March __, 2000
44
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Kushi Natural Foods Corp.
We have audited the accompanying balance sheet of Kushi Natural Foods Corp. (a
development stage enterprise) as of December 31, 1999, and the related
statements of operations, changes in stockholders' equity, and cash flows for
each of the two years in the period ended December 31, 1999, and for the period
August 1, 1996 (inception) through December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Kushi Natural Foods Corp. at
December 31, 1999, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1999, and for the period
August 1, 1996 (inception) through December 31, 1999, in conformity with
generally accepted accounting principles.
WOLINETZ, GOTTLIEB & LAFAZAN, P.C.
Rockville Centre, New York
January 28, 2000
<PAGE>
KUSHI NATURAL FOODS CORP.
(A Development Stage Enterprise)
BALANCE SHEET
DECEMBER 31, 1999
ASSETS
Current Assets:
Cash and Cash Equivalents $ 50,647
Stock Subscriptions Receivable 1,985
---------
Total Assets $ 52,632
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 25,633
Commitments and Contingencies
Stockholders' Equity:
Preferred Stock, $.0001 par value; 5,000,000 shares
Authorized, none issued and outstanding $ --
Common Stock, $.0001 par value; 35,000,000 shares
Authorized, 10,588,718 shares issued and outstanding 1,059
Additional Paid-In Capital 213,494
Deficit Accumulated in the Development Stage (187,554)
---------
Total Stockholders' Equity 26,999
---------
Total Liabilities and Stockholders' Equity $ 52,632
=========
The accompanying notes are an integral part of the financial statements.
<PAGE>
KUSHI NATURAL FOODS CORP.
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative
From
Year Ended August 1, 1996
December 31, (Inception)
-------------------------- To December 31,
1999 1998 1999
-------------------------- -----------
<S> <C> <C> <C>
Revenues $ -- $ -- $ --
Costs and Expenses:
Selling, General and Administrative Expenses 5,160 30,000 47,181
----------- ----------- -----------
Loss from Operations (5,160) (30,000) (47,181)
Other Income:
Interest Income 912 -- 912
----------- ----------- -----------
Loss from Continuing Operations (4,248) (30,000) (46,269)
----------- ----------- -----------
Discontinued Operations:
Loss from Operations of Discontinued Joint Venture -- -- (99,143)
Loss on Write-Off of Investment in Discontinued
Joint Venture -- -- (42,142)
----------- ----------- -----------
-- -- (141,285)
----------- ----------- -----------
Net Loss $ (4,248) $ (30,000) $ (187,554)
=========== =========== ===========
Earnings Per Common Share - Basic
Weighted Average Common Shares Outstanding 8,652,663 8,603,718
=========== ===========
Net Loss Per Common Share - Basic $ (.00) $ (.00)
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
KUSHI NATURAL FOODS CORP.
(A Development Stage Enterprise)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD AUGUST 1, 1996 (INCEPTION) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional In The
Preferred Common Paid-In Development
Stock Stock Capital Stage Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at August 1, 1996 $ -- $ -- $ -- $ -- $ --
Issuance of 8,603,718 Shares of
Common Stock as Consideration
for the Net Assets of Kushi
Macrobiotics Corp. -- 860 129,488 -- 130,348
Contributed Capital by Officers
Pursuant to Debt Cancellation -- -- 78,250 -- 78,250
Net Loss for the Period Ended
December 31, 1996 -- -- -- (41,190) (41,190)
--------- --------- --------- --------- ---------
Balance at December 31, 1996 -- 860 207,738 (41,190) 167,408
Net Loss for the Year Ended
December 31, 1997 -- -- -- (112,116) (112,116)
--------- --------- --------- --------- ---------
Balance at December 31, 1997 -- 860 207,738 (153,306) 55,292
Net Loss for the Year Ended
December 31, 1998 -- -- -- (30,000) (30,000)
--------- --------- --------- --------- ---------
Balance at December 31, 1998 -- 860 207,738 (183,306) 25,292
Sale of 1,985,000 Shares of
Common Stock -- 199 5,756 -- 5,955
Net Loss for the Year Ended
December 31, 1999 -- -- -- (4,248) (4,248)
--------- --------- --------- --------- ---------
Balance at December 31, 1999 $ -- $ 1,059 $ 213,494 $(187,554) $ 26,999
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
KUSHI NATURAL FOODS CORP.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative
From
Year Ended August 1, 1996
December 31, (Inception)
------------------------ To December 31,
1999 1998 1999
------------------------ ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Loss $ (4,248) $ (30,000) $(187,554)
Adjustments to Reconcile Net Loss to Net Cash
(Used) by Operating Activities:
Stock Compensation 3,970 -- 3,970
Loss from Operations of Discontinued Joint Venture -- -- 99,143
Loss on Write-Off of Investment in Discontinued Joint
Venture -- -- 42,142
Changes in Operating Assets and Liabilities:
Increase (Decrease) in Accounts Payable (9,867) 30,000 25,633
--------- ----------- ---------
Net Cash (Used) by Operating Activities (10,145) -- (16,666)
--------- ----------- ---------
Cash Flows from Investing Activities:
Investment in Joint Venture -- -- (47,854)
Cash Acquired Pursuant to Spin-Off -- -- 115,167
--------- ----------- ---------
Net Cash Provided by Investing Activities -- -- 67,313
--------- ----------- ---------
Cash Flows from Financing Activities -- -- --
--------- ----------- ---------
Increase (Decrease) in Cash and Cash Equivalents (10,145) -- 50,647
Cash and Cash Equivalents - Beginning 60,792 60,792 --
--------- ----------- ---------
Cash and Cash Equivalents - Ending $ 50,647 $ 60,792 $ 50,647
========= =========== =========
Supplemental Disclosure of Cash Information:
Cash Paid for Income Taxes $ -- $ -- $ --
========= =========== =========
Cash Paid for Interest $ -- $ -- $ --
========= =========== =========
Non-Cash Investing and Financing Activities:
Contributed Capital by Former Officers Pursuant
to Debt Cancellation $ -- $ -- $ 78,250
========= =========== =========
Issuance of Common Stock as Consideration for
the Net Assets of Kushi Macrobiotics Corp.
Increase in Stock Subscriptions Receivable Upon Sale of
Common Stock $ 1,985 $ -- $ 1,985
========= =========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
KUSHI NATURAL FOODS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 - Organization and Basis of Presentation
Kushi Natural Foods Corp. (the "Company") was incorporated on August 1,
1996 under the laws of the State of Delaware as a wholly-owned subsidiary of
Kushi Macrobiotics Corp., a Delaware Corporation ("KMC").
On September 19, 1996 the Company was assigned certain assets and assumed
certain liabilities of KMC. The Company was thereafter spun-off to the
shareholders of KMC immediately prior to KMC's merger with another corporation.
The assets and liabilities transferred to the Company by KMC were for the
purpose of the Company to develop, produce and/or market a full line of high
quality macrobiotic natural foods. The Company has not generated any revenues
from the natural foods business and has incurred losses to date. Consequently,
the Company has abandoned the natural foods business and is currently seeking to
obtain capital in order to take advantage of business opportunities which may
have profit potential. Accordingly, the Company's financial statements are
presented as statements of a development stage enterprise.
NOTE 2 - Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
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 these estimates.
Cash and Cash Equivalents
The Company considers those short-term, highly liquid investments with
original maturities of three months or less as cash equivalents.
Joint Venture
The Company accounted for its investment in the Joint Venture under the
equity method.
Income Taxes
The Company records deferred income taxes using the liability method. Under
the liability method, deferred tax assets and liabilities are recognized for the
expected future tax consequences of temporary differences between the financial
statement and income tax bases of the Company's assets and liabilities. An
allowance is recorded, based upon currently available information, when it is
more likely than not that any or all of the deferred tax asset will not be
realized. The provision for income taxes includes taxes currently payable, if
any, plus the net change during the year in deferred tax assets and liabilities
recorded by the Company.
<PAGE>
KUSHI NATURAL FOODS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 2 - Summary of Significant Accounting Policies (Continued)
Net Loss Per Common Share
Net loss per common share is based upon the weighted average number of
common shares outstanding during the periods reported.
Fair Value of Financial Instruments
The carrying value of the Company's financial instruments, including cash
and cash equivalents and accounts payable approximated fair value because of the
short maturity of these instruments.
NOTE 3 - Stock Subscriptions Receivable
Stock subscriptions receivable represents amounts owed from the December
1999 sale of 1,985,000 shares of the Company's common stock pursuant to a
private offering (see Note 5). The total amount receivable of $1,985 was paid in
January 2000.
NOTE 4 - Joint Venture
In October 1996 the Company and EnerVite Corp ("EVC") agreed to enter into
a joint venture in which the Company and EVC would each own 50% of a new
corporation called EVC/Kushi, Inc. ("EVCK").
The Company invested approximately $141,000 for a 50% ownership interest in
EVCK. In September 1997 EVCK discontinued operations. During the period October
1996 to September 1997 EVCK incurred a net loss of approximately $198,000. Upon
discontinuance of operations of EVCK, the Company wrote off the remaining
balance of its investment in EVCK.
NOTE 5 - Stockholders' Equity
Spin-Off Agreement
On September 19, 1996 the Company was assigned certain assets and assumed
certain liabilities of KMC. In connection therewith the Company issued 8,603,718
shares of common stock as consideration for net assets in the amount of
$130,348. The Company was thereafter spun-off to the shareholders of KMC
immediately prior to KMC's merger with another corporation.
Conversion of Debt to Equity
In 1996 four officers of the Company converted indebtedness of the Company
to them in the amount of $78,250 into additional paid-in capital.
<PAGE>
KUSHI NATURAL FOODS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 5 - Stockholders' Equity (Continued)
Sale of Common Stock
During December 1999 the Company sold 1,985,000 shares of its common stock
to eleven investors in a private placement for $1,985, or $.001 per share.
Although the sales price represented management's best estimate of fair value at
date of sale the Company has taken a charge to operations in the amount of
$3,970, representing the difference between the sales price and book value per
share. Among the purchasers in such private placement were four directors and
affiliates of the Company, of whom purchased 1,385,000 shares in the aggregate.
Preferred Stock
The Company's Board of Directors may, without further action by the
Company's stockholders, from time to time, direct the issuance of any authorized
but unissued or unreserved shares of Preferred Stock in series and may, at the
time of issuance, determine the rights, preferences and limitations of each
series. The holders of Preferred Stock may be entitled to receive a preference
payment in the event of any liquidation, dissolution or winding-up of the
Company before any payment is made to the holders of the Common Stock. The Board
of Directors could issue Preferred Stock with voting and other rights that could
adversely affect the voting power of the holders of Common Stock and could have
certain anti-takeover effects.
NOTE 6 - Income Taxes
The Company is subject to federal and state income taxes but has not
incurred a liability for such taxes due to losses incurred. As of December 31,
1999 the Company had a net operating loss carryforward ("NOLC") for federal
income tax purposes of approximately $188,000. This NOLC is available to offset
future federal taxable income, if any, through 2019. Limitations on the
utilization of the Company's net operating tax loss carryforward could result in
the event of certain changes in the Company's ownership.
Income tax benefit attributable to net loss differed from the amounts
computed by applying the statutory Federal Income tax rate applicable for each
period as a result of the following:
Year Ended December 31,
1999 1998
-----------------
Computed "expected" tax benefit $ -- $10,000
Decreased in tax benefit resulting from net
operating loss for which no benefit is
currently available -- (10,000)
------- -------
$ -- $ --
======= =======
The Company had deferred tax assets of approximately $64,000 at December
31, 1999, resulting primarily from net operating loss carryforwards. Th deferred
tax assets have been fully offset by a valuation allowance resulting from the
uncertainty surrounding the future realization of the net operating loss
carryforwards.
<PAGE>
KUSHI NATURAL FOODS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 7 - Commitments and Contingencies
Legal
The Company may be subject to legal proceedings and claims which may arise
in the ordinary course of its business. Currently, the Company is not a party to
any known legal proceedings.
CERTIFICATE OF INCORPORATION
OF
KUSHI NATURAL FOODS CORP.
The undersigned, 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 of the State of Delaware
(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
"General Corporation Law of the State of Delaware"), hereby certifies that;
FIRST: The name of the corporation (hereinafter referred to as the
"Corporation") is
Kushi Natural Foods Corp.
SECOND: The address, including street, number, city and county, of the
Corporation's initial registered office in the State of Delaware is 1209 Orange
Street, Wilmington, County of New Castle. The name of the registered agent of
the Corporation at such address is The Corporation Trust Company.
THIRD. The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
FOURTH: The Corporation shall be authorized to issue 35,000,000 shares of common
stock, with a par value of $.0001 per share and 5,000,000 shares of preferred
stock, with a par value of $.0001, and the terms of which shall be decided by
the Board of Directors.
FIFTH: The name and the mailing address of the sole incorporator is Richard F.
Horowitz, 292 Madison Avenue, 20th Floor, New York, New York 10017.
SIXTH: The Corporation is to have perpetual existence.
SEVENTH. The Board of Directors shall have the power to adopt, amend or repeal
the by-laws of the Corporation. Election of directors need not be by written
ballot, unless otherwise required by the Corporation's By-Laws.
EIGHTH: No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director shall
be liable to the extent provided by applicable law, W for breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit. No amendment to or repeal of this Article Eighth
shall apply to or have any effect on the liability or alleged liability of any
director of the Corporation for
1
<PAGE>
or with respect to any acts or omissions of such director occurring prior to
such amendment.
NINTH: The Corporation shall, to the fullest extent permitted by Section 145 of
the General Corporation Law of the State of Delaware, 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
off ice, 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 administrator of such a person.
TENTH: 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 of the State of Delaware 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 Tenth.
IN WITNESS WHEREOF, the undersigned, being the incorporator hereinbefore named,
hereby declares, and certifies that this is my act and deed and the facts herein
stated are true and accordingly has executed, signed and acknowledged this
Certificate of Incorporation this 30th day of July, 1996.
/s/ Richard F. Horowitz
- - -----------------------
RICHARD F. HOROWITZ, Incorporator
2
BY-LAWS
OF
KUSHI NATURAL FOODS CORP.
(A Delaware Corporation)
ARTICLE I
OFFICES
1. OFFICE.
The registered office of the corporation shall be located in the State of
Delaware, County of New Castle, City of Wilmington, and the name of the
registered agent at such office shall be The Corporation Trust Company.
2. ADDITIONAL OFFICES.
The corporation may also have offices and places of business at such other
places, within or without the State of Delaware, as the Board of Directors may
from time to time determine or the business of the corporation may require.
ARTICLE II
STOCKHOLDERS
1. CERTIFICATES REPRESENTING SHARES.
Certificates representing shares shall set forth thereon the statements
prescribed by any applicable provision of law and shall be signed by the
Chairman of the Board of Directors, President or a Vice President and by the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer
and may be sealed with the corporate seal or a facsimile thereof. The signature
of the officers 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 its employee. In case any officer who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer before such 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.
A Certificate representing shares shall not be issued until the full amount of
consideration therefor has been paid except as the General Corporation Law may
otherwise permit.
No Certificate representing shares shall be issued in place of any
certificate alleged to have
1
<PAGE>
been lost, destroyed or stolen, except on production of such evidence of such
loss, destruction or theft and on delivery to the corporation, if the Board of
Directors shall so require, of a bond of indemnity in such amount, upon such
terms and secured by such surety as the Board of Directors may in its discretion
require.
2. FRACTIONAL SHARE INTERESTS.
The corporation may issue certificates for fractions of a share where necessary
to effect transactions authorized by the General Corporation Law which shall
entitle the holder in proportion to his fractional holdings, to exercise voting
rights, receive dividends and participate in liquidating distributions; or it
may pay in cash the fair value of fractions of a share as of the time when those
entitled to receive such fractions are determined; or it may issue scrip in
registered or bearer form over the manual or facsimile signature of an officer
of the corporation or of its agent, exchangeable as therein provided for full
shares, but such scrip shall not entitle the holder to any rights of a
stockholder except as therein provided.
3. SHARE TRANSFERS.
Upon compliance with provisions restricting the transferability of shares, if
any, transfers of shares of the corporation shall be made only on the share
record of the corporation by the registered holder thereof, or by his attorney
thereunto authorized by power of attorney duly executed and filed with the
Secretary of the corporation or with a transfer agent or a registrar, if any,
and on surrender of the certificate or certificates for such shares properly
endorsed and the payment of all taxes due thereon.
4. RECORD DATE FOR STOCKHOLDERS.
For the purpose of determining the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, or to express consent
to or dissent from any proposal without a meeting, or for the purpose of
determining stockholders entitled to receive payment of any dividend or the
allotment of any rights, or for the purpose of any other action, the directors
may fix, in advance, a date as the record date for any such determination of
stockholders. Such date shall not be more than sixty days nor less than ten days
before the date of such meeting, nor more than sixty days prior to any other
action. If no record date is fixed, the record date for the determination of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if no notice is given, the day on which the
meeting is held; the record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the resolution of
the directors relating thereto is adopted. When a determination of stockholders
of record entitled to notice of or to vote at any meeting of stockholders has
been made as provided in this paragraph, such determination shall apply to any
adjournment thereof, unless the directors fix a new record date under this
paragraph for the adjourned meeting.
MEANING OF CERTAIN TERMS. As used herein in respect of the right to notice of a
meeting of stockholders or a waiver thereof or to participate or vote thereat or
to consent or dissent in writing in lieu of a meeting, as the case may be, the
term !'share" or "shares" or "stockholder" or
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"stockholders" refers to an outstanding share or shares and to a holder or
holders of record of outstanding shares when the corporation is authorized to
issue only one class of shares, and said reference is also intended to include
any outstanding share or shares and any holder or holders of record of
outstanding shares of any class upon which or upon whom the Certificate of
Incorporation confers such rights where there are two or more classes or series
of shares or upon which or upon whom the General Corporation Law confers such
rights notwithstanding that the Certificate of Incorporation may provide for
more than one class or series of shares, one or more of which are limited or
denied such rights thereunder.
5. MEETINGS.
TIME. The annual meeting shall be held on the date fixed, from time to time, by
the directors, provided, that each successive annual meeting shall be held on a
date within thirteen months after the date of the preceding annual meeting. A
special meeting shall be held on the date fixed by the directors except when the
General Corporation Law confers the right to fix the date upon stockholders.
PLACE. Annual meetings and special meetings shall be held at such place, within
or without the State of Delaware, as the directors may, from time to time, fix.
Whenever the directors shall fail to fix such place, or, whenever stockholders
entitled to call a special meeting shall call the same, the meeting shall be
held at the office of the corporation in the State of Delaware.
CALL. Annual meetings may be called by the directors or by any officer
instructed by the directors to call the meeting or by the President. Special
meetings may be called in like manner except when the directors are required by
the General Corporation Law to call a meeting, or except when the stockholders
are entitled by said Law to demand the call of a meeting.
NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER OF NOTICE. The notice of all meetings
shall be in writing, shall state the place, date, and hour of the meeting, and
shall state the name and capacity of the person issuing the same. The notice for
a special meeting shall indicate that it is being issued by or at the direction
of the person or persons calling the meeting. The notice of an annual meeting
shall state that the meeting is called for the election of directors and for the
transaction of other business which may properly come before the meeting, and
shall (if any other action which could be taken at a special meeting is to be
taken at such annual meeting) state the purpose or purposes. The notice of a
special meeting shall in all instances state the purpose or purposes for which
the meeting is called. If any action is proposed to be taken which would, if
taken, entitle stockholders to receive payment for their shares, the notice
shall include a statement of that purpose and to that effect. Except as
otherwise provided by the General Corporation Law, a copy of the notice of any
meeting shall be given, personally or by first class mail, not less than ten
days nor more than sixty days before the date of the meeting, unless the lapse
of the prescribed period of time shall have been waived, to each stockholder at
his record address or at such other address which he may have furnished -by
notice in writing to the Secretary of the corporation. If a meeting is adjourned
to another time or place, and if any announcement of the adjourned time or place
is made at the meeting, it shall not be necessary to give notice of the
adjourned meeting unless the directors, after adjournment, fix a new record date
for the adjourned meeting. Notice of a meeting need not be given
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to any stockholder who submits a signed waiver of notice, in person or by proxy,
before or after the meeting. The attendance of a stockholder at a meeting, in
person or by proxy, without protesting prior to the conclusion of the meeting
the lack of notice of such meeting shall constitute a waiver of notice by him.
STOCKHOLDER LIST. There shall be prepared and made, at least ten days before
every meeting of stockholders, a complete list of the stockholders, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting either at a place within the city where the meeting is to be held, which
place shall be specified in the notice of the meeting, or if not so specified,
at the place where the meeting is to be held. The list shall also be produced
and kept at the time and place of the meeting during the whole time thereof, and
may be inspected by any stockholder who is present. The stock ledger shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by this section or the books of the corporation, or to
vote at any meeting of stockholders.
CONDUCT OF MEETING. Meetings of the stockholders shall be presided over by any
one of the following officers--the Chairman of the Board, if any, the President,
a Vice President, or, if none of the foregoing is in office and present, by a
chairman to be chosen by the stockholders. The Secretary of the corporation, or
in his absence, an Assistant Secretary, shall act as Secretary of the meeting,
but if neither the Secretary nor Assistant Secretary is present, the chairman of
the meeting shall appoint a Secretary of the meeting.
PROXY REPRESENTATION. Every stockholder may authorize another person or persons
to act for him by proxy in all matters in which a stockholder is entitled to
participate, whether by waiving notice of any meeting, voting or participating
at a meeting or expressing consent or dissent without a meeting. Every proxy
must be signed by the stockholder or his attorney-in-fact. No proxy shall be
valid after the expiration of three years from the date thereof unless otherwise
provided in the proxy. Every proxy shall be revocable at the pleasure of the
stockholder executing it, except as otherwise provided by the General
Corporation Law.
INSPECTORS OF ELECTION. The directors, in advance of any meeting, may appoint
one or more inspectors to act at the meeting or any adjournment thereof. If
inspectors are not so appointed, the person Presiding at the meeting may, and,
on the request of any stockholder shall, appoint one or more inspectors. In case
any person appointed fails to appear or act, the vacancy may be filled by
appointment made by the directors in advance of the meeting or at the meeting by
the person presiding thereat. Each inspector, if any, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector at such meeting with strict impartiality and according to
the best of his ability. The inspectors, if any, shall determine the number of
shares outstanding and the voting power of each, the shares represented at the
meeting, the existence of a quorum, the validity and effect of proxies, and
shall receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result and do such acts as are proper
to conduct the
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election or vote with fairness to all stockholders. on request of the person
presiding at the meeting or any stockholder entitled to vote, thereat, the
inspector or inspectors, if any, shall make a report in writing of any
challenge, question or matter determined by them and execute a certificate of
any fact found by him or them.
QUORUM. Except as the General Corporation Law and these By-Laws may otherwise
provide, the holders of a majority of the outstanding shares shall constitute a
quorum at a meeting of stockholders for the transaction of any business. When a
quorum is once present to organize a meeting, it is not broken by the subsequent
withdrawal of any stockholders. The stockholders present may adjourn the meeting
despite the absence of a quorum.
VOTING. Each share shall entitle the holder thereof to one vote. In the election
of directors, a plurality of the votes cast shall elect. Any other action shall
be authorized by a majority of the votes cast except where the Certificate of
Incorporation or the General Corporation Law prescribe a different proportion of
votes.
6. STOCKHOLDER ACTION WITHOUT MEETINGS.
Any action required to be taken, or any action which may be taken, at any annual
or special meeting of stockholders, 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 the outstanding
stock having not less than one-half (1/2) of the votes entitled to vote thereon
had there been an actual meeting and they were present and voted. Prompt notice
of the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented in
writing and shall be delivered to the corporation by delivery to its registered
office in Delaware, its principal place of business, or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to a corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
ARTICLE III
BOARD OF DIRECTORS
1. FUNCTIONS AND DEFINITIONS.
The business of the corporation shall be managed by its Board of Directors. The
word "director" means any member of the Board of Directors. The use of the
phrase "entire board" herein refers to the total number of directors which the
corporation would have if there were no vacancies.
2. QUALIFICATIONS AND NUMBER.
Each director shall be at least eighteen years of age. A director need not be a
stockholder, a citizen of the United States, or a resident of the State of
Delaware.
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The initial Board of Directors shall consist of four (4) persons. Thereafter,
the number of directors constituting the entire board may be fixed from time to
time by action of the directors or of the stockholders. The number of directors
may be increased or decreased by action of directors or stockholders, provided
that any action of the directors to effect such increase or decrease shall
require the vote of a majority of the entire board. No decrease shall shorten
the term of any incumbent directors.
ELECTION AND TERM.
Directors who are elected at an annual meeting of stockholders, and directors
who are elected in the interim to fill vacancies and newly created
directorships, shall hold office until the next annual meeting of stockholders
and until their successors have been elected and qualified. In the interim
between annual meetings of stockholders or of special meetings of stockholders
called for the election of directors, newly created directorships and any
vacancies in the Board of Directors, including vacancies resulting from the
removal of directors for cause or without cause, may be filled by the vote of
the remaining directors then in office, although less than a quorum exists.
4. MEETINGS.
TIME. Meetings shall be held at such time as the Board shall fix, except that
the first meeting of a newly elected Board shall be held as soon after its
election as the directors may conveniently assemble.
PLACE. Meetings shall be held at such place within or without the State of
Delaware as shall be fixed by the Board.
CALL. No call shall be required for regular meetings for which the time and
place have been fixed. Special meetings may be called by or at the direction of
the Chairman of the Board, if any, the Vice- Chairman of the Board, if any, or
the President, or of a majority of the directors in office. A regular meeting
should be held quarterly.
NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be required for regular
meetings for which the time and place have been fixed. Written, oral or any
other mode of notice of the time and place of special meetings shall be given to
each director twenty-four hours prior to the meeting. The notice of any meeting
need not specify the purpose of the meeting. Any requirement of furnishing a
notice shall be waived by any director who signs a waiver of notice before or
after the meeting, or who attends the meeting without protesting, prior thereto
or at its commencement, the lack of notice to him.
QUORUM AND ACTION. A majority of the entire Board shall constitute a quorum
except when' a vacancy or vacancies prevents such majority, whereupon a majority
of the directors in office shall constitute a quorum, provided such majority
shall constitute at least one-third of the entire Board. A majority of the
directors present, whether or not a quorum is present, may adjourn a meeting to
another time and place. Except as otherwise provided herein or in any applicable
provision of law,
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the vote of a majority of the directors present at the time of the vote at a
meeting of the Board, if a quorum is present at such time, shall be the action
of the Board.
CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if present, shall
preside at all meetings. Otherwise, the President, if present, or any other
director chosen by the Board, shall preside.
5. REMOVAL OF DIRECTORS.
Any or all of the directors may be removed for cause or without cause by the
stockholders.
6. COMMITTEES OF DIRECTORS.
The Board of Directors may, by resolution passed by a majority of the entire
Board, designate from their number one or more directors to constitute an
Executive Committee which shall possess and may exercise all the powers and
authority of the Board of Directors in the management of the affairs of the
corporation between meetings of the Board (except to the extent prohibited by
applicable provisions of the General Corporation Law), and/or such other
committee or committees, which, to the extent provided in the resolution, shall
have and may exercise the powers of the Board of Directors in the management of
the business affairs of the corporation and may authorize the seal of the
corporation to be affixed to all papers which may require it. Such committee or
committees shall have such name or names as may be determined from time to time
by resolution adopted by the Board of Directors. All such committees shall serve
at the pleasure of the Board. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
7. CONFERENCE TELEPHONE.
Any one or more members of the Board of Directors or any committee thereof may
participate in a meeting of such Board or committee by means of a conference
telephone or similar communications equipment allowing all persons participating
in the meeting to hear each other at the same time. Such participation shall
constitute presence in person at such meeting.
8. ACTION IN WRITING.
Any action required or permitted to be taken at any meeting of the Board of
Directors or any committee thereof may be taken without a meeting if all members
of the Board or the committee, as the case may be, consent in writing to the
adoption of a resolution authorizing the action, and the resolution and the
written consents thereto are filed with the minutes of the proceedings of the
Board or committee.
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ARTICLE IV
OFFICERS
1. EXECUTIVE OFFICERS.
The directors may elect or appoint a Chairman of the Board of Directors, a
President, one or more Vice Presidents (one or more of whom may be denominated
"Executive Vice President"), a Secretary, one or more Assistant Secretaries, a
Treasurer, one or more Assistant Treasurers, and such other officers as they may
determine. Any two or more offices may be held by the same person.
2. TERM OF OFFICE; REMOVAL.
Unless otherwise provided in the resolution of election or appointment, each
officer shall hold office until the meeting of the Board of Directors following
the next meeting of stockholders and until his successor has been elected and
qualified. The Board of Directors may remove any officer for cause or without
cause.
3. AUTHORITY AND DUTIES.
All officers, as between themselves and the corporation, shall have such
authority and perform such duties in the management of the corporation as may be
provided in these By-Laws, or, to the extent not so provided, by the Board of
Directors.
4. THE PRESIDENT.
The President shall be the chief executive officer of the corporation. Subject
to the direction and control of the Board of Directors, he shall be in general
charge of the business and affairs of the corporation.
5 VICE PRESIDENTS.
Any Vice President that may have been appointed, in the absence or disability of
the President shall perform the duties and exercise the power of the President,
in the order of their seniority, and shall perform such other duties as the
Board of Directors shall prescribe.
6. THE SECRETARY.
The Secretary shall keep in safe custody the seal of the corporation and affix
it to any instrument when authorized by the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors.
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7. THE TREASURER.
The Treasurer shall have the care and custody of the corporate funds, and other
valuable effects, including securities, and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the corporation in such depositories as may be designated by the Board
of Directors. The Treasurer shall disburse the funds of the corporation as may
be ordered by the Board, or whenever they may require it, an account of all his
transactions as Treasurer and of the financial condition of the corporation. if
required by the Board of Directors, the Treasurer shall give the corporation a
bond for such term, in such sum and with such surety or sureties as shall be
satisfactory to the Board for the faithful performance of the duties of his
office and for the restoration to the corporation, in case of his death,
resignation, retirement or removal from office, of all books, papers, vouchers,
money and other property of whatever kind in his possession or under his control
belonging to the corporation.
ARTICLE V
BOOKS AND RECORDS
The books of the corporation may be kept within or without the State of
Delaware, at such place or places as the Board of Directors may, from time to
time, determine. Any of the foregoing books, minutes, or records may be in
written form or in any other form capable of being converted into written form
within a reasonable time.
ARTICLE VI
CORPORATE SEAL
The corporate seal, if any, shall be in such form as the Board of Directors
shall prescribe.
ARTICLE VII
FISCAL YEAR
The fiscal year of the corporation shall be as fixed by the Board of Directors.
ARTICLE VIII
CONTROL OVER BY-LAWS
The stockholders entitled to vote in the election of directors or the directors
may amend or repeal the By-Laws and may adopt new By-Laws.
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ARTICLE IX
INDEMNITY
Any person who was or is a party or threatened to be made a party to any
threatened, pending or completed action, suit or proceedings, 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 or she 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, join venture, trust or other enterprise
(including employee benefit plans) (hereinafter an " indemnitee") , shall be
indemnified and held harmless by the corporation to the fullest extent
authorized by the General Corporation Law as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the corporation to provide broader indemnification than
permitted prior thereto), against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such indemnitee in connection with such action, suit or proceeding, if the
indemnitee acted in good faith and in a manner he or she 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
conduct was unlawful. The termination of the proceeding, whether 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 or she 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 such conduct was
unlawful.
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 or
she 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 (including employee benefit plans) shall be indemnified and
held harmless by the' corporation to the fullest extent authorized by the
General Corporation Law, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the corporation to provide broader indemnification than permitted prior thereto)
, 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 in which such suit or action was
brought, shall determine upon application, that despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which such Court
shall deem proper.
All reasonable expenses incurred by or on behalf of the indemnitee in connection
with any suit, action or proceeding, may be advanced to the indemnitee by the
corporation.
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The rights to indemnification and to advancement of expenses conferred in this
section shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, the certificate of incorporation, by-law,
agreement, vote of stockholders or disinterested directors or otherwise.
The indemnification and advancement of expenses provided by this section shall
continue as to a person who has ceased to be a director officer, employee or
agent and shall inure to the benef it of the heirs, executors and administrators
of such a person.
If any provision of this Article is determined to be unenforceable in whole or
in part, such provision shall nonetheless be enforced to the fullest extent
permissible it being the intent of this Article to provide indemnification to
all persons eligible hereunder to the fullest extent permitted under law.
11
CERTIFICATE OF RENEWAL AND REVIVAL OF
CERTIFICATE OF INCORPORATION
OF
KUSHI NATURAL FOODS CORP.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "corporation") is KUSHI
NATURAL FOODS CORP.
2. The corporation was organized under the provisions of the General Corporation
Law of the State of Delaware. The date of filing of its original certificate of
incorporation with the Secretary of State of the State of Delaware is August 1,
1996 .
3. The address, including the street, city, and county, of the registered office
of the corporation in the State of Delaware arid the name of the registered
agent at such address are as follows-, Corporation Service Company, 1013 Centre
Road, Wilmington, Delaware 19805, County of New Castle.
4. The corporation hereby procures a renewal and revival of its certificate of
incorporation, which became inoperative by law on annual reports and non-payment
of taxes payable to the State of Delaware , March 1, 1999 for failure to file.
5. The certificate of incorporation of the corporation, which provides for and
will continue to provide for, perpetual duration, shall, upon the filing of this
Certificate of Renewal and Revival of the Certificate of Incorporation in the
Department of State of the State of Delaware, be renewed and revived and shall
become fully operative on February 28, 1999.
6. This Certificate of Renewal and Revival of the Certificate of Incorporation
is filed by authority of the duty elected directors as prescribed by Section 312
of the General Corporation Law of the State of Delaware.
Signed on November 3, 1999
/s/ Dr. Eugene Stricker
---------------------------------
Dr. Eugene Stricker, President
Certificate No. Incorporated under the Laws of the State of Delaware Shares
A XXX -XXXX-
SEE RESTRICTIVE LEGEND ON THE REVERSE
KUSHI NATURAL FOODS CORP.
TOTAL AUTHORIZED SHARE ISSUE 35,000,000 SHARES
30,000,000 SHARES PAR VALUE $.0001 EACH 5,000,000 SHARES PAR VALUE $.0001 EACH
COMMON STOCK BLANK CHECK PREFERRED STOCK
This is to Certify that XXXXXXXXXXXXXXXX is the owner of
- XXXXXXXXXXXXXXXXXXXXXXX -
Fully paid and non- assessable shares of the common stock of
KUSHI NATURAL FOODS CORP.
transferable on the books of the Corporation by the holder in person or by duly
authorized Attorney upon surrender of this Certificate properly endorsed.
Witness, the seal of the Corporation and the signatures of its duly authorized
officers.
Dated:
Corporate Seal
------------------------ ------------------------
Secretary President
FRANK J. HARITON o ATTORNEY - AT - LAW
- - --------------------------------------------------------------------------------
1065 Dobbs Ferry Road o White Plains o New York 10607 o (Tel) (914) 674-4373
o (Fax) (914) 693-2963 o (e-mail) [email protected]
New York City Office
----------------------
The Empire State Building - Suite 3000
New York, New York 10118
(Tel) (212) 695-6000 o (Fax) (212) 695-6007
March 21, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Kushi Natural Foods Corp. (the "Company")
Registration Statement on Form 10-SB (the "Registration
Statement") relating to the Company's Common Stock, par value
$.0001 per share "the "Shares")
Gentlemen:
I have been requested by the Company, a Delaware corporation, to furnish
you with my opinion as to the maters hereinafter set forth in connection with
the above captioned Registration Statement (the "Registration
Statement")covering the Shares.
In connection with this opinion, I have examined the Registration Statement
(as amended through the date hereof), the Certificate of Incorporation and
By-Laws of the Company, each as amended to date, copies of the records of
corporate proceedings of the Company, and copies of such other agreements,
instruments and documents as I have deemed necessary to enable me to render the
opinion hereinafter expressed.
Based upon and subject to the foregoing, I am of the opinion that the
Company is a corporation in good standing under the laws of the State of
Delaware and that all of the Company's issued and outstanding Shares, as
described in the Registration Statement, are legally issued fully paid and
non-assessable.
I render no opinion as to the laws of any jurisdiction other than the
internal laws of the State of New York, the internal corporate laws of the State
of Delaware. I hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to my name under the caption "Legal
Opinions" in the prospectus included in the Registration Statement.
Very truly yours,
/s/ Frank J. Hariton
Frank J. Hariton
SPIN-OFF AGREEMENT
AGREEMENT dated September 19, 1996 by and between Kushi Natural Foods Corp.
("Foods") and Kushi Macrobiotics Corp. ("KMC"), each a Delaware corporation.
WHEREAS, Foods and KMC are parties, together with American Phoenix Group, Inc.,
a Nevada corporation ("APHX") to a certain Amended and Restated Agreement and
Plan of Merger, dated August 12, 1996 (the "Merger Agreement"); and
WHEREAS, since its inception, KMC has been engaged in the business of
developing, marketing and selling a product line comprised of macrobiotic foods
(the ("Macrobiotic Food Business"); and
WHEREAS., the Merger Agreement provides that at the Effective Time (as defined
in the Merger Agreement), APHX will merge with and into KMC (the "Merger") and
simultaneously therewith KMC will transfer its Macrobiotic Foods Business to
Foods in exchange for shares of the Common Stock, par value .0001 of Foods
("Foods Shares"), which shall be distributed to the stockholders of KMC as of
immediately prior to the Effective Time; and
WHEREAS, the Merger Agreement further provides for the execution and delivery of
an Indemnification Agreement in favor of the surviving corporation
NOW THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements set forth in the Merger Agreement and in this
Agreement, the parties hereby agree as follows:
1 . Transfer and Assignment of Operational Assets; Assumption of Liabilities.
1.1 KMC agrees to transfer and assign to Foods all of its right, title and
interest in and to assets of every nature, kind and description, tangible and
intangible, used, held or owned by KMC in connection with the conduct of the
Macrobiotic Food Business exclusive of KMC's right, title and interest in the
premises leased by it located at 2 Cranberry Road, Parsippany, New Jersey (the
"Parsippany Premises") and the premises located at Three Stamford Landing, Suite
210, Stamford, Connecticut (the "Stamford Premises") (the assets to be
transferred hereunder being hereinafter referred to as the "KMC Operational
Assets". The transfer and assignment of the KMC Operational Assets shall become
effective as of the Effective Time without the necessity of any further act by
either KMC or Foods.
1.2 Foods hereby agrees to assume all of the obligations and liabilities of KMC
which now exist or which may hereafter arise relating to or arising from the KMC
Operational Assets or to the conduct of Macrobiotic Foods Business at any time
from its inception to the Effective Time, except for such obligations and
liabilities which arise from or relate to the interests of KMC in the Parsippany
Premises or the Stamford Premises. The assumption of such obligations and
liabilities by Foods shall become effective as of the Effective Time without the
necessity of any further acts by either KMC
1
<PAGE>
or Foods.
2. Issuance of Shares of Food.
2.1 In consideration for the transfer and assignment to Foods of all of the
KMC Operational Assets, Foods shall issue to KMC that number of Food Shares as
shall be equal to three times the number of shares the Common Stock, par value,
.001 per share, of KMC as shall be outstanding immediately preceding the
Effective Time, such issuance of stock to be effective as of the Effective Time
of the Merger.
3. Closing .
3.1 A closing (the "Closing") hereunder shall take place at the Effective Time
(or as soon as practicable thereafter),
3.2 At the Closing, KMC shall: (i) KMC shall execute and deliver to Foods a bill
of sale and license in substantially the form of Exhibit A hereto, together with
such other instruments of transfer and assignment as Foods shall reasonably
request in order to effect the transfer and assignment to Foods of all of the
KMC Operational Assets; (ii) execute and deliver to Foods the Indemnity and
Escrow Agreement in substantially the form of Exhibit B hereto, and (iii)
execute and deliver to Foods a certificate of the President and Secretary of KMC
as to the fulfillment to the conditions to the performance by Foods set forth in
Article 5 hereof.
3.3 At the Closing, Foods shall: (i) deliver to KMC a certificate representing
the shares of Foods to be issued in accordance with Section 2. 1 hereof,
together with a certificate of the President and Secretary of Foods as to the
valid issuance and authorization of such shares and the fulfillment of the other
conditions to the performance by KMC set forth in Article 5 hereof, and (ii)
execute and deliver to KMC the Indemnity and Escrow Agreement.
4. Representations and Warranties.
4.1 Each of the parties hereto represents and warrants to each other party that
it is a corporation duly incorporated, validly existing and in good standing
under laws of its jurisdiction of incorporation and that the execution, delivery
and performance by it of this Agreement and the transactions contemplated hereby
has been duly authorized by all necessary corporate action.
4.2 Foods hereby represents and warrants that the Foods Shares to be issued
pursuant to Section 2.1 hereof, will be, upon such issuance, duly authorized and
validly issued, fully paid, non-assessable and free of preemptive rights. Foods
further warrants that on and as of the Effective Time the Foods Shares issued
pursuant to Section 2.1 shall constitute all of the issued and outstanding
capital stock of Foods and that there are no subscriptions, options, warrants or
other rights, calls, agreements or commitments or obligations of Foods to issue
its capital stock.
2
<PAGE>
5. Conditions to the Obligation of the Parties.
The obligation of each party to consummate the transactions contemplated by this
Agreement shall be subject to the satisfaction by the other party on or prior to
the Effective Time of the following conditions:
5.1 The representations and warranties of such other party contained in this
Agreement or any document to be delivered by such party to this Agreement shall
be true and correct in all material respects at and as of the Effective Time as
though such representations and warranties were made on and as of the Effective
Time.
5.2 Such other party shall have performed and complied in all material respects
with all of obligations under this Agreement.
6.0 Termination. In the event of the termination of the Merger Agreement, this
Agreement shall forthwith become void and there shall be no liability on the
part of any of the parties hereto or their respective officers and directors.
7.0 Miscellaneous.
7.1 This Agreement may be amended only by written agreement between Foods and
KMC.
7. 2. Except as otherwise provided in this Agreement, any failure of any of the
parties to comply with any obligation, covenant or agreement contained herein
may be waived only by a written notice from the party or parties entitled to the
benefits thereof. No failure by any party hereto to exercise, and no delay in
exercising, any right hereunder, shall operate as a waiver thereof, nor shall
any single or partial exercise of any right hereunder preclude any other or
future exercise of that right by that party.
7.3 All notices and other communications hereunder shall be deemed given if
given in writing and delivered personally, by registered or certified mail,
return receipt requested, postage prepaid, or by overnight courier to the party
to receive the same at its respective address set forth below (or at such other
address as may from time to time be designated by such party to the others in
accordance with this Section 7.3):
(a) if to KMC, to:
American Phoenix Group, Inc.
5 Park Plaza, Suite 1260
Irvine, California 92714
(b) if to Foods, to:
All such notices and communications hereunder shall be deemed given when
received, as evidenced
3
<PAGE>
by the signed acknowledgment of receipt of the person to whom such notice or
communication shall have been personally delivered, the acknowledgment of
receipt returned to the sender by the applicable postal authorities or the
confirmation of delivery rendered by the applicable overnight courier service.
7.4 This Agreement and all of the provisions hereof shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. Neither this Agreement nor any rights, duties or obligations
hereunder shall be assigned or delegated by any party hereto without the prior
written consent of the other parties hereto.
7.5 Neither this Agreement nor any provision hereof nor any certificate or other
instrument delivered pursuant hereto, nor any agreement to be entered into
pursuant hereto or any provision hereof, is intended to create any right, claim
or remedy in favor of any person or entity, other than the parties hereto and
their respective successors and permitted assigns.
7.6 This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
7.7 This Agreement, and the certificates and other instruments and documents
delivered pursuant thereto, together with the other agreements referred to
herein and to be entered into pursuant hereto, embody the entire agreement of
the parties and there are no other agreements or understandings, written or
oral, among the parties relating to, the subject matter hereof. This Agreement
supersedes all prior agreements and understandings, written or oral, between the
parties.
7.8 The parties hereby agree that this Agreement, and the respective rights,
duties and obligations of the parties hereunder, shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to principles of conflicts of law thereunder.
7.9 The parties hereto agree that irreparable damage would occur in the event
this Agreement were not to be performed in accordance with the terms hereof and
that the parties shall be entitled to specific performance of the terms hereof
in addition to any other remedies at law or equity.
IN WITNESS WHEREOF, KMC and Foods bove caused this Agreement to be duly executed
and delivered as of the date first above written.
KUSHI MACROBIOTICS CORP.
By: /s/ Daniel A. France
-----------------------------------------------------
Name: Daniel A. France
Title: V.P., Chief Operating/Financial Officer
KUSHI NATURAL FOODS CORP.
By: /s/ Michio Kushi
-----------------------------------------------------
Name: Michio Kushi
Title: Chairman - CEO
4
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
KUSHI MACROBIOTICS CORP.
AND
AMERICAN PHOENIX GROUP, INC.
AND
KUSHI NATURAL FOODS CORP.
DATED: AUGUST 12, 1996
<PAGE>
TABLE OF CONTENTS
Page
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER 1
ARTICLE I 1
THE MERGER 1
1.1 Surviving corporation 1
1.2 Articles of Incorporation 1
1.3 By-Laws 2
1.4 Directors 2
1.5 Officers 2
1.6 Effective Time 2
1.7 Additional Actions 2
ARTICLE II 3
CONSIDERATION; CONVERSION OF SHARES 3
2.1 Merger Consideration 3
2.2 Conversion of Shares; Treatment of Warrants,
Options, and Convertible Securities 3
2.3 Cancellation of Certificates 4
2.4 No Fractional Securities 5
2.5 Closing 5
ARTICLE III 6
REPRESENTATIONS AND WARRANTIES WITH RESPECT TO APHX 6
3.1 Corporate Existence and Power; Qualification;
Subsidiaries 6
3.2 Corporate and Governmental Authorization;
Contravention 6
3.3 Capitalization 7
3.4 Financial Statements of APHX; Changes 7
3.5 No Undisclosed Liabilities 9
3.6 Compliance with Laws 10
3.7 Tax Matters 10
3.8 Title to Properties; Absence of Liens and
Encumbrances, Etc 11
3.9 Plant Facilities 11
3.10 Condition of Plants, Equipment, Etc 11
3.11 Insurance 11
3.12 Agreements, Plans, Arrangements, Etc 12
3.13 Intellectual Properties 14
3.14 Permits, License, Etc. 14
3.15 Litigation 15
3.16 Accounts and Notes Receivable 15
3.17 Inventories 15
3.18 No Interest in Competitors, Etc 15
3.19 Customers, Suppliers 16
3.20 Books and Records 16
3.21 Employees, Labor Relations, Etc 16
3.22 Environmental Matters 17
3.23 Employee Benefit Plans, Etc 18
3.24 SEC Filings 22
3.25 Information 22
3.26 Directors and Executive Officers 23
2
<PAGE>
ARTICLE IV 23
REPRESENTATIONS AND WARRANTIES WITH RESPECT TO
KMC 23
4.1 Corporate Existence and Power; Qualification;
Subsidiaries 23
4.2 Corporate and Governmental Authorization;
Contravention 23
4.3 Capitalization 24
4.4 Financial Statements of KMC; Changes 24
4.5 No Undisclosed Liabilities 27
4.6 Compliance with Laws 27
4.7 Tax Matters 27
4.8 Title to Properties; Absence of Liens and
Encumbrances, Etc 27
4.9 Plant Facilities 28
4.10 Condition of Plants, Equipment, Etc 28
4.11 Insurance 28
4.12 Agreements, Plans, Arrangements, Etc 28
4.13 Intellectual Properties 30
4.14 Permits, License, Etc 31
4.15 Litigation 31
4.16 Accounts and Notes Receivable 31
4.17 Inventories 32
4.18 No Interest in Competitors, Etc 32
4.19 Customers, Suppliers 32
4.20 Books and Records 32
4.21 Employees, Labor Relations, Etc 32
4.22 Environmental Matters 33
4.23 Employee Benefit Plans, Etc 34
4.24 SEC Filings 38
4.25 Information 38
4.26 Kushi Natural Foods 39
3
<PAGE>
ARTICLE V 39
CONDUCT OF BUSINESS OF APHX
AND KMC PRIOR TO THE EFFECTIVE TIME 39
5.1 Conduct of Business of APHX 39
5.2 Conduct of Business of KMC 41
5.3 KMC Spin Off 42
ARTICLE VI 43
ADDITIONAL AGREEMENTS 43
6.1 Access to Properties and Records 43
6.2 Registration Statement 43
6.3 Stockholders, Approvals 43
6.4 Restricted Stock 44
6.5 Reasonable Efforts; Etc 44
6.6 Material Events 44
6.7 Tax Consequences 44
6.8 Exclusivity 45
6.9 Certificate of Incorporation and
Directors of KMC 45
6.10 Indemnification 45
6.11 Quarterly Financial Statements 46
ARTICLE VII 46
CONDITIONS TO THE OBLIGATIONS OF KMC 46
7.1 Representations and Warranties True 46
7.2 Performance 46
7.3 Authorization of Merger 46
7.4 Registration Statement; Blue Sky Laws 47
7.5 Restrictive Legends 47
7.6 Absence of Litigation 47
7.7 Opinion of Counsel 47
7.8 Appraisal Rights 48
7.9 Certificates of Merger 48
7.10 Consents 48
7.11 No Material Change in Financial Statements 48
7.12 Directors and Executive Officers 48
ARTICLE VIII 48
CONDITIONS TO THE OBLIGATIONS OF APHX 48
8.1 Representations and Warranties True 48
8.2 Performance 49
8.3 Authorization of Merger 49
8.4 Registration Statement; Blue Sky Laws 49
8.5 Absence of Litigation 49
8.6 Opinion of Counsel 49
8.7 Certificates of Merger 50
8.8 Consents 50
8.9 Director Resignations 50
8.10 Inclusion on NASDAQ System 50
8.11 Hold Harmless and Indemnification Agreement 50
4
<PAGE>
ARTICLE IX 50
TERMINATION 50
9.1 Termination 50
9.2 Effect of Termination 51
ARTICLE X 52
MISCELLANEOUS PROVISIONS 52
10.1 Amendment 52
10.2 Waiver of Compliance 52
10.3 Notices 52
10.4 Assignment 53
10.5 No Third Party Beneficiaries 53
10.6 Expenses 53
10.7 Public Announcements 54
10.8 Brokers and Finders 54
10.9 Further Agreements 54
10.10 Counterparts 54
10.11 Entire Agreement 54
10.12 Governing Law 54
10.13 Descriptive Headings 55
10.14 Specific Performance 55
EXHIBITS
6.12 KMC Restated Articles of Incorporation
7.7 Form of Opinion of APHX Counsel
8.7 Form of Opinion of KMC Counsel
SCHEDULES
1.4 List of Directors of Surviving Corporation
1.5 List of Officers of Surviving Corporation
APHX Representations and Warranties/Covenants
3.1 Subsidiaries
3.2 Conflicts and Consents
3.3 Contracts Relating to Stock
3.4 Changes Since Balance Sheet Date
3.5 Undisclosed Liabilities
3.6 Compliance with Laws
3.7 Taxes
3.8 Title to Properties; Liens and Encumbrances
3.9 Plant Facilities
3.11 Insurance
3.12 Contracts
3.13 Intellectual Properties
3.14 Permits
3.15 Litigation
3.16 Accounts and Notes Receivable
3.18 Related Party Transactions, Etc.
3.21 Labor Matters
3.22 Environmental Matters
3.23 Employee Benefit Plans
3.24 SEC Filings
3.26 Directors and Executive Officers
5.1 Capital Expenditures
KMC Representations and Warranties/Covenants
4.1 Subsidiaries
4.2 Conflicts and Consents
4.4 Changes Since Balance Sheet Date
4.5 Undisclosed Liabilities
4.6 Compliance with Laws
4.7 Taxes
4.8 Title to Properties; Liens and Encumbrances
4.9 Plant Facilities
4.11 Insurance
4.12 Contracts
4.13 Intellectual Properties
4.14 Permits
4.15 Litigation
4.16 Accounts and Notes Receivable
4.18 Related Party Transactions, Etc.
4.21 Labor Matters
4.22 Environmental Matters
4.23 Employee Benefit Plans
5
<PAGE>
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER dated August --, 1996 by and
among KUSHI MACROBIOTICS CORP., a corporation organized under the laws of the
State of Delaware ("KMC"), AMERICAN PHOENIX GROUP, INC., a corporation organized
under the laws of the State of Nevada ("APHX") and KUSHI NATURAL FOODS Corp., a
corporation organized under the laws of the State of Delaware ("Foods").
WHEREAS, the respective Boards of Directors of KMC and APHX have approved the
merger of APHX with and into KMC (the "Merger"), pursuant to which KMC will be
the surviving corporation and the holders of APHX Common Stock will be entitled
to receive the consideration provided for in this Agreement, all upon the terms
and subject to the conditions set forth herein; and
WHEREAS, the parties hereto entered into an Agreement and Plan of Merger dated
June 1, 1996 and now wish to amend said agreement and restate it in its
entirety.
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements set forth herein, and intending to be legally bound
hereby, the parties hereby agree as follows:
6
<PAGE>
THE MERGER
1.1 Surviving corporation. In accordance with the provisions of this
Agreement, the Delaware General Corporation Law (the "Delaware Act") and
the Nevada Revised Statutes (the "Nevada Act"), at the Effective Time
(as that term is hereinafter defined in Section 1.6 hereof) APHX shall
be merged with and into KMC, with KMC being the surviving corporation in
the Merger (hereinafter sometimes called the "Surviving Corporation").
At the Effective Time, the separate existence of APHX shall cease and
the Surviving Corporation shall continue its corporate existence under
the laws of the State of Delaware. Without limiting the generality of
the foregoing, from and after the Effective Time, the Surviving
Corporation shall possess all of the rights, privileges, immunities,
powers and purposes, and shall assume and be liable for all of the
liabilities, obligations and penalties, of each of KMC and APHX, and the
Merger shall have all of the effects provided for in the Delaware Act
and the Nevada Act.
1.2 Articles of Incorporation. At the Effective Time, the Certificate of
Incorporation of KMC as in effect at the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation until
thereafter amended as provided by law.
1.3 By-Laws. At the Effective Time, the By-Laws of KMC as in effect at the
Effective Time shall be the By-Laws of the Surviving Corporation until
thereafter amended as provided by law.
1.4 Directors. On and after the Effective Time, the directors of the
Surviving Corporation shall be those persons who are listed on Schedule
1.4, all such directors to hold office until their respective successors
are duly elected and qualified in the manner provided in the Restated
Articles of Incorporation and Bylaws of the Surviving Corporation, or as
otherwise provided by law.
1.5 Officers. On and after the Effective Time, the officers of the Surviving
Corporation shall be those persons who are listed on Schedule 1.5, each
to hold the office(s) set forth opposite their respective names on such
Schedule, all such officers to hold office until their respective
successors are duly elected and qualified in the manner provided in the
Restated Certificate of Incorporation and By-Laws of the Surviving
Corporation, or as otherwise provided by law.
1.6 Effective Time. As soon as practicable following the Closing (as that
term is hereinafter defined in Section 2.5 hereof), Certificates of
Merger or any similar document required by state law to effect the
Merger (the "Certificates of Merger") shall be filed with the
Secretaries of State of the States of Nevada and Delaware. The Merger
shall become effective upon the filing the last of such certificates.
The time when the Merger shall become effective is herein referred to as
the "Effective Time."
1.7 Additional Actions. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills
of sale, assignments, assurances or any other acts or things are
necessary or desirable to vest, perfect or confirm, of record or
otherwise, in the Surviving corporation, its right, title or interest in
or to any of the rights, properties or assets of APHX acquired or to be
acquired by reason of, or as a result of, the Merger, or otherwise to
carry out the purposes of this Agreement (including, but not limited to,
any applications which may be required in order to allow the Surviving
Corporation to transact business in any jurisdiction), the Surviving
Corporation and its proper officers and directors shall be authorized to
execute and deliver, in the name and on behalf of APHX, all such deeds,
bills of sale, assignment and assurances and to do, in the name and on
behalf of APHX, all such other acts and things necessary or desirable to
vest, perfect or confirm any and all right, title or interest in, to or
under such rights, properties or assets in the Surviving Corporation or
otherwise to carry out the purposes of this Agreement.
7
<PAGE>
CONSIDERATION; CONVERSION OF SHARES
2.1 Merger Consideration. Except as set forth in Section 2.2(d) hereof, the
consideration payable in the Merger to holders of shares of APHX Common
Stock, par value $.01 per share ("APHX Common Stock"), and, to the
holders of warrants, options, convertible securities and other rights to
purchase APHX Common Stock upon exercise or conversion of the same,
shall consist solely of shares of Common Stock, par value $.001 per
share, of KMC ("KMC Common Stock"), such shares of KMC Common Stock to
be issuable in accordance with the terms of this Agreement.
2.2 Conversion of Shares; Treatment of Warrants, Options, and Convertible
Securities. (a) The current holders of APHX Common Stock shall be
entitled to own, in the aggregate, eighty five percent of the total
number of shares of Common Stock of the Surviving Corporation.
Accordingly, each holder of APHX Common Stock (other than APHX
Dissenting Shares, as that term is hereinafter defined in Section 2.2(d)
below) shall, upon completion of the Merger, own a percentage of the
total number of shares of Common Stock of the Surviving Corporation
equal to the product of eighty five percent multiplied by his percentage
ownership of APHX Common Stock immediately prior to the merger. (Said
percentage will be referred to as the "Exchange Percentage.")
(b) (i) Each warrant to acquire shares of APHX Common Stock (a "Warrant")
that is outstanding and unexercised at the Effective Time shall, by
virtue of the merger and without any action on the part of the holder
thereof, and subject to the other terms and conditions thereof,
automatically be deemed to be exercisable for that number of shares of
KMC Common Stock the holder of such Warrant would have received in the
Merger pursuant to Section 2.2(a) had such holder exercised such Warrant
in full immediately prior to the Effective Time, and the price per share
of KMC Common Stock issuable after the Effective Time upon exercise of
such Warrant shall equal seventy percent of the exercise price of the
Warrant immediately prior to the Merger.
(ii) Each option to acquire shares of APHX Common Stock issued, or agreed or
committed to be issued, under the APHX 1987 Stock Option Plan or
otherwise (an "Option") that is outstanding and unexercised at the
Effective Time shall, by virtue of the Merger and without any action on
the part of the holders thereof, and subject to the other terms and
conditions thereof, automatically be assumed by KMC and shall be
exercisable for that number of shares of KMC Common Stock the holder of
such option would have received in the Merger pursuant to Section 2.2(a)
had such holder exercised such Option in full (assuming, for the purpose
of this calculation only, that there is no limitation on the vesting of
the right to exercise such option) immediately prior to the Effective
Time, and the price per share of KMC Common Stock issuable after the
Effective Time upon exercise of such option shall equal eighty five
percent of the exercise price of the Option immediately prior to the
Merger. Any term or condition respecting the vesting of the right to
exercise such Option shall remain unaffected by the Merger; provided,
however, that any period during which the holder of such Option shall
have served as an employee or consultant, as the case may be, of APHX
prior to the Merger shall be counted toward determining the vesting of
the right to exercise such option after the Effective Time.
8
<PAGE>
(iii) Each note, debenture, or other security of APHX which is convertible
into shares of APHX Common Stock (a "Convertible security") and that is
outstanding and unconverted at the Effective Time shall, by virtue of
the Merger and without any action on the part of the holder thereof, and
subject to the other terms and conditions thereof, automatically be
deemed to be convertible into that number of shares of KMC Common Stock
the holder of such Convertible Security would have received in the
Merger pursuant to Section 2.2(a) had such holder converted such
Convertible Security in full immediately prior to the Effective Time,
and the price per share of KMC Common Stock, issuable after the
Effective Time upon conversion of such Convertible Security shall equal
eighty five percent of the exercise price of the Convertible Security
immediately prior to the Merger.
(iv) APHX Warrants, Options and Convertible Securities are hereinafter
referred to collectively as the "APHX Derivative securities." Except as
provided in clauses (i), (ii) and (iii) above, the terms and conditions
of the APHX Derivative Securities in effect prior to the Effective Time
shall continue in effect after the Effective Time.
(c) Each share of APHX Common Stock held in the APHX treasury as of the
Effective Time, if any, shall, by virtue of the Merger, be canceled
without payment of any consideration thereof.
(d) Notwithstanding the foregoing, any shares of APHX Common Stock issued
and outstanding immediately prior to the Effective Time which are held
by shareholders of APHX who have not voted such shares in favor of the
Merger and who have complied with all other relevant provisions of
Section 78.492 of the Nevada Act (the "APHX Dissenting Shares") shall
not be converted into shares of KMC Common Stock in the manner
contemplated by Section 2.2(a) above, and the rights of holders of APHX
Dissenting Shares shall be governed by the provisions of the Nevada Act.
2.3 Cancellation of Certificates. The Surviving Corporation shall designate
Continental Stock Transfer & Trust Company (the "Exchange Agent") to act
as exchange agent in effecting the exchange of certificates representing
APHX Common Stock (other than APHX Dissenting Shares) for certificates
representing the shares of KMC Common Stock into which such shares of
APHX Common Stock have been converted. The Exchange Agent shall send a
letter of transmittal to the holders of APHX Common Stock offering to
exchange the certificates representing such shares of APHX Common Stock
for certificates representing shares of KMC Common Stock.
Notwithstanding the foregoing, from and after the Effective Time, all
such outstanding shares of APHX Common Stock when so converted shall no
longer be outstanding and shall automatically be canceled and retired
and shall cease to exist. From and after the Effective Time, each
certificate or instrument which prior to the Effective Time represented
shares of APHX Common Stock or APHX Derivative Securities, as
applicable, shall be deemed to represent only the right to receive the
certificates of KMC Common Stock or the right to acquire shares of KMC
Common Stock contemplated by Section 2.2 hereof, and the holder of each
such certificate or instrument shall cease to have any rights with
respect to the shares of APHX Common Stock formerly represented thereby,
in the case of certificates formerly representing shares of APHX Common
Stock, or with respect to the shares of APHX Common Stock issuable upon
exercise or conversion thereof, in the case of instruments formerly
representing APHX Derivative Securities, except as otherwise provided by
law.
2.4 No Fractional Securities. Notwithstanding anything to the contrary
contained in this Agreement, no fractional shares of KMC Common Stock
shall be issuable by KMC upon the conversion of shares of APHX Common
Stock in the Merger pursuant to Section 2.2(a) hereof or upon exercise
or conversion of any APHX Derivative Security. The number of shares of
KMC Common Stock any APHX shareholder or the holder of any APHX
Derivative Security would otherwise be entitled to receive pursuant to
Section 2.2(a) or upon exercise or conversion of such APHX Derivative
Security shall be rounded to the nearest whole number of shares so as to
eliminate any fractional shares.
2.5 Closing. Subject to Section 9.1 hereof, the closing of the transactions
contemplated by this Agreement (the "Closing") shall take place at the
offices of Heller, Horowitz & Feit, P.C., 292 Madison Avenue, New York,
New York 10017 at 10:00 A.M. local time, (i) as soon as practicable
after the later to occur of (x) the date of the stockholders' approval
referred to in Section 6.3 hereof or (y) the day on which the last
condition set forth in Articles VII and VIII hereof shall have been
fulfilled or waived, or (ii) at such other time as KMC and APHX may
mutually agree (the "Closing Date").
9
<PAGE>
REPRESENTATIONS AND WARRANTIES WITH RESPECT TO APHX
APHX, represents and warrants to KMC as follows:
3.1 Corporate Existence and Power; Qualification; Subsidiaries. APHX is a
corporation duly incorporated, validly existing and in good standing
under the laws of its jurisdiction of incorporation, has all corporate
powers and all governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted and to own
or lease its properties, and is duly qualified to do business and is in
good standing in each jurisdiction in which the conduct of its business
or the ownership or leasing of its properties requires such
qualification. The copies of APHX's Articles of Incorporation and Bylaws
that have been delivered to KMC are complete and correct and are in full
force and effect. APHX has no subsidiaries other than the four listed on
Schedule 3.1. APHX has not made any advances to or investments in, nor
owns any securities of, any domestic or foreign business entity,
enterprise or organization other than as set forth on Schedule 3.1.
3.2 Corporate and Governmental Authorization; Contravention. The execution,
delivery and performance by APHX of this Agreement and the Merger have
been duly authorized by all necessary corporate action (other than the
approval of this Agreement and the Merger by the holders of a majority
of the outstanding shares of APHX Common Stock). This Agreement has been
duly executed and delivered by APHX. The execution and delivery of this
Agreement do not and the consummation of the transactions contemplated
hereby is not prohibited by, and will not violate or conflict with, any
provision of the Articles of Incorporation or Bylaws of APHX, or, except
as set forth on Schedule 3.2, any provision of, or result in the
acceleration of, result in any severance or termination pay liability,
constitute a default under, entitle any party to accelerate (whether
after the giving of notice or lapse of time or both) any obligation
under, result in the creation or imposition of any lien, charge, pledge,
security interest or other encumbrance upon any property of APHX
pursuant to any provisions of, or create any right on the part of any
party to modify, amend or terminate, any Contract (as such term is
defined in Section 3.3 hereof), lien, instrument, order, Permit (as such
term is defined in Section 3.14 hereof), arbitration award, judgment or
decree to which APHX is a party or by which any of them is bound. Other
than the requirement to file the Certificates of Merger with the
Secretaries of State of the States of Nevada and Delaware, as
applicable, and except as set forth in Schedule 3.2, no authorization,
consent or approval of, or filing with, any domestic or foreign public
body or authority is necessary on the part of APHX for the consummation
by APHX of the transactions contemplated by this Agreement or the other
agreements referred to herein and the ownership and operation by the
Surviving Corporation of the business and properties of APHX after the
Effective Time in substantially the same manner as presently owned and
operated, except where the failure to give such notices, obtain such
authorizations, consents or approvals or make such filings would not, in
the aggregate, have a material adverse effect on the condition
(financial or otherwise), business or operations of the Surviving
Corporation, or delay or prevent the consummation of the transactions
contemplated by this Agreement or prevent APHX from performing its
obligations hereunder. This Agreement is a valid, legal and binding
agreement of APHX, subject to applicable bankruptcy, insolvency,
moratorium or other laws affecting the enforcement of creditors' rights
in general from time to time in effect and general principles of equity
(regardless of whether such enforceability is considered in a proceeding
in equity or at law). As used herein, "Contracts" shall mean any lease,
license, mortgage, contract, sales order, purchase order or other
agreement, arrangement, understanding or commitment, whether written or
oral which is material to the business or properties of APHX or KMC, as
the context shall require.
3.3 Capitalization. (a) The shares of APHX Common Stock which are currently
outstanding have been duly authorized and are validly issued, fully
paid, nonassessable and free of preemptive rights. The authorized
capital stock of APHX consists of 50,000,000 shares of APHX Common
Stock, of which ------------shares are issued and outstanding and
20,000,000 shares of Preferred Stock, none of which are issued and
outstanding.
(b) There are no subscriptions, options, warrants or other rights, calls,
agreements or commitments obligating APHX to issue, or repurchase,
redeem or otherwise acquire, capital stock or other securities of APHX,
except as set forth in Schedule 3.3.
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3.4 Financial Statements of APHX; Changes. (a) APHX has heretofore delivered
to KMC its Form 10-KSB (the "APHX 10-KSB") for the year ended August 31,
1995 (the "APHX Balance Sheet Date") and its Forms 10-QSB for the
periods ended November 30, 1995, February 29, 1996, and May 31, 1996
(collectively, the "APHX Financial Statements"). The APHX Financial
Statements present fairly, in conformity with generally accepted
accounting principles applied on a consistent basis, except as stated
thereon, the financial position of APHX as of the APHX Balance Sheet
Date and the results of operations for the period then ended.
(b) Except as set forth in the APHX 10-KSB or in Schedule 3.4 hereto and
except as contemplated by this Agreement, since the APHX Balance Sheet
Date:
(i) there has been no material adverse change in the business, assets,
financial condition or results of operations of APHX;
(ii) there has not been any direct or indirect redemption, purchase or other
acquisition by APHX of any of its capital stock, or any declaration,
setting aside or payment of any dividend or other distribution by APHX
in respect of its capital stock, and APHX has not authorized or proposed
any of the foregoing, or entered into any contract, agreement,
commitment or arrangement to do any of the foregoing, except as may be
contemplated by this Agreement and the agreements contemplated hereby or
referred to herein;
(iii) APHX has conducted its business in the ordinary course and consistent
with past practices;
(iv) there has been no damage, destruction or casualty loss (whether or not
covered by insurance) suffered by APHX materially adversely affecting
the business, assets, financial condition or results of operations of
APHX, nor has APHX been notified of any pending condemnation proceeding
concerning any of its properties;
(v) there have not been any defaults or breaches by APHX under agreements to
which it is a party or by which it is bound which, taken in the
aggregate, would have a material adverse effect upon the business,
assets, financial condition or results of operation of APHX;
(vi) APHX has not directly or indirectly, (A) issued, sold, pledged, disposed
of, or encumbered, or authorized, proposed or agreed to the issuance,
sale, pledge, disposition or encumbrance of, any shares of, or any
options, warrants or rights of any kind to acquire any shares of or any
securities convertible into or exchangeable for any of, the capital
stock of any class of APHX, or any other securities in respect of, in
lieu of, or in substitution for any such capital stock; (B) acquired (by
merger, consolidation, or acquisition of shares or assets) any
corporation, partnership or other business organization or division
thereof or made any investment either by purchase of shares or
securities, contributions to capital (other than to subsidiaries or
affiliates) or property transfer; (C) authorized any change in its
capitalization or authorized, recommended or proposed any release or
relinquishment of any Contract right; or (D) authorized any of the
foregoing, or entered into or modified any contract, agreement,
commitment or arrangement to do any of the foregoing;
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(vii) APHX has not incurred any obligation or liability (fixed or contingent)
with respect to its business or any of its assets, except (1) trade or
business obligations incurred in the ordinary course of business
consistent with past practice and (2) obligations and liabilities under
this Agreement or contemplated hereby;
(viii) APHX has not discharged or satisfied any mortgage, lien, charge, claim
or other encumbrance (collectively, "Encumbrance") or paid any
obligation or liability (fixed or contingent) except (1) current
obligations, obligations and liabilities included in the APHX Financial
Statements and (2) current obligations and liabilities incurred since
the APHX Balance Sheet Date in the ordinary course of business;
(ix) APHX has not mortgaged, pledged or subjected to any Encumbrance any of
its assets or properties;
(x) APHX has not sold, transferred or leased any of its assets or properties
except for the sale of inventory, if any, in the ordinary course of
business;
(xi) APHX has not taken any action other than in the ordinary course of
business and consistent with past practice (none of which actions are
unreasonable or unusual) with respect to the grant of any severance or
termination pay (otherwise than pursuant to policies of APHX in effect
on the date hereof) or with respect to any increase of benefits payable
under its severance or termination pay policies in effect on the date
hereof; and
(xii) APHX has not adopted or amended any bonus, profit sharing, thrift,
savings, compensation, stock option, pension, retirement, deferred
compensation, employment or other employee benefit plan, agreement,
trust, plan, fund or other arrangement for the benefit or welfare of any
employee or increased in any manner the compensation or fringe benefits
of any employee or paid any benefit not required by any existing plan
and arrangement, except for salary increases for employees in the
ordinary course of business consistent with past practices.
3.5 No undisclosed Liabilities. Except as set forth in Schedules 3.4, 3.5,
3.12, 3.14, 3.15, 3.21, 3.22 and 3.23, there are no liabilities of APHX
of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, other than:
(a) liabilities disclosed or provided for in the APHX Financial Statements;
and
(b) liabilities incurred in the ordinary course of business consistent with
past practice since the APHX Balance Sheet Date.
3.6 Compliance with Laws. Except as set forth in Schedule 3.6, APHX has
complied in all material respects with all applicable federal, state,
local or foreign laws, regulations or orders or any other requirements
of any governmental, regulatory or administrative agency or authority or
court or other tribunal (including, but not limited to, any laws,
regulations, order or requirement relating to securities, the
environment, properties, business, products, manufacturing processes,
advertising, sales or employment practices, terms and conditions of
employment, occupational safety, health and welfare conditions of
occupied premises, environmental protection, air or water pollution,
product safety, and liability or civil rights) (each and all of the
foregoing being herein referred to as Law). APHX is not now charged with
or to its knowledge under investigation with respect to any violation of
any applicable Law where such violation could have a material adverse
effect on its business, assets, financial condition or results of
operation. APHX has filed all reports required to be filed with any
governmental, regulatory or administrative agency or authority where
failure to file such report would have a material adverse effect on its
business, assets, financial condition or results of operation.
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3.7 Tax Matters. Except as set forth in Schedule 3.7, (a) APHX has duly
filed or will file with the appropriate government agencies all Tax (as
hereinafter defined below) returns required to be filed by it on or
before the Effective Time, (b) APHX has timely paid, or made provision
on its books and records by establishing a reserve for the payment of,
all Taxes due with respect to its operations prior to the Effective
Time, including all Taxes shown as due on all Tax returns described in
clause (a) above and all estimated Tax payments due on or before the
Effective Time, (c) APHX has not executed or filed any agreement
extending the period for assessment or collection of any Taxes, nor is
APHX a party to any pending Litigation (as hereafter defined in Section
3.15 hereof) by any governmental authority for assessment or collection
of any Taxes, and no claims for assessment or collection of any Taxes
have been asserted against APHX, and (d) to the knowledge of APHX, no
Tax returns of APHX are under examination. APHX is not a "United States
real property holding company" within the meaning of Section 1445 of the
Internal Revenue Code of 1986 as amended (the "Code"). "Tax" or "Taxes"
shall mean taxes of any kind payable to any federal, state, local, or
foreign taxing authority, including, without limitation, (A) income,
gross receipts, ad valorem, value added, sales, use, service, franchise,
profits, real or personal property, capital stock, license, payroll,
withholding, employment, social security, workers compensation,
unemployment compensation, utility, severance, production, excise,
stamp, sales, liquor, occupation, premium, windfall profits, transfer
and gains taxes, (B) customs duties, (C) interest, penalties, and
additions to tax imposed with respect to the above taxes, and (D) any
damages, costs, expenses, fees or other liability arising from such Tax
or Taxes.
3.8 Title to Properties; Absence of Liens and Encumbrances, Etc. Except as
set forth in Schedule 3.8, APHX owns no real property and has good title
to or a legal, valid and enforceable right to use the other properties
and assets used in the conduct of its business (including without
limitation the assets reflected in the APHX Financial Statements except
as since sold or otherwise disposed of in the ordinary course of
business), free and clear of all Encumbrances, imperfections of or other
matters affecting title, and any rights of third parties whatsoever,
except (i) the lien of taxes not yet due and payable or being contested
in good faith by appropriate proceedings, and (ii) such imperfections of
title and other Encumbrances, if any, which, individually or in the
aggregate, do not materially detract from the marketability, value, or
interfere with the present use, of the property or asset subject thereto
or otherwise impair the operations of its business (collectively,
"Permitted Encumbrances").
3.9 Plant Facilities. Schedule 3.9 sets forth a correct and complete list of
all of the real properties, together with the buildings, plants,
improvements, and structures located thereon, owned or used by APHX in
the conduct of its business, indicating whether such property is owned
or leased and setting forth where such property is located.
3.10 Condition of Plants, Equipment, Etc. The plants, buildings, structures,
equipment and other physical properties and assets owned, operated, or
leased by APHX are in good condition and repair (ordinary wear and tear
which are not such as to affect adversely the operation of APHX business
excepted), free of any structural or engineering defect, are suitable
for the conduct of APHX's business as presently conducted and as
presently proposed to be conducted, and do not require any maintenance
or repairs except for routine maintenance and repairs. All such physical
properties and assets are in conformity in all respects with all
applicable Laws and other requirements relating thereto currently in
effect or scheduled to come into effect, including, without limitation,
Laws relating to environmental regulation and the maintenance of
occupational safety and health among the workforce.
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3.11 Insurance. The business and the assets of APHX are covered by insurance
with property licensed insurance companies against casualty and other
losses customarily obtained to cover comparable businesses and assets in
the region in which such businesses and assets are located, in amounts,
scope and coverage which are reasonable in light of existing conditions.
Schedule 3.11 sets forth a correct and complete list of all of the
policies of insurance and fidelity or surety bonds carried by APHX with
respect to its business or any of its assets (including prior policies
to the extent that they continue to provide coverage). APHX has not
failed to give any notice or present any claim under such insurance
policies in due and timely fashion, and there are no claims by APHX
against any of such policies as to which any insurance company is
denying liability or defending under a reservation of rights clause.
3.12 Agreements, Plans, Arrangements, Etc. Except as set forth in Schedule
3.12 (which may refer to other specific Schedules hereto), APHX is not a
party to, nor is APHX or any of its properties and assets bound or
affected by, any of the following:
(a) a lease (whether as lessor or lessee) relating to real or personal
property;
(b) a license, sublicense, assignment or other Contract (whether as licensor
or licensee, assignor or assignee) relating to Intellectual Property (as
such term is defined in Section 3.13 hereof);
(c) an employment Contract or consulting Contract;
(d) a purchase Contract in excess of $20,000, or which is at an excessive
price in light of current market conditions or which is in excess of the
normal requirements of the business or which call for deliveries beyond
90 days from the date hereof;
(e) a sales Contract in excess of $20,000, or which (individually or
together with any other sales Contracts) will result in any loss to APHX
and/or the Surviving Corporation upon performance thereof, or which
quotes prices which will not result in a normal profit or which call for
deliveries beyond 90 days from the date hereof;
(f) a Contract containing product warranties with respect to the products
manufactured or sold by APHX which deviate from the warranties contained
in APHX standard form sales order;
(g) a Contract with any distributor, dealer, sales agent or representative;
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(h) a Contract with any manufacturer, supplier or customer with respect to
discounts or allowances or the return of inventory or merchandise;
(i) a joint venture or partnership Contract;
(j) a Contract for the borrowing or lending of money or guaranteeing,
indemnifying or otherwise becoming liable for the obligations or
liabilities of another;
(k) a Contract with any bank, finance company or similar organization which
acquires from APHX consumer paper or Contracts for sale of merchandise
on credit;
(1) a Contract granting any person a security interest or other Encumbrance
on any of the assets of APHX, including, without limitation, any
factoring agreement or agreement for the assignment of inventory;
(m) a Contract for the construction or modification of any building or
structure or for the incurrence of any other capital expenditure;
(n) a Contract which restricts APHX from doing business anywhere in the
world;
(o) a Contract not entered into in the ordinary course of business;
(p) a Contract giving any party the right to renegotiate or require a
reduction in prices or the repayment of any amount previously paid;
(q) a Contract requiring the payment of royalties; or
(r) any other Contract which could have a material adverse effect on the
Surviving Corporation.
Correct and complete copies of all Contracts set forth in Schedule 3.12 or any
other Schedule hereto, including all amendments to date (or, where they are
oral, true and complete written summaries thereof), and true and complete copies
of all standard form Contracts used by APHX in the conduct of its business have
been delivered to KMC or its Representatives (as such term is defined in Section
3.24 hereof) prior to the date hereof. Each such Contract is valid, in full
force and effect and enforceable in accordance with its terms and APHX has
fulfilled, or taken all action reasonably necessary to enable it to fulfill when
due, all of their respective obligations under such Contracts. There has not
occurred any default, or any event which, with the lapse of time or the election
of any person other than APHX, or any combination thereof, will become a
default, by APHX, nor to the knowledge of APHX has there occurred any default by
others or any event which, with the lapse of time or the election of APHX, will
become a default by others under any material Contracts. Neither APHX, nor, to
the knowledge of APHX, any other party, is in arrears in respect of the
performance or satisfaction of the terms or conditions on its part to be
performed or satisfied under any of such Contracts and no waiver or indulgence
has been granted by any of the parties thereto.
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3.13 Intellectual Properties. Schedule 3.13 sets forth a correct and complete
list of all patents, trademarks, trade names, service marks, copyrights,
and applications therefor (collectively, "Intellectual Properties") used
in the conduct of the business of APHX. Except as disclosed in Schedule
3.13, (a) APHX owns or possesses adequate licenses or other valid rights
to use (without the making of any payment to others or the obligation to
grant rights to others in exchange) all Intellectual Properties
necessary to the conduct of its business as presently being conducted
and the consummation of the transactions contemplated hereby will not
alter or impair any of such rights; (b) the validity of such rights and
the title thereto of APHX, as applicable, have not been questioned in
any Litigation (as defined in Section 3.15 hereof) to which it is a
party, nor to the knowledge of APHX is any such Litigation threatened;
(c) the conduct of APHX business as now conducted does not infringe or
conflict with any Intellectual Properties of others; (d) there is no use
of any trademark, service mark or trade name owned by or licensed to
APHX that has heretofore been or is now being made, except by APHX or by
an entity duly licensed by it to use the same under a Contract disclosed
in Schedule 3.12; and (e) to the knowledge of APHX there is no
infringement by others of any Intellectual Properties owned by or
licensed by or to APHX. All patents, patent applications and rights to
inventions heretofore owned or held by any employee or officer of APHX
and relating to its business in any manner have been duly effectively
transferred to APHX. All licenses and Contracts requiring the payment of
royalties by APHX are referenced and correctly described in the APHX
10-KSB.
3.14 Permits, License, Etc. APHX has all Permits (as hereafter defined below)
that are required in order to carry on its business as presently
conducted and is not in default of any thereof. Schedule 3.14 sets forth
a correct and complete list of all such Permits, all of which are in
full force and effect, and no suspension, cancellation or non-renewal of
any of them is threatened, nor does any basis for such suspension,
cancellation or non-renewal exist. As to any such Permit that has
expired or is about to expire, APHX has promptly applied for the renewal
of same. A true and complete copy of each Permit set forth in Schedule
3.14 has been previously delivered to KMC. As used herein, "Permits"
shall mean all licenses, permits, consent orders, administrative orders,
product approvals and registrations, authorizations, franchises and
other approvals from any domestic (federal, state or local) or foreign
governmental, public or self-regulatory body or authority the failure of
which to obtain would have a material adverse effect on the business or
properties of APHX or KMC as the content shall require.
3.15 Litigation. Except as set forth on Schedule 3.15, there is no claim,
action, suit, proceeding, arbitration, investigation or inquiry (each
and all of the foregoing items being herein referred to as "Litigation")
pending before any federal, state, municipal, foreign or other court or
governmental, administrative or self-regulatory body or agency, or any
private arbitration tribunal, or to the knowledge of APHX threatened,
against, relating to or affecting APHX with respect to its business or
the transactions contemplated by this Agreement; nor to the knowledge of
APHX is there any basis for any such Litigation. Neither APHX nor any
officer, director or employee of APHX has been permanently or
temporarily enjoined or barred by order, judgment or decree of any court
or other tribunal or any agency or self regulatory body from engaging in
or continuing any conduct or practice in connection with its business.
There is not in existence any order, judgment or decree of any court or
other tribunal or any agency or self-regulatory body enjoining APHX from
taking or requiring APHX to take action of any kind with respect to its
business or to which APHX is subject or by which APHX is bound.
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3.16 Accounts and Notes Receivable. Attached hereto as Schedule 3.16 is a
true, complete and correct listing of all of the receivables (including
accounts receivable, notes receivable, loans receivable and any
advances) as of the APHX Balance Sheet Date. All such receivables, net
of any allowance for doubtful accounts, have been reflected on the APHX
Financial Statements, in accordance with generally accepted accounting
principles applied on a consistent basis except as stated thereon.
Except as set forth on Schedule 3.16, all accounts and notes receivable
reflected on the APHX Financial Statements or arising thereafter and on
or prior to the Effective Time arose from bona fide transactions in the
ordinary course of business.
3.17 Inventories. The inventories of APHX reflected on the APHX Financial
Statements or thereafter acquired on or prior to the Effective Time
consist of items of a quality and quantity usable and salable in the
ordinary course of business and the value at which such inventories are
carried are stated at the lower of cost (on a first-in, first-out basis)
or market in accordance with generally accepted accounting principles
consistently applied. The quantity of inventories on hand at the
Effective Time will be consistent with the requirements of then
outstanding sales activities of APHX.
3.18 No Interest in Competitors, Etc. Schedule 3.18 hereto sets forth all
Contracts or other arrangements between APHX and any affiliate thereof
for space, facilities, personnel, management, computer, telephone or
other services. Except as set forth in Schedule 3.18, APHX does not owe
any amount to, or have any Contract with or commitment to, any of its
shareholders, directors, officers, employees or consultants (other than
compensation for current services not yet due and payable and
reimbursement of expenses arising in the ordinary course of business
pursuant, in either case, to Contracts listed on Schedule 3.18), none of
such persons owes any amount to APHX, and no property or assets of any
shareholders of APHX or any affiliate of any shareholders of APHX is
used by APHX.
3.19 Customers, Suppliers. Since the APHX Balance Sheet Date there has not
been any termination, cancellation or limitation of, or any modification
or change in, the business relationship of APHX with any customer or
group of customers or supplier or group of suppliers whose purchases or
sales individually or in the aggregate accounted for 10% or more of the
gross sales or purchases of APHX, as the case may be, for the twelve
months ended on the APHX Balance Sheet Date nor to the knowledge of APHX
is any of the foregoing threatened by reason of the consummation of the
transactions contemplated hereby.
3.20 Books and Records. The books of account and other financial and
corporate records of APHX are in all material respects complete and
correct, are maintained in accordance with good business practices and
all Laws applicable to APHX, and are accurately reflected in the APHX
Financial Statements. The minute books of APHX as previously made
available to KMC and its counsel contain accurate records of all
meetings, and accurately reflect all other corporate action of the
shareholders and directors of APHX.
3.21 Employees, Labor Relations, Etc. Except as set forth in Schedule 3.21,
(a) APHX is not a party to any Contract or agreement with any labor
organization or other representative of APHX employees; (b) there is no
unfair labor practice charge or complaint pending or, to the best
knowledge of APHX, threatened, against APHX; (c) there is no labor
strike, slowdown, work stoppage or other material labor controversy in
effect, or to the knowledge of APHX threatened against or otherwise
affecting APHX; (d) APHX, or the entities existing prior to their
acquisition by APHX, has not experienced any labor strike, slowdown,
work stoppage or other material labor controversy within the past three
years; (e) no representation question has been raised respecting any of
APHX's employees within the past three years, nor, to the best knowledge
of APHX are there any campaigns being conducted to solicit cards from
APHX's employees to authorize representation by any labor organization;
(f) no collective bargaining agreement relating to any of APHX employees
is being negotiated; (g) no action, suit, complaint, charge,
arbitration, inquiry, proceeding, or investigation by or before any
court, governmental agency, administrative agency or commission brought
by or on behalf of any employee, prospective employee, former employee,
retiree, labor organization or other representative of APHX's employees,
is pending or, to the best knowledge of APHX, threatened, against APHX;
(h) APHX is not a party to, or otherwise bound by, any consent decree
with, or citation by, any government agency relating to APHX employees
or employment practices relating to APHX's employees; (i) APHX is in
compliance in all material respects with all applicable Laws and
Contracts relating to employment, employment practices, wages, hours,
and terms and conditions of employment, and has not engaged in any
unfair labor practice or discriminated on the basis of race, age, sex or
otherwise in its employment conditions or practices with respect to its
employees; (j) APHX has paid in full to all of its employees all wages,
salaries, commissions, bonuses, benefits and other compensation due and
payable to such employees on or prior to the date hereof; (k) APHX is in
compliance with its obligations with respect to APHX employees pursuant
to the Worker Adjustment and Retraining Notification Act of 1988, and
all other notification and bargaining obligations arising under any
collective bargaining agreement, statute or otherwise. Schedule 3.21
sets forth the name, position, title or function and salary or wages of
each employee of APHX employed as of April 31, 1996 at an annual salary
or wage (including in each case commissions and bonuses) of $35,000 or
more. Except as set forth on Schedule 3.21, none of such employees has
notified APHX of his or her intention to resign or retire.
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3.22 Environmental Matters. (a) Schedule 3.22 lists all notices to APHX of
environmental violations or environmental claims and all reports made by
APHX to any foreign or domestic environmental agency and true and
correct copies of all such notices, claims and reports have previously
been delivered to KMC.
(b) APHX currently conducts its business within the limits set forth in each
and every environmental Permit it holds, regardless of whether such
Permits are current, have expired or about to expire, and has conducted
its business in compliance with all terms and conditions of such
Permits.
(c) Except as set forth in Schedule 3.22, no Permit of any foreign or
domestic environmental authority is required for, or by reason of, the
Merger or for the consummation and performance of this Agreement in any
other respect.
(d) APHX has not conducted or operated or currently conducts or operates
storage areas, drum storage areas, surface impoundments, incinerators,
land fills, tanks, lagoons, ponds, waste piles, or deep well injection
system for the purpose of treatment, storage or disposal of hazardous
waste as defined by the Federal Resource conservation and Recovery Act,
as amended ("RCRA"), or to which any similar foreign Law is applicable,
on any real property used or formerly used by it.
(e) APHX has not transported for off site disposal any hazardous waste or
substance as defined in either RCRA or the Federal Environmental
Response, Compensation and Liability Act, as amended ("CERCLA"), or to
which any similar foreign Law is applicable, or entered into any
contract or agreement, or otherwise arranged, for the transportation,
storage, or disposal of any such hazardous substance or waste at any off
site treatment, storage or disposal facility.
(f) There has been no release or discharge by APHX of any hazardous
substance, as defined in CERCLA or in the Federal Superfund Amendment
and Reauthorizations Act of 1986 ("SARA") or to which any similar
foreign Law is applicable, or of a hazardous waste, as defined in RCRA
or to which any similar foreign Law is applicable, which would (i)
constitute or have constituted a violation of Law, or (ii) give rise to
an obligation by APHX, or its assigns or successors in interest, to
effect any environmental cleanup or recommendation.
(g) No federal, state or local government or agency has asserted or created
an Encumbrance upon any or all of the real properties utilized by APHX
in conducting its business as a result of any use, spill, release,
discharge or cleanup of any hazardous substance or waste under CERCLA,
SARA or RCRA or any similar foreign Law nor has any such use, spill,
release, discharge or cleanup occurred which could result in the
assertion or creation of such an Encumbrance.
3.23 Employee Benefit Plans, Etc. (a) Schedule 3.23 hereto contains a true
and complete list of each plan, Contract, program, policy or
arrangement, including, but not limited to, pension, bonus, section
401(k) plan, deferred compensation, incentive compensation, stock
purchase, supplemental retirement, severance or termination pay, stock
option, hospitalization, medical, life insurance, dental, disability,
salary continuation, vacation, supplemental unemployment benefits,
profit-sharing, or retirement plan, Contract, program, policy or
arrangement, maintained, contributed to, or required to be contributed
to, by APHX or by any of its subsidiaries or affiliates for the benefit
of any employee, whether or not any of the foregoing is funded, whether
formal or informal, whether or not subject to ERISA, and whether legally
binding or not (collectively, the "Benefit Plans"). APHX has delivered
to KMC (i) true and complete copies of all documents embodying or
relating to the Benefit Plans, including, without limitation, with
respect to each Benefit Plan, all amendments to the Benefit Plans, and
any trust or other funding arrangement, including certified financial
statements which fairly present the assets and liabilities of each of
the Benefit Plans as of the date thereof (and there have been no
material changes in the assets and the liabilities since the date of
such financial statements), (ii) the most recent annual and periodic
actuarial valuations, if any, prepared for any Benefit Plan, (iii) the
most recent annual reports (series 5500 and all schedules thereto), if
any, required under ERISA, (iv) if the Benefit Plan is funded, the most
recent annual and periodic accounting of the Benefit Plan's assets, (v)
the most recent determination letter received from the Internal Revenue
Service, if any, and (vi) a copy of the most recent summary plan
description together with the most recent summary of modifications
required under ERISA with respect to each such Benefit Plan, and all
employee communications relating to each such Benefit Plan.
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(b) Except as specifically set forth in Schedule 3.23, (i) each of the
Benefit Plans which is an "employee pension benefit plan," within the
meaning of Section 3(2) of ERISA (each a "Pension Plan") and which is
intended to meet the requirements of Section 401(a) and, where
applicable, Section 401(k) of the Code, now meets, and since its
inception has met, the requirements for qualification under Section
401(a) and, where applicable, Section 401(k) of the Code and its related
trust is now, and since its inception has been, exempt from taxation
under Section 501(a) of the Code and nothing has occurred which would
adversely affect the qualified status of any such Pension Plan; (ii)
APHX has performed all obligations required to be performed by it under,
and is not in default under or in violation of, any and all of the
Benefit Plans, and is in compliance with, and each Benefit Plan has been
operated and administered in accordance with its provisions and in
compliance with, the Laws governing each such Benefit Plan, including,
without limitation, rules and regulations promulgated by the Department
of Labor, the Pension Benefit Guaranty Corporation and the Department of
the Treasury pursuant to the provisions of ERISA and the Code; (iii) no
event has occurred and there has been no failure to act on the part of
APHX, a fiduciary of any Benefit Plan or a "plan official" (as defined
in Section 412 of ERISA) that violates Section 404 of ERISA or could
subject the Surviving Corporation, a Benefit Plan, a fiduciary or a plan
official to the imposition of any tax, penalty or other liability,
whether by way of indemnity or otherwise; (iv) there is no litigation
pending, or to APHX's knowledge threatened (other than routine claims
for benefits) against any Benefit Plan or against the assets of any
Benefit Plan; (v) there are no accrued but unpaid contributions to any
of the Benefit Plans; (vi) no reportable event (as defined in Section
4043(e) of ERISA) for which the notice requirements have not been
waived, prohibited transaction (as defined in Section 406 of ERISA or
Section 4975 of the Code), accumulated funding deficiency (as defined in
section 302 of ERISA or Section 412 or 418B of the Code) or plan
termination (as defined in Title IV of ERISA or Section 411(d) of the
Code) has occurred with respect to any of the Benefit Plans; (vii) the
present value of accrued benefits (as agreed to by KMC's actuary in
writing) under any of the Benefit Plans that is covered by Title IV of
ERISA (except for any multi-employer plan as defined in ERISA Section
3(37)) does not exceed the value of the assets of such Benefit Plans;
(viii) no filing, application or other matter with respect to any of the
Benefit Plans is pending with the Internal Revenue Service, Pension
Benefit Guaranty Corporation, Department of Labor or other governmental
body; (ix) none of the Benefit Plans has been terminated nor has the
Pension Benefit Guaranty Corporation or any other person stated its
intention to or taken any action to terminate any of the Benefit Plans
and no trustee has been appointed by any court to administer any of the
Benefit Plans; and (x) in the case of any Benefit Plan to which APHX
makes contributions on behalf of employees under which contributions are
fixed pursuant to a collective bargaining agreement, the level of
contributions currently provided for in the applicable collective
bargaining agreement is sufficient to meet the funding requirements of
ERISA applicable to such plan, based on reasonable actuarial assumptions
(as determined in writing by the actuary employed by such Benefit Plan).
(c) Except as specifically set forth in Schedule 3.23, the execution and
delivery of, and performance of the transactions contemplated by, this
Agreement will not (either alone or upon the occurrence of any
additional or subsequent events) constitute an event under any Benefit
Plan or individual agreement that will or may result in any payment
(whether of severance pay or otherwise), acceleration, vesting or
increase in benefits with respect to any employee, and will not cause
APHX and/or the Surviving Corporation to incur any multi-employer plan
or other withdrawal liability.
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(d) Except as specifically set forth in Schedule 3.23, there is no, nor has
there ever been, any multi-employer plan (as defined in ERISA Section
3(37)) covering employees of APHX or a past or present withdrawal
therefrom within the meaning of Section 4201 and 4204 of ERISA.
(e) Except for multi-employer plans, APHX does not maintain any Benefit Plan
which is funded by a trust described in Section 501(c)(9) of the Code or
subject to the provisions of Section 505 of the Code.
(f) Except as specifically set forth in Schedule 3.23, no Benefit Plan
provides or is required to provide health, medical, death or survivor
benefits to any former or retired employee or beneficiary thereof,
except to the extent required under any state insurance law providing
for a conversion option under a group insurance policy or under Section
601 of ERISA.
(g) APHX has not incurred any liability (other than the payment of premiums)
to the PBGC in connection with any Benefit Plan covering any employees
of APHX, including any liability under Section 4069 of ERISA and any
penalty imposed under Section 4071 of ERISA, or ceased operations of any
facility or withdrawn from any such Benefit Plan in a manner which could
subject it to liability under Section 4063, 4064 or 4068(f) of ERISA,
and there are no facts or circumstances which might give rise to any
liability of APHX to the Pension Benefit Guaranty Corporation under
Title IV of ERISA which could reasonably be anticipated to result in any
claims being made against the Surviving Corporation by the Pension
Benefit Guaranty Corporation.
(h) APHX does not maintain any Benefit Plan which is a "Group Health Plan"
(as such term is defined in Section 162(i)(2) of the Code) that has not
been administered and operated in all respects in compliance with the
applicable requirements of Section 601 of ERISA and Section 4980B of the
Code and APHX is not subject to any liability including, but not limited
to, additional contributions, fines or penalties or loss of tax
deduction as a result of such administration and operation. APHX does
not maintain any Benefit Plan which is an "Employee Welfare Benefit
Plan" (as such term is defined in Section 3(1) of ERISA) and has not
provided any benefit which is a "Disqualified Benefit" (as such term is
defined in Section 4976(b) of the Code) for which an excise tax would be
imposed.
(i) Except as specifically set forth in Schedule 3.23, full payment has been
made of all amounts which APHX is required, under applicable law or
under any Benefit Plan or any agreement relating to any Benefit Plan to
which APHX is a party, to have paid as contributions thereto as of the
last day of the most recent fiscal year of such Benefit Plan ended prior
to the date hereof. APHX has made adequate provision for reserves to
meet contributions that have not been made because they are not yet due
under the terms of any Benefit Plan or related agreements. Benefits
under all Benefit Plans are as represented and have not been increased
subsequent to the date as of which documents have been provided.
(j) Except as set forth in Schedule 3.23, as of the date of this Agreement,
the aggregate current value of all accrued benefits (based upon
actuarial assumptions, if any, which have been furnished to and relied
upon by KMC) under all Benefit Plans which are subject to Title IV of
ERISA and which are "Single Employer Plans" (as such term is defined in
Section 4001(a)(15) of ERISA) did not exceed the aggregate current value
of all assets of such Single Employer Plans allocable to such vested
accrued benefits, and since APHX's most recent fiscal year end there has
been (A) no adverse change in the financial condition of any Single
Employer Plan, (B) no change in the actuarial assumptions with respect
to any Single Employer Plan as a result of plan amendments, change in
applicable law or otherwise, which individually or in the aggregate,
would result in the aggregate current value of all accrued benefits to
exceed the aggregate current value of all such assets or require the
provision of security to any such Plan pursuant to Section 401(a)(29) of
the Code.
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(k) APHX has either adopted on a timely basis all amendments to Benefit
Plans which are required by the Tax Reform Act of 1986 so as to avoid
discrimination in participating or benefits in favor of highly
compensated employees or has complied with the requirements for
obtaining "anti-cutback" relief provided under Internal Revenue Service
Notice 88-131 as modified by Notice 89-92 by adopting appropriate
amendments to such Benefit Plans.
(1) For purposes of this Section 3.23, any reference to the term "APHX"
shall be deemed to refer also to any entity which is under common
control or affiliated with APHX within the meaning of Section 4001 of
ERISA and the rules and regulations thereunder and/or Section 414 of the
Code and the rules and regulations thereunder.
3.24 SEC Filings. Except as set forth on Schedule 3.24, APHX has filed with
the Securities and Exchange Commission ("SEC"), and has previously
delivered to KMC true and complete copies of, all forms, reports,
schedules, statements, and other documents required to be filed by APHX
under the Securities Act or the Exchange Act. No form, report, schedule,
statement or other document filed by APHX with the SEC contained any
untrue statement of a material fact or omitted to state any material
fact, at the time such document was filed, necessary in order to make
the statements therein, in light of the circumstances under which they
were made, not misleading, other than such facts as were corrected in
any subsequent form, report, schedule, statement or other document filed
by APHX with the SEC.
3.25 Information. None of the information supplied or to be supplied by APHX
or any of its agents, accountants, lawyers or other consultants or
advisors (each of the foregoing referred to therein as "Representative")
for inclusion in the proxy (or information statement) and registration
statement on Form S-4 or any other appropriate form prepared in
connection with the transactions contemplated hereby or any amendment or
supplement thereto has or will, at the time that the proxy and
registration statement was or any amendment is mailed, contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading or, in the case
of any such proxy and registration statement, necessary to correct any
statement in any earlier communication with respect to the solicitation
of any proxy for the meeting or consent in connection with which such
proxy and registration statement shall be mailed. None of the
information and documents which have been or may be furnished by APHX or
any of its Representatives to KMC or its Representatives in connection
with the transactions contemplated hereby is or will be materially false
or misleading or contains or will contain any material misstatement of
fact or omits or will omit any material fact necessary to be stated in
order to make the statements therein not misleading. The APHX Form
10-KSB, and any amendment or supplement thereto, did not contain any
material misstatement of fact or omit any material fact necessary to be
stated in order to make the statements therein not misleading.
3.26 Directors and Executive Officers. There are no directors or executive
officers of APHX other than as set forth on Schedule 3.26.
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REPRESENTATIONS AND WARRANTIES WITH RESPECT TO KMC
KMC represents and warrants to APHX as follows:
4.1 Corporate Existence and Power; Qualification; Subsidiaries. KMC is a
corporation duly incorporated, validly existing and in good standing
under the laws of its jurisdiction of incorporation. KMC has all
corporate powers and all governmental licenses, authorizations, consents
and approvals required to carry on its business as now conducted and to
own its properties, and is duly qualified to do business and is in good
standing in each jurisdiction in which the conduct of its business or
the ownership or leasing of its properties requires such qualification.
The copies of KMC's Restated Articles of Incorporation and By-laws that
have been delivered to APHX are complete and correct and are in full
force and effect. KMC has no subsidiaries, although its principals
caused the formation of Foods. KMC has not made any advances to or
investments in, nor owns any securities of, any domestic or foreign
business entity, enterprise or organization.
4.2 Corporate and Governmental Authorization; Contravention. The execution,
delivery and performance by KMC of this Agreement and the Merger have
been duly authorized by all necessary corporate action (other than the
approval of this Agreement and the Merger by the holders of a majority
of the outstanding shares of KMC Common Stock). This Agreement has been
duly executed and delivered by KMC. The execution and delivery of this
Agreement do not and the consummation of the transactions contemplated
hereby will not be prohibited by, or violate or conflict with, any
provision of the Restated Certificate of Incorporation or Bylaws of KMC,
or the Delaware Act, or, except as set forth on Schedule 4.2, any
provision of, or result in the acceleration of, result in any severance
or termination pay liability, constitute a default under, entitle any
party to accelerate (whether after the giving of notice or lapse of time
or both) any obligation under, result in the creation or imposition of
any lien, charge, pledge, security interest or other encumbrance upon
any property of KMC pursuant to any provisions of, or create any right
on the part of any party to modify, amend or terminate, any Contract,
lien, instrument, order, Permit (as such term is defined in Section 3.14
hereof), arbitration award, judgment or decree to which KMC is a party
or by which it is bound. Other than the requirement to file the
Certificates of Merger with the Secretaries of State of the States of
Nevada and Delaware, as appropriate, and the other regulatory filings
and approvals referenced in Section 6.2 hereof, no authorization,
consent or approval of, or filing with, any domestic or foreign public
body or authority is necessary on the part of KMC for the consummation
by KMC of the transactions contemplated by this Agreement or the other
agreements referred to herein and the ownership and operation by the
Surviving Corporation of the business and properties of APHX and the
NASDAQ listing and outstanding warrants of KMC after the Effective Time
in substantially the same manner as presently owned and operated, except
where the failure to give such notices, obtain such authorizations,
consents or approvals or make such filings would not, in the aggregate
have a materially adverse effect on the condition (financial or
otherwise), business or operations of the surviving corporation, or
delay or prevent the consummation of the transactions contemplated by
this Agreement or prevent KMC from performing its obligations hereunder.
This Agreement is a valid, legal and binding agreement of each of KMC,
subject to applicable bankruptcy, insolvency, moratorium or other laws
affecting the enforcement of creditors' rights in general from time to
time in effect and general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
4.3 Capitalization. (a) The shares of KMC Common Stock which are currently
outstanding have been duly authorized and are validly issued, fully
paid, nonassessable and free of preemptive rights. The authorized
capital stock of KMC consists of 15,000,000 shares of KMC Common Stock,
of which -----------shares are issued and outstanding and 5,000,000
shares of Preferred Stock, of which -------shares are issued and
outstanding.
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(b) There are no subscriptions, options, warrants or other rights, calls,
agreements or commitments obligating KMC to issue, or repurchase, redeem
or otherwise acquire, capital stock or other securities of KMC except as
set forth in Schedule 4.3.
(c) The shares of KMC Common Stock to be issued to the stockholders of APHX
pursuant to the Merger or upon exercise or conversion of any APHX
Derivative Security to the holder thereof, will be, upon such issuance,
duly authorized and validly issued, fully paid (assuming the exercise or
conversion of such APHX Derivative Security in accordance with its
terms), nonassessable and free of preemptive rights.
4.4 Financial statements of KMC; Changes. (a) KMC has heretofore delivered
to APHX its Form 10-KSB (the "KMC 10-KSB") for the year ended December
31, 1995, (the "KMC Balance Sheet Date") and its Form 10-QSB for the
periods ended March 31, 1996 and June 30, 1996 (collectively, the "KMC
Financial Statements"). The KMC Financial Statements present fairly, in
conformity with generally accepted accounting principles applied on a
consistent basis, except as stated thereon, the financial position of
KMC as of the KMC Balance Sheet Date and the results of operations for
the period then ended.
(b) Except as set forth in KMC 10-KSB or in Schedule 4.4 hereto or in the
KMC Financial Statements and except as contemplated by this Agreement,
since the Balance Sheet Date:
(i) there has been no material adverse change in the business, assets,
financial condition or results of operations of KMC;
(ii) there has not been any direct or indirect redemption, purchase or other
acquisition by KMC of any of KMC's capital stock, or any declaration,
setting aside or payment of any dividend or other distribution by KMC in
respect of its capital stock, and KMC has not authorized or proposed any
of the foregoing, or entered into any contract, agreement, commitment or
arrangement to do any of the foregoing, except as may be contemplated by
this Agreement and the agreements contemplated hereby or referred to
herein;
(iii) KMC has conducted its business in the ordinary course and consistent
with past practices;
(iv) there has been no damage, destruction or casualty loss (whether or not
covered by insurance) suffered by KMC materially adversely affecting the
business, assets, financial condition or results of operations of KMC,
nor has KMC been notified of any pending condemnation proceeding
concerning any of its properties;
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(v) there have not been any defaults or breaches by KMC under agreements to
which it is a party or by which it is bound which, taken in the
aggregate, would have a material adverse effect upon the business,
assets, financial condition or results of operation of KMC;
(vi) KMC has not directly or indirectly, (A) issued, sold, pledged, disposed
of, or encumbered, or authorized, proposed or agreed to the issuance,
sale, pledge, disposition or encumbrance of, any shares of, or any
options, warrants or rights of any kind to acquire any shares of or any
securities convertible into or exchangeable for any of, the capital
stock of any class of KMC or any other securities in respect of, in lieu
of, or in substitution for any such capital stock; (B) acquired (by
merger, consolidation, or acquisition of shares or assets) any
corporation, partnership or other business organization or division
thereof or made any investment either by purchase of shares or
securities, contributions to capital (other than to subsidiaries or
affiliates) or property transfer; (C) authorized any change in its
capitalization or authorized, recommended or proposed any release or
relinquishment of any Contract right; or (D) authorized any of the
foregoing, or entered into or modified any contract, agreement,
commitment or arrangement to do any of the foregoing;
(vii) KMC has not incurred any obligation or liability (fixed or contingent)
with respect to its business or any of its assets, except (1) trade or
business obligations incurred in the ordinary course of business
consistent with past practice and (2) obligations and liabilities under
this Agreement or contemplated hereby;
(viii) KMC has not discharged or satisfied any Encumbrance or paid any
obligation or liability (fixed or contingent) except (1) current
obligations, obligations and liabilities included in the KMC Financial
Statements and (2) current obligations and liabilities incurred since
the Balance Sheet Date in the ordinary course of business;
(ix) KMC has not mortgaged, pledged or subjected to any Encumbrance any of
the assets or properties of KMC;
(x) KMC has not sold, transferred or leased any of the assets or properties
of KMC, except for the sale of inventory in the ordinary course of
business;
(xi) KMC has not taken any action other than in the ordinary course of
business and consistent with past practice (none of which actions is
unreasonable or unusual) with respect to the grant of any severance or
termination pay (otherwise than pursuant to policies of KMC in effect on
the date hereof) or with respect to any increase of benefits payable
under its severance or termination pay policies in effect on the date
hereof; and
(xii) KMC has not adopted or amended any bonus, profit sharing, thrift,
savings, compensation, stock option, pension, retirement, deferred
compensation, employment or other employee benefit plan, agreement,
trust, plan, fund or other arrangement for the benefit or welfare of any
employee or increased in any manner the compensation or fringe benefits
of any employee or paid any benefit not required by any existing plan
and arrangement, except for salary increases for employees in the
ordinary course of business consistent with past practices.
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4.5 No Undisclosed Liabilities. Except as set forth in Schedules 4.4, 4.5,
4.12, 4.14, 4.15, 4.21, 4.22 and 4.23, there are no liabilities of KMC
of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, other than:
(a) liabilities disclosed or provided for in the KMC Financial Statements;
and
(b) liabilities incurred in the ordinary course of business consistent with
past practice since the Balance Sheet Date.
4.6 Compliance with Laws. Except as set forth in Schedule 4.6, KMC has
complied in all material respects with all applicable Laws. KMC is not
now charged with or to its knowledge under investigation with respect to
any violation of any applicable Law where such violation could have a
material adverse effect on the business, assets, financial condition or
results of operation of KMC. KMC has filed all reports required to be
filed with any governmental, regulatory or administrative agency or
authority where failure to file such report would have a material
adverse effect on the business, assets, financial condition or results
of operation of KMC.
4.7 Tax Matters. Except as set forth in Schedule 4.7, (a) KMC has duly filed
or will file with the appropriate government agencies all Tax returns
required to be filed by it on or before the Effective Time, (b) KMC has
timely paid, or made provision on its books and records by establishing
a reserve for the payment of, all Taxes due with respect to its
operations prior to the Effective Time, including all Taxes shown as due
on all Tax returns described in clause (a) above and all estimated Tax
payments due on or before the Effective Time, (c) KMC has not executed
or filed any agreement extending the period for assessment or collection
of any Taxes, nor is KMC a party to any pending Litigation by any
governmental authority for assessment or collection of any Taxes, and no
claims for assessment or collection of any Taxes have been asserted
against KMC, and (d) to the knowledge of KMC, no Tax returns of KMC are
under examination. KMC is not a "United States real property holding
company" within the meaning of Section 1445 of the Code.
4.8 Title to Properties; Absence of Liens and Encumbrances, Etc. Except as
set forth in Schedule 4.8, KMC owns no real property and has good title
to or a legal, valid and enforceable right to use the other properties
and assets used in the conduct of the business of KMC (including without
limitation the assets reflected in its balance sheet as at December 31,
1995 except as since sold or otherwise disposed of in the ordinary
course of business), free and clear of all Encumbrances, imperfections
of or other matters affecting title, and any rights of third parties
whatsoever, except Permitted Encumbrances.
4.9 Plant Facilities. Schedule 4.9 sets forth a correct and complete list of
all of the real properties, together with the buildings, plants,
improvements, and structures located thereon, owned or used by KMC in
the conduct of its business, indicating whether such property is owned
or leased and setting forth where such property is located.
4.10 Condition of Plants, Equipment, Etc. The plants, buildings, structures,
equipment and other physical properties and assets owned, operated, or
leased by KMC are in good condition and repair (ordinary wear and tear
which are not such as to affect adversely the operation of KMC's
business excepted), free of any structural or engineering defect, are
suitable for the conduct of KMC's business as presently conducted and as
presently proposed to be conducted, and do not require any maintenance
or repairs except for routine maintenance and repairs. All such physical
properties and assets are in conformity in all respects with all
applicable Laws and other requirements relating thereto currently in
effect or scheduled to come into effect, including, without limitation,
Laws relating to environmental regulation and the maintenance of
occupational safety and health among the workforce.
4.11 Insurance. The business and the assets of KMC are covered by insurance
with licensed insurance companies against casualty and other losses
customarily obtained to cover comparable businesses and assets in the
region in which such businesses and assets are located, in amounts,
scope and coverage which are reasonable in light of existing conditions.
Schedule 4.11 sets forth a correct and complete list of all of the
policies of insurance and fidelity or surety bonds carried by KMC with
respect to KMC's business or any of its assets (including prior policies
to the extent that they continue to provide coverage). KMC has not
failed to give any notice or present any claim under such insurance
policies in due and timely fashion, and there are no claims by KMC
against any of such policies as to which any insurance company is
denying liability or defending under a reservation of rights clause.
4.12 Agreements, Plans, Arrangements, Etc. Except as set forth in Schedule
4.12 (which may refer to other specific Schedules hereto), KMC is not a
party to, nor is KMC or any of its properties and assets bound or
affected by, any of the following:
(a) a lease (whether as lessor or lessee) relating to real or personal
property;
(b) a license, sublicense, assignment or other Contract (whether as licensor
or licensee, assignor or assignee) relating to Intellectual Property;
(c) an employment Contract or consulting Contract;
(d) a purchase Contract in excess of $20,000, or which is at an excessive
price in light of current market conditions or which is in excess of the
normal requirements of the business or which call for deliveries beyond
90 days from the date hereof;
(e) a sales Contract in excess of $20,000, or which (individually or
together with any other sales Contracts) will result in any loss to KMC
and/or the Surviving Corporation upon performance thereof, or which
quotes prices which will not result in a normal profit or which call for
deliveries beyond 90 days from the date hereof;
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(f) a Contract containing product warranties with respect to the products
manufactured or sold by KMC which deviate from the warranties contained
in KMC's standard form sales order;
(g) a Contract with any distributor, dealer, sales agent or representative;
(h) a Contract with any manufacturer, supplier or customer with respect to
discounts or allowances or the return of inventory or merchandise;
(i) a joint venture or partnership Contract;
(j) a Contract for the borrowing or lending of money or guaranteeing,
indemnifying or otherwise becoming liable for the obligations or
liabilities of another;
(k) a Contract with any bank, finance company or similar organization which
acquires from KMC consumer paper or Contracts for sale of merchandise on
credit;
(1) a Contract granting any person a security interest or other Encumbrance
on any of the assets of KMC, including, without limitation, any
factoring agreement or agreement for the assignment of inventory;
(m) a Contract for the construction or modification of any building or
structure or for the incurrence of any other capital expenditure;
(n) a Contract which restricts KMC from doing business anywhere in the
world;
(o) a Contract not entered into in the ordinary course of business;
(p) a Contract giving any party the right to renegotiate or require a
reduction in prices or the repayment of any amount previously paid;
(q) a Contract requiring the payment of royalties; or
(r) any other Contract which could have a material adverse effect on the
Surviving Corporation.
Correct and complete copies of all Contracts set forth in Schedule 4.12 or any
other Schedule hereto, including all amendments to date (or, where they are
oral, true and complete written summaries thereof), and true and complete copies
of all standard form Contracts used by KMC in the conduct of its business have
been delivered to APHX or its Representatives prior to the date hereof. Each
such Contract is valid, in full force and effect and enforceable in accordance
with its terms and KMC has fulfilled, or taken all action reasonably necessary
to enable it to fulfill when due, all of its obligations under such Contracts.
Except as set forth in Schedule 4.12, there has not occurred any default, or any
event which, with the lapse of time or the election of any person other than
KMC, or any combination thereof, will become a default, by KMC, nor to the
knowledge of KMC has there occurred any default by others or any event which,
with the lapse of time or the election of KMC, will become a default by others
under any of such Contracts. Neither KMC nor to KMC's knowledge any other party
is in arrears in respect of the performance or satisfaction of the terms or
conditions on its part to be performed or satisfied under any of such Contracts
and no waiver or indulgence has been granted by any of the parties thereto.
4.13 Intellectual Properties. Schedule 4.13 sets forth a correct and complete
list of all Intellectual Properties used or presently proposed to be
used in the conduct of the business of KMC. Except as disclosed in
Schedule 4.13, (a) KMC owns or possesses adequate licenses or other
valid rights to use (without the making of any payment to others or the
obligation to grant rights to others in exchange) all Intellectual
Properties necessary to the conduct of its business as presently being
conducted and the business of KMC as presently being conducted and the
consummation of the transactions contemplated hereby will not alter or
impair any of such rights; (b) the validity of such rights and the title
thereto of KMC have not been questioned in any Litigation (as defined in
Section 3.15 hereof) to which KMC is a party, nor to the knowledge of
KMC is any such Litigation threatened; (c) to KMC's knowledge, the
conduct of KMC's business as now conducted does not infringe or conflict
with any Intellectual Properties of others; (d) there is no use of any
trademark, service mark or trade name owned by or licensed to KMC that
has heretofore been or is now being made, except by KMC or by an entity
duly licensed by it to use the same under a Contract disclosed in
Schedule 4.12; and (e) to the knowledge of KMC there is no infringement
by others of any Intellectual Properties owned by or licensed by or to
KMC. All licenses and Contracts requiring the payment of royalties by
KMC are referenced and correctly described in the KMC 10-KSB.
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4.14 Permits, License, Etc. KMC has all Permits that are required in order to
carry on its business as presently conducted and is not in default of
any thereof. Schedule 4.14 sets forth a correct and complete list of all
such Permits, all of which are in full force and effect, and no
suspension, cancellation or non-renewal of any of them is threatened,
nor does any basis for such suspension, cancellation or non-renewal
exist. As to any such Permit that has expired or is about to expire, KMC
has promptly applied for the renewal of same. A true and complete copy
of each Permit set forth in Schedule 4.14 has been previously delivered
to APHX.
4.15 Litigation. Except as set forth on Schedule 4.15, there is no Litigation
pending before any federal, state, municipal, foreign or other court or
governmental, administrative or self-regulatory body or agency, or any
private arbitration tribunal, or to the knowledge of KMC threatened,
against, relating to or affecting KMC with respect to its business or
the transactions contemplated by this Agreement; nor to the knowledge of
KMC is there any basis for any such Litigation. Neither KMC nor any
officer, director or employee of KMC has been permanently or temporarily
enjoined or barred by order, judgment or decree of any court or other
tribunal or any agency or self-regulatory body from engaging in or
continuing any conduct or practice in connection with KMC's business.
There is not in existence any order, judgment or decree of any court or
other tribunal or any agency or self-regulatory body enjoining KMC from
taking or requiring KMC to take action of any kind with respect to KMC's
business or to which KMC is subject or by which it is bound.
4.16 Accounts and Notes Receivable. Attached hereto as Schedule 4.16 is a
true, complete and correct listing of all of the receivables (including
accounts receivable, notes receivable, loans receivable and any
advances) of KMC as of the KMC Balance Sheet Date showing the dates upon
which each such receivable arose. All such receivables, net of any
allowance for doubtful accounts, have been reflected on the KMC
Financial Statements in accordance with generally accepted accounting
principles applied on a consistent basis, except as stated thereon. All
accounts and notes receivable reflected on the KMC Financial Statements
or arising thereafter and on or prior to the Effective Time arose from
bona fide transactions in the ordinary course of business.
4.17 Inventories. The inventories of KMC reflected on the KMC Financial
Statements or thereafter acquired on or prior to the Effective Time
consist of items of a quality and quantity usable and salable in the
ordinary course of business and the value at which such inventories are
carried are stated at the lower of cost (on a first-in, first-out basis)
or market in accordance with generally accepted accounting principles
consistently applied. The quantity of inventories on hand at the
Effective Time will be consistent with the requirements of then
outstanding sales activities of KMC.
4.18 No Interest in Competitors, Etc. Schedule 4.18 hereto sets forth all
Contracts or other arrangements between any affiliate of KMC and KMC for
space, facilities, personnel, management, computer, telephone or other
services. Except as set forth in the KMC 10-KSB or Schedule 4.18, KMC
does not owe any amount to, or have any Contract with or commitment to,
any of its shareholders, directors, officers, employees or consultants
(other than compensation for current services not yet due and payable
and reimbursement of expenses arising in the ordinary course of business
pursuant, in either case, to Contracts listed on Schedule 4.18), none of
such persons owes any amount to KMC, and no part of the property or
assets of any shareholder of KMC or any affiliate of any shareholder of
KMC is used by KMC.
4.19 Customers, Suppliers. Since the KMC Balance Sheet Date there has not
been any termination, cancellation or limitation of, or any modification
or change in, the business relationship of KMC with any customer or
group of customers or supplier or group of suppliers whose purchases or
sales individually or in the aggregate accounted for 10% or more of the
gross sales or purchases of KMC, as the case may be, for the twelve
months ended on the Balance Sheet Date nor to the knowledge of KMC is
any of the foregoing threatened by reason of the consummation of the
transactions contemplated hereby.
4.20 Books and Records. The books of account and other financial and
corporate records of KMC are in all material respects complete and
correct, are maintained in accordance with good business practices and
all Laws applicable to KMC, and are accurately reflected in the KMC
Financial Statements. The minute books of KMC as previously made
available to APHX and its counsel contain accurate records of all
meetings, and accurately reflect all other corporate action of the
stockholders and directors of KMC.
4.21 Employees, Labor Relations, Etc. Except as set forth in Schedule 4.21,
(a) KMC is not a party to any contract or agreement with any labor
organization or other representative of KMC's employees; (b) there is no
unfair labor practice charge or complaint pending or, to the best
knowledge of KMC, threatened, against KMC; (c) there is no labor strike,
slowdown, work stoppage or other material labor controversy in effect,
or to the knowledge of KMC threatened against or otherwise affecting
KMC; (d) KMC has not experienced any labor strike, slowdown, work
stoppage or other material labor controversy during its existence; (e)
no representation question has been raised respecting any of KMC's
employees during its existence, nor, to the best knowledge of KMC are
there any campaigns being conducted to solicit cards from KMC's
employees to authorize representation by any labor organization; (f) no
collective bargaining agreement relating to any of KMC's employees is
being negotiated; (g) no action, suit, complaint, charge, arbitration,
inquiry, proceeding, or investigation by or before any court,
governmental agency, administrative agency or commission brought by or
on behalf of any employee, prospective employee, former employee,
retiree, labor organization or other representative of KMC's employees,
is pending or, to the best knowledge of KMC, threatened, against KMC;
(h) KMC is not a party to, or otherwise bound by, any consent decree
with, or citation by, any government agency relating to KMC's employees
or employment practices relating to KMC's employees; (i) KMC is in
compliance in all material respects with all applicable Laws and
Contracts relating to employment, employment practices, wages, hours,
and terms and conditions of employment, and has not engaged in any
unfair labor practice or discriminated on the basis of race, age, sex or
otherwise in its employment conditions or practices with respect to its
employees; (j) KMC has paid in full to all of KMC's employees all wages,
salaries, commissions, bonuses, benefits and other compensation due and
payable to such employees on or prior to the date hereof; (k) KMC is in
compliance with its obligations with respect to KMC's employees pursuant
to the Worker Adjustment and Retraining Notification Act of 1988, and
all other notification and bargaining obligations arising under any
collective bargaining agreement, statute or otherwise. Schedule 4.21
sets forth the name, position, title or function and salary or wages of
each employee of KMC employed as of April 31, 1996 at an annual salary
or wage (including in each case commissions and bonuses) of $35,000 or
more. Except as set forth on Schedule 4.21, none of such employees has
notified KMC of his or her intention to resign or retire.
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4.22 Environmental Matters. (a) Schedule 4.22 lists all notices to KMC of
environmental violations or environmental claims and all reports made by
KMC to any foreign or domestic environmental agency and true and correct
copies of all such notices, claims and reports have previously been
delivered to KMC.
(b) KMC currently conducts its business within the limits set forth in each
and every environmental Permit it holds, regardless of whether such
Permits are current, have expired or about to expire, and has conducted
its business in compliance with all terms and conditions of such
Permits.
(c) Except as set forth in Schedule 4.22, no Permit of any foreign or
domestic environmental authority is required for, or by reason of, the
Merger or for the consummation and performance of this Agreement in any
other respect.
(d) KMC has not conducted or operated and currently does not conduct or
operate storage areas, drum storage areas, surface impoundments,
incinerators, land fills, tanks, lagoons, ponds, waste piles, or deep
well injection system for the purpose of treatment, storage or disposal
of hazardous waste as defined by RCRA, on any real property used or
formerly used by it.
(e) KMC has not transported for off site disposal any hazardous waste or
substance as defined in either RCRA or CERCLA, or entered into any
contract or agreement, or otherwise arranged, for the transportation,
storage, or disposal of any such hazardous substance or waste at any
offsite treatment, storage or disposal of any such hazardous substance
or waste at any off site treatment, storage or disposal facility.
(f) There has been no release or discharge by KMC of any hazardous
substance, as the term is defined in CERCLA or in SARA or of a hazardous
waste, as the term is defined in RCRA, which would (i) constitute or
have constituted a violation of Law, or (ii) give rise to an obligation
by KMC, its assigns or its successors in interest, to effect any
environmental cleanup or remediation.
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(g) No federal, state or local government or agency has asserted or created
an Encumbrance upon any or all of the real properties utilized by KMC in
conducting its business as a result of any use, spill, release,
discharge or cleanup of any hazardous substance or waste, as those terms
are defined in CERCLA, SARA or RCRA nor has any such use, spill,
release, discharge or cleanup occurred which could result in the
assertion or creation of such an Encumbrance.
4.23 Employee Benefit Plans, Etc. (a) Schedule 4.23 hereto contains a true
and complete list of each plan, Contract, program, policy or
arrangement, including, but not limited to, pension, bonus, section
401(k) plan, deferred compensation, incentive compensation, stock
purchase, supplemental retirement, severance or termination pay, stock
option, hospitalization, medical, life insurance, dental, disability,
salary continuation, vacation, supplemental unemployment benefits,
profit-sharing, or retirement plan, Contract, program, policy or
arrangement, maintained, contributed to, or required to be contributed
to, by KMC or by any of its subsidiaries or affiliates for the benefit
of any employee, whether or not any of the foregoing is funded, whether
formal or informal, whether or not subject to ERISA, and whether legally
binding or not (collectively, the "Benefit Plans"). KMC has delivered to
APHX (i) true and complete copies of all documents embodying or relating
to the Benefit Plans, including, without limitation, with respect to
each Benefit Plan, all amendments to the Benefit Plans, and any trust or
other funding arrangement, including certified financial statements
which fairly present the assets and liabilities of each of the Benefit
Plans as of the date thereof (and there have been no material changes in
the assets and the liabilities since the date of such financial
statements), (ii) the most recent annual and periodic actuarial
valuations, if any, prepared for any Benefit Plan, (iii) the most recent
annual reports (series 5500 and all schedules thereto), if any, required
under ERISA, (iv) if the Benefit Plan is funded, the most recent annual
and periodic accounting of the Benefit Plan's assets, (v) the most
recent determination letter received from the Internal Revenue Service,
if any, and (vi) a copy of the most recent summary plan description
together with the most recent summary of modifications required under
ERISA with respect to each such Benefit Plan, and all employee
communications relating to each such Benefit Plan.
(b) Except as specifically set forth in Schedule 4.23, (i) each of the
Benefit Plans which is an "employee pension benefit plan," within the
meaning of Section 3(2) of ERISA (each a "Pension Plan") and which is
intended to meet the requirements of Section 401(a) and, where
applicable, Section 401(k) of the Code, now meets, and since its
inception has met, the requirements for qualification under Section
401(a) and, where applicable, Section 401(k) of the Code and its related
trust is now, and since its inception has been, exempt from taxation
under Section 501(a) of the Code and nothing has occurred which would
adversely affect the qualified status of any such Pension Plan; (ii) KMC
has performed all obligations required to be performed by it under, and
is not in default under or in violation of, any and all of the Benefit
Plans, and is in compliance with, and each Benefit Plan has been
operated and administered in accordance with its provisions and in
compliance with, the Laws governing each such Benefit Plan, including,
without limitation, rules and regulations promulgated by the Department
of Labor, the Pension Benefit Guaranty Corporation and the Department of
the Treasury pursuant to the provisions of ERISA and the Code; (iii) no
event has occurred and there has been no failure to act on the part of
KMC, a fiduciary of any Benefit Plan or a "plan official" (as defined in
Section 412 of ERISA) that violates Section 404 of ERISA or could
subject the Surviving Corporation, a Benefit Plan, a fiduciary or a plan
official to the imposition of any tax, penalty or other liability,
whether by way of indemnity or otherwise; (iv) there is no litigation
pending, or to KMC's knowledge threatened (other than routine claims for
benefits) against any Benefit Plan or against the assets of any Benefit
Plan; (v) there are no accrued but unpaid contributions to any of the
Benefit Plans; (vi) no reportable event (as defined in Section 4043(e)
of ERISA) for which the notice requirements have not been waived,
prohibited transaction (as defined in Section 406 of ERISA or Section
4975 of the Code), accumulated funding deficiency (as defined in section
302 of ERISA or Section 412 or 418B of the Code) or plan termination (as
defined in Title IV of ERISA or Section 411(d) of the Code) has occurred
with respect to any of the Benefit Plans; (vii) the present value of
accrued benefits (as agreed to by APHX's actuary in writing) under any
of the Benefit Plans that is covered by Title IV of ERISA (except for
any multi-employer plan as defined in ERISA Section 3(37)) does not
exceed the value of the assets of such Benefit Plans; (viii) no filing,
application or other matter with respect to any of the Benefit Plans is
pending with the Internal Revenue Service, Pension Benefit Guaranty
Corporation, Department of Labor or other governmental body; (ix) none
of the Benefit Plans has been terminated nor has the Pension Benefit
Guaranty Corporation or any other person stated its intention to or
taken any action to terminate any of the Benefit Plans and no trustee
has been appointed by any court to administer any of the Benefit Plans;
and (x) in the case of any Benefit Plan to which KMC makes contributions
on behalf of employees under which contributions are fixed pursuant to a
collective bargaining agreement, the level of contributions currently
provided for in the applicable collective bargaining agreement is
sufficient to meet the funding requirements of ERISA applicable to such
plan, based on reasonable actuarial assumptions (as determined in
writing by the actuary employed by such Benefit Plan).
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(c) Except as specifically set forth in Schedule 4.23, the execution and
delivery of, and performance of the transactions contemplated by, this
Agreement will not (either alone or upon the occurrence of any
additional or subsequent events) constitute an event under any Benefit
Plan or individual agreement that will or may result in any payment
(whether of severance pay or otherwise), acceleration, vesting or
increase in benefits with respect to any employee, and will not cause
KMC and/or the Surviving Corporation to incur any multi-employer plan or
other withdrawal liability.
(d) Except as specifically set forth in Schedule 4.23, there is no, nor has
there ever been, any multi-employer plan (as defined in ERISA Section
3(37)) covering employees of KMC or a past or present withdrawal
therefrom within the meaning of Section 4201 and 4204 of ERISA.
(e) Except for multi-employer plans, KMC does not maintain any Benefit Plan
which is funded by a trust described in Section 501(c)(9) of the Code or
subject to the provisions of Section 505 of the Code.
(f) Except as specifically set forth in Schedule 4.23, no Benefit Plan
provides or is required to provide health, medical, death or survivor
benefits to any former or retired employee or beneficiary thereof,
except to the extent required under any state insurance law providing
for a conversion option under a group insurance policy or under Section
601 of ERISA.
(g) KMC has not incurred any liability (other than the payment of premiums)
to the PBGC in connection with any Benefit Plan covering any employees
of KMC, including any liability under Section 4069 of ERISA and any
penalty imposed under Section 4071 of ERISA, or ceased operations of any
facility or withdrawn from any such Benefit Plan in a manner which could
subject it to liability under Section 4063, 4064 or 4068(f) of ERISA,
and there are no facts or circumstances which might give rise to any
liability of KMC to the Pension Benefit Guaranty Corporation under Title
IV of ERISA which could reasonably be anticipated to result in any
claims being made against the Surviving Corporation by the Pension
Benefit Guaranty Corporation.
(h) KMC does not maintain any Benefit Plan which is a "Group Health Plan"
(as such term is defined in Section 162(i)(2) of the Code) that has not
been administered and operated in all respects in compliance with the
applicable requirements of Section 601 of ERISA and Section 4980B of the
Code and KMC is not subject to any liability including, but not limited
to, additional contributions, fines or penalties or loss of tax
deduction as a result of such administration and operation. KMC does not
maintain any Benefit Plan which is an "Employee Welfare Benefit Plan"
(as such term is defined in Section 3(1) of ERISA) and has not provided
any benefit which is a "Disqualified Benefit" (as such term is defined
in Section 4976(b) of the Code) for which an excise tax would be
imposed.
(i) Except as specifically set forth in Schedule 4.23, full payment has been
made of all amounts which KMC is required, under applicable law or under
any Benefit Plan or any agreement relating to any Benefit Plan to which
KMC is a party, to have paid as contributions thereto as of the last day
of the most recent fiscal year of such Benefit Plan ended prior to the
date hereof. KMC has made adequate provision for reserves to meet
contributions that have not been made because they are not yet due under
the terms of any Benefit Plan or related agreements. Benefits under all
Benefit Plans are as represented and have not been increased subsequent
to the date as of which documents have been provided.
(j) Except as set forth in Schedule 4.23, as of the date of this Agreement,
the aggregate current value of all accrued benefits (based upon
actuarial assumptions, if any, which have been furnished to and relied
upon by APHX) under all Benefit Plans which are subject to Title IV of
ERISA and which are "Single Employer Plans" (as such term is defined in
Section 4001(a)(15) of ERISA) did not exceed the aggregate current value
of all assets of such Single Employer Plans allocable to such vested
accrued benefits, and since KMC's most recent fiscal year end there has
been (A) no adverse change in the financial condition of any Single
Employer Plan, (B) no change in the actuarial assumptions with respect
to any Single Employer Plan as a result of plan amendments, change in
applicable law or otherwise, which individually or in the aggregate,
would result in the aggregate current value of all accrued benefits to
exceed the aggregate current value of all such assets or require the
provision of security to any such Plan pursuant to Section 401(a)(29) of
the Code.
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(k) KMC has either adopted on a timely basis all amendments to Benefit Plans
which are required by the Tax Reform Act of 1986 so as to avoid
discrimination in participating or benefits in favor of highly
compensated employees or has complied with the requirements for
obtaining "anti-cutback" relief provided under Internal Revenue Service
Notice 88-131 as modified by Notice 89-92 by adopting appropriate
amendments to such Benefit Plans.
(1) For purposes of this Section 4.23, any reference to the term "KMC" shall
be deemed to refer also to any entity which is under common control or
affiliated with KMC within the meaning of Section 4001 of ERISA and the
rules and regulations thereunder and/or Section 414 of the Code and the
rules and regulations thereunder.
4.24 SEC Filings. KMC has filed with the SEC, and has previously delivered to
APHX true and complete copies of, all forms, reports, schedules,
statements, and other documents required to be filed by KMC under the
Securities Act or the Exchange Act, except for any non-filings or
noncompliance which are not in the aggregate material to the financial
condition, results of operations or business of KMC or which will not
prevent or delay in any material respect the consummation of the
transactions contemplated hereby. No form, report, schedule, statement
or other document filed by KMC with the SEC contained any untrue
statement of a material fact or omitted to state any material fact, at
the time such document was filed, necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading, other than such facts as were corrected in any
subsequent form, report, schedule, statement or other document filed by
KMC with the SEC.
4.25 Information. None of the information concerning KMC incorporated by
reference, or any other information supplied or to be supplied by KMC or
its Representatives for inclusion, in the proxy (or information
statement) and registration statement on Form S-4 or any other
appropriate form prepared in connection with the transactions
contemplated hereby or any amendment or supplement thereto has or will,
at the time that the proxy and registration statement was or any
amendment is mailed, contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading or, in the case of any such proxy and registration
statement, necessary to correct any statement in any earlier
communication with respect to the solicitation of any proxy (or
information statement) for the meeting or consent in connection with
which such proxy (or information statement) and registration statement
shall be mailed. None of the information and documents which have been
or may be furnished by KMC or any of its Representatives to APHX or its
Representatives in connection with the transactions contemplated hereby
is or will be materially false or misleading or contains or will contain
any material misstatement of fact or omits or will omit any material
fact necessary to be stated in order to make the statements therein not
misleading.
4.26 Kushi Natural Foods. Foods has been formed by KMC solely for the purpose
of executing and delivering this Agreement and consummating the
transactions contemplated hereby, including owing and operating the
business operations of KMC. At the Effective Time, KMC will transfer
substantially all of its assets and liabilities to Foods and the shares
of Foods will be distributed to the stockholders of record of KMC on
------------, 1996, at a ratio to be determined by KMC's Board of
Directors, but currently contemplated to be three shares of Foods for
every share of KMC.
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CONDUCT OF BUSINESS OF APHX
AND KMC PRIOR TO THE EFFECTIVE TIME
5.1 Conduct of Business of APHX. During the period commencing on the date
hereof and continuing until the Effective Time, APHX agrees that it,
except as otherwise expressly contemplated by this Agreement or agreed
to in writing by KMC:
(a) will carry on its business only in the ordinary course and consistent
with past practice;
(b) will not declare or pay any dividend on or make any other distribution
(however characterized) in respect of shares of its capital stock;
(c) will not, directly or indirectly, redeem or repurchase, or agree to
redeem or repurchase, any shares of its capital stock;
(d) will not amend its Articles of Incorporation or By-Laws;
(e) will not issue, or agree to issue, any shares of its capital stock
(except pursuant to the exercise and/or conversion of currently
outstanding Derivative Securities), or any options, warrants or other
rights to acquire shares of its capital stock, or any securities
convertible into or exchangeable for shares of its capital stock;
(f) will not combine, split or otherwise reclassify any shares of its
capital stock;
(g) will not sell or pledge, or agree to sell or pledge, any shares of its
capital stock;
(h) will use all reasonable efforts to preserve intact its present business
organization, keep available the services of its officers and key
employees and preserve its relationships with clients and others having
business dealings with it to the end that its goodwill and ongoing
business shall not be materially impaired at the Effective Time;
(i) will not, except as set forth in Schedule 5.1,(A) make any capital
expenditures individually in excess of $25,000 or in the aggregate in
excess of $50,000, (B) enter into or terminate (except in the ordinary
course of business and consistent with past practice) any lease of, or
purchase or sell, any real property, (C) enter into any leases of
personal property involving individually in excess of $10,000 annually
or in the aggregate in excess of $25,000 annually, (D) incur or
guarantee any additional indebtedness for borrowed money, (E) create or
permit to become effective any security interest, mortgage, lien, charge
or other Encumbrance on its properties or assets, or (F) enter into any
agreement to do any of the foregoing;
(j) will not, other than in the ordinary course of business, adopt or amend
any Benefit Plan for the benefit of Employees, or enter into any
agreement to do the same;
(k) will promptly advise KMC of the commencement of, or threat of (to the
extent that such threat comes to the knowledge of APHX), any claim,
action, suit, proceeding or investigation against, relating to or
involving APHX or any of its directors, officers, employees, agents or
consultants in connection with its business or the transactions
contemplated hereby;
(1) will maintain in full force and effect all insurance policies maintained
by APHX on the date hereof; and
(m) will not enter into any agreement to dissolve, merge, consolidate or,
except in the ordinary course, sell any material assets of APHX.
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5.2 Conduct of Business of KMC. During the period commencing on the date
hereof and continuing until the Effective Time, KMC agrees that it,
except as otherwise expressly contemplated by this Agreement or agreed
to in writing by APHX:
(a) will carry on its business only in the ordinary course and consistent
with past practice;
(b) will not declare or pay any dividend on or make any other distribution
(however characterized) in respect of shares of its capital stock;
(c) will not, directly or indirectly, redeem or repurchase, or agree to
redeem or repurchase, any shares of its capital stock;
(d) will not amend its Certificate of Incorporation or By-Laws;
(e) will not issue, or agree to issue, any shares of its capital stock
(except pursuant to the exercise and/or conversion of currently
outstanding options and warrants), or any options, warrants or other
rights to acquire shares of its capital stock or any securities
convertible into or exchangeable for shares of its capital stock;
(f) will not combine, split or otherwise reclassify any shares of its
capital stock;
(g) will not sell or pledge, or agree to sell or pledge, any shares of its
capital stock;
(h) will use all reasonable efforts to preserve intact its present business
organization, keep available the services of its officers and key
employees and preserve its relationships with clients and others having
business dealings with it to the end that its goodwill and ongoing
business shall not be materially impaired at the Effective Time;
(i) will not, (A) make any capital expenditures individually in excess of
$25,000 or in the aggregate in excess of $50,000, (B) enter into or
terminate (except in the ordinary course of business and consistent with
past practice) any lease of, or purchase or sell, any real property, (C)
enter into any leases of personal property involving individually in
excess of $10,000 annually or in the aggregate in excess of $25,000
annually, (D) incur or guarantee any additional indebtedness for
borrowed money, (E) create or permit to become effective any security
interest, mortgage, lien, charge or other Encumbrance on its properties
or assets, or (F) enter into any agreement to do any of the foregoing;
(j) will not, other than in the ordinary course of business, adopt or amend
any Benefit Plan for the benefit of Employees, or enter into any
agreement to do any of the foregoing;
(k) will promptly advise APHX of the commencement of, or threat of (to the
extent that such threat comes to the knowledge of KMC), any claim,
action, suit, proceeding or investigation against, relating to or
involving KMC or any of its directors, officers, employees, agents or
consultants in connection with its business or the transactions
contemplated hereby;
(1) will maintain in full force and effect all insurance policies maintained
by KMC on the date hereof; and
(m) will not enter into any agreement to dissolve, merge, consolidate or,
except in the ordinary course, sell any material assets of KMC.
Notwithstanding the foregoing, KMC shall be entitled to (i) negotiate and enter
into agreements with its employees, consultants and brokers to terminate all
contractual obligations and issue securities (including warrants for the
purchase of capital stock of the Surviving Corporation) in settlement thereof,
(ii) transfer, as of the Effective Time, all of its operational assets to Foods
and (iii) issue as of the Effective Time, one common stock purchase warrant,
similar to the warrants sold in its initial public offering, to each of its
stockholders of record on the date set for such distribution by KMC's Board of
Directors for each share of KMC Common Stock held.
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5.3 KMC Spin Off. Prior to the Merger, KMC will (i) form Foods, and (ii)
resolve its outstanding liabilities associated with consulting and
employment contracts. Prior to the Closing of the Merger (and
simultaneously therewith), KMC will (1) transfer to Foods all of the
assets and liabilities/obligations of KMC other than the liabilities of
KMC related to (a) the lease obligations for the warehouse facility
located in Parsippany, New Jersey and the office facility located in
Stamford, Connecticut, (b) the warrants to purchase ----------shares of
KMC Common Stock at $6.25 per share, and (c) warrants held by the
underwriter of KMC's initial public offering to purchase 110,000 shares
of KMC Common Stock at $8.25 per share and 140,000 warrants to purchase
KMC Common Stock at $10.3125 per share, and (2) in exchange for and
consideration of the foregoing, receive and distribute to its
stockholders, in a tax-free distribution, shares of Foods's common stock
notwithstanding possible opportunities for such individuals with APHX
and/or KMC after the Merger. Mr. Michio Kushi is the initial Chairman of
Foods and he will appoint its initial board of directors.
ADDITIONAL AGREEMENTS
6.1 Access to Properties and Records. Between the date of this Agreement and
the Effective Time, APHX will provide KMC and its Representatives and
KMC will provide APHX and its Representatives, with full access, during
business hours, to their respective premises and properties and their
respective books and records (including, without limitation, contracts,
leases, insurance policies, litigation files, minute books, accounts,
working papers and tax returns filed and in preparation) and each will
cause its officers to furnish to the other and its authorized advisors
such additional financial, tax and operating data and other information
pertaining to its business as the other shall from time to time
reasonably request. All of such data and information shall be subject to
the terms and conditions of the confidentiality agreements dated April
18, 1996 and May 6, 1996, between APHX and KMC.
6.2 Registration Statement. As soon as reasonably practicable after the
execution and delivery of this Agreement, KMC and APHX shall prepare and
file with the SEC a joint registration and proxy statement on Form S-4
(the "Registration Statement"), which shall cover all of the shares of
KMC Common Stock to be issued in connection with the Merger to the
shareholders of APHX, and shall use all reasonable efforts to have the
Registration Statement declared effective by the SEC as promptly as
practicable. KMC shall also take such actions as may be required under
state blue sky or securities laws in connection with such issuance of
shares of KMC Common Stock in connection with the Merger to the
shareholders of APHX. APHX shall cooperate fully with KMC and shall
furnish KMC with all information concerning APHX and its shareholders
and shall take all such other action as KMC may reasonably request in
connection with any such actions.
6.3 Stockholders' Approvals. In compliance with all applicable federal and
state corporate, securities and blue sky laws, each of KMC and APHX
shall take all action necessary to convene meetings of their respective
stockholders for the purpose of voting upon the transactions
contemplated hereby and such other matters as may be appropriate at such
meetings or obtain their approval through submission of written
consents, and in connection therewith shall in a timely manner mail to
the respective stockholders the Proxy or Information Statement contained
in the Registration Statement and, if necessary after the Proxy or
Information Statement shall have been mailed, shall promptly and in a
timely manner circulate amended or supplemental materials and if
necessary materials necessary for re-soliciting proxies, and in the
event a meeting is not held, that all of the stockholders will be
promptly informed of the action taken. Each of KMC and APHX will,
through its respective Board of Directors, recommend to its respective
stockholders approval of the transactions contemplated by this
Agreement.
6.4 Restricted Stock. Shares of KMC Common Stock to be issued to APHX
shareholders pursuant to the terms of this Agreement in exchange for
APHX securities that are "restricted" securities within the meaning of
Rule 144 promulgated under the Securities Act shall, notwithstanding the
fact that they will be registered, contain a legend indicating that such
shares are restricted from transfer until the date when the holding
period would have ended had the Merger not occurred.
6.5 Reasonable Efforts; Etc. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause
to be done, all things necessary, proper or advisable under applicable
laws and regulations, whether before or after the Effective Time, to
consummate and make effective the transactions contemplated by this
Agreement, including obtaining any consents, authorizations, exemptions
and approvals from, and making all filings with, any governmental or
regulatory authority, agency or body which are necessary in connection
with the transactions contemplated by this Agreement; provided that the
obligation of the parties to use reasonable efforts as required by this
Section 6.5 shall not obligate any party to incur unreasonable costs or
expenses.
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6.6 Material Events. At all times prior to the Effective Time, each party
shall promptly notify the others in writing of the occurrence of any
event which will or may result in the failure to satisfy any of the
conditions specified in Article VII or Article VIII hereof.
6.7 Tax Consequences. From and after the Effective Time, none of the parties
will take any position in or with regard to their respective Federal,
state or local income tax returns (or any amendments thereto) that is
inconsistent with the treatment of the Merger as a tax-free
reorganization for Federal income tax purposes under Section
368(a)(2)(E) of the Code or with respect to the tax consequences
contemplated thereby (including those related to the basis of stock and
assets).
6.8 Exclusivity. Without in any way limiting Article X hereof, in
consideration for the substantial expenditure of time, effort and
expense to be undertaken by each party in connection with its
investigation of the other party, each party agrees that neither it nor
any of its affiliates will solicit or initiate any discussions with or
supply confidential or other information to, any other prospective
purchasers of the stock or assets of KMC or APHX between the date hereof
and December 31, 1996.
6.9 Certificate of Incorporation and Directors of KMC. On or prior to the
Effective Time, KMC shall take all action necessary under the Delaware
Act in order to adopt the Amended and Restated Articles of Incorporation
of KMC in the form attached hereto as Exhibit 6.9 and to file the same
with the Secretary of State of Delaware.
6.10 Indemnification. (a) In the event the Merger shall become effective,
then from and after the Effective Time, the Surviving Corporation (the
"Indemnifying Party") shall indemnify, defend and hold harmless each
person who is now, or who becomes prior to the Effective Time, an
officer or director of KMC, APHX or Foods (the "Indemnified Parties")
against (i) all losses, claims, damages, costs, expenses, liability or
judgment or amounts paid with the approval of the indemnifying party
(which approval shall not be unreasonably withheld) in settlement of or
in connection with any claim, action, suit, proceeding or investigation
based in whole or in part on, or arising in whole or in part out of the
fact that such person is or was an officer or director of KMC, APHX or
Foods, whether pertaining to any matter existing or occurring at or
prior to the Effective Time, and whether asserted or claimed prior to,
at, or after, the Effective Time (the "Indemnified Liabilities") and
(ii) all Indemnified Liabilities based in whole or in part on, or
arising in whole or in part out of, or pertaining to this Agreement or
the transactions contemplated hereby, including, without limitation, any
Indemnified Liabilities arising under or out of any state or federal
securities laws, in each case to the fullest extent permitted by law
(and the Surviving Corporation shall pay expenses in advance of the
final disposition of any such action or proceeding to each Indemnified
Party to the fullest extent permitted by law upon receipt of any
undertaking that may be required by law).
(b) Any Indemnified Party wishing to claim indemnification under this
Section 6.10 shall notify KMC or the Surviving Corporation promptly upon
learning of any such claim, action, suit, proceeding or investigation
(but the failure to notify the Indemnifying Party should not relieve it
from any liability which it may have under this Section 6.10 except to
the extent such failure prejudices such party).
(c) The provisions of this Section 6.10 are intended to be for the benefit
of, and shall be enforceable by each Indemnified Party, and his or her
heirs and representatives.
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6.11 Quarterly Financial Statements. Prior to the Effective Time, APHX and
KMC shall deliver to the other party as soon as available, but in any
event no later than 45 days after the end of each quarterly period of
its fiscal year (or such later period as may be permitted for the filing
of quarterly financial statements under the Exchange Act), unaudited
balance sheets and the related unaudited statements of income and
retained earnings and unaudited statements of cash flows for each such
quarter.
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CONDITIONS TO THE OBLIGATIONS OF KMC
The obligation of KMC to consummate the transactions contemplated by this
Agreement shall be subject to the satisfaction, on or prior to the Closing Date,
of each of the following conditions (any of which may be waived in writing by
KMC in its sole discretion):
7.1 Representations and Warranties True. The representations and warranties
of APHX which are contained in this Agreement, or contained in any
Schedule, certificate or other instrument or document delivered or to be
delivered pursuant to this Agreement, other than the representation and
warranty set forth in Section 3.3(a) with respect to the number of
issued and outstanding shares of APHX Common Stock and the
representations and warranties set forth in Section 3.3(b), shall be
true and correct in all material respects at and as of the Closing Date
as though such representations and warranties were made on and as of the
Closing Date except for changes expressly permitted or contemplated by
the terms of this Agreement, and at the Closing, APHX shall have
delivered to KMC a certificate (signed on its behalf by its President
and the Chief Financial Officer) to that effect with respect to all such
representations and warranties.
7.2 Performance. APHX shall have performed and complied in all material
respects with all of its obligations under this Agreement which are
required to be performed or complied with on or prior to the Closing
Date, and at the Closing, APHX shall have delivered to KMC a certificate
(signed on its behalf by its President and its Chief Financial officer)
to that effect with respect to all such obligations required to have
been performed or complied with by APHX on or before the Closing Date.
7.3 Authorization of Merger. This Agreement and the consummation of the
transactions contemplated hereby (including, but not limited to, the
adoption of the Amended and Restated Articles of Incorporation of KMC)
shall have been duly approved and adopted (i) by the requisite
affirmative vote of the stockholders of KMC and (ii) by the requisite
affirmative vote of the stockholders of APHX, in each case in accordance
with applicable law and the rules and regulations of the National
Association of Securities Dealers, Inc.
7.4 Registration Statement; Blue Sky Laws. The Registration Statement shall
have been declared effective under the Securities Act and shall not be
subject to a stop order or any threatened stop order. All necessary
state securities and blue sky permits, approvals and exemption orders
required in connection with the transactions contemplated by this
Agreement shall have been obtained.
7.5 Restrictive Legends. The transfer agent for the Surviving Corporation
shall have been delivered a list of the shares that require a legend
pursuant to Section 6.4 and shall have been instructed to place the
following legend on each certificate representing shares of KMC Common
Stock issued to any shareholder of APHX pursuant to the Merger:
"The sale or other transfer of the shares represented by this certificate is not
permitted unless effected pursuant to an effective registration statement or in
the opinion of counsel to the Company it is effected in compliance with Rule 144
or another exemption from the registration requirements of the Securities Act of
1933, as amended."
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7.6 Absence of Litigation. No statute, rule or regulation shall have been
enacted or promulgated, and no order, decree, writ or injunction shall
have been issued and shall remain in effect, by any court or
governmental or regulatory body, agency or authority which restrains,
enjoins or otherwise prohibits the consummation of the transactions
contemplated hereby, and no action, suit or proceeding before any court
or governmental or regulatory body, agency or authority shall have been
instituted by any person (or instituted or threatened by any
governmental or regulatory body, agency or authority), and no
investigation by any governmental or regulatory body, agency or
authority shall have been commenced with respect to the transactions
contemplated hereby or with respect to APHX which, in the reasonable
judgment of KMC's Board of Directors, would have a material adverse
effect on the transactions contemplated hereby or on the business of
APHX.
7.7 Opinion of counsel. APHX shall have delivered to KMC the opinion of
counsel to APHX, in the form annexed as Exhibit 7.7 hereto.
7.8 Appraisal Rights. The holders of more than ten (10%) percent of the
issued and outstanding shares of APHX Common Stock shall not have
demanded appraisal rights in respect of the Merger.
7.9 Certificates of Merger. APHX shall have executed and delivered to KMC
counterparts of the Certificates of Merger to be filed with the
Secretaries of State of the States of Nevada and Delaware in connection
with the Merger.
7.10 Consents. KMC, APHX and Foods shall have obtained all necessary
consents, authorizations or approvals of, and made any necessary filings
with, any governmental, public or self-regulatory body or authority or
any other third party to the consummation of the transactions
contemplated hereby, or executions therefrom or waivers thereof, and any
requisite waiting period with respect thereto shall have expired.
7.11 No Material Change in Financial Statements. There shall be no material
difference between the APHX Financial Statements and APHX's quarterly
financial statements filed with the SEC from the date hereof until the
Closing Date reflecting a material adverse difference in the business,
assets, financial condition or results of operations of APHX.
7.12 Directors and Executive Officers. APHX shall deliver to KMC at the
Closing a list of all of its directors and executive officers.
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<PAGE>
CONDITIONS TO THE OBLIGATIONS OF APHX
The obligation of APHX to consummate the transactions contemplated by this
Agreement shall be subject to the satisfaction, on or prior to the Closing Date,
of each of the following conditions (any of which may be waived in writing by
APHX in its sole discretion):
8.1 Representations and Warranties True. The representations and warranties
of KMC contained in this Agreement, or contained in any Schedule,
certificate or other instrument or document delivered or to be delivered
pursuant to this Agreement, other than the representation and warranty
set forth in Section 4.3(a) with respect to the number of issued and
outstanding shares of KMC Common Stock and the representations and
warranties set forth in Section 4.3(b), shall be true and correct in all
material respects at and as of the Closing Date as though such
representations and warranties were made on and as of the Closing Date
except for changes expressly permitted or contemplated by the terms of
this Agreement, and at the Closing, KMC shall have delivered to APHX a
certificate (signed on its behalf by its President and its Chief
Financial Officer) to that effect with respect to all such
representations and warranties made by such entity.
8.2 Performance. KMC shall have performed and complied in all material
respects with all of its obligations under this Agreement which are
required to be performed or complied with on or prior to the Closing
Date, and at the Closing, KMC shall have delivered to APHX a
certificate, signed on its behalf by its President and its Chief
Financial Officer, to that effect with respect to all such obligations
required to have been performed or complied with on or before the
Closing Date.
8.3 Authorization of Merger. This Agreement and the consummation of the
transactions contemplated hereby (including, but not limited to, the
adoption of the Amended and Restated Articles of Incorporation of KMC),
shall have been duly approved and adopted by (i) the requisite
affirmative vote of the stockholders and directors of KMC, as
appropriate and, (ii) by the requisite affirmative vote of the
stockholders of APHX, in each case in accordance with applicable law and
the rules and regulations of the National Association of Securities
Dealers, Inc.
8.4 Registration Statement; Blue Sky Laws. The Registration Statement shall
have been declared effective under the Securities Act and shall not be
subject to a stop order or any threatened stop order. All necessary
state securities and blue sky permits, approvals and exemption orders
required in connection with the transactions contemplated by this
Agreement shall have been obtained.
8.5 Absence of Litigation. No statute, rule or regulation shall have been
enacted or promulgated, and no order, decree, writ or injunction shall
have been issued and shall remain in effect, by any court or
governmental or regulatory body, agency or authority which restrains,
enjoins or otherwise prohibits the consummation of the transactions
contemplated hereby, and no action, suit or proceeding before any court
or governmental or regulatory body, agency or authority shall have been
instituted by any person (or instituted or threatened by any
governmental or regulatory body, agency or authority) and no
investigation by any governmental or regulatory body, agency or
authority shall have been commenced with respect to the transactions
contemplated hereby or with respect to KMC which, in the reasonable
judgment of APHX's Board of Directors, would have a material adverse
effect on the transactions contemplated hereby or on the business of
KMC.
8.6 Opinion of Counsel. KMC shall have delivered to APHX the opinion of
counsel to KMC, substantially in the form annexed as Exhibit 8.6 hereto.
8.7 Certificate of Merger. KMC shall have executed and delivered to APHX
counterparts of the Certificates of Merger to be filed with the
Secretaries of State of the States of Nevada and Delaware in connection
with the Merger.
8.8 Consents. KMC, APHX and Foods shall have obtained all necessary
consents, authorizations or approvals of, and made any necessary filings
with, any governmental, public or self-regulatory body or authority or
any other third party to the consummation of the transactions
contemplated hereby, or executions therefrom or waivers thereof, and any
requisite waiting period with respect thereto shall have expired.
8.9 Director Resignations. KMC shall have received the written resignations,
and resolved and paid (in cash and/or securities) all contractual
obligations, of all officers and directors of KMC who, on and after the
Effective Time, shall no longer serve in such capacity.
8.10 Inclusion on NASDAQ System. KMC Common Stock shall be authorized for
inclusion on the National Association of Securities Dealers Automated
Quotation System, and there shall be no involuntary trading halt, as of
the Effective Time, of KMC Common Stock in the over-the-counter market
imposed by the National Association of Securities Dealers, Inc.
8.11 Hold Harmless and Indemnification Agreement. Foods shall have executed a
Hold Harmless and Indemnification Agreement in favor of APHX, reasonably
satisfactory to APHX, respecting any claims, liabilities or causes of
actions arising from the Stamford and Parsippany leases currently held
by KMC and to be transferred to Foods or the Mendelson litigation.
39
<PAGE>
TERMINATION
9.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether prior to or after approval of this Agreement and
the transactions contemplated hereby by the stockholders of APHX and/or
KMC:
(a) by the mutual written consent of the Boards of Directors of APHX and
KMC;
(b) by either APHX or KMC
(i) if any court or governmental or regulatory agency, authority or body
shall have enacted, promulgated or issued any statute, rule, regulation,
ruling, writ or injunction, or taken any other action, restraining,
enjoining or otherwise prohibiting the transactions contemplated hereby
and all appeals and means of appeal therefrom have been exhausted;
(ii) if the Effective Time shall not have occurred on or before December 31,
1996; provided, however, that the right to terminate this Agreement
pursuant to this Section 9.1(b)(ii) shall not be available to any party
whose breach of any representation or warranty or failure to perform or
comply with any obligation under this Agreement has been the cause of,
or resulted in, the failure of the Effective Time to occur on or before
such date; or
(iii) if the stockholders of KMC and/or APHX shall have failed to approve the
Merger.
(c) by APHX, if any of the conditions specified in Article VIII have not
been met in all material respects or waived by it in writing; or
(d) by KMC, if any of the conditions specified in Article VII shall not have
been met in all material respects or waived by it in writing.
9.2 Effect of Termination. In the event of the termination of this
Agreement, this Agreement shall forthwith become void and there shall be
no liability on the part of any of the parties hereto or their
respective officers or directors, except for Sections 10.6 and 10.8 and
the last sentence of Section 6.1, which shall remain in full force and
effect, and except that nothing herein shall relieve any party from
liability for a breach of this Agreement prior to the termination
hereof.
MISCELLANEOUS PROVISIONS
10.1 Amendment. This Agreement may be amended only by written agreement
between APHX and KMC prior to the Effective Time, whether prior to or
after approval hereof by the stockholders of KMC and/or the stockholders
of APHX, but after any such approval no amendment shall be made to the
Exchange Ratio pursuant to which outstanding shares of APHX Common Stock
are converted into shares of KMC Common Stock pursuant to the Merger,
without the further approval of such stockholders.
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10.2 Waiver of Compliance. Except as otherwise provided in this Agreement,
any failure of any of the parties to comply with any obligation,
covenant or agreement contained herein may be waived only by a written
notice from the party or parties entitled to the benefits thereof. No
failure by any party hereto to exercise, and no delay in exercising, any
right hereunder, shall operate as a waiver thereof, nor shall any single
or partial exercise of any right hereunder preclude any other or future
exercise of that right by that party.
10.3 Notices. All notices and other communications hereunder shall be deemed
given if given in writing and delivered personally, by registered or
certified mail, return receipt requested, postage prepaid, or by
overnight courier to the party to receive the same at its respective
address set forth below (or at such other address as may from time to
time be designated by such party to the others in accordance with this
Section 10.3):
(a) if to APHX, to:
Mr. Patrick N. DiCarlo, President and CEO
American Phoenix Group, Inc.
1042 Castlerock
Santa Ana, California 92705
with copies to:
Whitman Breed Abbott & Morgan
633 West Fifth Avenue, 21st Floor
Los Angeles, California 90071
Attention: Douglas K. Simpson, Esq.
(b) if to KMC, to:
Mr. Daniel A. France
Kushi Macrobiotics Corp.
Three Stamford Landing, Suite 210
Stamford, Connecticut 06902
with copies to:
Heller, Horowitz & Feit, P.C.
292 Madison Avenue
New York, New York 10017
Attn: Irving Rothstein, Esq.
All such notices and communications hereunder shall be deemed given when
received, as evidenced by the signed acknowledgment of receipt of the person to
whom such notice or communication shall have been personally delivered, the
acknowledgment of receipt returned to the sender by the applicable postal
authorities or the confirmation of delivery rendered by the applicable overnight
courier service.
10.4 Assignment. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Neither this Agreement nor
any rights, duties or obligations hereunder shall be assigned or
delegated by any party hereto without the prior written consent of the
other parties hereto.
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10.5 No Third Party Beneficiaries. Except as provided in Section 6.10 hereof
to the contrary, neither this Agreement nor any provision hereof nor any
Schedule, certificate or other instrument delivered pursuant hereto, nor
any agreement to be entered into pursuant hereto or any provision
hereof, is intended to create any right, claim or remedy in favor of any
person or entity, other than the parties hereto and their respective
successors and permitted assigns.
10.6 Expenses. Each party shall pay its own expenses in connection with this
Agreement, the agreements to be entered into pursuant hereto and the
transactions contemplated hereby; provided, however, that if the Merger
is consummated pursuant to this Agreement, all such expenses of APHX
(which shall include the reasonable fees and disbursements of its
attorney's, accountants and other professionals) incurred on behalf of
APHX in connection with the transactions contemplated hereby shall be
the responsibility of the Surviving Corporation.
10.7 Public Announcements. Promptly upon execution and delivery of this
Agreement, KMC and APHX shall issue a press release in such form as they
shall mutually agree. Thereafter, and prior to the consummation of the
Merger or the termination of this Agreement, none of the parties hereto
shall, except as mutually agreed by KMC and APHX, or except as may be
required by law or applicable regulatory authority (including, without
limitation, the rules applicable to NASDAQ listed companies), issue any
reports, releases, announcements or other statements to the public
relating to the transactions contemplated hereby.
10.8 Brokers and Finders. APHX and KMC each represent and warrant to the
other that no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission based on arrangements
made by or on behalf of either party hereto that has not been, or will
not be by Closing, satisfied.
10.9 Further Agreements. The parties acknowledge and agree that if, following
any breach of any of the representations and warranties of the parties
set forth in this Agreement, the existence of which is disclosed in
writing signed by the disclosing party and submitted to the
non-breaching party prior to the Effective Time, and the parties
thereafter nevertheless proceed to consummate the transactions
contemplated hereby, it shall be conclusively presumed, in the absence
of written agreement of the parties to the contrary, that the breach so
disclosed has been waived by the non-breaching party and no party shall
be liable therefor in damages, whether pursuant to this Agreement or
otherwise.
10.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
10.11 Entire Agreement. This Agreement, and the Schedules, certificates and
other instruments and documents delivered pursuant hereto, together with
the other agreements referred to herein and to be entered into pursuant
hereto, embody the entire agreement of the parties and there are no
other agreements or understandings, written or oral, among the parties
relating to, the subject matter hereof, other than the Confidentiality
Agreements. This Agreement supersedes all prior agreements and
understandings, written or oral, between the parties other than the
Confidentiality Agreements.
10.12 Governing Law. The parties hereby agree that this Agreement, and the
respective rights, duties and obligations of the parties hereunder,
shall be governed by and construed in accordance with the laws of the
State of New York, without giving effect to principles of conflicts of
law thereunder, except for the provisions of Article I hereto setting
forth the provisions for consummating, and the effects of, the Merger,
which shall be governed by and construed in accordance with the Delaware
Act and/or the Nevada Act to the extent that the Delaware Act and/or the
Nevada Act is applicable by its terms.
10.13 Descriptive Headings. The descriptive headings herein are inserted for
convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
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10.14 Specific Performance. The parties hereto agree that irreparable damage
would occur in the event this Agreement were not to be performed in
accordance with the terms hereof and that the parties shall be entitled
to specific performance of the terms hereof in addition to any other
remedies at law or equity.
- - ----------------, KMC, APHX and Foods have caused this Agreement to be duly
executed and delivered as of the date first above written.
KUSHI MACROBIOTICS CORP.
s/Daniel A. France
By: -----------------------
Name: Daniel A. France
Title: Chief Financial and
Chief Operating Officer
AMERICAN PHOENIX GROUP, INC.
s/Patrick N. Di Carlo
By: -----------------------
Name: Patrick N. Di Carlo
Title: Agent in Fact
KUSHI NATURAL FOODS CORP.
/Daniel A. France
By: -----------------------
Name: Daniel A. France
Title: As Agent For
Michio Kushi, Chairman
43
<PAGE>
NOTICE OF DISSENTER'S RIGHTS
TO STOCKHOLDERS OF AMERICAN PHOENIX GROUP, INC.:
If you you intend to assert dissenter's rights with respect to the merger of
American Phoenix Group, Inc. (the "Company") into Kushi Macrobiotics Corp., you
must:
(1) Sign and send to the Company a demand for payment in substantially the
form attached hereto at the Company's address indicated on the attached
form;
(2) Ensure that the Company receives your demand for payment at the above-
referenced address no later than date between 30 and 60 days from date
of notice , 1996;
(3) Deposit your stock certificates with the Company's transfer agent,
American Securities Transfer, Incorporated, 938 Quail Street, Suite 101,
Lakewood, CO 80215-5513 no later than date between 30 and 60 days from
date of notice , 1996;
If you are the holder of uncertificated stock of the Company, you are advised
that the Company may restrict transfer of such shares from the date the demand
for their payment is received.
A copy of the sections 92A.300 throught 92A.502 of the Nevada Revised Statutes
accompanies this Dissenter's Notice.
Patrick N. Di Carlo
President
TO:
AMERICAN PHOENIX GROUP, INC.
5 Park Plaza
Suite 1260
Irvine, California 92714
Re: Demand for Payment
The undersigned shareholder of American Phoenix Group, Inc. (the "Company")
hereby dissents from the merger between the Company and Kushi Macrobiotics Corp.
and demand payment for my shares. The first announcement to the news media of
the proposed terms of the merger was made on ------, 1996. The undersigned
hereby certifies that he, she or it did -- did not -- (check one) acquire
beneficial ownership prior to such date.
Signature of Shareholder
Name of Shareholder
Date: --------------------
44
<PAGE>
NEVADA REVISED STATUTES ANNOTATED
Copyright (c) 1986-1993 by The Michie Company
Copyright (c) 1995 by The Michie Company,
a division of Reed Elsevier Inc. and Reed Elsevier Properties Inc.
All rights reserved.
*** THIS SECTION IS CURRENT THROUGH THE 1995 SUPPLEMENT ***
*** (SIXTY-EIGHTH (1995) SESSION) ***
TITLE 7. BUSINESS ASSOCIATIONS; SECURITIES; COMMODITIES
CHAPTER 92A. MERGERS AND EXCHANGES OF INTEREST
RIGHTS OF DISSENTING OWNERS
Nev. Rev. Stat. Ann.(pound)92A.300 (1995)
(pound)92A.300. Definitions
As used in NRS 92A.300 to 92A.500, inclusive, unless the context otherwise
requires, the words and terms defined in NRS 92A.305 to 92A.335, inclusive, have
the meanings ascribed to them in those sections.
(pound) 92A.305. "Beneficial stockholder" defined
"Beneficial stockholder" means a person who is a beneficial owner of shares held
in a voting trust or by a nominee as the stockholder of record.
(pound) 92A.310. "Corporate action" defined
"Corporate action" means the action of a domestic corporation.
(pound) 92A.315. "Dissenter" defined
"Dissenter" means a stockholder who is entitled to dissent from a domestic
corporation's action under NRS 92A.380 and who exercises that right when and in
the manner required by NRS 92A.410 to 92A.480, inclusive.
(pound) 92A.320. "Fair value" defined
"Fair value," with respect to a dissenter's shares, means the value of the
shares immediately before the effectuation of the corporate action to which he
objects, excluding any appreciation or depreciation in anticipation of the
corporate action unless exclusion would be inequitable.
(pound) 92A.325. "Stockholder" defined
"Stockholder" means a stockholder of record or a beneficial stockholder of a
domestic corporation.
(pound) 92A.330. "Stockholder of record" defined
"Stockholder of record" means the person in whose name shares are registered in
the records of a domestic corporation or the beneficial owner of shares to the
extent of the rights granted by a nominee's certificate on file with the
domestic corporation.
(pound) 92A.335. "Subject corporation" defined
"Subject corporation" means the domestic corporation which is the issuer of the
shares held by a dissenter before the corporate action creating the dissenter's
rights becomes effective or the surviving or acquiring entity of that issuer
after the corporate action becomes effective.
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<PAGE>
(pound) 92A.340. Computation of interest
Interest payable pursuant to NRS 92A.300 to 92A.500, inclusive, must be computed
from the effective date of the action until the date of payment, at the average
rate currently paid by the entity on its principal bank loans or, if it has no
bank loans, at a rate that is fair and equitable under all of the circumstances.
(pound)92A.350. Rights of dissenting partner of domestic limited partnership
A partnership agreement of a domestic limited partnership or, unless otherwise
provided in the partnership agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the partnership interest of a
dissenting general or limited partner of a domestic limited partnership are
available for any class or group of partnership interests in connection with any
merger or exchange in which the domestic limited partnership is a constituent
entity.
(pound)92A.360. Rights of dissenting member of domestic limited-liability
company
The articles of organization or operating agreement of a domestic limited-
liability company or, unless otherwise provided in the articles of organization
or operating agreement, an agreement of merger or exchange, may provide that
contractual rights with respect to the interest of a dissenting member are
available in connection with any merger or exchange in which the domestic
limited-liability company is a constituent entity.
(pound)92A.370. Rights of dissenting member of domestic nonprofit corporation
1. Except as otherwise provided in subsection 2 and unless otherwise
provided in the articles or bylaws, any member of any constituent
domestic nonprofit corporation who voted against the merger may, without
prior notice, but within 30 days after the effective date of the merger,
resign from membership and is thereby excused from all contractual
obligations to the constituent or surviving corporations which did not
occur before his resignation and is thereby entitled to those rights, if
any, which would have existed if there had been no merger and the
membership had been terminated or the member had been expelled.
2. Unless otherwise provided in its articles of incorporation or bylaws, no
member of a domestic nonprofit corporation, including, but not limited
to, a cooperative corporation, which supplies services described in
chapter 704 of NRS to its members only, and no person who is a member of
a domestic nonprofit corporation as a condition of or by reason of the
ownership of an interest in real property, may resign and dissent
pursuant to subsection 1.
(pound)92A.380. Right of stockholder to dissent from certain corporate actions
and to obtain payment for shares
1. Except as otherwise provided in NRS 92A.370 to 92A.390, a stockholder is
entitled to dissent from, and obtain payment of the fair value of his
shares in the event of any of the following corporate actions:
(a) Consummation of a plan of merger to which the domestic corporation isa
party:
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(1) If approval by the stockholders is required for the merger by NRS92A.120
to 92A.160, inclusive, or the articles of incorporation and he is
entitled to vote on the merger; or
(2) If the domestic corporation is a subsidiary and is merged with itsparent
under NRS 92A.180.
(b) Consummation of a plan of exchange to which the domestic corporationis a
party as the corporation whose subject owner's interests will be
acquired, if he is entitled to vote on the plan.
(c) Any corporate action taken pursuant to a vote of the stockholders tothe
event that the articles of incorporation, bylaws or a resolution of the
board of directors provides that voting or nonvoting stockholders are
entitled to dissent and obtain payment for their shares.
2. A stockholder who is entitled to dissent and obtain payment under NRS
92A.300 to 92A.500, inclusive, may not challenge the corporate action
creating his entitlement unless the action is unlawful or fraudulent
with respect to him or the domestic corporation.
(pound)92A.390. Limitations on right of dissent: Stockholders of certain classes
or series; action of stockholders not required for plan of merger
1. There is no right of dissent with respect to a plan of merger or
exchange in favor of stockholders of any class or series which, at the
record date fixed to determine the stockholders entitled to receive
notice of and to vote at the meeting at which the plan of merger or
exchange is to be acted on, were either listed on a national securities
exchange, included in the national market system by the National
Association of Securities Dealers, Inc., or held by at least 2,000
stockholders of record, unless:
(a) The articles of incorporation of the corporation issuing the
sharesprovide otherwise; or
(b) The holders of the class or series are required under the plan ofmerger
or exchange to accept for the shares anything except:
(1) Cash, owner's interests or owner's interests and cash in lieu
offractional owner's interests of:
(I) The surviving or acquiring entity; or
(II) Any other entity which, at the effective date of the plan ofmerger or
exchange, were either listed on a national securities exchange, included
in the national market system by the National Association of Securities
Dealers, Inc., or held of record by a least 2,000 holders of owner's
interests of record; or
(2) A combination of cash and owner's interests of the kind describedin
sub-subparagraphs (I) and (II) of subparagraph (1) of paragraph (b).
2. There is no right of dissent for any holders of stock of the surviving
domestic corporation if the plan of merger does not require action of
the stockholders of the surviving domestic corporation under NRS
92A.130.
(pound)92A.400. Limitations on right of dissent: Assertion as to portions only
to shares registered to stockholder; assertion by beneficial stockholder
1. A stockholder of record may assert dissenter's rights as to fewer than
all of the shares registered in his name only if he dissents with
respect to all shares beneficially owned by any one person and notifies
the subject corporation in writing of the name and address of each
person on whose behalf he asserts dissenter's rights. The rights of a
partial dissenter under this subsection are determined as if the shares
as to which he dissents and his other shares were registered in the
names of different stockholders.
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2. A beneficial stockholder may assert dissenter's rights as to shares held
on his behalf only if:
(a) He submits to the subject corporation the written consent of
thestockholder of record to the dissent not later than the time the
beneficial stockholder asserts dissenter's rights; and
(b) He does so with respect to all shares of which he is the
beneficialstockholder or over which he has power to direct the vote.
(pound)92A.410. Notification of stockholders regarding right of dissent
1. If a proposed corporate action creating dissenters' rights is submitted
to a vote at a stockholders' meeting, the notice of the meeting must
state that stockholders are or may be entitled to assert dissenters'
rights under NRS 92A.300 to 92A.500, inclusive, and be accompanied by a
copy of those sections.
2. If the corporate action creating dissenters' rights is taken without a
vote of the stockholders, the domestic corporation shall notify in
writing all stockholders entitled to assert dissenters' rights that the
action was taken and send them the dissenter's notice described in NRS
92A.430.
(pound)92A.420. Prerequisites to demand for payment for shares
1. If a proposed corporate action creating dissenters' rights is submitted
to a vote at a stockholders' meeting, a stockholder who wishes to assert
dissenter's rights:
(a) Must deliver to the subject corporation, before the vote is
taken,written notice of his intent to demand payment for his shares if
the proposed action is effectuated; and
(b) Must not vote his shares in favor of the proposed action.
2. A stockholder who does not satisfy the requirements of subsection 1 is
not entitled to payment for his shares under this chapter.
(pound)92A.430. Dissenter's notice: Delivery to stockholders entitled to assert
rights; contents
1. If a proposed corporate action creating dissenters' rights is authorized
at a stockholders' meeting, the subject corporation shall deliver a
written dissenter's notice to all stockholders who satisfied the
requirements to assert those rights.
2. The dissenter's notice must be sent no later than 10 days after the
effectuation of the corporate action, and must:
(a) State where the demand for payment must be sent and where and when
certificates, if any, for shares must be deposited;
(b) Inform the holders of shares not represented by certificates to
whatextent the transfer of the shares will be restricted after the
demand for payment is received;
(c) Supply a form for demanding payment that includes the date of thefirst
announcement to the news media or to the stockholders of the terms of
the proposed action and requires that the person asserting dissenter's
rights certify whether or not he acquired beneficial ownership of the
shares before that date;
(d) Set a date by which the subject corporation must receive the demandfor
payment, which may not be less than 30 nor more than 60 days after the
date the notice is delivered; and
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(e) Be accompanied by a copy of NRS 92A.300 to 92A.500, inclusive.
(pound)92A.440. Demand for payment and deposit of certificates; retention of
rights of stockholder
1. A stockholder to whom a dissenter's notice is sent must:
(a) Demand payment;
(b) Certify whether he acquired beneficial ownership of the shares beforethe
date required to be set forth in the dissenter's notice for this
certification; and
(c) Deposit his certificates, if any, in accordance with the terms of
the notice.
2. The stockholder who demands payment and deposits his certificates, if
any, retains all other rights of a stockholder until those rights are
canceled or modified by the taking of the proposed corporate action.
3. The stockholder who does not demand payment or deposit his certificates
where required, each by the date set forth in the dissenter's notice, is
not entitled to payment for his shares under this chapter.
(pound)92A.450. Uncertificated shares: Authority to restrict transfer after
demand for payment; retention of rights of stockholder
1. The subject corporation may restrict the transfer of shares not
represented by a certificate from the date the demand for their payment
is received.
2. The person for whom dissenter's rights are asserted as to shares not
represented by a certificate retains all other rights of a stockholder
until those rights are canceled or modified by the taking of the
proposed corporate action.
(pound) 92A.460. Payment for shares: General requirements
1. Except as otherwise provided in NRS 92A.470, within 30 days after
receipt of a demand for payment, the subject corporation shall pay each
dissenter who complied with NRS 92A.440 the amount the subject
corporation estimates to be the fair value of his shares, plus accrued
interest. The obligation of the subject corporation under this
subsection may be enforced by the district court:
(a) Of the county where the corporation's registered office is located; or
(b) At the election of any dissenter residing or having its registeredoffice
in this state, of the county where the dissenter resides or has its
registered office. The court shall dispose of the complaint promptly.
2. The payment must be accompanied by:
(a) The subject corporation's balance sheet as of the end of a fiscal
year ending not more than 16 months before the date of payment, a
statement of income for that year, a statement of changes in the
stockholders' equity for that year and the latest available interim
financial statements, if any;
(b) A statement of the subject corporation's estimate of the fair value
ofthe shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's rights to demand payment under
NRS92A.480; and
(e) A copy of NRS 92A.300 to 92A.500, inclusive.
(pound)92A.470. Payment for shares: Shares acquired on or after date of
dissenter's notice
1. A subject corporation may elect to withhold payment from a dissenter
unless he was the beneficial owner of the shares before the date set
forth in the dissenter's notice as the date of the first announcement to
the news media or to the stockholders of the terms of the proposed
action.
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2. To the extent the subject corporation elects to withhold payment, after
taking the proposed action, it shall estimate the fair value of the
shares, plus accrued interest, and shall offer to pay this amount to
each dissenter who agrees to accept it in full satisfaction of his
demand. The subject corporation shall send with its offer a statement of
its estimate of the fair value of the shares, an explanation of how the
interest was calculated, and a statement of the dissenters' right to
demand payment pursuant to NRS 92A.480.
(pound)92A.480. Dissenter's estimate of fair value: Notification of subject
corporation; demand for payment of estimate
1. A dissenter may notify the subject corporation in writing of his own
estimate of the fair value of his shares and the amount of interest due,
and demand payment of his estimate, less any payment pursuant to NRS
92A.460, or reject the offer pursuant to NRS 92A.470 and demand payment
of the fair value of his shares and interest due, if he believes that
the amount paid pursuant to NRS 92A.460 or offered pursuant to NRS
92A.470 is less than the fair value of his shares or that the interest
due is incorrectly calculated.
2. A dissenter waives his right to demand payment pursuant to this section
unless he notifies the subject corporation of his demand in writing
within 30 days after the subject corporation made or offered payment for
his shares.
(pound)92A.490. Legal proceeding to determine fair value: Duties of subject
corporation; powers of court; rights of dissenter
1. If a demand for payment remains unsettled, the subject corporation shall
commence a proceeding within 60 days after receiving the demand and
petition the court to determine the fair value of the shares and accrued
interest. If the subject corporation does not commence the proceeding
within the 60-day period, it shall pay each dissenter whose demand
remains unsettled the amount demanded.
2. A subject corporation shall commence the proceeding in the district
court of the county where its registered office is located. If the
subject corporation is a foreign entity without a resident agent in the
state, it shall commence the proceeding in the county where the
registered office of the domestic corporation merged with or whose
shares were acquired by the foreign entity was located.
3. The subject corporation shall make all dissenters, whether or not
residents of Nevada, whose demands remain unsettled, parties to the
proceeding as in an action against their shares. All parties must be
served with a copy of the petition. Nonresidents may be served by
registered or certified mail or by publication as provided by law.
4. The jurisdiction of the court in which the proceeding is commenced under
subsection 2 is plenary and exclusive. The court may appoint one or more
persons as appraisers to receive evidence and recommend a decision on
the question of fair value. The appraisers have the powers described in
the order appointing them, or any amendment thereto. The dissenters are
entitled to the same discovery rights as parties in other civil
proceedings.
5. Each dissenter who is made a party to the proceeding is entitled to a
judgment:
(a) For the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the subject
corporation; or
(b) For the fair value, plus accrued interest, of his after-acquiredshares
for which the subject corporation elected to withhold payment pursuant
to NRS 92A.470.
(pound)92A.500. Legal proceeding to determine fair value: Assessment of costs
and fees
1. The court in a proceeding to determine fair value shall determine all of
the costs of the proceeding, including the reasonable compensation and
expenses of any appraisers appointed by the court. The court shall
assess the costs against the subject corporation, except that the court
may assess costs against all or some of the dissenters, in amounts the
court finds equitable, to the extent the court finds the dissenters
acted arbitrarily, vexatiously or not in good faith in demanding
payment.
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2. The court may also assess the fees and expenses of the counsel and
experts for the respective parties, in amounts the court finds
equitable:
(a) Against the subject corporation and in favor of all dissenters if the
court finds the subject corporation did not substantially comply with
the requirements of NRS 92A.300 to 92A.500, inclusive; or
(b) Against either the subject corporation or a dissenter in favor of
anyother party, if the court finds that the party against whom the fees
and expenses are assessed acted arbitrarily, vexatiously or not in good
faith with respect to the rights provided by NRS 92A.300 to 92A.500,
inclusive.
3. If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that
the fees for those services should not be assessed against the subject
corporation, the court may award to those counsel reasonable fees to be
paid out of the amounts awarded to the dissenters who were benefited.
4. In a proceeding commenced pursuant to NRS 92A.460, the court may assess
the costs against the subject corporation, except that the court may
assess costs against all or some of the dissenters who are parties to
the proceeding, in amounts the court finds equitable, to the extent the
court finds that such parties did not act in good faith in instituting
the proceeding.
5. This section does not preclude any party in a proceeding commenced
pursuant to NRS 92A.460 or 92A.490 from applying the provisions of
N.R.C.P. 68 or NRS 17.115.
HISTORY: 1995, ch. 586
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APPENDIX C
Delaware Dissenters' Rights Statute
(Excerpted from the General Corporation Law of Delaware)
Section 262. Appraisal rights,
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has
otherwise complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor consented
thereto in writing pursuant to section 228 of this title shall be
entitled to an appraisal by the Court of Chancery of the fair value of
his shares of stock under the circumstances described in subsections (b)
and (c) of this section. As used in this section, the word 'stockholder"
means a holder of record of stock in a stock corporation and also a
member of record of a nonstock corporation; the words "stock" and
'share" mean and include what is ordinarily meant by those words and
also membership or membership interest of a member of a nonstock
corporation; and the words 'depository receipt' mean a receipt or other
instrument issued by a depository representing an interest in one or
more shares, or fractions thereof, solely of stock of a corporation,
which stock is deposited with the depository.
(b) Appraisal nights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or
consolidation to be effected pursuant to section 251, section 252,
section 254, section 257, section 258, section 263 or section 264 of
this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange
or designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc.
or (ii) held of record by more than 2,000 holders; and further provided
that no appraisal rights shall be available for any shares of stock of
the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsections (f) or (g) of section 251 of this
title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal nights under
this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept
for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation or depository receipts in respect thereof:
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b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash in
lieu of fractional shares or fractional depository receipts described in
the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation party
to a merger effected under section 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware
corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its
certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or
substantially all of the assets of the corporation. If the certificate
of incorporation contains such a provision, the procedures of this
section, including those set forth in subsections (d) and (e) of this
section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under tins section is to be submitted for approval at a meeting
of stockholders, the corporation, not less than 20 days prior to the
meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of
this section. Each stockholder electing to demand the appraisal of his
shares shall deliver to the corporation, before the taking of the vote
on the merger or consolidation, a written demand for appraisal of his
shares. Such demand will be sufficient if it reasonable informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of his shares. A proxy or vote
against the merger or consolidation shall not constitute such a demand.
A stockholder electing to take such action must do so by a separate
written demand as herein provided. Within 10 delves after the effective
date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that
the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to section 228 or
253 of this title, the surviving or resulting corporation, either before
the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail,
return receipt requested, addressed to the stockholder at his address as
it appears on the records of the corporation. Any stockholder entitled
to appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation
the appraisal of his shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder
and that the stockholder intends thereby to demand the appraisal of his
shares.
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(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise
entitled to appraisal rights, may file a petition in the Court of
Chancery demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within 60 days
after the effective date of the merger or consolidation, any stockholder
shall have the right to withdraw his demand for appraisal and to accept
the terms offered upon the merger or consolidation. Within 120 days
after the effective date of the merger or consolidation, any stockholder
who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the
corporation surviving the merger or resulting from the consolidation a
statement setting forth the aggregate number of shares not voted in
favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of
such shares. Such written statement shall be mailed to the stockholder
within 10 days after his written request for such a statement is
received by the surviving or resulting corporation or within 10 days
after expiration of the period for delivery of demands for appraisal
under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the
Register in Chancery in which the petition was filed a duly verified
list containing the names and addresses of all stockholders who have
demanded payment for their shares and with whom agreements as to the
value of their shares have not been reached by the surviving or
resulting corporation. If the petition shall be filed by the surviving
or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the
Court, shall give notice of the time and place fixed for the hearing of
such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a
newspaper of general circulation published in the City of Wilmington,
Delaware or such publication as the Court deems advisable. The forms of
the notices by mail and by publication shall be approved by the Court,
and the costs thereof shall be borne by the surviving or resulting
corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become
entitled to appraisal rights. The Court may require the stockholders who
have demanded an appraisal for their shares and who hold stock
represented by certificates to submit their certificates of stock to the
Register in Chancery for notation thereon of the pendency of the
appraisal proceedings; and if any stockholder fails to comply with such
direction, the Court may dismiss the proceedings as to such stockholder.
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(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any,
to be paid upon the amount determined to be the fair value. In
determining such fair value, the Court shall take into account all
relevant factors. In determining the fair rate of interest, the Court
may consider all relevant factors, including the rate of interest which
the surviving or resulting corporation would have had to pay to borrow
money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to
participate in the appraisal proceeding, the Court may, in its
discretion, permit discovery or other pretrial proceedings and may
proceed to tn'al upon the appraisal prior to the final determination of
the stockholder entitled to an appraisal. Any stockholder whose name
appears on the list filed by the surviving or resulting corporation
pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required,
may participate fully in all proceedings until it is finally determined
that he is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple
or compound, as the Court may direct. Payment shall be so made to each
such stockholder, in the case of holders of uncertificated stock
forthwith, and the case of holders of shares represented by certificates
upon the surrender to the corporation of the certificates representing
such stock. The Court's decree may be enforced as other decrees in the
Court of Chancery may be enforced, whether such surviving or resulting
corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of
the expenses incurred by nv stockholder in connection "With the
appraisal proceeding, including, without limitation, reasonable
attorney's fees and the fees and expenses of experts, to be charged pro
rata against the value of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in
subsection (d) of this section shall be entitled to vote such stock for
any purpose or to receive payment of dividends or other distributions on
the stock (except dividends or other distributions payable to
stockholders of record at a date which is prior to the effective date of
the merger or consolidation); provided, however, that if no petition for
an appraisal shall be filed within the time provided in subsection (e)
of this section, or if such stockholder shall deliver to the surviving
or resulting corporation a written withdrawal of his demand for an
appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the
written approval of the corporation, then the right of such stockholder
to an appraisal shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any
stockholder without the approval of the Court, and such approval may be
conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of
authorized and unissued shares of the surviving or resulting
corporation.
DCN: 96619965
LANGUAGE: ENGLISH
LOAD-DATE: September 23, 1996
EXHIBIT 99.1
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
SAFE HARBOR COMPLIANCE STATEMENT
FOR FORWARD-LOOKING STATEMENTS
In passing the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"), 15 U.S.C.A. Sections 77z-2 and 78u-5 (Supp. 1996), Congress
encouraged public companies to make "forward-looking statements" by creating a
safe harbor to protect companies from securities law liability in connection
with forward-looking statements. Kushi Natural Foods Corp. (the "Company")
intends to qualify both its written and oral forward-looking statements for
protection under the Reform Act and any other similar safe harbor provisions.
"Forward-looking statements" are defined by the Reform Act. Generally,
forward-looking statements include expressed expectations of future events and
the assumptions on which the expressed expectations are based. All
forward-looking statements are inherently uncertain as they are based on various
expectations and assumptions concerning future events and they are subject to
numerous known and unknown risks and uncertainties which could cause actual
events or results to differ materially from those projected. Due to those
uncertainties and risks, the investment community is urged not to place undue
reliance on written or oral forward-looking statements of the Company. The
Company undertakes no obligation to update or revise this Safe Harbor Compliance
Statement for Forward-Looking Statements (the "Safe Harbor Statement") to
reflect future developments. In addition, the Company undertakes no obligation
to update or revise forward-looking statements to reflect changed assumptions,
the occurrence of unanticipated events or changes to future operating results
over time.
